sapm report san

7/31/2019 Sapm Report San

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1. Introduction

Indian securities markets have undergone many changes during the lastdecade. Exponential growth in trading volumes is pushing existing trading systems

and processes to capacity and increasing settlement risk. With Indian market

moving to a T+3 rolling settlement cycle in line with global markets, Indian markets

are continuing its efforts to increase the efficiency and transparency which would

result in lowering of trade costs and make Indian markets a more attractive

destination for global investors. Indeed Indian markets are surging ahead to

become one of the most competitive and efficient markets of the world.

The Indian securities market have grown leaps and bounds in the past

decades from an unimportant position to a position where the global investors are

interested as far as the global market is concerned. The robust growth of the

market has made the listed companies in the stock markets to grow in an

unmatched manner compared to their unlisted counterparts. The securities thus

gained momentum in Indian scenario and yet only a small percentage of the

investors look up to this opportunity.

The securities available to an investor for investment are of various types as

well as many in number to select from. There are more than 7000 companies listed

in the stock exchanges of the country. Traditionally, the securities were classified

into ownership securities such as equity shares and preference shares and

creditor-ship securities such as debentures and bonds. From this vast group of

securities the investor has to choose those securities which he considers

worthwhile and the same has to be included in his investment portfolio. There

arises a need for the detailed analysis of the available securities.

1 TKM Institute of Management


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Security analysis is the analysis of securities which are tradable financial

instruments. These can be classified into debt securities, equities, or hybrid

securities. In a broad sense, futures contracts and tradable credit derivatives are

also included. Security analysis is typically divided into fundamental analysis,

which relies upon the examination of fundamental business factors such

as financial statements and technical analysis, which focuses upon price

trends. Quantitative analysis may use indicators from both areas.

As time pass by and as the global markets face turbulent times, a number of

new securities with innovative features are issued by companies to raise funds fortheir projects. Convertible debentures, deep discount bonds, flexi bonds, floating

rate bonds, global depository receipts are some of these new securities.

There are three alternative approaches to security analysis

(1) Fundamental analysis

(2) Technical analysis

(3) Efficient market hypothesis

Fundamental analysis, the older of the two approaches, concentrates on the

fundamental factors affecting the company such as EPS of the company. The

dividend payout ratio, the competition faced by the company, the market share,

quality management, etc is some of the main factors that a fundamental analyst

looks into. A fundamental analyst not only studies the fundamental factors affecting

the company but also the factors affecting the industry and the economy

fundamentals.



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The share price of a company is determined based on the fundamental

factors in this approach and the fundamental analyst works out the true worth or

intrinsic value of security; then compares this intrinsic value with the current market

price. If the current market price is higher than the intrinsic value, the share is said

to be over priced and vice versa. The incorrect pricing of securities provides an

opportunity to the investor to acquire the share or dispose of the share profitably.

An investor would buy those securities which are under-priced and sell

those securities which are overpriced. It is believed that notable cases of incorrect

pricing will be corrected by the market in future. Fundamental analysis helps toidentify fundamentally strong companies whose shares are worthy to be included

in the investors portfolio.

The second alternative approach to security analysis is technical analysis. A

technical analyst believes that share price movements are systematic and exhibit

certain consistent patterns. The technical analyst studies past movements in the

prices of shares to identify trends and patterns and tries to predict the future price

movements. The current market price is compared with the future predicted price

to determine the extent of incorrect pricing. Technical analysis is an approach

which concentrates on price movements and ignores the fundamentals of the

shares.

Efficient market hypothesis is the more recent approach to security analysis.

According to this approach, the financial market is efficient in pricing securities.

The efficient market hypothesis holds that market price adjusts instantaneously

and fully reflects all relevant available information. It means that market price will

always equal their intrinsic value.



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As a result, fundamental analysis which tries to identify undervalued or

overvalued securities is said to be a waste of time. The efficient market hypothesis

further holds that share price movements are random and not systematic.

Consequently, technical analysis which tries to study price movements and identify

patterns in them is of little use.

Efficient market hypothesis is a direct repudiation of both fundamental

analysis and technical analysis. An investor can not consistently earn abnormal

returns by undertaking fundamental analysis or technical analysis. According to

efficient market hypothesis it is possible for an investor to earn normal returns byrandomly choosing securities of a given risk level.

Security analysis is the initial phase of the portfolio management process

and consists of examining the risk-return characteristics of individual securities. A

basic strategy in securities investment is to buy under-priced securities and sell

overpriced securities. But the major problem that investors face is the identification

of under-priced and overpriced securities.

Fundamental Analysis determines intrinsic stock prices by projecting future

earnings and then by applying an acceptable return on investment; calculates the

stock price of the security. This approach is used by most traditional investment

analysts and is the basis of their stock performance recommendations.

Fundamental Analysis provides a solid pricing mechanism in a stable economic

and business environment, but all businesses operate in dynamic environments

and future earnings are never guaranteed. This results in varying estimates of

earnings. Dynamic business environments result in less reliable earnings

estimates and a greater possible range of future earnings.



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The rate of return component of Fundamental Analysis is also variable and

is influenced by other factors such as the return from alternative investments and

the perceived risk of the stock investment. As the risk increases, the required rate

of return increases to compensate for the risk. However the actual price of a stock

is determined by the stock market and the stock market is driven by human

emotion. Analyzing past stock prices can provide some insight into future

movements; and this is the realm of Technical Analysis.

Technical Analysis applies statistical techniques to historical stock prices to

identify likely future stock price movements. It does not consider the fundamentalsof the stock, the business, or economic environment as the influence of these

factors is deemed to be already reflected in the stock price. Because Technical

Analysis is based on actual past stock price data (which was influenced by human

emotion) it incorporates a component of human emotion in its calculations. This

can provide valuable indicators and insight into future stock price movements that

can not be identified using Fundamental Analysis.

