virendra jha equity analy

7/28/2019 Virendra Jha EQUITY ANALY

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INTRODUCTION

India is a developing country. Nowadays many people are interested to invest in financialmarkets especially on equities to get high returns, and to save tax in honest way. Equities are

playing a major role in contribution of capital to the business from the beginning. Since the

introduction of shares concept, large numbers of investors are showing interest to invest in stock

market.

In an industry plagued with skepticism and a stock market increasingly difficult to predict

and contend with, if one looks hard enough there may still be a genuine aid for the Day Trader

and Short Term Investor.

The price of a security represents a consensus. It is the price at which one person agrees

to buy and another agrees to sell. The price at which an investor is willing to buy or sell depends

primarily on his expectations. If he expects the security's price to rise, he will buy it; if the

investor expects the price to fall, he will sell it. These simple statements are the cause of a major

challenge in forecasting security prices, because they refer to human expectations. As we all

know firsthand, humans expectations are neither easily quantifiable nor predictable. If prices are

based on investor expectations, then knowing what a security should sell for (i.e., fundamental

analysis) becomes less important than knowing what other investors expect it to sell for. That's

not to say that knowing what a security should sell for isn't important--it is. But there is usually a

fairly strong consensus of a stock's future earnings that the average investor cannot disprove

Fundamental analysis can co-exist in peace and complement each other. Since all the

investors in the stock market want to make the maximum profits possible, they just cannot afford

to ignore either fundamental analysis.

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NEED OF THE STUDY

To start any business capital plays major role. Capital can be acquired in two ways by

issuing shares or by taking debt from financial institutions or borrowing money from financial

institutions. The owners of the company have to pay regular interest and principal amount at the

end.

Stock is ownership in a company, with each share of stock representing a tiny piece of

ownership. The more shares you own, the more of the company you own. The more shares you

own, the more dividends you earn when the company makes a profit. In the financial world,ownership is called Equity.

Advantages of selling stock:

A company can raise more capital than it could borrow.

A company does not have to make periodic interest payments to creditors.

A company does not have to make principal payments

Stock/shares play a major role in acquiring capital to the business in return investors are paid

dividends to the shares they own. The more shares you own the more dividends you receive.

The role of equity analysis is to provide information to the market. An efficient market relies on

information: a lack of information creates inefficiencies that result in stocks being

misrepresented (over or under valued). This is valuable because it fills information gaps so that

each individual investor does not need to analyze every stock thereby making the markets more

efficient.

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PROFILE OF THE COMPANY

Nirmal Bang is a leading full service securities firm providing the entire gamut of

financial services. The firm, founded in 1994 by Mr. Anand Rathi and Mr. Pradeep Gupta, today

has a pan India presence as well as an international presence through offices in Dubai and

Bangkok and London. NB provides a breadth of financial and advisory services including wealth

management, investment banking, corporate advisory, brokerage & distribution of equities,

commodities, mutual funds and insurance, structured products - all of which are supported by

powerful research teams.

The firms philosophy is entirely client centric, with a clear focus on providing long term

value addition to clients, while maintaining the highest standards of excellence, ethics and

professionalism. The entire firm activities are divided across distinct client groups: Individuals,

Private Clients, Corporate and Institutions. AnandRathi has been named The Best Domestic

Private Bank in India by Asia money in their Fifth Annual Private Banking Poll 2009. The firm

has emerged a winner across all key segments in Asia moneys largest survey of high net worthindividuals in India.

In year 2007 Citigroup Venture Capital International joined the group as a financial

partner. Anand Rathi tries and understands the financial needs; to offer personal advice and

expert analysis that one needs for assets to go Xtra mile. The ability to think far ahead and

formulate long-term strategy coupled with long hours of practice and research are the key drivers

which make wealth work harder for you.

The company believes that the key to build wealth lies in allocating assets across various

markets, financial instruments and industry sectors. Keeping this in mind it leverages its

expertise in scientific asset allocation, to help you maximize returns and minimize risks.

Slogan: behind every successful investor

Vision: To be a shining example as a LEADER IN INNOVATION, and the first choice for

clients and employees

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Year of incorporation: 1993

Headquarter: 11th Floor, Times Tower Kamala City,

Senapati Bapat Marg,

Lower Parel.Mumbai - 400013, India.

Nature of business: Service provider

Services:

Creation of a customized financial strategy

Diversification of assets based on a formal process of asset allocation

Active tracking, monitoring and review of portfolios

Tax planning

Structuring of family wealth

Creation of private trusts

Estate planning

Structuring of family wealth

Products:

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Equities & derivative

Mutual Funds & bonds

currency and Commodities

Company deposits

On line Trading

Life insurance and general Insurance

Portfolio management services

Commodities

FX Trading

Alternative Assets

Private Equity Funds

Structured Products

Real Estate Opportunities Fund

Special Situation Opportunities

Offshore Structures & Global Investments

Number of employees: more than 5000

Websites: www.nirmalbang.com

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OBJECTIVES OF THE STUDY

The objective of this project is to analyze whether TCS and Wipro are better opportunities

for investment, by monitoring their growth rate and their performance comparing their financials

and other parameters.

