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Fundamental and technical analysis @ kotak mahindra mba project report
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FUNDAMENTAL AND TECHNICAL ANALYSIS
EXECUTIVE SUMMARY:
In the recent past, the bank interest rates have been increased steadily. But the
rate of Inflation has also been increased. There is no big difference between the
interest rate and Inflation rate. Because of inflation, value of money has been
decreased and cost of living has been increased. This has created panic among lower,
middle and upper middle class families who considered keeping their savings in banks
as safe as well as remunerative. So, the invertors are searching for proper investment
avenues. Here, an attempt is made to predict the future movement of scrips. This
study helps the investors to invest in shares.
India has registered a growth rate of 8.6 percent in FY 2007-08 and is
expected to grow at the rate of 10% plus in this fiscal year, and is one of the fastest
growing economies in the world. It is one of the major attractions for FI’s and FII’s.
FII’s invest in India through secondary Markets. There is a great scope for India for
becoming member of G-8 nations committee.
The stock exchange comes in the secondary market. Stock exchange performs
activities such as trading in share, securities, bonds, mutual fund & commodities.
Stock Broking industry is growing at an enormous rate, as more and more people are
attracted towards stock exchanges with the hope of making profits.
But during this period the country also registered a fairly high industrial
growth. The old industries and business establishments who wanted to expand the
activities as well as the new industries and the business establishments floated shares
in the market to raise capital for their activities. The companies, which registered
steady growth, earned confidence of the people and their shares, were rated high in
the market.
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FUNDAMENTAL AND TECHNICAL ANALYSIS
This project report helps the reader to understand the techniques of investing
in the stock market particularly in the secondary market. Some of the proven
techniques have been used in this report to help the reader or investor.
Fundamental Analysis is the study of everything from the overall economy
and industry conditions, to the financial condition and management of specific
companies (i.e., using real data to evaluate a stock’s value).
Technical analysis is the examination of past price movements to forecast
future price movements. Technical analysts are sometimes referred to as chartists
because they rely almost exclusively on charts for their analysis.
Objectives of the study:
To know the future movement of selected companies shares through fundamental and
technical analysis.
Sub objectives
o To predict the future price of the selected companies shares.
o To study the strategies to be adopted by the retail investors based on the technical
and fundamental analysis.
o To know the floor and cap price of the stock.
o To analyze individual company scrips by considering the factors relating to the
economy, industry and the respective company.
o To predict investor positions (Buy, sell & hold) based on historical price trends
and the likely company prospects.
BSPATIL 2
FUNDAMENTAL AND TECHNICAL ANALYSIS
Findings and suggestion:
EXPECTED MARKET PRICE OF BHEL
particulars
year
2008 2009 2010
FUNDAMENTAL ANALISIS 2132.30 2707.42 3429.62
TECHNICAL ANALYSIS 2500 3750
current market price(31-03-08) 2,061.35
EXPECTED MARKET PRICE OF L&T
Particulars
year
2008 2009 2010
FUNDAMENTAL ANALISIS 2325.33 2451.38 2584.41
TECHNICAL ANALYSIS 4450 5800
current market price 3,024.80
BSPATIL 3
FUNDAMENTAL AND TECHNICAL ANALYSIS
INDIAN STOCK MARKET
OVERVIEW OF EQUITY MARKET IN INDIA
BSE (Bombay Stock Exchange)
SENSEX - THE BAROMETER OF INDIAN CAPITAL MARKETS
Introduction:
For the premier Stock Exchange that pioneered the stock broking activity in India,
128 years of experience seems to be a proud milestone. A lot has changed since 1875
when 318 persons became members of what today is called "The Stock Exchange,
Mumbai" by paying a princely amount of Re1.
Since then, the country's capital markets have passed through both good and bad
periods. The journey in the 20th century has not been an easy one. Till the decade of
eighties, there was no scale to measure the ups and downs in the Indian stock market.
The Stock Exchange, Mumbai (BSE) in 1986 came out with a stock index that
subsequently became the barometer of the Indian stock market.
SENSEX is not only scientifically designed but also based on globally
accepted construction and review methodology. First compiled in 1986, SENSEX is a
basket of 30 constituent stocks representing a sample of large, liquid and
representative companies. The base year of SENSEX is 1978-79 and the base value is
100. The index is widely reported in both domestic and international markets through
print as well as electronic media.
The Index was initially calculated based on the "Full Market Capitalization"
methodology but was shifted to the free-float methodology with effect from
September 1, 2003. The "Free-float Market Capitalization" methodology of index
construction is regarded as an industry best practice globally. All major index
providers like MSCI, FTSE, STOXX, S&P and Dow Jones use the Free-float
methodology.
Due to its wide acceptance amongst the Indian investors, SENSEX is regarded
to be the pulse of the Indian stock market. As the oldest index in the country, it
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FUNDAMENTAL AND TECHNICAL ANALYSIS
provides the time series data over a fairly long period of time (From 1979 onwards).
Small wonder, the SENSEX has over the years become one of the most prominent
brands in the country.
The growth of equity markets in India has been phenomenal in the decade
gone by. Right from early nineties the stock market witnessed heightened activity in
terms of various bull and bear runs. The SENSEX captured all these events in the
most judicial manner. One can identify the booms and busts of the Indian stock
market through sensex.
NSE (NATIONAL STOCK EXCHANGE)
The Organization:
The National Stock Exchange of India Limited has genesis in the report of the
High Powered Study Group on Establishment of New Stock Exchanges, which
recommended promotion of a National Stock Exchange by financial institutions (FIs)
to provide access to investors from all across the country on an equal footing. Based
on the recommendations, NSE was promoted by leading Financial Institutions at the
behest of the Government of India and was incorporated in November 1992 as a tax-
paying company unlike other stock exchanges in the country.
On its recognition as a stock exchange under the Securities Contracts (Regulation)
Act, 1956 in April 1993, NSE commenced operations in the Wholesale Debt Market
(WDM) segment in June 1994. The Capital Market (Equities) segment commenced
operations in November 1994 and operations in Derivatives segment commenced in
June 2000.
NIFTY:
The Nifty is relatively a new comer in the Indian market. S&P CNX Nifty is a
50 stock index accounting for 23 sectors of the economy. It is used for purposes such
as benchmarking fund portfolios; index based derivatives and index funds. The base
period selected for Nifty is the close of prices on November 3, 1995, which marked
the completion of one-year of operations of NSE's capital market segment. The base
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FUNDAMENTAL AND TECHNICAL ANALYSIS
value of index was set at 1000. S&P CNX Nifty is owned and managed by India
Index Services and Products Ltd. (IISL), which is a joint venture between NSE and
CRISIL. IISL is a specialized company focused upon the index as a core product.
IISL have a consulting and licensing agreement with Standard & Poor's (S&P), who
are world leaders in index services.
FII in Indian stock market
As part of its initiative to liberalize its financial markets, India opened her
doors to foreign institutional investors in September, 1992. This event represents a
landmark event since it resulted in effectively globalizing its financial services
industry.
Year net investment by FII1992-93 4.271993-94 5444.61994-95 4776.61995-96 6720.91996-97 7386.21997-98 5908.45 -1998-99 729.111999-00 9765.132000-01 9682.522001-02 8272.92002-03 2668.92003-04 44000.032004-05 41416.452005-06 67432.342006-07 94327.87
What does India Need - FDI or FII
FDI usually is associated with export growth. It comes only when all the
criteria to set up an export industry are met. That includes, reduced taxes, favorable
labor law, freedom to move money in and out of country, government assistance to
acquire land, full grown infrastructure, reduced bureaucratic involvement etc. IT,
BPO, Auto Parts, Pharmaceuticals, unexplored service sectors including accounting;
drug testing, medical care etc are key sectors for foreign investment. Manufacturing
is a brick and mortar investment. It is permanent and stays in the country for a very
long time. Huge investments are needed to set this industry. It provides employment
potential to semi skilled and skilled labor. On the other hand the service sector
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FUNDAMENTAL AND TECHNICAL ANALYSIS
requires fewer but highly skilled workers. Both are needed in India. Conventional
wisdom is that China will have an upper hand in manufacturing for a long time. If
India plays its cards right India may be the hub for the service sector. Still high end
manufacturing in auto parts and pharmaceuticals should be India’s target.
The FII (Foreign Institutional Investor) is monies, which chases the stocks in
the market place. It is not exactly brick and mortar money, but in the long run it may
translate into brick and mortar. Sudden influx of this drives the stock market up as too
much money chases too little stock. In last four months an influx of about $1.5 Billion
has driven the Indian stock market 20% higher.
Where FDI is a bit of a permanent nature, the FII flies away at the shortest
political or economical disturbance. The late nineties economic disaster of Asian
Tigers is a key example of the latter. Once this money leaves, it leaves ruined
economy and ruined lives behind. Hence FII is to be welcomed with strict political
and economical discipline.
China receives mainly the FDI. They do not have instruments to receive the FII i.e.
laws, institutions and political and judicial framework. On the contrary, India should
welcome both and work hard to retain both.
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FUNDAMENTAL AND TECHNICAL ANALYSIS
INTRODUCTION TO KOTAK SECURITIES
THE KOTAK MAHINDRA GROUP:
The Kotak Mahindra Group was born in 1985 as Kotak Capital Management
Finance Limited. This company was promoted by Uday Kotak, Sidney A. A. Pinto
and Kotak & Company. Industrialists Harish Mahindra and Anand Mahindra took a
stake in 1986, and that's when the company changed its name to Kotak Mahindra
Finance Limited.
Kotak Mahindra is one of India's leading financial institutions, offering
complete financial solutions that encompass every sphere of life. From commercial
banking, to stock broking, to mutual funds, to life insurance, to investment banking,
the group caters to the financial needs of individuals and corporates.
As on December 31, 2006, the group has a net worth of over Rs.3, 100 crore,
and the AUM across the group is around Rs. 225 billion and employs over 9,600
employees in its various businesses. With a presence in 282 cities in India and offices
in New York, London, Dubai and Mauritius, it services a customer base of over
around 2.2 million.
The group specializes in offering top class financial services, catering to every
segment of the industry. The various group companies include:
1. Kotak Mahindra Capital Company Limited
2. Kotak Mahindra Securities Limited
3. Kotak Mahindra Inc
4. Kotak Mahindra (International) Limited
5. Global Investments Opportunities Fund Limited
6. Kotak Mahindra (UK) Limited
7. Kotak Securities Limited
8. Kotak Mahindra Old Mutual Life Insurance Company Limited
9. Kotak Mahindra Asset Management Company Limited
10. Kotak Mahindra Trustee Company Limited
11. Kotak Mahindra Investments Limited
12. Kotak Forex Brokerage Limited
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FUNDAMENTAL AND TECHNICAL ANALYSIS
13. Kotak Mahindra Private-Equity Trustee Limited
14. Kotak Mahindra Prime Limited
Kotak Mahindra has international partnerships with Goldman Sachs (one of
the world's largest investment banks and brokerage firms), Ford Credit (one of the
world's largest dedicated automobile financiers) and Old Mutual (a large insurance,
banking and asset management conglomerate).
Kotak Securities, an affiliate of Kotak Mahindra Bank, is the stock-broking
and distribution arm of the Kotak Mahindra Group. The institutional business
division, which provides AKSESS, primarily covers secondary market broking. It
caters to the needs of foreign and Indian institutional investors in Indian equities (both
local shares and GDRs). The division also has a comprehensive research cell with
sectoral analysts covering all the major areas of the Indian economy.
Kotak Securities Ltd. is India's leading stock broking house with a market
share of around 8.5 % as on 31st March. Kotak Securities Ltd. has been the largest in
IPO distribution.
The accolades that Kotak Securities has been graced with include:
1. Prime Ranking Award (2003-04)- Largest Distributor of IPO's
2. Finance Asia Award (2004)- India's best Equity House
3. Euro money Award (2005)-Best Equities House In India
4. Finance Asia Award (2005)-Best Broker In India
5. Finance Asia Award (2006)- Best Broker In India
6. Euro money Award (2006) - Best Provider of Portfolio Management: Equities
The company has a full-fledged research division involved in Macro
Economic studies, Sectorial research and Company Specific Equity Research
combined with a strong and well networked sales force which helps deliver current
and up to date market information and news.
BSPATIL 9
FUNDAMENTAL AND TECHNICAL ANALYSIS
Kotak Securities Ltd is also a depository participant with National Securities
Depository Limited (NSDL) and Central Depository Services Limited (CDSL),
providing dual benefit services wherein the investors can use the brokerage services
of the company for executing the transactions and the depository services for settling
them.
Kotak Securities has 195 branches servicing more than 2,20,000 customers
and a coverage of 231 Cities. Kotaksecurities.com, the online division of Kotak
Securities Limited offers Internet Broking services and also online IPO and Mutual
Fund Investments.
Kotak Securities Limited manages assets over 2500 crores of Assets Under
Management (AUM) .The portfolio Management Services provides top class service,
catering to the high end of the market. Portfolio Management from Kotak Securities
comes as an answer to those who would like to grow exponentially on the crest of the
stock market, with the backing of an expert.
BSPATIL 10
FUNDAMENTAL AND TECHNICAL ANALYSIS
INTRODUCTION TO THE TOPIC
FUNDAMENTAL AND TECHNICAL ANALYSIS:
Fundamental analysis
The basic purpose of buying a security is to earn dividends and ultimately sell
it at higher price. An investor therefore is interested in obtaining estimates of future
prices of the share. These in turn will depend upon the performance of the industry to
which the company belongs and the general economic situation of the country. The
multitude of factors affecting a company’s profitability can be broadly classified as:
1. Economic wide factors: these includes the factors like growth rate of the
economy, the rate of inflation, foreign exchange rates etc which affects
profitability of all companies.
2. Industry wide factors: these include factors which are specific to
industry to which the company belongs. For instance the demand supply gap
in the industry, the emergence of substitutes, and changes in government
policies towards industry affects the company belonging to an industry.
3. Company wide factor: these factors are specific to a firm. The firm
specific factors like plant and machinery, the brand image of the product, and
ability of the management to affect the profitability.
Fundamental analysis considers the financial and economic data that may
influence the viability of a company. There are many flavors of fundamental analysis
centered on such concepts as value, growth and turnarounds. Technical analysis is the
study of the price chart. It assumes that by looking at the progress of that little
squiggly line you can forecast the future trend of a stock. Fundamental analysis is
BSPATIL 11
FUNDAMENTAL AND TECHNICAL ANALYSIS
essential to most investors, and technical analysis is essential to most traders and
speculators.
An investor with rational and scientific approach will therefore be interested in
analyzing the influence of the expected performance of the company, industry and
economy as a whole on share prices, even before taking the investment decision such
analysis is called fundamental analysis.
Fundamental analysis is the method of evaluating securities by attempting to
measure the intrinsic value of a particular stock. It is the study of everything from the
overall economy and industry conditions, to the financial condition and management
of specific companies (i.e., using real data to evaluate a stock’s value). The method
utilizes items such as revenues, earnings, return on equity and profit margins to
determine a company’s underlying value and potential for future growth.
One of the major assumptions under fundamental analysis is that, even though
things get mis priced in the market from time to time, the price of an asset will
eventually gravitate toward its true value. This seems to be a reasonable bet
considering the long upward march of quality stocks in general despite regular
setbacks and periods of irrational exuberance. The key strategy for the fundamentalist
is to buy when prices are at or below this intrinsic value and sell when they got
overpriced.
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TECHNICAL ANALYSIS:
Technical analysis is the examination of past price movements to forecast
future price movements. Technical analysts are sometimes referred to as chartists
because they rely almost exclusively on charts for their analysis.
Moving Average:
A Moving Average is an indicator that shows the average value of a security's
price over a period of time. When calculating a moving average, a mathematical
analysis of the security's average value over a predetermined time period is made. As
the securities price changes, its average price moves up or down.
There are several popular ways to calculate a moving average. Meta Stock for
Java calculates a "simple" moving average--meaning that equal weight is given to
each price over the calculation period.
Interpretation:
The most popular method of interpreting a moving average is to compare the
relationship between moving averages of the security's price with the security's price
itself. A buy signal is generated when the security's price rises above its moving
average and a sell signal is generated when the security's price falls below its moving
average.
This type of moving average trading system is not intended to get you in at the
exact bottom nor out at the exact top. Rather, it is designed to keep you in line with
the security's price trend by buying shortly after the security's price bottoms and
selling shortly after it tops.
The critical element in a moving average is the number of time periods used in
calculating the average. When using hindsight, you can always find a moving
average that would have been profitable. The key is to find a moving average that
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FUNDAMENTAL AND TECHNICAL ANALYSIS
will be consistently profitable. The most popular moving average is the 39-week (or
200-day) moving average. This moving average has an excellent track record in
timing the major (long-term) market cycles.