At any point in time actual stock prices consist of two components; the fair

value price (fundamental) and a variance from the Fair Value; due to dynamic

environment and human emotion. The more volatile the environment and emotion;

the greater is the variance. This results in cyclic boom (bull) and bust (bear)

markets. Achieving the best possible return for our investment requires both an

appreciation of the fundamental fair value of a stock and the future variance

indicated by technical analysis.



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2. Scope of the Study

This study mainly focuses on the investment decisions by predicting future

stock price movements with the help of technical analysis and by analyzing the

various economical factors affecting the share price of the company with the help

of fundamental analysis.

The main scope of this study is:

To help the investor in taking decisions

Analysis of the shares of the company

Studying the stock price movement in the market

To identify trends, trend reversals and continuation patterns at an earlier

stage to aid the buying and selling of shares.



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3. Objectives of the study

3.1 General objective

To analyze the security using fundamental and technical analysis and

provide them to investor to aid his/her decision on the buying or selling of

securities.

3.2 Specific objectives

To do the companystock valuationand predict its probable price

movements

To calculate the systematic risk of the security

To analyze chart patters and identify the trends



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4. Fundamental Analysis

Fundamental analysis of a business involves analyzing its financialstatements, management and competitive advantages, competitors and markets. It

focuses on the overall state of the economy, interest rates, production, earnings,

and management. When analyzing a stock, futures contract, or currency using

fundamental analysis there are two basic approaches one can use; bottom up

analysis and top down analysis. Fundamental analysis is performed on historical

and present data. There are several possible objectives such as to conduct a

company stock valuation and predict its probable price evolution, to make a

projection on its business performance, to evaluate its management and make

internal business decisions, to calculate its credit risk.

Fundamental analysis includes:

o Economic analysis

o Industry analysis

o Company analysis

On the basis of these three analyses, the intrinsic value of the shares is

determined. The intrinsic value is considered as the true value of the share. If the

intrinsic value is higher than the market price it is recommended to buy the share.

If it is equal to market price, the recommendation is to hold the share and if it is

less than the market price, the recommendation is to sell the shares.

Fundamental analysis is about using real data to evaluate a security's value,

although it is used by most of the analysts to value stocks.



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For assessing stocks, fundamental analysis uses revenues, earnings, future

growth, return on equity, profit margins and other data to determine a company's

underlying value and potential for future growth.

4.1 Economy Analysis

The performance of a company depends on the performance of the

economy. If the economy is booming, income rise, demand for goods increase,

and hence the industries and companies in general, tend to be prosperous. On the

other hand, if the economy is in recession, the performance of the companies will

be generally bad and it reflects in their operations due to less demand and

increased cost.

Some of the key economic variables that an investor must monitor as part of

the fundamental analysis are:

4.1.1 GDP & other growth indicators

The growth rate of national economy is an important variable to be

considered by an investor. GNP, NNP, GDP are the different measures of the total

income or total economic output of the country as a whole. The growth of these

measures indicates the growth rate of the economy. An economy typically passes

through different prosperity stages and is known as business life cycle. The stage

of the economic cycle through which a country passes has a direct impact on the

performance of industries and companies. The GDP of India expanded 6.9 percent

in the third quarter of 2011 over the same quarter of the previous year. Unlike the

commonly used quarterly GDP growth rate the annual GDP growth rate takes into

account a full year of economic activity, thus avoiding the need to make any type

of seasonal adjustment.



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India's average annual GDP Growth was 8.45 percent for the past 7 years

which reached a historical high of 10.10 percent in September of 2006 and a

record low of 5.50 percent in December of 2004.

4.1.2 Inflation Rate

Inflation prevailing in the economy has considerable impact on the

performance of companies. The higher rates of inflation upset the business plans

by cost escalation and a squeeze on profit margins. Inflation also leads to erosion

of purchasing power in the hands of consumers resulting in lower demand for

products. Thus higher rates of inflation in the economy are likely to affect the

performance of companies adversely.

The inflation rate in India was last reported at 9.34 percent in November of

2011. The average inflation rate in India was 7.99 percent for the past four

decades which reached a historical high of 34.68 percent in September of 1974

and a record low of -11.31 percent in May of 1976. Inflation rate refers to a general

rise in prices measured against a standard level of purchasing power. The most

well known measures of Inflation are the Consumer Price Index (CPI) which

measures consumer prices, and the GDP deflator, which measures inflation in the

whole of the domestic economy.

4.1.3 Interest Rate

Interest rates determine the cost and availability of credit for

companies operating in an economy. A low interest rate always stimulates

investment by making credit available easily and cheaply; and lower cost of

finance for companies and thus higher profitability. On the contrary higher interest

rates result in higher cost of production which may lead to lower profitability and

lower demand.



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In India, interest rate decisions are taken by the Reserve Bank of India and

the current benchmark interest rate (reverse repo) in India was is at 8.5 percent.

India's average interest rate was 5.82 percent reaching an historical high of 14.50

percent in August of 2000 and a record low of 3.25 percent in April of 2009.

4.1.4 Government Budget

As the government is the largest investor and spender of money, the

trends in government revenue, expenditure and deficits have a significant impact

on the performance of industries and companies. Expenditure by the government

stimulates the economy by creating jobs and generating demand. Since a major

portion of demand in the economy is generated by government spending, the

nature of government spending is of great importance in determining the fortunes

of many an industry.

India reported a government budget deficit equivalent to 5.10 percent of the

GDP in the fiscal year ending March 2011. A budget deficit occurs when the

government spends more money than it takes in and the opposite condition is

called a budget surplus.