The main objectives of the Project study are:

Comparative study of two tough competitors TCS and Wipro through fundamental

analysis.

Suggestion as to which companys shares would be best for an investor to invest.

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SCOPE OF THE STUDY

The scope of the study is identified after and during the study is conducted. The project is based on tools like fundamental analysis. Further, the study is based on information of last five

years.

The analysis is made by taking into consideration two companies i.e. TCS and Wipro ltd

The scope of the study is limited for a period of five years.

The scope is limited to the fundamental analysis of the chosen stocks.

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RESEARCH METHODOLOGY

Research design or research methodology is the procedure of collecting, analyzing and

interpreting the data to diagnose the problem and react to the opportunity in such a way where

the desired level of accuracy can be achieved to arrive at a particular conclusion.

The information is collected from two sources.

a. Primary sources:

1. Discussion with Branch Manager

2. Discussion with Dealer

3. Observation

b. Secondary Sources:

1. Annual reports of the companies

2. Web

3. Books

The methodology used in the study for the completion of the project and the fulfillment

of the project objectives.

The sample of the stocks for the purpose of collecting secondary data has been selected

on the basis of Random Sampling. The stocks are chosen in an unbiased manner and each stock

is chosen independent of the other stocks chosen. The stocks are chosen from the Indian IT

sector.

The sample size for the number of stocks is taken as 2 for fundamental analysis of stocksas fundamental analysis is very exhaustive and requires detailed study.

LIMITATIONS

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This study has been conducted purely to understand Equity analysis for investors.

The study is restricted to two companies based on Fundamental analysis.

The study is limited to the companies having equities.

Detailed study of the topic was not possible due to limited size of the project.

There was a constraint with regard to time allocation for the research study i.e. for a

period of 60 days.

Suggestions and conclusions are based on the limited data of five years.

EQUITY ANALYSIS

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Investment success is pretty much a matter of careful selection and timing of stock

purchases coupled with perfect matching to an individuals risk tolerance. In order to carry out

selection, timing and matching actions an investor must conduct deep security analysis.

Investors purchase equity shares with two basic objectives;

1. To make capital profits by selling shares at higher prices.

2. To earn dividend income.

These two factors are affected by a host of factors. An investor has to carefully

understand and analyze all these factors. There are basically two approaches to study security prices and valuation i.e. fundamental analysis and technical analysis

The value of common stock is determined in large measure by the performance of the

firm that issued the stock. If the company is healthy and can demonstrate strength and growth,

the value of the stock will increase. When values increase then prices follow and returns on an

investment will increase. However, just to keep the savvy investor on their toes, the mix is

complicated by the risk factors involved. Fundamental analysis examines all the dimensions of

risk exposure and the probabilities of return, and merges them with broader economic analysis

and greater industry analysis to formulate the valuation of a stock.

FUNDAMENTAL ANALYSIS

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The level of economic activity has an impact on investment in many ways. If the

economy grows rapidly, the industry can also be expected to show rapid growth and vice versa.

When the level of economic activity is low, stock prices are low, and when the level of economic

activity is high, stock prices are high reflecting the prosperous outlook for sales and profits of the

firms. The analysis of macro economic environment is essential to understand the behavior of the

stock prices.

The commonly analyzed macro economic factors are as follows:

I. Gross Domestic Product (GDP):

GDP indicates the rate of growth of the economy. It represents the aggregate value of the

goods and services produced in the economy. It consists of personal consumption expenditure,

gross private domestic investment and government expenditure on goods and services and net

exports of goods and services. The growth rate of economy points out the prospects for the

industrial sector and the return investors can expect from investment in shares. The higher

growth rate is more favorable to the stock market.

II. Savings and investment:

It is obvious that growth requires investment which in turn requires substantial amount of

domestic savings. Stock market is a channel through which the savings are made available to thecorporate bodies. Savings are distributed over various assets like equity shares, deposits, mutual

funds, real estate and bullion. The savings and investment patterns of the public affect the stock

to a great extent.

III. Inflation:

Along with the growth of GDP, if the inflation rate also increases, then the real growth

would be very little. The effects of inflation on capital markets are numerous. An increase in the

expected rate of inflation is expected to cause a nominal rise in interest rates. Also, it increases

uncertainty of future business and investment decisions. As inflation increases, it results in extra

costs to businesses, thereby squeezing their profit margins and leading to real declines in

profitability.

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IV. Interest rates:

The interest rate affects the cost of financing to the firms. A decrease in interest rate

implies lower cost of finance for firms and more profitability. More money is available at a lower

interest rate for the brokers who are doing business with borrowed money. Availability of cheapfunds encourages speculation and rise in the price of shares.

V. Tax structure:

Every year in March, the business community eagerly awaits the Governments

announcement regarding the tax policy. Concessions and incentives given to a certain industry

encourage investment in that particular industry. Tax reliefs given to savings encourage savings.