Advantages:
The advantage of moving average system of this type (i.e., buying and selling
when prices break through their moving average) is that you will always be on the
"right" side of the market: prices cannot rise very much without the price rising above
its average price. The disadvantage is that you will always buy and sell some late. If
the trend does not last for a significant period of time, typically twice the length of the
moving average, you will lose your money.
Support and Resistance:
Support and resistance represent key junctures where the forces of supply and
demand meet. In the financial markets, prices are driven by excessive supply (down)
and demand (up). Supply is synonymous with bearish, bears and selling. Demand is
synonymous with bullish, bulls and buying. These terms are used interchangeably
throughout this and other articles. As demand increases, prices advance and as supply
increases, prices decline. When supply and demand are equal, prices move sideways
as bulls and bears slug it out for control.
What Is Support?
Support is the price level at which demand is thought to be strong enough to
prevent the price from declining further. The logic dictates that as the price declines
towards support and gets cheaper, buyers become more inclined to buy and sellers
become less inclined to sell. By the time the price reaches the support level, it is
believed that demand will overcome supply and prevent the price from falling below
support.
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FUNDAMENTAL AND TECHNICAL ANALYSIS
Support does not always hold and a break below support signals that the bears
have won out over the bulls. A decline below support indicates a new willingness to
sell and/or a lack of incentive to buy. Support breaks and new lows signal that sellers
have reduced their expectations and are willing sell at even lower prices. In addition,
buyers could not be coerced into buying until prices declined below support or below
the previous low. Once support is broken, another support level will have to be
established at a lower level.
Where Is Support Established?
Support levels are usually below the current price, but it is not uncommon for
a security to trade at or near support. Technical analysis is not an exact science and it
is sometimes difficult to set exact support levels. In addition, price movements can be
volatile and dip below support briefly. Sometimes it does not seem logical to consider
a support level broken if the price closes 1/8 below the established support level. For
this reason, some traders and investors establish support zones.
What Is Resistance?
Resistance is the price level at which selling is thought to be strong enough to
prevent the price from rising further. The logic dictates that as the price advances
towards resistance, sellers become more inclined to sell and buyers become less
inclined to buy. By the time the price reaches the resistance level, it is believed that
supply will overcome demand and prevent the price from rising above resistance.
Resistance does not always hold and a break above resistance signals that the
bulls have won out over the bears. A break above resistance shows a new willingness
to buy and/or a lack of incentive to sell. Resistance breaks and new highs indicate
buyers have increased their expectations and are willing to buy at even higher prices.
In addition, sellers could not be coerced into selling until prices rose above resistance
or above the previous high. Once resistance is broken, another resistance level will
have to be established at a higher level.
BSPATIL 15
FUNDAMENTAL AND TECHNICAL ANALYSIS
Where Is Resistance Established?
Resistance levels are usually above the current price, but it is not uncommon
for a security to trade at or near resistance. In addition, price movements can be
volatile and rise above resistance briefly. Sometimes it does not seem logical to
consider a resistance level broken if the price closes 1/8 above the established
resistance level. For this reason, some traders and investors establish resistance zones.
So, Here, Identification of key support and resistance levels is an essential
ingredient to successful technical analysis. Even though it is sometimes difficult to
establish exact support and resistance levels, being aware of their existence and
location can greatly enhance analysis and forecasting abilities. If a security is
approaching an important support level, it can serve as an alert to be extra vigilant in
looking for signs of increased buying pressure and a potential reversal. If a security is
approaching a resistance level, it can act as an alert to look for signs of increased
selling pressure and potential reversal. If a support or resistance level is broken, it
signals that the relationship between supply and demand has changed. A resistance
breakout signals that demand (bulls) has gained the upper hand and a support break
signals that supply (bears) has won the battle.
Price Oscillator:
The Price Oscillator displays the difference between two moving averages of a
security's price. The difference between the moving averages can be expressed in
either points or percentages.
The Price Oscillator is almost identical to the MACD, except that the Price
Oscillator can use any two user-specified moving averages. (The MACD always uses
12 and 26-day moving averages, and always expresses the difference in points.)
BSPATIL 16
FUNDAMENTAL AND TECHNICAL ANALYSIS
Interpretation:
Moving average analysis typically generates buy signals when a short-term
moving average (or the security's price) rises above a longer-term moving average.
Conversely, sell signals are generated when a shorter-term moving average (or the
security's price) falls below a longer-term moving average. The Price Oscillator
illustrates the cyclical and often profitable signals generated by these one or two
moving average systems.
Price Rate-Of-Change:
The Price Rate-of-Change ("ROC") indicator displays the difference between
the current price and the price x-time periods ago. The difference can be displayed in
either points or as a percentage. The Momentum indicator displays the same
information, but expresses it as a ratio.
Interpretation:
It is a well-recognized phenomenon that security prices surge ahead and
retract in a cyclical wave-like motion. This cyclical action is the result of the
changing expectations as bulls and bears struggle to control prices.
The ROC displays the wave-like motion in an oscillator format by measuring
the amount that prices have changed over a given time period. As prices increase, the
ROC rises; as prices fall, the ROC falls. The greater the change in prices, the greater
the change in the ROC.
The time period used to calculate the ROC may range from 1-day (which
results in a volatile chart showing the daily price change) to 200-days (or longer).
The most popular time periods are the 12- and 25-day ROC for short to intermediate-
term trading. These time periods were popularized by Gerald Appel and Fred
Hitschler in their book, Stock Market Trading Systems.
BSPATIL 17
FUNDAMENTAL AND TECHNICAL ANALYSIS
The 12-day ROC is an excellent short- to intermediate-term
overbought/oversold indicator. The higher the ROC, the more overbought the
security; the lower the ROC, the more likely a rally. However, as with all
overbought/oversold indicators, it is prudent to wait for the market to begin to correct
(i.e., turn up or down) before placing your trade. A market that appears overbought
may remain overbought for some time. In fact, extremely overbought/oversold
readings usually imply a continuation of the current trend.
The 12-day ROC tends to be very cyclical, oscillating back and forth in a
fairly regular cycle. Often, price changes can be anticipated by studying the previous
cycles of the ROC and relating the previous cycles to the current market
Relative Strength Index (RSI):
The Relative Strength Index ("RSI") is a popular oscillator. It was first
introduced by Welles Wilder in an article in Commodities (now known as Futures)
Magazine in June, 1978.
The name "Relative Strength Index" is slightly misleading as the Relative
Strength Index does not compare the relative strength of two securities, but rather the
internal strength of a single security. A more appropriate name might be "Internal
Strength Index."
Interpretation:
When Wilder introduced the Relative Strength Index, he recommended using
a 14-day Relative Strength Index. Since then, the 9-day and 25-day Relative Strength
Indexs have also gained popularity. The fewer days used to calculate the Relative
Strength Index, the more volatile the indicator.
The Relative Strength Index is a price-following oscillator that ranges between
0 and 100. A popular method of analyzing the Relative Strength Index is to look for a
divergence in which the security is making a new high, but the Relative Strength
Index is failing to surpass its previous high. This divergence is an indication of an
BSPATIL 18
FUNDAMENTAL AND TECHNICAL ANALYSIS
impending reversal. When the Relative Strength Index then turns down and falls
below its most recent trough, it is said to have completed a "failure swing." The
failure swing is considered a confirmation of the impending reversal.
In Mr. Wilder's book, he discusses five uses of the Relative Strength Index:
1. Tops and Bottoms. The Relative Strength Index usually tops above 70 and
bottoms below 30. It usually forms these tops and bottoms before the
underlying price chart.
2. Chart Formations. The Relative Strength Index often forms chart patterns
such as head and shoulders or triangles that may or may not be visible on the
price chart.
3. Failure Swings (also known as support or resistance penetrations or
breakouts). This is where the Relative Strength Index surpasses a previous
high (peak) or falls below a recent low (trough).
4. Support and Resistance. The Relative Strength Index shows, sometimes
more clearly than price themselves, levels of support and resistance.
5. Divergences. As discussed above, divergences occur when the price makes a
new high (or low) that is not confirmed by a new high (or low) in the Relative
Strength Index. Prices usually correct and move in the direction of the
Relative Strength Index.
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FUNDAMENTAL AND TECHNICAL ANALYSIS
Trend lines:
In the preceding section, we saw how support and resistance levels can be
penetrated by a change in investor expectations (which results in shifts of the
supply/demand lines). This type of a change is often abrupt and "news based."
In this section, we'll review "trends." A trend represents a consistent change
in prices (i.e., a change in investor expectations). Trends differ from
support/resistance levels in that trends represent change, whereas support/resistance
levels represent barriers to change.
As shown in the following chart, a rising trend is defined by successively
higher low-prices. A rising trend can be thought of as a rising support level--the bulls
are in control and are pushing prices higher.
As shown in the next chart, a falling trend is defined by successively lower
high-prices. A falling trend can be thought of as a falling resistance level--the bears
are in control and are pushing prices lower.
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FUNDAMENTAL AND TECHNICAL ANALYSIS
The Bar Chart:
The Bar chart is one of the most popular types of charts used in technical
analysis. As illustrated on the left, the top of the vertical line indicates the highest
price at which a security traded during the day, and the bottom represents the lowest
price. The closing price is displayed on the right side of the bar and the opening price
is shown on the left side of the bar. A single bar like the one to the left represents one
day of trading.
The chart below is an example of a bar chart for AT&T (T):
BSPATIL 21
FUNDAMENTAL AND TECHNICAL ANALYSIS
The advantage of using a bar chart over a straight-line graph is that it shows
the high, low, open and close for each particular day.
Candle sticks Charting:
Candlestick charts have been around for hundreds of years. They are often
referred to as "Japanese candles" because the Japanese would use them to analyze the
price of rice contracts.
Similar to a bar chart, candlestick charts also display the open, close, daily
high and daily low. The difference is the use of color to show if the stock went up or
down over the day.
The chart below is an example of a candlestick chart for AT&T (T).
Green bars indicate the stock price rose, red indicates a decline:
BSPATIL 22
FUNDAMENTAL AND TECHNICAL ANALYSIS
Investors seem to have a "love/hate" relationship with candlestick
charts. People either love them and use them frequently or they are
completely turned off by them. There are several patterns to look for with
candlestick charts - here are a few of the popular ones and what they mean.
.
BSPATIL 23
This is a bullish pattern - the stock opened at (or near) its low and
closed near its high
The opposite of the pattern above, this is a bearish pattern. It
indicates that the stock opened at (or near) its high and dropped
substantially to close near its low.
FUNDAMENTAL AND TECHNICAL ANALYSIS
Point and Figure Chart:
The point & figure (P&F) chart is somewhat rare. In fact, most charting
services do not even offer it. This chart plots day-to-day increases and declines in
price: increases are represented by a rising stack of "X"s, while decreases are
represented by a declining stack of "O"s. This type of chart was traditionally used for
intraday charting (a stock chart for just one day), mainly because it can be long and
tedious to create a P&F chart manually over a longer period of time.
The idea behind P&F charts is that they help you to filter out less significant
price movements and to focus on the most important trends. Below is an example of a
P&F chart for AT&T (T):
BSPATIL 24
Known as "the hammer", this is a bullish pattern only if it occurs
after the stock price has dropped for several days. A small body along
with a large range identifies a hammer. This pattern indicates that a
reversal in the downtrend is in the works.
Known as a "star”. For the most part, stars typically indicate a
reversal and or indecision. There is a possibility that after seeing a
star there will be a reversal or change in the current trend.
FUNDAMENTAL AND TECHNICAL ANALYSIS
POPULAR CHARTING PATTERNS:Technical analysts often use proven successful price patterns from great stocks
as tools to find new great stocks. Let's look at a few examples
Cup and Handle - This is a pattern on a bar chart that can be as short as seven
weeks and as long as 65 weeks. The cup is in the shape of a "U". The handle
has a slight downward drift. The right-hand side of the pattern has low trading
volume. As the stock comes up to test the old highs, the stock will incur
selling pressure by the people who bought at or near the old high. This selling
BSPATIL 25
FUNDAMENTAL AND TECHNICAL ANALYSIS
pressure will make the stock price trade sideways with a tendency towards a
downtrend for anywhere from four days to four weeks, then it will take off.
This pattern looks like a pot with a handle. It is one of the easier
patterns to detect; and investors have made a lot of money using it.
Head and Shoulders - This is a chart formation resembling an "M" in which a
stock's price:
- Rises to a peak and then declines, then
- Rises above the former peak and again declines, and then
- rises again but not to the second peak and again declines.
The first and third peaks are shoulders, and the second peak forms the head.
This pattern is considered a very bearish indicator.
BSPATIL 26
FUNDAMENTAL AND TECHNICAL ANALYSIS
Double Bottom - This pattern resembles a "W" and occurs when a stock price
drops to a similar price level twice within a few weeks or months. You should
buy when the price passes the highest point in the handle. In a perfect double
bottom, the second decline should normally go slightly lower than the first
decline to create a shakeout of jittery investors. The middle point of the "W"
should not go into new high ground. This is a very Bullish indicator.
The belief is that, after two drops in the stock price, the jittery investors will
be out and the long-term investors will still be holding on.
Importance of project
1. The project gives thorough knowledge of fundamental and technical analysis
2. In this project report the Engineering sector is analyzed by considering budget
and demand and supply of the industry.
3. In the project report the 2 companies have selected and analyzed the
company’s future market price by two distinct theories.
BSPATIL 27
FUNDAMENTAL AND TECHNICAL ANALYSIS
4. Reader of this project comes to know the expected future market prices and
can invest into the scripts.
5. This gives the full information of calculation of intrinsic value.
Objective of the study
Main objective:
To know the future movement of selected companies shares through fundamental and
technical analysis.
Sub objectives
o To predict the future price of the selected companies shares.
BSPATIL 28
FUNDAMENTAL AND TECHNICAL ANALYSIS
o To study the strategies to be adopted by the retail investors based on the technical
and fundamental analysis.
o To know the floor and cap price of the stock.
o To analyze individual company scrips by considering the factors relating to the
economy, industry and the respective company.
o To predict investor positions (Buy, sell & hold) based on historical price trends
and the likely company prospects.
Data collecting methodology
The data collected for the study is secondary data. The data I have used for the study
is
1. Historical shares value of the stocks collected from ICICI DIRECT.COM.
2. The balance sheet and Income statement got from companies web site.
3. Some of the information about the industry is collected from other financial
web site.
THE MEASUREMENT TECHNIQUE
The following techniques are used for the study.
1. Simple moving average.
5. Exponential moving average (EMA)
6. The relative strength index (RSI)
7. Value anchor.
BSPATIL 29
FUNDAMENTAL AND TECHNICAL ANALYSIS
LIMITATIONS OF THE STUDY:
1. The study is limited only to these 2 sectors and 4 companies.
2. Here, an attempt is made to predict the future movement stock. It contains an
element of guess work
3. Here, I have used only 3 Technical tools to predict the movement of Scrips
Technical analysis of selected sector socks is as fallows
Here you can see the charts of BHEL, L&T and NIFTY which is designed
(derived) by MS Excel sheet. For calculating of RSI, SMA and EMA 2 years
historical closing prices are used. The respective formulas of SMA, EMA and RSI is
as follows
SMA (Simple Moving Average)
BSPATIL 30
FUNDAMENTAL AND TECHNICAL ANALYSIS
A simple moving average is formed by computing the average (mean) price of a
security over a specified number of periods. While it is possible to create moving
averages from the Open, the High, and the Low data points, most moving averages
are created using the closing price. For example: a 5-day simple moving average is
calculated by adding the closing prices for the last 5 days and dividing the total by 5.
Ex: if the closing prices are as follows: 10, 11, 12, 13, 14, 17, 12……………
10+11+12+13+14=60
(60/5)=12
Here 12 is a first moving average obtained from the given closing prices, next moving
average can be calculated by deducting first cl price i.e 10 and adding next cl. Price i.e 17 and
again dividing it by 5.
Exponential Moving Average (EMA)
In order to reduce the lag in SMA, technicians often use EMA. EMA's reduce the lag by
applying more weight to recent prices relative to older prices. The weighting applied to the
most recent price depends on the specified period of the moving average. The shorter the
EMA's period, the more weight that will be applied to the most recent price. For example: a
10-period EMA weighs the most recent price 18.18% while a 20-period EMA weighs the
most recent price 9.52%. As such, it will react quicker to recent price changes than a SMA.
Here's the calculation formula
EMA (current) = ((price (current)-EMA (prev)) x multiplier+ EMA(prev)
Where, Multiplier – 2/n+1
n- Number of days for which EMA is calculated
If we take the same example of SMA 5 day EMA is calculated as follows.
