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K.L.E.Society’s Institute of Management Studies and Research, Hubli-31
Topic of the study:
Main Objective:
“To evaluate the performance of Capital Goods companies under study using EIC
Analysis.”
Sub objectives:
1. Analyzing the environmental factors that affect the security prices.
2. Industry analysis of Capital goods Sector
3. To assess the fundamentals of the company in light of financial statements.
4. To arrive at intrinsic value of the company thus enabling the investor in assessing
the worth of the security.
5. I had keen interest to enrich my knowledge in stock market.
Framework of study:
The proper order to proceed in Fundamental analysis is,
First, to analyze the overall economy and securities markets.
Second, analyze the industry with in which a particular company operates.
Finally, analysis of the company should be considered.
The above analysis involves making a careful estimate of expected stream of benefits and
required return of common stock. The intrinsic value then can be obtained through P/E
ratio or earning multiplier approach.
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K.L.E.Society’s Institute of Management Studies and Research, Hubli-31
Data Collection Approach:
Secondary Data:
The study is mainly based on analysis of financial statements of the company i.e. balance
sheet and profit and loss account. The same has been collected through;
• Company websites and other related websites.
• The information is also collected from various magazines like Indian survey 2008
by The Hindu
• News papers
Sample Size:
Two large cap companies are taken for study. They are;
Due to the present volatility in stock market, the biggest question that arises is whether to
invest in stocks or not? If yes, then which stocks to invest? How are the securities
valued? There is no precise answer to this and nobody can predict the stock movements
exactly. Fundamental analysis or EIC analysis is one of the approaches to security
valuation. EIC analysis gives the intrinsic value of the firm. An investor can compare the
present market price with the intrinsic value of the stocks and make his decisions
regarding investments in these stocks.
FINDINGS:
Economy:
• When come to the economic factors the global economies are getting
interrelated, the Indian market will no longer be limited to domestic economic
situation. Especially the US market has a strong bearing on Indian stock market.
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K.L.E.Society’s Institute of Management Studies and Research, Hubli-31
Industry – (Engineering – Heavy):
• The demand driver for this sector is the Order book.
• Most of these companies have an order book to sales ratio in the range of 2.5-4
times FY07 revenue. This implies that for the next two-to-three years, even if the
companies do not get fresh orders, they can still maintain revenue growth of 30-
40 per cent..
• The IIP growth during April - January 2007-08 has declined to 8.7% when
compared to 11.2% IIP growth during 2006-7. Tight monetary policy has resulted
in high interest rates which have been the major factor contributing to the decline
in IIP growth.
Company:
• When Liquidity ratios are concerned, BHEL has an upper hand over L&T. The
Current ratio, quick ratio and cash ratios of BHEL are better than L&T.
• But Efficiency ratios show the other picture. Total assets turnover, fixed assets
turnover ratio, inventory days and debtors turnover of L&T are better than BHEL.
L&T is able to utillise its assets more efficiently.
• When Solvency ratios are studied, we see that the debt component in BHEL has been
reduced to 0.1(FY07) from 0.8 (FY05). The debt of BHEL has substantially reduced
in FY07 to 0.1as a result of redemption of 8.85% Non-convertible, secured,
Redeemable Taxable Bonds worth Rs.500 crores
• Profitability ratios: The GPM has been increasing and so is the NPM. This shows
that the companies are performing efficiently and are using the resources in an
optimum way. The EPS and DPS has consistently increased in BHEL because of
increased earnings and constant number of shares. Whereas in case of L&T, the EPS
has reduced in FY07 to Rs.48 due to increased number of shares arising from issue
of bonus.
• Market based returns: the P/E ratio which shows investors expectations have
increased for both the companies. L&T has higher P/E ratio of 33.48 as compared
to 11.48 of BHEL.
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K.L.E.Society’s Institute of Management Studies and Research, Hubli-31
• When compared to the specific indicators like sales growth, the BHEL will be in
the first place then followed by L&T
• The Volatility of returns is high in BHEL as compared to L&T. Hence L&T is better
because it is more consistent.
• The value anchor for BHEL is Rs.2644 and for L&T is Rs.3996.2
Recommendations:
1. Intrinsic value of BHEL is Rs.2644 and the present market price is
Rs.1870. Hence it is recommended to buy BHEL stock as its current market price is
lower than its fair value range.
2. Intrinsic value of L&T is Rs.3, 996.2 and the present market price is Rs.2981.85.
Hence it is recommended to buy L&T stock as its current market price is lower than
its fair value range.
3. After a close scrutiny of economy industries and companies in considering the risk, it
may be recommended that international economy might affects the firms export
prospects, the price competition it faces from competitors, or the profit it makes from
abroad. Investor should properly analyze both globally and domestically before
taking investment decision.
4. The investor also should consider the budget decision and present years forecast of
different sectors
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K.L.E.Society’s Institute of Management Studies and Research, Hubli-31
COMPANY PROFILE
The group has a net worth of over Rs. 5,609 crore, employs around 17,100 people in its
various businesses and has a distribution network of branches, franchisees, representative
offices and satellite offices across 344 cities and towns in India and offices in New York,
London, Dubai, Mauritius and Singapore. The Group services around 3.6 million
customer accounts.
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K.L.E.Society’s Institute of Management Studies and Research, Hubli-31
KOTAK SECURITIES:
Kotak Securities Ltd. 100 % subsidiary of Kotak Mahindra Bank is one of the oldest and
largest broking firms in the Industry with a market share of 8.5 % (as on 30th
September).
Kotak Securities offerings include stock broking through the branch and Internet,
Investments in IPO, Mutual funds and Portfolio management service.
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K.L.E.Society’s Institute of Management Studies and Research, Hubli-31
Kotak Securities is the first in providing many products and services which have now
become industry standards. Some of them are:
• Facility of Margin Finance to the customers.
• Investing in IPO’s and Mutual Funds on the phone.
• SMS alerts before execution of depository transactions.
• Mobile application to track portfolios.
• Auto Invest - A systematic investing plan in Equities and Mutual funds.
• Provision of margin against securities automatically against shares in your Demat
account.
Kotak Securities network spans over 310 cities with 867 outlets.
Kotak Securities Limited has over Rs. 4000 crore of Assets Under Management (AUM)
as of 31st December, 2007. The portfolio Management Service provides top class service,
catering to the high end of the market. Portfolio Management from Kotak Securities
comes as an answer to those who would like to grow exponentially on the crest of the
stock market, with the backing of an expert.
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K.L.E.Society’s Institute of Management Studies and Research, Hubli-31
Kotak Securities sees investing from customer’s perspective, and make recommendations
based on their needs. The important goals of Kotak Securities is to simplify investing for
customers, along with that they also provide long term values to their customers.
Kotak Securities has a million reasons for customers to choose it. Listed below are a few:
STABILITY: We are a 100% subsidiary of Kotak Mahindra Bank and one of the oldest
and largest broking firms in the Industry. We have been the first and only NBFC to
receive the license to be converted into a bank.
INNOVATORS IN THE INDUSTRY: Kotak Securities has been the first in providing
many products and services which have now become industry standards.
• First to provide Margin Financing to the customers.
• First to enable investing in IPO’s and Mutual Funds on the phone.
• Providing SMS alerts before execution of depository transactions.
• Launching of Mobile application to track portfolio.
• Auto Invest - A systematic investing plan in Equities and Mutual fund.
• Provision of margin against securities automatically against shares in your Demat
account.
RELIABILITY: Kotak Securities accolades are a testimony to our services and high
standards. Kotak Securities has been awarded as:
• Best Performing Equity Broker in India – CNBC Financial Advisor Awards 2008
• Avaya Customer Responsiveness Awards (2007) in Financial Services Sector
• Best Brokerage Firm in India" by Asiamoney in 2007
• The Leading Equity House in India' in Thomson Extel Surveys Awards for the
year 2007.
• Euro money Award (2006 & 2007) - Best Provider of Portfolio Management:
Equities.
VALUE: Whether you are a customer with a small or large wallet size, customers can
expect Kotak Securities to bring value to customers in every form.
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K.L.E.Society’s Institute of Management Studies and Research, Hubli-31
• Quality Research
• Quick trade execution
• Low brokerages
• Accounts that suit your investment profile
• Risk Profiler
• Superior Customer Service
SERVICE: Kotak Securities believe in high standards of service and that's precisely
what they offer. It's an honor to be awarded the most customer responsive company
award in the Financial Institution sector by AVAYA Global Connect Award both in 2006
and 2007.
LARGE PRESENCE: Kotak Securities is present in 309 cities with 867 offices all over
the country. Its employee strength extends beyond 5000.
OFFERINGS OF KOTAK SECURITIES:
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K.L.E.Society’s Institute of Management Studies and Research, Hubli-31
Once customers invest with Kotak Securities, they can enjoy access to a wide range of
products and services to help them make the most of their investments.
• Easy Equity
• Easy Derivatives
• Easy IPO.
• Easy Mutual Fund
• Easy Insurance
• Kotak Portfolio Management.
EASY EQUITIES:
Investing in equities was never so easy. As the Best broker in India Kotak Securities
products and services are focused at making investments in equities as simple as writing a
cheque.
Research: "What do I Buy?" Isn't this a common question we all have while investing in
equities?
Kotak Securities in house research team is among the best in the industry and they have
years of experience in the financial markets. They scan through the plethora of stocks and
find the scrip’s that have a high potential of providing good returns.
SMS Alerts: Customers can get expert tips and recommendations as SMS on their
mobile phone so that customers know what to invest in at all times.
Trinity Account: A 3 in 1 account that integrates Trading, Bank and Demat account.
With Trinity Account transactions will be seamless and very convenient.
