Indian Economy being one of the fastest developing countries in the world, companies in India
are growing at a faster rate as compared to their growth rate a decade back. Many Indian
companies are expanding their business globally with mergers and acquisition.
As companies grow their shareholders benefitted with good dividend and capital appreciation on
investment in equity shares of such companies. Number of companies listed in stock exchange
(BSE & NSE) has been increasing every year with new IPOs coming in the market.
In India people are realizing that equity has potential to give highest return as compared to other
investment avenues however people are not aware how to do equity valuation, they just invest in
shares based on tips given by brokers, friends or family members.
Investing in equity shares based on tips is not the true investment but it is clear gambling with
your money which many of us would not like to do with our hard earned money.
Equity valuation begins with analysis of the sector in which you want to make investment; if the
sector looks positive then analyze various companies in the sector. A company is analyzed
fundamentally to check its performance and financial strength. Technical analysis is used to
decide the right price to buy a stock so that higher return on investment can be generated.
In this report I have explained how to do Fundamental Analysis & Technical Analysis with
respect to Paint and FMCG sector and few Paint and FMCG companies in this sector. A short
introduction about the equity has been given and why equity research is done. The company
profile of Birla Sun life insurance has been given The latest data has been taken to analyze the
best performance amongst all the companies.
In Fundamental Analysis, PEST (political, economical, social and technical) factors have been
taken with respect to Paint and FMCG sector. Then we have discussed the various kinds of
charts like the Line Chart, Bar Chart and Candlestick chart. After that a brief introduction about
trendiness has been given under which we have the Support and Resistance.
Then the technical analysis of the top Paint and FMCG companies has been done. The market
price and P/E ratios have been taken to calculate the EPS. After the target price was calculated
with the help of sector P/E and EPS and finally the difference was taken between the target price
and market price to arrive at the best performing company. Finally the conclusion and
recommendations are given with respect to derived result.
MMS - Finance
Page 1
INDEX
CHAPTER
1.
TITLE
INTRODUCTION TO EQUITY
COMPANY OVERVIEW
LITERATURE REVIEW
RESEARCH METHODOLOGY
6.
SECTOR ANALYSIS
FINDINGS
10
BIBLIOGRAPHY
MMS - Finance
PAGE NO.
Page 2
INTRODUCTION TO EQUITY
EQUITY
In accounting and finance, equity is the residual claim or interest of the most junior class of
investors in assets, after all liabilities are paid. If valuations placed on assets do not exceed
liabilities, negative equity exists. In an accounting context, Shareholders equity (or stockholders
equity, shareholders funds, shareholders capital or similar terms) represent the remaining
interest in assets of a company, spread among individual shareholders of common or preferred
stock.
This definition is helpful to understand the liquidation process in case of bankruptcy. At first, all
the secured creditors are paid against proceeds from assets. Afterword, a series of creditors,
ranked in priority sequence, have the next claim/right on the residual proceeds. Ownership equity
is the last or residual claim against assets, paid only after all other creditors are paid. In such
cases where even creditors could not get enough money to pay their bills, nothing is left over to
reimburse owners equity. Thus owners equity is reduced to zero. Ownership equity is also
known as risk capital, liable capital and equity.
EQUITY SHARES
An equity share, commonly referred to as ordinary share also represents the form of fractional or
part ownership in which a shareholder, as a fractional owner, undertakes the maximum
entrepreneurial risk associated with a business venture. The holders of such shares are members
of the company and have voting rights.
EQUITY INVESTMENT
Equity investment generally refers to buying and holding of shares of stock on a stock market by
individuals and firms in anticipation of income from dividend and capital gain as the value of the
stock rises. It also sometimes refers to the acquisition of equity (ownership) participation in
private (unlisted) company or start up (a company being created or newly created). When
investment is in infant companies, it is referred to as venture capital investing and is generally
understood to be higher risk than investment in listed going-concern situation.
HOW TO INVEST IN EQUITY SHARES
Equity market investments typically yield high returns, particularly if invested over longer
periods of time, although such investments are characterized by a high degree of price volatility
in the short term. The volatility in our markets, particularly in the nineties, reflects significant
shifts in the nature of the Indian economy, with the services sector gaining increasing
importance. This fundamental change in the economy has resulted in a dramatic change in the
MMS - Finance
Page 3
nature of our stock markets with the services sector, including technology, assuming increasing
importance. Investment in equities has dismayed many in the short term, but if executed in the
framework of the steps outlined below, may help in better choices.
STEP 1:
Identify your objective, given your needs, life stage and resources. If you want to increase the
value of your investment in order to have a larger sum to spend at a later date, your main priority
will be capital growth.
