fundamental and technical analysis @ kotak mahindra mba project report

FUNDAMENTAL AND TECHNICAL ANALYSIS

EXECUTIVE SUMMARY:

In the recent past, the bank interest rates have been increased steadily. But the

rate of Inflation has also been increased. There is no big difference between the

interest rate and Inflation rate. Because of inflation, value of money has been

decreased and cost of living has been increased. This has created panic among lower,

middle and upper middle class families who considered keeping their savings in banks

as safe as well as remunerative. So, the invertors are searching for proper investment

avenues. Here, an attempt is made to predict the future movement of scrips. This

study helps the investors to invest in shares.

India has registered a growth rate of 8.6 percent in FY 2007-08 and is

expected to grow at the rate of 10% plus in this fiscal year, and is one of the fastest

growing economies in the world. It is one of the major attractions for FI’s and FII’s.

FII’s invest in India through secondary Markets. There is a great scope for India for

becoming member of G-8 nations committee.

The stock exchange comes in the secondary market. Stock exchange performs

activities such as trading in share, securities, bonds, mutual fund & commodities.

Stock Broking industry is growing at an enormous rate, as more and more people are

attracted towards stock exchanges with the hope of making profits.

But during this period the country also registered a fairly high industrial

growth. The old industries and business establishments who wanted to expand the

activities as well as the new industries and the business establishments floated shares

in the market to raise capital for their activities. The companies, which registered

steady growth, earned confidence of the people and their shares, were rated high in

the market.

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This project report helps the reader to understand the techniques of investing

in the stock market particularly in the secondary market. Some of the proven

techniques have been used in this report to help the reader or investor.

Fundamental Analysis is the study of everything from the overall economy

and industry conditions, to the financial condition and management of specific

companies (i.e., using real data to evaluate a stock’s value).

Technical analysis is the examination of past price movements to forecast

future price movements. Technical analysts are sometimes referred to as chartists

because they rely almost exclusively on charts for their analysis.

Objectives of the study:

To know the future movement of selected companies shares through fundamental and

technical analysis.

Sub objectives

o To predict the future price of the selected companies shares.

o To study the strategies to be adopted by the retail investors based on the technical

and fundamental analysis.

o To know the floor and cap price of the stock.

o To analyze individual company scrips by considering the factors relating to the

economy, industry and the respective company.

o To predict investor positions (Buy, sell & hold) based on historical price trends

and the likely company prospects.

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Findings and suggestion:

EXPECTED MARKET PRICE OF BHEL

particulars

year

2008 2009 2010

FUNDAMENTAL ANALISIS 2132.30 2707.42 3429.62

TECHNICAL ANALYSIS 2500 3750

current market price(31-03-08) 2,061.35

EXPECTED MARKET PRICE OF L&T

Particulars

year

2008 2009 2010



current market price 3,024.80

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INDIAN STOCK MARKET

OVERVIEW OF EQUITY MARKET IN INDIA

BSE (Bombay Stock Exchange)

SENSEX - THE BAROMETER OF INDIAN CAPITAL MARKETS

Introduction:

For the premier Stock Exchange that pioneered the stock broking activity in India,

128 years of experience seems to be a proud milestone. A lot has changed since 1875

when 318 persons became members of what today is called "The Stock Exchange,

Mumbai" by paying a princely amount of Re1.

Since then, the country's capital markets have passed through both good and bad

periods. The journey in the 20th century has not been an easy one. Till the decade of

eighties, there was no scale to measure the ups and downs in the Indian stock market.

The Stock Exchange, Mumbai (BSE) in 1986 came out with a stock index that

subsequently became the barometer of the Indian stock market.

SENSEX is not only scientifically designed but also based on globally

accepted construction and review methodology. First compiled in 1986, SENSEX is a

basket of 30 constituent stocks representing a sample of large, liquid and

representative companies. The base year of SENSEX is 1978-79 and the base value is

100. The index is widely reported in both domestic and international markets through

print as well as electronic media.

The Index was initially calculated based on the "Full Market Capitalization"

methodology but was shifted to the free-float methodology with effect from

September 1, 2003. The "Free-float Market Capitalization" methodology of index

construction is regarded as an industry best practice globally. All major index

providers like MSCI, FTSE, STOXX, S&P and Dow Jones use the Free-float

methodology.

Due to its wide acceptance amongst the Indian investors, SENSEX is regarded

to be the pulse of the Indian stock market. As the oldest index in the country, it

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provides the time series data over a fairly long period of time (From 1979 onwards).

Small wonder, the SENSEX has over the years become one of the most prominent

brands in the country.

The growth of equity markets in India has been phenomenal in the decade

gone by. Right from early nineties the stock market witnessed heightened activity in

terms of various bull and bear runs. The SENSEX captured all these events in the

most judicial manner. One can identify the booms and busts of the Indian stock

market through sensex.

NSE (NATIONAL STOCK EXCHANGE)

The Organization:

The National Stock Exchange of India Limited has genesis in the report of the

High Powered Study Group on Establishment of New Stock Exchanges, which

recommended promotion of a National Stock Exchange by financial institutions (FIs)

to provide access to investors from all across the country on an equal footing. Based

on the recommendations, NSE was promoted by leading Financial Institutions at the

behest of the Government of India and was incorporated in November 1992 as a tax-

paying company unlike other stock exchanges in the country.

On its recognition as a stock exchange under the Securities Contracts (Regulation)

Act, 1956 in April 1993, NSE commenced operations in the Wholesale Debt Market

(WDM) segment in June 1994. The Capital Market (Equities) segment commenced

operations in November 1994 and operations in Derivatives segment commenced in

June 2000.

NIFTY:

The Nifty is relatively a new comer in the Indian market. S&P CNX Nifty is a

50 stock index accounting for 23 sectors of the economy. It is used for purposes such

as benchmarking fund portfolios; index based derivatives and index funds. The base

period selected for Nifty is the close of prices on November 3, 1995, which marked

the completion of one-year of operations of NSE's capital market segment. The base

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value of index was set at 1000. S&P CNX Nifty is owned and managed by India

Index Services and Products Ltd. (IISL), which is a joint venture between NSE and

CRISIL. IISL is a specialized company focused upon the index as a core product.

IISL have a consulting and licensing agreement with Standard & Poor's (S&P), who

are world leaders in index services.

FII in Indian stock market

As part of its initiative to liberalize its financial markets, India opened her

doors to foreign institutional investors in September, 1992. This event represents a

landmark event since it resulted in effectively globalizing its financial services

industry.

Year net investment by FII1992-93 4.271993-94 5444.61994-95 4776.61995-96 6720.91996-97 7386.21997-98 5908.45 -1998-99 729.111999-00 9765.132000-01 9682.522001-02 8272.92002-03 2668.92003-04 44000.032004-05 41416.452005-06 67432.342006-07 94327.87

What does India Need - FDI or FII

FDI usually is associated with export growth. It comes only when all the

criteria to set up an export industry are met. That includes, reduced taxes, favorable

labor law, freedom to move money in and out of country, government assistance to

acquire land, full grown infrastructure, reduced bureaucratic involvement etc. IT,

BPO, Auto Parts, Pharmaceuticals, unexplored service sectors including accounting;

drug testing, medical care etc are key sectors for foreign investment. Manufacturing

is a brick and mortar investment. It is permanent and stays in the country for a very

long time. Huge investments are needed to set this industry. It provides employment

potential to semi skilled and skilled labor. On the other hand the service sector

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requires fewer but highly skilled workers. Both are needed in India. Conventional

wisdom is that China will have an upper hand in manufacturing for a long time. If

India plays its cards right India may be the hub for the service sector. Still high end

manufacturing in auto parts and pharmaceuticals should be India’s target.

The FII (Foreign Institutional Investor) is monies, which chases the stocks in

the market place. It is not exactly brick and mortar money, but in the long run it may

translate into brick and mortar. Sudden influx of this drives the stock market up as too

much money chases too little stock. In last four months an influx of about $1.5 Billion

has driven the Indian stock market 20% higher.

Where FDI is a bit of a permanent nature, the FII flies away at the shortest

political or economical disturbance. The late nineties economic disaster of Asian

Tigers is a key example of the latter. Once this money leaves, it leaves ruined

economy and ruined lives behind. Hence FII is to be welcomed with strict political

and economical discipline.

China receives mainly the FDI. They do not have instruments to receive the FII i.e.

laws, institutions and political and judicial framework. On the contrary, India should

welcome both and work hard to retain both.

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INTRODUCTION TO KOTAK SECURITIES

THE KOTAK MAHINDRA GROUP:

The Kotak Mahindra Group was born in 1985 as Kotak Capital Management

Finance Limited. This company was promoted by Uday Kotak, Sidney A. A. Pinto

and Kotak & Company. Industrialists Harish Mahindra and Anand Mahindra took a

stake in 1986, and that's when the company changed its name to Kotak Mahindra

Finance Limited.

Kotak Mahindra is one of India's leading financial institutions, offering

complete financial solutions that encompass every sphere of life. From commercial

banking, to stock broking, to mutual funds, to life insurance, to investment banking,

the group caters to the financial needs of individuals and corporates.

As on December 31, 2006, the group has a net worth of over Rs.3, 100 crore,

and the AUM across the group is around Rs. 225 billion and employs over 9,600

employees in its various businesses. With a presence in 282 cities in India and offices

in New York, London, Dubai and Mauritius, it services a customer base of over

around 2.2 million.

The group specializes in offering top class financial services, catering to every

segment of the industry. The various group companies include:

1. Kotak Mahindra Capital Company Limited

2. Kotak Mahindra Securities Limited

3. Kotak Mahindra Inc

4. Kotak Mahindra (International) Limited

5. Global Investments Opportunities Fund Limited

6. Kotak Mahindra (UK) Limited

7. Kotak Securities Limited

8. Kotak Mahindra Old Mutual Life Insurance Company Limited

9. Kotak Mahindra Asset Management Company Limited

10. Kotak Mahindra Trustee Company Limited

11. Kotak Mahindra Investments Limited

12. Kotak Forex Brokerage Limited

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13. Kotak Mahindra Private-Equity Trustee Limited

14. Kotak Mahindra Prime Limited

Kotak Mahindra has international partnerships with Goldman Sachs (one of

the world's largest investment banks and brokerage firms), Ford Credit (one of the

world's largest dedicated automobile financiers) and Old Mutual (a large insurance,

banking and asset management conglomerate).

Kotak Securities, an affiliate of Kotak Mahindra Bank, is the stock-broking

and distribution arm of the Kotak Mahindra Group. The institutional business

division, which provides AKSESS, primarily covers secondary market broking. It

caters to the needs of foreign and Indian institutional investors in Indian equities (both

local shares and GDRs). The division also has a comprehensive research cell with

sectoral analysts covering all the major areas of the Indian economy.

Kotak Securities Ltd. is India's leading stock broking house with a market

share of around 8.5 % as on 31st March. Kotak Securities Ltd. has been the largest in

IPO distribution.

The accolades that Kotak Securities has been graced with include:

1. Prime Ranking Award (2003-04)- Largest Distributor of IPO's

2. Finance Asia Award (2004)- India's best Equity House

3. Euro money Award (2005)-Best Equities House In India

4. Finance Asia Award (2005)-Best Broker In India

5. Finance Asia Award (2006)- Best Broker In India

6. Euro money Award (2006) - Best Provider of Portfolio Management: Equities

The company has a full-fledged research division involved in Macro

Economic studies, Sectorial research and Company Specific Equity Research

combined with a strong and well networked sales force which helps deliver current

and up to date market information and news.

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Kotak Securities Ltd is also a depository participant with National Securities

Depository Limited (NSDL) and Central Depository Services Limited (CDSL),

providing dual benefit services wherein the investors can use the brokerage services

of the company for executing the transactions and the depository services for settling

them.

Kotak Securities has 195 branches servicing more than 2,20,000 customers

and a coverage of 231 Cities. Kotaksecurities.com, the online division of Kotak

Securities Limited offers Internet Broking services and also online IPO and Mutual

Fund Investments.

Kotak Securities Limited manages assets over 2500 crores of Assets Under

Management (AUM) .The portfolio Management Services 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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INTRODUCTION TO THE TOPIC

FUNDAMENTAL AND TECHNICAL ANALYSIS:

Fundamental analysis

The basic purpose of buying a security is to earn dividends and ultimately sell

it at higher price. An investor therefore is interested in obtaining estimates of future

prices of the share. These in turn will depend upon the performance of the industry to

which the company belongs and the general economic situation of the country. The

multitude of factors affecting a company’s profitability can be broadly classified as:

1. Economic wide factors: these includes the factors like growth rate of the

economy, the rate of inflation, foreign exchange rates etc which affects

profitability of all companies.

2. Industry wide factors: these include factors which are specific to

industry to which the company belongs. For instance the demand supply gap

in the industry, the emergence of substitutes, and changes in government

policies towards industry affects the company belonging to an industry.

3. Company wide factor: these factors are specific to a firm. The firm

specific factors like plant and machinery, the brand image of the product, and

ability of the management to affect the profitability.

Fundamental analysis considers the financial and economic data that may

influence the viability of a company. There are many flavors of fundamental analysis

centered on such concepts as value, growth and turnarounds. Technical analysis is the

study of the price chart. It assumes that by looking at the progress of that little

squiggly line you can forecast the future trend of a stock. Fundamental analysis is

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essential to most investors, and technical analysis is essential to most traders and

speculators.

An investor with rational and scientific approach will therefore be interested in

analyzing the influence of the expected performance of the company, industry and

economy as a whole on share prices, even before taking the investment decision such

analysis is called fundamental analysis.

Fundamental analysis is the method of evaluating securities by attempting to

measure the intrinsic value of a particular stock. It is the study of everything from the

overall economy and industry conditions, to the financial condition and management

of specific companies (i.e., using real data to evaluate a stock’s value). The method

utilizes items such as revenues, earnings, return on equity and profit margins to

determine a company’s underlying value and potential for future growth.

One of the major assumptions under fundamental analysis is that, even though

things get mis priced in the market from time to time, the price of an asset will

eventually gravitate toward its true value. This seems to be a reasonable bet

considering the long upward march of quality stocks in general despite regular

setbacks and periods of irrational exuberance. The key strategy for the fundamentalist

is to buy when prices are at or below this intrinsic value and sell when they got

overpriced.

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TECHNICAL ANALYSIS:

Technical analysis is the examination of past price movements to forecast

future price movements. Technical analysts are sometimes referred to as chartists

because they rely almost exclusively on charts for their analysis.

Moving Average:

A Moving Average is an indicator that shows the average value of a security's

price over a period of time. When calculating a moving average, a mathematical

analysis of the security's average value over a predetermined time period is made. As

the securities price changes, its average price moves up or down.

There are several popular ways to calculate a moving average. Meta Stock for

Java calculates a "simple" moving average--meaning that equal weight is given to

each price over the calculation period.

Interpretation:

The most popular method of interpreting a moving average is to compare the

relationship between moving averages of the security's price with the security's price

itself. A buy signal is generated when the security's price rises above its moving

average and a sell signal is generated when the security's price falls below its moving

average.

This type of moving average trading system is not intended to get you in at the

exact bottom nor out at the exact top. Rather, it is designed to keep you in line with

the security's price trend by buying shortly after the security's price bottoms and

selling shortly after it tops.

The critical element in a moving average is the number of time periods used in

calculating the average. When using hindsight, you can always find a moving

average that would have been profitable. The key is to find a moving average that

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will be consistently profitable. The most popular moving average is the 39-week (or

200-day) moving average. This moving average has an excellent track record in

timing the major (long-term) market cycles.