Competitive Brokerages: Kotak Securities brokerage rates are among the most
competitive in the industry. Low brokerage rates let customers concentrate on investing
their savings without worrying about the cost of investment.
Call and Trade: Customers can capitalize on market opportunities even when their
computer is inaccessible. Call & Trade essentially provides the convenience of trading in
equities by making a simple phone call.
KEAT: This superior trading platform to monitor market movements, view your gains
and losses and order placements instantaneously. Know more
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K.L.E.Society’s Institute of Management Studies and Research, Hubli-31
M-Trade: It is exclusively designed to give instant access to the stock market through
mobile phone, thereby allowing to catch every little market movement when customers
are on the move.
Kotak Securities News: It provides access to all news related to a stock, right from its
results, earnings, bonus, share holding patterns etc. Also helps in knowing about market
developments, latest happenings, stock movements and lots more.
Twin Advantage : Customers can not only get exposure against the cash margin in their
trading account but can also automatically provide with exposure against the shares lying
idle in their DP account.
EASY DERIVATIVES:
If customers are not averse of taking risks, derivatives can prove to be a good investment
option especially with Kotak Securities research.
Kotak Securities has strived to make investing in derivatives simpler. It provides
derivatives seminars educate new entrants in the derivatives market to be more equipped
with knowledge and techniques. Once the customer has the knowledge of investing in
derivative instruments Kotak Securities daily derivative reports will provide customers
with strategies that may yield good returns.
Customers can also refer to the Kotak Securities Academy to learn more about
derivatives.
EASY IPOS:
Investing in IPO’s is not complex anymore; Kotak Securities has made investing in IPO’s
very simple. Customers have to do is one phone call, and that's all. No paperwork no
queues, simply pick the phone or log on to www.kotaksecurities.com and place their
order within seconds.
Kotak Securities also provide with you with information on IPO News, Forthcoming
IPO’s and a lots more.
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K.L.E.Society’s Institute of Management Studies and Research, Hubli-31
No more paperwork, no more queues.Kotak securities have made investing in mutual
funds as simple as dialing a pizza.
Customers can now invest in over 1000 different mutual fund schemes through us. And
to make this choice of choosing between which mutual funds scheme to invest in, it
offers customers an exclusive research.
Investment in mutual fund can be made simply by logging on to
www.kotaksecurities.com or just making a phone call. No paperwork no queues. Simply
pick the phone or log on to www.kotaksecurities.com and place order.
EASY INSURANCE:
Kotak Securities brings customers a sure and secure insurance option without the hassles
and worries of a conventional insurance plan. With minimal paperwork and procedures,
customers get the dual benefit of a risk cover and savings. What's more, at the end of the
term, a minimum of premiums paid by customers will be returned depending on the
option they choose.
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K.L.E.Society’s Institute of Management Studies and Research, Hubli-31
The financial planning and distribution arm of Kotak Securities is involved in defining
financial goals, identifying investment vehicles and achieving them. The group
commenced its operations in the year 2003. Present over 30 locations with a large team of
relationship managers, has always endeavoured in servicing clients; closely
understanding their needs, financial goals and advising ethically.
Products:
This is done through quality service and access to a wide range of products; products that
are customizable. The financial planners thoroughly discuss and understand the desires of
each client. Their financial goals. Their risk appetite. Their time constraints.
Products offered range from those promising aggressive returns (MFs and PMS) to those
that aid diversification (Commodities, Gold, Equities etc.) to those that aim for capital
protection like insurance and capital guarantee products.
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K.L.E.Society’s Institute of Management Studies and Research, Hubli-31
INTRODUCTION TO THE TOPIC
INVESTMENT SCENARIO:
Investment is the employment of fund on assets with an aim of earning income on
capital appreciation. Investment means the present consumption is sacrificed to get return
in future.
Investment is good only for the purpose to get return from the selected or
choosing securities so; investors have to see the fundamental analysis. In fundamental
analysis, we can broadly classify into three types. One is Economic Analysis; Industry
analysis and company analysis. These three are very important base of the securities or
stock of market. We have to study about this fundamental analysis.
An Indian stock market has been no different. Memories of its crash of December
1990 are still there in the minds of many. After record rise in proceeding few years the
index fell precipitously and investor loss heavily. This phenomenon repeated every now
and then. Though the equity cult is fast spreading among the investor the hard fact is
majority of stocks continue to remain volatile to date. All these are pointers to the fact
that the investor market is no longer holding an olive branch to investor in equity. Much
of the danger associated with it can be avoided and it need not be such nerve raking
experience, provided one approaches it as a rational decision making process. In short
Security analysis and portfolio management are hard work, requiring discipline and
patience, and the work is not always rewarded with exceptional returns.
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K.L.E.Society’s Institute of Management Studies and Research, Hubli-31
INTRODUCTION TO THE CONCEPT OF SECURITY ANALYSIS:
They are,
Return
Risk
Time
There fore, investment process must be considered in terms above aspects. One should
approach any scheme of investment as a rational decision making process, in which he
should attempt to select a package of portfolio securities that meets predetermined set of
goals. These investors goal are usually expressed in terms of return. Almost all the cases,
the hard fact are that return and risk are inseparable. Further the maximum higher the
return the grater the risk.
Therefore the ultimate decisions to be made in the investment are two.
What securities to be held
How many rupees should be allocated to each.
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K.L.E.Society’s Institute of Management Studies and Research, Hubli-31
3. Portfolio analysis, selections and management.
Securities are marketable financial instruments that bestow on their owners the right to
make specific claims on particular assets. An individual security provides evidence of
their creditor ship or ownership depending on whether it is bond or stock, respectively. A
bond is loan that is paid off with interest; the investor lends money to the borrowing
company that issued bond. In contrast, stock ownership represents a cash investment a
future of a corporation; the investor owns a part of a corporation and share in its profits.
SECURITY ANALYSIS:
SECURITY EVALUATION:
It refers to the act of assessing the true worth of security. Before committing the fund on
stock exchange securities, the investor should make thorough comparison of the prices of
the security with its true value. The price refers to the price quoted for the security at the
stock exchange at a given movement of time. Value refers to the intrinsic worth. Only
with the help of such evaluation the investor can decide as to buy hold or sell.
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K.L.E.Society’s Institute of Management Studies and Research, Hubli-31
(a) Fundamental Approach:
The concept of time value of money is the business of this approach. Money has a time
value. A rupee now is worth more than rupee a year from now. For different securities,
future benefits may me received at different times. Even when the amount of future
payment is the same, differences in the speed of their receipt may create differences in
value. Time value of money suggests that earlier receipt is more desirable than later
receipt, even when the both are equal in the amount of certainty. Because, earlier receipt
can be re invested to generate additional returns before later receipt come in. The force
operating is the principle of compound interest.
Framework: The proper order in which to proceed in Fundamental analysis is, first to
analyze the overall economy and securities markets. Second, analyze the industry with in
which a particular company operates. Finally, analysis of the company should be
considered. The above analysis involves making a careful estimate of expected stream of
benefits and required return of common stock. The intrinsic value then can be obtained
through the present value analysis that is, the dividend discounts model. An alternative
method of valuation is the P/E ratio or earning multiplier approach.
ECONOMIC ANALYSIS
INDUSTRY ANALYSIS
COMPANY ANALYSIS
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K.L.E.Society’s Institute of Management Studies and Research, Hubli-31
STRATEGIC CONSIDERATIONS OF ECONOMIC, INDUSTRY AND COMPANY
ANALYSES ARE AS FOLLOWS:
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K.L.E.Society’s Institute of Management Studies and Research, Hubli-31
we get rupees hundred after one year how much is it worth now. Rupees 100 + R after
one year = 100 now. Therefore rupees 100 after one year = 100/100 + R and if R = 12 %
then 100/112 = .0893.
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K.L.E.Society’s Institute of Management Studies and Research, Hubli-31
Insights of the topic:
The intrinsic value of an equity share depends on multitude of factors. The earnings of
the company, the growth rate and the risk exposure of the company have a direct bearing
on the price of the share. These factors in turn rely on the host of other factors like
economic environment in which they function, the industry they belong to, and finally
companies’ own performance. The fundamental school of thought appraised the intrinsic
value of shares through E-I-C Analysis. Let us now understand what is fundamental
analysis.
Fundamental analysis is the analysis, wherein the investment decisions are taken on the
basis of the financial strength of the company. There are two approaches to fundamental
analysis, viz.
ECONOMY-INDUSTRY-COMPANY ANALYSIS:
In the Top down approach, first of all the overall Economy is analyzed to judge the
general direction, in which the economy is heading. The direction in which the economy
is heading has a bearing on the performance of various industries. That’s why Economy
analysis is important. The output of the Economy analysis is a list of industries, which
should perform well, given the general trend of the economy and also an idea, whether to
invest or not in the given economic conditions.
Gaining a true picture of a company's finances means not only scrutinizing the financial
statements but also analyzing relationships among various assets and liabilities, thus
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K.L.E.Society’s Institute of Management Studies and Research, Hubli-31
highlighting trends in a company's performance and changes in its financial strength
relative to its competitors.
Even though there is no one clear-cut method, a breakdown is presented below in the
order an investor might proceed. This method employs a top-down approach that starts
with the overall economy and then works down from industry groups to specific
companies. As part of the analysis process, it is important to remember that all
information is relative. Industry groups are compared against other industry groups and
companies against other companies. Usually, companies are compared with others in the
same group. For example, a telecom operator (Verizon) would be compared to another
telecom operator (SBC Corp), not to an oil company (ChevronTexaco).