STEP 2:
Identify your risk tolerance and then invest appropriately Young people at the start of their
working lives will have a greater appetite for taking financial risk as compared to people at the
end of their career who are looking forward to stable income and preservation of capital. These
two extremes will exemplify the ability to take equity exposure. The young person is likely to be
invested largely in equities for he can afford to take short term capital loss in anticipation of
higher rates of return from equities. The elderly will be unable to take the risk of capital loss
even in the short term as their ability to make back any losses will be limited by time and ability
to earn.
STEP 3:
Categorize your stock: Cyclical, Growth or Defensive Investing in cyclical stocks, such as those
in the cement or steel sector, requires an understanding of the economic scenario. An active
involvement in the investment is required in order to reap the maximum benefits of swings in
economic cycles over time. The stock prices are likely to move through extreme highs and lows,
and the ability to time entry and exit will be necessary. Growth investing refers to stocks in
sectors where the future direction is clear for the medium term - such as technology. However
even here, timing is key, for the stock may do nothing for a long time as momentum builds up
and then move sharply thereafter. Defensive investing is that which is done from a long term
viewpoint, where a stock is held on the premise that it will grow consistently and on a
sustainable basis over time, such as those in the fast moving consumer goods sector. While the
appreciation may, at times, not be as dramatic as cyclical or growth stocks, stocks that constitute
defensive investments grow steadily over longer time periods.
STEP 4:
Check out the technical position. Can you actually sell your investment when you want to? The
liquidity of a stock is very important in taking an investment decision, for if there is very little
free stock available in the market, buying and selling may well impact the stock price in an
adverse manner. It is interesting to see what the price volume relationship is for a stock. So if a
stock price is moving up or down on high trading volume, it is more likely that there is real
interest in that price movement than if there is very little volume supporting the price move.
MMS - Finance
Page 4
STEP 5:
Know what the company does The fate of each stock is tied inextricably to the fortune of the
underlying business, and the market's perception of the future prospects for that business. The
industry's future potential in terms of projected demand-supply is key as is the company's
competitive position in the industry. The business model of the company should be considered,
as well as possible future changes, and the ability of the company to sustain growth and
momentum well into the future.
STEP 6:
Know who runs the company the capability and integrity of management is even more important
in determining the future viability of your investment. A strong, credible, experienced and
shareholder responsive management team is critical for operating and growing a successful
company. In the newer areas of our economy, management vision is also of significant
importance.
STEP 7:
Know the company's performance The price earnings (P/E) ratio is the often quoted measure of a
company's value. This ratio divides the stock price by the year's earnings, and is useful in
arriving at comparative valuation. But the tool that is quite prevalent in professional evaluations
is the return on equity (ROE), which is the year's earnings divided by the net worth of the
company. This when compared to the cost of capital for the company allows the investor to
gauge the company's wealth creating ability. Apart from the ratios the investor must also focus
on the sustainability of earnings growth.
STEP 8:
Know the company's valuation Two stocks may have the same EPS but different P/E's. This is
because ROE may be different and its sustainability may be different. Broadly speaking, the
higher the sustainable ROE, the higher the P/E rating. A high P/E does not therefore necessarily
imply an overvalued stock. Stocks with high sustainable ROEs are likely to trade at high P/E
multiples.
STEP 9:
Know the price target Having selected stocks and built a portfolio, it is now imperative to track
these investments closely. One method of doing so is to set expectations, by identifying a target
price, and to re-evaluate the stock when this target is reached. Here, it is important to consider
opportunity costs. If there is a loss on a stock, should one realize that loss and invest in another
stock, which has a greater potential, or should one wait for the loss to turn into a profit. By not
selling out of low return stocks to get into higher return stocks, investors miss out on
opportunities.
MMS - Finance
Page 5
STEP 10:
Do you want a professional manager? Many investors mistakenly assume that they can purchase
one or two stocks and they will do well. In the absence of good luck, this can be a dangerous
strategy since there is always a risk of a stock declining in value or the business facing company
specific problems. The more diversified the portfolio, lower is the risk of one poorly performing
stock affecting overall performance of the portfolio. However, a good way of diversifying the
portfolio is to invest through mutual funds where the professional fund manager and the
rigorous investment process is likely to limit risk while maximizing profit, depending on the risk
profile of the fund invested in.
WHY SHOULD ONE INVEST IN EQUITY IN PARTICULAR
When you buy a share of a company you become a shareholder in that company. Shares are also
known as Equities. Equities have the potential to increase in value over time. It also provides
your portfolio with the growth necessary to reach your long term investment goals. Research
studies have proved that the equities have outperformed most other forms of investments in the
long term.
Equities are considered the most challenging and the rewarding, when compared to other
investment options.
Research studies have proved that investments in some shares with a longer tenure of
investment have yielded far superior returns than any other investment.
However, this does not mean all equity investments would guarantee similar high returns.