4.1.5 The Exchange rate

The exchange rate of rupee is influenced by the balance of trade

deficit, balance of payment deficit, and also the foreign exchange reserves of the

country. The excess of imports over exports is called balance of trade deficit. The

balance of payments deficit represents the net difference payable on account of all

transactions such as trade, services and capital transactions. If these deficits

increase there is a possibility that the rupee may depreciate in value.



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The Indian Rupee exchange rate depreciated 3.44 percent against the US

Dollar during the last month. During the last 12 months, the Indian Rupee

exchange rate depreciated 16.88 percent against the US Dollar. The USDINR

exchange averaged 30.37 for the past four decades reaching a historical high of

53.72 in December of 2011 and a record low of 7.19 in March of 1973.

4.1.6 Infrastructure

The development of an economy depends very much on the infrastructure

available. Industry needs electricity for its manufacturing activities, roads and rail

ways to transport raw materials and finished goods, communication channels to

keep in touch with suppliers and customers.

4.1.7 Monsoon

The monsoon accounts for 80 per cent of the rainfall in India. Even if the

monsoon is delayed by few days, it can have an adverse effect on the economy as

about half of India's farm output comes from crops sown during the June-

September rainy season. Monsoon is a key to determine agricultural output,

inflation, consumer spending and overall economic growth.

While a normal rainfall signals growth and prosperity, a below normal rainfall

could spell disaster making food more expensive, aggravating the power, water

shortage, hitting industrial production which in turn will put more pressure on the

government. An adequate monsoon would boost the agricultural productivity which

may help to cut down the rising inflation rates also.



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4.1.8 Economic Stability

A stable political environment is necessary for steady and balanced

growth. No industry or company can grow and prosper in the midst of political

turmoil. Stable long term economic policies are what are needed for industrial

growth. The growing linkages and integration of the Indian economy and its

financial system with the world are testing the resilience of the economy/system

from the rapid aggravation of the sovereign debt crisis and prolonged slowdown in

the Euro area and the U.S.

The network of the financial sector is found to be closely clustered, leaving

major lenders to banks vulnerable to any disturbance in the banking sector. The

financial market infrastructure continues to junction without any major disruption.

The respondents of Reserve Bank's first Systemic Risk Survey expressed their

confidence in the stability of the domestic financial system even as they were

concerned about the stability of the global financial system and the impact of

global developments on the domestic economy.



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4.2 Industry Analysis

An analyst shall consider a number of key characteristics in an industryanalysis. These characteristics broadly relate to the operational and structural

aspects of the industry and have a bearing on the prospects of the industry.

Increasing global trade and heavy competition is resulting in the emergence of

better and superior quality services amongst the players; thereby boosting the

industrys growth at a tremendous rate. The industry accounts for the majority of

trade done by the nation and thereby contributes to the nations development by

large extent. To tap this potential, favorable policy and various steps have been

taken by the Indian government so as to fuel the growth of the industry

significantly.

The housing finance sector in India has undergone unprecedented change

over the past five years. The importance of the housing sector in India can be

judged by the estimate that for every Indian rupee (INR) invested in the

construction of houses, INR 0.78 is added to the gross domestic product of the

country and the real estate sector is subservient to the development of 269 other

industries. The real estate sector is also the second largest employment generator

in the country.

The governments support to housing had traditionally been centralized and

directed through the State Housing Boards and Development Authorities. In 1970,

the central government set up the Housing and Urban Development Corporation

(HUDCO) to finance housing and urban infrastructure activities. In 1977, Housing

Development Finance Corporation (HDFC) was the first housing finance company

in the private sector to be set up in India.



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The public sector insurance companies Life Insurance Corporation of India

(LIC) and General Insurance Corporation of India (GIC) were also mandated to

support housing finance activities, both directly through their housing subsidiaries

(LIC Housing Finance Ltd was thus established in 1989) and indirectly through a

mandated requirement to invest a certain proportion of their annual accretion in

socially oriented schemes which includes housing.

In 1988, the National Housing Bank (NHB) was established as a 100%

subsidiary of the Reserve Bank of India, (the central bank of the country), to

promote housing finance through a refinance mechanism to banks, housingfinance companies (HFCs) and other institutions and also to function as the

supervisory and regulatory body for housing finance companies. Currently there

are 29 HFCs approved for refinance assistance from NHB. Although commercial

banks were the largest mobiliser of savings in the country, traditionally banks were

rather reluctant to lend for housing as they preferred financing working capital

needs of industry.

Several banks had set up housing finance subsidiaries which functioned as

independent units with little support or interest from their parent bank. Towards the

end of the 1990s, against the backdrop of lower interest rates, industrial slowdown,

sluggish credit off-take and ample liquidity, commercial banks recognized that to

maintain their profit margins, they needed to shift their focus from wholesale

segment and build their retail portfolios. The lower interest rate regime, rising

disposable incomes, stable property prices and fiscal incentives made housingfinance attractive business which traditionally has been characterized by low

nonperforming assets and given the vast demand for housing loans, almost all the

major commercial banks plunged into the business of housing finance.



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4.2.1 Demand and supply gap

The demand for a product usually tends to change at a steady rate, where

as the capacity to produce the product tends to change at irregular intervals. As a

result an industry is likely to experience under supply and over supply of capacity

at different times. The strivers who were the lower sections were in large numbers

a decade ago, while aspirers fall second and the rich fall third. In the current

scenario aspirers have come ahead of strivers due to various reasons and

therefore the demands for housing finance have increased leaps and bounds.

4.2.2 Competitive condition in the industry

Another significant factor to be considered in industry analysis is the

competitive conditions in the industry. The level of competition among various

companies in an industry is determined by certain competitive forces are barriers

to entry, the threat of substitution, bargaining power of suppliers, and rivalry among

competitors. New entrants may face certain barriers to their entry. The barriers to

entry may rise because of preference buyers have for the products of established

firms. Their products enjoy a premium in the market.