Advantages:

The advantage of moving average system of this type (i.e., buying and selling

when prices break through their moving average) is that you will always be on the

"right" side of the market: prices cannot rise very much without the price rising above

its average price. The disadvantage is that you will always buy and sell some late. If

the trend does not last for a significant period of time, typically twice the length of the

moving average, you will lose your money.

Support and Resistance:

Support and resistance represent key junctures where the forces of supply and

demand meet. In the financial markets, prices are driven by excessive supply (down)

and demand (up). Supply is synonymous with bearish, bears and selling. Demand is

synonymous with bullish, bulls and buying. These terms are used interchangeably

throughout this and other articles. As demand increases, prices advance and as supply

increases, prices decline. When supply and demand are equal, prices move sideways

as bulls and bears slug it out for control.

What Is Support?

Support is the price level at which demand is thought to be strong enough to

prevent the price from declining further. The logic dictates that as the price declines

towards support and gets cheaper, buyers become more inclined to buy and sellers

become less inclined to sell. By the time the price reaches the support level, it is

believed that demand will overcome supply and prevent the price from falling below

support.

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Support does not always hold and a break below support signals that the bears

have won out over the bulls. A decline below support indicates a new willingness to

sell and/or a lack of incentive to buy. Support breaks and new lows signal that sellers

have reduced their expectations and are willing sell at even lower prices. In addition,

buyers could not be coerced into buying until prices declined below support or below

the previous low. Once support is broken, another support level will have to be

established at a lower level.

Where Is Support Established?

Support levels are usually below the current price, but it is not uncommon for

a security to trade at or near support. Technical analysis is not an exact science and it

is sometimes difficult to set exact support levels. In addition, price movements can be

volatile and dip below support briefly. Sometimes it does not seem logical to consider

a support level broken if the price closes 1/8 below the established support level. For

this reason, some traders and investors establish support zones.

What Is Resistance?

Resistance is the price level at which selling is thought to be strong enough to

prevent the price from rising further. The logic dictates that as the price advances

towards resistance, sellers become more inclined to sell and buyers become less

inclined to buy. By the time the price reaches the resistance level, it is believed that

supply will overcome demand and prevent the price from rising above resistance.

Resistance does not always hold and a break above resistance signals that the

bulls have won out over the bears. A break above resistance shows a new willingness

to buy and/or a lack of incentive to sell. Resistance breaks and new highs indicate

buyers have increased their expectations and are willing to buy at even higher prices.

In addition, sellers could not be coerced into selling until prices rose above resistance

or above the previous high. Once resistance is broken, another resistance level will

have to be established at a higher level.

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Where Is Resistance Established?

Resistance levels are usually above the current price, but it is not uncommon

for a security to trade at or near resistance. In addition, price movements can be

volatile and rise above resistance briefly. Sometimes it does not seem logical to

consider a resistance level broken if the price closes 1/8 above the established

resistance level. For this reason, some traders and investors establish resistance zones.

So, Here, Identification of key support and resistance levels is an essential

ingredient to successful technical analysis. Even though it is sometimes difficult to

establish exact support and resistance levels, being aware of their existence and

location can greatly enhance analysis and forecasting abilities. If a security is

approaching an important support level, it can serve as an alert to be extra vigilant in

looking for signs of increased buying pressure and a potential reversal. If a security is

approaching a resistance level, it can act as an alert to look for signs of increased

selling pressure and potential reversal. If a support or resistance level is broken, it

signals that the relationship between supply and demand has changed. A resistance

breakout signals that demand (bulls) has gained the upper hand and a support break

signals that supply (bears) has won the battle.

Price Oscillator:

The Price Oscillator displays the difference between two moving averages of a

security's price. The difference between the moving averages can be expressed in

either points or percentages.

The Price Oscillator is almost identical to the MACD, except that the Price

Oscillator can use any two user-specified moving averages. (The MACD always uses

12 and 26-day moving averages, and always expresses the difference in points.)

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Interpretation:

Moving average analysis typically generates buy signals when a short-term

moving average (or the security's price) rises above a longer-term moving average.

Conversely, sell signals are generated when a shorter-term moving average (or the

security's price) falls below a longer-term moving average. The Price Oscillator

illustrates the cyclical and often profitable signals generated by these one or two

moving average systems.

Price Rate-Of-Change:

The Price Rate-of-Change ("ROC") indicator displays the difference between

the current price and the price x-time periods ago. The difference can be displayed in

either points or as a percentage. The Momentum indicator displays the same

information, but expresses it as a ratio.

Interpretation:

It is a well-recognized phenomenon that security prices surge ahead and

retract in a cyclical wave-like motion. This cyclical action is the result of the

changing expectations as bulls and bears struggle to control prices.

The ROC displays the wave-like motion in an oscillator format by measuring

the amount that prices have changed over a given time period. As prices increase, the

ROC rises; as prices fall, the ROC falls. The greater the change in prices, the greater

the change in the ROC.

The time period used to calculate the ROC may range from 1-day (which

results in a volatile chart showing the daily price change) to 200-days (or longer).

The most popular time periods are the 12- and 25-day ROC for short to intermediate-

term trading. These time periods were popularized by Gerald Appel and Fred

Hitschler in their book, Stock Market Trading Systems.

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The 12-day ROC is an excellent short- to intermediate-term

overbought/oversold indicator. The higher the ROC, the more overbought the

security; the lower the ROC, the more likely a rally. However, as with all

overbought/oversold indicators, it is prudent to wait for the market to begin to correct

(i.e., turn up or down) before placing your trade. A market that appears overbought

may remain overbought for some time. In fact, extremely overbought/oversold

readings usually imply a continuation of the current trend.

The 12-day ROC tends to be very cyclical, oscillating back and forth in a

fairly regular cycle. Often, price changes can be anticipated by studying the previous

cycles of the ROC and relating the previous cycles to the current market

Relative Strength Index (RSI):

The Relative Strength Index ("RSI") is a popular oscillator. It was first

introduced by Welles Wilder in an article in Commodities (now known as Futures)

Magazine in June, 1978.

The name "Relative Strength Index" is slightly misleading as the Relative

Strength Index does not compare the relative strength of two securities, but rather the

internal strength of a single security. A more appropriate name might be "Internal

Strength Index."

Interpretation:

When Wilder introduced the Relative Strength Index, he recommended using

a 14-day Relative Strength Index. Since then, the 9-day and 25-day Relative Strength

Indexs have also gained popularity. The fewer days used to calculate the Relative

Strength Index, the more volatile the indicator.

The Relative Strength Index is a price-following oscillator that ranges between

0 and 100. A popular method of analyzing the Relative Strength Index is to look for a

divergence in which the security is making a new high, but the Relative Strength

Index is failing to surpass its previous high. This divergence is an indication of an

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impending reversal. When the Relative Strength Index then turns down and falls

below its most recent trough, it is said to have completed a "failure swing." The

failure swing is considered a confirmation of the impending reversal.

In Mr. Wilder's book, he discusses five uses of the Relative Strength Index:

1. Tops and Bottoms. The Relative Strength Index usually tops above 70 and

bottoms below 30. It usually forms these tops and bottoms before the

underlying price chart.

2. Chart Formations. The Relative Strength Index often forms chart patterns

such as head and shoulders or triangles that may or may not be visible on the

price chart.

3. Failure Swings (also known as support or resistance penetrations or

breakouts). This is where the Relative Strength Index surpasses a previous

high (peak) or falls below a recent low (trough).

4. Support and Resistance. The Relative Strength Index shows, sometimes

more clearly than price themselves, levels of support and resistance.

5. Divergences. As discussed above, divergences occur when the price makes a

new high (or low) that is not confirmed by a new high (or low) in the Relative

Strength Index. Prices usually correct and move in the direction of the

Relative Strength Index.

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Trend lines:

In the preceding section, we saw how support and resistance levels can be

penetrated by a change in investor expectations (which results in shifts of the

supply/demand lines). This type of a change is often abrupt and "news based."

In this section, we'll review "trends." A trend represents a consistent change

in prices (i.e., a change in investor expectations). Trends differ from

support/resistance levels in that trends represent change, whereas support/resistance

levels represent barriers to change.

As shown in the following chart, a rising trend is defined by successively

higher low-prices. A rising trend can be thought of as a rising support level--the bulls

are in control and are pushing prices higher.

As shown in the next chart, a falling trend is defined by successively lower

high-prices. A falling trend can be thought of as a falling resistance level--the bears

are in control and are pushing prices lower.

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The Bar Chart:

The Bar chart is one of the most popular types of charts used in technical

analysis. As illustrated on the left, the top of the vertical line indicates the highest

price at which a security traded during the day, and the bottom represents the lowest

price. The closing price is displayed on the right side of the bar and the opening price

is shown on the left side of the bar. A single bar like the one to the left represents one

day of trading.

The chart below is an example of a bar chart for AT&T (T):

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http://www.investopedia.com/university/technical/



http://www.investopedia.com/terms/b/barchart.asp


The advantage of using a bar chart over a straight-line graph is that it shows

the high, low, open and close for each particular day.

Candle sticks Charting:

Candlestick charts have been around for hundreds of years. They are often

referred to as "Japanese candles" because the Japanese would use them to analyze the

price of rice contracts.

Similar to a bar chart, candlestick charts also display the open, close, daily

high and daily low. The difference is the use of color to show if the stock went up or

down over the day.

The chart below is an example of a candlestick chart for AT&T (T).

Green bars indicate the stock price rose, red indicates a decline:

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Investors seem to have a "love/hate" relationship with candlestick

charts. People either love them and use them frequently or they are

completely turned off by them. There are several patterns to look for with

candlestick charts - here are a few of the popular ones and what they mean.

.

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This is a bullish pattern - the stock opened at (or near) its low and

closed near its high

The opposite of the pattern above, this is a bearish pattern. It

indicates that the stock opened at (or near) its high and dropped

substantially to close near its low.

http://www.investopedia.com/terms/b/bear.asp


Point and Figure Chart:

The point & figure (P&F) chart is somewhat rare. In fact, most charting

services do not even offer it. This chart plots day-to-day increases and declines in

price: increases are represented by a rising stack of "X"s, while decreases are

represented by a declining stack of "O"s. This type of chart was traditionally used for

intraday charting (a stock chart for just one day), mainly because it can be long and

tedious to create a P&F chart manually over a longer period of time.

The idea behind P&F charts is that they help you to filter out less significant

price movements and to focus on the most important trends. Below is an example of a

P&F chart for AT&T (T):

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Known as "the hammer", this is a bullish pattern only if it occurs

after the stock price has dropped for several days. A small body along

with a large range identifies a hammer. This pattern indicates that a

reversal in the downtrend is in the works.

Known as a "star”. For the most part, stars typically indicate a

reversal and or indecision. There is a possibility that after seeing a

star there will be a reversal or change in the current trend.





POPULAR CHARTING PATTERNS:Technical analysts often use proven successful price patterns from great stocks

as tools to find new great stocks. Let's look at a few examples

Cup and Handle - This is a pattern on a bar chart that can be as short as seven

weeks and as long as 65 weeks. The cup is in the shape of a "U". The handle

has a slight downward drift. The right-hand side of the pattern has low trading

volume. As the stock comes up to test the old highs, the stock will incur

selling pressure by the people who bought at or near the old high. This selling

BSPATIL 25






pressure will make the stock price trade sideways with a tendency towards a

downtrend for anywhere from four days to four weeks, then it will take off.

This pattern looks like a pot with a handle. It is one of the easier

patterns to detect; and investors have made a lot of money using it.

Head and Shoulders - This is a chart formation resembling an "M" in which a

stock's price:

- Rises to a peak and then declines, then

- Rises above the former peak and again declines, and then

- rises again but not to the second peak and again declines.

The first and third peaks are shoulders, and the second peak forms the head.

This pattern is considered a very bearish indicator.

BSPATIL 26

http://www.investopedia.com/terms/b/bear.asp


Double Bottom - This pattern resembles a "W" and occurs when a stock price

drops to a similar price level twice within a few weeks or months. You should

buy when the price passes the highest point in the handle. In a perfect double

bottom, the second decline should normally go slightly lower than the first

decline to create a shakeout of jittery investors. The middle point of the "W"

should not go into new high ground. This is a very Bullish indicator.

The belief is that, after two drops in the stock price, the jittery investors will

be out and the long-term investors will still be holding on.

Importance of project

1. The project gives thorough knowledge of fundamental and technical analysis

2. In this project report the Engineering sector is analyzed by considering budget

and demand and supply of the industry.

3. In the project report the 2 companies have selected and analyzed the

company’s future market price by two distinct theories.

BSPATIL 27




4. Reader of this project comes to know the expected future market prices and

can invest into the scripts.

5. This gives the full information of calculation of intrinsic value.

Objective of the study

Main objective:

To know the future movement of selected companies shares through fundamental and

technical analysis.

Sub objectives

o To predict the future price of the selected companies shares.

BSPATIL 28


o To study the strategies to be adopted by the retail investors based on the technical

and fundamental analysis.

o To know the floor and cap price of the stock.

o To analyze individual company scrips by considering the factors relating to the

economy, industry and the respective company.

o To predict investor positions (Buy, sell & hold) based on historical price trends

and the likely company prospects.

Data collecting methodology

The data collected for the study is secondary data. The data I have used for the study

is

1. Historical shares value of the stocks collected from ICICI DIRECT.COM.

2. The balance sheet and Income statement got from companies web site.

3. Some of the information about the industry is collected from other financial

web site.

THE MEASUREMENT TECHNIQUE

The following techniques are used for the study.

1. Simple moving average.

5. Exponential moving average (EMA)

6. The relative strength index (RSI)

7. Value anchor.

BSPATIL 29


LIMITATIONS OF THE STUDY:

1. The study is limited only to these 2 sectors and 4 companies.

2. Here, an attempt is made to predict the future movement stock. It contains an

element of guess work

3. Here, I have used only 3 Technical tools to predict the movement of Scrips

Technical analysis of selected sector socks is as fallows

Here you can see the charts of BHEL, L&T and NIFTY which is designed

(derived) by MS Excel sheet. For calculating of RSI, SMA and EMA 2 years

historical closing prices are used. The respective formulas of SMA, EMA and RSI is

as follows

SMA (Simple Moving Average)

BSPATIL 30


A simple moving average is formed by computing the average (mean) price of a

security over a specified number of periods. While it is possible to create moving

averages from the Open, the High, and the Low data points, most moving averages

are created using the closing price. For example: a 5-day simple moving average is

calculated by adding the closing prices for the last 5 days and dividing the total by 5.

Ex: if the closing prices are as follows: 10, 11, 12, 13, 14, 17, 12……………

10+11+12+13+14=60

(60/5)=12

Here 12 is a first moving average obtained from the given closing prices, next moving

average can be calculated by deducting first cl price i.e 10 and adding next cl. Price i.e 17 and

again dividing it by 5.

Exponential Moving Average (EMA)

In order to reduce the lag in SMA, technicians often use EMA. EMA's reduce the lag by

applying more weight to recent prices relative to older prices. The weighting applied to the

most recent price depends on the specified period of the moving average. The shorter the

EMA's period, the more weight that will be applied to the most recent price. For example: a

10-period EMA weighs the most recent price 18.18% while a 20-period EMA weighs the

most recent price 9.52%. As such, it will react quicker to recent price changes than a SMA.

Here's the calculation formula

EMA (current) = ((price (current)-EMA (prev)) x multiplier+ EMA(prev)

Where, Multiplier – 2/n+1

n- Number of days for which EMA is calculated

If we take the same example of SMA 5 day EMA is calculated as follows.