EMA= (12-11) X 0.666 + 11 = 11.66
BSPATIL 31
FUNDAMENTAL AND TECHNICAL ANALYSIS
Where multiplier = 2/ (5 +1) = 0.666
For next EMA 11.66 acts as previous EMA and so on
Relative Strength Index.
Ans: Developed by J. Welles Wilder and introduced in his 1978 book, New Concepts
in Technical Trading Systems, the Relative Strength Index is an extremely useful and
popular momentum oscillator.
Calculation
BSPATIL 32
FUNDAMENTAL AND TECHNICAL ANALYSIS
BHEL Company Charts
1. Short term moving averages of BHEL Company.
BSPATIL 33
FUNDAMENTAL AND TECHNICAL ANALYSIS
Short term Moving averages of BHEL
0.00
500.00
1,000.00
1,500.00
2,000.00
2,500.00
3,000.00
3,500.00
3/1
/20
06
5/1
/20
06
7/1
/20
06
9/1
/20
06
11
/1/2
00
6
1/1
/20
07
3/1
/20
07
5/1
/20
07
7/1
/20
07
9/1
/20
07
11
/1/2
00
7
1/1
/20
08
3/1
/20
08
adjested
10 days ema
40 days ema
10 days sma
trendline violation
support
resistance
Buy signals
sell signals
2. Long-term moving averages of BHEL Company.
Long term moving averages for BHEL
0.00
500.00
1,000.00
1,500.00
2,000.00
2,500.00
3,000.00
3,500.00
3/1/
2006
5/1/
2006
7/1/
2006
9/1/
2006
11/1
/200
6
1/1/
2007
3/1/
2007
5/1/
2007
7/1/
2007
9/1/
2007
11/1
/200
7
1/1/
2008
3/1/
2008
adjested
25 days EMA
125 days ema
25 days sma Buy for long term
sell
Trend violation
Interpretation for short term moving averages:
BSPATIL 34
FUNDAMENTAL AND TECHNICAL ANALYSIS
1. The above chart of BHEL is of short term analysis say for example 15 days to
60 days.
2. The above chart shows support and resistance level which is shown by arrow
mark above.
3. The chart shows the buying and selling signals which is shown in red green
and red arrow marks and circle is the point which specifies the exact price to
buy or sell the stock.
4. And from above chart one can see the trend line violation which is shown by
black arrow mark.
Interpretation for long term moving averages:
1. As we can see from the above chart the buy and sell levels are Rs 1130 and
Rs. 2100.
2. In the long term chart also we can see a trend violation at the stage of jan
2008.
3. Here in long term moving average chart one can see that the 25 days SMA
going upwards and 125 days EMA coming downwards. So if in future the 25
days SMA goes upwards and crosses the 125 days EMA then again the bull
run rally start.
Target price for BHEL according to Technical charts:
1. At the beginning of the chart the support level is around Rs. 900 in the month
of June 2006 and resistance level is at Rs. 1100 in the month of August 2006.
2. after its resistance in august 2006 at Rs 1100 the stock has under gone for
consolidation for 2 months
3. After breaking its resistance of Rs. 1100 the stock again under gone for
consolidation up to Feb 2007.
4. On Fab 2007 the stock had resistance of Rs. 1200 and fell down in march id
for Rs. 1000 there for the new support become Rs. 1000 and resistance again
Rs. 1200.
BSPATIL 35
FUNDAMENTAL AND TECHNICAL ANALYSIS
5. On April 2007 end it crossed its resistance and started rally.
6. In the month of July 2007 it achieved 52 weeks high and created a new
resistance of Rs. 1800 and new support become Rs. 1700
7. The stock was on its life time high of Rs. 2870 on November 2007.
8. In the November 2007 the stock had resistance of Rs. 2900 and support was
Rs. 2100 in the year 2007 of October.
9. In the month of Jan 2008 it has broken its previous support and started a
bearish run.
10. In the month of Dec mid 2007 the stock violated its trend line.
11. the present support is 1850 and previous resistance is 2200
Short term target
Target prices for BHEL
Support- 1800
Resistance- 2150
Target price- 2150-1800=350
There for = 350 + 2150= 2500
Long term target
Support- 1850
Resistance- 2800
Target price- 2800-1850=950
There for = 950 + 2800= 3750
BSPATIL 36
FUNDAMENTAL AND TECHNICAL ANALYSIS
3. 14 days RSI OF BHEL COMPANY
BSPATIL 37
FUNDAMENTAL AND TECHNICAL ANALYSIS
Interpretation:
1. Here we can see that the stock has gone for correction over a period and the
present RSI is around 50 and which is very attractive.
2. From the above chart we can say that the stock is under consolidation and it is
a best time to enter into this script at present market price.
BSPATIL 38
FUNDAMENTAL AND TECHNICAL ANALYSIS
L&T company Charts
BSPATIL 39
FUNDAMENTAL AND TECHNICAL ANALYSIS
1. Short term moving average of L&T Company
Short term moving averages for L&T
500.00
1,000.00
1,500.00
2,000.00
2,500.00
3,000.00
3,500.00
4,000.00
4,500.00
5,000.00
3/1/
2006
5/1/
2006
7/1/
2006
9/1/
2006
11/1
/200
6
1/1/
2007
3/1/
2007
5/1/
2007
7/1/
2007
9/1/
2007
11/1
/200
7
1/1/
2008
3/1/
2008
adjested
10 days ema
40 days ema
10 days sma
Trend line violation
Buy
Sell
Up word trend line
2. Long term moving averages of L&T
Long term moving averages of L&T
0.00
500.00
1,000.00
1,500.00
2,000.00
2,500.00
3,000.00
3,500.00
4,000.00
4,500.00
5,000.00
3/1/
2006
5/1/
2006
7/1/
2006
9/1/
2006
11/1
/200
6
1/1/
2007
3/1/
2007
5/1/
2007
7/1/
2007
9/1/
2007
11/1
/200
7
1/1/
2008
3/1/
2008
adjested
25 days ema
125 days ema
25 days sma
Accumulation
up word break out
phase - 1
phase -2
phase - 3
BSPATIL 40
FUNDAMENTAL AND TECHNICAL ANALYSIS
Interpretation for short term moving average:1. The stock is showing upward trend line from Aug 2006 to June 2007.
2. There is a buy signal on March 2007 at Rs. 1500 level.
3. We can see the aggressive Bull Run from May 2007 to Nov 2007 the stock has
almost double on Nov 2007.
4. There is a selling signal when 10 days SMA came below 40 days EMA.
5. From Jan 2008 to March 2008 there is a declining trend line.
6. At the end of 31.3 2008 it seems to be violation of trend line.
Interpretation for long term moving average:
1. The long term moving average of L&T stock is bit attractive which is showing
3 phases of Bull Run.
2. The stock has shown a accumulation for the period from May 2006 to My
2007 and immediately the upward break out happened and the stock started
rally.
Target price for L&T according to Technical charts:
Short term target
Support- 2800
Resistance- 3650
Target price- 3650-2800=850
There for = 850+3650=4450
Long term target
Support- 2800
Resistance- 4300
Target price- 4300-2800=1500
There for = 4300-1500=5800
BSPATIL 41
FUNDAMENTAL AND TECHNICAL ANALYSIS
3. 14 DAYS RSI OF L&T
RSI of L&T Company
BSPATIL 42
FUNDAMENTAL AND TECHNICAL ANALYSIS
1. At present the L&T Company RSI is very reasonable and started rally so one
should see the market condition and invest in the script.
2. The RSI going upward and at present the RSI is around 45 levels.
So one should invest at current market price.
BSPATIL 43
FUNDAMENTAL AND TECHNICAL ANALYSIS
Nifty Charts
BSPATIL 44
FUNDAMENTAL AND TECHNICAL ANALYSIS
1. NIFTY moving averages
Market M.A
15002000250030003500400045005000550060006500
4/1/
2005
6/1/
2005
8/1/
2005
10/1
/200
5
12/1
/200
5
2/1/
2006
4/1/
2006
6/1/
2006
8/1/
2006
10/1
/200
6
12/1
/200
6
2/1/
2007
4/1/
2007
6/1/
2007
8/1/
2007
10/1
/200
7
12/1
/200
7
2/1/
2008
4/1/
2008
Close
SMA 25 day
EMA 25day
EMA 100day
Buy
sell
wait
2. RSI Calculation for Nifty
BSPATIL 45
FUNDAMENTAL AND TECHNICAL ANALYSIS
Analysis: (Short term or intermediate)
1. If we look at 90 day EMA of Nifty chart, for the past one and half year the
trend has been Bullish.
2. From 20th Jan 2008 onwards there has been shift in the trend towards Bearish.
3. The 18day EMA & SMA of Nifty has broken down below 90 day EMA. So
this is one more conclusive evidence for reversal of trend from Bull to Bear.
Immediate Future:
As we can see from the graph it is clear that market is finding support at 4450 to
4600(which is previous resistance for the market). At this level market is likely to
consolidate for the medium time period.
Significance of Future Trend:
In future unless and until market finds required strengths to come to the previous level
i.e. resistance at 5630 – 50, there will be no signs of market turning Bullish.
And if in future market breaks the resistance level i.e. 5630-50 then it will rally up to
6980-7020. (Target)
Long term analysis
1. Market is sentiment driven and swings and hypes in market are so strong that
they prevail even for years that have happened at present.
2. There has been shift in market trend and it has turned bearish though there is
no clear sign of bear trend (it’s a long term correction not exactly bearish) but present
situation is of complete chaos has left market in a state of volatility so we should wait
and see market movement closely.
3. Market’s long term support is at 3118-3130 and next support is at 4500 level
so next rally from that level 4500 is 1380-1400(4500-3110) and we can see some 150-
200 points abortive rally has been occurred and has reached 6050.
BSPATIL 46
FUNDAMENTAL AND TECHNICAL ANALYSIS
4. At that level market was waiting for correction. Bad clues from US slow down
had made market to take LT correction and market has turned to be volatile and has
yet to settle down at previous support of 4500.
Short term analysis:
1) Trend short term or intermediate trend for the scrip has been flat. Now
turning in to bearish.
2) Key short term support and resistance levels for the scrip.
As we can see from the 10 day EMA &SMA graph the scrip has established
strong support at 130-140 price band.
Price movement; the scrip has undergone major consolidation (sideway
movement) phase. And it seems that the scrip has made abortive attempt to
breach the flat trend and start rally, but in vain and the obvious reason for this
failure is market crash.
In the month Feb 2008 the scrip has broken the key support (130-140) and
turned out to be bearish
Future; as the scrip has already broken the key support, the short term traders
should sell it and the fresh buy signal for the stock is known only when scrip
establishes support.
If in case scrip regains the strength to come back to the level of 130-140,
investors should still wait till it clearly breaches above that level but with
expanding volume.
Trading tactics for short term investors:
As it can be clearly seen from the graph, the stock is purely a trading stock. So
to trade in the scrip one should look for key support and also look for cue from
RSI. If the stock is at support and selling pressure is high i.e. RSI value 30 and
below, it should be bought and sold at high buying pressure i.e. at RSI value
70 & above.
BSPATIL 47
FUNDAMENTAL AND TECHNICAL ANALYSIS
Here the identifying future target price (for the short term) is very difficult as
scrip was undergoing phase of consolidation and has no established resistance
level.
Fundamental analysis of selected sector socks is as fallows
Fundamental analysis
The basic purpose of buying a security is to earn dividends and ultimately sell
it at higher price. An investor therefore is interested in obtaining estimates of future
prices of the share. These in turn will depend upon the performance of the industry to
which the company belongs and the general economic situation of the country. The
multitude of factors affecting a company’s profitability can be broadly classified as:
1. Economic wide factors: these includes the factors like growth rate of the
economy, the rate of inflation, foreign exchange rates etc which affects
profitability of all companies.
2. Industry wide factors: these include factors which are specific to
industry to which the company belongs. For instance the demand supply gap
in the industry, the emergence of substitutes, and changes in government
policies towards industry affects the company belonging to an industry.
3. Company wide factor: these factors are specific to a firm. The firm
specific factors like plant and machinery, the brand image of the product, and
ability of the management to affect the profitability.
BSPATIL 48
FUNDAMENTAL AND TECHNICAL ANALYSIS
Economic wide factors
The following are the some of the important economic factors which influence the
investment of investor over a period of time.
Indian Economy Overview
India's economy is on the fulcrum of an ever increasing growth curve. With
positive indicators such as a stable 8-9 per cent annual growth, rising foreign
exchange reserves, a booming capital market and a rapidly expanding FDI inflows,
India has emerged as the second fastest growing major economy in the world.
The economy has been growing at an average growth rate of 8.8 per cent in
the last four fiscal years (2003-04 to 2006-07), with the 2006-07 growth rate of 9.6
per cent being the highest in the last 18 years. Significantly, the industrial and service
sectors have been contributing a major part of this growth, suggesting the structural
transformation underway in the Indian economy.
For example, industrial and services sectors have logged in a 10.63 and 11.18
per cent growth rate in 2006-07 respectively, against 8.02 per and 11.01 cent in 2005-
06. Similarly, manufacturing grew by 8.98 per cent and 12 per cent in 2005-06 and
2006-07 and transport, storage and communication recorded a growth of 14.65 and
per cent 16.64 per cent, respectively.
Another significant feature of the growth process has been the consistently
increasing savings and investment rate. While the gross saving rate as a proportion of
GDP has increased from 23.5 per cent in 2001-02 to 34.8 per cent in 2006-07, the
investment rate-reflected as the gross capital formation as a proportion of GDP-has
increased from 22.8 per cent in 2001-02 to 35.9 per cent in 2006-07.
BSPATIL 49
FUNDAMENTAL AND TECHNICAL ANALYSIS
The Current Fiscal Year
The process continues in the current fiscal year. On the back of 9.9 per cent growth in
the first half of 2006-07, GDP grew by 9.1 per cent during April-September 2007.
While overall industrial production grew by 9 per cent during April-December
2007, importantly capital goods production rose by 20.2 per cent compared to
18.6 per cent during same period in 2006.
Services grew by 10.5 per cent in April-September 2007, on the back of 11.6
per cent during the corresponding period in 2006-07.
Manufacturing grew by 9.6 per cent during April-December 2007, on the back
of 12.2 per cent growth during same period in 2006-07.
Core infrastructure sector continued its growth rate recording 6 per cent
growth in April-November 2007.
While exports grew by 21.76 per cent during April-December 2007, imports
increased by 25.97 per cent in the same period.
Money Supply (M3) has grown by a robust 22.8 per cent growth (year-on-
year) as of December 21, 2007 compared to 19.3 per cent last year.
The annual inflation rate in terms of WPI was 3.5 per cent for the week ended
December 29, 2007 as compared to 5.89 per cent a year ago.
Fiscal and revenue deficit decreased by 11 per cent and 17.2 per cent,
respectively, during April-November 2007-08 over corresponding period last
year.
With such a robust growth rates, the advance estimates of the Central Statistical
Organization (CSO) expects the economy to grow by 8.7 per cent in 2007-08.
BSPATIL 50
FUNDAMENTAL AND TECHNICAL ANALYSIS
Per Capita Income
Along this significant acceleration in the growth rate of Indian economy, India's per
capita income has increased at a rapid pace, exceeding an earlier forecast made by
Goldman Sachs BRIC report which estimated India's per capita to touch US$ 800 by
2010 and US$ 1149 by 2015.
Per capita income has increased from US$ 460 in 2000-01 to almost double to US$
797 by the end of 2006-07. In 2007-08, India's per capita income is estimated to be
over US$ 825.07, according to the advance estimates of the Central Statistical
Organisation (CSO). Further, India's per capita income is expected to increase to US$
2000 by 2016-17 and US$ 4000 by 2025. This growth rate will, consequently, propel
India into the middle-income category.
Some Highlights
Reflecting the favorable prospect of growth rate of Indian economy, the orders
received Indian companies have increased by a whopping 68.6 per cent to US$ 32.48
billion during January-October 2007 compared to US$ 19.26 billion in the same
period last year.
India is among the five countries sharing 50 per cent of the world production
(or GDP).
FDI inflows have jumped by almost three times to US$ 15.7 billion in 2006-07
as against US$ 5.5 billion in 2005-06.
The aggregate income of the top 500 companies rose by 28.4 per cent in 2006-
07 to total US$ 469.51 billion.
India's National Stock Exchange (NSE) ranks first in the stock futures and
second in index futures trade in the world.
Twenty Indian firms have made it to the list of Boston Consulting Group's 100
New Global Challenger Giants list.
BSPATIL 51
FUNDAMENTAL AND TECHNICAL ANALYSIS
According to a study by the McKinsey Global Institute (MGI), India's
consumer market will be the world's fifth largest (from twelfth) in the world
by 2025.
The number of companies incorporated has increased at an annual average of
55,000 companies in the last two years to 865,000, from 712,000 companies at
the end of 2005.