Equities are high risk investments. One needs to study them carefully before investing.
MMS - Finance
Page 6
MMS - Finance
Page 7
Page 8
by new to the market. The process of getting sales illustrations signed by customers, offering a
free look period on all policies, which are now industry standards were introduced by BSLI.
MMS - Finance
Page 9
FUNDAMENTAL ANALYSIS
INTRODUCTION
A method of evaluating a security that entails attempting to measure its intrinsic value by
examining related economic, financial and other qualitative and quantitative factors.
Fundamental analysts attempt to study everything that can affect the security's value, including
macroeconomic factors (like the overall economy and industry conditions) and company-specific
factors
(like
financial
condition
and
management).
The end goal of performing fundamental analysis is to produce a value that an investor can
compare with the security's current price, with the aim of figuring out what sort of position to
take with that security (underpriced = buy, overpriced = sell or short).
This method of security analysis is considered to be the opposite of technical analysis.
Fundamental analysis is the cornerstone of investing. In fact, some would say that you aren't
really investing if you aren't performing fundamental analysis. Because the subject is so broad,
however, it's tough to know where to start. There are an endless number of investment strategies
that are very different from each other, yet almost all use the fundamentals.
The goal of this tutorial is to provide a foundation for understanding fundamental analysis. It's
geared primarily at new investors who don't know a balance sheet from an statement. While you
may not be a "stock-picker extraordinaire" by the end of this tutorial, you will have a much more
solid grasp of the language and concepts behind security analysis and be able to use this to
further
your
knowledge
in
other
areas
without
feeling
totally
lost.
The biggest part of fundamental analysis involves delving into the financial statements. Also
known as quantitative analysis, this involves looking at revenue, expenses, assets, liabilities and
all the other financial aspects of a company. Fundamental analysts look at this information to
gain insight on a company's future performance. A good part of this tutorial will be spent
learning about the balance sheet, income statement, cash flow statement and how they all fit
together.
Fundamental analysis uses both historical and current data to cover the main objectives:
1.
2.
3.
4.
Make
Conduct
a
company
stock
Evaluate
and
Calculate
a
MMS - Finance
financial
forecasts.
valuation
and
predict
price
evolution.
predict
business
performance.
companys
credit
risk.
Page 10
Page 11
Competition
Simply looking at the number of competitors goes a long way in understanding the competitive
landscape for a company. Industries that have limited barriers to entry and a large number of
competing
firms
create
a
difficult
operating
environment
for
firms.
One of the biggest risks within a highly competitive industry is pricing power. This refers to the
ability of a supplier to increase prices and pass those costs on to customers. Companies operating
in industries with few alternatives have the ability to pass on costs to their customers. A great
example of this is Wal-Mart. They are so dominant in the retailing business, that Wal-Mart
practically sets the price for any of the suppliers wanting to do business with them. If you want
to
sell
to
Wal-Mart,
you
have
little,
if
any,
pricing
power.
Regulation
Certain industries are heavily regulated due to the importance or severity of the industry's
products and/or services. As important as some of these regulations are to the public, they can
drastically affect the attractiveness of a company for investment purposes.
In industries where one or two companies represent the entire industry for a region (such as
utility companies), governments usually specify how much profit each company can make. In
these instances, while there is the potential for sizable profits, they are limited due to regulation.
In other industries, regulation can play a less direct role in affecting industry pricing. For
example, the drug industry is one of most regulated industries. And for good reason - no one
wants an ineffective drug that causes deaths to reach the market. As a result, theU.S.Food and
Drug Administration (FDA) requires that new drugs must pass a series of clinical trials before
they can be sold and distributed to the general public. However, the consequence of all this
MMS - Finance
Page 12
testing is that it usually takes several years and millions of dollars before a drug is approved.
Keep in mind that all these costs are above and beyond the millions that the drug company has
spent
on
research
and
development.
All in all, investors should always be on the lookout for regulations that could potentially have a
material impact upon a business' bottom line. Investors should keep these regulatory costs in
mind as they assess the potential risks and rewards of investing.
Page 13
house
of
cards
collapsed
and
the
company
wentbankrupt.
At the very least, you should understand the business model of any company you invest in. The
"Oracle of Omaha", Warren Buffett, rarely invests in tech stocks because most of the time he
doesn't understand them. This is not to say the technology sector is bad, but it's not Buffett's area
of expertise; he doesn't feel comfortable investing in this area. Similarly, unless you understand a
company's business model, you don't know what the drivers are for future growth, and you leave
yourself vulnerable to being blindsided like shareholders of Boston Chicken were.
Competitive
Advantage
Another business consideration for investors is competitive advantage. A company's long-term
success is driven largely by its ability to maintain a competitive advantage - and keep it.