The type of tax exemption has impact on the profitability of the industries.

VI. Infrastructure facilities:

Infrastructure facilities are essential for the growth of industrial and agricultural sector. A

wide network of communication system is a must for the growth of the economy. Regular supply

of power without any power cut would boost the production. Banking and financial sectors also

should be sound enough to provide adequate support to the industry. Good infrastructure

facilities affect the stock market favorably.

2. INDUSTRY ANALYSIS

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An industry is a group of firms that have similar technological structure of production

and produce similar products and Industry analysis is a type of business research that focuses on

the status of an industry or an industrial sector (a broad industry classification, like

"manufacturing"). Irrespective of specific economic situations, some industries might be expected to perform better, andshare prices in these industries may not decline as much as in other industries. This identification of economic and industry

specific factors influencing share prices will help investors to identify the shares that fit individual expectations.

I. Industry Life Cycle: The industry life cycle theory is generally attributed to Julius

Grodensky. The life cycle of the industry is separated into four well defined stages.

Pioneering stage: The prospective demand for the product is promising in this stage and

the technology of the product is low. The demand for the product attracts many producers

to produce the particular product. There would be severe competition and only fittest

companies survive this stage. The producers try to develop brand name, differentiate the

product and create a product image. In this situation, it is difficult to select companies for

investment because the survival rate is unknown.

Rapid growth stage: This stage starts with the appearance of surviving firms from the

pioneering stage. The companies that have withstood the competition grow strongly in

market share and financial performance. The technology of the production would have

improved resulting in low cost of production and good quality products. The companies

have stable growth rate in this stage and they declare dividend to the shareholders. It is

advisable to invest in the shares of these companies.

Maturity and stabilization stage: the growth rate tends to moderate and the rate of

growth would be more or less equal to the industrial growth rate or the gross domestic

product growth rate. Symptoms of obsolescence may appear in the technology. To keep

going, technological innovations in the production process and products should be

introduced. The investors have to closely monitor the events that take place in the

maturity stage of the industry. Decline stage: demand for the particular product and the earnings of the companies in the

industry decline. It is better to avoid investing in the shares of the low growth industry

even in the boom period. Investment in the shares of these types of companies leads to

erosion of capital.

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II. Growth of the industry:

The historical performance of the industry in terms of growth and profitability should be

analyzed. The past variability in return and growth in reaction to macro economic factors provide

an insight into the future.

III. Nature of competition:

Nature of competition is an essential factor that determines the demand for the particular

product, its profitability and the price of the concerned company scrip. The companies' ability to

withstand the local as well as the multinational competition counts much. If too many firms are

present in the organized sector, the competition would be severe. The competition would lead toa decline in the price of the product. The investor before investing in the scrip of a company

should analyze the market share of the particular company's product and should compare it with

the top five companies.

IV. SWOT analysis:

SWOT analysis represents the strength, weakness, opportunity and threat for an industry.

Every investor should carry out a SWOT analysis for the chosen industry. Take for instance,

increase in demand for the industrys product becomes its strength, presence of numerous players

in the market, i.e. competition becomes the threat to a particular company. The progress in R &

D in that industry is an opportunity and entry of multinationals in the industry is a threat. In this

way the factors are to be arranged and analyzed.

3. COMPANY ANALYSIS

In the company analysis the investor assimilates the several bits of information related to

the company and evaluates the present and future values of the stock. The risk and return

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associated with the purchase of the stock is analyzed to take better investment decisions. The

present and future values are affected by a number of factors.

I. Competitive edge of the company:

Major industries in India are composed of hundreds of individual companies. Though the

number of companies is large, only few companies control the major market share. The

competitiveness of the company can be studied with the help of the following;

Market share: The market share of the annual sales helps to determine a companys

relative competitive position within the industry. If the market share is high, the company

would be able to meet the competition successfully. The companies in the market should

be compared with like product groups otherwise, the results will be misleading.

Growth of sales: The rapid growth in sales would keep the shareholder in a better

position than one with stagnant growth rate. Investors generally prefer size and growth in

sales because the larger size companies may be able to withstand the business cycle

rather than the company of smaller size.

II. Earnings of the company:

Sales alone do not increase the earnings but the costs and expenses of the company also

influence the earnings. Further, earnings do not always increase with increase in sales. Thecompanys sales might have increased but its earnings per share may decline due to rise in costs.

Hence, the investor should not only depend on the sales, but should analyze the earnings of the

company.

III. Financial analysis:

The best source of financial information about a company is its own financial statements.

This is a primary source of information for evaluating the investment prospects in the particular

companys stock. Financial statement analysis is the study of a companys financial statement

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RATIO ANALYSIS

Ratio is a relationship between two figures expressed mathematically. Financial ratios

provide numerical relationship between two relevant financial data. Financial ratios are

calculated from the balance sheet and profit and loss account. The relationship can be either

expressed as a percent or as a quotient. Ratios summarize the data for easy understanding,

comparison and interpretations.