EMA= (12-11) X 0.666 + 11 = 11.66

BSPATIL 31


Where multiplier = 2/ (5 +1) = 0.666

For next EMA 11.66 acts as previous EMA and so on

Relative Strength Index.

Ans: Developed by J. Welles Wilder and introduced in his 1978 book, New Concepts

in Technical Trading Systems, the Relative Strength Index is an extremely useful and

popular momentum oscillator.

Calculation

BSPATIL 32

http://store.yahoo.com/stockcharts/newcointean.html

http://store.yahoo.com/stockcharts/newcointean.html


BHEL Company Charts

1. Short term moving averages of BHEL Company.

BSPATIL 33


Short term Moving averages of BHEL

0.00

500.00

1,000.00

1,500.00

2,000.00

2,500.00

3,000.00

3,500.00

3/1

/20

06

5/1

/20

06

7/1

/20

06

9/1

/20

06

11

/1/2

00

6

1/1

/20

07

3/1

/20

07

5/1

/20

07

7/1

/20

07

9/1

/20

07

11

/1/2

00

7

1/1

/20

08

3/1

/20

08

adjested

10 days ema

40 days ema

10 days sma

trendline violation

support

resistance

Buy signals

sell signals

2. Long-term moving averages of BHEL Company.

Long term moving averages for BHEL

0.00

500.00

1,000.00

1,500.00

2,000.00

2,500.00

3,000.00

3,500.00

3/1/

2006

5/1/

2006

7/1/

2006

9/1/

2006

11/1

/200

6

1/1/

2007

3/1/

2007

5/1/

2007

7/1/

2007

9/1/

2007

11/1

/200

7

1/1/

2008

3/1/

2008

adjested

25 days EMA

125 days ema

25 days sma Buy for long term

sell

Trend violation

Interpretation for short term moving averages:

BSPATIL 34


1. The above chart of BHEL is of short term analysis say for example 15 days to

60 days.

2. The above chart shows support and resistance level which is shown by arrow

mark above.

3. The chart shows the buying and selling signals which is shown in red green

and red arrow marks and circle is the point which specifies the exact price to

buy or sell the stock.

4. And from above chart one can see the trend line violation which is shown by

black arrow mark.

Interpretation for long term moving averages:

1. As we can see from the above chart the buy and sell levels are Rs 1130 and

Rs. 2100.

2. In the long term chart also we can see a trend violation at the stage of jan

2008.

3. Here in long term moving average chart one can see that the 25 days SMA

going upwards and 125 days EMA coming downwards. So if in future the 25

days SMA goes upwards and crosses the 125 days EMA then again the bull

run rally start.

Target price for BHEL according to Technical charts:

1. At the beginning of the chart the support level is around Rs. 900 in the month

of June 2006 and resistance level is at Rs. 1100 in the month of August 2006.

2. after its resistance in august 2006 at Rs 1100 the stock has under gone for

consolidation for 2 months

3. After breaking its resistance of Rs. 1100 the stock again under gone for

consolidation up to Feb 2007.

4. On Fab 2007 the stock had resistance of Rs. 1200 and fell down in march id

for Rs. 1000 there for the new support become Rs. 1000 and resistance again

Rs. 1200.

BSPATIL 35


5. On April 2007 end it crossed its resistance and started rally.

6. In the month of July 2007 it achieved 52 weeks high and created a new

resistance of Rs. 1800 and new support become Rs. 1700

7. The stock was on its life time high of Rs. 2870 on November 2007.

8. In the November 2007 the stock had resistance of Rs. 2900 and support was

Rs. 2100 in the year 2007 of October.

9. In the month of Jan 2008 it has broken its previous support and started a

bearish run.

10. In the month of Dec mid 2007 the stock violated its trend line.

11. the present support is 1850 and previous resistance is 2200

Short term target

Target prices for BHEL

Support- 1800

Resistance- 2150

Target price- 2150-1800=350

There for = 350 + 2150= 2500

Long term target

Support- 1850

Resistance- 2800


There for = 950 + 2800= 3750

BSPATIL 36


3. 14 days RSI OF BHEL COMPANY

BSPATIL 37


Interpretation:

1. Here we can see that the stock has gone for correction over a period and the

present RSI is around 50 and which is very attractive.

2. From the above chart we can say that the stock is under consolidation and it is

a best time to enter into this script at present market price.

BSPATIL 38


L&T company Charts

BSPATIL 39


1. Short term moving average of L&T Company

Short term moving averages for L&T

500.00

1,000.00

1,500.00

2,000.00

2,500.00

3,000.00

3,500.00

4,000.00

4,500.00

5,000.00

3/1/

2006

5/1/

2006

7/1/

2006

9/1/

2006

11/1

/200

6

1/1/

2007

3/1/

2007

5/1/

2007

7/1/

2007

9/1/

2007

11/1

/200

7

1/1/

2008

3/1/

2008

adjested

10 days ema

40 days ema

10 days sma

Trend line violation

Buy

Sell

Up word trend line

2. Long term moving averages of L&T

Long term moving averages of L&T

0.00

500.00

1,000.00

1,500.00

2,000.00

2,500.00

3,000.00

3,500.00

4,000.00

4,500.00

5,000.00

3/1/

2006

5/1/

2006

7/1/

2006

9/1/

2006

11/1

/200

6

1/1/

2007

3/1/

2007

5/1/

2007

7/1/

2007

9/1/

2007

11/1

/200

7

1/1/

2008

3/1/

2008

adjested

25 days ema

125 days ema

25 days sma

Accumulation

up word break out

phase - 1

phase -2

phase - 3

BSPATIL 40


Interpretation for short term moving average:1. The stock is showing upward trend line from Aug 2006 to June 2007.

2. There is a buy signal on March 2007 at Rs. 1500 level.

3. We can see the aggressive Bull Run from May 2007 to Nov 2007 the stock has

almost double on Nov 2007.

4. There is a selling signal when 10 days SMA came below 40 days EMA.

5. From Jan 2008 to March 2008 there is a declining trend line.

6. At the end of 31.3 2008 it seems to be violation of trend line.

Interpretation for long term moving average:

1. The long term moving average of L&T stock is bit attractive which is showing

3 phases of Bull Run.

2. The stock has shown a accumulation for the period from May 2006 to My

2007 and immediately the upward break out happened and the stock started

rally.

Target price for L&T according to Technical charts:

Short term target

Support- 2800

Resistance- 3650


There for = 850+3650=4450

Long term target

Support- 2800

Resistance- 4300

Target price- 4300-2800=1500

There for = 4300-1500=5800

BSPATIL 41


3. 14 DAYS RSI OF L&T

RSI of L&T Company

BSPATIL 42


1. At present the L&T Company RSI is very reasonable and started rally so one

should see the market condition and invest in the script.

2. The RSI going upward and at present the RSI is around 45 levels.

So one should invest at current market price.

BSPATIL 43


Nifty Charts

BSPATIL 44


1. NIFTY moving averages

Market M.A

15002000250030003500400045005000550060006500

4/1/

2005

6/1/

2005

8/1/

2005

10/1

/200

5

12/1

/200

5

2/1/

2006

4/1/

2006

6/1/

2006

8/1/

2006

10/1

/200

6

12/1

/200

6

2/1/

2007

4/1/

2007

6/1/

2007

8/1/

2007

10/1

/200

7

12/1

/200

7

2/1/

2008

4/1/

2008

Close

SMA 25 day

EMA 25day

EMA 100day

Buy

sell

wait

2. RSI Calculation for Nifty

BSPATIL 45


Analysis: (Short term or intermediate)

1. If we look at 90 day EMA of Nifty chart, for the past one and half year the

trend has been Bullish.

2. From 20th Jan 2008 onwards there has been shift in the trend towards Bearish.

3. The 18day EMA & SMA of Nifty has broken down below 90 day EMA. So

this is one more conclusive evidence for reversal of trend from Bull to Bear.

Immediate Future:

As we can see from the graph it is clear that market is finding support at 4450 to

4600(which is previous resistance for the market). At this level market is likely to

consolidate for the medium time period.

Significance of Future Trend:

In future unless and until market finds required strengths to come to the previous level

i.e. resistance at 5630 – 50, there will be no signs of market turning Bullish.

And if in future market breaks the resistance level i.e. 5630-50 then it will rally up to

6980-7020. (Target)

Long term analysis

1. Market is sentiment driven and swings and hypes in market are so strong that

they prevail even for years that have happened at present.

2. There has been shift in market trend and it has turned bearish though there is

no clear sign of bear trend (it’s a long term correction not exactly bearish) but present

situation is of complete chaos has left market in a state of volatility so we should wait

and see market movement closely.

3. Market’s long term support is at 3118-3130 and next support is at 4500 level

so next rally from that level 4500 is 1380-1400(4500-3110) and we can see some 150-

200 points abortive rally has been occurred and has reached 6050.

BSPATIL 46


4. At that level market was waiting for correction. Bad clues from US slow down

had made market to take LT correction and market has turned to be volatile and has

yet to settle down at previous support of 4500.

Short term analysis:

1) Trend short term or intermediate trend for the scrip has been flat. Now

turning in to bearish.

2) Key short term support and resistance levels for the scrip.

As we can see from the 10 day EMA &SMA graph the scrip has established

strong support at 130-140 price band.

Price movement; the scrip has undergone major consolidation (sideway

movement) phase. And it seems that the scrip has made abortive attempt to

breach the flat trend and start rally, but in vain and the obvious reason for this

failure is market crash.

In the month Feb 2008 the scrip has broken the key support (130-140) and

turned out to be bearish

Future; as the scrip has already broken the key support, the short term traders

should sell it and the fresh buy signal for the stock is known only when scrip

establishes support.

If in case scrip regains the strength to come back to the level of 130-140,

investors should still wait till it clearly breaches above that level but with

expanding volume.

Trading tactics for short term investors:

As it can be clearly seen from the graph, the stock is purely a trading stock. So

to trade in the scrip one should look for key support and also look for cue from

RSI. If the stock is at support and selling pressure is high i.e. RSI value 30 and

below, it should be bought and sold at high buying pressure i.e. at RSI value

70 & above.

BSPATIL 47


Here the identifying future target price (for the short term) is very difficult as

scrip was undergoing phase of consolidation and has no established resistance

level.

Fundamental analysis of selected sector socks is as fallows

Fundamental analysis

The basic purpose of buying a security is to earn dividends and ultimately sell

it at higher price. An investor therefore is interested in obtaining estimates of future

prices of the share. These in turn will depend upon the performance of the industry to

which the company belongs and the general economic situation of the country. The

multitude of factors affecting a company’s profitability can be broadly classified as:

1. Economic wide factors: these includes the factors like growth rate of the

economy, the rate of inflation, foreign exchange rates etc which affects

profitability of all companies.

2. Industry wide factors: these include factors which are specific to

industry to which the company belongs. For instance the demand supply gap

in the industry, the emergence of substitutes, and changes in government

policies towards industry affects the company belonging to an industry.

3. Company wide factor: these factors are specific to a firm. The firm

specific factors like plant and machinery, the brand image of the product, and

ability of the management to affect the profitability.

BSPATIL 48


Economic wide factors

The following are the some of the important economic factors which influence the

investment of investor over a period of time.

Indian Economy Overview

India's economy is on the fulcrum of an ever increasing growth curve. With

positive indicators such as a stable 8-9 per cent annual growth, rising foreign

exchange reserves, a booming capital market and a rapidly expanding FDI inflows,

India has emerged as the second fastest growing major economy in the world.

The economy has been growing at an average growth rate of 8.8 per cent in

the last four fiscal years (2003-04 to 2006-07), with the 2006-07 growth rate of 9.6

per cent being the highest in the last 18 years. Significantly, the industrial and service

sectors have been contributing a major part of this growth, suggesting the structural

transformation underway in the Indian economy.

For example, industrial and services sectors have logged in a 10.63 and 11.18

per cent growth rate in 2006-07 respectively, against 8.02 per and 11.01 cent in 2005-

06. Similarly, manufacturing grew by 8.98 per cent and 12 per cent in 2005-06 and

2006-07 and transport, storage and communication recorded a growth of 14.65 and

per cent 16.64 per cent, respectively.

Another significant feature of the growth process has been the consistently

increasing savings and investment rate. While the gross saving rate as a proportion of

GDP has increased from 23.5 per cent in 2001-02 to 34.8 per cent in 2006-07, the

investment rate-reflected as the gross capital formation as a proportion of GDP-has

increased from 22.8 per cent in 2001-02 to 35.9 per cent in 2006-07.

BSPATIL 49


The Current Fiscal Year

The process continues in the current fiscal year. On the back of 9.9 per cent growth in

the first half of 2006-07, GDP grew by 9.1 per cent during April-September 2007.

While overall industrial production grew by 9 per cent during April-December

2007, importantly capital goods production rose by 20.2 per cent compared to

18.6 per cent during same period in 2006.

Services grew by 10.5 per cent in April-September 2007, on the back of 11.6

per cent during the corresponding period in 2006-07.

Manufacturing grew by 9.6 per cent during April-December 2007, on the back

of 12.2 per cent growth during same period in 2006-07.

Core infrastructure sector continued its growth rate recording 6 per cent

growth in April-November 2007.

While exports grew by 21.76 per cent during April-December 2007, imports

increased by 25.97 per cent in the same period.

Money Supply (M3) has grown by a robust 22.8 per cent growth (year-on-

year) as of December 21, 2007 compared to 19.3 per cent last year.

The annual inflation rate in terms of WPI was 3.5 per cent for the week ended

December 29, 2007 as compared to 5.89 per cent a year ago.

Fiscal and revenue deficit decreased by 11 per cent and 17.2 per cent,

respectively, during April-November 2007-08 over corresponding period last

year.

With such a robust growth rates, the advance estimates of the Central Statistical

Organization (CSO) expects the economy to grow by 8.7 per cent in 2007-08.

BSPATIL 50


Per Capita Income

Along this significant acceleration in the growth rate of Indian economy, India's per

capita income has increased at a rapid pace, exceeding an earlier forecast made by

Goldman Sachs BRIC report which estimated India's per capita to touch US$ 800 by

2010 and US$ 1149 by 2015.

Per capita income has increased from US$ 460 in 2000-01 to almost double to US$

797 by the end of 2006-07. In 2007-08, India's per capita income is estimated to be

over US$ 825.07, according to the advance estimates of the Central Statistical

Organisation (CSO). Further, India's per capita income is expected to increase to US$

2000 by 2016-17 and US$ 4000 by 2025. This growth rate will, consequently, propel

India into the middle-income category.

Some Highlights

Reflecting the favorable prospect of growth rate of Indian economy, the orders

received Indian companies have increased by a whopping 68.6 per cent to US$ 32.48

billion during January-October 2007 compared to US$ 19.26 billion in the same

period last year.

India is among the five countries sharing 50 per cent of the world production

(or GDP).

FDI inflows have jumped by almost three times to US$ 15.7 billion in 2006-07

as against US$ 5.5 billion in 2005-06.

The aggregate income of the top 500 companies rose by 28.4 per cent in 2006-

07 to total US$ 469.51 billion.

India's National Stock Exchange (NSE) ranks first in the stock futures and

second in index futures trade in the world.

Twenty Indian firms have made it to the list of Boston Consulting Group's 100

New Global Challenger Giants list.

BSPATIL 51


According to a study by the McKinsey Global Institute (MGI), India's

consumer market will be the world's fifth largest (from twelfth) in the world

by 2025.