Powerful competitive advantages, such as Coca Cola's brand name and Microsoft's domination
of the personal computer operating system, create a moat around a business allowing it to keep
competitors at bay and enjoy growth and profits. When a company can achieve competitive
advantage, its shareholders can be well rewarded for decades.
Management
Just as an army needs a general to lead it to victory, a company relies upon management to steer
it towards financial success. Some believe that management is the most important aspect for
investing in a company. It makes sense - even the best business model is doomed if the leaders of
the company fail to properly execute the plan.
QUANTITATIVE FACTORS
Now we know the qualitative analysis factors of fundamentals analysis, lets proceed to the
Quantitative factor of fundamental analysis. Quantitative factors include analysis of financial
statement of the company.
TECHNICAL ANALYSIS
Technical analysis is a financial term used to denote a security analysis discipline for
forecasting the direction of prices through the study of past market data, primarily price and
volume. Behavioral economics and quantitative analysis incorporate technical analysis, which
being an aspect of active management stands in contradiction to much of modern portfolio
theory.
Technical analysis employs models and trading rules based on price and volume transformations,
such as the relative strength index, moving averages, regressions, inter- market and intra-market
price correlations, business cycles, stock market cycles or, classically, through recognition of
chart patterns.
MMS - Finance
Page 14
Technical analysis stands in contrast to the fundamental analysis approach to security and stock
analysis. Technical analysis analyzes price, volume and other market information, whereas
fundamental analysis looks at the actual facts of the company, market, currency or commodity.
Most large brokerage, trading group, or financial institutions will typically have both a technical
analysis and fundamental analysis team.
6.1
CONCEPTS
Resistance - a price level that may prompt a net increase of selling activity
Support - a price level that may prompt a net increase of buying activity
Breakout - the concept whereby prices forcefully penetrate an area of prior support or
resistance, usually, but not always, accompanied by an increase in volume.
Trending - the phenomenon by which price movement tends to persist in one direction for an
extended period of time
Average true range - averaged daily trading range, adjusted for price gaps
Chart patterns - distinctive pattern created by the movement of security prices on a chart
6.2
CHART TYPES :
There are three main types of charts that are used by investors and traders
depending on the information that they are seeking and their individual skill levels. The chart
types are: the line chart, the bar chart, the candlestick chart.
A. LINE CHART :
The most basic of the three charts is the line charts because it represents only the
closing prices over a set period of time. The line is formed by connecting the closing prices
over the time frame. Line charts do not provide visual information of the trading range for
the individual points such as the high, low and opening prices. However, the closing
price is often considered to be the most important price in stock data compared to the high
and low for the day and this is why it is the only value used in line charts.
MMS - Finance
Page 15
MMS - Finance
Page 16
B. CANDLE-STICK CHARTS :
The candlestick chart is similar to a bar chart, but it differs in the way that it is visually
constructed. Similar to the bar chart, the candlestick also has a thin vertical line showing the
period's trading range. The difference comes in the formation of a wide bar on the
vertical line, which illustrates the difference between the open and close. And, like bar
charts, candlesticks also rely heavily on the use of colors to explain what has happened
during the trading period. There are two color constructs for days up and one for days
that the price falls. When the price of the stock is up and closes above the opening trade,
the candlestick will usually be white or clear. If the stock has traded down for the period,
then the candlestick will usually be red or black, depending on the site. If the stock's price
has closed above the previous days close but below the day's open, the candlestick will be
black or filled with the color that is used to indicate an up day.
MMS - Finance
Page 17
6.4
CHART PATTERNS :
MMS - Finance
Page 18
MMS - Finance
Page 19
4. TRIANGLES :
Triangles are some of the most well-known chart patterns used in technical analysis.
The three types of triangles, which vary in construct and implication, are the symmetrical
triangle, ascending and descending triangle. These chart patterns are considered to last
anywhere from a couple of weeks to several months.
MMS - Finance
Page 20
6. WEDGE :
The wedge chart pattern can be either a continuation or reversal pattern. It is similar to a
symmetrical triangle except that the wedge pattern slants in an upward or downward
direction, while the symmetrical triangle generally shows a sideways movement. The other
difference is that wedges tend to form over longer periods, usually between three and six
months.
MMS - Finance
Page 21
8. ROUNDING BOTTOM :
A rounding bottom, also referred to as a saucer bottom, is a long-term reversal pattern that
signals a shift from a downward trend to an upward trend. This pattern is traditionally
thought to last anywhere from several months to several years.
MMS - Finance
Page 22
RATIO ANALYSIS
7.1
FINANCIAL STATEMENTS:
The prosperity of a company will depend upon its profitability and financial
health. The financial statement published by a company periodically helps us to access the
profitability and financial health of the company. The two basic financial statements provided by
the companies are the balance sheet and the P&L A/C. The first gives us a picture of the
companys assets and liabilities while the second gives us a picture of its earnings.