Four Indians and seven Indian microfinance companies make it to the Forbes
list of Top10 world's wealthiest CEOs World's Top 50 Microfinance
Institutions, respectively.
India has the most number of private equity (PE) funds operating amongst the
BRIC markets.
Mumbai has been ranked tenth among the world's biggest centers of
commerce in terms of the financial flow volumes by a survey compiled by
MasterCard Worldwide.
Another significant aspect has been the broad-based nature of the growth process.
While new economy industries like Information Technology and biotechnology have
been growing around 30 per cent, significantly old economy sectors like steel have
also been major contributors in the Indian growth process. For example, India has
moved up two places to become the fifth largest steel producer in the world.
And with its manufacturing and service sectors on a searing growth path, Lehman
Brothers Asia estimates India to grow by as much as 10 per cent every year in the
next decade.
1. Growth rate of industrial sector:
The growth of industrial sector is an important contributor to the growth of
national income. The performance and the growth of industry is measured through an
Index of industrial product. The industrial growth rate is further disaggregated into
growth rates of different sectors like electricity basic goods consumer goods and so
BSPATIL 52
FUNDAMENTAL AND TECHNICAL ANALYSIS
Industry
IndustryYoY % change FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 Mining & Quarrying 1 3.7 0.5 5.8 5.3 4.4 1 5 Electricity 7.3 4 3.1 3.2 5 5.2 5.2 6.5 Manufacturing 7.2 5.4 2.9 6 7.4 9.1 9.1 10.7IIP 6.6 5.1 2.6 5.8 7 8.4 8.2 9.7
2. Inflation
Inflation prevailing in the economy has considerable impact on the
performance of the companies high rates of inflation upsets business plans, results in
high input costs and hence reduction in profit margins. On the other hand the inflation
erodes purchasing power of buyer and results in reduction in demand for goods. The
demand for consumer goods will particularly be affected adversely.
Inflation is measured by sustainable price index number. The whole sale price
index number is generally used for this purpose.
YearInflation rate (consumer
prices)Rank
Percent Change
Date of Information
2003 5.40 % 64 2002 est.
2004 3.80 % 92 -29.63 % 2003 est.
2005 4.20 % 134 10.53 % 2004 est.
2006 4.20 % 125 0.00 % 2005 est.
2007 5.30 % 139 26.19 % 2006 est.
BSPATIL 53
FUNDAMENTAL AND TECHNICAL ANALYSIS
3. Interest rates
Interest rates reflect the cost and availability of credit to the companies
operating in the economy. The interest rates and the volume as well as direction of the
credit supply in the economy is influenced by monitory policy of the reserve bank of
India (RBI). If the cheap money policy is pursued the interest rates are likely to be
lower and larger volume of money supply is expected to be there in the economy.
The lower rate of interest implies lower cost of financing the company’s
operations and assures higher profitability, higher the rate of interest higher will be
the costs of manufacturing and sale, which is expected to lead lower profit.
Interest Rates(% per annum) 2-Apr 3-Apr 4-Apr 5-Apr 6-Apr 6-DecCash Reserve Ratio 5.5 4.8 4.5 5 5 5.3Bank Rate 6.5 6.3 6 6 6 6Reverse Repo rate (Absorption rate) 6 5 4.5 4.8 5.5 6Repo rate (Injection rate) 8 7 6 6 6.5 7.3IDBI MT lending rate 12.5 12.5 10.3 10.3 10.3 10.3PLR of 5 major banks 11.0-12.0 10.8-11.5 10.3-11.0 10.3-10.8 10.3-10.8 11.0-11.5Deposit rate of 5 major banks (maturity>1year) 7.0-8.5 5.3-6.2 5.0-5.5 5.3-6.3 6.0-7.0 6.8-8.0Average call money rate 3.6-7.5 2.0-5.1 2.1-4.5 3.3-5.5 4.2-6.2 5.4-12.0
4. Foreign exchange rates
If company is major exporter or importer its performance and profitability are
likely to be affected considerably by the exchange rates of rupee against other
currencies. A depreciation of rupee against US or other currency will make Indian
products more competitive price wise. In the foreign markets, thereby stimulating
export from India
5. Government budget.
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The government budget provides detailed information on each of components
of government spending and revenues. The deficit is essentially the excess of
government spending on revenues. A budget deficit is often incurred for creating
infrastructural facilities in the economy tends to create inflationary pressure. Due to
this there is a strong public opinion against the governments creating of deficit
without expanding the revenue.
6. Savings and investment.
The capital market is channel through which the savings of households are
made available to corporate for investment. Therefor the trends in saving and
investment are significant in studying their impact on capital market.
Savings and Investment % to GDP at constant prices FY01 FY02 FY03 FY04 FY05 FY06By sectorHousehold Savings 21.3 21.2 22 23.1 23.5 22Private Corporate Sector 4.5 4.1 3.6 4.1 4.4 4.8Public Sector -0.9 -1.7 -2 -0.7 1 2.2By types of assetsPhysical Assets 10.7 11 11.2 12.7 12 11.7Financial Assets 10.5 10.2 10.8 10.4 11.5 10.3Gross Domestic Savings 24.9 23.6 23.6 26.5 28.9 29.1Net Capital Inflow 1.1 0.6 0.2 -1.2 -1.6 1Gross Domestic Investment 24.3 24 24.8 25.3 27.2 30.1Errors and Omission 1 1.1 -2.1 0.1 1 1.6Gross Capital Formation 23.3 23.8 22.2 25 27.4 30.2
Industrial analysis
BSPATIL 55
FUNDAMENTAL AND TECHNICAL ANALYSIS
Engineering:
Engineering is a diverse industry with a number of segments. A company from
this sector can be a power equipment manufacturer (like transformers and boilers),
execution specialist or a niche player (like providing environment friendly solutions).
It can be an electrical, non-electrical machinery and static equipment manufacturer
too
The sector is relatively less fragmented at the top, as competencies required
are high. But it is highly fragmented at the lower end (like unbranded transformers for
the retail segment) and is dominated by smaller players. The user industries in broad
terms are power utilities (generation, transmission and distribution), industrial majors
(refining, automotive and textiles), government (public investment) and retail
consumers (pumps and motors).
Order book size determines the performance of the company in the short to
medium-term. In order to bag big contracts, companies need to have a big balance
sheet size and proven execution capabilities. They need huge working capital in order
to execute bigger contracts, as initially they receive only part payment and the
remaining comes as projects get executed.
Tariffs that earlier offered protection to Indian capital goods manufacturers,
have been removed. Import duties on a range of equipments have also been reduced.
This coupled with the high cost of capital in India puts Indian manufacturers at a
disadvantage against overseas competition.
Power sector contributes the largest to the engineering companies' revenues.
For instance, ABB and BHEL derive 60% and 72% of their revenues from supplying
equipments to the power sector. And with the government planning to add large
generation capacities in the eleventh (2007-12) five-year plan, the potential seems
huge for the engineering majors. This is because, apart from the investment in
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FUNDAMENTAL AND TECHNICAL ANALYSIS
generation capacity buildup, an equivalent amount is likely to be spent in the
transmission and distribution space as well.
Infrastructure is another key area of operation for major Indian engineering
companies. L&T, for example, garners around 30% of its sales from infrastructure
activities like engineering, design and construction of industrial projects and social &
physical projects like housing, hospitals, IT parks, expressways, bridges, ports, and
water & effluent treatment projects.
The high global crude prices on account of growing demand has led to increased
activities in the exploration and development space. This has helped the engineering
companies in this space. More importantly, this segment of the engineering business
has relatively higher margins than infrastructure, owing to more complex tasks
involved.
Key Points
Supply: Abundant supplies available across most segments, except for technology
intensive executions
Demand: Demand growth in this sector is fuelled by expenditure in core sectors such
as power, railways, infrastructure development, private sector investments and the
speed at which the projects are implemented.
Barriers to entry: Barriers to entry are high at upper end of the industry as skilled
manpower and technologies, and ability to fund large projects are a prerequisite
Bargaining power of suppliers: Bargaining power of suppliers is low because of
intense competition. However, in technology driven high-end segments, suppliers
have the upper hand.
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FUNDAMENTAL AND TECHNICAL ANALYSIS
Bargaining power of customers: Bargaining power for technology driven segments
is low.
Competition: Majority of the companies compete in terms of pricing, experience in
specific field, product differentiation and timely completion of projects.
Financial Year '07
FY07 proved to be yet another good year for the Indian engineering and
capital goods industry. Strong growth in industrial and manufacturing industries
reflected in the picking up of investment activities in areas like power, infrastructure
and processes. The capital goods index recorded strong growth during the entire year,
though with some blips during the months September and October 2006.
The order books of almost all companies witnessed healthy growth. For
engineering majors like BHEL and L&T, at the end of March 2007, the value of
outstanding orders stood at nearly 3 times and 2 times respective FY07 revenues. In
general, the growth in order book came from both power and industrial businesses.
The companies were able to bag international orders. The topline of the engineering
majors witnessed double-digit growth during the fiscal.
While the industry continued the trend of cost cutting through reducing debt
and restructuring operations and manpower rationalization, rising input costs dented
pared the improvement in profitability. Sharp rise in costs of steel and crude on the
back of buoyant global demand and inadequate supplies, was the biggest dampener to
profit growth
The fiscal also witnessed majors like Suzlon and Crompton Greaves chart out
aggressive acquisitions in the international arena. The major focus area for these
companies was to fill in the niches by way of acquiring new technologies and clients
and having a diversified geographical presence.
Budget 2008-09:
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World-class infrastructure has emerged as one of the most important
necessities for unleashing high and sustained growth and alleviation of poverty in any
economy. And with poor infrastructure to support other growth initiatives, the Indian
economy continues to be a laggard when compared to its developing peers. From a
policy perspective, however, there has been a growing consensus that a private-public
partnership is required to remove difficulties concerning the development of
infrastructure in the country. The realisation finally seems to be setting in. This makes
the future of the Indian engineering sector extremely bright. Apart from highway
development and construction and modernisation of airports, the potential for the
sector lies in the oil and gas space, where high global demand has led to increased
action in exploration and production activities. However, scale and execution
capabilities remain the mantras for success
Budget Measures
1. Fourth UMPP at Tilaiya to be awarded shortly; Chhattisgarh, Karnataka,
Maharashtra, Orissa and Tamilnadu urged to bring five more UMPPs to the
bidding stage by extending the required support
2. Rajiv Gandhi Grameen Vidyutikaran Yojana to be continued during the
Eleventh Plan period with a capital subsidy of Rs 280 bn; allocation of Rs 55
bn for FY09.
3. Rs 8 bn to be provided for Accelerated Power Development and Reforms
Project (APDRP) in FY09
4. Proposal to set up a national fund for transmission and distribution (T&D)
reform in the power sector
5. Exemption from 4% additional duty of customs has been withdrawn on power
generation projects (other than mega power projects), transmission, sub
transmission and distribution projects, and specified goods for high voltage
transmission projects
6. Custom duty on project imports reduced from 7.5% to 5%
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FUNDAMENTAL AND TECHNICAL ANALYSIS
7. Initiatives like skill development programme and setting up of industrial
training institutes to be taken
8. Defense allocation to be increased by 10%
9. Excise duty being exempted on end-use basis, on refrigeration equipment
(consisting of compressor, condenser units, evaporator, etc) above 2 TR (tonne
refrigeration) utilising power of 50 KW and above
10. Parent company allowed to set-off the dividend received from its subsidiary
company against dividend distributed by the parent company; provided that
the dividend received has suffered DDT and the parent company is not a
subsidiary of another company.
Budget Impact
1. Aggressiveness in allotting UMPPs to prospective bidders expected to be
helpful for engineering companies providing equipments and EPC services for
power plants.
2. Setting up of a national fund for T&D reforms to aid growth prospects of
equipment suppliers and T&D project developers.
3. Removal of exemption from additional customs duty on power generation,
transmission and distribution projects to increase cost for companies importing
such projects, which shall consequently be beneficial for domestic project
developers. However, on the other hand, reduction in custom duty on project
imports to nullify the impact.
4. Initiatives like skill development programme and setting up of industrial
training institutes to reduce talent crunch for engineering companies, which
are reporting high levels of attrition
5. Increase in defense allocation to aid prospect of companies providing defense
equipments and technologies
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FUNDAMENTAL AND TECHNICAL ANALYSIS
Company Impact:
1. Allocation of UMPPs to support growth if equipment and service providers
like BHEL, L&T.
2. Greater focus on the T&D front to be beneficial for ABB, Siemens, Crompton
Greaves, Emco, Bharat Bijlee. Also, companies providing T&D project
services like Jyoti Structures and Kalpataru Transmission to benefit.
3. Removal of exemption from additional customs duty on power generation,
transmission and distribution projects to benefit domestic companies i.e
BHEL and L&T.
4. Skill development initiatives to pare pressure of attrition from companies like
L&T and BHEL.
5. Increase in defense allocation to aid prospects of L&T and Bharat Electronics.
Budget over the years:
Budget 2005-06 Budget 2006-07 Budget 2007-08A special purpose vehicle (SPV) to be launched to finance infrastructure projects that are financially viable. Investment limit for 2005-06 is fixed at Rs 100 bn.
Estimated outlay for Jawaharlal Nehru National Urban Renewal Mission to be Rs 62.5 bn during 2006-07, including a grant component of Rs 45.9 bn. Through this mission, the government intends to promote establishment of new towns, preferably focused on a specific industry (IT) or a specific theme (education or health).
Hike in corpus of Rural Infrastructure Development Fund-XIII and Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY)
NHDP-III to be launched in FY06 to target selected high density highways not forming part of the GQ or the N-S, E-W corridor; Rs 14 bn provided in FY06 to four-lane 4,000 kms.
Budget support for National Highway Development Programme (NHDP) enhanced from Rs 93.2 bn to Rs 99.5 bn in 2006-07.
Private sector participation in transmission projects and hike in budgetary support for APDRP
Excise duty on A/Cs has Special accelerated road Reduction in customs
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FUNDAMENTAL AND TECHNICAL ANALYSIS
been reduced from 24% to 16%.
development programme for the North Eastern region proposed at an estimated cost of Rs 46.2 bn approved with allocation of Rs 5.5 bn in 2006-07
duty on imports of medical equipments from 12.5% to 7.5%
1,000 kms of access-controlled Expressways to be developed on the Design, Build, Finance and Operate (DBFO) model.
Increase in allocation to defense to Rs 960 bn, including Rs 420 bn for capital expenditure
Capital expenditure on defense proposed at Rs 375 bn.
Concessions under section 80IA for infrastructure facilities extended to cross country natural gas distribution network, including gas pipeline and storage facilities integrated to the network
Peak rate of customs duty on non-agricultural products has been reduced from 15% to 12.5% with a few exceptions.
Customs duty on sprinklers and drip irrigation systems for agricultural & horticultural purposes is reduced from 7.5% to 5%
Exemption to specified goods for making capital goods for setting up a unit with an investment of Rs 50 m or more withdrawn.
Concessional customs duty of 5% on specified plantation machinery extended by two years to April 2009
Resin binders used for manufacture of rotor blades for wind operated electricity generators exempted from excise duty.
Customs duty on food processing machinery and parts reduced from 7.5% to 5%
Under NELP VI, 55 blocks and area of 355,000 sq kms offered. Investment of Rs 220 bn expected in the refinery sector in the next few years.
Dividend distribution tax to be hiked from 12.5% to 15%
Five ultra mega power projects of 4,000 MW each to be awarded before December 31, 2006
Additional education cess of 1% to fund secondary and higher educa
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FUNDAMENTAL AND TECHNICAL ANALYSIS
Key Positives of budget 2008-09:
Power play: Since power utilities are one of the biggest consumers (generation,
transmission and distribution) for engineering companies, reforms introduced in the
power sector like privatisation of SEBs will help in strengthening the order book size.
Huge addition in power generation capacity, in order to meet the demand supply gap
will be a big positive for the sector.
Infrastructure development: The government is focusing on development of
infrastructure like housing, airports, roads and ports. This will be big positive for
engineering and construction companies
Industrial ‘act’: Industrial divisions of engineering companies are likely to benefit
from the increased focus on automation and capacity addition plans drawn by the
India Inc.
Key Negatives of budget 2008-09
Captive competition: Duty free import of T&D equipments by captive power
generation units, if allowed by government, can have some impact on margins of the
T&D majors because of competition
People problem: Engineering companies, across the board, are facing troubled times
retaining key employees. This is due to increased levels of competition for talent from
MNCs, who have deep pockets and thus better paying capabilities. As a result of
increasing levels of attrition, some companies are facing execution issues.