Ratios for investment purposes can be classified into profitability ratios, turnover ratios,

and leverage ratios. Profitability ratios are the most popular ratios since investors prefer to

measure the present profit performance and use this information to forecast the future strength of

the company. The most often used profitability ratios are return on assets, price earnings

multiplier, price to book value, price to cash flow, and price to sales, dividend yield, return on

equity, present value of cash flows, and profit margins.

1. Earnings

It is often said that earnings are the "bottom line" when it comes to valuing a company's

stock, and indeed fundamental analysis places much emphasis upon a company's earnings.

Simply put, earnings are how much profit (or loss) a company has made after subtractingexpenses. During a specific period of time, all public companies are required to report their

earnings on a quarterly basis through a 10-Q Report.

Earnings are important to investors because they give an indication of the company's

expected dividends and its potential for growth and capital appreciation. That does not

necessarily mean, however, that low or negative earnings always indicate a bad stock; for

example, many young companies report negative earnings as they attempt to grow quickly

enough to capture a new market, at which point they'll be even more profitable than theyotherwise might have been. The key is to look at the data underlying a company's earnings on its

financial statements and to use the following profitability ratios to determine whether or not the

stock is a sound investment.

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2. Earnings Per Share

Comparing total net earnings for various companies is usually not a good idea, since net

earnings numbers don't take into account how many shares of stock are outstanding (in other

words, they don't take into account how many owners you have to divide the earnings among). In

order to make earnings comparisons more useful across companies, fundamental analysts instead

look at a company's earnings per share (EPS). EPS is calculated by taking a company's net

earnings and dividing by the number of outstanding shares of stock the company has. For

example, if a company reports $10 million in net earnings for the previous year and has 5 million

shares of stock outstanding, then that company has an EPS of $2 per share.

EPS = Net income / total outstanding shares

3. P/E RatioEPS is a great way to compare earnings across companies, but it doesn't tell you anything

about how the market values the stock. That's why fundamental analysts use the price-to-

earnings ratio, more commonly known as the P/E ratio, to figure out how much the market is

willing to pay for a company's earnings. You can calculate a stock's P/E ratio by taking its price

per share and dividing by its EPS. For instance, if a stock is priced at $50 per share and it has an

EPS of $5 per share, then it has a P/E ratio of 10. Or equivalently, you could calculate the P/E

ratio by dividing the company's total market cap by the company's total earnings; this would

result in the same number.

Price/earnings ratio = Current market price / Earnings per share

4. Dividend Payout Ratio

The dividend payout ratio shows what percentage of a company's earnings it is paying out

to investors in the form of dividends. It is calculated by taking the company's annual dividends

per share and dividing by its annual earnings per share (EPS). So, if a company pays out $1 per

share annually in dividends and it has an EPS of $2 for the year, then that company has a

dividend payout ratio of 50%; in other words, the company paid out 50% of its earnings in

dividends. The higher the payout ratio, the less confidence the company has that it would've been

able to find better uses for the money it earned. This is not necessarily either good or bad;

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companies that are still growing will tend to have lower dividend payout ratios than very large

companies, because they are more likely to have other productive uses for the earnings.

Payout Ratio = (Dividend per share / Earnings per share) * 100

5. Return on Equity (ROE)

Return on equity (ROE) shows you how much profit a company generates in comparison

to its book value. The ratio is calculated by taking a company's after-tax income and dividing by

its book value. It is used as a general indication of the company's efficiency; in other words, how

much profit it is able to generate given the resources provided by its stockholders. Investors

usually look for companies with ROEs that are high and growing

ROE = Profit After Tax/ book value

6. Return on Investment (ROI) Ratio:

The ROI is perhaps the most important ratio of all. It is the percentage of return on funds

invested in the business by its owners. If the ROI is less than the rate of return on an alternative,

risk-free investment such as a bank savings account, the owner may be wiser to sell the company,

put the money in such a savings instrument, and avoid the daily struggles of small business

management. The ROI is calculated as follows:

Return on Investment = Net Profit before Tax / Net Worth

7. Debt equity ratio:

This ratio reflects the relative claims of creditors and share holders against the assets of

the firm, debt equity ratios establishment relationship between borrowed funds and owner capital

to measure the long term financial solvency of the firm.

A high debt/equity ratio generally means that a company has been aggressive in financing

its growth with debt. This can result in volatile earnings as a result of the additional interest

expense. The debt/equity ratio also depends on the industry in which the company operates. For example, capital-intensive industries such as auto manufacturing tend to have a debt/equity ratio

above 2, while personal computer companies have a debt/equity of under 0.5.