The balance sheet gives us the list of assets and liabilities of a company on a
specific date. The major categories of assets are fixed and current. The P&L A/C, also called as
the income statement, reveals the revenue earned, the cost incurred and the resulting profit or loss
of the company for one accounting year. The profit after tax (PAT) divided by the number of
shares gives the Earnings per Share (EPS), which is a figure which most investors are interested.
The P&L A/C summarizes the activities of a company during an accounting year.
7.2
1. LIQUIDITY RATIOS :
These measure the companys ability to fulfill its short-term obligations and
reflect its short-term financial strength or liquidity. The commonly used ratios are;
A higher current ratio would enable a company to meet its short-term obligations
even if the value of current assets decline. The quick ratio represents the ratio between quick
assets and current liabilities. It is a more rigorous measure of liquidity. However, both these ratios
are to be used together to analyze the liquidity of the company.
MMS - Finance
Page 23
2. LEVERAGE RATIOS
These ratios are also known as capital structure ratios. They measure the ability of
the company to meet its long-term debt obligations. They throw light on thelong-term solvency of
a company. The commonly used leverage ratios are:
The first three ratios indicate the relative contribution of owners and creditors in
financing the assets of the company. These ratios reflect the safety margin available to the longterm creditors. The coverage ratios measures the ability if the company to meet its interest
payments arising from the debt.
3. PROFITABILITY RATIOS
The profitability of a company can be the profitability ratios. These ratios are calculated be
relating the profits either to sales, or to investment, or t the equity shares. Thus we have three
groups of profitability ratios. These are listed below;
A. Profitability related to Sales :
Gross Profit Ratio = Gross Profit (Sales Cost of Goods Sold)/Sales
Operating Profit Ratio = EBIT / Sales
Net Profit Ratio = EAT/Sales
Administrative Expenses Ratio = Administrative Expenses/Sales
Selling Expenses Ratio = Selling Expenses/Sales
Operating Expenses Ratio = Administrative Expenses + Selling Expenses/Sales
Operating Ratio = COGS + Operating Expenses/Sales
Page 24
MMS - Finance
Page 25
MMS - Finance
Page 26
Bargaining power of suppliers: Price increase constrained with the presence of the unorganised
sector for the decorative segment. Sophisticated buyers of industrial paints also limit the
bargaining power of suppliers. It is therefore that margins are better in the decorative segment.
Bargaining power of customers: High due to availability of wide choice.
Competition: In both categories, companies in the organised sector focus on brand building.
Higher pricing through product differentiation is also followed as a competitive strategy.
FINANCIAL YEAR '11
FY11 was a mixed bag for the paint companies. While all the 3 players viz. Asian Paints, Kansai
Nerolac and Berger Paints reported strong growth in sales, operating margins came under severe
pressure due to raw material price inflation. Top-line growth was boosted by strong demand
from the decorative paints segment. Nonetheless, the demand environment in the industrial
segment continues to remain challenging due to rising interest rates.
Performance on the margins front was a big disappointment. Rising prices of crude oil and
titanium dioxide increased the overall expenditure thereby impacting profitability growth.
However, companies are undertaking a gradual and calibrated price increase to shield margins.
Nonetheless, as a complete pass on of raw material price increase is not possible in the industrial
segment, the blended margins continue to suffer.
All the key players are in an expansion phase. Asian Paints' plant in Khandala, Maharashtra is
under construction and is expected to be commissioned by 4QFY13. Kansai Nerolac's capacity
expansion plans at Jainpur and Hosur culminated during the year. Berger Paints has also
undertaken capacity expansion for its plants located in Andhra Pradesh and Goa. Further, it is
also contemplating to set up a manufacturing facility in Pune, Maharashtra.
PROSPECTS
The market for paints in India is expected to grow at 1.5 times to 2 times GDP in the next five
years. With GDP growth expected to be over 7% levels, the top three players are likely to clock
above industry growth rates, especially given the fact that protection that was available to
unorganized players has come down significantly.
Decorative paints segment is expected to witness higher growth going forward. The fiscal
incentives given by the government to the housing sector have benefited the housing sector
immensely. This will benefit key players in the long term.
Although the demand for industrial paints is lukewarm it is expected to increase going forward.
This is on account of increasing investments in infrastructure. Domestic and global auto majors
have long term plans for the Indian market, which augur well for automotive paint manufacturers
like Kansai Nerolac and Asian-PPG. Increased industrial paint demand, especially powder
MMS - Finance
Page 27
coatings and high performance coatings will also propel topline growth of paint majors in the
medium term.
MMS - Finance
Page 28
Demand:
slowdown.