The number of companies incorporated has increased at an annual average of

55,000 companies in the last two years to 865,000, from 712,000 companies at

the end of 2005.

Four Indians and seven Indian microfinance companies make it to the Forbes

list of Top10 world's wealthiest CEOs World's Top 50 Microfinance

Institutions, respectively.

India has the most number of private equity (PE) funds operating amongst the

BRIC markets.

Mumbai has been ranked tenth among the world's biggest centers of

commerce in terms of the financial flow volumes by a survey compiled by

MasterCard Worldwide.

Another significant aspect has been the broad-based nature of the growth process.

While new economy industries like Information Technology and biotechnology have

been growing around 30 per cent, significantly old economy sectors like steel have

also been major contributors in the Indian growth process. For example, India has

moved up two places to become the fifth largest steel producer in the world.

And with its manufacturing and service sectors on a searing growth path, Lehman

Brothers Asia estimates India to grow by as much as 10 per cent every year in the

next decade.

1. Growth rate of industrial sector:

The growth of industrial sector is an important contributor to the growth of

national income. The performance and the growth of industry is measured through an

Index of industrial product. The industrial growth rate is further disaggregated into

growth rates of different sectors like electricity basic goods consumer goods and so

BSPATIL 52


Industry

IndustryYoY % change FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 Mining & Quarrying 1 3.7 0.5 5.8 5.3 4.4 1 5 Electricity 7.3 4 3.1 3.2 5 5.2 5.2 6.5 Manufacturing 7.2 5.4 2.9 6 7.4 9.1 9.1 10.7IIP 6.6 5.1 2.6 5.8 7 8.4 8.2 9.7

2. Inflation

Inflation prevailing in the economy has considerable impact on the

performance of the companies high rates of inflation upsets business plans, results in

high input costs and hence reduction in profit margins. On the other hand the inflation

erodes purchasing power of buyer and results in reduction in demand for goods. The

demand for consumer goods will particularly be affected adversely.

Inflation is measured by sustainable price index number. The whole sale price

index number is generally used for this purpose.

YearInflation rate (consumer

prices)Rank

Percent Change

Date of Information

2003 5.40 % 64 2002 est.

2004 3.80 % 92 -29.63 % 2003 est.

2005 4.20 % 134 10.53 % 2004 est.

2006 4.20 % 125 0.00 % 2005 est.

2007 5.30 % 139 26.19 % 2006 est.

BSPATIL 53


3. Interest rates

Interest rates reflect the cost and availability of credit to the companies

operating in the economy. The interest rates and the volume as well as direction of the

credit supply in the economy is influenced by monitory policy of the reserve bank of

India (RBI). If the cheap money policy is pursued the interest rates are likely to be

lower and larger volume of money supply is expected to be there in the economy.

The lower rate of interest implies lower cost of financing the company’s

operations and assures higher profitability, higher the rate of interest higher will be

the costs of manufacturing and sale, which is expected to lead lower profit.

Interest Rates(% per annum) 2-Apr 3-Apr 4-Apr 5-Apr 6-Apr 6-DecCash Reserve Ratio 5.5 4.8 4.5 5 5 5.3Bank Rate 6.5 6.3 6 6 6 6Reverse Repo rate (Absorption rate) 6 5 4.5 4.8 5.5 6Repo rate (Injection rate) 8 7 6 6 6.5 7.3IDBI MT lending rate 12.5 12.5 10.3 10.3 10.3 10.3PLR of 5 major banks 11.0-12.0 10.8-11.5 10.3-11.0 10.3-10.8 10.3-10.8 11.0-11.5Deposit rate of 5 major banks (maturity>1year) 7.0-8.5 5.3-6.2 5.0-5.5 5.3-6.3 6.0-7.0 6.8-8.0Average call money rate 3.6-7.5 2.0-5.1 2.1-4.5 3.3-5.5 4.2-6.2 5.4-12.0

4. Foreign exchange rates

If company is major exporter or importer its performance and profitability are

likely to be affected considerably by the exchange rates of rupee against other

currencies. A depreciation of rupee against US or other currency will make Indian

products more competitive price wise. In the foreign markets, thereby stimulating

export from India

5. Government budget.

BSPATIL 54


The government budget provides detailed information on each of components

of government spending and revenues. The deficit is essentially the excess of

government spending on revenues. A budget deficit is often incurred for creating

infrastructural facilities in the economy tends to create inflationary pressure. Due to

this there is a strong public opinion against the governments creating of deficit

without expanding the revenue.

6. Savings and investment.

The capital market is channel through which the savings of households are

made available to corporate for investment. Therefor the trends in saving and

investment are significant in studying their impact on capital market.

Savings and Investment % to GDP at constant prices FY01 FY02 FY03 FY04 FY05 FY06By sectorHousehold Savings 21.3 21.2 22 23.1 23.5 22Private Corporate Sector 4.5 4.1 3.6 4.1 4.4 4.8Public Sector -0.9 -1.7 -2 -0.7 1 2.2By types of assetsPhysical Assets 10.7 11 11.2 12.7 12 11.7Financial Assets 10.5 10.2 10.8 10.4 11.5 10.3Gross Domestic Savings 24.9 23.6 23.6 26.5 28.9 29.1Net Capital Inflow 1.1 0.6 0.2 -1.2 -1.6 1Gross Domestic Investment 24.3 24 24.8 25.3 27.2 30.1Errors and Omission 1 1.1 -2.1 0.1 1 1.6Gross Capital Formation 23.3 23.8 22.2 25 27.4 30.2

Industrial analysis

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Engineering:

Engineering is a diverse industry with a number of segments. A company from

this sector can be a power equipment manufacturer (like transformers and boilers),

execution specialist or a niche player (like providing environment friendly solutions).

It can be an electrical, non-electrical machinery and static equipment manufacturer

too

The sector is relatively less fragmented at the top, as competencies required

are high. But it is highly fragmented at the lower end (like unbranded transformers for

the retail segment) and is dominated by smaller players. The user industries in broad

terms are power utilities (generation, transmission and distribution), industrial majors

(refining, automotive and textiles), government (public investment) and retail

consumers (pumps and motors).

Order book size determines the performance of the company in the short to

medium-term. In order to bag big contracts, companies need to have a big balance

sheet size and proven execution capabilities. They need huge working capital in order

to execute bigger contracts, as initially they receive only part payment and the

remaining comes as projects get executed.

Tariffs that earlier offered protection to Indian capital goods manufacturers,

have been removed. Import duties on a range of equipments have also been reduced.

This coupled with the high cost of capital in India puts Indian manufacturers at a

disadvantage against overseas competition.

Power sector contributes the largest to the engineering companies' revenues.

For instance, ABB and BHEL derive 60% and 72% of their revenues from supplying

equipments to the power sector. And with the government planning to add large

generation capacities in the eleventh (2007-12) five-year plan, the potential seems

huge for the engineering majors. This is because, apart from the investment in

BSPATIL 56


generation capacity buildup, an equivalent amount is likely to be spent in the

transmission and distribution space as well.

Infrastructure is another key area of operation for major Indian engineering

companies. L&T, for example, garners around 30% of its sales from infrastructure

activities like engineering, design and construction of industrial projects and social &

physical projects like housing, hospitals, IT parks, expressways, bridges, ports, and

water & effluent treatment projects.

The high global crude prices on account of growing demand has led to increased

activities in the exploration and development space. This has helped the engineering

companies in this space. More importantly, this segment of the engineering business

has relatively higher margins than infrastructure, owing to more complex tasks

involved.

Key Points

Supply: Abundant supplies 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.

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

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.

Competition: Majority of the companies compete in terms of pricing, experience in

specific field, product differentiation and timely completion of projects.

Financial Year '07

FY07 proved to be yet another good year for the Indian engineering and

capital goods industry. Strong growth in industrial and manufacturing industries

reflected in the picking up of investment activities in areas like power, infrastructure

and processes. The capital goods index recorded strong growth during the entire year,

though with some blips during the months September and October 2006.

The order books of almost all companies witnessed healthy growth. For

engineering majors like BHEL and L&T, at the end of March 2007, the value of

outstanding orders stood at nearly 3 times and 2 times respective FY07 revenues. In

general, the growth in order book came from both power and industrial businesses.

The companies were able to bag international orders. The topline of the engineering

majors witnessed double-digit growth during the fiscal.

While the industry continued the trend of cost cutting through reducing debt

and restructuring operations and manpower rationalization, rising input costs dented

pared the improvement in profitability. Sharp rise in costs of steel and crude on the

back of buoyant global demand and inadequate supplies, was the biggest dampener to

profit growth

The fiscal also witnessed majors like Suzlon and Crompton Greaves chart out

aggressive acquisitions in the international arena. The major focus area for these

companies was to fill in the niches by way of acquiring new technologies and clients

and having a diversified geographical presence.

Budget 2008-09:

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World-class infrastructure has emerged as one of the most important

necessities for unleashing high and sustained growth and alleviation of poverty in any

economy. And with poor infrastructure to support other growth initiatives, the Indian

economy continues to be a laggard when compared to its developing peers. 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 realisation finally seems to be setting in. This makes

the future of the Indian engineering sector extremely bright. Apart from highway

development and construction and modernisation 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

1. Fourth UMPP at Tilaiya to be awarded shortly; Chhattisgarh, Karnataka,

Maharashtra, Orissa and Tamilnadu urged to bring five more UMPPs to the

bidding stage by extending the required support

2. Rajiv Gandhi Grameen Vidyutikaran Yojana to be continued during the

Eleventh Plan period with a capital subsidy of Rs 280 bn; allocation of Rs 55

bn for FY09.

3. Rs 8 bn to be provided for Accelerated Power Development and Reforms

Project (APDRP) in FY09

4. Proposal to set up a national fund for transmission and distribution (T&D)

reform in the power sector

5. Exemption from 4% additional duty of customs has been withdrawn on power

generation projects (other than mega power projects), transmission, sub

transmission and distribution projects, and specified goods for high voltage

transmission projects

6. Custom duty on project imports reduced from 7.5% to 5%

BSPATIL 59


7. Initiatives like skill development programme and setting up of industrial

training institutes to be taken

8. Defense allocation to be increased by 10%

9. 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

10. 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 Impact

1. Aggressiveness in allotting UMPPs to prospective bidders expected to be

helpful for engineering companies providing equipments and EPC services for

power plants.

2. Setting up of a national fund for T&D reforms to aid growth prospects of

equipment suppliers and T&D project developers.

3. Removal of exemption from additional customs duty on power generation,

transmission and distribution projects to increase cost for companies importing

such projects, which shall consequently be beneficial for domestic project

developers. However, on the other hand, reduction in custom duty on project

imports to nullify the impact.

4. Initiatives like skill development programme and setting up of industrial

training institutes to reduce talent crunch for engineering companies, which

are reporting high levels of attrition

5. Increase in defense allocation to aid prospect of companies providing defense

equipments and technologies

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Company Impact:

1. Allocation of UMPPs to support growth if equipment and service providers

like BHEL, L&T.

2. Greater focus on the T&D front to be beneficial for ABB, Siemens, Crompton

Greaves, Emco, Bharat Bijlee. Also, companies providing T&D project

services like Jyoti Structures and Kalpataru Transmission to benefit.

3. Removal of exemption from additional customs duty on power generation,

transmission and distribution projects to benefit domestic companies i.e

BHEL and L&T.

4. Skill development initiatives to pare pressure of attrition from companies like

L&T and BHEL.

5. Increase in defense allocation to aid prospects of L&T and Bharat Electronics.

Budget over the years:

Budget 2005-06 Budget 2006-07 Budget 2007-08A special purpose vehicle (SPV) to be launched to finance infrastructure projects that are financially viable. Investment limit for 2005-06 is fixed at Rs 100 bn.

Estimated outlay for Jawaharlal Nehru National Urban Renewal Mission to be Rs 62.5 bn during 2006-07, including a grant component of Rs 45.9 bn. Through this mission, the government intends to promote establishment of new towns, preferably focused on a specific industry (IT) or a specific theme (education or health).

Hike in corpus of Rural Infrastructure Development Fund-XIII and Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY)

NHDP-III to be launched in FY06 to target selected high density highways not forming part of the GQ or the N-S, E-W corridor; Rs 14 bn provided in FY06 to four-lane 4,000 kms.

Budget support for National Highway Development Programme (NHDP) enhanced from Rs 93.2 bn to Rs 99.5 bn in 2006-07.

Private sector participation in transmission projects and hike in budgetary support for APDRP

Excise duty on A/Cs has Special accelerated road Reduction in customs

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been reduced from 24% to 16%.

development programme for the North Eastern region proposed at an estimated cost of Rs 46.2 bn approved with allocation of Rs 5.5 bn in 2006-07

duty on imports of medical equipments from 12.5% to 7.5%

1,000 kms of access-controlled Expressways to be developed on the Design, Build, Finance and Operate (DBFO) model.

Increase in allocation to defense to Rs 960 bn, including Rs 420 bn for capital expenditure

Capital expenditure on defense proposed at Rs 375 bn.

Concessions under section 80IA for infrastructure facilities extended to cross country natural gas distribution network, including gas pipeline and storage facilities integrated to the network

Peak rate of customs duty on non-agricultural products has been reduced from 15% to 12.5% with a few exceptions.

Customs duty on sprinklers and drip irrigation systems for agricultural & horticultural purposes is reduced from 7.5% to 5%

Exemption to specified goods for making capital goods for setting up a unit with an investment of Rs 50 m or more withdrawn.

Concessional customs duty of 5% on specified plantation machinery extended by two years to April 2009

Resin binders used for manufacture of rotor blades for wind operated electricity generators exempted from excise duty.

Customs duty on food processing machinery and parts reduced from 7.5% to 5%

Under NELP VI, 55 blocks and area of 355,000 sq kms offered. Investment of Rs 220 bn expected in the refinery sector in the next few years.

Dividend distribution tax to be hiked from 12.5% to 15%

Five ultra mega power projects of 4,000 MW each to be awarded before December 31, 2006

Additional education cess of 1% to fund secondary and higher educa

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Key Positives of budget 2008-09:

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.

Infrastructure development: The government is focusing on development of

infrastructure like housing, airports, roads and ports. This will be big positive for

engineering and construction companies

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 of budget 2008-09

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

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.

Prospects:

World-class infrastructure has emerged as one of the most important necessities for

unleashing high and sustained growth and alleviation of poverty in any economy. And

with poor infrastructure to support other growth initiatives, the Indian economy

BSPATIL 63


continues to be a laggard when compared to its developing peers. 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 realisation finally seems to be setting in. This makes

the future of the Indian engineering sector extremely bright. Apart from highway

development and construction and modernisation 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. Considering these factors, we expect

the sector to grow strongly into the future. However, scale and execution capabilities

will be the key mantras for success for the engineering companies

Impetus given for growth of infrastructure and core industry in the last two budgets of

the central government is expected to increase capacity utilisation of producers of

coal, cement, iron ore and likely to increase demand for construction and mining

equipments. Industrial growth and capital investment levels have improved and this

will drive the growth in the coming years.

The government's initiative to bring clarity to the power sector reforms is a welcome

sign for the industry. More coordination between the Centre and states for

infrastructure development is a step in the right direction. The Electricity Act 2003

has introduced a lot of reforms in the power sector. The unbundling in the sector will

definitely boost private investment. PSUs like NTPC are expected to almost double

their generation capacity in next few years, which is a good sign for the engineering

companies.