Economic Forecast:
First and foremost in a top-down approach would be an overall evaluation of the general
economy. The economy is like the tide and the various industry groups and individual
companies are like boats. When the economy expands, most industry groups and
companies benefit and grow. When the economy declines, most sectors and companies
usually suffer. Many economists link economic expansion and contraction to the level of
interest rates. Interest rates are seen as a leading indicator for the stock market as well.
Below is a chart of the S&P 500 and the yield on the 10-year note over the last 30 years.
Although not exact, a correlation between stock prices and interest rates can be seen.
Once a scenario for the overall economy has been developed, an investor can break down
the economy into its various industry groups.
Group Selection:
If the prognosis is for an expanding economy, then certain groups are likely to benefit
more than others. An investor can narrow the field to those groups that are best suited to
benefit from the current or future economic environment. If most companies are expected
to benefit from an expansion, then risk in equities would be relatively low and an
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K.L.E.Society’s Institute of Management Studies and Research, Hubli-31
aggressive growth-oriented strategy might be advisable. A growth strategy might involve
the purchase of technology, biotech, semiconductor and cyclical stocks. If the economy is
forecast to contract, an investor may opt for a more conservative strategy and seek out
stable income-oriented companies. A defensive strategy might involve the purchase of
consumer staples, utilities and energy-related stocks.
To assess a industry group's potential, an investor would want to consider the overall
growth rate, market size, and importance to the economy. While the individual company
is still important, its industry group is likely to exert just as much, or more, influence on
the stock price. When stocks move, they usually move as groups; there are very few lone
guns out there. Many times it is more important to be in the right industry than in the
right stock! The chart below shows that relative performance of 5 sectors over a 7-month
time frame. As the chart illustrates, being in the right sector can make all the difference.
Once the industry group is chosen, an investor would need to narrow the list of
companies before proceeding to a more detailed analysis. Investors are usually interested
in finding the leaders and the innovators within a group. The first task is to identify the
current business and competitive environment within a group as well as the future trends.
How do the companies rank according to market share, product position and competitive
advantage? Who is the current leader and how will changes within the sector affect the
current balance of power? What are the barriers to entry? Success depends on an edge, be
it marketing, technology, market share or innovation. A comparative analysis of the
competition within a sector will help identify those companies with an edge, and those
most likely to keep it.
Company Analysis:
With a shortlist of companies, an investor might analyze the resources and capabilities
within each company to identify those companies that are capable of creating and
maintaining a competitive advantage. The analysis could focus on selecting companies
with a sensible business plan, solid management and sound financials.
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K.L.E.Society’s Institute of Management Studies and Research, Hubli-31
Business Plan:
The business plan, model or concept forms the bedrock upon which all else is built. If the
plan, model or concepts stink, there is little hope for the business. For a new business, the
questions may be these: Does its business make sense? Is it feasible? Is there a market?
Can a profit be made? For an established business, the questions may be: Is the
company's direction clearly defined? Is the company a leader in the market? Can the
company maintain leadership?
Management:
Financial Analysis:
The final step to this analysis process would be to take apart the financial statements and
come up with a means of valuation. Below is a list of potential inputs into a financial
analysis.
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K.L.E.Society’s Institute of Management Studies and Research, Hubli-31
OPERATIONAL DEFINITIONS:
Economic Analysis:
Economic analysis refers to analyze the factors or indicators of the economy that affects
the stock market. This is also called non-diversifiable risk analysis where the risk
associated with the securities can not be diversified.
Industry analysis:
Industry analysis refers to analyze the plan, priorities and vulnerability of an industry for
government regulations. The competitive conditions as reflected in any barriers to
industry also taken in to consideration.
Company Analysis:
Company analysis includes analyze the company as potentiality for growth, present
performance, risk associated with securities are considered as important.
Correlation:
Correlation is a statistical measure of the degree to which the security returns move
together. The positive correlation means the variables move together. The negative
correlation suggests that move in opposite direction and zero correlation shows that no
tendency to very either positive or negative direction.
Beta:
It measures the sensitivity of the return of a security to changes in returns to the market
portfolio. It may be positive or negative. The positive beta measures that if 1% changes
market index, more than 1% in individual security and vice versa.
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K.L.E.Society’s Institute of Management Studies and Research, Hubli-31
PROJECT DETAILS
Main Objective:
“To evaluate the performance of Capital Goods companies under study using EIC
Analysis.”
Sub objectives:
6. Analyzing the environmental factors that affect the security prices.
7. Industry analysis of Capital goods Sector
8. To assess the fundamentals of the company in light of financial statements.
9. To arrive at intrinsic value of the company thus enabling the investor in assessing
the worth of the security.
10. I had keen interest to enrich my knowledge in stock market.
Framework of study:
The proper order to proceed in Fundamental analysis is,
First, to analyze the overall economy and securities markets.
Second, analyze the industry with in which a particular company operates.
Finally, analysis of the company should be considered.
The above analysis involves making a careful estimate of expected stream of benefits and
required return of common stock. The intrinsic value then can be obtained through P/E
ratio or earning multiplier approach.
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K.L.E.Society’s Institute of Management Studies and Research, Hubli-31
Data Collection Approach:
Secondary Data:
The study is mainly based on analysis of financial statements of the company i.e. balance
sheet and profit and loss account. The same has been collected through;
• Company websites and other related websites.
• The information is also collected from various magazines like Indian survey 2008
by The Hindu
• News papers
Sample Size:
Two large cap companies are taken for study. They are;
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K.L.E.Society’s Institute of Management Studies and Research, Hubli-31
ECONOMY ANALYSIS:
The level of economic activity has an impact on investment in many ways. If the
economy grows rapidly, the industry can also be expected to show growth and vice-versa.
The analysis of macro economic environment is essential to understand the behaviour of
the stock prices. The commonly analysed macro economic factors are as follows;
1. Global economy
2. Gross Domestic Product (GDP)
3. Industrial growth rates
4. Savings and investments
5. Government budget and deficit
6. Price level and inflation
7. Interest rates
8. Balance of payment(BOP), forex reserves,& exchange rates
9. Infrastructural facilities and arrangements.
10. Sentiments
1. Global economy
In recent years, globalization of capital flows hassled to the growing relevance of
emerging capital markets and India is one of the countries with an expanding stock
market that is increasingly attracting funds from the FIIs. In particular, deregulation and
market Liberalization measures, rapid developments in communication technology and
computerized trading systems, and increasing activities of multi national corporations
have accelerated the growth of Indian capital market.
From 1999 onwards, Indian firms are raising capital from the US market by listing
themselves in US exchanges. The economic dailies as well as official publications have
been full of stories of a newfound alliance between the NSE and the NASDAQ. Through
these news reports, market regulators, traders, and the general investing public in India
have become sensitized to the US stock market movements.
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K.L.E.Society’s Institute of Management Studies and Research, Hubli-31
Finally, a quick examination of stock market movements of these two markets suggests
that there exists a substantial degree of inter dependence between the US and Indian stock
market indices.
There was a lot of turmoil in the stock market since January 2008.We can see that FII’s
have sold there stake significantly. Indian markets are semi-strong markets and hence
they are largely dependent on FII activity.
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K.L.E.Society’s Institute of Management Studies and Research, Hubli-31
The GDP of industry sector is in a growing trend with an average of 8.5% whereas the
Chinese GDP has an average of 10.5%. Hence the biggest competition is faced by China.
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K.L.E.Society’s Institute of Management Studies and Research, Hubli-31
2000-01 3.7 1.8 4.7 14.5 5.8 5.0
2001-02 2.6 -3.4 1.5 11.5 4.1 2.7
2002-03 4.9 10.5 3.9 -6.3 12.0 5.7
2003-04 5.4 13.6 6.4 11.6 5.8 7.0
2004-05 5.5 13.9 6.1 14.4 10.8 8.4
2005-06 6.7 15.8 2.5 15.3 11.0 8.2
2006-07 9.3 16.1 10.9 12.5 8.7 11.3
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K.L.E.Society’s Institute of Management Studies and Research, Hubli-31
2007 3.7 2.0
Source: The Hindu (survey of Indian industry 2008)
7. Interest rates:
Interest rate is the cost of borrowing depends on nature of instruments, which will be
decided by demand and supply of money and controlled by RBI. It indicates the
attractiveness of future investment opportunity and it is key determinant of business
expenditure. High interest rate reduces the value of future cash flow as well as
opportunities for investment.
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9. Infrastructural facilities and arrangements:
The capital goods industry is driven by this factor. Investment in infrastructure
developments indicates positive signal to the sectors in the economy, especially
manufacturing companies related to transportation. In order to gain from the trade the
transaction costs should be low. So the better facility reduces the cost of trade and
enables the companies for making profit.
10. Sentiments:
The sentiments of consumers and businessmen have an important bearing on economic
performance. Sentiments influence consumption and investment decisions and have a
bearing on the aggregate demand for goods and services
Thus to sum up: ‘India is not on autopilot to greatness. But it would take an incompetent
pilot to crash the plane'. These words of Mr. Edward Luce very aptly define the contours
of the Indian economy. The economy has been growing at an average annual growth rate
of nearly 6% since the 1980s, and at over 8% during the last three years. Besides, India
has also shown considerable resilience during the recent years and avoided adverse
contagion impact of several shocks. This has precipitated to increased confidence in the
country's financial markets with a consistent increase in gross domestic investment rate
from 25% of GDP in FY03 to 33% in FY06. The gross domestic saving rate has also
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improved from 26% to 32% over the same period, contributed by a significant turn
around in public sector saving. A case in this point is that the inflows into mutual funds
alone have multiplied 10 times in the last decade and is currently at all time highs!
For this buoyancy to sustain, the country will have to tide over several stumbling blocks.
Inherent flaws...
First, the poor state of the physical infrastructure, both in terms of quantity and quality.