Barriers to entry:
Huge investments in setting up distribution networks and promoting
brands and competition from established companies.
Bargaining power of suppliers:
Inputs being mostly agri-commodities, the suppliers are
numerous and lack scale to wield bargaining power. Companies like ITC that are integrated
backwards have lower dependence on suppliers.
Bargaining power of customers:
Customer does not have bargaining power in case of
branded products but intense competition within the FMCG companies results in value for
money deals for consumers (e.g. buy one, get one free concept).
Competition: Competition is faced from domestic unorganized players and established MNC's.
Price wars are a common phenomenon. Private labels offered by retailers at a discount to
mainframe brands act as competition to undifferentiated and weak brands.
Financial Year 2012 -13
All the FMCG companies have reported double-digit sales growth in FY13 led by combination
of price-hikes and higher volumes. Godrej Consumer Products (GCPL) continued to grow the
fastest, clocking a growth of 32% in FY13 backed by strong growth in its existing brands as well
as overseas acquisitions.
ITC has been able to maintain a robust growth of 20% in FY13 led by robust growth in its
FMCG business. Backed by strong pricing power in cigarette business, the company has
managed to pass on the structural increase in taxation. Its non-cigarette FMCG business has been
the fastest growing business other than the agri business segment in FY13. Even Colgate has
recorded brisk sales growth contributed majorly by volumes. Dabur's offtake has gained
momentum in the fourth quarter driven by pick-up in rural off take after completion of Project
Double and improved sales from the Canteen Stores Department channel.
FMCG behemoth HUL has been witnessing moderation in off take particularly in personal care
products, packaged foods and beverages. Its volume growth in FY13 moderated to 7% from 9%
last year mainly on account of slowdown in discretionary spending. However, the company
continues to focus on innovations and new brand launches particularly in the high-margin
personal care segment. Another company, Britannia has been seeing slower volumes with
revenue growth coming from price-hikes and better product-mix.
Easing price of commodities has led to input cost savings for majority of FMCG companies in
FY13. However the impact has been muted with a steep rise in ad-spends amid rising
competition. Even tax incidence has risen for a large number of companies as they set to lose
benefits on plants located in tax havens, going forward. Notwithstanding these factors,
MMS - Finance
Page 29
companies such as HUL, Dabur, Marico and Britannia have recorded incremental gains of less
than 1% in their net margins during the year. GCPL saw a steep contraction in net margin in
FY13 due to higher promotional spends as well as increased depreciation and tax outgo.
Prospects
Persistently high inflation and general economic slowdown is not expected to turnaround in the
immediate future. Therefore lower discretionary spending is likely to keep demand for consumer
goods tepid. Moreover as FMCG companies have already taken a number of price-hikes earlier,
this tool will also not be available on concerns of further demand compression. This is likely to
fuel increased competition among existing players trying to save their turf.
However, long term demand potential of FMCG goods remains robust. According to
International Labour Organisation, India will have the highest working age population in the
world by 2020. Increase in working-age population and rising middle class will translate into
higher purchasing power & boost consumerism. Higher penetration and evolution in
consumption pattern will drive rural demand.
Asian Paints
Akzo Nobel
Zydus Wellness
Emami
Nestle
ITC
57,815.65
5225.96
2,277
6,836
39,819
1,51,078
MMS - Finance
Page 30
COMPANY
PRICE
P/E
EPS '14
510.00
41.53
12.30
252.70
1380.00
1004.00
INDUSTRY
36.95
37.60
30.38
6.76
38.33
32.19
EPS
'13
109.
47
6.06
32.8
9
46.8
9
LTPT
450.36
247.52
1403.45
1178.64
REJECTED
36.62
PRICE
P/E
EPS '14
EPS
'13
LTPT
Jyothy
Laboratories Ltd.
Nestle India Ltd.
189.00
31.57
5.99
2.84
205.46
Zydus Wellness
Ltd.
INDUSTRY
P/E
MMS - Finance
REJECTED
REJECTED
ACCEPTED
COMPANY
Marico
Colgate-Palmolive
(India) Ltd.
Dabur India Ltd.
GlaxoSmithKline
Pharmaceuticals
Ltd.
Emami Ltd.
STATUS
STATUS
ACCEPTED
1779.00
247.30
1389.00
184.70
4555.00
42.27
28.11
39.72
48.15
37.88
114.85
8.95
34.96
3.86
56.16
114.