Prospects:
World-class infrastructure has emerged as one of the most important necessities for
unleashing high and sustained growth and alleviation of poverty in any economy. And
with poor infrastructure to support other growth initiatives, the Indian economy
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FUNDAMENTAL AND TECHNICAL ANALYSIS
continues to be a laggard when compared to its developing peers. From a policy
perspective, however, there has been a growing consensus that a private-public
partnership is required to remove difficulties concerning the development of
infrastructure in the country. The realisation finally seems to be setting in. This makes
the future of the Indian engineering sector extremely bright. Apart from highway
development and construction and modernisation of airports, the potential for the
sector lies in the oil and gas space, where high global demand has led to increased
action in exploration and production activities. Considering these factors, we expect
the sector to grow strongly into the future. However, scale and execution capabilities
will be the key mantras for success for the engineering companies
Impetus given for growth of infrastructure and core industry in the last two budgets of
the central government is expected to increase capacity utilisation of producers of
coal, cement, iron ore and likely to increase demand for construction and mining
equipments. Industrial growth and capital investment levels have improved and this
will drive the growth in the coming years.
The government's initiative to bring clarity to the power sector reforms is a welcome
sign for the industry. More coordination between the Centre and states for
infrastructure development is a step in the right direction. The Electricity Act 2003
has introduced a lot of reforms in the power sector. The unbundling in the sector will
definitely boost private investment. PSUs like NTPC are expected to almost double
their generation capacity in next few years, which is a good sign for the engineering
companies.
The shift in focus towards reducing T&D losses will further increase the order book
size of the companies operating in this realm. With power generation and distribution
looking up, power equipment companies can look forward to a promising future
Deregulation combined with high global demand for crude has led to a surge in
exploration and production activities in India and globally. Also, there has been a
radical change in the government’s approach to E&P (exploration and production)
activities in the country. This thrust in development of new wells and improvement of
output from old wells promises bright prospects for engineering companies
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FUNDAMENTAL AND TECHNICAL ANALYSIS
Automation business has perked as the user industries started realising its benefits.
With increasing competition among the power companies, the consumers will demand
better quality and uninterrupted power supply. In such a scenario automation will play
an important role. With the automation technologies gaining momentum, companies
like ABB and Siemens will benefit a lot going forward.
Capacity addition and de-bottlenecking exercise being carried by various industries
like steel, power, refineries, chemicals etc is likely to provide a fillip to the industrial
segment of the engineering companies
Performance of Industry
The industrial sector recorded a healthy growth of 10.3% (measured in terms of the
Index of Industrial Production) during the period April-Oct. 2006-07 as compared to
8.6 percent achieved during the corresponding period last year. Capital goods sector,
which posted a robust growth of 16.9 per cent in 2005-06, has maintained its growth
momentum during the current year as well. According to the Index of Industrial
Production, capital goods sector posted a growth of 15.0 per cent during April-Oct.
2006-07. The growth trends during Apr-Oct 2006-07 as compared to Apr-Oct 2005-
06 are given in the table below:
Sector Wise Growth Rates (in %)
Weight2005-06 2005-06
(Apr- Oct)2006-07(Apr-Oct)
Overall 100.08.2
8.6 10.3
Mining and Quarrying
10.51.0
0.9 3.4
Manufacturing
79.49.1
9.7 11.2
Electricity 10.25.2
5.2 7.1
Use-Based Classification
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FUNDAMENTAL AND TECHNICAL ANALYSIS
Overall 100.0 8.2 8.6 10.3
Basic Goods 35.6 6.7 6.3 9.0
Capital Goods 9.3 15.8 16.9 15.0
Consumer Goods
28.7 12.0 13.5 9.8
I) Durables 5.4 15.3 13.9 13.2
II) Non-durables
23.3 11.0 13.5 8.5
Production and growth rates of some of the industries being dealt within the
Department of Heavy Industry for the period April-October 2006-07 as compared to
April-October 2005-06 are given below
Industry Unit
ProductionGrowth Rate (%) Apr-Oct
2005-06 Apr-Oct2006-07
Industrial Machinery Rs. lakhs 176464.79 147578.72 16.37
Machine Tools Rs. lakhs 151449.86 153371.70 1.27
Boilers Rs. lakhs 181945.45 262286.24 44.16
Turbines (Steam/Hydro)
Rs. lakhs 38443.43 56947.33 48.13
Electric Generators Rs. lakhs 41662.05 58458.17 40.32
Power Distribution Transformers
Mill. KVA
35.43 39.50 11.51
Telecommunication Tables
Mill. Mtr.
7778.79 4813.09 -38.20
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FUNDAMENTAL AND TECHNICAL ANALYSIS
Commercial Vehicles Numbers 214510 277808 29.51
Passenger Cars Numbers 580952 689649 18.71
Heavy Engineering Industry
Textile Machinery
There are over 600 units engaged in the manufacture of Textile Machineries,
their components, accessories and spares,and out of these about 100 units are
manufacturing the complete textile machinery. The range includes textile machinery
required for sorting, cording,processing of yarns/ fabrics and weaving. The industry is
gearing itself to avail the opportunities of supplying machines required to cater the
export target of garment manufacturers post Multi Fibre Agreement (MFA).With a
capital investment of Rs. 1500 crore and an installed capacity of Rs. 3050 crore per
annum.
Their current production as well as exports and imports are as under: -
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FUNDAMENTAL AND TECHNICAL ANALYSIS
(Rs. in crore)
Year Production Exports Imports
2003-2004 1339 535 2179
2004-2005 1685 457 3299
2005-2006 2212 476 6768
Cement Machinery
Cement plants based on dry processing and precalcination technology for capacities
upto 7500 TPD are being manufactured in the country.Modern cement plants are
designed for zero downtime, high product quality and better output with minimum
energy consumed per unit of cement production etc. At present, there are 18 units in
the organized sector for the manufacture of complete cement plant machinery. With
an installed capacity of around Rs. 600 crore/annum, the industry is fully capable to
meet the domestic demand.
Sugar Machinery
Domestic manufacturers occupy predominant position in the global scenario and are
capable of manufacturing from concept to commissioning stage sugar plants of latest
design for a capacity upto 10,000 TCD (tons crushing per day). There are presently 27
units in the organised sector for the manufacture of complete sugar plants and
components with an installed capacity of around Rs. 200 crore per annum.
(Rs. in lakh)
2003-2004 2004-2005 2005-2006
Import 427 1259 905
Export 1139 2682 3767
Rubber Machinery
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FUNDAMENTAL AND TECHNICAL ANALYSIS
There are at present 19 units in the organized sector for the manufacture of
rubber machinery mainly required for tyre/tube industry. The range of equipments
manufactured in the country includes inter-mixer, tyre curing presses, tube splicers,
bladder curing presses, tyre moulds, tyre building machines, turnet servicer, bias
cutters, rubber injection moulding machine,bead wires etc.
(Rs.in crore)
2003-2004 2004-2005 2005-2006
Import 25.91 36.75 12.02
Export 22.29 46.15 50.32
Material Handling Equipment
The range of equipment manufactured includes crushing and screening plants,
coal/ore/ash handling plant and associated equipment such as stackers, reclaimers,
ship loaders/ unloaders,wagon tipplers, feeders etc. catering to the growing and
rapidly changing needs of the core industries such as Coal, Cement, Power, Port,
Mining, Fertilizers and steel plants. There are 50 units in the organised sector for the
manufacture of material handling equipment.Besides, there are number of units
operating in the small-scale sector. The industry is self sufficient in meeting domestic
demand and is also capable of meeting global competition.
(Rs.in crore)
2003-2004 2004-2005 2005-2006
Import 242.58 261.44 545.54
Export 41.54 80.16 77.91
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FUNDAMENTAL AND TECHNICAL ANALYSIS
Oil Field Equipment
The petroleum industry in India is undergoing a major change. With the ongoing
process of liberalisation, the industry has been thrown open for private sector in all
major areas of exploration,production, refining and marketing, and this has resulted in
increased demand for the oil field and related equipments. Domestic production
covers mainly the on-shore drilling equipment.Under Offshore drilling only offshore
platforms and some other technological structures are being produced locally. The
major producers of these equipments are BHEL,Hindustan Shipyard, Mazagaon Dock
and Larsen & Toubro.
(Rs.in crore)
2003-2004 2004-2005 2005-2006
Import 142.49 638.20 352.84
Export 165.81 300.47 71.87
Metallurgical Machinery
Metallurgical machinery includes equipment for mineral beneficiation, ore
dressing, size reduction, steel plant equipments, foundry 30 Indian Public Sector
aiming global heights equipments and furnaces. At present, there are 39 units in the
organized sector engaged in the manufacture of various types of metallurgical
machinery. The existing production capacity in the country is sufficient to meet the
demand of these equipment in the country. Indigenous manufacturers are in a position
to supply majority of the equipment for steel plants e.g. blast furnaces, sinter plants,
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FUNDAMENTAL AND TECHNICAL ANALYSIS
coke ovens, steel melting shop equipment, continuous casting equipment, rolling mills
& finishing line.However, there is a technological gap in the basic design and
engineering for plant and equipment required in the ferrous and non-ferrous sector for
which the domestic manufacturers are dependent on imported know-how. Since the
process of making ferrous and non-ferrous metal is linked up with the design of the
equipment, there is a need for close interaction between the process know-how,
designers and equipment manufacturers.
(Rs.in crore)
2003-2004 2004-2005 2005-2006
Import 495.28 454.40 1200.65
Export 434.23 370.70 535.04
Mining Machinery
The major mining equipments are Longwall Mining Equipment, Road Header,
side discharges Loader (SDL), Haulage Winder, Ventilation Fan,Load Haul dumper
(LHD), Coal Cutter,Conveyors, Battery Locos, Pumps, Friction Prop,etc. At present
there are 32 manufacturers in the organized sector both in public and private sector for
underground and surface mining equipment of various types. Out of these, 17 units
manufacture underground mining equipment.Majority of the requirement of the
mining industry is being met by the indigenous manufacturers.
(Rs.in crore)
2003-2004 2004-2005 2005-2006
Import 16.80 39.01 41.99
Export 1.15 1.55 5.90
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FUNDAMENTAL AND TECHNICAL ANALYSIS
Dairy Machinery
At present, there are 16 units in the organized sector, both in private and
public sector, manufacturing Dairy Machinery equipments such as evaporators, milk
refrigerators andstorage tanks, milk and cream deodorizers, centrifuges, clarifiers,
agitators , homogenisers, spray dryers and heat exchangers. Small Scale units are also
contributing to the indigenous production. The spray dryers, plate type heat exchanger
and other core equipment for milk powder plant call for high degrees of polish
requirement on the equipment because the presence of any micro crevices resulting
from inadequate polish tends to be the incubation and breeding ground for the
bacteria. The technology gaps exist for handling equipments such as self cleaning
cream, separator, aseptic processing systems, and for the equipment required for
manufacture of yoghurt and traditional Indian sweets.
(Rs.in crore) 2003-2004 2004-2005 2005-2006Import 18.15 21.05 52.36Export 10.54 8.08 5.95
Machine Tools
Machine Tool Industry is in a position to export general purpose and a
standard machine tool to even industrially advanced countries. During last four
decades, the machine tool industry in India has established a sound base and there are
around 160 machine tool manufacturers in the organized sector as also around 400
units in the small ancillary sector. The industry, however,lacks in design and
engineering capability to undertake very high precision CNC Machines.Some
companies have taken up manufacture of CNC Machines, but there is a need to
upgrade research and development in this field. Indian machine tools are
manufactured to the international standard of quality / precision and reliability. A
BSPATIL 72
FUNDAMENTAL AND TECHNICAL ANALYSIS
number of collaborations have also been approved for bringing in the latest
technology in this field of modern machine tools and the industry is now exporting
conventional as well as NC/CNC high - tech machine tools. In the field of R& D,
Central Manufacturing Technology Institute, Bangalore has been doing research for
more appropriate designed machine tools. There is gap in technology for Special
Purpose Machines and even in some categories of CNCs. Import of technology is
encouraged to bridge the gap.
Performance of the industry during the last three years is tabulated below:
(Rs. in crore)
2003-2004 2004-2005 2005-2006
Production797.00 1089.04 1342.00
Import 965.00 1820.83 2899.00Export 55.00 52.61 50.00
Company analysis
The company analysis is the last step in EIC analysis framework of
fundamental analysis. The industry analysis helps the investor in selecting the
industry in which the investments are better rewarded. The investor now has to decide
BSPATIL 73
FUNDAMENTAL AND TECHNICAL ANALYSIS
in which of the companies belonging to chosen industries he should invest. This
requires the company analysis.
The company analysis has to be made in three different parts
1. Study of financial information and asses the financial health of the company.
2. Sizing up present situation and prospects. This requires an analysis of the
present business of the company and its future prospects.
3. Evolution of management.
BHEL COMPANY ANALYSIS
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FUNDAMENTAL AND TECHNICAL ANALYSIS
1. Company financial health
The financial statements of the company can be used to understand and
evaluate the financial performance and health of the company. Ratio analysis helps an
investor to determine the financial strengths and weakness of the company.
The following is the ratio analysis of the BHEL Company
Balance sheet of BHEL Mar '03 Mar '04 Mar '05 Mar '06 Mar '07Sources Of Funds Total Share Capital 244.76 244.76 244.76 244.76 244.76Equity Share Capital 244.76 244.76 244.76 244.76 244.76Share Application Money 0 0 0 0 0Preference Share Capital 0 0 0 0 0Reserves 4,558.91 5,051.18 5,782.13 7,056.62 8,543.50Revaluation Reserves 0 0 0 0 0Networth 4,803.67 5,295.94 6,026.89 7,301.38 8,788.26Secured Loans 500 500 500 500 0Unsecured Loans 31.09 40.03 36.98 58.24 89.33Total Debt 531.09 540.03 536.98 558.24 89.33Total Liabilities 5,334.76 5,835.97 6,563.87 7,859.62 8,877.59Application Of Funds
BSPATIL 75
FUNDAMENTAL AND TECHNICAL ANALYSIS
Gross Block 3,347.82 3,459.16 3,628.50 3,821.62 4,134.61Less: Accum. Depreciation 2,178.81 2,365.46 2,584.70 2,839.79 3,146.31Net Block 1,169.01 1,093.70 1,043.80 981.83 988.3Capital Work in Progress 67.55 109.57 98.12 191.27 306.58Investments 10.33 28.98 8.95 8.29 8.29Inventories 2,001.06 2,103.88 2,916.11 3,744.37 4,217.67Sundry Debtors 4,075.78 4,608.48 5,972.14 7,168.06 9,695.82Cash and Bank Balance 1,119.44 1,504.63 1,392.86 1,483.97 2,068.91Total Current Assets 7,196.28 8,216.99 10,281.11 12,396.40 15,982.40Loans and Advances 1,495.26 1,693.39 1,921.33 4,186.27 5,517.59Fixed Deposits 201.47 1,155.01 1,785.01 2,650.01 3,740.00Total CA, Loans & Advances 8,893.01 11,065.39 13,987.45 19,232.68 25,239.99Current Liabilities 4,094.18 5,339.66 7,248.99 8,905.14 11,957.32Provisions 806.46 1,139.94 1,325.45 3,649.32 5,708.25Total CL & Provisions 4,900.64 6,479.60 8,574.44 12,554.46 17,665.57Net Current Assets 3,992.37 4,585.79 5,413.01 6,678.22 7,574.42Miscellaneous Expenses 95.5 17.92 0 0 0Total Assets 5,334.76 5,835.96 6,563.88 7,859.61 8,877.59Contingent Liabilities 1,054.58 815.79 609.68 769.95 976.05Book Value (Rs) 196.26 216.37 246.24 298.31 359.06
Profit & Loss account Mar '03 Mar '04 Mar '05 Mar '06 Mar '07Income Sales Turnover 7,727.79 8,893.17 10,682.15 14,739.46 19,058.33Excise Duty 728.49 856.44 1,043.15 1,298.01 1,695.44Net Sales 6,999.30 8,036.73 9,639.00 13,441.45 17,362.89Other Income 69.08 14.61 259.98 342.00 482.32Stock Adjustments -45.32 -30.63 539.77 386.01 181.37Total Income 7,023.06 8,020.71 10,438.75 14,169.46 18,026.58Expenditure Raw Materials 3,160.38 3,634.66 5,097.68 7,099.40 8,561.41Power & Fuel Cost 199.96 196.81 220.54 229.01 259.08Employee Cost 1,504.64 1,639.51 1,650.38 1,878.51 2,366.93Other Manufacturing Expenses 478.10 598.67 783.44 1,054.67 1,733.59Selling and Admin Expenses 532.98 888.89 1,006.38 1,216.00 887.55Miscellaneous Expenses 81.56 193.58 116.98 126.27 190.50Preoperative Exp Capitalised 0.00 0.00 0.00 0.00 0.00Total Expenses 5,957.62 7,152.12 8,875.40 11,603.86 13,999.06Operating Profit 996.36 853.98 1,303.37 2,223.60 3,545.20PBDIT 1,065.44 868.59 1,563.35 2,565.60 4,027.52Interest 54.78 60.08 81.41 58.75 43.33PBDT 1,010.66 808.51 1,481.94 2,506.85 3,984.19Depreciation 185.35 198.00 218.87 245.93 244.61Other Written Off 0.00 0.00 0.00 0.00 0.00Profit Before Tax 825.31 610.51 1,263.07 2,260.92 3,739.58
BSPATIL 76
FUNDAMENTAL AND TECHNICAL ANALYSIS
Extra-ordinary items -49.01 396.59 306.60 299.86 -13.79PBT (Post Extra-ord Items) 776.30 1,007.10 1,569.67 2,560.78 3,725.79Tax 291.51 348.93 616.30 881.61 1,311.09Reported Net Profit 444.51 658.15 953.40 1,679.16 2,414.70Total Value Addition 2,797.24 3,517.46 3,777.71 4,504.46 5,437.65Preference Dividend 0.00 0.00 0.00 0.00 0.00Equity Dividend 97.90 146.86 195.81 354.90 599.66Corporate Dividend Tax 12.54 19.00 26.64 49.78 92.83Per share data (annualised) Shares in issue (lakhs) 2,447.60 2,447.60 2,447.60 2,447.60 2,447.60Earning Per Share (Rs) 18.16 26.89 38.95 68.60 98.66Equity Dividend (%) 40.00 60.00 80.00 145.00 245.00Book Value (Rs) 196.26 216.37 246.24 298.31 359.06
BHEL Ratios calculations
sl.no ratio formulayear
2007 2006 20051 Net working capital CA-CL 7574.42 6678.22 5413.012 current ratio CA/CL 1.43 1.53 1.633 quick ratio CA-(stock+prepaid exp)/CL 1.13 1.17 1.224 inventory turnover ratio COGS/avg INV 3.32 3.10 3.045 debt equity ratio long trm DBT/ Sh holders eq 0.01 0.07 0.086 interest coverage ratio EBIT/INTERST 93.42 43.46 19.87 gross profit margin Gross profit / sales 19 14.71 11.258 Net profit ratio EAT/ Net sales 13.51 12.19 9.589 cost of goods sold ratio COGS/ net sales*100 80.63 86.33 92.08
10 Operating profit ratio EBIT/ Net sales 20.41 16.54 13.5211 return on equity Net profit/ share holders equity 27.48 23.00 15.8212 return on assets Net profit/total assets 27.69 22.11 15.7713 return on capital employed EBIT/ Total capital 44.18 30.28 20.8214 EPS Net profit available eq sh/ NO shares 98.66 68.6 38.9515 DPS Div paid to ord sh / No of shares 24.5 14.5 816 P/E MPS/EPS 22.91 32.75 19.7017 price to book value ratio MPS/BPS 6.30 7.53 3.1218 book value per share Net worth / no of shares 359.06 298.31 246.2419 dividend payout ratio DPS/EPS*100 24.83 21.14 20.5420 earning yield EPS/MPS *100 4.36 3.05 5.0821 dividend yield DPS/MPS*100 1.08 0.65 1.0422 total asset turnover ratio COGS/total asst 1.58 1.48 1.3523 capital turnover ratio COGS/capital employed 1.59 1.59 1.47
BSPATIL 77
FUNDAMENTAL AND TECHNICAL ANALYSIS
Interpretation: Net working capital:NWC represents the excess of current assets over current liabilities. Companies
should have sufficient NWC in order to be able to meet the claims of the creditors and
the day to day needs of business. The greater is the amount of NWC greater is the
liquidity of the firm. In BHEL company the three year NWC is as follows.
