financinal management

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INDIAN INSTITUTE OF FOREIGN TRADE

FINANCIAL MANAGEMENT

EPGDIB2011-13

Beta Analysis of SRF Limited

A multi-business entity

SUBMITTED BY:GROUP 10

AJAY GUPTA (ROLL NO 05), HARSH GOEL (ROLL NO 30)

KUNAL VERMA (ROLL NO 37),SURESH MEHRA (ROLL NO 69)


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Introduction

SRF Limited is a multi-business entity engaged in the manufacture of

Chemical based industrial intermediates. The Company operates inthree business segments: technical textiles business (TTB), chemicals

and polymers business (CPB) and packaging films business (PFB). TTB

includes nylon tire cord fabric, belting fabric, coated fabric, laminated

fabric, polyester tire cord fabric and industrial yarns and its research

and development. CPB includes refrigerant gases, chloromethanes,

pharmaceuticals, Certified Emissions Reductions & Allied products,

Engineering Plastics business and its research and development. PFB

includes Polyester Films. The Companys product nylon tyrecord fabric

(NTCF) is used in bias tyres of all categories from tyres for buses and

trucks to tyres for cycles. The Companys portfolio of refrigerants

includes hydrochlorofluorocarbon-22 (HCFC 22), the new-generation

refrigerant hydrofluorocarbon-134a (HFC-134a), and the refrigerant

blend R404a.

The companys recent forays into international business include

acquisitions in South Africa & Thailand.


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Beta

Beta is a measure of a stock's volatility in relation to the market. By

definition, the market has a beta of 1.0, and individual stocks are

ranked according to how much they deviate from the market. A stock

that swings more than the market over time has a beta above 1.0. If a

stock moves less than the market, the stock's beta is less than 1.0. High-

beta stocks are supposed to be riskier but provide a potential for higher

returns; low-beta stocks pose less risk but also lower returns.

Beta measures systematic risk which is the risk inherent in the whole

financial system. Beta coefficient is an important input in capital asset

pricing model to calculate required rate of return on a stock.
http://www.investopedia.com/terms/v/volatility.asphttp://www.investopedia.com/terms/v/volatility.asp


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Beta coefficient is covariance of a stock's return with market returns

divided by variance of market return. A slight modification helps in

building another key relationship which tells that beta coefficient

equals correlation coefficient multiplied by standard deviation of stock

returns divided by standard deviation of market returns. Beta

coefficient is given by the following formulas:

Extreme and interesting cases

Beta has no upper or lower bound, and betas as large as 3 or 4

will occur with highly volatile stocks.

Beta can be zero. Some zero-beta assets are risk-free, such as

treasury bonds and cash. However, simply because a beta is zerodoes not mean that it is risk-free. A beta can be zero simply

because the correlation between that item's returns and the

market's returns is zero. An example would be betting on horse

racing. The correlation with the market will be zero, but it is

certainly not a risk-free endeavor.

A negative beta simply means that the stock is inversely

correlated with the market.
http://en.wikipedia.org/wiki/United_States_Treasury_securityhttp://en.wikipedia.org/wiki/Money_market_fundhttp://en.wikipedia.org/wiki/Money_market_fundhttp://en.wikipedia.org/wiki/United_States_Treasury_security


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Stock Evaluation

The stock price movement of the company on NSE was analyzed over

the years.

The movement of the same stock was also analysed vis--vis the

benchmark NSE index to look at the Beta trend.


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Data Example

Date Stock Benchmark (NSE) % change- % change- Bnchmrk Beta

9/7/2012 216 5342.1 0.93% 1.98% 0.27

7/31/2012 204.95 5229 1.21% 2.53% 0.49

6/29/2012 207.65 5278.9 0.85% 2.52% 0.07

5/31/2012 209.1 4924.25 -1.83% -0.54% 0.50

4/30/2012 231.9 5248.15 -2.97% 1.11% 0.27

3/30/2012 251.9 5295.55 1.86% 2.25% 0.44

2/29/2012 267 5385.2 0.28% 0.18% 0.57

2/1/2012 262.09 5235.7 0.19% 0.70% 0.49

12/30/2011 249.4 4624.3 6.91% -0.47% 0.49

12/2/2011 287.32 5050.15 -0.22% 2.29% 0.24

11/1/2011 294.73 5257.95 1.08% -1.29% 0.21

10/3/2011 284.06 4849.5 -0.47% -1.90% 0.18

9/2/2011 287.78 5040 0.67% 0.78% 0.10

8/3/2011 298.45 5404.8 0.39% -0.95% 0.00

7/5/2011 294.68 5632.1 0.08% -0.33% 0.84

6/8/2011 291.02 5526.85 -0.84% -0.53% 0.01

5/10/2011 305.88 5541.25 -0.63% -0.18% 0.15

4/8/2011 329.32 5842 0.46% -0.74% 0.40

3/10/2011 289.68 5494.4 -2.28% -0.66% 0.20

2/10/2011 270.46 5225.8 1.75% -0.53% 0.35

1/11/2011 314.29 5754.1 1.58% -0.15% 0.78

12/14/2010 303.1 5944.1 -4.53% 0.62% 0.5211/12/2010 361.07 6071.65 -0.73% -1.98% 0.82

10/18/2010 338.44 6075.95 5.51% 0.22% 0.27

9/17/2010 260.44 5884.95 1.34% 0.97% 0.46

8/20/2010 245.77 5530.65 -3.60% -0.17% 0.55

7/22/2010 220.18 5441.95 -3.81% 0.79% 0.85

6/25/2010 223.39 5269.05 1.94% -0.97% 0.01

5/27/2010 206.06 5003.1 1.88% 1.74% 0.05

4/30/2010 208.9 5278 5.29% 0.45% 0.42

3/30/2010 175.36 5262.45 1.65% -0.76% 0.32


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Conclusion

What is clear is that since its overseas acquisitions in 2008, the Beta of

the company has come down. The investor risk perception has

improved because of diversified markets of the company. The

difference in pre-2005 and post-2008 scenario is that of low and high

expected returns, respectively.

The company is an Indian entity operating in Chemicals industry, with

customers in Pharmaceuticals and Food industry.

Both Pharmaceuticals and Chemicals have an established industry

scenario in India. This fact and the Beta trend indicate a steady increase

in the returns and with diversified risk portfolio, the stock can be hailed

a good investment.

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