15
5.93
36.5
3
3.39
85.6
5
3939.36
306.99
1199.13
132.40
1926.29
REJECTED
ACCEPTED
REJECTED
REJECTED
REJECTED
450.00
533.00
25.43
21.41
14.91
24.69
14.6
5
24.8
4
511.41
ACCEPTED
846.87
REJECTED
34.30
Page 31
PRICE
1380
189
247.3
25.43
VOLUME INVESTMENT
14493
2.0 Cr
105820
80873
77519
TOTAL
2.0 Cr
2.0 Cr
2.0 Cr
8.0 Cr
JUSTIFICATION
We have chosen the above four companies as they are undervalued that is its individual P/E is
less than average P/E. And for the stocks whose P/E is overvalued, its LTPT is more than Price
as on July 9, 2014. Hence we have invested our 8 Crore in the above companies
MMS - Finance
Page 32
Kansai Nerolac Paints Ltd (BSE: 500165, NSE: KANSAINER) (formerly known as Goodlass
Nerolac Paints Ltd) is largest in industrial paint and second largest decorative paint company
based in Mumbai.[3][4][5] It is a subsidiary of Kansai nerolac paints, JAPAN.It is engaged in the
industrial, automotive and powder coating business. It develops and supplies paint systems used
on the finishing lines of electrical components, cycle, material handling equipment, bus bodies,
containers and furniture industries.
Kansai Nerolac Paints has 5 paint manufacturing plants and about 67 contract manufacturers.
The Nerolac owned plants are at 1. Jainpur (Uttarpradesh) 2. Bawal (Haryana) 3. Lote, Chiplun
(Maharastra) 4.Chennai (Tamil Nadu) 5. Hosur (Tamil Nadu)
Kansai Nerolac Paints Ltd. has entered into many technical collaborations with other industry
leaders such as E.I. Du-products.[9]
The Mumbai-based company is the leader in the industrial paints segment with a market share of
over 40%.[13] It is the third-largest player in the decorative paints segment with a modest market
share of 13%. Nearly 75% of the Indian paints industry consists of the decorative segment.[14]
Kansai Paint was founded by Katsujiro Iwai in Amagasaki City, Japan on May 1918.[15] Kansai
Paint is a comprehensive manufacturer of paints and coatings. The Products include- Automotive
Coatings, Industrial coatings, Decorative coatings, Protective coatings and Marine
Coatings. They are also present in U.K., Turkey, U.S.A, Canada, Mexico, UAE.[16]
Technologically innovative products are the company's hallmark. Kansai Nerolac Paint offers
differentiated products with a focus on being eco-friendly and healthy.[17] Kansai Nerolac Paints
key products and brands includes the following:
Decorative Paints: Interior wall paints, Exterior wall paints, Wood surface paints and
Metals surface paints.
MMS - Finance
Page 33
TECHNICAL ANALYSIS
On analyzing Kansai Nerolac Paints Ltd. over a year, we observe that the company is showing an
upwards trend in the next half of the year.
As observed previously, the rate of change in EPS of Kansai Nerolac Paints Ltd. is also
considerably high which makes this counter more desirable to be a part of investor's portfolio.
In the end of March'14, the counter was trading at 1000's but recently i.e. after five months it in
now trading at 1700's and is showing an increasing trend, which indicates its positive
performance.
MMS - Finance
Page 34
TECHNICAL ANALYSIS
ONE YEAR PRICE TREND
MMS - Finance
Page 35
On analyzing Jyothy Laboratories over a year, we observe that the company is showing a
horizontal trend in the entire year. In the end of Sept'2013, the counter was trading at 150's and
showed and increasing trend towards March'2014 which indicates its positive performance.
As observed previously, the rate of change in EPS of Jyothy Laboratories is also considerably
high along with an undervalued P/E ratio which makes this counter more desirable to be a part of
investor's portfolio.
FIVE YEAR PRICE TREND
The five year price trend of Jyothy Laboratories shows that the counter considerably increased
from 120 to 340 in the year 2010. There onwards it is continuously showing a horizontal trend.
From the above graph it can be predicted that there is a scope for a potential growth of the
company in future prospects. The red mark shows the most ideal point at which the share can be
purchased, i.e. when it is at the lowest, while the green mark shows the ideal price, i.e.340 at
which the share can be sold.
MMS - Finance
Page 36
MARICO
Marico ( (BSE: 531642) is an Indian consumer goods company providing consumer products
and services in the areas of Health and Beauty based in Mumbai.
During 200910, the company generated a turnover of about Rs 26.6 billion (USD 600
million),[4] in respect of its food, hair care and skin care related activities. Marico's own
manufacturing facilities are located at Goa, Kanjikode, Jalgaon, Pondicherry, Dehradun, Baddi,
Paonta Sahib and Daman.
The organisation holds a number of brands including Parachute, Saffola, Hair&Care, Nihar,
Mediker, Revive, Manjal, Kaya Skin Clinic, Livon, Set Wet, Zatak, Fiancee,HairCode, Eclipse,
Xmen, Hercules, Caivil, Code 78 and Black Chic.