Sl.no Ratio Formula
Year
2007 2006 2005
1 Net working capital CA-CL 7574.42 6678.22 5413.01
The company from 2005 to 2007 has increased its NWC which shows that the
company has good liquidity to its creditors.
Current ratio:The Current Ratio expresses the relationship between the firm’s current assets and its
current liabilities. The rule of thumb says that the current ratio should be at least 2 that
is, the current assets should meet current liabilities at least twice.
sl.no Ratio Formula
Year
2007 2006 2005
2 current ratio CA/CL 1.43:1 1.53:1 1.63:1
Here we can see that the company’s current ratio decreasing gradually.
BSPATIL 78
FUNDAMENTAL AND TECHNICAL ANALYSIS
Quick ratio:
The quick ratio, also referred to as acid test ratio, examines the ability of the business
to cover its short-term obligations from its “quick” assets only (i.e. it ignores stock).
Clearly this ratio will be lower than the current ratio, but the difference between the
two (the gap) will indicate the extent to which current assets consist of stock.
sl.no Ratio Formula
year
2007 2006 2005
3 Quick ratio CA - (stock + prepaid exp)/CL 1.13:1 1.17:1 1.22:1
Here we can see that the company’s quick ratio is bit constant for three years and
company is able to satisfy its creditors with this ratio.
Inventory turn over ratio:
This ratio measures the stock in relation to turnover in order to determine how often
the stock turns over in the business. It indicates the efficiency of the firm in selling its
product.
sl.no Ratio Formula
year
2007 2006 2005
4 inventory turnover ratio COGS/avg INV 3.32 3.10 3.04
In 2007: 12/ 3.32= 3.61 months
In 2006: 12/3.1=3.87 months
In 2005: 12/3.04= 3.95 months. Here we can see that the company’s working
efficiency increased over a period of time. They are able to convert their inventory
into sale in 3.61 months.
Debt equity ratio:
This ratio indicates the extent to which debt is covered by shareholders’ funds. It
reflects the relative position of the equity holders and the lenders and indicates the
company’s policy on the mix of capital funds. The ratio reflects the relative
contribution of creditors and owners of business in its financing.
sl.no Ratio Formula year
2007 2006 2005
BSPATIL 79
FUNDAMENTAL AND TECHNICAL ANALYSIS
5 debt equity ratio Long trm DBT/ Sh holders eq 0.01 0.07 0.08
Here we can see that the company gradually decreased its debt combination from its
finance.
Interest Coverage Ratio:
This ratio indicates how well the firm’s earning can cover the interest payments on its
debt.
sl.no Ratio Formula
year
2007 2006 2005
6 interest coverage ratio EBIT/INTERST 93.42 43.46 19.8
Gross Profit Margin:
Normally the gross profit has to rise proportionately with sales. It can also be useful to
compare the gross profit margin across similar businesses although there will often be
good reasons for any disparity.
sl.no Ratio Formula
year
2007 2006 2005
7 Gross profit margin Gross profit / sales 19 14.71 11.25
The ratio above shows the increasing trend in the gross profit since the ratio has
improved from 11.25% in 2005 to 19.00% on 2007. This indicates that the rate in
increase in cost of goods sold are less than rate of increase in sales, hence the
increased efficiency.
Net profit ratio:
sl.no Ratio Formula
year
2007 2006 2005
8 Net profit ratio EAT/ Net sales 13.51% 12.19% 9.58%
a high net profit margin would ensure adequate return to the owners as well as enable
a firm to withstand adverse economic conditions when selling price is declining cost
of production is rising and demand for the product falling.
BSPATIL 80
FUNDAMENTAL AND TECHNICAL ANALYSIS
Cost of goods sold ratio:
sl.no Ratio Formula
year
2007 2006 2005
9 cost of goods sold ratio COGS/ net sales*100 80.63 86.33 92.08
This is one of the expenses ratios it is computed by expenses by net sales. The cost of
goods sold ratio shows what percentage share of sales is consumed by cost of goods
sold and conversely what proportion is available for meeting expenses such as selling
and general distribution expenses as well as financial expenses consisting of taxes
interest and dividend and so on.
Operating profit ratio:
This ratio reveals the profitability of sales resulting from regular business as well as
buying, selling, and manufacturing operations.
sl.no Ratio Formula
year
2007 2006 2005
10 operating profit ratio EBIT/ Net sales 20.41 16.54 13.52
Return on Equity:
This ratio shows the profit attributable to the amount invested by the owners of the
business. ROE measures the amount of money that the company has managed to
generate for its shareholders.
sl.no Ratio Formula
year
2007 2006 2005
11 return on equity Net profit/ share holders equity 27.48 23.00 15.82
Here we can see that the companies return on equity is increasing constantly so we
can say that the profitability to ordinary shareholders is strong and showing an
upward trend.
Return on assets:
BSPATIL 81
FUNDAMENTAL AND TECHNICAL ANALYSIS
This ratio gives you an idea on the company's management effectiveness in utilizing
its assets to make a profit for its shareholders.
sl.no Ratio Formula
year
2007 2006 2005
12 return on assets Net profit/total assets 27.69 22.11 15.77
The company ROA has increased constantly which its management efficiency in
getting good returns from its assets.
Return on capital employed:
sl.no Ratio Formula
year
2007 2006 2005
13
return on capital
employed EBIT/ Total capital 44.18 30.28 20.82
This ratio shows how efficiently the long term funds of owners and lenders are being
used.
Earning Per Share:
For an equity investor, a company’s EPS is the most important indicator of its
performance. If the EPS is good, the company can pay dividends, plough back the
surplus into reserves and issue bonus shares in the future. For these reasons, the
market price of any company’s share is largely influenced by its projected EPS
Sl.no ratio Formula
year
2007 2006 2005
14 EPS
Net profit available eq sh/ NO
shares 98.66 68.6 38.95
We can see here the company’s EPS gone three times higher from three year.
Dividend per Share:
BSPATIL 82
FUNDAMENTAL AND TECHNICAL ANALYSIS
Sl.no ratio Formula
Year
2007 2006 2005
15 DPS div paid to ord sh / No of shares 24.5 14.5 8
This indicates the dividend paid for each share. Shareholders would, naturally like to
receive the maximum possible dividends from a company, consistent with its profits
and need for retained earnings.
P/E Ratio:
P/E ratio is a useful indicator of what premium or discount investors are prepared to
pay or receive for the investment. The higher the price in relation to earnings, the
higher the P/E ratio which indicates the higher the premium an investor is prepared to
pay for the share. This occurs because the investor is extremely confident of the
potential growth and earnings of the share.
sl.no Ratio Formula
year
2007 2006 2005
16 P/E MPS/EPS 22.91 32.75 19.70
The above ratio shows that the shares were traded at a much higher premium in
2007 than were in 2005. In 2005 the price was 19.7 times higher than earnings
while in 2007, the price is 22.91 times higher.
Price to book value ratio:
sl.no Ratio Formula
year
2007 2006 2005
17 Price to book value ratio MPS/BPS 6.30 7.53 3.12
It measures the relationship between the market price of an equity share with book
value per share. The P/B ratio is significant in predicting future stock return. Firms
BSPATIL 83
FUNDAMENTAL AND TECHNICAL ANALYSIS
with low P/B ratio had consistently higher returns compared to the firms with high
P/B ratio.
Book value per share:
sl.no Ratio Formula
year
2007 2006 2005
18 Book value per share Net worth / no of shares 359.06 298.31 246.24
This ratio indicates the net asset value of a company’s share. A high book value
indicates that the company has strong reserves, indicating scope for bonus shares, of
course subject to necessary guidelines of the SEBI.
Dividend payout ratio:
This ratio looks at the dividend payment in relation to net income and can be
calculated as follows:
sl.no Ratio Formula
year
2007 2006 2005
19 dividend payout ratio DPS/EPS*100 24.83 21.14 20.54
Earning yield:
This ratio highlights as a percentage a company’s earnings vis-a-vis the current
market value of its share. For blue chip companies this ratio tends to be around 5 per
cent to 6 per cent.
sl.no Ratio Formula
Year
2007 2006 2005
20 earning yield EPS/MPS *100 4.36 3.05 5.08
Dividend yield:
The dividend yield ratio indicates the return that investors are obtaining on their
investment in the form of dividends. This yield is usually fairly low as the investors
are also receiving capital growth on their investment in the form of an increased share
price.
BSPATIL 84
FUNDAMENTAL AND TECHNICAL ANALYSIS
sl.no Ratio Formula
Year
2007 2006 2005
21 dividend yield DPS/MPS*100 1.08 0.65 1.04
Total asset turnover ratio:
sl.no Ratio Formula
Year
2007 2006 2005
22 total asset turnover ratio COGS/total asst 1.58 1.48 1.35
Total asset turnover ratio measures the efficiency of a firm in managing and utilizing
its assets. The higher ratio indicates the more efficient management.
Capital turnover ratio:
sl.no Ratio Formula
Year
2007 2006 2005
23 capital turnover ratio COGS/capital employed 1.59 1.59 1.47
Capital turnover ratio measures the efficiency of a firm in managing and utilizing its
capital. The higher ratio indicates the more efficient management.
BSPATIL 85
FUNDAMENTAL AND TECHNICAL ANALYSIS
Bharat Heavy Electricals Limited:
Bharat Heavy Electricals Limited (BHEL) is one of the largest
engineering enterprises of its kind in India. BHEL is the largest domestic capital
goods manufacturer in India and the 12th largest in the world. The international
competitors of BHEL are General Electric, Siemens, Alstom and ABB. BHEL offers
a wide spectrum of equipment, systems and services in the field of power,
transmission, industry, transportation, oil & gas, non-conventional energy sources and
telecommunication. Power sector constitutes over half of its total business. The
company has 14 manufacturing divisions, 8 service centres and 4 power sector
regional centres. Its first plant was set up at Bhopal in 1956 under technical
collaboration with AEI, UK followed by three more major plants at Hardwar,
Hyderabad and Tiruchirapalli with Russian and Czechoslovak assistance.
Products & services—
BHEL manufactures over 200 products under 30 major product groups.
The company has installed equipment for over 100,000 mw of power generation for
utilities, captive and industrial users. Its strengths are comparable product range and
cost competitiveness with foreign manufacturers. The company enjoys a crucial
advantage of depreciated assets. The company is cost-competitive when it comes to
power plant equipment and has bagged a number of power project orders placed in
India against open international competitive bidding.
BSPATIL 86
FUNDAMENTAL AND TECHNICAL ANALYSIS
The company has joint venture with Siemens for servicing old Indian
fossil fuel power plants and with GE for designing of heavy-duty gas turbines. Thirty-
two thermal power stations equipped with Bhel’s generating sets have been given
productivity awards by the power ministry. Of these power stations, eight have
received gold medals. The awards have been given for meritorious and efficient
performance based on account of reduced inputs.
The company already manufactures products required by the
distribution systems like transformers, switchgears etc. The company is planning
towards becoming an application service provider. The company will continue to
focus on project management, reducing cycle time and cost control. In the power
sector, the company plans to obtain a part of the business generated by independent
power producers through a combination of approaches including consortium route,
equity participation and limited financial syndication.
I It has equipped itself with the new type of once-through design boiler
technology, and for pollution control - bag filter technology. BHEL entered into new
business in integrated gasification combined cycle systems, coal washeries, and LRT
systems. In it's existing businesses of transportation, transmission & industry. BHEL
is pursuing opportunities in EMU coaches, loco refurbishment, gas-insulated switcher,
HVDC insulators, and electronic meters. The company will continue to focus on
product developments in order to foster its growth strategy. The electronics division
has forayed into traction business and received a large order from DoT for switching
equipment.
BHEL has developed a new series compensation scheme Flexible AC
Transmission System (FACTS) for reducing power losses and speedy transmission.
The FACTS will enhance power transfer capability of the system and reduce
transmission losses in 400 kV lines considerably. The company has also developed an
automatic device that adjusts itself to the system’s requirement in less than 10
milliseconds. It reduces system losses and improves power system stability in high-
voltage transmission lines.
BSPATIL 87
FUNDAMENTAL AND TECHNICAL ANALYSIS
Key Risks
Delay in capacity expansion
The company’s 37,000 MW of order flow for BHEL over FY09-12E, in addition to
the existing strong order backlog. Any delay in second phase of expansion from
10,000 MW to 15,000 MW could severely impact BHEL’s earnings, given the strong
deliverables over next three-four years. The first phase of expansion from 6,000 MW
to 10,000 MW had been delayed by nine months.
Slowdown in pace of power reforms
Given the recent momentum in power reforms, it is expected the balance Eleventh
Plan orders and 70% of Twelfth Plan orders to be placed by FY12. Any significant
delay in the awarding activity could be a huge dampener for BHEL’s outlook going
ahead, given that the company is the market leader (65% market share in country’s
installed capacity as in FY07).
Increase in private sector investments in power projects = intensifying
competition
As per CEA, 35% of the power capacity addition in the Twelfth Plan will be
undertaken by the private sector. Any subsequent change in the mix, in favour of the
private sector, could result in lower order intake for BHEL. While central and state
sector projects are BHEL’s forte (70% plus market share), the company’s market
share in private sector projects has been lower (20-25%) on account of stiff
competition.