In an industry where buyers market prevails the buyers have more

bargaining power. They would also force down the prices eroding profitability in the

industry. Thus, an industry which is dictated by buyers would be in a weak

competitive position. On the contrary, an industry where the sellers have higher

bargaining power is expected to do well and be in a stronger position. In housing

finance industry, the competition is tough as almost all banks have housing finance

schemes which compete against private players and other development firms and

government agencies.



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4.2.3 Permanence

In this age of rapid technological change, the degree of performance of an

industry is an important consideration in industry analysis. Permanence is a

phenomenon related to the products and the technology used by the industry. If an

analyst feels that the need for a particular industry will vanish in a short period, or

that the rapid technological changes would render the products obsolete within a

short time, it would be foolish to invest in such an industry. In the case of housing

finance, the degree of permanence is high as long as people need houses to live

in.

4.2.4 Labour conditions

The state of labour condition in the industry under analysis is an important

consideration in an economy such as ours where the labour unions are very

powerful. If the labour in a particular industry is rebellious and is inclined to resort

to strikes frequently the prospects of that industry cannot become bright.

4.2.5 Attitude of government

The attitude of the government towards an industry has a significant impact

on its prospects. The government may encourage the growth of certain industries

and can assist such industries through favorable legislation.

4.2.6 Cost structure

Cost structure is based on fixed cost and variable cost. The higher fixed

cost component higher is the sales volume necessary to achieve break-even point.



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4.3 Company Analysis

Company analysis is the final stage of fundamental analysis. The economyanalysis provides the investor a broad outline of the prospects of growth in the

economy while the industry analysis helps the investor to select the industry in

which investment would be rewarding and then the investor is left to decide the

company in which he should invest his money. Company analysis is the action

required at this stage.

Company analysis deals with the estimation of returns and risk of individual

shares and is based on information. Information regarding companies can be

broadly classified in to two broad groups Internal and external. Internal information

consists of data and events that are made public by the companies concerning

their operations. The internal information source includes annual reports to

shareholders, public and private statements of officers of the company, the

companys financial statements etc. External source of information are those

generated independently outside the company. These are prepared by investment

services and the financial press.

In company analysis, the analyst tries to forecast the future earnings of the

company because, a strong evidence of future earnings of the company have a

direct and powerful effect upon share prices. The level trend and stability of

earnings of a company however depend upon a number of factors concerning the

operations of the company

4.3.1 LIC Housing Finance Ltd

LIC Housing Finance Ltd. is one of the largest Housing Finance Company

in India. Incorporated on 19th June 1989 under the Companies Act, 1956, the

company was promoted by LIC of India and went public in the year 1994.



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The Company launched its maiden GDR issue in 2004. The Authorized

Capital of the Company is Rs.1500 Million (Rs.150 Crores) and its paid up

Capital is Rs.850 Millions (Rs.85 Crores). The Company is recognized by NationalHousing Bank and listed on the National Stock Exchange (NSE) & Bombay Stock

Exchange Limited (BSE) and its shares are traded only in demat format. The

GDR's are listed on the Luxembourg Stock Exchange.

The main objective of the Company is providing long term finance to

individuals for purchase / construction / repair and renovation of new / existing flats

/ houses. The Company also provides finance on existing property for business /

personal needs and gives loans to professionals for purchase / construction of

Clinics / Nursing Homes / Diagnostic Centres / Office Space and also for purchase

of equipments.

The Company possesses one of the industry's most extensive marketing

network in India: Registered and Corporate Office at Mumbai, 7 Regional Offices,

13 Back Offices and 190 marketing units across India. In addition the company has

appointed over 1241 Direct Sales Agents (DSAs), 6535 Home Loan Agents (HLAs)

and 782 Customer Relationship Associates (CRAs) to extend its marketing reach.

Back Offices spread across the country conduct the credit appraisal and

administrative functions.

The Company has set up a Representative Office in Dubai and Kuwait to

cater to the Non-Resident Indians in the GLCC countries covering Bahrain,

Dubai, Kuwait, Qatar and Saudi Arabia. Today the Company has a proud group ofover 10 lakh prudent house owners who have enjoyed the Company's financial

assistance.



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4.3.2 Key Events and Milestones

Year Key Events and Milestones

1989 Company was incorporated

1994 Equity shares were launched

2000 Crisil assigned AAA rating

2002 Took over GLFL Housing Finance

2004 Merrill Lynch Capitat acquired stake

2005 Goldman Sachs acquired stake

4.3.3 Growth of the company

Companies are judged by their sales and earnings growth rates than on the

absolute value of their sales and earnings. The company which consistently grows

faster than their peers can only ensure better returns. In LIC Housing Finance Ltds

case, the company has been growing multifold in the past years.

4.3.4 Profitability of the company

The companies that consistently find ways to squeeze more profits out of

sales than their peers are of interest for the share holders. LIC Housing Finance

has been increasing their profits in the past years.


Year 2011/03 2010/03 2009/03 2008/03

Sales 4,680.09 3,456.24 2,880.17 2,089.40

Var % 35.41 20.00 37.85 35.05

Profit After Tax 974.49 662.18 531.62 387.19

Var % 47.16 24.56 37.30 38.70


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Year 2011/03 2010/03 2009/03 2008/03

Profit After Tax 974.49 662.18 531.62 387.19

Var % 47.16 24.56 37.30 38.70

Year 2011/03 2010/03 2009/03 2008/03

OPM (%) 89.94 95.48 94.61 92.60

Var % -5.80 0.92 2.17 0.67

4.3.4 Financial health of the company

The financial health of a company is dependent on a combination of

profitability, short-term liquidity and long term liquidity. Companies, which are

profitable, but have poor short term or long term liquidity measures, do not survive

the troughs of the trade cycle. And those which are not profitable but are cash rich

do not survive in the long term either. The companies that do succeed and survive

over the long term have a well-rounded financial profile, and perform well in all

aspects of financial analysis. Profitability ratios reflect the business environment of

the time.