Debt equity ratio = Total debt/ equity share capital

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Data Analysis and Data Interpretation

Fundamental Analysis:

1. Economy Analysis:

Growing Faster, Improving Stability, Progressing on Structural Challenges. The Indian

economy this year has been characterized by robust economic growth and steady fiscal

consolidation. Inflation continues to be high even though it has come down markedly from

where it was at the start of the fiscal year. There are structural challenges that we face,

concerning economic governance, efficiency in delivery of subsidies and building up

infrastructure. Policies formulated to take care of these can help moderate inflation, accelerate

economic inclusion, boost investment and infrastructure, and enable agriculture, which hasrevived remarkably well this year, to be on a sustained high growth path.

a. GDP

The economy has emerged with remarkable rapidity from the slowdown caused by the

global crisis, with growth of 8.6 percent in 2011-12 and an expected 9 percent next year. This

growth is also broader: agriculture is rebounding, manufacturing continues its momentum, and

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private services is picking up.

Fundamentals are also stronger: savings and investment are up, exports are rising rapidly,

and inflation is falling, after a prolonged hiatus.

Services have been Indias engine of growth and employment. Policies to promote further

opportunities may be essential, especially given vast opportunities in new areas in global

demand. Infrastructure services are deepening rapidly, as are service delivery standards, thanks

to rising and accelerated investment (with rates roughly doubling over the Eleventh Plan

period)---from aviation, roads and telecommunications to ports, railways and power.

b. Inflation

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The inflation rate in India was last reported at 8.43 percent in July of 2011. From 1969

until 2010, the average inflation rate in India was 7.99 percent reaching an 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 CPI which measures consumer prices, and the

GDP deflator, which measures inflation in the whole of the domestic economy.

INFLATION RATES FOR THE YEAR 2012

c. Foreign Direct Investment

The service sector in the Indian industry is one of the high performing sectors of the Indian

economy. This has contributed largely in making India a prime destination for many international

players in the IT industry who wish to set up their businesses in India. Automatic approval for

foreign equity investment up to 100 per cent of rendering service permitted.

d. Exports

Despite recession, the Indian IT market continues to perform better than most of the other

industries in the economy in coming future; more and more MNCs coming in India to setup

their ventures which clearly shows the scope of expansion. During 2011-2012, overall IT exports

registered a growth rate of 18.5 percent.

2. Industry Analysis :

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quick rebound in growth and has been estimated to have grown by 19.5 per cent, aggregating

revenues of US$ 76.1 billion in 2010-11 with exports at US$ 58.9 billion accounting for a major

portion.

This sector has also led to employment generation. Direct employment in the IT services

and BPO/ITES segment was 2.3 million in 2009-10 and is estimated to reach nearly 2.5 million

by the end of financial year 2011-12. Indirect employment of over 8.3 million job opportunities

is also expected to be generated due to the growth of this sector in 2011-12. These jobs have

been generated in diverse fields such as commercial and residential real estate, retail, hospitality,

transportation, and security. The Government has been supporting the IT and ITES sector in

many ways. This was continued in the 2011-12 Budget with policies like Government

expenditure for improving IT infrastructure and delivery mechanism, reduction in surcharge

from10 per cent to 7.5 per cent for IT companies and Governments E-Governance plan.

3. Company Analysis:

The company analysis shows the long-term strenght of the company that what is the

financial position of the company in the market, where it stands among its competitors and who

are the key drivers of the company, what are the future plans of the company, what are the

policies of government towards the company and how the stake of the company divested among

different groups of people.company analysis includes

a. Study of Balance sheet

b. Study of Profit and Loss account

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3.1 Balance Sheet: TCS ltd.

March ' 12 March ' 11 March ' 10 March ' 09 March ' 08LiabilitiesOwner's FundEquity Share Capital 195.72 195.72 97.86 97.86 97.86Share Application Money 0.00 0.00 0.00 0.00 0.00Preference Share Capital 100.00 100.00 100.00 100.00 0.00Reserves & Surplus 19,283.77 14,820.90 13,248.39 10,806.95 7,961.13Loan FundsSecured Loans 35.87 29.25 32.63 9.27 41.76Unsecured Loans 5.25 6.49 7.74 8.98 8.98Total 19,620.61 15,152.36 13,486.62 11,023.06 8,109.73Fixed AssetsGross Block 6,030.16 4,871.21 4,359.24 3,240.64 2,315.36Less : Revaluation Reserve 0.00 0.00 0.00 0.00 0.00Less : Accumulated Depreciation 2,607.98 2,110.69 1,690.16 1,300.11 854.75

Net Block 3,422.18 2,760.52 2,669.08 1,940.53 1,460.61Capital Work-in-progress 1,345.37 940.72 685.13 889.74 757.85Investments 5,795.49 7,893.39 5,936.03 4,509.33 3,252.04

Net Current AssetsCurrent Assets, Loans & Advances 15,480.07 10,837.08 9,250.79 7,396.46 5,294.74Less : Current Liabilities & Provisions 6,422.50 7,279.35 5,054.41 3,713.00 2,655.51Total Net Current Assets 9,057.57 3,557.73 4,196.38 3,683.46 2,639.23

Miscellaneous expenses not written 0.00 0.00 0.00 0.00 0.00Total 19,620.61 15,152.36 13,486.62 11,023.06 8,109.73

