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SECURITY ANALYSIS OF MAJOR FIVE AUTOMOBILE COMPANIES LISTED IN INDIAN IN STOCK EXCHANGE

CHAPTER-1

INTRODUCTION

PGI SOM, Anna Universty


1.1 INTRODUCTION:

A security purchased for investment purposes, rather than

for resale to customers. Investment securities refer to certificates or

documents that indicate that you have an interest in a business or have

lent money to a company or a government entity. Investment securities

are of two types, namely equity securities (such as common stocks) and

debt securities (such as bank notes, Treasury bills and bonds). An entity or

corporation that issues securities is known as the issuer. Securities that

are purchased in order to be held for investment. This is in contrast to

securities that are purchased by a broker-dealer or other intermediary for

resale, simply investment of securities is the employment of funds with the

aim of achieving additional income or growth value. It involve the

commitment of recourses which gas been saved or put away form the

current consumption in the hope that some benefit will acquire in future.

Investing in securities such as shares, debentures and bonds are

profitable as well as exciting. It is indeed rewarding, but involves a great

deal of risk and calls for scientific knowledge as well as artistic skill. In

such investments, both rational as well as emotional responses are

involved.

India, today, is one of the fastest growing economies of the world.

Far reaching measures introduced by the government over the past few

years to liberalize the Indian market and integrate it with the global

economy are widely acknowledged.

The capital market consists of primary and secondary markets. The

primary market or new issue market is one in which long term capital is

raised by corporations directly from the public. The secondary market

refers to the stock market where the financial instruments/ securities

which are used for raising long term capital are traded.


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1.2 INDUSTRY PROFILE:

Capital Market:

The capital market is the market for securities, where companies and

governments can raise long term funds. The capital market includes the

stock market and the bond market. Financial regulators, such as the U.S.

Securities and Exchange Commission, oversee the capital markets in their

designated countries to ensure that investors are protected against fraud.

The capital markets consist of the primary market and the secondary

market. The primary market is where new stock and bonds issues are sold

(underwritten) to investors. The secondary markets are where existing

securities are sold and bought from one investor or speculator to another,

usually on an exchange (e.g.: - New York Stock Exchange).

Significance of Capital Market:

Capital market promotes capital formation and thereby economic

growth.

It mobilizes savings of the people for investments.

It channelizes the funds to the most productive sector.

It increases production and productivity and enhances economic

welfare of the society.

It helps the corporate sector expand and grow and diversify leading

to the growth of the economy.

Capital market participants:

There are several major players in the primary market. These

include the merchant bankers, mutual funds, financial institutions, foreign

institutional investors (FIIs) and individual investors. In the secondary

market, there are the stock brokers (who are members of the stock

exchange), registrars and transfer agents, custodian and depositories are


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capital market intermediaries that provide important infrastructure

services for both primary and secondary market.

Market Regulation:

It is important to ensure smooth working of capital market, as it is

the area where the players in the economic growth of the country. Various

laws have been passed from time to time to meet this objective; the

financial market in India was highly segmented until the initiation of

reforms in 1992 – 93 on account of a variety of regulations and

administered prices including barriers to entry. The reform process was

initiated with the establishment of securities and exchange board of India

(SEBI).

Securities Market:

The security market is the market for equity, debt and derivatives.

The debt market in turn may be divided into three parts – the Government

securities market, the corporate debt market and the money market. The

derivatives in turn may be divided into two parts- the options market and

the futures market. Except the derivatives market, each of the above

market has two components the primary market and the secondary

market. The market where the new securities where traded are called

secondary market.

Primary Market:

The primary is that part of the capital markets that deals with the

issuance of new securities. Companies, governments or public sector

institutions can obtain funding through the sale of a new stock or bond

issue. This is typically done through a syndicate of securities dealers. The

process of selling new issues to investors is called underwriting. In the

case of a new stock issue, this sale is an initial public offering (IPO).

Dealers earn a commission that is built into the price of the security

offering, though it can be found in the prospectus.


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Secondary Market:

The secondary market is the financial market for trading of

securities those have already been issued in an initial private or public

offering. Alternatively, secondary market can refer to the market for any

kind of used goods. The market that exists in a new security just after the

new issue is often referred to as the aftermarket. Once a newly issued

stock is listed on a stock exchange, investors and speculators can easily

trade on the exchange, as market makers provide bids and offers in the

new stock.

A stock market, or equity market, is a private or public market for

the trading of company stock and derivatives of company stock at an

agreed price; these are securities listed on a stock exchange as well as

those only traded privately. The size of the world stock market is

estimated at about $36.6 trillion US at the beginning of October 2008. The

world derivatives market has been estimated at about $480 trillion face or

nominal value, 12 times the size of the entire world economy.

Participants in the stock market range from small individual stock

investors to large hedge fund traders, who can be based anywhere. Their

orders usually end up with a professional at a stock exchange, who

executes the order. Some exchanges are physical locations where

transactions are carried out on a trading floor, by a method known as open

outcry. This type of auction is used in stock exchanges and commodity

exchanges where traders may enter "verbal" bids and offers

simultaneously. The other type of stock exchange is a virtual kind,

composed of a network of computers where trades are made electronically

via traders.


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INDIAN STOCK MARKET:

Indian stock markets are one of the oldest in Asia. The origin of

stock exchanges in India can be traced back to the later half of 19th century.

After the American civil war (1860-61) due to the share mania of the

public, the number of brokers dealing in shares increased. The brokers

organized as informal associations in Mumbai named “The Native Stock

and Share Brokers Association” in 1875.

Increased activity in trade and commerce during the First World

War and Second World War resulted in an increased share trading. Stock

exchanges were established in different centers like Chennai, Delhi,

Nagpur, Kanpur, Hyderabad and Bangalore. The growth of stock exchanges

suffered a setback after the end of World War. Worldwide depression

affected them. Most of the stock exchanges in the early stages had a

speculative nature of working without technical strength. Securities

Contracts regulation act 1956 gave powers to the central government to

regulate the stock exchanges.

Till recent past, floor trading took place in all the stock exchanges.

In the floor trading system, the trade takes place through open outcry

system during the official trading hours. Trading posts are assigned for

different securities where buy and sell activities of securities took place.

This system needs a face to face contact among the traders and restricts

the trading volume. The speed of the new information reflected on the

prices was rather slow. The deals were also not transparent and the

system favored the brokers rather than the investors. The setting up of

NSE and OTCEI with the screen based trading facility resulted in more and

more stock exchanges turning towards the computer based trading.

Bombay Stock Exchange introduced the screen based trading system in

1995, which is known as Bombay On-line Trading System (BOLT). Madras



Stock Exchange introduced Automated Network Trading System on 7th

October, 1996.

In terms of legal structure, the stock exchanges in India could be

segregated into two broad groups – 20 stock exchanges were set up as

companies, either limited by guarantees or by shares, and the 3 stock

exchanges which are functioning as ‘Associates Of Persons’ (AOP) viz ,BSE,

ASE and Madhya Pradesh Stock Exchange. The 20 stock exchanges which

are companies are, the stock exchanges of Bangalore, Bhubaneswar,

Calcutta, Cochin, Coimbatore, Delhi, Gauhati, Hyderabad, interconnected

stock exchange, Jaipur, Ludhiana, Madras, Magadh, Mangalore, NSE-Pune,

OTCEI, Sourashtra- Kutch, Uttar Pradesh and Vadodara. Apart from NSE,

all stock exchanges whether established as corporate bodies or AOPs, are

non – profit making organizations.

STOCK EXCHANGE:

Stock exchange is the place where buyers and sellers of stocks meet.

The prices of the shares are decided by demand and supply of the shares.

The buyers and sellers are represented by the brokers. Hence, the stock

exchange is an association of individual members called member brokers

(or simply members or brokers), formed for the express purpose of

regulating and facilitating the buying and selling of securities by the public

and institutions at large. A stock exchange in India operates with due

recognition from the government under the Securities and Contracts

(Regulations) Act, 1956. The member brokers are essentially the

middlemen, who carry out the desired transactions in securities on behalf

of the public (for a commission) or on their own behalf. Some exchanges

are formed and managed by limited companies whose shareholders may

be the member of the exchange and thereby license to offer brokerage

service to members of public. Some exchanges which are formed by



limited companies may have brokers who are not necessarily shareholders

of the exchange company.

Bombay Stock Exchange – BSE:

The Bombay/Mumbai Stock Exchange Limited (formerly, The Stock

Exchange, Mumbai; popularly called The Bombay/Mumbai Stock Exchange,

or BSE) has the greatest number of listed companies in the world, with

4700 listed as of August 2007. It is located at Dalal Street, Mumbai, India.

On 31 December 2007, the equity market capitalization of the companies

listed on the BSE was US$ 1.79 trillion, making it the largest stock

exchange in South Asia and the world. Around 6,000 Indian companies list

on the stock exchange, and it has a significant trading volume. The BSE

SENSEX (SENSitive indEX), also called the "BSE 30", is a widely used

market index in India and Asia. Though many other exchanges exist, BSE

and the National Stock Exchange of India account for most of the trading in

shares in India.

BSE Sensex or Bombay Stock Exchange Sensitive Index is a value-

weighted index composed of 30 stocks started in April, 1984. It consists of

the 30 largest and most actively traded stocks, representative of various

sectors, on the Bombay Stock Exchange.

These companies account for around one-fifth of the market

capitalization of the BSE. The base value of the Sensex is 100 on April 1,

1979, and the base year of BSE-SENSEX is 1978-79.

National Stock Exchange – NSE:

The National Stock Exchange of India Limited or S&P CNX NIFTY

(NSE) is a Mumbai-based stock exchange. It is the largest stock exchange in

India in terms of daily turnover and number of trades, for both equities

and derivative trading. The NSE was incorporated in November 1992 with

an equity capital of RS.25 crs. The International securities consultancy

(ISC) of Hong Kong has helped in setting up NSE.


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NSE is mutually-owned by a set of leading financial institutions,

banks, insurance companies and other financial intermediaries in India but

its ownership and management operate as separate entities. In October

2007, the equity market capitalization of the companies listed on the NSE

was US$ 1.46 trillion, making it the second largest stock exchange in South

Asia. NSE is the third largest Stock Exchange in the world in terms of the

number of trades in equities. It is the second fastest growing stock

exchange in the world with a recorded growth of 16.6%.

The NSE on April 22, 1996 launched a new equity Index. The NSE-

50, the new index, which replaces the existing NSE-100 index, is expected

to serve as an appropriate Index for the new segment of futures and

options.

“Nifty” means National Index for Fifty Stocks. The NSE-50 comprises

50 companies that represent 20 broad Industry groups with an aggregate

market capitalization of around Rs. 170,000 crs. All companies included in

the Index have a market capitalization in excess of Rs 500 crs each and

should have traded for 85% of trading days at an impact cost of less than

1.5% .The Nifty is a well diversified 50 stock index accounting for 22

sectors of the economy. It is used for a variety of purposes such as

benchmarking fund portfolios, index based derivatives and index fund.

OVER THE COUNTER EXCHANGE OF INDIA (OTCEI):

Promoted by a consortium of leading Financial Institutions of India

including Unit Trust of India (UTI), Industrial Credit & Investment

Corporation of India (ICICI), Industrial Development Bank of India (IDBI),

Industrial Financial Corporation of India (IFCI), Life Insurance Corporation

of India (LIC) and others, OTCEI is a recognized stock Exchange under the

Securities Contracts (Regulation) Act, 1956. It is set up to provide small

and medium sized companies’ access to the capital markets and to

investors a convenient mode of investments. It is ring less electronic


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national exchange listing an entirely new set of companies which

companies will not be listed on other stock exchanges. The companies

listed on any other exchanges cannot be listed on OTCEI. The OTCEI

Exchange can list companies with issued capital from Rs. 30lakhs to Rs.25

cores.

ABOUT AUTOMOBILE INDUSTRY:

Automobile industry is one of the fastest growing industries of the

world. With more than 2 million new automobiles rolling out each year, on

roads of India, the industry is set to grow further. Automobile industry

made its silent entry in India in the nineteenth century. Since the launch of

the first car in 1897, India automobile industry has come a long way.

Today India is the largest three wheeler market in the world and is

expected to take over China as the second largest automobile market, in

the coming years. Since the first car rolled out on the streets of Mumbai

(then Bombay) in 1898, The Automobile Industry of India has come a long

way. During its early stages the auto industry was overlooked by the then

Government and the policies were also not favorable. The liberalization

policy and various tax reliefs by the Govt. of India in recent years has made

remarkable impacts on Indian Automobile Industry. Indian auto industry,

which is currently growing at the pace of around 18 % per annum, has

become a hot destination for global auto players like Volvo, General

Motors and Ford. A well developed transportation system plays a key role

in the development of an economy, and India is no exception to it. With the

growth of transportation system the Automotive Industry of India is also

growing at rapid speed, occupying an important place on the 'canvas' of

Indian economy. Today Indian automotive industry is fully capable of

producing various kinds of vehicles and can be divided into 03 broad

categories: Cars, two-wheelers and heavy vehicles.