The key profitability ratios of LICHF are:

Return on Total Assets (ROTA) 1.86%

Return on capital employed (ROCE) 1.97%

Net profit margin 20.73%

The key short-term liquidity ratios are:

Current Ratio 12.13

Quick Ratio 12.09

Financial health of the company

Such companies are taken over for their cashflow or by others who



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believe that they can improve the profitability of the business. Thus,

Return on Total Assets (ROTA) 12.53%

Return on capital employed (ROCE) 12.98%

Net profit margin 52.06%

Short-term liquidity is the ability of the company to meet its short-term

financial commitments. Short-term liquidity ratios measure the relationship between

current liabilities and current assets. Current assets are stocks and work-in-progress, debtors and cash that would normally be re-circulated to pay current

liabilities. The ideal ratio 1:1. But a very high ratio indicates that the company is

unable to manage its cash properly.

The key short-term liquidity ratios are:

Current Ratio 1.27

Quick Ratio 1.23

Long term liquidity or gearing is concerned with the financial structure of the

company. Long term liquidity ratios measure the extent to which the

capital employed in the business has been financed either by shareholders through

share capital and retained earnings, or through borrowing and long-term finance.

Highly geared companies are risky. Look for a balance.

The key long-term liquidity ratios are:

Gearing Ratio 89.11%



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Interest Cover 13.15

Stock performance

Investors need to know how a stock has performed relative to all other

stocks. Generally they attempt to hold the markets top-performing securities-those that

have done better over the past year than majority of stocks in their industrial group.

BSE NSE

periodclose

pricechange period

close

pricechange

3

Months156.05 -18.94

3

Months156.45 -19.02

6

Months157.85 -19.86

6

Months157.85 -19.73

12

Months 157.55 -19.71

12

Months 157.60 -19.61

Stocks support and resistance

Investors should note that the average prices at which a stock traded

over the past 50- and 200-day periods. These "moving averages" tend to provide a

floor, or support, for stocks trading above them and a ceiling, or resistance, forstocks below them. Stocks that sink below support are in danger of further

weakening; stocks that rise above resistance have a shot at new highs.



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BSE NSE

Close Price Rs.126.50 Close Price Rs.126.70

52 Week Low Rs.111.0052 Week

LowRs.110.00

50-day Moving

AverageRs.135.21

50-day

Moving AverageRs.135.33

Companys performance against its peers

Company

Sales

(rs cr.)

PAT

(rs cr.)

Market

Cap

(rs cr.)

Mundra Port & Special

Economic Zone Ltd.1,886.58 986.16 25,342.94

Sun Pharma Advanced

Research Company Ltd.58.35 -8.50 1,605.15

Future Ventures India

Ltd.13.12 -0.67 1,417.04

Gateway Distriparks

Ltd.183.01 84.83 1,388.07

KGN Enterprises Ltd. 9.58 1.27 1,173.95

Key financial ratios and their interpretation



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2011/03 2010/03 2009/03 2008/03

Per Share

EPS 4.92 17.49 11.51 5.33

CEPS 5.96 21.69 14.93 7.84

Book Value 21.42 86.99 73.44 65.13

Dividend/Share 0.9 4 3 1.5

Operating

Profit / Share

6.55 24.06 19.07 13.46

Net Operating

Income / Share

9.42 34.83 28.39 20.43

Free

Reserves / Share

18.42 72.18 61.65 53.69

Profitability Ratios

OPM 69.51 69.08 67.16 65.9

GPM 58.5 57.03 55.1 53.6

NPM 52.06 46.42 37.14 25.44

RONW 22.03 19.18 16.17 6.43

Liquidity ratios

Debt/Equity 0.77 0.9 0.78 0.73Current Ratio 1.27 1.23 1.28 1.16

Quick Ratio 1.23 1.21 1.26 1.14

Interest Cover 17.58 5.92 4.32 4.07



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Turn Over Ratios

Sales/Total

Assets

7.53 4.36 3.32 4.33

Sales/Fixed

Assets

0.28 0.25 0.25 0.25

Sales/Current

Assets

1.62 0.81 0.72 0.59

Miscellaneous

No of Days of

Working Capital

47.84 82.52 108.4 83.09

CAR 0 0 0 0



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Current ratio

The current ratiois a popular financial ratio used to test a

company's liquidity(also referred to as its current or working capitalposition) by

deriving the proportion of current assets available to cover current liabilities. The

concept behind this ratio is to ascertain whether a company's short-term assets

(cash, cash equivalents, marketable securities, receivables and inventory) are

readily available to pay off its short-term liabilities (notes payable, current portion of

term debt, payables, accrued expenses and taxes). In theory, the higher the

current ratio, the better. A ratio of less than one is often a cause for concern,

particularly if it persists for any length of time. Here the current ratio is 1.27 which

is greater than 1. The company will be able to pay off its short term liabilities.

Quick ratio

The quick ratio, the quick assets ratio or the acid-test ratiois a liquidity

indicator that further refines the current ratio by measuring the amount of the

most liquidare more difficult to turn into cash. Therefore, a higher ratio means a

more liquid current position. a ratio of less than one would start to send out danger

signals. Here the quick ratio is 1.23 which is greater than 1.

Interest cover

This measures the ability of the business to "service" its debt. The interest

coverage ratio is higher in 2011 as compared to the previous years and is17.58,

which is a good signel.