BSPATIL 88
FUNDAMENTAL AND TECHNICAL ANALYSIS
Stiff input prices could affect margins
Although it have not built in benefits on account of raw material pricing over FY09
12E, any unprecedented rise in input costs above FY07-08E levels could dampen
BHEL’s margins. Execution delays could lead to de-rating The re-rating in BHEL’s
valuations over the past one year builds in strong visibility over the next few years.
The key concern now is BHEL’s ability to execute this huge opportunity, failing
wherein could lead to the stock being de-rated.
Value anchor
Period & months 2008/03 2009/03 2010/03 CAGR
INCOME
Net Operating Income 20822.62 24971.74 29947.6 1.20
EXPENSES
Material Consumption 10155.72 12307.66 14915.58 1.21
Manufacturing Expenses 2472.116 3066.919 3804.834 1.24
Personel Expenses 2591.409 2837.178 3106.255 1.09
Selling Expenses 248.2735 277.4314 310.0138 1.12
Administrative Expenses 942.93 1038.846 1144.518 1.10
Cost of Sales 16,410.45 19,528.03 23,281.20
Reported PBDIT 4,412.17 5,443.70 6,666.41
Other Recuring Income 783.4328 1220.577 1901.64 1.56
Adjusted PBDIT 5,195.60 6,664.28 8,568.05
Depreciation 258.5655 273.3171 288.9104 1.06
Adjusted PBIT 4,937.04 6,390.96 8,279.14
Finanical Expenses 41.34491 39.45076 37.64339 0.95
Adjusted PBT 4,895.69 6,351.51 8,241.49 1.37
Tax Charges 1771.04 2392.347 3231.617 1.35
Adjusted PAT 3,124.65 3,959.17 5,009.88
Non-recurring Items -13.4603 -8.82506 -5.78605 0.66
Other Non-cash Adjustments 0.78
REPORTED PAT 3,111.19 3,950.34 5,004.09
no. of shares 24.48 24.48 24.48
Expected EPS FOR 3 YEAR 127.09 161.37 204.42
BSPATIL 89
FUNDAMENTAL AND TECHNICAL ANALYSIS
risk free rate Beta EMRP
Average Dividend payout ratio 25.28
Required rate of rate 18.6 8 1.1 9.5
Expected growth rate in dividend 16.02
P/E Ratio 9.81
AVG PE ratio 23.74
Weighted PE ratio 16.78
Expected future price of the BHEL Company
Year 2008 2009 2010
Value ancher 2132.30 2707.42 3429.62
Calculation of Intrinsic value
Average Dividend payout ratio= sum of 5 years DPR/ 5
Required rate of rate= risk free rate +(beta*EMPR)
Expected growth rate in dividend= avg of retention ratio* avg of
ROE
P/E RATIO= AVG DPR / (required rate of risk-exp growth rate in
div)
AVG PE ratio= 5 years PE ratio/ 5
Weighted PE ratio= calculated PE ratio+AVG PE ratio/2
BSPATIL 90
FUNDAMENTAL AND TECHNICAL ANALYSIS
Value anchor = weighted PE ratio* expected market price
L&T COMPANY ANALYSIS
BSPATIL 91
FUNDAMENTAL AND TECHNICAL ANALYSIS
1. Company financial health
The financial statements of the company can be used to understand and
evaluate the financial performance and health of the company. Ratio analysis helps an
investor to determine the financial strengths and weakness of the company.
The following is the ratio analysis of the BHEL Company
L&T Company balance sheet and profit and loss account
Balance Sheet Mar '03 Mar '04 Mar '05 Mar '06 Mar '07Sources Of FundsTotal Share Capital 248.67 24.88 25.98 27.48 56.65Equity Share Capital 248.67 24.88 25.98 27.48 56.65Share Application Money 0.04 0.00 0.00 0.00 0.00Reserves 3,279.53 2,717.55 3,312.25 4,583.32 5,683.85Revaluation Reserves 34.34 32.61 30.90 29.37 27.93Net worth 3,562.58 2,775.04 3,369.13 4,640.17 5,768.43Secured Loans 2,703.11 1,045.25 793.72 465.79 245.40Unsecured Loans 472.89 279.10 1,065.34 987.78 1,832.35Total Debt 3,176.00 1,324.35 1,859.06 1,453.57 2,077.75Total Liabilities 6,738.58 4,099.39 5,228.19 6,093.74 7,846.18Application Of FundsGross Block 6,231.79 2,038.15 2,106.55 2,300.68 2,876.30Less: Accum. Depreciation 2,256.12 1,049.63 1,089.54 982.22 1,122.83Net Block 3,975.67 988.52 1,017.01 1,318.46 1,753.47Capital Work in Progress 72.60 26.23 65.82 286.06 471.22Investments 1,160.37 965.88 960.70 1,919.52 3,104.44Inventories 2,590.01 1,812.30 2,310.84 2,210.27 3,001.14Sundry Debtors 1,850.37 3,314.58 3,963.60 4,814.16 5,504.64Cash and Bank Balance 279.11 282.05 354.67 398.71 993.68Total Current Assets 4,719.49 5,408.93 6,629.11 7,423.14 9,499.46Loans and Advances 1,484.53 1,423.34 1,860.18 2,061.50 2,449.14Fixed Deposits 41.42 93.22 473.35 184.49 100.75Total CA, Loans & Advances 6,245.44 6,925.49 8,962.64 9,669.13 12,049.35Current Liabilities 4,360.73 4,191.95 5,023.23 6,106.04 8,362.01
BSPATIL 92
FUNDAMENTAL AND TECHNICAL ANALYSIS
Provisions 424.75 660.99 794.64 1,015.37 1,180.13Total CL & Provisions 4,785.48 4,852.94 5,817.87 7,121.41 9,542.14Net Current Assets 1,459.96 2,072.55 3,144.77 2,547.72 2,507.21Miscellaneous Expenses 69.98 46.21 39.89 21.98 9.84Total Assets 6,738.58 4,099.39 5,228.19 6,093.74 7,846.18Contingent Liabilities 562.79 655.86 625.10 305.59 270.22Book Value (Rs) 141.88 220.45 256.94 335.61 202.65
Profit & Loss account Mar '03 Mar '04 Mar '05 Mar '06 Mar '07Income Sales Turnover 9,931.98 9,917.52 13,404.27 15,030.81 17,983.37Excise Duty 518.99 272.20 214.56 253.86 338.08Net Sales 9,412.99 9,645.32 13,189.71 14,776.95 17,645.29Other Income 248.21 391.15 634.94 527.52 459.80Stock Adjustments -1.15 432.59 86.84 -103.24 121.76Total Income 9,660.05 10,469.06 13,911.49 15,201.23 18,226.85Expenditure Raw Materials 3,000.92 3,729.06 5,211.98 4,510.78 5,320.98Power & Fuel Cost 656.94 69.19 90.33 221.50 308.13Employee Cost 668.40 678.08 764.51 890.03 1,258.21Other Manufacturing Expenses 2,801.77 4,009.64 5,170.22 6,647.70 7,451.07Selling and Admin Expenses 1,144.12 662.21 877.60 996.59 1,222.80Miscellaneous Expenses 214.40 191.91 147.20 125.00 166.15Preoperative Exp Capitalised -1.98 -0.74 -3.15 -1.89 -3.30Total Expenses 8,484.57 9,339.35 12,258.69 13,389.71 15,724.04Operating Profit 927.27 738.56 1,017.86 1,284.00 2,043.01PBDIT 1,175.48 1,129.71 1,652.80 1,811.52 2,502.81Interest 388.13 273.15 280.51 321.34 331.46PBDT 787.35 856.56 1,372.29 1,490.18 2,171.35Depreciation 304.57 84.53 87.52 107.12 160.13Other Written Off 0.00 0.00 0.00 0.00 0.00Profit Before Tax 482.78 772.03 1,284.77 1,383.06 2,011.22Extra-ordinary items 4.35 4.53 8.02 -1.85 -5.34PBT (Post Extra-ord Items) 487.13 776.56 1,292.79 1,381.21 2,005.88Tax 77.10 236.08 302.29 366.12 601.87Reported Net Profit 433.10 532.75 983.85 1,012.14 1,403.02Total Value Addition 5,483.65 5,610.29 7,046.71 8,878.93 10,403.06Preference Dividend 0.00 0.00 0.00 0.00 0.00Equity Dividend 186.80 199.04 357.21 302.25 368.25Corporate Dividend Tax 23.93 25.54 49.41 42.39 53.34Per share data (annualised) Shares in issue (lakhs) 2,486.69 1,244.02 1,299.24 1,373.86 2,832.71Earning Per Share (Rs) 17.42 42.82 75.72 73.67 49.53Equity Dividend (%) 75.00 800.00 1,375.00 1,100.00 650.00Book Value (Rs) 141.88 220.45 256.94 335.61 202.65
BSPATIL 93
FUNDAMENTAL AND TECHNICAL ANALYSIS
Ratios calculations
Sl.no Ratio FormulaYear
2007 2006 20051 Net working capital CA-CL 2,507.21 2,547.72 3,144.772 Current ratio CA/CL 1.26 1.36 1.543 Quick ratio CA-(stock+prepaid exp)/CL 0.93 1.03 1.124 Inventory turnover ratio COGS/avg INV 5.24 6.06 5.305 Debt equity ratio Long trm DBT/ Sh holders eq 0.36 0.31 0.556 Interest coverage ratio EBIT/INTERST 7.52 5.03 4.437 Gross profit margin Gross profit / sales 10.61 7.91 78 Net profit ratio EAT/ Net sales 7.74 6.69 7.339 Cost of goods sold ratio COGS/ net sales*100 89.11 90.61 92.94
10 Operating profit ratio EBIT/ Net sales 11.52 8.63 7.66
11 Return on equityNet profit/ share holders equity 24.44 21.95 29.47
12 Return on assets Net profit/total assets 22.11 21.88 24.18
13Return on capital employed EBIT/ Total capital 54.98 44.08 37.61
14 EPS Net profit available eq sh/ NO shares 49.53 73.67 75.72
15 DPSDiv paid to ord sh / No of shares 13 22 27.5
16 P/E MPS/EPS 32.69 33.02 13.1417 Price to book value ratio MPS/BPS 7.99 7.25 3.8718 Book value per share Net worth/ no of shares 202.65 335.61 256.9419 Dividend payout ratio DPS/EPS*100 26.25 29.86 36.3220 Earning yield EPS/MPS *100 3.06 3.03 7.6121 Dividend yield DPS/MPS*100 0.80 0.90 2.7622 Total asset turnover ratio COGS/total asst 2.00 2.20 2.3423 Capital turnover ratio COGS/capital employed 2.74 2.90 3.67
1. Net working capital:Sl.n
o Ratio FormulaYear
2007 2006 2005
1 Net working capital CA-CL2,507.
212,547.
723,144.77
BSPATIL 94
FUNDAMENTAL AND TECHNICAL ANALYSIS
Here we can see that the L&T company has maintained a constant NWC which is a
good sign it implies that the company is able to good liquidity to its creators
2. Current ratio
Sl.no Ratio FormulaYear
2007 2006 20052 Current ratio CA/CL 1.26 1.36 1.54
The short term creditors prefer high current ratio since it reduces their risk. As a share
holder one should prefer low current ratio so that the company may use its current
assets for expansion purpose. Here we can see that the company’s current ratio has
reduced over a period of time so we can say that the companies using its current assets
for expansion purpose.
3. Quick ratio
Sl.no Ratio FormulaYear
2007 2006 20053 Quick ratio CA-(stock+prepaid exp)/CL 0.93 1.03 1.12
Measures assets that are quickly converted into cash and they are compared with
current liabilities. This ratio realizes that some of current assets are not easily
convertible to cash e.g. inventories. In the ratio above we can see that the company’s
quick ratio reduced over a period of time.
4. Inventory turn over ratio.
Sl.no Ratio FormulaYear
2007 2006 20054 Inventory turnover ratio COGS/avg INV 5.24 6.06 5.30
This ratio measures the stock in relation to turnover in order to determine how often
the stock turns over in the business. This ratio should be higher because it indicates
that the company is efficiently converting its inventory into sales.
2007: 12/5.24 = 2.29 times
2006: 12/6.06 = 1.98 times
2005: 12/5.30 = 2.26 times
BSPATIL 95
FUNDAMENTAL AND TECHNICAL ANALYSIS
5. Debt equity ratio.
Sl.no Ratio Formula
Year
2007 2006 2005
5 Debt equity ratio long trm DBT/ Sh holders eq 0.36 0.31 0.55
The debt to equity ratio shows that for every 1 rupee of shareholders funds in 2007
there was 0.36 rupee of debt. This compares to 0.55 rupee in 2005.
6. Interest coverage ratio.
Sl.no Ratio Formula
Year
2007 2006 2005
6 Interest coverage ratio EBIT/INTERST 7.52 5.03 4.43
This ratio, as the name suggests indicates the extent to which a fall in EBIT is
tolerable in that the ability of the firm to service its interest payments would not be
adversely affected. Here the company’s Interest coverage ratio has increased which is
dangerous sign.
7. Gross profit margin
Sl.no Ratio Formula
Year
2007 2006 2005
7 Gross profit margin Gross profit / sales 10.61 7.91 7
The ratio above shows the increasing trend in the gross profit since the ratio has
improved from 7% in 2005 to 10.61% on 2007. This indicates that the rate in increase
in cost of goods sold are less than rate of increase in sales, hence the increased
efficiency.
8. Net profit margin
Sl.no Ratio Formula
Year
2007 2006 2005
8 Net profit ratio EAT/ Net sales 7.74 6.69 7.33
BSPATIL 96
FUNDAMENTAL AND TECHNICAL ANALYSIS
The net margin ratio shows that the margin is fairly stable over time with slight
improvement to 7.74% in 2007. However, to know how well the firm is performing
one has to compare this ratio with the industry average or a firm dealing in a similar
business
9. Cost of goods sold
Sl.n
o Ratio Formula
Year
2007 2006 2005
9
Cost of goods sold
ratio COGS/ net sales*100 89.11 90.61 92.94
The cost of goods sold ratio shows what percentage share of sales is consumed by
cost of goods sold and conversely what proportion is available for meeting expenses
such as selling and general distribution expenses as well as financial expenses
consisting of taxes interest and dividend and so on.
10 Operating profit ratio
Sl.no Ratio Formula
Year
2007 2006 2005
10 Operating profit ratio EBIT/ Net sales 11.52 8.63 7.66
Here operating profit ratio has increased over a period of time which shows firms
ability to withstand adverse economic conditions when selling price is declining.
11. Return on equity
Sl.no Ratio Formula
Year
2007 2006 2005
11 Return on equity Net profit/ share holders equity 24.44 21.95 29.47
BSPATIL 97
FUNDAMENTAL AND TECHNICAL ANALYSIS
Here the profitability to ordinary shareholders is bit weaker and showing an
downward trend.
12. Return on assets
Sl.n
o Ratio Formula
Year
2007 2006
20
05
12 Return on assets Net profit/total assets 22.11 21.88
24.
18
This ratio gives you an idea on the company's management effectiveness in utilizing
its assets to make a profit for its shareholders
13. Return on capital employed
Sl.n
o Ratio Formula
Year
2007 2006 2005
13
Return on capital
employed EBIT/ Total capital 54.98 44.08 37.61
This ratio shows how efficiently the long term funds of owners and lenders are being
used.
14. Earnings Per Share
Sl.no Ratio Formula
Year
2007 2006 2005
14 EPS
Net profit available eq sh/ NO
shares 49.53 73.67 75.72
Whatever income remains in the business after all prior claims, other than owners
claims (i.e. ordinary dividends) have been paid, will belong to the ordinary
shareholders who can then make a decision as to how much of this income they wish
to remove from the business in the form of a dividend, and how much they wish to
BSPATIL 98
FUNDAMENTAL AND TECHNICAL ANALYSIS
retain in the business. The shareholders are particularly interested in knowing how
much has been earned during the financial year on each of the shares held by them.
For this reason, an earning per share figure must be calculated.
15. Dividend per Share
Sl.no Ratio Formula
Year
2007 2006 2005
15 DPS Div paid to ord sh / No of shares 13 22 27.5
This indicates the dividend paid for each share. Shareholders would, naturally like to
receive the maximum possible dividends from a company, consistent with its profits
and need for retained earnings. But the company’s DPS has reduced drastically in
L&T Company’s case.
16. PE ratio
Sl.n
o Ratio Formula
Year
2007 2006 2005
16 P/E MPS/EPS 32.69 33.02 13.14
The P/E ratio reflects the price currently being paid by the market for each rupee of
currently reported EPS. High P/E generally reflects lower risk and/or higher growth
prospects for earnings.