While with the healthy fundamentals of the domestic financial sector and the enhanced
interest of foreign investors, funding should not pose a problem, issues relating to
regulatory framework and rapid execution need to be addressed by the government.
Second, the fiscal consolidation. The recent budget of the central government targets a
gross fiscal deficit of 3% of GDP by 2009. This requires fiscal empowerment, which is
possible through two routes (i) elimination of subsidies or (ii) elimination of tax
exemptions. While in any economy fiscal consolidation is hard, it is particularly so in our
setting
Third, India is set to remain one of the youngest countries in the world in the next few
decades. This 'demographic dividend' cannot be used to the economy's advantage unless
prerequisites such as skill upgradation and sound governance to realize it are put in place.
Fourth, there is a need to shift the emphasis from foreign institutional investment to
attracting foreign direct investment, which is less volatile. This requires a more favorable
investment climate in general both for domestic and foreign capital.
Global Imbalances...
As India does not depend on the international capital market for financing the fiscal
deficit, the extent of adverse consequences of the global developments would be muted.
However, there could be a spillover effect of global developments on domestic interest
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rates and thus on fiscal position. Also, a faster rise in rates overseas could lead to a shift
in investor confidence to the international markets. Further, should there be a reversal of
capital flows, asset prices may decline. With this there is a risk that rise in interest rates in
general could impact the housing market and expose the balance sheet of the households
to interest rate risk, increasing the risk of loan delinquencies for banks. Banks in India
have invested significantly in government debt and other fixed income securities. If a rise
in international rates gets reflected in domestic interest rates, banks will also have to
mark down the value of their investment portfolio.
Multilateral confidence...
While we do not intend to sound pessimistic about the continued resilience of the
economy to global and internal shocks, investors investing in the India story should
assess these grounds before judging the 'market risk' to be assigned to a stock. Weighing
this with the premium expected to be earned over and above the risk free rate (10 year
GSec yield), will help you correctly align your portfolio as per your risk profile.
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IMPACT OF BUDGET 2008-09 ON ENGINEERING:
From a policy perspective, however, there has been a growing consensus that a private-
public partnership is required to remove difficulties concerning the development of
infrastructure in the country. The realization finally seems to be setting in. This makes the
future of the Indian engineering sector extremely bright. Apart from highway
development and construction and modernization of airports, the potential for the sector
lies in the oil and gas space, where high global demand has led to increased action in
exploration and production activities. However, scale and execution capabilities remain
the mantras for success.
Budget Measures:
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• Custom duty on project imports reduced from 7.5% to 5%
• Defence allocation to be increased by 10%.
• Excise duty being exempted on end-use basis, on refrigeration equipment
(consisting of compressor, condenser units, evaporator, etc) above 2 TR (tonne
refrigeration) utilising power of 50 KW and above.
• Parent company allowed to set-off the dividend received from its subsidiary
company against dividend distributed by the parent company; provided that the
dividend received has suffered DDT and the parent company is not a subsidiary of
another company.
Budget Overview:
Key Positives:
Power play: Since power utilities are one of the biggest consumers (generation,
transmission and distribution) for engineering companies, reforms introduced in the
power sector like privatisation of SEBs will help in strengthening the order book size.
Huge addition in power generation capacity, in order to meet the demand supply gap will
be a big positive for the sector.
Industrial ‘act’: Industrial divisions of engineering companies are likely to benefit from
the increased focus on automation and capacity addition plans drawn by the India Inc.
Key Negatives:
Captive competition: Duty free import of T&D equipments by captive power generation
units, if allowed by government, can have some impact on margins of the T&D majors
because of competition.
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People problem: Engineering companies, across the board, are facing troubled times
retaining key employees. This is due to increased levels of competition for talent from
MNCs, who have deep pockets and thus better paying capabilities. As a result of
increasing levels of attrition, some companies are facing execution issues.
COMPANY IMPACT:
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INDUSTRY ANALYSIS:
If one were to consider one of the biggest beneficiaries from any country’s infrastructure
sector development, engineering companies have a vital role to play. As in any other
sector, choices for a retail investor are high for an equity investment. However, it does
that mean each stock in the sector is a BUY? In this article, we have tried to discuss the
dynamics of this sector and the key aspects that one should look in, before selecting an
engineering stock.
PROFILE:
Engineering, as a sector, has many facets. A company from this sector can be an
equipment manufacturer (like transformers and boilers), execution specialist (say BHEL,
L&T, Engineers India) or a niche player (like Thermax in environmental solutions,
Voltas in electro-mechanical projects, ABB for automation technologies and so on). To
define the user industries in broad terms are power utilities, industrial majors (refining,
automotive and textiles), government (public investment) and retail consumers (pumps
and motors). Thus, every company has a specific role to play in the industry and is
looking forward to cater a specific target market. Given this backdrop, prospects of a
particular company in the engineering sector have to be viewed with respect to the
specific user industries. So, if the engineering sector does well, not all companies stand to
benefit in equal proportion.
It is highly dependent on the level of private and public sector investment in the
economy. When investments in capacities and infrastructure gains momentum, more jobs
are created and demand for goods in general increases. This in turn leads to higher
economic growth. Historically, the growth of the engineering sector has been sensitive to
economic performance (as is evident from the graph below). The industry is relatively
less fragmented at higher end, as competencies required are high. It is therefore that the
barriers to entry are also high. But in some cases, competition is also global in nature
(like dam construction, roads, refineries and power plants).
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Let’s have a look at the demand drivers for this sector:
Order Book:
An engineering company can derive revenues from domestic as well as global markets.
Usually, there is something-called order book that is declared by most of the companies
in its annual report. This is nothing but the quantum of projects that have been won, but
are still to be executed. Therefore, order book position indicates the future growth
prospects.
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Most of these companies have an order book to sales ratio in the range of 2.5-4 times
FY07 revenue. This implies that for the next two-to-three years, even if the companies do
not get fresh orders, they can still maintain revenue growth of 30-40 per cent.
Domestic market:
The power sector accounts for approximately 60% of total revenues for this sector.
Therefore, growth in power capacities is very important for engineering companies. So
let’s have a brief look at key fundamental factors that influences power sector
performance.
Historically, politics have played a vital role in shaping the power sector as opposed to
economics (profitability in easy terms). What a retail investor has to keep in mind is that
power capacities will only increase when there is a political will to charge consumers for
what they consume. Industrial sector pays higher tariffs while agricultural sector derives
power free of cost. This is the root cause for the poor financial health of the SEBs (state
electricity boards).
SEBs are financially weak and private sectors have been reluctant to invest, as they are
apprehensive of receiving money for the quantity of power supplied to the SEBs. Retail
investors have to keep in mind that India is power deficient (demand is more than
supply). The simple way to gauge growth of a engineering company that is targeting the
power sector is to understand what kind of capacity SEBs and private sector players are
planning.
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Industrial and Infrastructure spending:
The industrial sector contributes around 30% of the total revenues of engineering sector.
The demand from this segment largely depends on GDP growth, which in turn is a
function of the quantum of infrastructure spending and capacity expansion plans of
corporate India.
The top line trends of major engineering companies since last five years have shown a
high degree of correlation with the IIP (Index of Industrial Production) growth. Thus a
fair idea can be taken about the sector looking at the IIP growth. Let’s look at the
correlation in the graph below.
Exports:
While an engineering company from India could tap global markets for contracts, there is
a vast difference when it comes to competitors. Players like Bechtel and GE have muscle
power and have executed projects on a global scale. This is one of the reasons increasing
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contribution from international markets is not easy for any company. Retail investors
have to tread with caution on this front. Due to intense competition in the international
arena, suppliers do not enjoy much bargaining power.
Moreover, in order to win big contracts you need to have big balance sheet size, because
only some part of entire contract money is paid up front and rest comes after installation
of project. Moreover, in some cases, the engineering company buys stake in the projects
during the financial closure.
• Order book and operating margins: Order book, as we had said earlier,
indicates a company’s standing in a year in terms of future growth in revenues. A
consistent rise in order book on a year on year basis (and not quarter on quarter) is
also vital. Though order book may be huge for a company, it has to be
remembered that operating margins are low in projects. In a downturn, operating
margins of an engineering company comes under pressure. If a company acts as
an engineering agency (i.e. buys and installs equipment), margins tend to be on
the higher side.
• Balance sheet size: One should look at the balance sheet size of the company. It
will tell you whether company is capable of bagging and executing big contracts.
In order to win big contracts and execute them, company needs huge working
capital. In this case, past track record of projects executed could be useful
(available in the balance sheet).
• Valuation ratios: One of the key factors used when it comes to putting a value
for an engineering company is market capitalization to sales. Why the emphasis
of assigning a value to revenues and not to earnings? The ability to grow for any
engineering company is dependent on the kind of order book, which then
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translates into revenues. Internationally, the average of 0.4 times to 0.5 times is a
benchmark. If price to earnings is used, it has to be remembered that the sector is
highly dependent on the economy. So, a P/E in line with the long-term economic
growth could be useful.
Apart from what all has been said above, investor needs to look at the past record of the
management, its vision and its focus on business. After all it’s the management of the
company who is the final decision-maker and the future of the company solely depends
on the decisions taken by it
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PORTER’S FIVE FORCE MODEL:
• Supply:
Abundant supplies is available across most segments, except for technology
intensive executions.
• Demand:
Demand growth in this sector is fuelled by expenditure in core sectors such as
power, railways, infrastructure development, private sector investments and the
speed at which the projects are implemented. The Govt. has been spending
heavily on this sector and this has fuelled the growth of capital goods industry
• Barriers to entry:
Barriers to entry are high at upper end of the industry as skilled manpower and
technologies, and ability to fund large projects are a prerequisite. However at the
lower end, the industry is more fragmented.