Indian automobile industry; manufacturing cars, buses, three

wheelers, two wheelers, commercial vehicles, heavy vehicles, provides

employment to a large number of workforce. The abolition of license raj in

1991opened the doors for international automobile manufacturers. A

number of leading global automotive companies entered into joint

ventures with domestic manufacturers of India and thus started the large-

scale production of automobiles in India. Some of the well-known players

of Indian automobile industry include: Hindustan Motors, Maruti Udyog,

Fiat India Private Ltd, Ford India Ltd., General Motors India Pvt Ltd, Toyota

Kirloskar Motor Ltd among others. The production of automobiles in India

is mainly for the domestic customers. Carswith79%ofautomobilesinIndia,

dominate the automobile industry in India. Some facts on Automobile

industry in India:

India has the fourth largest car market in the world

India has the largest three wheeler market in India

India is the second largest producer of two wheelers in the world

India ranks fifth in the production of commercial vehicles.

INDUSTRY TODAY:

Following India’s economic liberalization in 1991, the automobile

industry was opened for 100 percent foreign direct investment. A surge in

the country’s economic growth rate and purchasing power has fuelled a

17% annual growth rate in the Indian automobile industry since 1991. The

automotive industry generates direct and indirect employment to about

13.1million people as of 2006-07.

The automotive parts and cars export has grown at an annual rate

of 30 % per year in the 21st century. However, the India’s share of the

overall global automotive industry remains low as of 2007. Increased

competition amongst automobile manufacturers provides for a variety of

competitive options for the consumer.



India was one of the largest manufacturers of tractors in the world

in 2005-06, when it produced 293,000 units. India produced 65 Million

tyres during the financial year 2005-06. India’s tyre production meets

domestic demand, as well as is exported to over 60 countries.

India’s car market has emerged as one of the fastest growing in the

world. The number of cars sold domestically is projected to double by

2010, and domestic production is skyrocketing as foreign makers are

setting up their own production plants in India. The government’s 10-year

plan aims to create a $145 billion auto industry by 2016.

According to McKinsey&Company, the automotive sector’s drive for

lowering costs will lead to outsourcing. The global automotive industry’s

sourcing from emerging markets will reach $375 billion by 2015, up from

$65 billion in 2002. McKinsey thinks India can capture $25 billion of this

export potential. Out of 400 Indian suppliers, 80 % are ISO 9000 certified –

the international standard for quality management.

Most of India’s current automobile production meets domestic

demand. Forecasts predict sales of 4.2 Million four –wheel automobiles in

India by 2015. But, several manufactures are now focusing on exports, and

a diverse range of automotive components are now built and exported

from India’s passenger vehicle exports are forecast to rise from 170,000 in

2006 to 500,000 in 2010.

1.3 STATEMENT OF THE PROBLEM:

Security analysis is done on the five automobile company’s

securities from the objective of finding their investment attractiveness

with respect to their risk and return, so that investors can use the

information for better management of portfolios and also for the profitable

investment.



1.4 OBJECTIVES OF THE STUDY:

Objective of the study classified in two heads of primary and

secondary. They are;

PRIMARY OBJECTIVES:

Security analyzes of major five automobile companies listed in

Indian stock Exchange.

SECONDARY OBJECTIVES:

To select the profitable portfolio for the investors.

To find out intrinsic value of five companies.

To analyze the share price movements of companies.

To identify weather the share of companies are mispriced.

To measure the risk.

1.5 SCOPE OF THE STUDY:

The study helpful to identify how risk involved in the high volatile

market and also can identify the risk involved in the each shares. It is also

help to compare the risk and return of five years.

1.6 RESERCH METHODOLOGY: DATA COLLECTION:

The data is mainly collected by means of secondary data provided

form Cochin Stock Exchange and websites.

RESERCH DESIGN:

The research design adopted was descriptive in nature, Descriptive

studies aims at portraying accurately the characteristics of a particular

group or situation. Descriptive research is concerned with describing the

characteristics of a particular individual or a group. Here the researcher

attempts to present the existing facts by collecting data the method used

for analysis and interpretation is intrinsic value calculation and alpha,

beta.



SAMPLING METHOD:

Sampling technique used in this study is ‘Convenient sampling’

which comes under the purposive sampling which is also called as Non-

Random sampling.

1.7 TOOLS & TECHNIQUES:

The collected data has been analyzed using basic statistical tools like

ratios, charts and formulas.

FUNDAMENTAL ANALYSIS:

Ratio relates to fundamental analysis are follows:-

Earnings Per Share(EPS)

Dividend Per Share(DPS)

Dividend Payout Ratio

Return on Equity(ROE)

Price Earnings Ratio (PER)

Net Worth

INTRINSIC VALUE CALACULATION:-

Average Dividend payout Ratio

Average Retention Ratio

Average Return on Equity

Long term growth rate in dividend earning

Normalized Average Price Earnings Ratio

Projected Earnings Per Share

Intrinsic Value

RISK MEASURING TOOLS:

Beta

Alpha

TECHNICAL ANALYSIS:

Exponential Moving Average (EMA)

Moving Average Convergence and Divergence(MACD)



Relative Strength Index (RSI)

1.8PERIOD OF THE STUDY:

The study was done for a period of five years data’s (2007 to

2011).

1.9 DURATION OF THE STUDY:

This study conducted at Cochin Stock Exchange Ltd, The duration

considered for the purpose of the study was 45 days, starting 1st April

2010 to 15th May 2010.

1.10 LIMITATIONS OF THE STUDY:

The entire analysis was based on figures drawn from various

secondary sources whose accuracy cannot be fully assured.

Convenient sampling was used and hence all the limitations

pertaining to this may also become part of the findings of the study.

The sample size is restricted to 5 securities.



CHAPTER-2

REVIEW OF LITERATURE



SECURITY ANALYSIS:

Security analysis is the initial phase of the portfolio management

process. This consists of examining the risk-return characteristics of

individual securities. A basic strategy in securities investment is to buy

underpriced securities and sell overpriced securities. But the problem is

how to identify underpriced and overpriced securities, or, in other words,

‘mispriced’ securities.

Security analysis is about valuing the assets, debt, warrants, and

equity of companies from the perspective of outside investors using

publicly available information. The security analyst must have a thorough

understanding of financial statements, which are an important source of

this information. As such, the ability to value equity securities requires

cross-disciplinary knowledge in both finance and financial

accounting.While there is much overlap between the analytical tools used

in security analysis and those used in corporate finance, security analysis

tends to take the perspective of potential investors, whereas corporate

finance tends to take an inside perspective such as that of a corporate

financial manager.

Security analysis is the analysis of tradable financial instruments

called securities. These can be classified into debt securities, equities, or

some hybrid of the two. More broadly, futures contracts and tradable

credit derivatives are sometimes included. Security analysis is typically

divided into fundamental analysis, which relies upon the examination of

fundamental business factors such as financial statements, and technical

analysis, which focuses upon price trends and momentum. Quantitative

analysis may use indicators from both areas.


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There are two alternative approaches to security analysis, namely

fundamental analysis and technical analysis. They are based on different

premises and follow different techniques. Fundamental analysis, the older

of the two approaches, concentrates on the fundamental factors affecting

the company such as the EPS of the company, the dividend pay-out ratio,

the competition faced by the company, the market share, quality of

management, etc. A Fundamental analyst studies not only the

fundamental factors affecting the industry to which the company belongs

as also the economy fundamentals. Fundamental analysis helps to identify

fundamentally strong companies whose shares are worthy to be included

in the investor’s portfolio.

The second alternative approach to security analysis is Technical

analysis. A technical analyst believes that share price movements are

systematic and exhibit certain consistent patterns. He, therefore, studies

past movements in the price of shares to identify trends and patterns. He

then tries to predict the future price movements. The current market price

is compared with the future predicted price to determine the extent of

mispricing. Technical analysis is an approach which concentrates on price

movements and ignores the fundamentals of the shares.

Function of Security Analysis:

Marketing Research:

Managers need information in order to introduce products and

services that create value in the mind of the customer. But the perception

of value is a subjective one, and what customer’s value this year may be

quite different from what they value next year. As such, the attributes that

create value cannot simply be deduced from common knowledge. Rather,

data must be collected and analyzed. The goal of marketing research is to

provide the facts and direction that managers need to make their more

important marketing decisions. To maximize the benefit of marketing



research, those who use it need to understand the research process and its

limitations.

Investment Management:

Investment management is about attaining investment objectives under

specified constraints; for example, achieving the best possible return for a

given level of risk. To meet these objectives, the investor may buy equity in an

asset such a stock, a fund, or real estate, or buy debt issued by governments and

corporations. By effectively managing such investments the investment

manager can achieve a higher return for a specified acceptable level of risk.

There are many tools for reaching this goal.

Information security audit:

An information security audit is an audit on the level of information

security in an organization. Within the broad scope of auditing information

security there are multiple type of audits, multiple objectives for different

audits, etc. Most commonly the controls being audited can be categorized

to technical, physical and administrative. Auditing information security

covers topics from auditing the physical security of data centers to the

auditing logical security of databases and highlights key components to

look for and different methods for auditing these areas.

FUNDAMENTAL ANALYSIS:

Fundamental analysis is really a logical and systematic approach to

estimating the future dividends and share price. It is based on the

economic premises that shares price is determined by a number of

fundamental factors relating to the economy, industry and company.

Hence, the economy fundamentals, industry fundamentals and company

fundamentals have to be considered while analyzing a security for

investment purpose. Fundamental analysis is, in other words, a detailed

analysis of the fundamental factors affecting the performance of

companies.


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Each of the shares is assumed to have an economic worth based o its

present and future earning capacity. This is called its intrinsic value or

fundamental value. The purpose of fundamental analysis is to evaluate the

present and future earning capacity of the share based on the economy,

industry and company fundamentals and there by assess the intrinsic

value of the share with the prevailing market price to arrive at an

investment decision. If the market price of the share is lower than the

intrinsic value, then the investor will buy the share as it is under priced.

The price of such share is expected to move up in future to match with its

intrinsic value.

On the contrary, when the market price of the share is higher than

its intrinsic value, it is perceived to be over priced the market price of such

share is expected to come down in the future and hence the investor would

decide to sell such a share. Fundamental Analysis thus provides an

analytical frame work for investment decision making. This analytical

frame work is known as EIC framework (Economy-Industry-Company

Analysis).

Fundamental analysis is the examination of the underlying forces

that affect the well being of the economy, industry groups, and companies.

As with most analysis, the goal is to derive a forecast and profit from

future price movements. At the company level, fundamental analysis may

involve examination of financial data, management, business concept and

competition. At the industry level, there might be an examination of supply

and demand forces for the products offered. For the national economy,

fundamental analysis might focus on economic data to assess the present

and future growth of the economy. To forecast future stock prices,

fundamental analysis combines economic, industry, and company analysis

to derive a stock's current fair value and forecast future value. If fair value

is not equal to the current stock price, fundamental analysts believe that



the stock is either over or under valued and the market price will

ultimately gravitate towards fair value. Fundamentalists do not heed the

advice of the random walkers and believe that markets are weak-form

efficient. By believing that prices do not accurately reflect all available

information, fundamental analysts look to capitalize on perceived price

discrepancies. Fundamental analysis is a stock valuation method that uses

financial and economic analysis to predict the movement of stock

prices. The fundamental information that is analyzed can include a

company's financial reports, and non-financial information such as

estimates of the growth of demand for products sold by the company,

industry comparisons, and economy-wide changes, changes in government

policies etc..

Strengths of Fundamental Analysis:

Long-term Trends:

Fundamental analysis is good for long-term investments based on

long-term trends, very long-term. The ability to identify and predict long-

term economic, demographic, technological or consumer trends can

benefit patient investors who pick the right industry groups or companies.

Value Spotting:

Sound fundamental analysis will help identify companies that

represent a good value. Some of the most legendary investors think long-

term and value. Graham and Dodd, Warren Buffett and John Neff are seen

as the champions of value investing. Fundamental analysis can help

uncover companies with valuable assets, a strong balance sheet, stable

earnings, and staying power.

Business Acumen:



One of the most obvious, but less tangible, rewards of fundamental

analysis is the development of a thorough understanding of the business.

After such painstaking research and analysis, an investor will be familiar

with the key revenue and profit drivers behind a company. Earnings and

earnings expectations can be potent drivers of equity prices. Even some

technicians will agree to that. A good understanding can help investors

avoid companies that are prone to shortfalls and identify those that

continue to deliver. In addition to understanding the business,

fundamental analysis allows investors to develop an understanding of the

key value drivers and companies within an industry. A stock's price is

heavily influenced by its industry group. By studying these groups,

investors can better position themselves to identify opportunities that are

high-risk (tech), low-risk (utilities), growth oriented (computer), value

driven (oil), non-cyclical (consumer staples), cyclical (transportation) or

income-oriented (high yield).

Knowing Who's Who:

Stocks move as a group. By understanding a company's business, investors

can better position themselves to categorize stocks within their relevant

industry group. Business can change rapidly and with it the revenue mix of

a company. This happened to many of the pure Internet retailers, which

were not really Internet companies, but plain retailers. Knowing a

company's business and being able to place it in a group can make a huge

difference in relative valuations.

Weaknesses of Fundamental Analysis:

Time Constraints:



Fundamental analysis may offer excellent insights, but it can be

extraordinarily time-consuming. Time-consuming models often produce

valuations that are contradictory to the current price prevailing on Wall

Street. When this happens, the analyst basically claims that the whole

street has got it wrong. This is not to say that there are not misunderstood

companies out there, but it is quite brash to imply that the market price,

and hence Wall Street, is wrong.