EPS



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EPS measures the overall profit generated for each share in existence over

a particular period. Here the earnings per share ratio is 4.92 which is very less as

compared to the earnings for the years before.

Fixed-Asset Turnover Ratio

The fixed-asset turnover ratio measures a company's ability to generate net

sales from fixed-asset investments - specifically property, plant and equipment

(PP&E) - net of depreciation. A higher fixed-asset turnover ratio shows that the

company has been more effective in using the investment in fixed assets to

generate revenues. The fixed-asset turnover ratio is higher for the current year.

Sales to Current Assets Ratio

Sales to Current Assets Ratio is used to measure how well a company is

making use of its assets in generating sales revenue. A high ratio may indicate

deficient working capital. Here the ratio is 1.62 which is greater than 1.

Gross Profit margin

The gross profit margin ratio tells us the profit a business makes on its cost

of sales, or cost of goods sold. The gross profit margin ratio is higher for 2011 as

compared to the previous years and is 58.5, which is a good signal.

P/E ratio

The P/E ratio is an indication of how highly the market "rates" or "values" a

business. A P/E ratio is best viewed in the context of a sector or market average to

get a feel for relative value and stock market pricing.

Dividend yield



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This is known as the "payout ratio". It provides a guide as to the ability of a

business to maintain a dividend payment. It also measures the proportion of

earnings that are being retained by the business rather than distributed as

dividends.

Sales to Total Assets ratio

Sales to Total Assets ratio indicates how efficiently the firm generates sales

revenue on each dollar of assets. It is defined as the total assets divided by the

turnover of the firm.

7.53 is the Sales to Total Assets ratio for the company and is the highest for

2011from the given years. So, it is a good signal.

P&L Account

Mundra Port and SpecialEconomic Zone (Rs in crores)

Mar '11 Mar '10 Mar '09 Mar '0

12 mths 12 mths 12 mths 12 mt

Income

Sales 1,886.58 1,395.39 1,137.59 818.5



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Turnover

Excise Duty 0 0 0 0

Net Sales 1,886.58 1,395.39 1,137.59 818.5

Other Income 43.04 164.78 109.71 65.2

Stock

Adjustments

0 0 0 0

Total Income 1,929.62 1,560.17 1,247.30 883.7

Expenditure

Raw Materials 164.9 100.26 120.41 97.7

Power & Fuel

Cost

67.13 74.56 51.41 36.23

Employee

Cost

66.62 54.68 40.56 33.66

Other

ManufacturingExpenses

181.7 107.73 85.57 45.08

Selling and

Admin Expenses

76.17 78.7 58.88 47.25

Miscellaneous

Expenses

18.55 15.44 16.66 19.22

Preoperative

Exp Capitalised

0 0 0 0

Total 575.07 431.37 373.49 279.1



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Expenses

Operating

Profit

1,311.51 964.02 764.1 539.4

PBDIT 1,354.55 1,128.80 873.81 604.6

Interest 75.01 182.2 200.81 137.4

PBDT 1,279.54 946.6 673 467.1

Depreciation 207.86 168.14 137.24 100.6

Other Written

Off

0 0 0 0

Profit Before

Tax

1,071.68 778.46 535.76 366.5

Extra-ordinary

items

5.2 -17.99 -20.97 0.27

PBT (PostExtra-ord Items)

1,076.88 760.47 514.79 366.8

Tax 90.72 59.48 53.71 153.4

Reported Net

Profit

986.16 700.98 461.09 213.4

Total Value

Addition

410.17 331.11 253.07 181.4

Preference

Dividend

0 0 0 0



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Equity

Dividend

180.33 160.29 120.22 60.1

Corporate

Dividend Tax

0 0 0 0

Per share data (annualised)

Shares in

issue (lakhs)

20,033.94 4,006.79 4,006.79 4,006

Earning Per

Share (Rs)

4.92 17.49 11.51 5.33

Equity

Dividend (%)

45 40 30 15

Book Value

(Rs)

21.42 86.99 73.44 65.13

Balance Sheet

Mundra Port and Special

Economic Zone



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Mar '11 Mar '10 Mar '09 Mar '08

12 mths 12 mths 12 mths 12 mth

Sources Of Funds

Total Share

Capital 403.49 403.49 403.49 403.49

Equity ShareCapital 400.68 400.68 400.68 400.68

Share

Application Money 0 0 0 0

Preference

Share Capital 2.81 2.81 2.81 2.81

Reserves 3,890.58 3,084.76 2,541.78 2,209.0

Revaluation

Reserves 0 0 0 0

Networth 4,294.07 3,488.25 2,945.27 2,612.5

Secured

Loans 2,684.74 2,632.35 2,284.98 1,884.7

Unsecured

Loans 618.27 524.83 28.02 21.98

Total Debt 3,303.01 3,157.18 2,313.00 1,906.7

Total

Liabilities 7,597.08 6,645.43 5,258.27 4,519.2



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Application Of Funds

Gross Block 6,306.62 4,961.62 3,781.95 3,201.6

Less: Accum.