The shift in focus towards reducing T&D losses will further increase the order book

size of the companies operating in this realm. With power generation and distribution

looking up, power equipment companies can look forward to a promising future

Deregulation combined with high global demand for crude has led to a surge in

exploration and production activities in India and globally. Also, there has been a

radical change in the government’s approach to E&P (exploration and production)

activities in the country. This thrust in development of new wells and improvement of

output from old wells promises bright prospects for engineering companies

BSPATIL 64


Automation business has perked as the user industries started realising its benefits.

With increasing competition among the power companies, the consumers will demand

better quality and uninterrupted power supply. In such a scenario automation will play

an important role. With the automation technologies gaining momentum, companies

like ABB and Siemens will benefit a lot going forward.

Capacity addition and de-bottlenecking exercise being carried by various industries

like steel, power, refineries, chemicals etc is likely to provide a fillip to the industrial

segment of the engineering companies

Performance of Industry

The industrial sector recorded a healthy growth of 10.3% (measured in terms of the

Index of Industrial Production) during the period April-Oct. 2006-07 as compared to

8.6 percent achieved during the corresponding period last year. Capital goods sector,

which posted a robust growth of 16.9 per cent in 2005-06, has maintained its growth

momentum during the current year as well. According to the Index of Industrial

Production, capital goods sector posted a growth of 15.0 per cent during April-Oct.

2006-07. The growth trends during Apr-Oct 2006-07 as compared to Apr-Oct 2005-

06 are given in the table below:

Sector Wise Growth Rates (in %)

Weight2005-06 2005-06

(Apr- Oct)2006-07(Apr-Oct)

Overall 100.08.2

8.6 10.3

Mining and Quarrying

10.51.0

0.9 3.4

Manufacturing

79.49.1

9.7 11.2

Electricity 10.25.2

5.2 7.1

Use-Based Classification

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Overall 100.0 8.2 8.6 10.3

Basic Goods 35.6 6.7 6.3 9.0

Capital Goods 9.3 15.8 16.9 15.0

Consumer Goods

28.7 12.0 13.5 9.8

I) Durables 5.4 15.3 13.9 13.2

II) Non-durables

23.3 11.0 13.5 8.5

Production and growth rates of some of the industries being dealt within the

Department of Heavy Industry for the period April-October 2006-07 as compared to

April-October 2005-06 are given below

Industry Unit

ProductionGrowth Rate (%) Apr-Oct

2005-06 Apr-Oct2006-07

Industrial Machinery Rs. lakhs 176464.79 147578.72 16.37

Machine Tools Rs. lakhs 151449.86 153371.70 1.27

Boilers Rs. lakhs 181945.45 262286.24 44.16

Turbines (Steam/Hydro)

Rs. lakhs 38443.43 56947.33 48.13

Electric Generators Rs. lakhs 41662.05 58458.17 40.32

Power Distribution Transformers

Mill. KVA

35.43 39.50 11.51

Telecommunication Tables

Mill. Mtr.

7778.79 4813.09 -38.20

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Commercial Vehicles Numbers 214510 277808 29.51

Passenger Cars Numbers 580952 689649 18.71

Heavy Engineering Industry

Textile Machinery

There are over 600 units engaged in the manufacture of Textile Machineries,

their components, accessories and spares,and out of these about 100 units are

manufacturing the complete textile machinery. The range includes textile machinery

required for sorting, cording,processing of yarns/ fabrics and weaving. The industry is

gearing itself to avail the opportunities of supplying machines required to cater the

export target of garment manufacturers post Multi Fibre Agreement (MFA).With a

capital investment of Rs. 1500 crore and an installed capacity of Rs. 3050 crore per

annum.

Their current production as well as exports and imports are as under: -

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(Rs. in crore)

Year Production Exports Imports

2003-2004 1339 535 2179

2004-2005 1685 457 3299

2005-2006 2212 476 6768

Cement Machinery

Cement plants based on dry processing and precalcination technology for capacities

upto 7500 TPD are being manufactured in the country.Modern cement plants are

designed for zero downtime, high product quality and better output with minimum

energy consumed per unit of cement production etc. At present, there are 18 units in

the organized sector for the manufacture of complete cement plant machinery. With

an installed capacity of around Rs. 600 crore/annum, the industry is fully capable to

meet the domestic demand.

Sugar Machinery

Domestic manufacturers occupy predominant position in the global scenario and are

capable of manufacturing from concept to commissioning stage sugar plants of latest

design for a capacity upto 10,000 TCD (tons crushing per day). There are presently 27

units in the organised sector for the manufacture of complete sugar plants and

components with an installed capacity of around Rs. 200 crore per annum.

(Rs. in lakh)

2003-2004 2004-2005 2005-2006

Import 427 1259 905

Export 1139 2682 3767

Rubber Machinery

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There are at present 19 units in the organized sector for the manufacture of

rubber machinery mainly required for tyre/tube industry. The range of equipments

manufactured in the country includes inter-mixer, tyre curing presses, tube splicers,

bladder curing presses, tyre moulds, tyre building machines, turnet servicer, bias

cutters, rubber injection moulding machine,bead wires etc.

(Rs.in crore)

2003-2004 2004-2005 2005-2006

Import 25.91 36.75 12.02

Export 22.29 46.15 50.32

Material Handling Equipment

The range of equipment manufactured includes crushing and screening plants,

coal/ore/ash handling plant and associated equipment such as stackers, reclaimers,

ship loaders/ unloaders,wagon tipplers, feeders etc. catering to the growing and

rapidly changing needs of the core industries such as Coal, Cement, Power, Port,

Mining, Fertilizers and steel plants. There are 50 units in the organised sector for the

manufacture of material handling equipment.Besides, there are number of units

operating in the small-scale sector. The industry is self sufficient in meeting domestic

demand and is also capable of meeting global competition.

(Rs.in crore)

2003-2004 2004-2005 2005-2006

Import 242.58 261.44 545.54

Export 41.54 80.16 77.91

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Oil Field Equipment

The petroleum industry in India is undergoing a major change. With the ongoing

process of liberalisation, the industry has been thrown open for private sector in all

major areas of exploration,production, refining and marketing, and this has resulted in

increased demand for the oil field and related equipments. Domestic production

covers mainly the on-shore drilling equipment.Under Offshore drilling only offshore

platforms and some other technological structures are being produced locally. The

major producers of these equipments are BHEL,Hindustan Shipyard, Mazagaon Dock

and Larsen & Toubro.

(Rs.in crore)

2003-2004 2004-2005 2005-2006

Import 142.49 638.20 352.84

Export 165.81 300.47 71.87

Metallurgical Machinery

Metallurgical machinery includes equipment for mineral beneficiation, ore

dressing, size reduction, steel plant equipments, foundry 30 Indian Public Sector

aiming global heights equipments and furnaces. At present, there are 39 units in the

organized sector engaged in the manufacture of various types of metallurgical

machinery. The existing production capacity in the country is sufficient to meet the

demand of these equipment in the country. Indigenous manufacturers are in a position

to supply majority of the equipment for steel plants e.g. blast furnaces, sinter plants,

BSPATIL 70


coke ovens, steel melting shop equipment, continuous casting equipment, rolling mills

& finishing line.However, there is a technological gap in the basic design and

engineering for plant and equipment required in the ferrous and non-ferrous sector for

which the domestic manufacturers are dependent on imported know-how. Since the

process of making ferrous and non-ferrous metal is linked up with the design of the

equipment, there is a need for close interaction between the process know-how,

designers and equipment manufacturers.

(Rs.in crore)

2003-2004 2004-2005 2005-2006

Import 495.28 454.40 1200.65

Export 434.23 370.70 535.04

Mining Machinery

The major mining equipments are Longwall Mining Equipment, Road Header,

side discharges Loader (SDL), Haulage Winder, Ventilation Fan,Load Haul dumper

(LHD), Coal Cutter,Conveyors, Battery Locos, Pumps, Friction Prop,etc. At present

there are 32 manufacturers in the organized sector both in public and private sector for

underground and surface mining equipment of various types. Out of these, 17 units

manufacture underground mining equipment.Majority of the requirement of the

mining industry is being met by the indigenous manufacturers.

(Rs.in crore)

2003-2004 2004-2005 2005-2006

Import 16.80 39.01 41.99

Export 1.15 1.55 5.90

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Dairy Machinery

At present, there are 16 units in the organized sector, both in private and

public sector, manufacturing Dairy Machinery equipments such as evaporators, milk

refrigerators andstorage tanks, milk and cream deodorizers, centrifuges, clarifiers,

agitators , homogenisers, spray dryers and heat exchangers. Small Scale units are also

contributing to the indigenous production. The spray dryers, plate type heat exchanger

and other core equipment for milk powder plant call for high degrees of polish

requirement on the equipment because the presence of any micro crevices resulting

from inadequate polish tends to be the incubation and breeding ground for the

bacteria. The technology gaps exist for handling equipments such as self cleaning

cream, separator, aseptic processing systems, and for the equipment required for

manufacture of yoghurt and traditional Indian sweets.

(Rs.in crore) 2003-2004 2004-2005 2005-2006Import 18.15 21.05 52.36Export 10.54 8.08 5.95

Machine Tools

Machine Tool Industry is in a position to export general purpose and a

standard machine tool to even industrially advanced countries. During last four

decades, the machine tool industry in India has established a sound base and there are

around 160 machine tool manufacturers in the organized sector as also around 400

units in the small ancillary sector. The industry, however,lacks in design and

engineering capability to undertake very high precision CNC Machines.Some

companies have taken up manufacture of CNC Machines, but there is a need to

upgrade research and development in this field. Indian machine tools are

manufactured to the international standard of quality / precision and reliability. A

BSPATIL 72


number of collaborations have also been approved for bringing in the latest

technology in this field of modern machine tools and the industry is now exporting

conventional as well as NC/CNC high - tech machine tools. In the field of R& D,

Central Manufacturing Technology Institute, Bangalore has been doing research for

more appropriate designed machine tools. There is gap in technology for Special

Purpose Machines and even in some categories of CNCs. Import of technology is

encouraged to bridge the gap.

Performance of the industry during the last three years is tabulated below:

(Rs. in crore)

2003-2004 2004-2005 2005-2006

Production797.00 1089.04 1342.00

Import 965.00 1820.83 2899.00Export 55.00 52.61 50.00

Company analysis

The company analysis is the last step in EIC analysis framework of

fundamental analysis. The industry analysis helps the investor in selecting the

industry in which the investments are better rewarded. The investor now has to decide

BSPATIL 73


in which of the companies belonging to chosen industries he should invest. This

requires the company analysis.

The company analysis has to be made in three different parts

1. Study of financial information and asses the financial health of the company.

2. Sizing up present situation and prospects. This requires an analysis of the

present business of the company and its future prospects.

3. Evolution of management.

BHEL COMPANY ANALYSIS

BSPATIL 74


1. Company financial health

The financial statements of the company can be used to understand and

evaluate the financial performance and health of the company. Ratio analysis helps an

investor to determine the financial strengths and weakness of the company.

The following is the ratio analysis of the BHEL Company

Balance sheet of BHEL Mar '03 Mar '04 Mar '05 Mar '06 Mar '07Sources Of Funds Total Share Capital 244.76 244.76 244.76 244.76 244.76Equity Share Capital 244.76 244.76 244.76 244.76 244.76Share Application Money 0 0 0 0 0Preference Share Capital 0 0 0 0 0Reserves 4,558.91 5,051.18 5,782.13 7,056.62 8,543.50Revaluation Reserves 0 0 0 0 0Networth 4,803.67 5,295.94 6,026.89 7,301.38 8,788.26Secured Loans 500 500 500 500 0Unsecured Loans 31.09 40.03 36.98 58.24 89.33Total Debt 531.09 540.03 536.98 558.24 89.33Total Liabilities 5,334.76 5,835.97 6,563.87 7,859.62 8,877.59Application Of Funds

BSPATIL 75


Gross Block 3,347.82 3,459.16 3,628.50 3,821.62 4,134.61Less: Accum. Depreciation 2,178.81 2,365.46 2,584.70 2,839.79 3,146.31Net Block 1,169.01 1,093.70 1,043.80 981.83 988.3Capital Work in Progress 67.55 109.57 98.12 191.27 306.58Investments 10.33 28.98 8.95 8.29 8.29Inventories 2,001.06 2,103.88 2,916.11 3,744.37 4,217.67Sundry Debtors 4,075.78 4,608.48 5,972.14 7,168.06 9,695.82Cash and Bank Balance 1,119.44 1,504.63 1,392.86 1,483.97 2,068.91Total Current Assets 7,196.28 8,216.99 10,281.11 12,396.40 15,982.40Loans and Advances 1,495.26 1,693.39 1,921.33 4,186.27 5,517.59Fixed Deposits 201.47 1,155.01 1,785.01 2,650.01 3,740.00Total CA, Loans & Advances 8,893.01 11,065.39 13,987.45 19,232.68 25,239.99Current Liabilities 4,094.18 5,339.66 7,248.99 8,905.14 11,957.32Provisions 806.46 1,139.94 1,325.45 3,649.32 5,708.25Total CL & Provisions 4,900.64 6,479.60 8,574.44 12,554.46 17,665.57Net Current Assets 3,992.37 4,585.79 5,413.01 6,678.22 7,574.42Miscellaneous Expenses 95.5 17.92 0 0 0Total Assets 5,334.76 5,835.96 6,563.88 7,859.61 8,877.59Contingent Liabilities 1,054.58 815.79 609.68 769.95 976.05Book Value (Rs) 196.26 216.37 246.24 298.31 359.06

Profit & Loss account Mar '03 Mar '04 Mar '05 Mar '06 Mar '07Income Sales Turnover 7,727.79 8,893.17 10,682.15 14,739.46 19,058.33Excise Duty 728.49 856.44 1,043.15 1,298.01 1,695.44Net Sales 6,999.30 8,036.73 9,639.00 13,441.45 17,362.89Other Income 69.08 14.61 259.98 342.00 482.32Stock Adjustments -45.32 -30.63 539.77 386.01 181.37Total Income 7,023.06 8,020.71 10,438.75 14,169.46 18,026.58Expenditure Raw Materials 3,160.38 3,634.66 5,097.68 7,099.40 8,561.41Power & Fuel Cost 199.96 196.81 220.54 229.01 259.08Employee Cost 1,504.64 1,639.51 1,650.38 1,878.51 2,366.93Other Manufacturing Expenses 478.10 598.67 783.44 1,054.67 1,733.59Selling and Admin Expenses 532.98 888.89 1,006.38 1,216.00 887.55Miscellaneous Expenses 81.56 193.58 116.98 126.27 190.50Preoperative Exp Capitalised 0.00 0.00 0.00 0.00 0.00Total Expenses 5,957.62 7,152.12 8,875.40 11,603.86 13,999.06Operating Profit 996.36 853.98 1,303.37 2,223.60 3,545.20PBDIT 1,065.44 868.59 1,563.35 2,565.60 4,027.52Interest 54.78 60.08 81.41 58.75 43.33PBDT 1,010.66 808.51 1,481.94 2,506.85 3,984.19Depreciation 185.35 198.00 218.87 245.93 244.61Other Written Off 0.00 0.00 0.00 0.00 0.00Profit Before Tax 825.31 610.51 1,263.07 2,260.92 3,739.58