The above ratio shows that the shares were traded at a much higher premium in 2007
than were in 2005. In 2005 the price was 13.14 times higher than earnings while in
2007, the price is 32.69 times higher.
17. Price to book value
Sl.no Ratio Formula Year
BSPATIL 99
FUNDAMENTAL AND TECHNICAL ANALYSIS
2007 2006 2005
17 Price to book value ratio MPS/BPS 7.99 7.25 3.87
It measures the relationship between the market price of an equity share with book
value per share. The P/B ratio is significant in predicting future stock return. Firms
with low P/B ratio had consistently higher returns compared to the firms with high
P/B ratio.
18. Book value per share
Sl.no Ratio Formula
Year
2007 2006 2005
18 Book value per share Networth/ no of shares 202.65 335.61 256.94
This ratio indicates the net asset value of a company’s share. A high book value
indicates that the company has strong reserves, indicating scope for bonus shares, of
course subject to necessary guidelines of the SEBI.
19. Dividend payout ratio
Sl.n
o Ratio Formula
Year
2007 2006 2005
19 Dividend payout ratio DPS/EPS*100 26.25 29.86 36.32
This ratio looks at the dividend payment in relation to net income and can be
calculated
20. Earning yield
Sl.no Ratio Formula
Year
2007 2006 2005
20 Earning yield EPS/MPS *100 3.06 3.03 7.61
This ratio highlights as a percentage a company’s earnings vis-a-vis the current
market value of its share. For blue chip companies this ratio tends to be around 5 per
cent to 6 per cent.
21. Dividend yield
BSPATIL 100
FUNDAMENTAL AND TECHNICAL ANALYSIS
Sl.no Ratio Formula
Year
2007 2006 2005
21 Dividend yield DPS/MPS*100 0.80 0.90 2.76
Notice here there is a decrease in the yield from 2005 to 2007. The main reason for
this is that the dividend per share decreased while at the same time, the price of a
share increased.
22. Total asset turnover ratio
Sl.no Ratio Formula
Year
2007 2006 2005
22 Total asset turnover ratio COGS/total asst 2.00 2.20 2.34
Total asset turnover ratio measures the efficiency of a firm in managing and utilizing
its assets. The higher ratio indicates the more efficient management.
23. Capital turn over ratio
Sl.no Ratio Formula
Year
2007 2006 2005
23 Capital turnover ratio COGS/capital employed 2.74 2.90 3.67
Capital turnover ratio measures the efficiency of a firm in managing and utilizing its
capital. The higher ratio indicates the more efficient management.
BSPATIL 101
FUNDAMENTAL AND TECHNICAL ANALYSIS
Value anchor of the L&T Company is in the next page.
L&T Company income statement
Period & months 2007/03 2006/03 2005/03 2004/03 2003/03
INCOME
Net Operating Income 17,645.29 14,776.95 13,189.71 9,645.32 9,412.99
EXPENSES
Material Consumption 5,199.22 4,614.02 5,125.14 3,296.47 3,002.07
Manufacturing Expenses 7,759.20 6,869.20 5,260.55 4,078.83 3,458.71
Personel Expenses 1,258.21 890.03 764.51 678.08 668.4
Selling Expenses 200.84 156.74 170.18 111.16 609.39
Administrative Expenses 1,197.99 972.22 861.27 748.51 749.13
Capitalised Expenses -3.3 -1.89 -3.15 -0.74 -1.98
Cost of Sales 15,612.16 13,500.32 12,178.50 8,912.31 8,485.72
Reported PBDIT 2,033.13 1,276.63 1,011.21 733.01 927.27
Other Recuring Income 458.56 339.48 230.91 340.67 388.13
Adjusted PBDIT 2,491.69 1,616.11 1,242.12 1,073.68 1,315.40
Depreciation 160.13 107.12 87.52 84.53 304.57
Adjusted PBIT 2,331.56 1,508.99 1,154.60 989.15 1,010.83
Finanical Expenses 331.46 321.34 280.51 273.15 388.13
Adjusted PBT 2,000.10 1,187.65 874.09 716.00 622.70
Tax Charges 601.87 366.12 302.29 236.08 77.1
Adjusted PAT 1,398.23 821.53 571.80 479.92 545.60
Non-recurring Items 1.24 188.04 404.03 50.48 26.91
Other Non-cash Adjustments -5.34 -1.85 8.02 4.53 4.35
REPORTED PAT 1,394.13 1,007.72 983.85 534.93 576.86
no. of shares 28.33 13.74 12.99 12.44 24.87
earnings per share 49.21 73.34 75.74 43.00 23.20
Retained Earnings 1,028.24 718.70 628.62 360.95 252.78
Dividend/Share 13.00 22.00 27.50 80.00 7.50
total dividend 368.29 302.28 357.225 995.2 186.525
Retention ratio 0.74 0.71 0.64 0.67 0.44
BSPATIL 102
FUNDAMENTAL AND TECHNICAL ANALYSIS
Reserves & Surplus 5,683.85 4,583.32 3,312.25 2,717.55 3,279.53
ROE 23.36 21.35 28.58 18.82 16.35
market price 1,619.15 2,432.70 999.5 574.35 184.55
PE ratio 32.90 33.17 13.20 13.36 7.96
Period & months 2008/03 2009/03 2010/03 CAGR
INCOME
Net Operating Income 20521.39 23866.29 27756.39 1.16
EXPENSES
Material Consumption 5826.54 6529.54 7317.37 1.12
Manufacturing Expenses 9112.49 10701.82 12568.34 1.17
Personnel Expenses 1468.49 1713.91 2000.36 1.17
Selling Expenses 232.85 269.96 312.99 1.16
Administrative Expenses 1347.46 1515.59 1704.69 1.12
Capitalized Expenses -4.80 -6.97 -10.13 1.45
Cost of Sales 17,983.04 20,723.86 23,893.61
Reported PBDIT 2,538.35 3,142.43 3,862.77
Other Recurring Income 493.93 532.02 573.05 1.08
Adjusted PBDIT 3,032.28 3,674.45 4,435.82
Depreciation 187.86 220.40 258.56 1.17
Adjusted PBIT 2,844.42 3,454.06 4,177.26
Finanical Expenses 347.89 365.13 383.22 1.05
Adjusted PBT 2,496.53 3,088.93 3,794.03
Tax Charges 725.76 875.15 1055.28 1.21
Adjusted PAT 1,770.77 2,213.78 2,738.75
Non-recurring Items 0.59 0.28 0.13 0.48
Other Non-cash
Adjustments 5.52 -5.70 5.89 -1.03
REPORTED PAT 1,776.88 2,208.36 2,744.78
no. of shares 33.40 39.37 46.42 1.18
earnings per share 53.20 56.09 59.13
BSPATIL 103
FUNDAMENTAL AND TECHNICAL ANALYSIS
risk free rate beta EMRPDividend payout ratio 69.69 required rate of rate 17 8 1 9expected growth rate in dividend 15.92 p/e ratio 64.26 AVG PE ratio 23.16 weighted pe ratio 43.71
The following table shows the expected market prices of L&T Company.
year 2008 2009 2010value anchor 2325.33 2451.38 2584.41
The following is the L&T company management review
The following lines explain the chairman’s speech of L&T Company it tells
about the company’s strategy of future expansion and development strategy.
Performance overview:
India is one of the fastest growing economies globally with GDP growing at
9.4% last year. High capacity utilisation across various sectors is fuelling an up trend
in capital expenditure. The scale of investment in infrastructure envisaged in the 11th
Five Year Plan (2007-2012) will call for greater engagement by the private sector and
international institutions. All these are lead indicators for growth.
The conducive business environment coupled with a slew of measures taken by the
Company for improvement of operational efficiency, institutionalization of a risk
management framework and more judicious selection of projects, have yielded
significant benefits. In Financial Year 2006-2007, the Company's order inflows &
BSPATIL 104
FUNDAMENTAL AND TECHNICAL ANALYSIS
sales have grown by 37% and 19% respectively. The Company bagged its largest ever
order in domestic & international markets such as expansion & modernisation of
Delhi International Airport and an offshore platform project in Qatar. The order book
as on March 31, 2007 stood at Rs. 369 Bn including Rs. 61 Bn from international
business. The Company has achieved improvement in margins in all its business
segments for the second year. The Subsidiary and Associate Companies have also
performed well. During the year, the Company issued bonus shares in the ratio of 1:1
and recommended/paid dividend of-Rs. 13 per share on a face value of Rs. 2 per
share. The market capitalization of the Company has increased further from Rs. 334
Bn to Rs. 456 Bn during the year and has outperformed the Sensex.
Investing for profitable growth:
Investments are the oxygen of growth. Within the larger context of the
country's increasing investments in building a brighter future, the Company is also
investing in multiple spheres - people, technology, capacity expansion both
domestically & internationally and brand building. This is essential for sustaining the
growth momentum and continuous value creation.
People - Talent management:
Talent acquisition and retention is one of the key result areas for our senior
managers. On an on-going basis, the Company renews, rejuvenates and adds Human
Resource Management & Development systems, processes and practices to its
repertoire and periodically does compensation benchmarking so as to ensure a vibrant
and motivated workforce. The Company is constantly honing people management
leadership skills of the employees and is increasingly investing in training centers
across India. Innovative human resource initiatives like 'Campus to Corporate', launch
of an e-learning portal - 'Any Time Learning', buddy referrals for talent acquisition,
have been launched. As a result, the Company has been able to substantially increase
its human resource.
BSPATIL 105
FUNDAMENTAL AND TECHNICAL ANALYSIS
Technology - Building on core engineering strength:
Given our commitment to becoming a knowledge-based premium
conglomerate, investments in technology across all businesses continue to remain at
the forefront of the Company's business strategy. The Company has set up
Engineering design centers at Mumbai, Baroda, Chennai, Bangalore, and Delhi as
well as in the Middle East. In line with our objective of emerging as a player with
end-to-end capabilities in the power sector, the Company has signed an agreement
with Mitsubishi Heavy Industries Limited, Japan for super critical boiler technology
and is close to achieving a similar tie-up in the field of turbines.
International Business - Strengthening presence beyond India:
The Company continues to forge alliances and to invest in international
business for enhancing capabilities and achieving its vision of becoming an Indian
multinational with focus in the Middle East and China. Joint ventures have been set
up in Kuwait and Saudi Arabia for electromechanical construction in oil & gas, power
and infrastructure sectors. The Modular Fabrication yard being set up at Sohar, Oman
will strengthen the Company's presence in the Gulf region. The Company is receiving
encouraging response from clients for project execution and Design & Engineering
services. The Company has set up manufacturing facilities in China for high- end
switchgear & rubber processing machinery and a factory is also being built for
industrial valves. These initiatives will accelerate the Company's thrust towards its
`Lakshya' target of achieving 25% revenues from international business.
Capacity Expansion:
The Company is expanding capacity internationally and within India.
Substantial capacity augmentation at Hazira will help us address the growing demand
in oil & gas industry. The Electrical & Electronics division is expanding its capacity
at Mysore, Ahmednagar and Mahape to take care of rapid growth in the sector. The
Company crossed a major milestone with the inauguration of the first two units at its
300-acre campus in Coimbatore. The facilities for the manufacture of industrial valves
BSPATIL 106
FUNDAMENTAL AND TECHNICAL ANALYSIS
and switchboards are already accomplished. The campus will progressively see the
establishment of manufacturing facilities for advanced tooling and high precision
components in aerospace, nuclear power, defence sectors etc. The Company is
building a state of the art Heavy Lift-cum-Pipelay vessel in partnership with
SapuraCrest Petroleum Berhad, Malaysia that will give offshore installation capability
and achieve significant competitiveness. All the divisions of the Company have
planned increased investments in acquisition and installation of new equipment and
manufacturing facilities.
Looking Ahead:
As we move on, the Company is well positioned to exploit the opportunities
that will emerge from hydrocarbon, infrastructure, power, minerals & metals and
other industrial sectors.
The Public Private Partnership model is going to be the way forward for infrastructure
projects in the country. L&T Infrastructure Development Projects Limited has already
consolidated its position with some completed projects and several under
implementation across various sectors. With its capabilities augmented through the
recent tie-up for manufacture of super critical boilers and the proposed collaboration
for turbines, the Company will be in a position to set up complete power projects.
L&T Infrastructure Finance Company Limited has initiated funding in the
infrastructure segment.
The Company has commenced building ships at its Hazira Works. We are also
scouting for a suitable site in India to set up a world-class facility for shipbuilding and
repair, comparable to the best worldwide. The defence, nuclear power and aerospace
sectors show potential and promise. The Raksha Udyog Ratna (RUR) status, when
granted to the Company, will facilitate increased business in Defence sector.
Leveraging its proven capabilities in construction and electrification for the railways,
the Company envisages expanding its presence in this sector. Given the healthy order
book position and the opportunities available, the Company believes that it will be
able to achieve sustained growth.
BSPATIL 107
FUNDAMENTAL AND TECHNICAL ANALYSIS
I am happy to share that the Company was ranked number 1 in two critical attributes -
'Quality' and 'Reputation' over a host of other corporates, in The Wall Street Journal
Asia's nationwide survey of Indian companies.
To conclude, I wish to place on record my appreciation for the outstanding
commitment and smart work of all our employees. I am also grateful for the
continuing support of my colleagues, our customers, business associates, shareholders
and members of the Board. It is this collective effort and support of each member of
L&T Group's extended family that instills confidence in our ability for building on the
profitable growth momentum into the future.
BSPATIL 108
FUNDAMENTAL AND TECHNICAL ANALYSIS
Finding and suggestion:
1. The following table shows the expected market of the BHEL stock for the
period of 3 years i.e 2008 to 2009
Analysis:
At present the company share price is very attractive and fundamentally
undervalued
Because the intrinsic value of the share is 2170.85 and current market price is 2061.35
So one can have buy view on this stock from long term point of view.
Suggestion: Buy for long term point of view.
BSPATIL 109
EXPECTED MARKET PRICE OF BHEL
particulars
year
2008 2009 2010
FUNDAMENTAL ANALISIS 2170.85 2756.37 3491.62
TECHNICAL ANALYSIS 2500 3750
current market price(31-03-08) 2,061.35
FUNDAMENTAL AND TECHNICAL ANALYSIS
2. The following table shows the expected market of the L&T stock for the
period of 3 years i.e 2008 to 2009
EXPECTED MARKET PRICE OF L&T
Particulars
year
2008 2009 2010
FUNDAMENTAL ANALISIS 2325.33 2451.38 2584.41
TECHNICAL ANALYSIS 4450 5800
Current market price 3,024.80
Analysis:
Above table shows the company script is mainly technical driven there is less scope
for fundamental analysis. Company’s intrinsic value is Rs. 2325.33 but the current
market price is Rs. 3024.8. By this we can say that the company is overvalued
according to fundamental analysis.
But when we analyze by technically the stock is having good support and resistance
so we can say that the stock moves upto 4450 in short run and in long term the stock
is predicted to go around 5800.
Suggestion: If investor at present holding this stock should wait for some time to get
good return in short term the stock may go for Rs. 4450 and in the long run the stock
may go to Rs. 5800.
Suggestion: Hold for time being and sell when stock breaks its previous
support.
Conclusion
BSPATIL 110
FUNDAMENTAL AND TECHNICAL ANALYSIS
Engineering is a diverse industry with a number of segments. A company from
this sector can be a power equipment manufacturer (like transformers and boilers),
execution specialist or a niche player (like providing environment friendly solutions).
It can be an electrical, non-electrical machinery and static equipment manufacturer
too
The economy has been growing at an average growth rate of 8.8 per cent in
the last four fiscal years (2003-04 to 2006-07), with the 2006-07 growth rate of 9.6
per cent being the highest in the last 18 years. Significantly, the industrial and service
sectors have been contributing a major part of this growth, suggesting the structural
transformation underway in the Indian economy.
Technical and fundamental analysis is the strong theory accepted world wide
some investor strongly believes on fundamentals of company and some believe
technical plays very important role in investing. But it is mainly depends on demand
and supply for the stocks in the stock market.
An effort is made to make understand the reader of this project what is
fundamental analysis and what is technical analysis. By this project report one can
strive to calculate intrinsic value of the shares and understanding what graphs are
showing about the script.
Bibliography
BSPATIL 111
FUNDAMENTAL AND TECHNICAL ANALYSIS
1. Kotak securities.com
2. equitymaster.com
3. icicidirect.com
4. nseindia.com
5. bseindia.com
6. bhel.com
7. larsentabro.com
Reference Books
o Security Analysis and Portfolio Management.
Prasanna Chandra
o Financial management.
Khan and jain
Software used
Ms-Office 2003
Microsoft Excel
Microsoft Word
M S power point
Paint
BSPATIL 112