PARACHUTE
Parachute is the flagship brand of Marico which consists of edible grade coconut oil. Marico
manufactures and markets its coconut based hair oils under its popular brand Parachute
Advansed and a series of extensions thereof.
OTHERS
Marico's brands and their extensions occupy leadership positions with significant market shares
in a number of health and beauty areas.
Saffola is essentially blended refined edible oil which is claimed to be beneficial for Heart
health. It is marketed under the names of New Saffola, Tasty and Active. All of them contain
blended vegetable oils in various proportion. The main type of oils which are blended include
Rice Bran oil, Kardi oil or Safflower oil, Corn oil and Soya oil.
In addition to being a producer of consumer products the organisation also operates Kaya Skin
Clinic (of which (as of 2010) 81 exist in India, 13 in UAE) and 2 in Bangladesh. Marico recently
acquired the aesthetics business, of the Singapore based Derma Rx Asia Pacific Pte. Ltd. (Derma
Rx), under the Kaya portfolio. All the services offered at Skin Clinic are designed and supervised
by a team of over 250 dermatologists and carried out by certified skin practitioners who have
undergone more than 300 hours of training. The services are US FDA approved and tested inhouse, and conform to the highest international quality standards. Kaya Skin Clinic has over
600,000 satisfied customers.
MMS - Finance
Page 37
Harsh Mariwala is the chairman and MD of this organization. The company has 3 divisions the
Consumer Products Group(CPG), The International Business Group and Kaya Skin Clinic. CPB
is headed by Saugata Gupta. Kaya Skin Clinic is headed by Ajay Pahwa.
The company in recent years has been known for its foreign acquisitions in countries such as
South Africa, Egypt and Singapore. Marico Ltd has reported 27.36% increase in net profit at Rs
157.72 crore for the first quarter ended June 30, 2013.
TECHNICAL ANALYSIS
FIVE YEAR PRICE TREND
On analyzing Marico over five years, we observe that the company is showing a horizontal
upward trend in the from 2010 to 2014. In the mid 2014, the counter is trading at 270's and
increasing trend which indicates its positive performance.
The rate of change in EPS of Jyothy Laboratories is also considerably high along with an
undervalued P/E ratio which qualifies it to be 'accepted' to be purchased by the investor.
MMS - Finance
Page 38
EMAMI LTD.
Emami Limited is an Indian producer of fast moving consumer goods (FMCG), such as
cosmetics and health and baby products. The company is based in Kolkata.
The company is well known in India for its fairness cream products for men.
In 2008 the company announced that it intended to offer baby care products.
The company's health products unit offers tonics for colds and coughs as well as nutraceuticals.
The company forayed into men's deodrant market by launching HE brand of deodorants. Hrithik
Roshan was appointed as brand ambassador for HE brand. .[4]
The company has the following subsidiaries:
MMS - Finance
Page 39
TECHNICAL ANALYSIS
FIVE YEAR PRICE TREND
As is it observed in the five year price trend, the graph of Emami is highly volatile. It steeply
rises upwards from 392 to 900 till the mid of the year 2010 and the stock suddenly fell down
back to 400, thereby showing a horizontal trend. The same trend is seen repeated in the year
2013 where the stock is suddenly falling down to 430(approx.) from 782 within a very short span
of time. Thus, keeping in mind the volatility of this stock, it can be concluded that it is safer to
buy the stock when it is at the lowest and to be sold when it has achieved a considerable high
mark in the market, without further waiting for the stock to grow up.
MMS - Finance
Page 40
CONCLUSION
LEARNING FROM THE PROJECT
This project has given me broad aspect to gain knowledge of the financial
activities. This project was a good exposure for us to get acquainted with the sector analysis as
well as other financial aspects i.e. equity markets, debt markets, mutual funds, derivatives, etc.
and how the work in the real life.
The proper Sector Analysis helped us in knowing which sectors are going to do
good in the days to come and thus choose those stocks which would protect our NAV from going
down ( Given the conditions of Bearish market) and thus we could successfully beat the
benchmark. The Technical Analysis charts helped in knowing the moving trends.
This Internship and project has not only exposed us to do this research but has
also given us an opportunity to understand the corporate world, work culture and
professionalism, which would help us to excel in our career .
Our training program helped us to understand various aspects of training module.
We got knowledge of share market, mutual funds and our mentor advised to make project on
equity research or on IPO or on mergers and acquisitions or on mutual funds.
MMS - Finance
Page 41
MMS - Finance
Page 42
BIBLIOGRAPHY
NEWSPAPER & BOOKS
The Economic Times
Business Standard
WEBSITES
www.birlasunlife.com
www.info.shine.com
www.moneycontrol.com
www.equitymaster.com
www.indiainfoline.com
www.moneyworks4me.com
www.investopedia.com
MMS - Finance
Page 43