BSPATIL 76


Extra-ordinary items -49.01 396.59 306.60 299.86 -13.79PBT (Post Extra-ord Items) 776.30 1,007.10 1,569.67 2,560.78 3,725.79Tax 291.51 348.93 616.30 881.61 1,311.09Reported Net Profit 444.51 658.15 953.40 1,679.16 2,414.70Total Value Addition 2,797.24 3,517.46 3,777.71 4,504.46 5,437.65Preference Dividend 0.00 0.00 0.00 0.00 0.00Equity Dividend 97.90 146.86 195.81 354.90 599.66Corporate Dividend Tax 12.54 19.00 26.64 49.78 92.83Per share data (annualised) Shares in issue (lakhs) 2,447.60 2,447.60 2,447.60 2,447.60 2,447.60Earning Per Share (Rs) 18.16 26.89 38.95 68.60 98.66Equity Dividend (%) 40.00 60.00 80.00 145.00 245.00Book Value (Rs) 196.26 216.37 246.24 298.31 359.06

BHEL Ratios calculations

sl.no ratio formulayear

2007 2006 20051 Net working capital CA-CL 7574.42 6678.22 5413.012 current ratio CA/CL 1.43 1.53 1.633 quick ratio CA-(stock+prepaid exp)/CL 1.13 1.17 1.224 inventory turnover ratio COGS/avg INV 3.32 3.10 3.045 debt equity ratio long trm DBT/ Sh holders eq 0.01 0.07 0.086 interest coverage ratio EBIT/INTERST 93.42 43.46 19.87 gross profit margin Gross profit / sales 19 14.71 11.258 Net profit ratio EAT/ Net sales 13.51 12.19 9.589 cost of goods sold ratio COGS/ net sales*100 80.63 86.33 92.08

10 Operating profit ratio EBIT/ Net sales 20.41 16.54 13.5211 return on equity Net profit/ share holders equity 27.48 23.00 15.8212 return on assets Net profit/total assets 27.69 22.11 15.7713 return on capital employed EBIT/ Total capital 44.18 30.28 20.8214 EPS Net profit available eq sh/ NO shares 98.66 68.6 38.9515 DPS Div paid to ord sh / No of shares 24.5 14.5 816 P/E MPS/EPS 22.91 32.75 19.7017 price to book value ratio MPS/BPS 6.30 7.53 3.1218 book value per share Net worth / no of shares 359.06 298.31 246.2419 dividend payout ratio DPS/EPS*100 24.83 21.14 20.5420 earning yield EPS/MPS *100 4.36 3.05 5.0821 dividend yield DPS/MPS*100 1.08 0.65 1.0422 total asset turnover ratio COGS/total asst 1.58 1.48 1.3523 capital turnover ratio COGS/capital employed 1.59 1.59 1.47

BSPATIL 77


Interpretation: Net working capital:NWC represents the excess of current assets over current liabilities. Companies

should have sufficient NWC in order to be able to meet the claims of the creditors and

the day to day needs of business. The greater is the amount of NWC greater is the

liquidity of the firm. In BHEL company the three year NWC is as follows.

Sl.no Ratio Formula

Year

2007 2006 2005

1 Net working capital CA-CL 7574.42 6678.22 5413.01

The company from 2005 to 2007 has increased its NWC which shows that the

company has good liquidity to its creditors.

Current ratio:The Current Ratio expresses the relationship between the firm’s current assets and its

current liabilities. The rule of thumb says that the current ratio should be at least 2 that

is, the current assets should meet current liabilities at least twice.

sl.no Ratio Formula

Year

2007 2006 2005

2 current ratio CA/CL 1.43:1 1.53:1 1.63:1

Here we can see that the company’s current ratio decreasing gradually.

BSPATIL 78


Quick ratio:

The quick ratio, also referred to as acid test ratio, examines the ability of the business

to cover its short-term obligations from its “quick” assets only (i.e. it ignores stock).

Clearly this ratio will be lower than the current ratio, but the difference between the

two (the gap) will indicate the extent to which current assets consist of stock.

sl.no Ratio Formula

year

2007 2006 2005

3 Quick ratio CA - (stock + prepaid exp)/CL 1.13:1 1.17:1 1.22:1

Here we can see that the company’s quick ratio is bit constant for three years and

company is able to satisfy its creditors with this ratio.

Inventory turn over ratio:

This ratio measures the stock in relation to turnover in order to determine how often

the stock turns over in the business. It indicates the efficiency of the firm in selling its

product.

sl.no Ratio Formula

year

2007 2006 2005

4 inventory turnover ratio COGS/avg INV 3.32 3.10 3.04

In 2007: 12/ 3.32= 3.61 months

In 2006: 12/3.1=3.87 months

In 2005: 12/3.04= 3.95 months. Here we can see that the company’s working

efficiency increased over a period of time. They are able to convert their inventory

into sale in 3.61 months.

Debt equity ratio:

This ratio indicates the extent to which debt is covered by shareholders’ funds. It

reflects the relative position of the equity holders and the lenders and indicates the

company’s policy on the mix of capital funds. The ratio reflects the relative

contribution of creditors and owners of business in its financing.

sl.no Ratio Formula year

2007 2006 2005

BSPATIL 79


5 debt equity ratio Long trm DBT/ Sh holders eq 0.01 0.07 0.08

Here we can see that the company gradually decreased its debt combination from its

finance.

Interest Coverage Ratio:

This ratio indicates how well the firm’s earning can cover the interest payments on its

debt.

sl.no Ratio Formula

year

2007 2006 2005

6 interest coverage ratio EBIT/INTERST 93.42 43.46 19.8

Gross Profit Margin:

Normally the gross profit has to rise proportionately with sales. It can also be useful to

compare the gross profit margin across similar businesses although there will often be

good reasons for any disparity.

sl.no Ratio Formula

year

2007 2006 2005

7 Gross profit margin Gross profit / sales 19 14.71 11.25

The ratio above shows the increasing trend in the gross profit since the ratio has

improved from 11.25% in 2005 to 19.00% on 2007. This indicates that the rate in

increase in cost of goods sold are less than rate of increase in sales, hence the

increased efficiency.

Net profit ratio:

sl.no Ratio Formula

year

2007 2006 2005

8 Net profit ratio EAT/ Net sales 13.51% 12.19% 9.58%

a high net profit margin would ensure adequate return to the owners as well as enable

a firm to withstand adverse economic conditions when selling price is declining cost

of production is rising and demand for the product falling.

BSPATIL 80


Cost of goods sold ratio:

sl.no Ratio Formula

year

2007 2006 2005

9 cost of goods sold ratio COGS/ net sales*100 80.63 86.33 92.08

This is one of the expenses ratios it is computed by expenses by net sales. The cost of

goods sold ratio shows what percentage share of sales is consumed by cost of goods

sold and conversely what proportion is available for meeting expenses such as selling

and general distribution expenses as well as financial expenses consisting of taxes

interest and dividend and so on.

Operating profit ratio:

This ratio reveals the profitability of sales resulting from regular business as well as

buying, selling, and manufacturing operations.

sl.no Ratio Formula

year

2007 2006 2005

10 operating profit ratio EBIT/ Net sales 20.41 16.54 13.52

Return on Equity:

This ratio shows the profit attributable to the amount invested by the owners of the

business. ROE measures the amount of money that the company has managed to

generate for its shareholders.

sl.no Ratio Formula

year

2007 2006 2005

11 return on equity Net profit/ share holders equity 27.48 23.00 15.82

Here we can see that the companies return on equity is increasing constantly so we

can say that the profitability to ordinary shareholders is strong and showing an

upward trend.

Return on assets:

BSPATIL 81


This ratio gives you an idea on the company's management effectiveness in utilizing

its assets to make a profit for its shareholders.

sl.no Ratio Formula

year

2007 2006 2005

12 return on assets Net profit/total assets 27.69 22.11 15.77

The company ROA has increased constantly which its management efficiency in

getting good returns from its assets.

Return on capital employed:

sl.no Ratio Formula

year

2007 2006 2005

13

return on capital

employed EBIT/ Total capital 44.18 30.28 20.82

This ratio shows how efficiently the long term funds of owners and lenders are being

used.

Earning Per Share:

For an equity investor, a company’s EPS is the most important indicator of its

performance. If the EPS is good, the company can pay dividends, plough back the

surplus into reserves and issue bonus shares in the future. For these reasons, the

market price of any company’s share is largely influenced by its projected EPS

Sl.no ratio Formula

year

2007 2006 2005

14 EPS

Net profit available eq sh/ NO

shares 98.66 68.6 38.95

We can see here the company’s EPS gone three times higher from three year.

Dividend per Share:

BSPATIL 82


Sl.no ratio Formula

Year

2007 2006 2005

15 DPS div paid to ord sh / No of shares 24.5 14.5 8

This indicates the dividend paid for each share. Shareholders would, naturally like to

receive the maximum possible dividends from a company, consistent with its profits

and need for retained earnings.

P/E Ratio:

P/E ratio is a useful indicator of what premium or discount investors are prepared to

pay or receive for the investment. The higher the price in relation to earnings, the

higher the P/E ratio which indicates the higher the premium an investor is prepared to

pay for the share. This occurs because the investor is extremely confident of the

potential growth and earnings of the share.

sl.no Ratio Formula

year

2007 2006 2005

16 P/E MPS/EPS 22.91 32.75 19.70

The above ratio shows that the shares were traded at a much higher premium in

2007 than were in 2005. In 2005 the price was 19.7 times higher than earnings

while in 2007, the price is 22.91 times higher.

Price to book value ratio:

sl.no Ratio Formula

year

2007 2006 2005

17 Price to book value ratio MPS/BPS 6.30 7.53 3.12

It measures the relationship between the market price of an equity share with book

value per share. The P/B ratio is significant in predicting future stock return. Firms

BSPATIL 83


with low P/B ratio had consistently higher returns compared to the firms with high

P/B ratio.

Book value per share:

sl.no Ratio Formula

year

2007 2006 2005

18 Book value per share Net worth / no of shares 359.06 298.31 246.24

This ratio indicates the net asset value of a company’s share. A high book value

indicates that the company has strong reserves, indicating scope for bonus shares, of

course subject to necessary guidelines of the SEBI.

Dividend payout ratio:

This ratio looks at the dividend payment in relation to net income and can be

calculated as follows:

sl.no Ratio Formula

year

2007 2006 2005

19 dividend payout ratio DPS/EPS*100 24.83 21.14 20.54

Earning yield:

This ratio highlights as a percentage a company’s earnings vis-a-vis the current

market value of its share. For blue chip companies this ratio tends to be around 5 per

cent to 6 per cent.

sl.no Ratio Formula

Year

2007 2006 2005

20 earning yield EPS/MPS *100 4.36 3.05 5.08

Dividend yield:

The dividend yield ratio indicates the return that investors are obtaining on their

investment in the form of dividends. This yield is usually fairly low as the investors

are also receiving capital growth on their investment in the form of an increased share

price.

BSPATIL 84


sl.no Ratio Formula

Year

2007 2006 2005

21 dividend yield DPS/MPS*100 1.08 0.65 1.04

Total asset turnover ratio:

sl.no Ratio Formula

Year

2007 2006 2005

22 total asset turnover ratio COGS/total asst 1.58 1.48 1.35

Total asset turnover ratio measures the efficiency of a firm in managing and utilizing

its assets. The higher ratio indicates the more efficient management.

Capital turnover ratio:

sl.no Ratio Formula

Year

2007 2006 2005

23 capital turnover ratio COGS/capital employed 1.59 1.59 1.47

Capital turnover ratio measures the efficiency of a firm in managing and utilizing its

capital. The higher ratio indicates the more efficient management.

BSPATIL 85


Bharat Heavy Electricals Limited:

Bharat Heavy Electricals Limited (BHEL) is one of the largest

engineering enterprises of its kind in India. BHEL is the largest domestic capital

goods manufacturer in India and the 12th largest in the world. The international

competitors of BHEL are General Electric, Siemens, Alstom and ABB. BHEL offers

a wide spectrum of equipment, systems and services in the field of power,

transmission, industry, transportation, oil & gas, non-conventional energy sources and

telecommunication. Power sector constitutes over half of its total business. The

company has 14 manufacturing divisions, 8 service centres and 4 power sector

regional centres. Its first plant was set up at Bhopal in 1956 under technical

collaboration with AEI, UK followed by three more major plants at Hardwar,

Hyderabad and Tiruchirapalli with Russian and Czechoslovak assistance.

Products & services—

BHEL manufactures over 200 products under 30 major product groups.

The company has installed equipment for over 100,000 mw of power generation for

utilities, captive and industrial users. Its strengths are comparable product range and

cost competitiveness with foreign manufacturers. The company enjoys a crucial

advantage of depreciated assets. The company is cost-competitive when it comes to

power plant equipment and has bagged a number of power project orders placed in

India against open international competitive bidding.

BSPATIL 86


The company has joint venture with Siemens for servicing old Indian

fossil fuel power plants and with GE for designing of heavy-duty gas turbines. Thirty-

two thermal power stations equipped with Bhel’s generating sets have been given

productivity awards by the power ministry. Of these power stations, eight have

received gold medals. The awards have been given for meritorious and efficient

performance based on account of reduced inputs.

The company already manufactures products required by the

distribution systems like transformers, switchgears etc. The company is planning

towards becoming an application service provider. The company will continue to

focus on project management, reducing cycle time and cost control. In the power

sector, the company plans to obtain a part of the business generated by independent

power producers through a combination of approaches including consortium route,

equity participation and limited financial syndication.

I It has equipped itself with the new type of once-through design boiler

technology, and for pollution control - bag filter technology. BHEL entered into new

business in integrated gasification combined cycle systems, coal washeries, and LRT

systems. In it's existing businesses of transportation, transmission & industry. BHEL

is pursuing opportunities in EMU coaches, loco refurbishment, gas-insulated switcher,

HVDC insulators, and electronic meters. The company will continue to focus on

product developments in order to foster its growth strategy. The electronics division

has forayed into traction business and received a large order from DoT for switching

equipment.

BHEL has developed a new series compensation scheme Flexible AC

Transmission System (FACTS) for reducing power losses and speedy transmission.

The FACTS will enhance power transfer capability of the system and reduce

transmission losses in 400 kV lines considerably. The company has also developed an

automatic device that adjusts itself to the system’s requirement in less than 10

milliseconds. It reduces system losses and improves power system stability in high-

voltage transmission lines.

BSPATIL 87


Key Risks

Delay in capacity expansion

The company’s 37,000 MW of order flow for BHEL over FY09-12E, in addition to

the existing strong order backlog. Any delay in second phase of expansion from

10,000 MW to 15,000 MW could severely impact BHEL’s earnings, given the strong

deliverables over next three-four years. The first phase of expansion from 6,000 MW

to 10,000 MW had been delayed by nine months.

Slowdown in pace of power reforms

Given the recent momentum in power reforms, it is expected the balance Eleventh

Plan orders and 70% of Twelfth Plan orders to be placed by FY12. Any significant

delay in the awarding activity could be a huge dampener for BHEL’s outlook going

ahead, given that the company is the market leader (65% market share in country’s

installed capacity as in FY07).

Increase in private sector investments in power projects = intensifying

competition

As per CEA, 35% of the power capacity addition in the Twelfth Plan will be

undertaken by the private sector. Any subsequent change in the mix, in favour of the

private sector, could result in lower order intake for BHEL. While central and state

sector projects are BHEL’s forte (70% plus market share), the company’s market

share in private sector projects has been lower (20-25%) on account of stiff

competition.

BSPATIL 88


Stiff input prices could affect margins

Although it have not built in benefits on account of raw material pricing over FY09

12E, any unprecedented rise in input costs above FY07-08E levels could dampen

BHEL’s margins. Execution delays could lead to de-rating The re-rating in BHEL’s

valuations over the past one year builds in strong visibility over the next few years.

The key concern now is BHEL’s ability to execute this huge opportunity, failing

wherein could lead to the stock being de-rated.