• Bargaining power of suppliers:
Bargaining power of suppliers is low because of intense competition. However, in
technology driven high-end segments, suppliers have the upper hand.
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• Bargaining power of customers:
Bargaining power for technology driven segments is low as there are very few
producers of engineering goods. And moreover the customer has very less
bargaining power in such industry as compared to FMCG
• Competition:
Majority of the companies compete in terms of pricing, experience in specific
field, product differentiation and timely completion of projects. The sector is less
fragmented at top because the competencies required are high.
The other competitor is China which is providing equally good competition.
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COMPANY ANALYSIS
Company Analysis is the leg in the EIC analysis sequence. It may be organized into two
parts,
1] Study of Financials.
2] Study of other factors.
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PROFILE OF THE COMPANIES UNDER STUDY:
OVERVIEW:
BHEL is the largest engineering and manufacturing enterprise in India in the energy-
related/infrastructure sector, today. BHEL was established more than 40 years ago,
ushering in the indigenous Heavy Electrical Equipment industry in India - a dream that
has been more than realized with a well-recognized track record of performance. The
company has been earning profits continuously since 1971-72 and paying dividends since
1976-77.
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BHEL has,
BHEL's operations are organised around three business sectors, namely Power,
Industry - including Transmission, Transportation, Telecommunication & Renewable
Energy - and Overseas Business. This enables BHEL to have a strong customer
orientation, to be sensitive to his needs and respond quickly to the changes in the market.
PRODUCT PROFILE:
• Established in the late 50’s, Bharat Heavy Electricals Limited (BHEL) is, today, a
name to reckon with in the industrial world.
• It is the largest engineering and manufacturing enterprise of its kind in India and
one of the leading international companies in the power field.
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• BHEL offers over 180 products and provides systems and services to meet the
needs of core sectors like: power, transmission, industry, transportation, oil & gas,
non-conventional energy sources and telecommunication.
• A wide-spread network comprising 14 manufacturing divisions, 8 service centres,
4 power sector regional centres, 18 regional offices, besides a large number of
project sites spread all over India and abroad, enables BHEL to be close to its
customers and cater to their specialised needs with total solutions - efficiently and
economically.
• An ISO 9000 certification has given the company international recognition for its
commitment towards quality. With an export presence in more than 60 countries,
BHEL is truly India’s industrial ambassador to the world.
OVERSEAS BUSINESS:
BHEL, ranking among the major power plant equipment suppliers in the world, is one of
the largest exporters of engineering products & services from India. Over the years,
BHEL has established its references in around 60 countries of the world, ranging from
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the United States in the West to New Zealand in the Far East. BHEL's export range
covers individual products to complete Power Stations, Turnkey Contracts for Power
Plants, EPC Contracts, HV/EHV Sub-stations, O&M Services for familiar technologies,
specialized after-market services like Residual Life Assessment (RLA) studies and
Retrofitting, Refurbishing & Overhauling, and supplies to manufacturers & EPC
contractors.
To remain competitive and meet customers' expectations, BHEL lays great emphasis on
the continuous upgradation of products and related technologies, and development of new
products. BHEL's commitment to advancement of technology is reflected in its
involvement in the development of futuristic technologies like fuel cells and
superconducting generators. BHEL's investment in R&D is amongst the largest in the
corporate sector in India. Products developed in-house during the last five years
contributed about 7% to the revenues in 2005-06.
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COMPANY MANAGEMENT:
Board of Directors:
Name Designation
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COROPORATE NEWS:
• State-run power plant equipment maker BHEL has won orders worth around Rs
20.30 billion from Bharathiya Rail Bijlee Company (BRBCL).
• The power ministry agreed to give power equipment manufacturer Bharat Heavy
Electricals (BHEL) a few of NTPC`s supercritical 660mw and 800mw projects on
a negotiated basis.
• The government-owned Bharat Heavy Electricals (BHEL) has secured the state-
run Chhattisgarh State Electricity Board`s (CSEB`s) contract to set up two power
plants in Korba district quoting Rs 19.6 million per Mw, the lowest it has ever
quoted for a power plant in the country,
• Bharat Heavy Electricals (BHEL), India`s biggest power equipments maker has
further enlarged its global footprint with a foray into a new market New
Caledonia, with a prestigious export contract for environment friendly circulating
fluidized bed combustion (CFBC) boilers.
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• Bharat Heavy Electricals (BHEL) is likely to spend nearly Rs 50 billion over the
next three years in its yet-to-be-formed joint venture companies with power utility
NTPC and Nuclear Power Corporation of India (NPCIL)
• Bharat Heavy Electricals (BHEL) bagged orders worth around Rs 20.30 billion
for the supply and installation of the main plant package at the upcoming 1,000
MW Nabinagar Thermal Power Project in Bihar, involving four units of 250 MW
each.
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LARSEN AND TUBRO [L&T]:
CORPORATE OFFICE:
OVERVIEW:
Strategic Mission - LAKSHYA (Hindi for Target) To compete and grow in a globalised
business environment, L&T is implementing a strategic plan (LAKSHYA) for 2005-10.
The plan has been drawn up in consultation with a leading international strategy
consultant. It has set ambitious growth targets for each business. Also included are
opportunities for diversification of L&T's business portfolio
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ORGANIZATION STRUCTURE:
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HISTORY:
The evolution of L&T into the country's largest engineering and construction
organization is among the most remarkable success stories in Indian industry.
Beginning with the import of machinery from Europe, L&T rapidly took on
engineering and construction assignments of increasing sophistication. Today, the
company sets global engineering benchmarks in terms of scale and complexity..
GLOBAL PRESENCE:
L&T has a global presence. A thrust on international business over the years has seen
overseas revenues growing steadily. The company has manufacturing facilities in India,
China, Oman and Saudi Arabia. It has a global supply network with offices in 10
locations worldwide, including Houston, London, Milan, Shanghai, and Seoul.
Customers include global majors in over 30 countries.
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TECHNOLOGY:
In every sphere of L&T's operations, technology is the key enabler, reinforcing its
leadership position, and sustaining its competitive strengths. While for some, technology
is a means to an end, for L&T, technology represents endless possibilities
L&T has set up an engineering and project management centre in Abu Dhabi, to
undertake oil and gas related projects as well as engineering and consultancy services.
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L&T-Ramboll Consulting Engineers provides civil engineering and consultancy services
for a wide range of projects in the transportation sector - ports, airports, highways and
bridges.
MANUFACTURING:
TECHNOLOGY SERVICES:
L&T provides its global clients with the winning edge through the development of
optimal solutions. L&T's e-engineering services leverage the Company's own engineering
heritage and experience. The Embedded Systems unit provides technological assistance
across a broad spectrum - design, maintenance, re-engineering, testing, prototyping and
industrial design.
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Board of Directors:
Name Designation
Mr. Subodh Bhargava Additional Director
Lt. Gen. Surinder Nath Non Executive Director
Mr. K Venkataramanan Whole Time Director
Mr. Y M Deosthalee Whole Time Director
Mr. J P Nayak Whole Time Director
Mrs. Bhagyam Ramani Director
Mr. K V Rangaswami Whole Time Director
Mr. A M Naik Chairman and Managing director
Mr. N Mohan Raj Nominee Director
Mr. M V Kotwal Whole Time Director
Mr. Thomas Mathew T Nominee Director
Mr. U Sundararajan Non Executive Director
Mr. R N Mukhija Whole Time Director
Mr. S N Talwar Non Executive Director
Mr. V K Magapu Whole Time Director
Mr. M M Chitale Non Executive Director
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CORPORATE NEWS:
• L&T to bag Rs 480 bn order in Joint Venture with Mitsubishi Heavy Industries.
• L&T secures Rs 20 bn contract from Bombay Dyeing for developments at the
Textile Mills & Spring Mills complexes at Worli and Wadala regions of Mumbai
respectively.
• Cairn had awarded a Rs 6 billion contract to L&T in February for the laying of a
heated pipeline for transporting crude oil from Barmer in Rajasthan to Salaya in
Gujarat.
• Larsen & Toubro (L&T) bagged four orders worth Rs 16.87 billion from the
Government of Rajasthan, Bhushan Steel-Orissa, SAIL Bokaro Steel Plant and
the Damodar Valley Corporation (DVC). The orders are for water supply projects,
sinter plant and cold roll mill and a coal handling plant
• Larsen & Toubro`s (L&T) through its E&C division`s refinery projects business
unit received Rs 5.76 billion order from Hindustan Petroleum (HPCL).
• Larsen & Toubro (L&T), India`s biggest engineering company, has made public
its plans to ramp up its manufacturing capacity of super-critical boilers and super-
critical turbine generators to 4,000 mw per annum. The foundation stone for the
upgraded facility was laid at Hazira on Mar. 19, 2008.
• The Heavy Engineering Division of India`s largest engineering company Larsen
& Toubro (L&T) bagged a contract valued at Euro 28 million (Rs 1.70 billion)
for supply of the Coal Gasifier and Syngas Cooler assembly to Hebi Coal and
Electricity Co of China.
• Larsen & Toubro (L&T), a USD 5 billion technology, engineering and
construction company with global operations, announced on Tuesday, that the
electrical & electronics division (EBG) of the company bagged Rs 747 million
contracts to supply SCADA system for onshore control centers (OCC) for
offshore operations of Oil and Natural Gas Corporation (ONGC). L&T has been
awarded this project by outbidding international competitors.
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ANALYSIS OF COMPANY FINANCIALS
B. LIQUIDITY RATIOS
These ratios measure the firm’s liquidity position. It is firm’s ability to meet its short term
obligations. There are three types of ratios through which the liquidity position can be
assessed. They are
• Current ratio
• Quick/acid-test ratio
• Absolute cash ratio.