Industry/Company Specific:

Valuation techniques vary depending on the industry group and

specifics of each company. For this reason, a different technique and model

is required for different industries and different companies. This can get

quite time-consuming, which can limit the amount of research that can be

performed. A subscription-based model may work great for an Internet

Service Provider (ISP), but is not likely to be the best model to value an oil

company.

Subjectivity:

Fair value is based on assumptions. Any changes to growth or

multiplier assumptions can greatly alter the ultimate valuation.

Fundamental analysts are generally aware of this and use sensitivity

analysis to present a base-case valuation, an average-case valuation and a

worst-case valuation. However, even on a worst-case valuation, most

models are almost always bullish, the only question is how much so

Analyst Bias:

The majority of the information that goes into the analysis comes

from the company itself. Companies employ investor relations managers

specifically to handle the analyst community and release information. As



Mark Twain said, "there are lies, damn lies, and statistics." When it comes

to massaging the data or spinning the announcement, CFOs and investor

relations managers are professionals. Only buy-side analysts tend to

venture past the company statistics. Buy-side analysts work for mutual

funds and money managers. They read the reports written by the sell-side

analysts who work for the big brokers (CIBC, Merrill Lynch, Robertson

Stephens, CS First Boston, Paine Weber, DLJ to name a few). These brokers

are also involved in underwriting and investment banking for the

companies. Even though there are restrictions in place to prevent a conflict

of interest, brokers have an ongoing relationship with the company under

analysis. When reading these reports, it is important to take into

consideration any biases a sell-side analyst may have. The buy-side

analyst, on the other hand, is analyzing the company purely from an

investment standpoint for a portfolio manager. If there is a relationship

with the company, it is usually on different terms. In some cases this may

be as a large shareholder.

The fundamental Analysis insists that no one should purchase or

sell a share on the basis of tips or rumors. The fundamental approach calls

up on the investor to make his buy or sell decision on the basis of a

detailed analysis of the information about the company, industry to which

the company belongs, and economy. This results in informed investing. For

this the fundamental analysis makes use of EIC framework of analysis.

Fundamental Analysis involves three steps:

Economy Analysis

Industry Analysis

Company Analysis

ECONOMY ANALYSIS:



The performance of the company depends on the performance of

the economy. If the economy is booming, incomes rise and demand for

goods will increase, the industries and companies in general tend to be

prosperous. On the other hand, if the economy is in recession, the

performance of companies will be generally bad.

Investors are considered with those variables in the economy,

which affect the performance of the company in which they tend to invest.

A study of these economic variables would give an idea about future

corporate earnings and payment of dividend and interest to investors.

MACRO ECONOMIC ANALYSIS:

The macro economy is the overall economic environment in which

all firms operate. The key variables commonly used to describe the state of

the macro economy are:

Growth rate of gross domestic product

Industrial growth rate and interest rates

Agriculture and monsoons

Savings and investments

Government and deficit

Price level and inflation

Balance of payments, Forex reserves and exchange rate

Infrastructural facilities and arrangements

INDUSTRY ANALYSIS:

An industry is generally described as a homogenous group of

companies. We may define an industry “as a group of firms producing

reasonably similar products which serve the same needs of a common set

of buyers”. An investor ultimately invests his money in the securities of

one or more specific companies. Each company can be considered as



belonging to an industry. The performance of the companies would

therefore, be influenced by the fortunes of the industry to which it belongs.

At any stage of economy, there are some industries, which are fast

growing and others are stagnating or declining. If an industry is growing

the companies within the industries may also be prosperous. The

performance of the companies will depend, among other things, upon the

state of industry to which they belong. Industry analysis refers to the

evaluation of the relative strength and weakness of particular industries.

COMPANY ANALYSIS:

Company analysis is the final stage of fundamental analysis. The

economy analysis helps the investor a broad outline of the prospectus of

the growth in the economy. The industry analysis helps the investor to

select in which investment would be rewarding. Now the investor has to

decide the company in which he should invest his money. Company

analysis provides the answer to this question.

It deals with the estimation of return and risk of individual shares.

This calls for information. Many pieces of information influence

investment decisions. Information regarding companies can be broadly

classified into two broad categories: Internal & External. Internal

information consists of data and events made public by companies

concerning their operations. The internal information sources include

annual reports to shareholders, public and private statements of officers of

the company, the company’s financial statements etc. external sources of

information are those generated independently outside the company.

These prepared by investment services and the financial press.

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

of the company because there is strong evidence those earnings have a

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

of earnings of a company, however, depend upon a number of factors



concerning the operations of the company. With a shortlist of companies,

an investor might analyze the resources and capabilities within each

company to identify those companies that are capable of creating and

maintaining a competitive advantage. The analysis could focus on selecting

companies with a sensible business plan, solid management and sound

financials.

FINANCIAL STATEMENTS:

The prosperity of a company would depend upon its profitability

and financial health. The financial statements published by a company

periodically help us to assess the profitability and financial health of the

company. The two basic financial statements provided by a company are

the Balance Sheet and the Profit and Loss Account. The first gives us a

picture of the company’s assets and liabilities while the second gives us a

picture of its earnings.

The balance sheet gives the list of assets and liabilities of a company

on a specific date. The major categories of assets are fixed assets and

current assets. Fixed assets are those assets which are intended to be used

up over a period of several years. Current assets are those assets which are

intended to be converted into cash in the near future (within one year).

The major categories of liabilities are outside liabilities and liability

towards share holders. The outside liabilities are categorised as short term

and long term liabilities. The short term liabilities which are expected to

be paid off with in next one year are known as current liabilities. The

balance sheet indicates the financial position of a company on a particular

date, namely the last day of the accounting year.

The profit and loss account, also called income statement, reveals

the revenue earned, the cost incurred and the resulting profit or loss of the

company for one accounting year. The profit after tax (PAT) divided by the

number of shares gives the earnings per share (EPS) which is a figure in



which most investors are interested. The profit and loss account

summarizes the activities of a company during account year.

ANALYSIS OF FINANCIAL STATEMENTS:

The financial statements of a company can be used to evaluate the

financial performance of the company. Financial ratios are most

extensively used for the purpose. Ratio analysis helps an investor to

determine the strengths and weaknesses of a company. It also helps him to

assess whether the financial performance and financial strength are

improving or deteriorating. Ratios can be used for comparative analysis

either with other firms in the industry through a cross sectional analysis or

with the past data through a time series analysis.

Different ratios measure different aspects of a company’s

performance or health. Four groups of ratios may be used for analyzing the

performance of a company.

Liquidity Ratios:

These measure the company’s ability to fulfill its short term obligations

and reflect its short term financial strength or liquidity.

Current Assets

Current Ratio =

Current Liabilities

A relatively high current ratio is an indication that the firm is liquid and

has the ability to pay its current obligations in tile as and when they

become due. On the other hand, a relatively low current ratio represents

that the liquidity position of the firm is not good and the firm shall not be

able to pay its current liabilities in time without any difficulties. An

increase in the current ratio represents that improvement in the liquidity

position of a firm and vice-versa.

Leverage Ratios:



These ratios are also known as capital structure ratios. They measure

the company’s ability to meet its long term obligations. They throw light

on the long term solvency of a company.

Debt Equity Ratio = Debt Capital

Owner’s Capital

Debt equity ratio is calculated to measure the extent to which debt

financing has been used in business. A low ratio is considered as favorable

from the long term creditor’s point of view because a high proportion of

owner’s funds provide a larger margin of safety for them. A debt equity

high ratio, which indicates that the claims of outsiders are greater than

those of the owners, may not be considered by the creditors because it

gives a lesser margin of safety for them at the time of liquidation of the

firm. But caution should be taken, as a very high ratio may be unfavorable

from the point of view of them because the firm may not be able to get the

credit without paying very high interest rates without accepting under

pressures and conditions of the creditors. In the same way a low ratio is

not considered satisfactory for the shareholders because it indicates that

the firm has not been able to use low cost outsider’s funds to magnify their

earnings.

Profitability Ratios:

These ratios are measure the results of business operations or overall

performance and effectiveness of the firm. These ratios are calculated by

relating the profits either to sales, or investments, or to the equity shares.

Earnings per Share = Profit after Tax (PAT)

No. of Equity Shares



EPS gives a view of the comparative earnings or earning power of a

firm. EPS calculated for a number of years indicates whether or not

earning power of the company has increased or not.

Dividend per Share = Amount declared as dividend

No. of Equity Shares

Dividend Payout Ratio (DPOR) = Dividend per Share

Earnings per Share

Dividend payout ratio is calculated to find out the extent to which

earnings per share have been retained in the business. A high ratio

indicates that a huge amount is paid as dividend by ploughing back of

profits which enables a company to grow.

Return on Equity = Profit after Tax (PAT)

Net Worth

Return on equity is more meaningful to the equity shareholders who

are interested to know profits earned by the company and those profits

which can be made available to pay dividend to them. Higher the ratio

better it is.

Price Earnings Ratio = Market price of share

Earning per Share

Price earnings ratio is calculated to make an estimate of appreciation in

the value of a share of a company and is widely used by investors to decide

whether or not to buy shares in a particular company. Higher the ratio

better it is.



Operating Profit Margin = Operating Profit

Net Sales

Net Profit Ratio= Profit after Tax (PAT)

Net Sales

Net profit ratio indicates the efficiency of the management in

manufacturing, selling, administrative and other activities of the firm.

Higher the ratio better is the firm’s profitability.

Intrinsic Value Calculation:

The intrinsic value calculation of variables such as brand name,

trademarks and copyrights are often difficult to calculate and sometimes

not accurately reflected in the market price. One way to look at it is that

the market capitalization is the price (i.e. what investors are willing to pay

for the company) and intrinsic value is the value (i.e. what the company is

really worth). Different investors use different techniques to calculate

intrinsic value.

Dividend Payout Ratio = DPS EPS

Average Dividend Pay-Out Ratio= Dividend pay-out ratio for 5 years

5

Average Retention Ratio= 1- Average Dividend Pay-out Ratio

Average Return on Equity (%) = Sum of ROE for 5 years/5

Long Term Growth Rate in Equity (g) =Average Retention Ratio*Average

ROE

Normalized Average P/E Ratio= Sum of P/E Ratio for 5 years

5

Projected EPS for current year= EPS for CurrentYear*(1+Growthrate/100)



Intrinsic Value= Projected EPS* Normalized Average P/E Ratio

Projected Dividend per Share=Dividend for Current Year*(1+g %)

Intrinsic value of a share represents the true worth or the future

earning capacity of share. It is the present value of all future amounts to be

received in respect of the ownership of that share at an appropriate

discount rate. When the intrinsic value of share is higher than its market

value, the share is under priced and the investor should sell the shares. If

the intrinsic value of share is lower than its market value, the share is

overpriced and is recommended to buy the shares.

RISK MEASURING TOOLS

Beta& Alpha

The systematic risk of a security is measured by statistical measure

called beta& alpha. The input data required for the calculation of beta&

alpha are the historical of all returns of a representative stock market

index.

The formula used for the calculation of beta is:

β ═ (n∑XY)-(∑X∑Y)

n∑X²- (∑X) ²

α=Y- X¯β

TECHNICAL ANALYSIS:

Technical analysis is an alternative approach to fundamental

analysis for the study of stock price behavior. Technical analyst believes

that the share price movements are systematic and exhibit certain

consistent patterns. The analyst studies past movements in the share price

to identify trend and pattern, and then try to predict the future price

movements. The current market price is compared with the future



predicted price to determine the extent of mis-pricing. Technical analysis

is an approach which concentrates on price movements and ignores the

fundamentals of the share.

Share prices are determined by the demand and supply

forces operating in the market. These demand and supply factors are in

turn are influenced by a number of fundamental factors as well as

psychological or emotional factors. Many of these factors cannot be

quantified. The combined impact of all these factors is reflected in the

share price movement. The technical analyst therefore Concentrates on

the movement of share prices and analyses the price and volume of

movement of individual securities as well as the market index.

A method of evaluating securities by analyzing statistics generated

by market activity, such as past prices and volume. Technical analysts do

not attempt to measure a security's intrinsic value, but instead use charts

and other tools to identify patterns that can suggest future activity. In

finance, technical analysis is a security analysis discipline for forecasting

the future direction of prices through the study of past market data,

primarily price and volume.

Technical analysis includes the study of chart patterns, candlesticks,

moving averages, and other indicators. It is easy to apply in any market, in

which the raw data (prices and volume) is available. With the help of

technical analysis, it is easy to understand the sentiments (psychology) of

the market and to forecast the prices, without looking at the fundamental

factors of a particular currency. – Technical analysis is helpful for short

term trading, swing trading, and long term investing.

Technical Analysis as a study of the stock market considering

factors related to the supply and demand of stocks. Technical Analysis

doesn’t look at underlying earnings potential of a company while

evaluating stocks {unlike fundamental Analysis}.It uses charts and


http://en.wikipedia.org/wiki/Security_analysis

http://en.wikipedia.org/wiki/Finance


computer programs to study the stock’s trading volume and price

movements in the hope of identifying a trend. In fact the decision made on

the basis of technical analysis is done only after inferring a trend and

judging the future movement of the stock on the basis of the trend.