Value anchor

Period & months 2008/03 2009/03 2010/03 CAGR

INCOME

Net Operating Income 20822.62 24971.74 29947.6 1.20

EXPENSES

Material Consumption 10155.72 12307.66 14915.58 1.21

Manufacturing Expenses 2472.116 3066.919 3804.834 1.24

Personel Expenses 2591.409 2837.178 3106.255 1.09

Selling Expenses 248.2735 277.4314 310.0138 1.12

Administrative Expenses 942.93 1038.846 1144.518 1.10

Cost of Sales 16,410.45 19,528.03 23,281.20

Reported PBDIT 4,412.17 5,443.70 6,666.41

Other Recuring Income 783.4328 1220.577 1901.64 1.56

Adjusted PBDIT 5,195.60 6,664.28 8,568.05

Depreciation 258.5655 273.3171 288.9104 1.06

Adjusted PBIT 4,937.04 6,390.96 8,279.14

Finanical Expenses 41.34491 39.45076 37.64339 0.95

Adjusted PBT 4,895.69 6,351.51 8,241.49 1.37

Tax Charges 1771.04 2392.347 3231.617 1.35

Adjusted PAT 3,124.65 3,959.17 5,009.88

Non-recurring Items -13.4603 -8.82506 -5.78605 0.66

Other Non-cash Adjustments 0.78

REPORTED PAT 3,111.19 3,950.34 5,004.09

no. of shares 24.48 24.48 24.48

Expected EPS FOR 3 YEAR 127.09 161.37 204.42

BSPATIL 89


risk free rate Beta EMRP

Average Dividend payout ratio 25.28

Required rate of rate 18.6 8 1.1 9.5

Expected growth rate in dividend 16.02

P/E Ratio 9.81

AVG PE ratio 23.74

Weighted PE ratio 16.78

Expected future price of the BHEL Company

Year 2008 2009 2010

Value ancher 2132.30 2707.42 3429.62

Calculation of Intrinsic value

Average Dividend payout ratio= sum of 5 years DPR/ 5

Required rate of rate= risk free rate +(beta*EMPR)

Expected growth rate in dividend= avg of retention ratio* avg of

ROE

P/E RATIO= AVG DPR / (required rate of risk-exp growth rate in

div)

AVG PE ratio= 5 years PE ratio/ 5

Weighted PE ratio= calculated PE ratio+AVG PE ratio/2

BSPATIL 90


Value anchor = weighted PE ratio* expected market price

L&T COMPANY ANALYSIS

BSPATIL 91


1. Company financial health

The financial statements of the company can be used to understand and

evaluate the financial performance and health of the company. Ratio analysis helps an

investor to determine the financial strengths and weakness of the company.

The following is the ratio analysis of the BHEL Company

L&T Company balance sheet and profit and loss account

Balance Sheet Mar '03 Mar '04 Mar '05 Mar '06 Mar '07Sources Of FundsTotal Share Capital 248.67 24.88 25.98 27.48 56.65Equity Share Capital 248.67 24.88 25.98 27.48 56.65Share Application Money 0.04 0.00 0.00 0.00 0.00Reserves 3,279.53 2,717.55 3,312.25 4,583.32 5,683.85Revaluation Reserves 34.34 32.61 30.90 29.37 27.93Net worth 3,562.58 2,775.04 3,369.13 4,640.17 5,768.43Secured Loans 2,703.11 1,045.25 793.72 465.79 245.40Unsecured Loans 472.89 279.10 1,065.34 987.78 1,832.35Total Debt 3,176.00 1,324.35 1,859.06 1,453.57 2,077.75Total Liabilities 6,738.58 4,099.39 5,228.19 6,093.74 7,846.18Application Of FundsGross Block 6,231.79 2,038.15 2,106.55 2,300.68 2,876.30Less: Accum. Depreciation 2,256.12 1,049.63 1,089.54 982.22 1,122.83Net Block 3,975.67 988.52 1,017.01 1,318.46 1,753.47Capital Work in Progress 72.60 26.23 65.82 286.06 471.22Investments 1,160.37 965.88 960.70 1,919.52 3,104.44Inventories 2,590.01 1,812.30 2,310.84 2,210.27 3,001.14Sundry Debtors 1,850.37 3,314.58 3,963.60 4,814.16 5,504.64Cash and Bank Balance 279.11 282.05 354.67 398.71 993.68Total Current Assets 4,719.49 5,408.93 6,629.11 7,423.14 9,499.46Loans and Advances 1,484.53 1,423.34 1,860.18 2,061.50 2,449.14Fixed Deposits 41.42 93.22 473.35 184.49 100.75Total CA, Loans & Advances 6,245.44 6,925.49 8,962.64 9,669.13 12,049.35Current Liabilities 4,360.73 4,191.95 5,023.23 6,106.04 8,362.01

BSPATIL 92


Provisions 424.75 660.99 794.64 1,015.37 1,180.13Total CL & Provisions 4,785.48 4,852.94 5,817.87 7,121.41 9,542.14Net Current Assets 1,459.96 2,072.55 3,144.77 2,547.72 2,507.21Miscellaneous Expenses 69.98 46.21 39.89 21.98 9.84Total Assets 6,738.58 4,099.39 5,228.19 6,093.74 7,846.18Contingent Liabilities 562.79 655.86 625.10 305.59 270.22Book Value (Rs) 141.88 220.45 256.94 335.61 202.65

Profit & Loss account Mar '03 Mar '04 Mar '05 Mar '06 Mar '07Income Sales Turnover 9,931.98 9,917.52 13,404.27 15,030.81 17,983.37Excise Duty 518.99 272.20 214.56 253.86 338.08Net Sales 9,412.99 9,645.32 13,189.71 14,776.95 17,645.29Other Income 248.21 391.15 634.94 527.52 459.80Stock Adjustments -1.15 432.59 86.84 -103.24 121.76Total Income 9,660.05 10,469.06 13,911.49 15,201.23 18,226.85Expenditure Raw Materials 3,000.92 3,729.06 5,211.98 4,510.78 5,320.98Power & Fuel Cost 656.94 69.19 90.33 221.50 308.13Employee Cost 668.40 678.08 764.51 890.03 1,258.21Other Manufacturing Expenses 2,801.77 4,009.64 5,170.22 6,647.70 7,451.07Selling and Admin Expenses 1,144.12 662.21 877.60 996.59 1,222.80Miscellaneous Expenses 214.40 191.91 147.20 125.00 166.15Preoperative Exp Capitalised -1.98 -0.74 -3.15 -1.89 -3.30Total Expenses 8,484.57 9,339.35 12,258.69 13,389.71 15,724.04Operating Profit 927.27 738.56 1,017.86 1,284.00 2,043.01PBDIT 1,175.48 1,129.71 1,652.80 1,811.52 2,502.81Interest 388.13 273.15 280.51 321.34 331.46PBDT 787.35 856.56 1,372.29 1,490.18 2,171.35Depreciation 304.57 84.53 87.52 107.12 160.13Other Written Off 0.00 0.00 0.00 0.00 0.00Profit Before Tax 482.78 772.03 1,284.77 1,383.06 2,011.22Extra-ordinary items 4.35 4.53 8.02 -1.85 -5.34PBT (Post Extra-ord Items) 487.13 776.56 1,292.79 1,381.21 2,005.88Tax 77.10 236.08 302.29 366.12 601.87Reported Net Profit 433.10 532.75 983.85 1,012.14 1,403.02Total Value Addition 5,483.65 5,610.29 7,046.71 8,878.93 10,403.06Preference Dividend 0.00 0.00 0.00 0.00 0.00Equity Dividend 186.80 199.04 357.21 302.25 368.25Corporate Dividend Tax 23.93 25.54 49.41 42.39 53.34Per share data (annualised) Shares in issue (lakhs) 2,486.69 1,244.02 1,299.24 1,373.86 2,832.71Earning Per Share (Rs) 17.42 42.82 75.72 73.67 49.53Equity Dividend (%) 75.00 800.00 1,375.00 1,100.00 650.00Book Value (Rs) 141.88 220.45 256.94 335.61 202.65

BSPATIL 93


Ratios calculations

Sl.no Ratio FormulaYear

2007 2006 20051 Net working capital CA-CL 2,507.21 2,547.72 3,144.772 Current ratio CA/CL 1.26 1.36 1.543 Quick ratio CA-(stock+prepaid exp)/CL 0.93 1.03 1.124 Inventory turnover ratio COGS/avg INV 5.24 6.06 5.305 Debt equity ratio Long trm DBT/ Sh holders eq 0.36 0.31 0.556 Interest coverage ratio EBIT/INTERST 7.52 5.03 4.437 Gross profit margin Gross profit / sales 10.61 7.91 78 Net profit ratio EAT/ Net sales 7.74 6.69 7.339 Cost of goods sold ratio COGS/ net sales*100 89.11 90.61 92.94

10 Operating profit ratio EBIT/ Net sales 11.52 8.63 7.66

11 Return on equityNet profit/ share holders equity 24.44 21.95 29.47

12 Return on assets Net profit/total assets 22.11 21.88 24.18

13Return on capital employed EBIT/ Total capital 54.98 44.08 37.61

14 EPS Net profit available eq sh/ NO shares 49.53 73.67 75.72

15 DPSDiv paid to ord sh / No of shares 13 22 27.5

16 P/E MPS/EPS 32.69 33.02 13.1417 Price to book value ratio MPS/BPS 7.99 7.25 3.8718 Book value per share Net worth/ no of shares 202.65 335.61 256.9419 Dividend payout ratio DPS/EPS*100 26.25 29.86 36.3220 Earning yield EPS/MPS *100 3.06 3.03 7.6121 Dividend yield DPS/MPS*100 0.80 0.90 2.7622 Total asset turnover ratio COGS/total asst 2.00 2.20 2.3423 Capital turnover ratio COGS/capital employed 2.74 2.90 3.67

1. Net working capital:Sl.n

o Ratio FormulaYear

2007 2006 2005

1 Net working capital CA-CL2,507.

212,547.

723,144.77

BSPATIL 94


Here we can see that the L&T company has maintained a constant NWC which is a

good sign it implies that the company is able to good liquidity to its creators

2. Current ratio


2007 2006 20052 Current ratio CA/CL 1.26 1.36 1.54

The short term creditors prefer high current ratio since it reduces their risk. As a share

holder one should prefer low current ratio so that the company may use its current

assets for expansion purpose. Here we can see that the company’s current ratio has

reduced over a period of time so we can say that the companies using its current assets

for expansion purpose.

3. Quick ratio


2007 2006 20053 Quick ratio CA-(stock+prepaid exp)/CL 0.93 1.03 1.12

Measures assets that are quickly converted into cash and they are compared with

current liabilities. This ratio realizes that some of current assets are not easily

convertible to cash e.g. inventories. In the ratio above we can see that the company’s

quick ratio reduced over a period of time.

4. Inventory turn over ratio.


2007 2006 20054 Inventory turnover ratio COGS/avg INV 5.24 6.06 5.30

This ratio measures the stock in relation to turnover in order to determine how often

the stock turns over in the business. This ratio should be higher because it indicates

that the company is efficiently converting its inventory into sales.

2007: 12/5.24 = 2.29 times

2006: 12/6.06 = 1.98 times

2005: 12/5.30 = 2.26 times

BSPATIL 95


5. Debt equity ratio.

Sl.no Ratio Formula

Year

2007 2006 2005

5 Debt equity ratio long trm DBT/ Sh holders eq 0.36 0.31 0.55

The debt to equity ratio shows that for every 1 rupee of shareholders funds in 2007

there was 0.36 rupee of debt. This compares to 0.55 rupee in 2005.

6. Interest coverage ratio.

Sl.no Ratio Formula

Year

2007 2006 2005

6 Interest coverage ratio EBIT/INTERST 7.52 5.03 4.43

This ratio, as the name suggests indicates the extent to which a fall in EBIT is

tolerable in that the ability of the firm to service its interest payments would not be

adversely affected. Here the company’s Interest coverage ratio has increased which is

dangerous sign.

7. Gross profit margin

Sl.no Ratio Formula

Year

2007 2006 2005

7 Gross profit margin Gross profit / sales 10.61 7.91 7

The ratio above shows the increasing trend in the gross profit since the ratio has

improved from 7% in 2005 to 10.61% on 2007. This indicates that the rate in increase

in cost of goods sold are less than rate of increase in sales, hence the increased

efficiency.

8. Net profit margin

Sl.no Ratio Formula

Year

2007 2006 2005

8 Net profit ratio EAT/ Net sales 7.74 6.69 7.33

BSPATIL 96


The net margin ratio shows that the margin is fairly stable over time with slight

improvement to 7.74% in 2007. However, to know how well the firm is performing

one has to compare this ratio with the industry average or a firm dealing in a similar

business

9. Cost of goods sold

Sl.n

o Ratio Formula

Year

2007 2006 2005

9

Cost of goods sold

ratio COGS/ net sales*100 89.11 90.61 92.94

The cost of goods sold ratio shows what percentage share of sales is consumed by

cost of goods sold and conversely what proportion is available for meeting expenses

such as selling and general distribution expenses as well as financial expenses

consisting of taxes interest and dividend and so on.

10 Operating profit ratio

Sl.no Ratio Formula

Year

2007 2006 2005

10 Operating profit ratio EBIT/ Net sales 11.52 8.63 7.66

Here operating profit ratio has increased over a period of time which shows firms

ability to withstand adverse economic conditions when selling price is declining.

11. Return on equity

Sl.no Ratio Formula

Year

2007 2006 2005

11 Return on equity Net profit/ share holders equity 24.44 21.95 29.47

BSPATIL 97


Here the profitability to ordinary shareholders is bit weaker and showing an

downward trend.

12. Return on assets

Sl.n

o Ratio Formula

Year

2007 2006

20

05

12 Return on assets Net profit/total assets 22.11 21.88

24.

18

This ratio gives you an idea on the company's management effectiveness in utilizing

its assets to make a profit for its shareholders

13. Return on capital employed

Sl.n

o Ratio Formula

Year

2007 2006 2005

13

Return on capital

employed EBIT/ Total capital 54.98 44.08 37.61

This ratio shows how efficiently the long term funds of owners and lenders are being

used.

14. Earnings Per Share

Sl.no Ratio Formula

Year

2007 2006 2005

14 EPS

Net profit available eq sh/ NO

shares 49.53 73.67 75.72

Whatever income remains in the business after all prior claims, other than owners

claims (i.e. ordinary dividends) have been paid, will belong to the ordinary

shareholders who can then make a decision as to how much of this income they wish

to remove from the business in the form of a dividend, and how much they wish to

BSPATIL 98


retain in the business. The shareholders are particularly interested in knowing how

much has been earned during the financial year on each of the shares held by them.

For this reason, an earning per share figure must be calculated.

15. Dividend per Share

Sl.no Ratio Formula

Year

2007 2006 2005

15 DPS Div paid to ord sh / No of shares 13 22 27.5

This indicates the dividend paid for each share. Shareholders would, naturally like to

receive the maximum possible dividends from a company, consistent with its profits

and need for retained earnings. But the company’s DPS has reduced drastically in

L&T Company’s case.

16. PE ratio

Sl.n

o Ratio Formula

Year

2007 2006 2005

16 P/E MPS/EPS 32.69 33.02 13.14

The P/E ratio reflects the price currently being paid by the market for each rupee of

currently reported EPS. High P/E generally reflects lower risk and/or higher growth

prospects for earnings.