1. CURRENT RATIO:
It is calculated as following
Current Ratio = Current Assets / Current Liabilities
Relevance:
• Current Liability coverage: Higher the current ratio, greater is the assurance
we have that current liabilities will be paid.
• Buffer against losses: Current Ratio shows the margin of safety available to cover
shrinkage in non cash current asset values when ultimately disposing off or liquidating
them
• Reserve of liquid funds: It is the measure of margin of safety against uncertainties and
random shocks to the company’s cash flows.
Limitations:
It is static measure of resources available at a point in time to meet the current
obligations. The current reservoir of cash does not have a logical or causal relation to its
future cash flows. These cash flows depend on factor excluded from the ratio i.e sales,
expenditure, cash, profits.
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BHEL L&T
Current Ratio
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
2004-05 2005-06 2006-07
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Interpretation:
BHEL- The cash and cash equivalents have increased from Rs.4133.97 crore in 2005-06
to Rs. 5808.91 crore in 2006-07 reflecting the sound liquidity of the company. On the
other hand, this increase has been set off by decrease in loans and advances.
L&T- The ratios of current assets to liabilities is in decreasing trend. The ratio signifies
how much assets are available with them for every rupee of obligation. The company had
24% (2006 to 2007) increase in current assets whereas the liabilities increased by 39% in
FY07. This was on account of advances to customers and unpaid expenses
Based on current ratio we can say BHEL is better–off than L&T as far as liquidity
is concerned.
2. QUICK RATIO:
A more stringent test of the liquidity uses the Liquidity ratio, also known as the Quick or
the Acid Test Ratio which includes the assets most quickly convertible to cash. This is a
better test of liquidity as it handles issues of window dressing.
BHEL L&T
2004-05 2005-06 2006-07 2004-05 2005-06 2006-07
CA-Inv 130519.0
12586.41 16845.30 8795.41 9535.45 11884.66
0
CL 84459.00 10320.02 14420.11 5556.57 6910.55 9337.26
Quick ratio 1.55 1.22 1.17 1.18 1.06 0.95
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Quick Ratio
1.5
0.5
0
2005 2006 2007
Interpretation:
30 0 0
3 -D
Column 1
20 0 0 BHEL
10 0 0
0
Quick ratio is also called as acid test ratio. The industry standards say 1:1 ratio is
L&T
preferable. Both the companies have maintained except for L&T in the FY07 this is
because of large amounts due to customers and it also shows that greater amount of assets
is tied up in inventory. BHEL stands strong as compared to L&T.
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0.4
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0
2004-05 2005-06 2006-07
Interpretation:
Again in cash ratio, L&T falls behind BHEL. The later being a PSU was able to maintain
its liquidity better than L&T. especially in the FY06 the value is very low. The reason for
this is, the balance of fixed deposits with scheduled banks is less as compared to other
years. This amount is utilized to meet the expenses of the company
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B. TURNOVER RATIOS
Efficiency or Turnover Ratios measures the efficiency of asset management. Each
turnover ratio defines the asset differently. These ratios are based on the relationship
between the level of activity, represented by sales or cost of goods sold and levels of
various assets.
FA TURNOVER RATIO
6
4.17
3.5
4 2.63
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Interpretation:
Gross Block and capital Work in progress increased by Rs. 312.99 crore, and Rs. 117.97
crore during the year 07 due to Capital expenditure incurred on ongoing capacity
augmentation programme at various manufacturing units and the erection and
commissioning facilities at project sites has lead to increase in the ratios of BHEL. The
capital expenditure on capacity addition has lead to increase in the ratio of BHEL.
On the other side L&T has been able to maintain stable ratio of around 6 times which is
far more than BHEL. Interpreting the reciprocals, we may say that for generating a sale
of Re.1, BHEL needs Rs.0.24 investment in fixed assets as compared to L&T which
needs investment of Rs.0.16.
BHEL L&T
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Total assets turnover Ratio
1.5
0.5
Interpretation:
L&T is more efficient than BHEL in utilizing the assets. L&T has been efficient enough
to generate sales more than a rupee for every one rupee invested in fixed and current
assets together. BHEL over the 3 years have increased the sales per rupee invested. The
BHEL’s vision for 2012 insists the company to improve its efficiency .
INVENTORY DAYS:
A financial measure of a company's performance that gives investors an idea of how long
it takes a company to turn its inventory (including goods that are work in progress, if
applicable) into Sales.
Inventory turnover ratio = Cost of Goods Sold/Average inventory
Inventory Days = Inventory turnover ratio/360
Cost of goods sold include material cost, labour cost and other manufacturing expenses
such as fuel & power, repairs & maintenance, consumable stores, insurance on goods,
and so on. Average inventory is taken as
= (Opening inventory + closing inventory)/2
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Generally a high inventory turnover is indicative of good inventory management. A low
inventory turnover implies excessive inventory levels than warranted by production and
sales activities, or a slow moving or obsolete inventory. A high level of sluggish
inventory amounts to unnecessary tie-up of funds, reduced profits and increased costs. A
high turnover ratio is to be carefully analysed. A high inventory turnover may be result of
a very low level of inventory which results in frequent stock-outs; the firm may be living
from hand to mouth
BHEL L&T
2004-05 2005-06 2006-07 2004-05 2005-06 2006-07
COGS
8681.63 11195.08 14046.92 11239.16 12452.88. 14336.45
Avg inv
226.34 295.87 316.07 237.34 221.33 218.68
Inv Turnover
38.36 37.84 44.44 47.35 56.26 65.56
Inventory days
9.39 9.51 8.10 7.60 6.40 5.49
Inventory days
10
Interpretation:
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In terms of efficiency, L&T outlasts BHEL. But very high ratio of L&T may become a
problem for it. The turnover ratio tells how many times the inventory of finished goods is
converted to sales in a year. The ratios of both the companies reveal a good turnover of
sales and reduced inventory holding period. Since these companies have huge orders in
hand, we can expect the companies to perform better.
DEBTORS TURNOVER
A ratio used to work out how many days on average it takes a company to get paid for
what it sells. It is calculated by dividing the figure for trade debtors shown in its accounts
by its sales, and then multiplying by 360.
Debtor days = (debtors ÷ Sales) ×360
This indicates whether debtors are being allowed excessive credit. A high figure (more
than the industry average) may suggest general problems with debt collection or the
financial position of major customers.
BHEL L&T
2004-05 2005-06 2006-07 2004-05 2005-06 2006-07
Sales
10336.40 14525.49 18738.95 13254.56 14883.68 17900.59
Debtors
6726.71 7168.07 9695.82 6726.71 4814.16 5504.64
Drs Turnover
1.54 2.03 1.93 1.97 3.09 3.25
Debtors days
234.28 177.65 186.27 182.70 116.44 110.70
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Debtors tunover ratio
300
200
100
Interpretation:
Collection of debtors is more efficient in case of L&T. In case of L&T, there has been a
decrease in the in debtors days. In case of BHEL, Debtors in absolute terms increased by
Rs. 2527.75 crore mainly due to increase in turnover. In terms of days of turnover it
increased from 177 days in 2006-07 to 187 days in 2006-07. The price of capital goods in
high and the payments are usually made in parts hence the collection period is more as
compared to the inventory turnover.
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C. SOLVENCY RATIOS:
TOTAL DEBT RATIO:
This ratio depicts the proportion of the interest bearing debt in the capital structure. This
ratio is given by;
Total debt ratio = Total Debt/Total Debt+Networth
Total debt will include short and long term borrowings from financial institutions,
debentues, deferred payment arrangements for buying capital equipments and bank
borrowings, public deposit and any other interest bearing loan.
BHEL L&T
2004-05 2005-06 2006-07 2004-05 2005-06 2006-07
TD
536.98 558.24 89.33 1859.06 1453.57 2077.75
TD+NW
6563.88 7859.62 8877.59 5228.19 6093.74 7846.18
Total debt ratio
0.08 0.07 0.01 0.36 0.24 0.26
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Total debt ratio
0.4
0.2
0
2004-05 2005-06 2006-07
BHEL 0.08 0.07 0.01
L&T 0.36 0.24 0.26
Interpretation :
The debt component in BHEL is very low, almost nil that is because the Secured loan of
Rs. 500 crore towards bonds were redeemed during the year and repaid on its maturity.
Unsecured Loan represents assets taken on lease. The company being a PSU is funded
mostly by equity.
The debt ratio of L&T is more when compared to BHEL this component is used to
finance the growth plans.
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A high debt/equity ratio generally means that a company has been aggressive in financing
its growth with debt. This can result in volatile earnings as a result of the additional
interest expense. If a lot of debt is used to finance increased operations (high debt to
equity), the company could potentially generate more earnings than it would have
without this outside financing. If this were to increase earnings by a greater amount than
the debt cost (interest), then the shareholders benefit as more earnings are being spread
among the same amount of shareholders. However, the cost of this debt financing may
outweigh the return that the company generates on the debt through investment and
business activities and become too much for the company to handle. This can lead to
bankruptcy, which would leave shareholders with nothing.
The debt/equity ratio also depends on the industry in which the company operates.
Debt-Equity Ratio
0.2
0.1
0
2004-05 2005-06 2006-07
BHEL 0.08 0.07 0.01
L&T 0.13 0.1 0.19
Interpretation:
There is just a nominal component of debt in BHEL. The sharp decrease in the ratio
during the FY07 is due to redemption of bonds worth Rs.500crs. the company further
plans to increase its authorized capital to Rs.2000crs from the present level of Rs.325crs
On the other hand, decrease in debt due to conversion of FCCB’s.. The ratio is again
more in the FY07. The increase was due to sharp increase in unsecured loans, both short-
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term and long term to finance its present activities and also to supplement the growth
plans.