Technical Analysis assumes that the market is efficient and the price has

already taken into consideration the other factors related to the company

and the industry. It is because of this assumption that many think technical

analysis is a tool, which is effective for short-term investing.

Scope and Advantages Technical Analysis:

Technical analysis is widely used by forex, equity, and commodity

traders, to determine the short term as well as the long term trends of the

market. The scope of technical analysis is increasing every day, as more

and more people are trying to learn the skills of technical analysis to earn

good returns.

Trend Analysis:

The biggest advantage of technical analysis is that is helps investors

and traders predict the trend of the market. Up trend, downtrend, and

sideways moves of the market are easy to predict, with the help of chart

analysis.

Entry/Exit Point:

Timing plays an important role in trading and investing. With the

help of technical analysis, traders and investors can predict the right time

to enter and exit a trade thereby enabling good returns. Chart patterns,

candlesticks, moving averages, Elliot wave analysis, and other indicators

are very useful for traders to make entry and exit points.

Provides Early Signal:

Technical analysis gives early signals and also paints a picture about

the psychology of investors and traders regarding what they are doing.



Price-volume analysis also indicates the movement of market makers and

their activities related to a particular market. Another main advantage of

technical analysis is that it gives an early signal when it comes to trend

reversal.

Quick and Less Expensive:

In currency trading, technical analysis is less expensive as compared

to the fundamental analysis and there are so many companies that provide

free charting software. Technical analysis gives a quick result for traders

who use 1 minute, 5 minutes, 30 minutes, and 1 hour charts. For instance,

the formation of a head and shoulder on 1 minute and 5 minutes chart

gives fast results, as compared to the daily chart.

Provides Lots of Information:

Technical charts provide a lot of information that helps the traders

and investors build their positions and take trades. Information like

support, resistance, and chart pattern, momentum of the market, volatility,

and trader’s psychology are just some examples of types of information

provided by technical analysis and used by traders in the Forex market.

Who uses Technical Analysis?

Investors for their short-term trading decisions use Technical

Analysis. This short-term may is further divided in day trading, short-term

investment and for hedging purposes. The role played by Technical

Analysis in each case is as follows:

1) Day Traders: A day trader is one who takes and squares off his position

both on the same day. Mostly a day trader counts on turnover rather than

margin. A day trader will interpret the market movement.

2) Short term investors: These people form the biggest clientele base of

both the brokers and the Technical Analyst.

3. Hedgers: These are generally big investors, who have lot of money at

stake and hence they look to have some hedging of their risk. The strategy



followed by this section of investors is that they compare the stock in

consideration with the index and on the basis of the result of this

comparison they take their position in the stock.

Steps in Technical Analysis:

1. Study the past movements in the share price and identify the trends

and establish patterns.

2. Look at the current movement in the share price and identify whether

the trends and established patterns are applicable, if yes; make

extrapolations to predict the future price movements. The rationale

behind the technical analysis is that the share prices move in trends

or waves which may be upward or downward. It s believed that the

present trends are influenced by the past trends. The technical

analyst, therefore, analyses the price and volume movements of

individual securities as well as the market index. Thus technical

analysis is really a study of past or historical price volume movements

so as to predict the future stock price behavior.

The Basic Principles of Technical Analysis:

The basic principles on which technical analysis is based may be summarized as follows:

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

factors operating in the market.

2. There are both rational and irrational factors which surround the

supply and demand factors of a security.

3. Security prices behave in a manner that their movement is

continuous in a particular direction for some length of time.

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

in the demand and supply factors.

5. The shifts in demand and supply can be detected through charts

prepared specially to show market action.



6. Patterns which are projected by charts record price movements and

these recorded patterns are used by analysts to make forecasts about

the movement of prices in future.

TOOLS USED:

EXPONENTIAL MOVING AVERAGE (EMA):

A moving average is a summary measure of price movement which

reduces the distortions to a minimum by evening out the fluctuations in

prices. The underlying trend in prices is thus clearly discernible when

moving averages are used. A weighted moving average is weighted in favor

of the most recent observations and therefore, earns than simple moving

average.

EMA= (Closing price- Previous EMA)*Factor + Previous EMA.

Where Factor=2/ (n+1)

n= Number of days for which the average is to be calculated.

The EMA for the first day is taken the closing price of that day itself.

A 12 day average would indicate the short trends; a 48 day average would

indicate medium term trend; and a 200 day average would represent the

long term trend. The moving average is plotted on the prize charts. The

curved line joining these moving average represent the trend line, it may

taken as the first sign of trend reversal.

RELATIVE STRENGTH INDEX (RSI):

The Relative Strength Index (RSI) is a popular oscillator which

measures movement, used by the commodity trades. It was first

introduced by Wells Wilder. It is a powerful indicator used to identify the

inherent strength and weakness of a particular scrip or market. This is a

powerful indicator that signals buying and selling opportunities ahead of



the market. The name “Relative Strength Index” is slightly misleading, as

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

the internal strength of a single security.

RSI for security is calculated by the following formulae:

RSI=100-[100/ (1+RS)]

Where, RS= Average gain per day Average loss per day

The most commonly used time period for the calculation of RSI is 14

days. For the calculation a 14 day RSI, the gain per day or loss per day is

arrived at by comparing the closing price of a day with that of previous day

for a period of 14 days. The gains are added up and divided by 14 to get

the average gain per day. The average gain per day and average loss per

day are used in the above formula for calculating the RSI for a day. In this

way RSI values can be calculated for a number of days. After such data for

a number of days, graphs can be plotted. The graph can tell the rise or fall

and time for buying or selling.

MOVINGAVERAGE CONVERGENCE AND DIVERGENCE (MACD):

MACD is an oscillator that measures the convergence and

divergence between two exponential moving averages. A short term

exponential moving average and long term exponential moving average

are calculated with the help of the closing price data. A 12 day and 48 day

exponential moving averages constitute a popular combination. The

difference between the short term EMA and the long term EMA represents

MACD.

The MACD values for different days are derived by deducting the

long term EMA for each day from the corresponding short term EMA for

the day. These MACD values are plotted on an XY graph with MACD values



on the Y-axis and time periods on X-axis. The MACD line would oscillate

across the zero line. If the MACD line crosses to zero line from above, the

trend can be considered to have turned bearish, signaling a selling

opportunity. On the other hand, if the MACD line moves above the zero line

from below, the trend can be said to have turned bullish and indicates a

buying opportunity.



CHAPTER -3

COMPANY PROFILE

COMPANY PROFILE:

SHAREKHAN LIMITED

Sharekhan is one of the top retail brokerage houses in India with a strong online trading platform. The company provides equity based products (research, equities, derivatives, depository, margin funding, etc.). It has one of the largest networks in the country with 704 share shops in 280 cities and India’s premier online trading portal www.sharekhan.com. With their research expertise, customer commitment and superior technology, they provide investors with end-to-end solutions in investments. They provide trade execution services through multiple channels - an Internet platform, telephone and retail outlets. Sharekhan was established by Morakhia family in 1999-2000 and Morakhia family, continues to remain the largest shareholder.

It is the retail broking arm of the Mumbai-based SSKI [SHANTILAL SHEWANTILAL KANTILAL ISWARNATH LIMITED] Group. SSKI which is established in 1930 is the parent company of Sharekhan ltd. With a legacy of more than 80 years in the stock markets, the SSKI group ventured into institutional broking and corporate finance over a decade ago. Presently SSKI is one of the leading players in institutional broking and corporate finance activities. Sharekhan offers its customers a wide range of equity


http://www.sharekhan.com/


related services including trade execution on BSE, NSE, and Derivatives. Depository services, online trading, Investment advice, Commodities, etc.Sharekhan Ltd. is a brokerage firm which is established on 8th February 2000 and now it is having all the rights of SSKI. The company was awarded the 2005 Most Preferred Stock Broking Brand by Awwaz Consumer Vote. It is first brokerage Company to go online. The Company's online trading and investment site –www.sharekhan.com- was also launched on Feb 8, 2000. This site gives access to superior content and transaction facility to retail customers across the country. Known for its jargon-free, investor friendly language and high quality research, the content-rich and research oriented portal has stood out among its contemporaries because of its steadfast dedication to offering customers best-of-breed technology and superior market information.Share khan has one of the best states of art web portal providing fundamental and statistical information across equity, mutual funds and IPOs. One can surf across 5,500 companies for in-depth information, details about more than 1,500 mutual fund schemes and IPO data. One can also access other market related details such as board meetings, result announcements, FII transactions, buying/selling by mutual funds and much more.Sharekhan's management team is one of the strongest in the sector and has positioned Sharekhan to take advantage of the growing consumer demand for financial services products in India through investments in research, pan-Indian branch network and an outstanding technology platform. Further, Sharekhan's lineage and relationship with SSKI Group provide it a unique position to understand and leverage the growth of the financial services sector. We look forward to providing strategic counsel to Sharekhan's management as they continue their expansion for the benefit of all shareholders."

SSKI Corporate Finance Private Limited (SSKI) is a leading India-based investment bank with strong research-driven focus. Their team members are widely respected for their commitment to transactions and their specialized knowledge in their areas of strength. The team has completed over US$5 billion worth of deals in the last 5 years - making it among the most significant players raising equity in the Indian market. SSKI, a veteran equities solutions company has over 8 decades of experience in the Indian stock markets.



If we experience their language, presentation style, content or for that matter the online trading facility, we'll find a common thread; one that helps us make informed decisions and simplifies investing in stocks. The common thread of empowerment is what Sharekhan's all about!"Sharekhan has always believed in collaborating with like-minded Corporate into forming strategic associations for mutual benefit relationships" says Jaideep Arora, Director - Sharekhan Limited.Sharekhan is also about focus. Sharekhan does not claim expertise in too many things. Sharekhan's expertise lies in stocks and that's what he talks about with authority. So when he says that investing in stocks should not be confused with trading in stocks or a portfolio-based strategy is better than betting on a single horse, it is something that is spoken with years of focused learning and experience in the’ stock markets. And these beliefs are reflected in everything Sharekhan does for us! Sharekhan is a part of the SSKI group, an Indian financial services power house, with strong presence in Retail equities Institutional equities Investment banking.

In Nagpur it is having the branches at C.A. road, near telephone exchange square and Khare town, Dharampeth and 12-13 franchisees in Nagpur. We have been given the centre at C.A. road.

Sharekhan provides 4 in 1 account.- Demat a/c- Trading a/c: for cash calculation- Bank a/c: for fund transfer- Dial and Trade: for query relating trading

Products: Mutual fund schemes Insurance Portfolio Management System Shares – online and offline Bonds Fixed Deposits Commodities

Out of these we have to mostly sell demat accounts and Mutual Funds. Demat account:



Sharekhan is a depository participant. This means that we can keep the shares in dematerialized form in Sharekhan. But for this one has to the demat account in Sharekhan. Dematerialization is the process by which a client can get physical certificates converted into electronic balances maintained in his account with the DP.

In Sharekhan, under demat account there are two types of terminals.

TYPE OF DEMAT ACCOUNT TERMINAL

DEPOSIT (Refundable) CHARGES (nonrefundable)

CLASSIC Rs.5000 Rs.750

Rs.10000 Nil

TRADETIGER Rs.5000 Rs.1000

Rs.10000/25000 Nil

Its core services are:

Equities, and Derivatives trading on the National Stock Exchange of India Ltd. (NSE), and Bombay Stock Exchange Ltd. (BSE),

Commodities trading on National Commodity and Derivatives Exchange India (NCDEX) and Multi Commodity Exchange of India Ltd. (MCX),

Depository services, Online trading services, IPO Services, Dial-n-Trade Portfolio management services, Fundamental and Technical Research services, In addition to this they also provide advisory services and

distributions for mutual funds. Sharekhan ValueLine (a monthly publication with reviews of

recommendations, stocks to watch out for etc.) Daily research reports and market review (High Noon & Eagle Eye) Pre-market Report Daily trading calls based on Technical Analysis



Cool trading products (Daring Derivatives and Market Strategy) Personalized Advice Live Market Information Sharekhan First Step

Sharekhan First Step

The Sharekhan FirstStep is a brand new program designed especially for those who are new to investing in shares. All one have to do is open a Sharekhan FirstStep account and they guide us through the investing process.

Market Share Sharekhan enjoyed about 20 per cent market share in Web business (Internet trading) in stock markets. Three years ago, Web trading showed lot of promise but with the market witnessing a downturn, there was not much interest among retail customers.

ProfitsThe share of Web trading constituted 22 per cent of the revenue. As Sharekhan's daily trading volume was over Rs 200 crore, the share of Web trading at about Rs 40 crore a day was substantial and a larger part of the volume was coming from day traders.

Features of Trading With Sharekhan:1. Freedom from paperwork2. Instant credit and money transfer3. Trade from any net enabled PC4. After hour orders5. Online orders on the phone6. Timely advice and-research reports7. Real-time Portfolio tracking8. Information and Price alerts.

FINANCIAL CAPABILITY

Taking in to consideration all its assets and liabilities company is valued at around Rs. 750-850 crores.