The above ratio shows that the shares were traded at a much higher premium in 2007

than were in 2005. In 2005 the price was 13.14 times higher than earnings while in

2007, the price is 32.69 times higher.

17. Price to book value

Sl.no Ratio Formula Year

BSPATIL 99


2007 2006 2005

17 Price to book value ratio MPS/BPS 7.99 7.25 3.87

It measures the relationship between the market price of an equity share with book

value per share. The P/B ratio is significant in predicting future stock return. Firms

with low P/B ratio had consistently higher returns compared to the firms with high

P/B ratio.

18. Book value per share

Sl.no Ratio Formula

Year

2007 2006 2005

18 Book value per share Networth/ no of shares 202.65 335.61 256.94

This ratio indicates the net asset value of a company’s share. A high book value

indicates that the company has strong reserves, indicating scope for bonus shares, of

course subject to necessary guidelines of the SEBI.

19. Dividend payout ratio

Sl.n

o Ratio Formula

Year

2007 2006 2005

19 Dividend payout ratio DPS/EPS*100 26.25 29.86 36.32

This ratio looks at the dividend payment in relation to net income and can be

calculated

20. Earning yield

Sl.no Ratio Formula

Year

2007 2006 2005

20 Earning yield EPS/MPS *100 3.06 3.03 7.61

This ratio highlights as a percentage a company’s earnings vis-a-vis the current

market value of its share. For blue chip companies this ratio tends to be around 5 per

cent to 6 per cent.

21. Dividend yield

BSPATIL 100


Sl.no Ratio Formula

Year

2007 2006 2005

21 Dividend yield DPS/MPS*100 0.80 0.90 2.76

Notice here there is a decrease in the yield from 2005 to 2007. The main reason for

this is that the dividend per share decreased while at the same time, the price of a

share increased.

22. Total asset turnover ratio

Sl.no Ratio Formula

Year

2007 2006 2005

22 Total asset turnover ratio COGS/total asst 2.00 2.20 2.34

Total asset turnover ratio measures the efficiency of a firm in managing and utilizing

its assets. The higher ratio indicates the more efficient management.

23. Capital turn over ratio

Sl.no Ratio Formula

Year

2007 2006 2005

23 Capital turnover ratio COGS/capital employed 2.74 2.90 3.67

Capital turnover ratio measures the efficiency of a firm in managing and utilizing its

capital. The higher ratio indicates the more efficient management.

BSPATIL 101


Value anchor of the L&T Company is in the next page.

L&T Company income statement

Period & months 2007/03 2006/03 2005/03 2004/03 2003/03

INCOME

Net Operating Income 17,645.29 14,776.95 13,189.71 9,645.32 9,412.99

EXPENSES

Material Consumption 5,199.22 4,614.02 5,125.14 3,296.47 3,002.07

Manufacturing Expenses 7,759.20 6,869.20 5,260.55 4,078.83 3,458.71

Personel Expenses 1,258.21 890.03 764.51 678.08 668.4

Selling Expenses 200.84 156.74 170.18 111.16 609.39

Administrative Expenses 1,197.99 972.22 861.27 748.51 749.13

Capitalised Expenses -3.3 -1.89 -3.15 -0.74 -1.98

Cost of Sales 15,612.16 13,500.32 12,178.50 8,912.31 8,485.72

Reported PBDIT 2,033.13 1,276.63 1,011.21 733.01 927.27

Other Recuring Income 458.56 339.48 230.91 340.67 388.13

Adjusted PBDIT 2,491.69 1,616.11 1,242.12 1,073.68 1,315.40

Depreciation 160.13 107.12 87.52 84.53 304.57

Adjusted PBIT 2,331.56 1,508.99 1,154.60 989.15 1,010.83

Finanical Expenses 331.46 321.34 280.51 273.15 388.13

Adjusted PBT 2,000.10 1,187.65 874.09 716.00 622.70

Tax Charges 601.87 366.12 302.29 236.08 77.1

Adjusted PAT 1,398.23 821.53 571.80 479.92 545.60

Non-recurring Items 1.24 188.04 404.03 50.48 26.91

Other Non-cash Adjustments -5.34 -1.85 8.02 4.53 4.35

REPORTED PAT 1,394.13 1,007.72 983.85 534.93 576.86

no. of shares 28.33 13.74 12.99 12.44 24.87

earnings per share 49.21 73.34 75.74 43.00 23.20

Retained Earnings 1,028.24 718.70 628.62 360.95 252.78

Dividend/Share 13.00 22.00 27.50 80.00 7.50

total dividend 368.29 302.28 357.225 995.2 186.525

Retention ratio 0.74 0.71 0.64 0.67 0.44

BSPATIL 102


Reserves & Surplus 5,683.85 4,583.32 3,312.25 2,717.55 3,279.53

ROE 23.36 21.35 28.58 18.82 16.35

market price 1,619.15 2,432.70 999.5 574.35 184.55

PE ratio 32.90 33.17 13.20 13.36 7.96

Period & months 2008/03 2009/03 2010/03 CAGR

INCOME

Net Operating Income 20521.39 23866.29 27756.39 1.16

EXPENSES

Material Consumption 5826.54 6529.54 7317.37 1.12

Manufacturing Expenses 9112.49 10701.82 12568.34 1.17

Personnel Expenses 1468.49 1713.91 2000.36 1.17

Selling Expenses 232.85 269.96 312.99 1.16

Administrative Expenses 1347.46 1515.59 1704.69 1.12

Capitalized Expenses -4.80 -6.97 -10.13 1.45

Cost of Sales 17,983.04 20,723.86 23,893.61

Reported PBDIT 2,538.35 3,142.43 3,862.77

Other Recurring Income 493.93 532.02 573.05 1.08

Adjusted PBDIT 3,032.28 3,674.45 4,435.82

Depreciation 187.86 220.40 258.56 1.17

Adjusted PBIT 2,844.42 3,454.06 4,177.26

Finanical Expenses 347.89 365.13 383.22 1.05

Adjusted PBT 2,496.53 3,088.93 3,794.03

Tax Charges 725.76 875.15 1055.28 1.21

Adjusted PAT 1,770.77 2,213.78 2,738.75

Non-recurring Items 0.59 0.28 0.13 0.48

Other Non-cash

Adjustments 5.52 -5.70 5.89 -1.03

REPORTED PAT 1,776.88 2,208.36 2,744.78

no. of shares 33.40 39.37 46.42 1.18

earnings per share 53.20 56.09 59.13

BSPATIL 103


risk free rate beta EMRPDividend payout ratio 69.69 required rate of rate 17 8 1 9expected growth rate in dividend 15.92 p/e ratio 64.26 AVG PE ratio 23.16 weighted pe ratio 43.71

The following table shows the expected market prices of L&T Company.

year 2008 2009 2010value anchor 2325.33 2451.38 2584.41

The following is the L&T company management review

The following lines explain the chairman’s speech of L&T Company it tells

about the company’s strategy of future expansion and development strategy.

Performance overview:

India is one of the fastest growing economies globally with GDP growing at

9.4% last year. High capacity utilisation across various sectors is fuelling an up trend

in capital expenditure. The scale of investment in infrastructure envisaged in the 11th

Five Year Plan (2007-2012) will call for greater engagement by the private sector and

international institutions. All these are lead indicators for growth.

The conducive business environment coupled with a slew of measures taken by the

Company for improvement of operational efficiency, institutionalization of a risk

management framework and more judicious selection of projects, have yielded

significant benefits. In Financial Year 2006-2007, the Company's order inflows &

BSPATIL 104


sales have grown by 37% and 19% respectively. The Company bagged its largest ever

order in domestic & international markets such as expansion & modernisation of

Delhi International Airport and an offshore platform project in Qatar. The order book

as on March 31, 2007 stood at Rs. 369 Bn including Rs. 61 Bn from international

business. The Company has achieved improvement in margins in all its business

segments for the second year. The Subsidiary and Associate Companies have also

performed well. During the year, the Company issued bonus shares in the ratio of 1:1

and recommended/paid dividend of-Rs. 13 per share on a face value of Rs. 2 per

share. The market capitalization of the Company has increased further from Rs. 334

Bn to Rs. 456 Bn during the year and has outperformed the Sensex.

Investing for profitable growth:

Investments are the oxygen of growth. Within the larger context of the

country's increasing investments in building a brighter future, the Company is also

investing in multiple spheres - people, technology, capacity expansion both

domestically & internationally and brand building. This is essential for sustaining the

growth momentum and continuous value creation.

People - Talent management:

Talent acquisition and retention is one of the key result areas for our senior

managers. On an on-going basis, the Company renews, rejuvenates and adds Human

Resource Management & Development systems, processes and practices to its

repertoire and periodically does compensation benchmarking so as to ensure a vibrant

and motivated workforce. The Company is constantly honing people management

leadership skills of the employees and is increasingly investing in training centers

across India. Innovative human resource initiatives like 'Campus to Corporate', launch

of an e-learning portal - 'Any Time Learning', buddy referrals for talent acquisition,

have been launched. As a result, the Company has been able to substantially increase

its human resource.

BSPATIL 105


Technology - Building on core engineering strength:

Given our commitment to becoming a knowledge-based premium

conglomerate, investments in technology across all businesses continue to remain at

the forefront of the Company's business strategy. The Company has set up

Engineering design centers at Mumbai, Baroda, Chennai, Bangalore, and Delhi as

well as in the Middle East. In line with our objective of emerging as a player with

end-to-end capabilities in the power sector, the Company has signed an agreement

with Mitsubishi Heavy Industries Limited, Japan for super critical boiler technology

and is close to achieving a similar tie-up in the field of turbines.

International Business - Strengthening presence beyond India:

The Company continues to forge alliances and to invest in international

business for enhancing capabilities and achieving its vision of becoming an Indian

multinational with focus in the Middle East and China. Joint ventures have been set

up in Kuwait and Saudi Arabia for electromechanical construction in oil & gas, power

and infrastructure sectors. The Modular Fabrication yard being set up at Sohar, Oman

will strengthen the Company's presence in the Gulf region. The Company is receiving

encouraging response from clients for project execution and Design & Engineering

services. The Company has set up manufacturing facilities in China for high- end

switchgear & rubber processing machinery and a factory is also being built for

industrial valves. These initiatives will accelerate the Company's thrust towards its

`Lakshya' target of achieving 25% revenues from international business.

Capacity Expansion:

The Company is expanding capacity internationally and within India.

Substantial capacity augmentation at Hazira will help us address the growing demand

in oil & gas industry. The Electrical & Electronics division is expanding its capacity

at Mysore, Ahmednagar and Mahape to take care of rapid growth in the sector. The

Company crossed a major milestone with the inauguration of the first two units at its

300-acre campus in Coimbatore. The facilities for the manufacture of industrial valves

BSPATIL 106


and switchboards are already accomplished. The campus will progressively see the

establishment of manufacturing facilities for advanced tooling and high precision

components in aerospace, nuclear power, defence sectors etc. The Company is

building a state of the art Heavy Lift-cum-Pipelay vessel in partnership with

SapuraCrest Petroleum Berhad, Malaysia that will give offshore installation capability

and achieve significant competitiveness. All the divisions of the Company have

planned increased investments in acquisition and installation of new equipment and

manufacturing facilities.

Looking Ahead:

As we move on, the Company is well positioned to exploit the opportunities

that will emerge from hydrocarbon, infrastructure, power, minerals & metals and

other industrial sectors.

The Public Private Partnership model is going to be the way forward for infrastructure

projects in the country. L&T Infrastructure Development Projects Limited has already

consolidated its position with some completed projects and several under

implementation across various sectors. With its capabilities augmented through the

recent tie-up for manufacture of super critical boilers and the proposed collaboration

for turbines, the Company will be in a position to set up complete power projects.

L&T Infrastructure Finance Company Limited has initiated funding in the

infrastructure segment.

The Company has commenced building ships at its Hazira Works. We are also

scouting for a suitable site in India to set up a world-class facility for shipbuilding and

repair, comparable to the best worldwide. The defence, nuclear power and aerospace

sectors show potential and promise. The Raksha Udyog Ratna (RUR) status, when

granted to the Company, will facilitate increased business in Defence sector.

Leveraging its proven capabilities in construction and electrification for the railways,

the Company envisages expanding its presence in this sector. Given the healthy order

book position and the opportunities available, the Company believes that it will be

able to achieve sustained growth.

BSPATIL 107


I am happy to share that the Company was ranked number 1 in two critical attributes -

'Quality' and 'Reputation' over a host of other corporates, in The Wall Street Journal

Asia's nationwide survey of Indian companies.

To conclude, I wish to place on record my appreciation for the outstanding

commitment and smart work of all our employees. I am also grateful for the

continuing support of my colleagues, our customers, business associates, shareholders

and members of the Board. It is this collective effort and support of each member of

L&T Group's extended family that instills confidence in our ability for building on the

profitable growth momentum into the future.

BSPATIL 108


Finding and suggestion:

1. The following table shows the expected market of the BHEL stock for the

period of 3 years i.e 2008 to 2009

Analysis:

At present the company share price is very attractive and fundamentally

undervalued

Because the intrinsic value of the share is 2170.85 and current market price is 2061.35

So one can have buy view on this stock from long term point of view.

Suggestion: Buy for long term point of view.

BSPATIL 109

EXPECTED MARKET PRICE OF BHEL

particulars

year

2008 2009 2010



current market price(31-03-08) 2,061.35


2. The following table shows the expected market of the L&T stock for the

period of 3 years i.e 2008 to 2009

EXPECTED MARKET PRICE OF L&T

Particulars

year

2008 2009 2010



Current market price 3,024.80

Analysis:

Above table shows the company script is mainly technical driven there is less scope

for fundamental analysis. Company’s intrinsic value is Rs. 2325.33 but the current

market price is Rs. 3024.8. By this we can say that the company is overvalued

according to fundamental analysis.

But when we analyze by technically the stock is having good support and resistance

so we can say that the stock moves upto 4450 in short run and in long term the stock

is predicted to go around 5800.

Suggestion: If investor at present holding this stock should wait for some time to get

good return in short term the stock may go for Rs. 4450 and in the long run the stock

may go to Rs. 5800.

Suggestion: Hold for time being and sell when stock breaks its previous

support.

Conclusion

BSPATIL 110


Engineering is a diverse industry with a number of segments. A company from

this sector can be a power equipment manufacturer (like transformers and boilers),

execution specialist or a niche player (like providing environment friendly solutions).

It can be an electrical, non-electrical machinery and static equipment manufacturer

too

The economy has been growing at an average growth rate of 8.8 per cent in

the last four fiscal years (2003-04 to 2006-07), with the 2006-07 growth rate of 9.6

per cent being the highest in the last 18 years. Significantly, the industrial and service

sectors have been contributing a major part of this growth, suggesting the structural

transformation underway in the Indian economy.

Technical and fundamental analysis is the strong theory accepted world wide

some investor strongly believes on fundamentals of company and some believe

technical plays very important role in investing. But it is mainly depends on demand

and supply for the stocks in the stock market.

An effort is made to make understand the reader of this project what is

fundamental analysis and what is technical analysis. By this project report one can

strive to calculate intrinsic value of the shares and understanding what graphs are

showing about the script.

Bibliography

BSPATIL 111


1. Kotak securities.com

2. equitymaster.com

3. icicidirect.com

4. nseindia.com

5. bseindia.com

6. bhel.com

7. larsentabro.com

Reference Books

o Security Analysis and Portfolio Management.

Prasanna Chandra

o Financial management.

Khan and jain

Software used

Ms-Office 2003

Microsoft Excel

Microsoft Word

M S power point

Paint

BSPATIL 112

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