Depreciation 1,000.98 751.69 530.53 359.84

Net Block 5,305.64 4,209.93 3,251.42 2,841.8

Capital Work

in Progress 1,325.73 1,394.61 1,232.55 405.83

Investments 715.04 721.03 431.75 1,082.6

Inventories 41.23 31.39 26.49 18.47

Sundry

Debtors 268.78 157.99 211.64 296.34

Cash and

Bank Balance 105.05 132.4 160.35 81.55

Total Current

Assets 415.06 321.78 398.48 396.36

Loans and

Advances 714.1 665.54 210.06 193.59

Fixed

Deposits 33.61 726.28 970.36 808.01



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Total CA,

Loans & Advances 1,162.77 1,713.60 1,578.90 1,397.9

Deffered

Credit 0 0 0 0

Current

Liabilities 797.98 1,320.08 1,189.47 1,113.9

Provisions 114.11 73.68 46.88 95.09

Total CL &

Provisions 912.09 1,393.76 1,236.35 1,209.0

Net CurrentAssets 250.68 319.84 342.55 188.93

Miscellaneous

Expenses 0 0 0 0

Total Assets 7,597.09 6,645.41 5,258.27 4,519.2

Contingent

Liabilities 1,509.34 1,069.41 877.39 545.1

Book Value

(Rs) 21.42 86.99 73.44 65.13

Beta & alpha

A beta of 1.0 indicates a security of average risk. A stock with beta greater

than 1.0 has above average risk. Its returns would be would be more volatile than

the market returns. A stock with beta less than 1.0 would have below average risk.

Variability in its returns would be comparatively lesser than the market variability.



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Beta can also be negative, implying that the stock returns move in a direction

opposite to that of the market returns. Beta is calculated form historical data of

returns to measure the systematic risk of a security. It is a historical measure of

systematic risk. In using this beta for investment decision making the investor isassuming that the relationship between the security variability and market

variability will continue to remain the same in future also.

Systematic risk is the variability in security returns caused by changes in the

economy or the market. All securities are affected by such changes to some

extent, but some securities exhibit greater variability in response to marketchanges. The systematic risk of a security is measured by the statistical measure

called beta. For MPSEZ the value is 1.1066. Since the beta value is greater than 1,

it is above average risk. The alpha value is 0.0021.

Other values obtained from the analysis of the three months data are:

Average price of share 0.0003611

Average price of index -0.00158043

Standard deviation of share 0.0232831

Standard deviation of index 0.011506494

Coefficient of share 6447.8597



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Coefficient of index -728.061172

Beta 1.1066

Alpha 0.0021

Intrinsic value of the share using Gordons Model or Multiplier approach

It is a model for determining the intrinsic value of a stock, based on a future

series of dividends that grow at a constant rate. Given a dividend per share that is

payable in one year, and the assumption that the dividend grows at a constant rate

in perpetuity, the model solves for the present value of the infinite series of future

dividends.

According to this model;

V= D0 (1+g)/ (K-g)

Where;

V= intrinsic value of share

D=Expected dividend per share one year from now

g= growth rate

K= Required rate of return for equity investor

D: 1.20/ Share



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K: 26.37%

g: 5%

So, V= 1.2* (1+.05)/ (.2837-.05)

= Rs 5.39/-

Expected Return using CAPM

Close price of nifty index on 17 june (P0): 5366.40

Close price of nifty index on 14 september (P1): 5012.55

Rm = (P1-P0)/P0

= (5012.55-5366.40)/5366.40

=-0.2637

K = Rf+ (Rm- Rf)

Where;

K= expected return

Rf= risk free rerurn

= systematic risk

Rm= return of the market index

K =8 + 1.1066 (26.37-8)

= 28.33%

TECHNICAL ANALYSIS



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Technical analysis stands in contrast to thefundamental analysisapproach

to security and stock analysis. Technical analysis analyzes price, volume and other

market information, whereas fundamental analysis looks at the facts of the

company, market, currency or commodity. Most large brokerage, trading group, orfinancial institutions will typically have both a technical analysis and fundamental

analysis team.

Technical analysis employs models and trading rules based on price and

volume transformations, such as therelative strength index,moving

averages,regressions, inter-market and intra-market price correlations,business

cycles,stock market cyclesor, classically, through recognition of chart patterns.

A fundamental principle of technical analysis is that a market's price reflects

all relevant information, so their analysis looks at the history of a security's trading

pattern rather than external drivers such as economic, fundamental and news

events. Price action also tends to repeat itself because investors collectively tend

toward patterned behavior hence technicians' focus on identifiable trends and

conditions. Based on the premise that all relevant information is already reflected

by prices, technical analysts believe it is important to understand what investors

think of that information, known and perceived. Technical analysts believe that

prices trend directionally, i.e., up, down, or sideways (flat) or some combination.

The basic definition of a price trend was originally put forward byDow Theory.

Technical analysts believe that investors collectively repeat the behavior of

the investors that preceded them. To a technician, the emotions in the market may

be irrational, but they exist. Because investor behavior repeats itself so often,technicians believe that recognizable (and predictable) price patterns will develop

on a chart.Technical analysis is not limited to charting, but it always considers

price trends.



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There are many techniques in technical analysis. Adherents of different

techniques (for example,candlestick charting,Dow Theory, and Elliott wave

theory) may ignore the other approaches, yet manytraderscombine elements from

more than one technique. Some technical analysts use subjective judgment todecide which pattern(s) a particular instrument reflects at a given time and what

the interpretation of that pattern should be. A technical analyst believes that share

prices are determined by the demand and supply forces operating in the market.

These demand and supply forces in turn are influenced by a number of

fundamental factors as well as certain psychological or emotional factors. Many of

these factors cannot be quantified. The combined impact of all these factors is

reflected in the share price movements.

A technical analyst therefore concentrates on the movement of share prices. He

claims that by examining past share price movements future share prices can be

accurately predicted. Technical analysis is the name given to forecasting

techniques that utilize historical share price data.

The rationale behind technical analysis is that share price

behavior repeat itself over time analysis attempt to derive methods to predict this

repetition. A technical analyst looks at the past share price data to see if he can

establish any patterns. He then look at current price data to see if any of the

established patterns are applicable and if so extrapolations can be made to predict

the future price movements. Although past share prices are the major data used by

technical analyst, other statistics such as volume of trading and stock market

indices are also utilized to some extent.