HIERARCHY IN SharekhanThere are 14 main hierarchical levels in Sharekhan:

1) Trainees2) Super trainees3) Sales executives4) Assistant sales manager5) Area sales manager : Mr. Chirag Joshi6) City sales manager7) Assistant branch manager8) Branch manager9) Regional head10) Cluster head11) Business head 12) Country head13) Directors14) CEO

SWOT ANALYSIS OF SHAREKHAN

STRENGTHS WEAKNESSES

First brokerage firm to go online.

Products

PMS Services.

Technology

Online fund transfer.

Research reports.

Clients (average of 15,000 accounts per year)

Recommendations from clients.

Free Demat a/c opening.

Low annual maintenance charge

High brokerage charges but now they have overcome this by a new prepaid scheme in which brokerage is reduced to half.



OPPORTUNITIES THREATS

Huge market. Volatility of the share market.

Competitors.

Account opening:

Opening a DP account with Sharekhan

One can open a Depository Participant (DP) account, either through a Sharekhan branch or through a Sharekhan Franchisee center.

There is no fee for opening DP accounts with Sharekhan. However a nominal deposit (refundable) is charged towards services which will be adjusted against all future billings.

All investors have to submit their proof of identity and proof of address along with the prescribed account opening form.

List of Documents required to open an account with Sharekhan:1) Proof of Identity

You can submit a photo copy of any of the followingo Voter ID o Passporto PAN Cardo MAPIN UID Cardo Driving Licenseo Photo I card issued by Employer registered under MAPIN

2) Copy of Ration Card

3) Address ProofYou can submit a photo copy of any of the following

o Voter ID Cardo Driving Licenseo Passport



o Ration Cardo Telephone Billo Electricity Billo Leave-Licenseo Bank Passbooko Latest Bank Statemento Insurance Policyo Flat Maintenance Bill

4) A copy of cancelled cheque5) Nominee photograph, if filled6) Signed Photograph of all holders

BROKERAGE STRUCTURE OF SHAREKHAN

BROKERAGE:INTRADAY DELIVERY

CASH- EQUITIES 0.05% 0.5%

FnO 0.05%

PREPAID SCHEME 0.025% 0.25%

Sharekhan has tie up with the following banks:

HDFC Axis Bank IDBI Citi Bank IndusInd Bank Union Bank ICICI Oriental Bank Of Commerce



MINIMUM INVESTMENT IN MUTUAL FUND:

INVESTMENT MINIMUM AMOUNT

Mutual Fund (Any Company) 5000

Systematic Investment Plan (Any Company)

500

ADVANTAGES OF SHAREKHAN:

1. Online trading is very user friendly and one doesn't need any software to access.

2. They provide good quality of services like daily SMS alerts, mail alerts, stock recommendations etc.

3. Sharekhan has ability to transfer funds from most banks. Unlike ICICI Direct, HDFC Sec, etc., so investor not really needs to open an account with a particular bank as it can establish link with most modern banks.

CUSTOMER

Business class people (high class)

High Net worth Individuals

Service class people

Government Employees

Young Adults (19-30 yrs.)

Adults (35-50 yrs.)

HUF (Hindu Undivided Family)

Women (literate and working)



OBJECTIVE:

To project Sharekhan as an authority in the retail stock trading business.

To execute business for the company by selling demat accounts and mutual funds.

To study the various products of the company.

To know how to open and close the calls.

To learn the online terminal used for trading.

To know the various policies of the company.

To know how to handle various types of customers.

To know various reasons for market fluctuations.

To learn to manage time.

To gain practical knowledge of the market.


COMPETITORS

1. India Bulls

2. Motilal Oswal

3. Religare

4. Kotak Securities

5. ICICI Direct

6. Anand Rathi

7. India Infoline

8. Reliance Money

9. Angel Broking


To have a practical experience of working in a reputed organization.

TARGETS / TASKS:

TARGETS

To sell 24 Demat accounts worth Rs.2,00,000/- for 3 month for Sharekhan Limited at Nagpur.

To sell 2 Demat accounts per week for 3 months for Sharekhan limited at Nagpur.

To sell Mutual Funds of various companies through Sharekhan Limited in Nagpur city for 3 months.

TASKS

To collect the leads. To do the telecalling and take appointments. To attend the appointment on prescribed time. To tell the client about the company and its products. To tell the client about the advantages of opening a demat account

with Sharekhan limited. To convince the clients to do Online Trading. To explain him the terms and conditions of the product. To convince the client to open Demat account at Sharekhan ltd. To give a live demo of how the online terminal works. By means of presentation explaining them how to trade online. To take signatures of the client on the KYC (know your customer)

form. To collect the documents required to open a demat account. To fill up the KYC form for the customer.



To install the software in the client`s computer. To make the client trade. To sell the mutual funds. To get the references from the client. To conduct seminars in the banks and good companies. To submit the daily report of myself and of all the 6 people in my

group to the company guide.



CHAPTER-4

ANALYSIS AND

INTERPRETATION

4.1 ASHOK LEYLAND LTD

COMPANY PROFILE:

Ashok Leyland Ltd (ALL) was built-in 1948 as Ashok Motors for

accumulate Austin car in India. ALL, a company under Hinduja group is the

second-largest manufacturer of medium/heavy-duty vehicles in India and

the first ISO/TS 16949 Corporate Certified Indian auto company which is

specific to the auto industry. In the year of 1955 the Ashok Motors came to

known as Ashok Leyland due to the agreement with Leyland Motors, UK,

for manufacture Leyland vehicles. ALL have the manufacturing plants



located in Ennore (Chennai, TN), Ambattur (Chennai, TN), Hosur (TN)

(Three), Bhandara (Maharashtra) and Alwar (Rajasthan) with an annual

production capacity of 84,000 vehicles. The company supplies both to

State Transport undertakings (STUs) and Defence. The company has

supplied specially developed light recovery vehicles (LRVs) to the Indian

Army. The company has also broken new ground Buses running on CNG

fuel in India and this category of buses are running lucratively in Bombay

and Delhi. ALL furnished lot of thrust to new range of Intermediate

Commercial Vehicles, which fall between the light and heavy ranges of

Commercial Vehicles, with the technical assistance from IVECO.

Commercial production of the 709 and 909 models has commenced under

the first phase of expansion cum modernization.In 1993, it became the

first in India's automobile history to win the ISO 9002 certification. The

more comprehensive ISO 9001 certification came in 1994. The company

raised Rs 436 cr through a GDR issue in 1995. ALL acknowledged QS 9000

in 1998 and ISO 14001 certification for all vehicle manufacturing units in

2002.. In 2006-07, Ashok Leyland has entered the knowledge business

space by offering of Design and Engineering Services. The company is

building up Ashley Design and engineering Services (ADES), a division

focused on provision of design and engineering services to the automobile,

power engineering and aerospace sectors and the company has also

entered into a Joint Venture with Ras Al Khaimah Investment Authority

(RAKIA) in the U.A.E. to put up a plant for building bus bodies in the U.A.E.

Ashok Leyland acquired the Truck Business Unit of AVIA a.s. in Prague,

Czech Republic in October 2006. During the year 2007 ALL noticed a share

purchase agreement with Defiance Testing and Engineering Services, Inc,

Michigan, USA to acquire the entire equity capital for a consideration of

$17 million and the company has pierced into a Joint Venture with the

Alteams Group, Finland to manufacture High Pressure Die Castings (HPDC)



aluminum products predominantly for the automotive and

telecommunications sector. Ashok Leyland has announced its entry into

the pre-owned commercial vehicles market with Altrux would be

marketed through TVS & Sons Ltd. in Kerala. ALL and automotive supplier

Siemens VDO Automotive AG, Germany, have signed an harmony for a joint

venture to propose, grow and settle in infotronics products and services

for the transportation sector.

As on May 2008, the company made the legal formation of

the three JV companies for the Light Commercial Vehicle (LCV) business in

India for vehicle manufacturing, power train manufacturing and

technology development. Such three companies are Ashok Leyland Nissan

Vehicles Pvt. Ltd, Nissan Ashok Leyland Power train Pvt Ltd and Nissan

Ashok Leyland Technologies Pvt Ltd. The Ashok Leyland s Nissan LCV

project crossed a significant milestone during September of the year 2008

with the signing of a Memorandum of Understanding with the Government

of Tamil Nadu for acquiring 380 acres of land to locate the facilities of the

joint venture companies at Pillaipakkam, near to Chennai. ALL decided to

double investment in Uttaranchal from Rs 1,000 cr to Rs 2,000 cr as a part

of its expansion plan and (ALL) is ramping up investments in its

commercial vehicle (CV) business by investing close to Rs 6,000 cr in the

next few years for attain the leadership quality in the same field. The

company's production capacity planned by the year 2010 will be

additionally 100,000 vehicles.

4.1.1 SHAREHOLDING PATTERN ON ASHOK LEYLAND LTD

Shareholding pattern as on Dec

2011 Shares [%]

Foreign 346,774,644.00 26.07Institutions 276,695,702.00 20.80Govt Holding 1,109,360.00 0.08



Non Promoter Corp. Hold. 32,900,749.00 2.47Promoters 513,618,712.00 38.61Public & Others 159,239,150.00 11.98TOTAL 13,303,383,17.00 100

(Source: secondary data)

4.1.1 SHAREHOLDING PATTERN ON ASHOK LEYLAND LTD.

Foreign26%

Institutions21%

Govt Holding0%

Non Promoter Corp. Hold.2%

Promoters39%

Public & Others12%


4.1.2 RETURN ON EQUITY

YEAR 2011 2010 2009 2008 2007

Equity share capital 133.03 133.03 132.39 122.16 118.93

Reserves & surplus 3340.86 2015.95 1762.18 1290.29 1048.94

Net worth 3473.89 2148.98 1849.57 1412.45 1167.87

PAT 190.00 469.31 441.29 327.32 271.41

Return on equity 0.0546 0.2184 0.2329 0.2317 0.2324

Return on equity % 5.46 21.84 23.29 23.17 23.24

4.1.3 PAYOUT RATIO

YEAR 2011 2010 2009 2008 2007



EPS 1.26 3.27 3.12 2.5 2.14

DPS 1.00 1.50 1.20 1.00 1.00

PAYOUT 0.7936 0.4587 0.4807 0.48 0.4672

DIVIDEND

PAYOUT

79.36 45.87 48.07 48 46.72

4.1.4 PRICE EARNING RATIO

YEAR 2011 2010 2009 2008 2007

MPS 18.15 35.40 38.40 40.30 21.05

EPS 1.26 3.27 3.12 2.5 2.14

PRICE EARNING

RATIO

14.40 10.82 12.30 16.12 9.836

4.1.5 NORMALIZED P.E RATIO

YEAR 2011 2010 2009 2008 2007

EPS 1.26 3.27 3.12 2.50 2.14

EARNINGS

YIELD

0.0238 0.09237 0.08125 0.06203 0.10166

DIVIDEND

YIELD

0.0209 0.04237 0.03906 0.02977 0.0475

LOW 23.16 26.15 29.10 20.40 17.00

HIGH 43.58 57.50 53.00 42.75 21.08



LOW/EPS 8.355 7.996 9.326 8.16 7.94

HIGH/EPS 15.374 17.58 16.98 17.1 9.836

AVERAGE

PRICE EARNING

11.86 12.788 13.153 12.63 8.9

NORMALISED

PRICE EARNING

RATIO

(11.86+12.78+13.15+12.63+8.9 )/5=59.32/5=11.864

4.1.6 INTRINSIC VALUE CALCULATION OF ASHOK LEYLAND LTD

DIVIDEND PAYOUT RATIO

(DPOR) DPS/EPS

Average Dividend Pay-Out Ratio=

Dividend pay-out ratio for 5 years/5

(.7936+.4587+.4807+.48+.4672)/5

=.5360

Average Retention Ratio=

1- Average Dividend Pay-out Ratio

1-.5360=.464

Average Return on Equity (%)=

Sum of ROE for 5 years/5

(5.46+21.84+23.29+23.17+23.24)/5

=19.4



Long Term Growth Rate in Equity

(g)= Average Retention Ratio*

Average ROE

.464*19.4=9.0016

Normalized Average P/E Ratio=

Sum of P/E Ratio for 5 years /5

(14.40+10.82+12.30+16.12+9.836)/5

=12.69

Projected EPS for 2012= EPS for

Current Year*(1+Growthrate/100)

1.26*(1+9.0016/100)=1.3734

Intrinsic Value= Projected EPS*

Normalized Average P/E Ratio

1.3734*12.69=17.42

Projected Dividend per

Share=Dividend for Current

Year*(1+g %)

1*(1+9.0016/100)=1.09

INTERPRETATION:

The intrinsic value of the share of Ashok Leyland Ltd is

Rs.17.42which is lower than the market price of Rs.22.30 (as on March 31st

March 2011). This reveals that the share is at present overpriced and

should be preferred for selling. The projected values of both EPS and DPS

amount to Rs.1.37 and Rs.1.09, both of which are higher than their

corresponding current values of Rs.1.26 and Rs.1.00.