Note :Book Value of Unquoted Investments 5,411.95 7,509.85 5,992.44 4,095.69 2,852.58Market Value of Quoted Investments 1,615.72 1,041.76 251.41 661.29 957.53Contingent liabilities 3,938.76 3,292.50 2,924.33 2,726.11 3,003.25

Number of Equity shares outstanding

(in Lacs) 19,572.21 19,572.21 9,786.10 9,786.10 9,786.10 Wipro ltd

March ' 12 March ' 11 March ' 10 March ' 09 March ' 08LiabilitiesOwner's FundEquity Share Capital 490.80 293.60 293.00 292.30 291.80Share Application Money 0.70 1.80 1.50 58.00 3.50Preference Share Capital 0.00 0.00 0.00 0.00 0.00Reserves & Surplus 20,829.40 17,396.80 12,220.50 11,260.40 9,025.10

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Loan FundsSecured Loans 0.00 0.00 0.00 4.00 23.20Unsecured Loans 4,744.10 5,530.20 5,013.90 3,818.40 214.80Total 26,065.00 23,222.40 17,528.90 15,433.10 9,558.40Assets

Fixed AssetsGross Block 7,779.30 6,761.30 5,743.30 2,282.20 1,645.90Less : Revaluation Reserve 0.00 0.00 0.00 0.00 0.00Less : Accumulated Depreciation 3,542.30 3,105.00 2,563.70 0.00 0.00

Net Block 4,237.00 3,656.30 3,179.60 2,282.20 1,645.90Capital Work-in-progress 603.10 991.10 1,311.80 1,335.00 989.50Investments 10,813.40 8,966.50 6,895.30 4,500.10 4,348.70

Net Current AssetsCurrent Assets, Loans & Advances 18,466.30 16,713.50 13,517.20 12,058.10 6,338.40Less : Current Liabilities & Provisions 8,054.80 7,105.00 7,375.00 4,742.30 3,764.10

Total Net Current Assets 10,411.50 9,608.50 6,142.20 7,315.80 2,574.30Miscellaneous expenses not written 0.00 0.00 0.00 0.00 0.00Total 26,065.00 23,222.40 17,528.90 15,433.10 9,558.40Book Value of Unquoted Investments 8,425.70 7,111.70 6,884.50 0.00 1,234.10Market Value of Quoted Investments 2,392.30 1,855.80 0.00 0.00 0.00Contingent liabilities 707.30 778.00 1,045.40 749.90 661.60

Number of Equity shares outstanding

(in Lacs) 24,544.09 14,682.11 14,649.81 14,615.00 14,590.001.2

Profit and Loss Account

TCS ltd

March ' 12 March ' 11 March ' 10 March ' 09 March ' 08Income :Operating Income 29,275.41 23,044.45 22,401.92 18,533.72 14,939.97ExpensesMaterial Consumed 18.62 25.13 51.94 45.85 24.81

Manufacturing Expenses 8,375.57 6,630.61 7,111.94 5,823.39 3,189.71Personnel Expenses 10,190.31 7,882.43 7,370.09 6,015.19 6,186.85Selling Expenses 15.73 7.27 21.35 27.63 31.05Administrative Expenses 1,903.36 1,831.84 1,825.77 1,596.05 1,206.07Expenses Capitalized 0.00 0.00 0.00 0.00 0.00Cost Of Sales 20,503.59 16,377.28 16,381.09 13,508.11 10,638.49Operating Profit 8,771.82 6,667.17 6,020.83 5,025.61 4,301.48Other Recurring Income 475.42 236.27 232.62 165.01 86.38

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Adjusted PBDIT 9,247.24 6,903.44 6,253.45 5,190.62 4,387.86Financial Expenses 20.01 9.54 7.44 3.42 3.43Depreciation 537.82 469.35 417.46 458.78 343.41Other Write offs 0.00 0.00 0.00 0.00 0.00Adjusted PBT 8,689.41 6,424.55 5,828.55 4,728.42 4,041.02Tax Charges 1,130.44 737.89 340.37 457.58 410.80Adjusted PAT 7,558.97 5,686.66 5,488.18 4,270.84 3,630.22

Non Recurring Items 11.02 -54.17 -688.86 275.44 129.66Other Non Cash adjustments 0.00 -13.98 -103.11 -37.52 -2.59Reported Net Profit 7,569.99 5,618.51 4,696.21 4,508.76 3,757.29Earnings Before Appropriation 18,028.12 15,608.92 12,071.10 9,428.75 6,590.59Equity Dividend 2,740.10 3,914.43 1,370.05 1,370.05 1,125.39Preference Dividend 11.00 17.00 7.00 0.08 0.00Dividend Tax 450.82 657.51 234.02 232.85 169.48Retained Earnings 14,826.20 11,019.98 10,460.03 7,825.77 5,295.72

Wipro ltd.