BHEL L&T
2004- 2005- 2006- 2004- 2005- 2006-07
05 06 07 05 06
EBDIT
1663.03 2623.10 3779.40 1340.13 1388.72 2038.82
Interest expenses
81.41 58.75 43.33 53.99 75.07 33.93
Interest coverage ratio
20.43 44.65 87.22 24.82 18.50 60.09
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Interest Coverage Ratio
100
50
Interpretation:
The coverage reveals the margin with which the firm can meet its financial obligations.
The coverage ratios of BHEL have been increasing due to the reduced debt component in
their capital structure. Whereas the ratio of L&T reveals that coverage is low due to the
increased interest and brokerage payments in the year 2006. The ratio of BHEL are high
as compared to L&T due to less obligations
D. PROFITABILITY RATIOS
The profit margin ratios state how much profit the company makes for every dollar of
sales. The net profit margin ratio is the most commonly used profit margin ratio. A low
profit margin ratio indicates that low amount of earnings, required to pay fixed costs and
profits, is generated from revenues. A low profit margin ratio indicates that the business
is unable to control its production costs.
The profit margin ratio provides clues to the company's pricing, cost structure and
production efficiency. The profit margin ratio is a good ratio to benchmark against
competitors.
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GROSS PROFIT MARGIN:
The gross profit margin reflects the efficiency with which management produces each
unit of product. This ratio indicates the average speed between the COGS and the sales
revenue. When we subtract the GPM from 100%, we obtain the ratio of COGS to sales.
Both these ratios show profits relative to sales after the deduction of production cost and
indicate the relation between production cost and selling price.
=Gross Profit/net sales
A high GPM implies that the firm is able to produce at relatively lower costs.
BHEL L&T
0.3
0.2
0.1
0
2005 2006 2007
BHEL 0.17 0.2 0.22
L&T 0.1 0.09 0.12
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Interpretation
The Gross Profit Margin for both the companies is in increasing trend. This is a positive
sign.BHEL has better Gross Profit Margin as compared to L & T. The COGS has been
decreased to the extent of 2% and 3% for BHEL and L & T respectively. Though there
was an increase in operating expenses, this was set-off by more sales. This reason holds
good to both the companies.
BHEL L&T
2004-05 2005-06 2006-07 2004-05 2005-06 2006-07
Net Profit (PAT)
953.41 1679.16 2414.70 983.85 942.39 1403.02
Net sales
9527.14 13374.03 17237.53 13049.79 14734.80 17578.84
GPM
0.10 0.13 0.14 0.08 0.06 0.08
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0.25
0.2
0.15
0.1
0.05
0
2005 2006 2007
0.12
0.1
0.08
0.06
0.04
0.02
0
2005 2006 2007
BHEL L&T
Interpretation:
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The interpretation has more meaning when the ratios are analysed jointly. In case of both
the companies, the GPM has been increasing and so is the NPM. This shows that the
companies are performing efficiently and are using the resources in an optimum way
BHEL L&T
2004-05 2005-06 2006-07 2004-05 2005-06 2006-07
Operating
exp 8681.63 11477.83 14218.78 12376.68 13697.31 15835.60
Net sales
9527.14 13374.03 17237.53 13049.79 14734.80 17578.84
Op exp ratio
0.91 0.86 0.82 0.95 0.93 0.90
0.9
0.8
0.7
2005 2006 2007
BHEL 0.91 0.86 0.82
L&T 0.95 0.93 0.9
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Interpretation:
The operating expense ratio is decreasing for both the companies. This implies that the
company is left with more income to cover its obligations and also give good returns to
its stakeholders. BHEL expense ratio is impressive as it is left with 18% of its sales to
meet its expenses of interest, taxes and earnings.
RETURN ON EQUITY
RONW essentially checks the return on investment (ROI) of the owners’ fund also
known as the Net Worth or NW. RONW assess the Profit Distributing Ability(PDA) of
the company, i.e. how much profit will the owners/shareholders get for every unit of
investment they have made.
BHEL L&T
2004-05 2005-06 2006-07 2004-05 2005-06 2006-07
PAT
953.41 1679.16 2414.70 983.85 942.39 1403.02
Net Worth
6026.89 7301.38 8788.26 3369.13 4640.17 5768.43
ROE
0.16 0.23 0.27 0.29 0.20 0.24
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Return on equity
0.4
0.2
0
2005 2006 2007
BHEL 0.16 0.23 0.27
L&T 0.29 0.2 0.24
Interpretation:
The Return on Equity is showing favourable trend. In case of L&T, the ROE has reduced
in the FY06 but that was due to increased borrowings to finance the growth of the
company. in the FY07 , the returns are again increased.
ROCE explains the overall utilization of funds by a business enterprise. It says how much profits
we earn from the amount invested by the Shareholders. Capital Employed means the long-term
funds employed in the business and includes the shareholder s fund, debentures and long-term
loans. Profit before Interest and Tax is considered for computation of this ratio to make
numerator and denominator consistent.
It is calculated as –
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BHEL L&T
2004-05 2005-06 2006-07 2004-05 2005-06 2006-07
PBIT
1663.04 2623.10 3779.40 1340.13 1388.72 2038.82
Capital employed
6563.88 7859.62 8877.59 5228.19 6093.74 7846.18
ROCE
0.25 0.33 0.43 0.26 0.23 0.26
Interpretation:
Here the returns are studied in comparison with capital employed i.e. Debt plus Net
worth. The sharp increase in the ratio of BHEL in FY07 was due to substantial increase
in PBIT(44%) which is not met by proportional increase in Capital employed(12%).
Whereas L&T saw an increase of 46% in PBIT which was partially set off by increase in
capital employed (30%).
BHEL L&T
2004-05 2005-06 2006-07 2004-05 2005-06 2006-07
PBIT
1663.03 2623.10 3779.40 1340.13 1388.72 2038.82
Total assets 14028.70
14387.22 17313.00 22051.71 9855.35 11113.11
ROTAK.L.E.Society’s Institute of Management Studies and Research, Hubli-31 0.1584
0.12 0.15 0.17 0.14 0.12
Interpretation:
The sales generated for every rupee invested in fixed assets is more or less same for both
the companies. BHEL gives 12%, 15% and 17% returns on total assets for FY05,FY06
and FY07 resp. and L&T has given returns of 14%, 12% and 15% resp. BHEL has been
able to generate 2% more returns than L&T in FY07.
0.2
0.1
0
2005 2006 2007
BHEL 0.12 0.15 0.17
L&T 0.14 0.12 0.15
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EPS= earnings per share
100
50
0
2005 2006 2007
BHEL 38.95 68.6 98.66
L&T 70.85 67.53 48.36
Interpretation:
BHEL: Since the number of shares has remained constant, the rise can be fully attributed
to the increased earnings over the years. The earnings has increased by 153% over the
period of three years
L&T: The EPS is in downward trend. This is due to the change in the number of shares
outstanding as a result of convertibles.
The basic EPS is always more than diluted it considers only the existing outstanding
shares and not the convertibles, potential stock option etc.
A performance metric used to gauge the quality of a company's earnings per share (EPS)
if all convertible securities were exercised. Convertible securities refer to all outstanding
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convertible preferred shares, convertible debentures, stock options (primarily employee
based) and warrants. Unless the company has no additional potential shares outstanding
(a relatively rare circumstance) the diluted EPS will always be lower than the simple
EPS.
DPS = Total Earnings/ (No of Shares outstanding + No of possible convertible
shares)
This is a conservative metric because it indicates somewhat of a worst-case scenario. On
one hand, everyone holding options, warrants, convertible preferred shares, etc. is
unlikely convert their shares all at once. At the same time, if things go well, there is a
good chance that all options and convertibles will be converted into common stock.
BHEL L&T
2004-05 2005-06 2006-07 2004-05 2005-06 2006-07
Dividends
195.81 354.90 599.66 357.21 302.25 368.25
Shares outstanding
24.48 24.48 24.48 12.67 13.30 27.94
DPS
8.00 14.50 24.50 28.19 22.73 13.18
30
20
10
0
2005 2006 2007
BHEL 8 14.5 24.5
L&T 28.19 22.73 13.18
Interpretation:
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BHEL: The dividend per share has increased from Rs.8 in the FY05 to Rs.24.5 in FY07
i.e. 206% growth. This phenomenal growth is due to the increased earnings and constant
equity share capital. The Board of Directors in January, 2007 recommended the issue of
Bonus Shares in the ratio of 1:1 to the Shareholders of the company.
L&T: The dividend paid is more than BHEL. In FY07, the number of outstanding shares
was increased to 27.94 as compared to FY06, 13.03.
BHEL L&T
2004-05 2005-06 2006-07 2004-05 2005-06 2006-07
DPS 8.00 14.50 24.50 28.19 22.73 13.18
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Dividend Pay-out ratio
0.4
0.2
0
2005 2006 2007
BHEL 0.21 0.21 0.25
L&T 0.4 0.34 0.27
Interpretation:
Both the company’s payout ratios met the industry standard which was 20% for FY07.
Thus, the companies are good in paying dividends.
.
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P/E is a valuation ratio of a company's current share price compared to its per-share
earnings. A high P/E suggests that investors are expecting higher earnings growth in the
future compared to companies with a lower P/E.
The market price per share may be the price prevailing on a certain day or the average
price over a period of time. The EPS is simply the PAT less preference dividend divided
by number of shares outstanding.