4.2 HEROHONDA MOTORS LTD

Hero Honda Motors Ltd, a name gives the origin of the company, the

joint venture between India's Hero Group and Honda Motor Company,

Japan was the reason for inception of the company, the agreement was

signed in 1983 and the company was incorporated in the year of 1984. It is

a world's largest two-wheeler manufacturing company and also one of the

most successful joint ventures worldwide. Hero Honda bikes currently

spin out from its three globally benchmarked manufacturing units sited at

Dharuhera and Gurgaon in Haryana and Haridwar, Uttrakhand. These

plants collectively are proficient of producing out 4.4 million units per



year. At first in India to prove that it was possible to drive a vehicle

without polluting the roads by the one and only company Hero Honda

Motors. Over 20 million Hero Honda two wheelers squash Indian roads.

After a year from inception, in 1985 the company's first product was

released under the name of "CD 100". In the year 1994 company's

extraordinary product was came to existence, a new motorcycle model

"Splendor" was introduced, apart from this event the company have

produced 1,000,000th motorcycle in the same year. An event to the

company as well as the habitual, the number of new models and attractive

market capture motorcycles was continuously came to subsist and also

coming up. Hero Honda has consistently matured at double digits since its

commencement and today, every second motorcycle sold in the country is

a Hero Honda. Every 30 seconds, someone in India buys Hero Honda's top

selling motorcycle "Splendor". This festive season, the company sold half a

million two wheelers in a single month a feat unparalleled in global

automotive history.

In the year 1997 Hero Honda's 2nd manufacturing plant at Gurgaon

was inaugurated and Environment Management System of Gurgaon Plant

certified ISO-14001 by DNV Holland in 2000. The brand "Splendor"

declared as 'World No. 1' largest selling single two-wheeler model in the

same year. "Hero Honda Passport Programme" under in CRM was

launched, one of the largest programs of this kind in the world, has over 3

million members on its roster. The company was achieved a record of one

million production in one single year in 2001. Hero Honda becomes the

first Indian Company to cross the cumulative 7 million sales mark with

help four type of new model release (CD Dawn, Splendor +, Passion Plus

and Karizma) in the year of 2003 and the company was honored as Most

Respected Company in Automobile Sector by Business World. Joint

Technical Agreement was renewed in 2004 and Adjudged as the Best



Value Creator - Large Size Companies 2003-04 by The Outlook Money.

Hero Honda and SBI Cards launch co-branded credit card for Hero Honda's

customers. The next generation model bikes are introducing by the

company in every aspect, in 2005, the company introduced 5 new models

to catch the pulse of the customers need. Awaaz Consumer Awards 2005 -

India's most preferred two-wheeler brand by CNBC in the 'Automobiles'

category and Bike Maker of the Year Award by Overdrive Magazine was

conferred to the company along with two more awards for the same year.

During the year 2005-06 the plants capacities expanded to allow for 9,

00,000 additional in units, at an investment outlay of Rs. 143 crore and

added an entirely new venture- Hero Honda Sure! For pre-owned

motorcycles, another benchmarks redefining initiative of the company.

During the period 2007-08 Hero Honda achieved yet another

milestone of two crore bikes. In a country of a billion people, it signifies a

Hero Honda bike in every 50 people and launched five new products in

this period - Splendor NXG, refreshed Pleasure, the new Super Splendor,

new Passion Plus and of course our most recent launch Hunk. The

company received NDTV Profit Car India & Bike India Awards - Bike

Manufacturer of the year and Overdrive Magazine's Bike Manufacturer of

the year awards. Hero Honda coveted position of World No 1 Two-wheeler

Company for the seventh consecutive year.

Having reached an unassailable pole position in the Indian two

wheeler market, Hero Honda is constantly working towards consolidating

its position in the market place. The company moving with believes that

changing demographic profile of India. This would provide the growth

ballast that would sustain Hero Honda in the years to come. Hero Honda

Motors Limited is pioneered India's motorcycle industry and its

responsibility now to take the industry to the next level by level of its

accomplishment.



4.2.1 SHAREHOLDING PATTERN ON HERO HONDA MOTORS LTD

Shareholding Pattern As On

Dec 2011 Shares [%]Foreign 57830555.00 28.76Institutions 73281272.00 32.65Govt Holding 241826.00 0.10Non Promoter Corp. Hold. 16279789.00 7.25Promoters 59893658.00 26.69Public & Others 16900582.00 7.54Totals 278,821,265.00 100


4.2.1 SHAREHOLDING PATTERN ON HERO HONDA MOTORSLTD.

Foreign28%

Institutions32%

Govt Holding

0%

Non Pro-

moter Corp. Hold.7%

Promoters26%

Public & Others7%



YEAR 2011 2010 2009 2008 2007


Reserves & surplus 3760.81 2946.30 2430.12 1969.39 1453.44

Net worth 3800.75 2986.24 2470.06 2009.33 1493.38

PAT 1281.76 967.88 857.89 971.34 810.47

Return on equity .6613 0.3241 0.3469 0.4834 0.5427

Return on equity % 66.13 32.41 34.69 48.34 54.27

4.2.3 PAYOUT RATIO



YEAR 2011 2010 2009 2008 2007

EPS 60.79 45.24 40.07 45.84 37.75

DPS 20.00 19.00 17.00 20.00 20.00

PAYOUT 0.3290 0.419 0.424 0.436 0.529

DIVIDEND

PAYOUT

32.9 41.9 42.4 43.6 52.9


YEAR 2011 2010 2009 2008 2007

MPS 1071.15 694.55 688.75 890.45 548

EPS 60.79 45.24 40.07 45.84 37.75

PRICE EARNING

RATIO

17.62 15.35 17.18 19.42 14.51


YEAR 2011 2010 2009 2008 2007

EPS 60.79 45.24 40.07 45.84 37.75

EARNINGS YIELD 0.036 0.065 0.058 0.051 0.068

DIVIDEND YIELD 0.0119 0.0273 0.0246 0.0224 0.0364

LOW 488 550 611 471 320

HIGH 814 785 915 940 616

LOW/EPS 11.53 12.15 15.24 10.27 8.47

HIGH/EPS 19.24 17.35 22.83 20.50 16.31



AVERAGE PRICE

EARNING

15.38 14.75 19.035 15.38 12.39

NORMALISED

PRICEARNINGRATIO (15.38+14.75+19.03+15.38+12.39)/5=15.386

4.2.6 INTRINSIC VALUE CALCULATION OF HERO HONDA MOTORS LTD


(DPOR) DPS/EPS

Average Dividend Pay-Out

Ratio= Dividend pay-out ratio for

5 years/5

(.32+.41+.42+.43+.52)/5 =.42

Average Retention Ratio= 1-

Average Dividend Pay-out Ratio

1-..42=.58



(66.13+32.41+34.69+48.34+54.27)/5

=47.168



Long Term Growth Rate in

Equity (g)= Average Retention

Ratio* Average ROE

.58*47.168=54.714 %



(17.62+15.35+17.18+19.42+14.51)/5

=16.81


Current Year*(1+Growthrate/100)

60.79*(1+54.714/100)=94.050



94.050*16.81=1581.55



Year*(1+g %)

20*(1+54.714/100)=30.94

INTERPRETATION:

The calculated intrinsic value of the share of Hero Honda

Motors Ltd is Rs.1581.55 which is lower than its current market price of

Rs.1071.15 (as on 31st March, 2011). This reveals that the share is at

present overpriced and should be preferred for selling. The projected

values of both EPS and DPS mount to Rs.94.05 and 30.94, both of which

are 60.79 and 20.00

4.3 MAHINDRA & MAHINDRA LTD

The Mahindra brothers joined hands with a distinguished

gentleman called Ghulam Mohammed and to make the birth of Mahindra &

Mahindra in October 2nd, 1945 as Mahindra & Mohammed, a franchise for

assembling jeeps from Willys, USA. Two years later, India became an

independent nation and in 1948 Mahindra & Mohammed changed its name

to Mahindra & Mahindra (M & M). The Steel trading business was

commenced in association with suppliers in UK. Since then, Mahindra &

Mahindra has grown steadily in size and stature and evolved into a Group

that occupies a premier position in almost all key sectors of the economy.



Mahindra Group is among the top 10 industrial houses in India. Its

products and services is grouped into seven groups, such as Automotive,

Farm Equipment, Trade & Financial Services, Information Technology,

Infrastructure Development, Sestet and Specialty Business.

Mahindra Engineering & Chemical Products Limited was originated

its operations during the year 1970. In the year 1977, the International

Tractor Company of India merged with Mahindra & Mahindra to become

its Tractor Division and within two years Mahindra brand of tractors was

launched. During the year 1991 the company introduced Commander

range of vehicles and the Mahindra Financial Services Limited was

established as a wholesale fund provider. Merged diverse activities of

Steel, Machine Tools and Graphics into Inter trade Division in the year

1992. The company established Mahindra Steel Service Centre Limited in

association with Mitsubishi Corporation and Nissho Iwai Corporation of

Japan. The company and Acres International Limited (Canada) was jointly

instituted the Mahindra Acres Consulting Engineers Limited to provide

multidisciplinary engineering consultancy service. During the period of

1994, Mahindra Realty & Infrastructure Developers Limited was brought

its existence.

A public private partnership initiative between Mahindra World

City and Southern Railway, the Paranur railway station was the first to be

redesigned and maintained by the corporate sector in the year 2007. As in

part of Corporate Social Responsibility, the company inaugurated Impact

India Foundation's Lifeline Express, world's first hospital on rails on

October of the year. The company has been awarded the ISO/IEC

27001:2005 certificate. This completes the company's successful

migration from BS 7799 to ISO 27001. Mahindra inaugurated its state -of-

the-art Blanking Line facility in Nashik backed by German technology.



Mahindra & Mahindra Auto Sector's Zaheerabad plant has won the First

Prize in the National Energy Conservation Awards - 2007.

Mahindra & Mahindra Ltd. was awarded the 'Excellence in

Innovation' Award at the Indira International Innovation Summit (3i's

Summit) in February 2008. The company won the BSE award for Best

Corporate Social Responsibility Practice at the Social and Corporate

Governance Awards (Innovative strategies - Measurable Impacts),

presented by BSE and NASSCOM Foundation. As like above the company

credited lot of awards from various reputed raters and sources. Mahindra

Holidays & Resorts India Ltd. (MHRIL) signs an MOU with West Bengal

Tourism Development Corp. (WBTDC) & Sunderban Infrastructure

Development Corp. (SIDC) for development of Tourism in West Bengal in

February 2008. On March 2008, Mahindra signs MoU with Government of

Maharashtra to invest an additional Rs 1500 crore in Chakan Greenfield.

As on April of the same year, a consortium of Mahindra & Mahindra Ltd.

(M&M) and ICICI Venture Funds Managements Ltd, India's leading PE

player with AUM of over $ 2 billion, has signed a definitive agreement

agreeing to acquire 100% stake in Metalcastello S.p.A, a leading Italian

independent gear manufacturer and in the same month of the same year

launched Mahindra Scorpio SUV in Chile in partnership with Fortaleza of

the Automotores Gildemeister Group. Mahindra launched new After-

Market Business Vertical, Inaugurates first multi-brand car service centre

in Mumbai on April 2008. As on May 2008, the company launched the

Mahindra Pik Up Double Cab in Paraguay, in partnership with the Rieder

Group.

4.3.1 SHAREHOLDING PATTERN OF MAHINDRA &MAHINDRA LTD

SHAREHOLDING PATTERN (AS ON

Dec 2011)

SHARES[%]

Foreign 79,193,104.00 2.45



Institutions 78,114,108.00 48.32Govt Holding 223,826.00 5.17Non Promoter Corp. Hold. 19,307,789.00 3.94Promoters 76,380,492.00 28.65Public & Others 25,601,946.00 11.74Totals 278,821,265.00 100


4.3.1 SHAREHOLDING PATTERN ON MAHINDRA & MAHINDRA LTD.

Foreign2%

Institutions48%

Govt Holding5%

Non Pro-

moter Corp. Hold.4%

Promoters29%

Public & Others12%



YEAR 2011 2010 2009 2008 2007


Reserves & surplus 4989.4

6

4111.0 3314.88 2675.47 1874.88

Net worth 5262.0

8

4350.07 3552.91 2908.87 1986.53

PAT 867.51 1,103.37 1,068.39 857.10 512.67



Return on equity 0.1648 0.2536 0.3007 0.2946 0.2580

Return on equity % 16.48 25.36 30.07 29.46 25.80

4.3.3 PAYOUT RATIO

YEAR 2011 2010 2009 2008 2007

EPS 30.60 44.54 43.10 35.26 44.02

DPS 10.00 11.50 11.50 10.00 13.00

PAYOUT 0.3267 0.258 0.2668 0.2836 0.2953

DIVIDEND

PAYOUT

32.67 25.8 26.68 28.36 29.53


YEAR 2011 2010 2008 2008 2007

MPS 383.65 697.05 780.40 627.05 496.90

EPS 30.60 44.54 43.10 35.26 44.02

PRICE EARNING

RATIO

12.537 15.649 18.106 17.78 11.28


YEAR 2011 2010 2009 2008 2007

EPS 30.60 44.54 43.10 35.26 44.02

EARNINGS

YIELD

0.0264 0.0638 0.0552 0.0562 0.0885



DIVIDEND

YIELD

0.00967 0.0164 0.0147 0.0159 0.0261

LOW 421.66 525 456.65 345 360

HIGH 808.35 873.90 1001 785 573.50

LOW/EPS 10.086 11.787 10.595 9.784 8.178

HIGH/EPS 19.532 19.620 23.22 22.26 13.028

AVERAGE PRICE

EARNING

14.809 15.703 16.907 16.022 10.603

NORMALISED

PRICE EARNING

RATIO

(14.809+15.703+16.907+16.022+10.603)/5

=14.808

4.3. INTRINSIC VALUE CALCULATION OF MAHINDRA & MAHINDRA LTD.


(DPOR) DPS/EPS



5 years/5

(.3267+.258+.2668+.2836+.2953)/5

=.28

Average Retention Ratio= 1- 1-.28=.72






(16.48+25.36+30.07+29.46+25.80)/5

=25.434



Ratio* Average ROE

.72 *25.434=18.312%


Sum of P/E Ratio for 5 years/5

(12.53+15.64+18.10+17.78+11.28)/5

=15.06

Projected EPS for 2012= EPS

forCurrentYear*(1+Growthrate/10

0)

