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7/30/2019 Financinal management
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INDIAN INSTITUTE OF FOREIGN TRADE
FINANCIAL MANAGEMENT
EPGDIB2011-13
Beta Analysis of SRF Limited
A multi-business entity
SUBMITTED BY:GROUP 10
AJAY GUPTA (ROLL NO 05), HARSH GOEL (ROLL NO 30)
KUNAL VERMA (ROLL NO 37),SURESH MEHRA (ROLL NO 69)
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Introduction
SRF Limited is a multi-business entity engaged in the manufacture of
Chemical based industrial intermediates. The Company operates inthree business segments: technical textiles business (TTB), chemicals
and polymers business (CPB) and packaging films business (PFB). TTB
includes nylon tire cord fabric, belting fabric, coated fabric, laminated
fabric, polyester tire cord fabric and industrial yarns and its research
and development. CPB includes refrigerant gases, chloromethanes,
pharmaceuticals, Certified Emissions Reductions & Allied products,
Engineering Plastics business and its research and development. PFB
includes Polyester Films. The Companys product nylon tyrecord fabric
(NTCF) is used in bias tyres of all categories from tyres for buses and
trucks to tyres for cycles. The Companys portfolio of refrigerants
includes hydrochlorofluorocarbon-22 (HCFC 22), the new-generation
refrigerant hydrofluorocarbon-134a (HFC-134a), and the refrigerant
blend R404a.
The companys recent forays into international business include
acquisitions in South Africa & Thailand.
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Beta
Beta is a measure of a stock's volatility in relation to the market. By
definition, the market has a beta of 1.0, and individual stocks are
ranked according to how much they deviate from the market. A stock
that swings more than the market over time has a beta above 1.0. If a
stock moves less than the market, the stock's beta is less than 1.0. High-
beta stocks are supposed to be riskier but provide a potential for higher
returns; low-beta stocks pose less risk but also lower returns.
Beta measures systematic risk which is the risk inherent in the whole
financial system. Beta coefficient is an important input in capital asset
pricing model to calculate required rate of return on a stock.
http://www.investopedia.com/terms/v/volatility.asphttp://www.investopedia.com/terms/v/volatility.asp7/30/2019 Financinal management
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Beta coefficient is covariance of a stock's return with market returns
divided by variance of market return. A slight modification helps in
building another key relationship which tells that beta coefficient
equals correlation coefficient multiplied by standard deviation of stock
returns divided by standard deviation of market returns. Beta
coefficient is given by the following formulas:
Extreme and interesting cases
Beta has no upper or lower bound, and betas as large as 3 or 4
will occur with highly volatile stocks.
Beta can be zero. Some zero-beta assets are risk-free, such as
treasury bonds and cash. However, simply because a beta is zerodoes not mean that it is risk-free. A beta can be zero simply
because the correlation between that item's returns and the
market's returns is zero. An example would be betting on horse
racing. The correlation with the market will be zero, but it is
certainly not a risk-free endeavor.
A negative beta simply means that the stock is inversely
correlated with the market.
http://en.wikipedia.org/wiki/United_States_Treasury_securityhttp://en.wikipedia.org/wiki/Money_market_fundhttp://en.wikipedia.org/wiki/Money_market_fundhttp://en.wikipedia.org/wiki/United_States_Treasury_security7/30/2019 Financinal management
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Stock Evaluation
The stock price movement of the company on NSE was analyzed over
the years.
The movement of the same stock was also analysed vis--vis the
benchmark NSE index to look at the Beta trend.
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Data Example
Date Stock Benchmark (NSE) % change- % change- Bnchmrk Beta
9/7/2012 216 5342.1 0.93% 1.98% 0.27
7/31/2012 204.95 5229 1.21% 2.53% 0.49
6/29/2012 207.65 5278.9 0.85% 2.52% 0.07
5/31/2012 209.1 4924.25 -1.83% -0.54% 0.50
4/30/2012 231.9 5248.15 -2.97% 1.11% 0.27
3/30/2012 251.9 5295.55 1.86% 2.25% 0.44
2/29/2012 267 5385.2 0.28% 0.18% 0.57
2/1/2012 262.09 5235.7 0.19% 0.70% 0.49
12/30/2011 249.4 4624.3 6.91% -0.47% 0.49
12/2/2011 287.32 5050.15 -0.22% 2.29% 0.24
11/1/2011 294.73 5257.95 1.08% -1.29% 0.21
10/3/2011 284.06 4849.5 -0.47% -1.90% 0.18
9/2/2011 287.78 5040 0.67% 0.78% 0.10
8/3/2011 298.45 5404.8 0.39% -0.95% 0.00
7/5/2011 294.68 5632.1 0.08% -0.33% 0.84
6/8/2011 291.02 5526.85 -0.84% -0.53% 0.01
5/10/2011 305.88 5541.25 -0.63% -0.18% 0.15
4/8/2011 329.32 5842 0.46% -0.74% 0.40
3/10/2011 289.68 5494.4 -2.28% -0.66% 0.20
2/10/2011 270.46 5225.8 1.75% -0.53% 0.35
1/11/2011 314.29 5754.1 1.58% -0.15% 0.78
12/14/2010 303.1 5944.1 -4.53% 0.62% 0.5211/12/2010 361.07 6071.65 -0.73% -1.98% 0.82
10/18/2010 338.44 6075.95 5.51% 0.22% 0.27
9/17/2010 260.44 5884.95 1.34% 0.97% 0.46
8/20/2010 245.77 5530.65 -3.60% -0.17% 0.55
7/22/2010 220.18 5441.95 -3.81% 0.79% 0.85
6/25/2010 223.39 5269.05 1.94% -0.97% 0.01
5/27/2010 206.06 5003.1 1.88% 1.74% 0.05
4/30/2010 208.9 5278 5.29% 0.45% 0.42
3/30/2010 175.36 5262.45 1.65% -0.76% 0.32
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Conclusion
What is clear is that since its overseas acquisitions in 2008, the Beta of
the company has come down. The investor risk perception has
improved because of diversified markets of the company. The
difference in pre-2005 and post-2008 scenario is that of low and high
expected returns, respectively.
The company is an Indian entity operating in Chemicals industry, with
customers in Pharmaceuticals and Food industry.
Both Pharmaceuticals and Chemicals have an established industry
scenario in India. This fact and the Beta trend indicate a steady increase
in the returns and with diversified risk portfolio, the stock can be hailed
a good investment.