March ' 12 March ' 11 March ' 10 March ' 09 March ' 08Income :Operating Income 26,300.50 22,922.00 21,507.30 17,492.60 13,683.90Expenses

Material Consumed 3,774.00 3,657.80 3,442.60 2,952.30 1,889.00Manufacturing Expenses 2,979.90 2,286.70 1,841.80 299.80 120.50Personnel Expenses 10,937.40 9,062.80 9,249.80 7,409.10 5,768.20Selling Expenses 412.70 378.10 308.40 532.10 0.00Administrative Expenses 2,435.60 2,035.10 1,906.00 2,583.70 2,651.70Expenses Capitalized 0.00 0.00 0.00 0.00 0.00Cost Of Sales 20,539.60 17,420.50 16,748.60 13,777.00 10,429.40Operating Profit 5,760.90 5,501.50 4,758.70 3,715.60 3,254.50Other Recurring Income 662.30 434.20 468.20 326.90 288.70Adjusted PBDIT 6,423.20 5,935.70 5,226.90 4,042.50 3,543.20Financial Expenses 58.60 99.80 196.80 116.80 7.20Depreciation 600.10 579.60 533.60 456.00 359.80Other Write offs 0.00 0.00 0.00 0.00 0.00Adjusted PBT 5,764.50 5,256.30 4,496.50 3,469.70 3,176.20Tax Charges 861.80 790.80 574.10 406.40 334.10Adjusted PAT 4,902.70 4,465.50 3,922.40 3,063.30 2,842.10

Non Recurring Items -59.00 432.50 -948.60 0.00 0.00Other Non Cash adjustments 0.00 0.00 0.00 0.00 0.00

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Reported Net Profit 4,843.70 4,898.00 2,973.80 3,063.30 2,842.10Earnings Before Appropriation 4,843.70 4,898.00 2,973.80 3,063.30 2,842.10Equity Dividend 981.80 880.90 586.00 876.50 873.70Preference Dividend 490.80 0.00 0.00 0.00 0.00Dividend Tax 220.40 128.30 99.60 148.90 126.80Retained Earnings 3,150.70 3,888.80 2,288.20 2,037.90 1,841.60

RATIO ANALYSIS

I. EARNINGS AFTER TAX:

March ' 08 March ' 09 March ' 10 March ' 11 March ' 12

TCS ltd. 3630 4270 5488 5686 7558

Wipro ltd. 2842 3063 3922 4465 4902

01000200030004000500060007000

8000


TCS ltd.Wipro ltd.

Interpretation:

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As the graph suggests that the earnings of TCS are consistently increasing comparatively

to that of WIPRO. Thus, as per the parameter that of the Earnings after tax it is clear that TCSs

performance shows better growth than that of WIPRO.

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II. EARNINGS PER SHARE:


TCS ltd. 38.39 46.07 47.99 28.71 36.68

Wipro ltd. 19.48 20.96 20.30 33.37 21.73

0

10

20

30

40

50


TCS ltd.Wipro ltd.

Interpretation:

As the graph depicts, the EPS of TCS was only low in 2010. Apart from that, TCS again

shows a consistent increase in their earning per share that it suspends to its investors.

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III. PRICE/ EARNINGS RATIO (P/E):


TCS ltd. 16.04 9.55 6.04 28.38 30.58

Wipro ltd. 16.42 11.68 7.88 12.73 24.32

0

5

10

15

20

25

30

35


TCS ltd.Wipro ltd.

Interpretation:

The highest P/E ratio suggests that investors are expecting higher earnings growth in the

future compared to companies with lower P/E ratio. Here as graph suggest TCS has higher P/E

ratio comparatively that of Wipro. After recession TCSs growth is accelerated. The TCS has P/E

of 30.58 % in 2011 that means its investors are willing to pay Rs.30 for Rs.1 of the companys

earnings.

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IV. DIVIDEND PAYOUT RATIO:


TCS ltd. 34.46 35.55 34.20 81.61 42.21

Wipro ltd. 35.20 33.47 23.05 20.60 27.61

0102030405060708090


TCS ltd.Wipro ltd.

Interpretation:

From the previous interpretation of Total Earnings after Tax, which is seen to be higher of

TCS compared to that of WIPRO, the same has an impact on the Dividend payout rate as well. It

is consistently seen that as the earnings of TCS being higher than that of WIPRO, the dividend

payout is also better and higher of TCS than that of WIPRO.

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V. RETURN ON EQUITY:


TCS ltd. 50.12 42.96 43.27 42.26 44.38

Wipro ltd. 33.31 23.32 37.17 30.12 27.20

0

10

20

30

40

50

60


TCS ltd.Wipro ltd.

Interpretation:

The return on equity of is consistently seen to be high of TCS than that of WIPRO.

However, it does depict that the percentage is falling of TCS comparatively to its previous year ,

better it would any day be considered as a better avenue for investment than WIPRO , as TCSs

earning power of equity is stronger than that of WIPRO .