BHEL L&T
2004-05 2005-06 2006-07 2004-05 2005-06 2006-07
MPS
383.70 1123.48 1130.38 497.58 1216.30 1619.15
EPS
38.95 68.60 98.66 70.85 67.53 48.36
P/E ratio
9.85 16.38 11.46 7.02 18.01 33.48
The P/E ratio is used to value the firm’s performance as expected by investors. P/E ratio
reflects investor’s expectations about the growth of the firm’s earnings. Industries differ
in growth prospects; accordingly, the P/E ratios for industries vary widely.
Interpretation:
The ratio is higher incase of L&T. This means that investors are expecting a lot from
L&T when compared to BHEL. Though BHEL is equally good the investors are
expecting more from L&T and this has lead to decrease of P/E ratio.
The P/E ratio reflects the growth prospects, risk characteristics, shareholder orientation,
corporate image, and degree of liquidity.
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PRICE TO BOOK VALUE
Price to book Ratio =Market price per share /book value per share
Price to Book Ratio is used to compare a stock's market value to its book value. A
lower P/B ratio could mean that the stock is undervalued. However, it could also mean
that something is fundamentally wrong with the company.
In a way this ratio reflects the contribution of a firm to the wealth of society when this
ratio exceeds 1, it means that the firm has contributed to the creation of wealth in the
society.
BHEL L&T
2004-05 2005-06 2006-07 2004-05 2005-06 2006-07
MPS
383.70 1123.48 1130.38 497.58 1216.30 1619.15
BV
246.24 298.31 359.06 256.94 335.61 202.65
PBR
1.56 3.77 3.15 1.94 3.62 7.99
The ratio of both the companies is showing a positive trend i.e. the ratio is more than 1
which is favorable and which means the company has contributed significantly to the
creation of wealth of society.
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COMPOUNDED ANNUAL GROWTH RATE:
To measure the historical growth, the compounded annual growth rate (CAGR) is
calculated.
• SALES
BHEL L&T
=1.345 – 1 =1.16 – 1
= 0.345 or 34.5% = 0.16 or 16%
Thus the historical growth of BHEL is more than that of L&T. the reason for huge
growth is the result of growing infrastructure facilities and the orders in hand.
BHEL L&T
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= [98.66/ 38.95] ½ -1 = [48.36/70.85] ½ -1
=1.591 – 1 = 0.83 – 1
There has been consistent growth in the EPS of BHEL due to the increased earnings and
constant number of shares. The EPS of L&T has decreased over a period of three years as
a result of increased number of shares due to conversion (diluted EPS).
BHEL L&T
=1.75 – 1 = 0.68– 1
There has been consistent growth in the DPS of BHEL due to the increased earnings and
constant number of shares. The DPS of L&T has decreased over a period of three years
as a result of increased number of shares due to conversion in FY06 and FY07 (diluted
EPS).
VOLATILITY OF ROE:
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=Range of ROE over the period of 2005-07/ Average ROE
BHEL L&T
= (0.27-0.16)/0.22 = (0.29-0.20)/0.25
= 0.5 = 0.36
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SUSTAINABLE GROWTH RATE (EXPECTED GROWTH RATE):
The get a handle over the kind of growth that can be maintained, sustainable growth rate
is calculated. It is the maximum rate at which the firm can grow by using internal sources
(retained earning) and additional external debt without increasing its Debt-equity ratio.
BHEL L&T
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CALCULATION OF EXPECTED SHARE PRICE
(VALUE ANCHOR):
The valuation is inherently an uncertain and imprecise exercise. It would be naïve to put
great faith in a single point intrinsic value estimate. Hence it would be wise to define an
intrinsic Value range ex: Rs.30 to 38. Given this value range , the decision rule may be
as follows;
Where,
Ex: The projected EPS is Rs.5 and the appropriate PE multiple is 6.87. The value anchor
is Rs.34.35. Now take a value range, assume Rs30 to Rs38. Given this range, the decision
rule may be as follows;
Market price Decision
BHEL
Interpretation :
Since market price is less than intrinsic value, the stock is worth buying
The expected share price for BHEL is Rs.2644. Based on the fundamentals, the EPS is
calculated and growth of 20.25% is added for the subsequent FY09.
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L&T:
L&T
Interpretation:
Since market price is less than intrinsic value, the stock is worth buying. Once the
market price exceeds intrinsic value, it is to be sold
Thus the expected share price of L&T is more than that of BHEL. This is due to the high
P/E ratio.
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FINDINGS:
ECONOMY:
• When come to the economic factors the global economies are getting
interrelated, the Indian market will no longer be limited to domestic economic
situation. Especially the US market has a strong bearing on Indian stock market.
• The important factors that have bearing on stock market are FII inflows, exchange
rates. The most important being the GDP, infrastructure facilities, IIP, etc which
have a direct bearing on price of the stock.
COMPANY:
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• When Liquidity ratios are concerned, BHEL has an upper hand over L&T. The
Current ratio, quick ratio and cash ratios of BHEL are better than L&T.
• But Efficiency ratios show the other picture. Total assets turnover, fixed assets
turnover ratio, inventory days and debtor’s turnover of L&T are better than
BHEL. L&T is able to utillise its assets more efficiently.
• When Solvency ratios are studied, we see that the debt component in BHEL has
been reduced to 0.1(FY07) from 0.8 (FY05). The debt of BHEL has substantially
reduced in FY07 to 0.1as a result of redemption of 8.85% Non-convertible,
secured, Redeemable Taxable Bonds worth Rs.500 crores. Incase of L&T, also
the debt has decreased. The bonds have been redeemed in FY06 but
simultaneously Zero coupon bonds were issued. This decrease has lead to
increased interest coverage ratio.
• Profitability ratios: The GPM has been increasing and so is the NPM. This shows
that the companies are performing efficiently and are using the resources in an
optimum way. The returns on equity and capital employed have been rising due to
increased earnings.
• The EPS and DPS have consistently increased in BHEL because of increased
earnings and constant number of shares. Whereas in case of L&T, the EPS has
reduced in FY07 to Rs.48 due to increased number of shares arising from issue of
bonus.
• Market based returns: the P/E ratio which shows investors expectations have
increased for both the companies. L&T has higher P/E ratio of 33.48 as compared
to 11.48 of BHEL.
• Fundamentals of those companies are quite strong. None of the fundamental
signals for disinvestments for moving out of computer and software industry.
•
CAGR SALES 34.5 16%
%
CAGR EPS 59.1 -17%
%
CAGR DPS 75% 32%
SUSTAINABLE GROWTH 17% 16.58
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RATE %
VOLATILITY 0.5 0.36
• When compare to the specific indicators like sales growth, the BHEL will be in
the first place then followed by L&T
• The CAGR EPS for L&T has come negative due to reduced EPS on account of
bonus issue.
• The Volatility of returns is high in BHEL as compared to L&T. Hence L&T is
better because it is more consistent.
• The value anchor for BHEL is Rs.2644 and for L&T is Rs.3996.2
RECOMMENDATIONS
3. Intrinsic value of L&T is Rs.3, 996.2 and the present market price is Rs.2981.85.
Hence it is recommended to buy L&T stock as its current market price is lower than
its fair value range.
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4. After a close scrutiny of economy industries and companies in considering the risk, it
may be recommended that international economy might affects the firms export
prospects, the price competition it faces from competitors, or the profit it makes from
abroad. Investor should properly analyze both globally and domestically before
taking investment decision.
5. The investor also should consider the budget decision and present years forecast of
different sectors
6. However, there are such things as a final answer to security values, a dozens experts
arrive at twelve different conclusions. Market values are fixed only in part by balance
sheet and income statement; much more by hopes and fears of humanity; by greed, by
act of god, where the investor should carefully consider the emotional factors
influence the market.
7. Of all the systems, the researcher is of the view that fundamental analysis even today
holds good. It demands, may insist on information about the company. It requires
subjecting a company’s performance and its financial statements to in-depth scrutiny.
It also calls for the company and industry in which the company operates
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CONCLUSION
In current market scenario all stocks have been valued at discounted price and hence the
current market price is very low for most of the stocks. They really fluctuate badly
without any scientific reasons and the reasons given in the news are just market
perception, which has no base. Indian stock market is not matured and hence the
fluctuation in the share prices is tremendous.
When the example of L&T and BHEL who are really performing well up to the
expectations is considered,. L&T's 52 weeks high and low prices are - Rs 4,690 and Rs
1,539 at NSE.& BHEL's 52 weeks high and low prices are - Rs 2,930 and Rs 1,178 at
NSE
In Indian share market, the share price movement does not show the performance of the
Company. In case of L&T and BHEL, under fundamentals, the share price data primarily
fluctuate due to -
• Present performance,
• Guidance of future performance given by the company (In case of L&T the same
is not available),
• Present order book,
• Contracts won by these Companies. When they win any big ticket contracts the
share prices generally goes up.
• New contracts expected to win (under negotiation)
These are the basic fundamental reasons for share price movement apart from various
economic factors like demand-supply of securities, market liquidity, FII inflows, etc.
these economic factors also have the bearing on the stock market.
Indian market is a Semi-strong market and other economic factors have a bearing on it.
Investment in securities is more fruitful when it is done for a long period. While investing
in any of the securities one should look into fundamentals of the company but should not
ignore technical analysis completely.
Investment in stocks is serious business. Hence all the homework is to be done before
plunging onto anything.
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Bibliography
Websites :-
www.equitymasters.com
www.indiaearnings.com
www.bseindia.com
www.nseindia.com
www.finance.yahoo.com
www.myiris.com
Books:-
Essentials of Financial Management-I M Pandey
Financial Management 4th Edition-Khan & Jain
Investment Analysis & Portfolio Management-Prassana Chandra
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ANNEXURES
BHEL:
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For 2005 & 2006
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LARSEN AND TOUBRO:
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For 2005 & 2006
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