30.60*(1+18.312/100)=36.20



36.20*15.06=545.38



Year*(1+g %)

10*(1+18.312/100)=11.83

INTERPRETATION:

The calculated intrinsic value of the share of Mahindra & Mahindra

Ltd is Rs.545.38 which is higher than the current market price of Rs.523.50

(as on 31st March, 2011). This reveals that the share is at under priced and

should be preferred for buying. The projected values of both EPS and DPS

amount to Rs.36.20 and 11.83, both of which are higher than their

corresponding current values of Rs.30.60 and Rs.10.00

4.4 MARUTI SUZUKI INDIA LTD

The Maruti story began in the year when scooters had a waiting

period and the Indian car customer had limited options. The Government

of India identified the need for a small car for the Indian masses, a car that

would be economical, environment friendly yet contemporary in

technology. In short 'A people's car'. The result, Maruti Suzuki India

Limited (MSIL) was born in February 1981. Maruti Suzuki started as a



government company, with Suzuki as a minor partner, to make a people's

car for middle class India. Over the years, the company's product range has

widened and ownership has changed hands. A subsidiary of Suzuki Motor

Corporation (SMC) of Japan, the Maruti Suzuki India Limited

headquartered in Delhi, running with 3 vehicle assembly plants at Gurgaon

and 1 vehicle assembly plant at Manesar. Also Maruti have 16 Regional

offices. The product portfolio of the company consist 11 models with

around 100 variants including Maruti 800, Omni, Alto, WagonR, Swift, Zen,

Gypsy, Dzire, Versa, SX4 and Grand Vitara.Started its production in the

year 1983 and launched Maruti 800. During the year 2000, Insititute of

Driving Training and Research (IDTR) was launched jointly with Delhi

Government to promote safe driving. In line with product, the Maruti Alto

was launched. The company formulated call center in the year 2000, it was

first of its kind. In the year 2001 MSIL found one new business segment,

Maruti True Value was launched for sales, purchase and trade of pre

owned cars in India. The Company launched Maruti finance & Insurance

for the convenience of customers. As a first facelift by Maruti engineers the

Maruti New Zen was launched during the year 2003 and entered into

partnership with State Bank of India. A year after, the second successful

facelift by Maruti engineers, New Esteem was launched in the year 2004.

The Company introduced a special programme namely 'Dil se' during the

period of 2006 for Indians living abroad or NRIs to facilitate them to gift

Maruti cars online to friends and relatives back at home.

In the same year 2007, the company name was changed from

Maruti Udyog Limited to Maruti Suzuki India Limited and Joined hands

with Gujarat Government to set up Driving and Technical Training

Institute for tribal youth. The biggest draw even the year 2007 was the

award for highest Automotive Customer Satisfaction Index. Maruti Suzuki

scored the highest in customer satisfaction index for the eighth



consecutive year. In the Initial Quality Study, Maruti Swift walked away

with the highest IQS in the Premium Compact car segment during the year

2007.

During the year 2008, the new model, Swift Dzire was launched.

MSIL and Mundra Port and Special Economic Zone Ltd (MPSEZL) had

signed an agreement on February 2008 for a mega car terminal at Mundra

in Kutch district of Gujarat. The initial investment in the project may

around Rs 100 crore. The Company crossed one significant milestone in

February 2008; it becomes the first Indian car company to export half a

million cars. Apart from the domestic market, the cumulative exports of

the company crossed 500,000 units. As on March 2008, the company made

pact with Shriram City Union Finance Limited - a part of Shriram Group,

Chennai, to offer easy, transparent and hassle-free car finance to its

customers, particularly in semi urban and rural markets. The agreement is

a joint initiative of the two companies to provide competitive car finance

to people in Tier-II and Tier-III cities across the country. The Company

launched Maruti 800 Duo in June of the year 2008, which is a dual fuel

(LPG-cum- petrol) model car.

The company set up a network of component vendors, dealers and

service stations and facilitated around 60 technical collaborations for

Indian vendors from Japanese, European and even American partners to

upgrade technology and quality levels. MSIL have a sales network of 600

outlets in 393 towns and cities, and provide maintenance support to

customers at 2628 workshops in over 1200 towns and cities (as on March

31,2008). The Company planned about proposed investments till 2010

amount of Rs. 9000 Cores.

4.4.1 SHAREHOLDING PATTERN OF MARUTI SUZUKI INDIA LTD.

Shareholding Pattern as on Dec



2011 Shares [%]

Foreign 62,961,620.00 21.79

Institutions 50,238,359.00 17.39

Govt Holding 0.00 0.00

Non Promoter Corp. Hold. 13,591,244.00 4.70

Promoters 156,618,440.00 54.21

Public & Others 5,500,397.00 1.90

Totals 288,910,060.00 100.00


4.4.1 SHAREHOLDING PATTERN ON MARUTI SUZUKI INDIA LTD.

Foreign; 21.79

Institutions; 17.39

Non Pro-

moter Corp. Hold.;

4.7

Promoters; 54.21

Public & Others; 1.9



YEAR 2011 2010 2009 2008 2007


Reserves & surplus 9,200.40 8,270.90 6,709.40 5,308.10 4,234.30

Net worth 9,344.90 8,415.40 6,853.90 5,452.60 4,378.80

PAT 1,218.70 1,730.80 1,562.00 1,189.10 853.60

Return on equity 0.1304 0.2056 0.2278 0.2180 0.1949

Return on equity % 13.04 20.56 22.78 21.80 19.49



4.4.3 PAYOUT RATIO

YEAR 2011 2010 2009 2008 2007

EPS 41.57 59.03 53.29 40.65 29.25

DPS 3.50 5.00 4.50 3.50 2.00

PAYOUT 0.0841 0.0847 0.0844 0.0861 0.0683

DIVIDEND

PAYOUT 8.41 8.47 8.44 8.61 6.83


YEAR 2011 2010 2009 2008 2007

MPS 779.85 826.42 820.20 874.30 421.30

EPS 41.57 59.03 53.29 40.65 29.25

PRICE EARNING

RATIO

18.75 14.00 15.39 21.50 14.40


YEAR 2011 2010 2009 2008 2007

EPS 41.57 59.03 53.29 40.65 29.25

EARNINGS

YIELD

0.02583 .07137 .06497 .04649 .06942

DIVIDEND

YIELD

.00217 .00604 .00548 .00400 .00474

LOW 516.86 700 671.15 396.30 300



HIGH 931.15 1194.40 990.70 939.70 599.80

LOW/EPS 11.10 11.85 12.59 9.7490 10.25

HIGH/EPS 20.60 20.23 18.59 23.11 20.50

AVERAGE PRICE

EARNING

15.85 16.04 15.59 16.42 15.375

NORMALISED

PRICE EARNING

RATIO

(15.85+16.04+15.59+16.42+15.375)/5=15.855

4.4.6 INTRINSIC VALUE CALCULATION OF MARUTI SUZUKI LTD


(DPOR) DPS/EPS



5 years/5

(.08+.08+.08+.08+.06)/5 =0.076



1-.076=.924



(13.04+20.56+22.78+21.80+19.49)/5



=19.534



Ratio* Average ROE

.924*19.534=18.049%



(18.75+14+15.39+21.50+14.40)/5

=16.80


CurrentYear*(1+Growthrate/100)

41.57*(1+18.049/100)=49.072



49.072*16.80=824.89



Year*(1+g %)

3.50*(1+18.049/100)=4.13

INTERPRETATION:

The calculated intrinsic value of the share of Maruti Suzuki

India Ltd is Rs.824.89 which is lower than the current Market price of

Rs.1289.40 (as on 31st March, 2011). This reveals that the share is at

present overpriced and should be preferred for selling .The projected EPS

and DPS amount to Rs.49.07 and 4.13, both of which are higher than their

corresponding current values of Rs.41.57 and Rs.3.50

4.5 TATA MOTORS LTD

Tata Sons purchased the Tatanagar shops from the Government of

India on 1st June 1945 for Rs. 25.39 lakhs with the aim of immediately

manufacturing steam locomotive boilers. Later it planned to manufacture

complete locomotives and other engineering products. Tata Motors Ltd

was incorporated in the year of 1945. In world charisma the Tata Motors

Ltd (Formerly known as Tata Engineering and Locomotive Company Ltd)

is the fifth-largest manufacturer of medium and heavy commercial vehicle

and the second largest medium and heavy bus manufacturer. The company



producing light, medium and heavy commercial vehicles and also

manufacturing passenger cars, utility vehicles, excavators and machine

tools in manufacturing units located at Jamshedpur, Pune, Lucknow and

Pant Nagar in Uttarakhand. 1946 Tata Engineering was undertaken

manufacture of 5000 'KC' broad gauge open wagons for the Indian

Railway. The Managing Agency Tata Sons was transferred to Tata

Industries on 1st July 1946. In the year 1948 the company made

collaboration with Marshal Sons (UK) and introduced Steam Road Roller

and in 1950 Collaboration signed with M/s Krauss-Maffei, West Germany

for manufacture of steam locomotives. Collaboration with M/s Daimler-

Benz AG, West Germany was made in the year 1954 for the manufacture of

medium commercial vehicles at Jamshedpur.

The company came to joint venture with Cummins Engineering

Company and incorporated Tata Cummins Private Limited in Jamshedpur,

Bihar, on 0ctober 20, 1993 to manufacture high horse power and

emission-friendly diesel engines for medium and heavy commercial

vehicles. In 1994 TataSumo - a multi-utility vehicle launched. LPT 709 - a

full forward control, light commercial vehicle launched. Joint Venture

Agreement signed with M/s Daimler - Benz / Mercedes - Benz for

manufacture of Mercedes-Benz passenger cars in India.

Indian Space Research Organization (ISRO) and Tata Motors are

working to develop a prototype of the hydrogen-powered automobile

under in agreement for a pilot project. As on December 2007 Tata

launched seven medium and heavy trucks in Pune, the company plans to

launch 30 new models in the commercial vehicle segment. Joint venture

between Fiat Group Automobiles SpA and Tata Motors, has rolled out

plans for expanding production capacity and backward integration in Pune

with an additional investment of Rs 2,341 crore comes under

memorandum of understanding in March 2008 and also Tata Motors has



entered into a definitive agreement with the Ford Motor Company for the

purchase of Jaguar Land Rover, comprising brands, plants and intellectual

property rights. As on April 2008, the first test a small car namely 'Nanos'

roll out from Uttarakhand plant. The trail production of Nano will start in

June-July from Singur, West Bengal after the equipment test and

commercial production of the same will start around October. Tata Motors

is working on technology that will allow its diesel generators to also use

natural gas and in process of entering into a technology tie-up with the

New Energy & Industrial Technology Development Organization (NEDO), a

Japanese Gvt agency. To converts its generator to 'Dual-Fuel System'. The

company concentrates on various initiatives which focused on cost

reduction, right sizing the organization, volume / market share gains,

product quality and the launch of new products have enabled the company

a turnaround one in the globe. Tata Motors Limited is India's largest

automobile company, with consolidated revenues of Rs.70, 938.85 crores

(USD 14 billion) in 2008-09. It is the leader in commercial vehicles in each

segment, and among the top three in passenger vehicles with winning

products in the compact, midsize car and utility vehicle segments. The

company is the world's fourth largest truck manufacturer, and the world's

second largest bus manufacturer.

The company's 23,000 employees are guided by the vision to be

"best in the manner in which we operate best in the products we deliver

and best in our value system and ethics."