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VI. RETURN ON INVESTMENT:


TCS ltd. 1.4236 1.224 1.0744 1.5792 0.8357

Wipro ltd. 0.9641 0.4187 0.4841 0.5097 0.4652

00.20.40.60.8

11.21.41.6


TCS ltd.Wipro ltd.

Interpretation:

The ROI, an important aspect suggests that TCSs capabilities of tapping better

opportunities of investment is providing them in turn with better returns . Thus, it has an impact

on the dividend payout as well as the EPS. Thus, the graph depicts that the ROI of TCS is better

than that of WIPRO.

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VII. DEBT EQUITY RATIO:


TCS ltd. 0.51 0.18 0.41 0.18 0.21

Wipro ltd. 1.36 0.08 0.06 0.05 0.10

0

0.2

0.4

0.6

0.8

1

1.2

1.4


TCS ltd.Wipro ltd.

Interpretation:

The ideal debt equity ratio is considered as 1:1, which mean there has to be an equal share

of debt and equity. In this case we see, apart from 2008 both the companies have a lower Debt

equity ratio. Lower in the sense, it is close to the ideal ratio which is to be maintained. However,

analyzing it minutely the Debt Equity ratio of TCS is even more close to the ideal, than that of

WIPRO. This suggests nothing but, the relative claims of creditors and shareholders against the

assets of the firm, of that of TCS are inappropriate ration as compared to that of WIPRO.

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FINDINGS

From the data analysis and interpretations of the ratios of two companies viz. TCS and Wiprothe following findings have been given:

By analyzing the current trend of Indian Economy and IT Industry I have found that

being a developing economy there is lot of scope for growth and this industry still has to

cross many levels so there are huge opportunities to invest in and this is being proved as

more and more foreign companies are setting up there ventures in India. Increase in

income level, increase in consumer demand, technology development, globalization,

foreign investments are few of the opportunities which the industry has to explore for

developing the economy.

The earnings trend has been upward and positive in case of both companies. The sales

growth looks positive. However, observing minutely TCSs earnings are higher as

compared to that of WIPROs. TCS has thus maintained the same upward positive trend

and higher Earning rate.

In case of Earnings per share, there were fluctuations during the period 2009-2011,

considered due revamping from the recession cycle. Due to recession, the Earnings per

share seem to have declined in 20010 for TCS- but for WIPRO it showed a tremendous

increase, however it again fluctuates and falls tremendously for the same. This shows the

volatility of WIPROs performance having an impact on its Earnings per Share.

The return on investment has been slightly fluctuating since 2008 in case of both the

companies amongst which WIPRO has the least rate of returns consistently. It is observed

that TCS even during recession was successful in tapping better avenues for investmentsand had the best possible returns on its investment.

Both the companies seem to have a stable dividend payout ratio since 2008, but that of

TCSs being high as compared to that of WIPRO. In 2012 TCS had the highest payout.

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WIPROs payout has remained low as compared to TCS, except that in 2009. Thus TCS

shows a positive increasing trend in its dividend payout.

TCS has higher P/E ratio comparatively that of Wipro. After recession TCSs growth is

accelerated. The TCS has P/E of 30.58 % in 2012 that means its investors are willing to

pay Rs.30 for Rs.1 of the companys earnings.

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Few Suggestions for Right Stock Selection

There are three factors which an investor must consider for selecting the right stocks.

Business : An investor must look into what kind of business the company is doing,

visibility of the business, its past track record, capital needs of the company for expansion

etc.

Balance Sheet : The investor must focus on its key financial ratios such as earnings per

share, price-earnings ratio; debt-equity ratio, dividends per share, ROI etc. and he must

also check whether the company is generating cash flows.

Bargaining : This is the most important factor which shows the true worth of the

company. An investor needs to choose valuation parameters which suit its business.

Investment rules

Invest for long term in equity markets

Align your thought process with the business cycle of the company.

Set the purpose for investment.

Long term goals should be the objective of equity investment.

Disciplined investment during market volatility helps attains profits.

Planning, Knowledge and Discipline are very crucial for investment.

It is also advisable that Patience is the best policy when it is about tapping the best

investment opportunities in the stock market irrespective of any sector or any industry.

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BIBLIOGRAPHY

Text Books

V. A. Avadhani Security analysis and portfolio management

Dr. S. N. Maheshwari Management Accounting and Financial Control

Websites

www.nseindia.co m

www.bseindia.co m

www.investopedia.co m

www.moneycontrol.co m

www. nirmalbang .com

www.sebi.gov.i n

www. indiabulls .com
http://www.nseindia.com/http://www.bseindia.com/http://www.investopedia.com/http://www.moneycontrol.com/http://www.nirmalbang.com/http://www.nirmalbang.com/http://www.sebi.gov.in/http://www.indiabulls.com/http://www.indiabulls.com/http://www.nseindia.com/http://www.bseindia.com/http://www.investopedia.com/http://www.moneycontrol.com/http://www.nirmalbang.com/http://www.sebi.gov.in/http://www.indiabulls.com/

virendra jha equity analy

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