The basic premises of technical analysis are that price move

in trends or waves which may be upward or down ward. It is believed that present

trends are influenced by the past trends and that the projection of future trends is

possible by an analysis of past price trends. A technical analyst therefore analysis

the price and volume movements of individual trends. A technical analyst therefore



41/53

analysis the price and volume movements of individual securities as well the

market index, thus technical analysis is really a study of past or historical price and

volume movements so as to predict the future stock price behavior.

Basic principles of technical analysis

The market value of a security is related to demand and supply factors

operating in the market

There are both rational and irrational factors which surround the supply and

demand factors of a security

Security prices behave in a manner that their movement is continuous in aparticular direction for some length of time.

Trends in stock prices have been seen to change when there is a shift in the

demand and supply factor.

The shift in demand and supply can be detected through charts prepared

specially to show market condition.

EFFICIENT MARKET THEORY

The basic assumption in technical analysis is that stock price

movements are quite orderly and not random. From the results of several empirical

studies on stock price movements are random. The new theory came to be known

as random walk theory because of its principal contention that share price

movements represent a random walk rather than an orderly movement.

Random walk Theory

Stock price behavior is explained by the theory in the following

manner. A change occurs in the price of a stock only because of certain changes



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in the economy, industry or company. Information about these changes alters the

stock prices immediately and stock moves to a new level, either upwards or down

wards depending upon the type of information.

The basic premise in random walk theory is that the information on

changes in the economy, industry and company performance is immediately and

fully spread so that all investor have full knowledge of the information. There is an

instant adjustment in stock prices either upward or down ward. Thus the current

stock price fully reflects all available information on the stock. Therefore, the price

of a security two days ago can in no way help in speculating the price two days

later. The price of each day is independent. It may be unchanged higher or lower

from the previous price but that depends on new pieces of information being

received each day.

The random walk theory pre suppose that the stock markets are

so efficient and competitive that there is an immediate price adjustment. This is the

result of good communication system through which information can be spread

almost anywhere in the country instantaneously. Thus the random walk theory is

based came to be known as the efficient market hypothesis (EMH) or the efficient

market model. This hypothesis states that the capital market is efficient in

processing information. An efficient capital market is one in which security prices

equal their intrinsic value at all times and where most securities are correctly

priced.

Others employ a strictly mechanical or systematic approach to pattern

identification and interpretation.

Technical analysis is frequently contrasted withfundamental analysis, the

study ofeconomicfactors that influence the way investors price financial markets.

Technical analysis holds that prices already reflect all such trends before investors

are aware of them. Uncovering those trends is what technical indicators are



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designed to do, imperfect as they may be. Fundamental indicators are subject to

the same

limitations, naturally. Some traders use technical or fundamental analysis

exclusively, while others use both types to make trading decisions.

CHART FOR MUNDRA PORT



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Line chart

Line chart



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Candle stick

Bar chart


46/53

CHART

FOR NIFTY

JUNIOR


Line chart


47/53

Bar

chart

Candle stick



48/53

Line

chart



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Interpretations of charts with patterns

Three various chart patterns like rectangle, triangle and flag can be seen

here. These are continuation patterns and are formed during side way movements

of share prices. They indicate a continuation of the trend prevailing before the

formation of the pattern.

Rectangle

It is a continuation pattern where the trend continues. There will an upward

trend or a downward trend according to the nature of the chart. Here it is in

downward trend.

Triangle

These are formed when the price movements result in two or more

consecutive descending tops and two or more consecutive ascending bottoms.

The triangle may be formed during a bull phase or a bear phase. It is generally

seen that the volume diminishes during the movement within the triangular pattern.

The breakout from the pattern is usually accompanied by increasing volume. Here

it is showing an upward trend.



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Flag

These are very reliable continuation patterns. They occur mid way between

a sharp rise in price or a steep fall in price. Here it is showing a downward trend.

A description of the price movements during the study period

The variation of the share price was around Rs 150. There is not

much variation from that price. During the initial stages for the study period, the

price was stable and after some time the price was showing an upward trend. Theupward trend continued for some time and it came back to the initial level and

showed a downward trend. It continued for about one and a half month and slowly

increased and then it was moving in a positive way. This was just for a shorter

period and the share price was nearing zero during the terminal stages of the



51/53

study. The close price chart shows a head and shoulder formation and so the trend

will continue i.e. the downward trend will continue.

RECOMMENDATION & CONCLUSION

The company is worth investing in since the market value of the share is

low. The companys share price is much lower. The company is having safe

financial stability and it is safe to invest in. the economic factors are supporting the

growth of the firm and so the demand. The companys profit in 2011been five times

as that in 2007. This is another safer side of the company. All the external factors

are in favour of the industry even though some economic factors are not that much

supportive.

The financial ratio analysis shows that the firm is worth investing in. almost

all the ratios of the company are in the positive side.

The study of the chart patterns revealed that the share price will show a

continuing trend since the flag formation was there in the end of the period. Even

though the trend continues, there will be a trend reversal in the future since the

external factors are in favour of the company.



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The comparison of the market price and the intrinsic value shows that it is

the right time to buy the share.



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BIBLIOGRAPHY

Books:

S Kevin,2011, Security analysis and portfolio management, Prentice Hall of

India, New Delhi.

Websites

www.icicidirect.com

http://www.tradingeconomics.com/india/inflation-cpi

http://www.tradingeconomics.com/india/gdp-growth-annual

http://www.answers.com/search?q=monsoon+and+trade+in+arabian+sea

http://business.rediff.com/slide-show/2010/jun/02/slide-show-1-how-

monsoon-impacts-indian-economy.htm

http://www.rbi.org.in/Scripts/PublicationReportDetails.aspx?

UrlPage=&ID=658

http://www.researchandmarkets.com/research/028dbd/shipping_and_port

sapm report san

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