4.5.1 SHAREHOLDIN PATTERN OF TATA MOTORS LTD

Ownership Pattern as on Dec 2011 No of Shares% Share

Holding

Foreign 137,812,624.00 27.21Institutions 80,506,717.00 18.69Govt Holding 407,181.00 0.08



Non Promoter Corp. Hold. 2,871,889.00 38.87Promoters 182,721,830.00 3.35Public & Others 45,513,028.00 11.78Totals 449,833,269.00 100.00


4.5.1 SHAREHOLDING PATTERN ON TATA MOTORS LTD

Foreign27%

Institutions19%

Govt Holding0%

Non Promoter Corp. Hold.39%

Promoters3%

Public & Others12%



YEAR 2011 2010 2009 2008 2007

Equity share

capital 514.05 385.54 385.41 382.87 361.79

Reserves &

surplus 11,716.10 7,453.96 6,484.34 5,154.20 3,749.60

Net worth 12,230.15 7,839.50 6,869.75 5,537.07 4,111.39

PAT 1,001.26 2,028.92 1,913.46 1,528.88 1,236.95

Return on equity 0.0818 0.2588 0.2785 0.2761 0.3008



Return on equity

(%)

8.18 25.88 27.85 27.61 30.08

4.5.3 PAYOUT RATIO

YEAR 2011 2010 2009 2008 2007

EPS 18.81 50.52 47.10 37.59 32.44

DPS 6.00 15.00 15.00 13.00 12.50

PAYOUT 0.3222 0.2969 0.3184 0.3458 0.3853

DIVIDEND

PAYOUT 32.22 29.69 31.84 34.58 38.53


YEAR 2011 2010 2009 2008 2007

MPS 180.30 622.70 728.20 931.85 413.70

EPS 18.81 50.52 47.10 37.59 32.44

PRICE EARNING

RATIO

9.58 12.32 15.46 24.78 12.70




YEAR 2011 2010 2009 2008 2007

EPS 18.81 50.52 47.10 37.59 32.44

EARNINGS

YIELD

0.02614 0.08113 .06468 .04033 .07841

DIVIDEND

YIELD

0.07957 .02408 .020598 .01395 .03021

LOW 470.18 530.50 650.25 400 300

HIGH 828.65 841.90 997.80 947 527.90

LOW/EPS 11.04 10.500 13.805 10.641 9.247

HIGH/EPS 19.82 16.664 21.184 25.192 16.27

AVERAGE PRICE

EARNING

15.43 13.58 17.49 17.91 12.758

NORMALISED

PRICE EARNING

RATIO

(15.43+13.58+17.49+17.91+12.758)/5=15.43

4.5.6 INTRINSIC VALUE CALCULATION OF TATA MOTORS LTD


(DPOR) DPS/EPS

Average Dividend Pay-Out Ratio=

Dividend pay-out ratio for 5 years/5

(.32+.29+.31+.34+.38)/5 =.328



1-.328=.672



(8.18+25.88+27.85+27.61+30.08)/5

=23.92



Long Term Growth Rate in Equity

(g)= Average Retention Ratio*

Average ROE

.672*23.92=16.07%



(9.58+12.32+15.46+24.78+12.70)/

5=14.96


CurrentYear*(1+Growthrate/100)

18.81*(1+16.07/100)=21.83



21.83*14.96=326.77



Year*(1+g %)

6*(1+16.07/100)=6.9642

INTERPRETATION:

The calculated intrinsic value of Tata Motors Ltd is Rs.326.77 which

is lower than its current market price of Rs.842.57 (as on 31st March,

2011). This reveals that the share is at present overpriced and should be

preferred for selling. The projected values of both EPS and DPS amount to

Rs.21.83 and Rs.6.96, both of which are higher than their corresponding

current values of Rs.18.81 and Rs.6.00

4.6 CALCULATION OF ALPHA & BETA

4.6.1 ASHOK LEYLAND LTD

Return (y) = Closing –Opening * 100

Opening

YEARS RETURN(Y)

2007 29.21



2008 43.01

2009 12.53

2010 -71.10

2011 220

4.6.1. A Calculationβ

YEARS Y X(Index Return) X² XY

1 29.21 36.37 1322.77 1062.36

2 43.01 39.81 1584.83 1712.22

3 12.53 54.77 2999.75 686.26

4 -71.10 -51.77 2680.13 3680.84

5 220 75.51 5701.76 16612.2

SUM 233.65 154.69 14289.24 23753.88

β= n∑XY- (∑X) (∑Y)

n∑X²- (∑X) ²

= 5*23753.88-(154.69)*(233.65)

(5*14289.24) - (154.69)²

= 82626.08

47517.20

=1.73β

ˉY=∑Y/n=233.65/5=46.73 X¯=∑X/n=154.69/5=30.93

=ˉYα - X¯β

=46.73-1.73*30.93

= -6.77α

When index moves up by30.93, the expected return from Ashok

Leyland Ltd can be calculated as follows:



Ri= + Rm α β

= -6.77+1.73*30.93

= 46.73

4.6.2 HERO HONDA MOTORS LTD


Opening

YEARS RETURN(Y)

2007 50.12

2008 -11.11

2009 -8.82

2010 15.01

2011 111.58



1 50.12 36.37 1322.77 1822.86

2 -11.11 39.81 1584.83 -442.28

3 -8.82 54.77 2999.75 -483.07

4 15.01 -51.77 2680.13 -777.06

5 111.58 75.51 5701.76 8425.40

SUM 156.78 154.69 14289.24 8545.85



β= n∑XY- (∑X) (∑Y)

n∑X²- (∑X) ²

= 5*8545.85-(154.69)*(156.78)

(5*14289.24) - (154.69)²

= 18476.95

47517.20

β= .38

ˉY=∑Y/n=156.78/5=31.35 X¯=∑X/n=154.69/5=30.93

=ˉYα - X¯β

=31.35-.38*30.93

= 19.59α

When index moves up by30.93, the expected return from Hero

Honda Motors Ltd can be calculated as follows:

Ri= + Rm α β

= 19.59+.38*30.93

= 31.3

4.6.3 MAHINDRA & MAHINDRA LTD


Opening

YEARS RETURN(Y)

2007 87.58

2008 77.57

2009 -5.12



2010 -67.94

2011 281.72

4.6.3.A Calculationβ


1 87.58 36.37 1322.77 3185.28

2 77.57 39.81 1584.83 3088.06

3 -5.12 54.77 2999.75 -280.42

4 -67.94 -51.77 2680.13 3517.25

5 281.72 75.51 5701.76 21272.67

SUM 373.81 154.69 14289.24 30782.84

β= n∑XY- (∑X) (∑Y)

n∑X²- (∑X) ²

= 5*30782.84-(154.69)*(373.81)

(5*14289.24) - (154.69)²

= 96089.55

47517.20

β= 2.02

ˉY=∑Y/n=373.81/5=74.76 X¯=∑X/n=154.69/5=30.93

=ˉYα - X¯β

=74.76-2.02*30.93

= 12.28α

When index moves up by30.93, the expected return from Mahindra

& Mahindra Ltd can be calculated as follows:



Ri= + Rm α β

= 12.28+2.02*30.93

= 74.75

4.6.4 MARUTI SUZUKI INDIA LTD


Opening

YEARS RETURN(Y)

2007 37.65

2008 46.15

2009 7.03

2010 -47.83

2011 183.71



1 37.65 36.37 1322.77 1369.33

2 46.15 39.81 1584.83 1837.23

3 7.03 54.77 2999.75 385.03

4 -47.83 -51.77 2680.13 2476.15

5 183.71 75.51 5701.76 13871.94

SUM 226.71 154.69 14289.24 19939.68

= n∑XY- (∑X) (∑Y)β

n∑X²- (∑X) ²



= 5*19939.68-(154.69)*(226.71)

(5*14289.24) - (154.69)²

= 64628.63

47517.20

= 1.36β

ˉY=∑Y/n=226.71/5=45.34 X¯=∑X/n=154.69/5=30.93

=ˉYα - X¯β

=45.34-1.36*30.93

= 3.27α

When index moves up by30.93, the expected return from Maruti

Suzuki India Ltd can be calculated as follows:

Ri= + Rm α β

= 3.27+1.36*30.93

= 45.33

4.6.5 TATA MOTORS LTD


Opening

YEARS RETURN(Y)

2007 29.32

2008 37.83

2009 -17.62

2010 -79.20

2011 364.25





1 29.32 36.37 1322.77 1066.36

2 37.83 39.81 1584.83 1506.01

3 -17.62 54.77 2999.75 -965.04

4 -79.20 -51.77 2680.13 4100.18

5 364.25 75.51 5701.76 27504.51

SUM 334.58 154.69 14289.24 33212.02

= n∑XY- (∑X) (∑Y)β

n∑X²- (∑X) ²

= 5*33212.02-(154.69)*(334.58)

(5*14289.24) - (154.69)²

= 114303.91

47517.20

= 2.40β

ˉY=∑Y/n=334.58/5=66.91 X¯=∑X/n=154.69/5=30.93

=ˉYα - X¯β

=66.91-2.40*30.93

= -7.32α

When index moves up by30.93, the expected return from Tata

Motors Ltd can be calculated as follows:

Ri= + Rm α β

= -7.32+2.40*30.93



= 66.91

4.7 COMPARISON OF ALPHA

COMPANY ALPHA( )α

ASHOK LEYLAND LTD -6.77

HERO HONDA MOTORS LTD 19.59

MAHINDRA&MAHINDRA LTD 12.28

MARUTI SUZUKI INDIA LTD 3.27

TATA MOTORS LTD -7.32

The alpha parameters indicate what the return of the security would

be when the market return is zero. The positive alpha thus represents a

sort of bonus return and would be highly desirable aspect of a security;

where as a negative alpha represents a penalty to the investors. Here Hero

Honda Motors has highest alpha.

4.8 COMPARISON OF BETA

COMPANY BETA ( )β

ASHOK LEYLAND LTD 1.73

HERO HONDA MOTORS LTD .38



TATA MOTORS LTD 2.40

INTERPRETATION:



The beta measures the volatility of the securities returns relative to

the market, the largest the beta, the more volatile the security. Here Tata

Motors has highest beta.

4.9 COMPARISON OF INDIVIDUAL SECURITY RETURN

COMPANY RETURN

ASHOK LEYLAND LTD 46.73

HERO HONDA MOTORS LTD 31.35



TATA MOTORS LTD 66.91

INTERPRETATION:

From the 5 Automobile companies Mahindra & Mahindra contributing

highest return at 74.75.

4.10 TECHNICAL ANALYSIS

4.10.1 ASHOK LEYLAND LTD

4.10.1.A EXPONENTIAL MOVING AVERAGE (EMA) CHART


EMA chart

2009 2010 2011

Close Price

12 EMA

50 EMA

200 EMA



Interpretation:

Moving average represents the underlying trend in the share price

movements.12 day EMA indicating the short term trend, 50 day EMA

indicating medium term trend and 200 day EMA indicating long term

trend. In 2009& 2010 shows a bearish trend but the end of that year prices

moving back to previous high level. In 2011 shows bullish trend or

increasing trend.

4.10.1. B Moving Average Convergence &Divergence chart MACD)


MACD chart

0

2009 2010 2011

70

30

0

RSI chart

2009 2010 2011



Interpretation: In 2009 & 2010 the MACD lines are below the zero line, it

indicates that the investor has buying opportunity. In 2011 the MACD lines

are above the zero line, it indicate that the investor has selling opportunity.

4.10.1. C Relative Strength Index Chart (RSI)


Interpretation:


EMA chart

2009 2010 2011

CLOSE PRICE

12 EMA50 EMA

200 EMA


During 2009 & 2010 Ashok Leyland touches 70 point at many times

and shown overbought position. In 2011 it indicate oversold condition by

touching 30 points.

4.10.2 HERO HONDA MOTORS LTD

4.10.2.A EMA CHART


Interpretation:

In this graph 2009 & 2010 showing bearish trend but the end of that

year prices moving back to previous high level. In 2011 shows bullish

trend or increasing trend.

4.10.2. B MACD Chart


MACD chart

0

2009 2010 2011



Interpretation:

In 2009 & 2010 the MACD lines is above the zero line so the investor

should sell their shares to earn more profit. In 2011 the MACD lines is

below the zero line so its clear that the securities are worth for investment

or in other terms the trend is said to have turned bullish trend.

4.10.2.C RSI Chart


70

30

0

RSI chart

2009 2010 2011



Interpretations:

During the first 2009 & 2010 this company had touch 30 point many

times and it’s shown oversold position. In 2011, touch 70 point it indicate

that overbought position.

4.10.3 MAHINDRA & MAHINDRA LTD


EMA chart

2009 2010 2011

CLOSING PRICE

12 EMA

50 EMA200 EMA


4.10.3. A . EMA chart


Interpretation:

12 day EMA indicating short term trend, 50 day EMA indicating

medium term trend and 200 day EMA indicating long term trend. In 2009

& 2010 shows bearish trend and in 2011 shows bullish trend.

4.10.3.B. MACD Chart


MACD chart

0

2009 2010 2011



Interpretation:

In 2009 & 2010 the MACD lines is above the zero line so the investor

should sell their shares to earn more profit. In 2011 the MACD lines is

below the zero line so it’s clear that the securities are worth for

investment.


70

30

0

RSI chart

2009 2010 2011


4.10.3.C. RSI Chart


Interpretation:

In 2009 &2010 Mahindra & Mahindra Ltd had touch 30 points at

many times and shown oversold position. In 2011 company had touch 70

points it indicate that overbought position.


EMA chart

2009 2010 2011

CLOSING PRICE12 EMA

50 EMA

200 EMA


4.10.4 MARUTI SUZUKI INDIA LTD

4.10.4.A EMA Chart


Interpretation:

The moving averages are plotted on the price charts. The curved

line joining these moving averages represent the trend line. In 2009 &

2010 shows a bullish trend but the end of the year prices moving back to

previous low level. In 2011 shows bearish trend.

4.10.4.B MACD Chart


MACD chart

0

2007 2008 2009

70

30

0

RSI chart

2009 2010 2011



Interpretation:

In 2009 & 2010 the MACD lines is below the zero line so the

investor should buy shares. In 2011 the MACD lines is above the zero line

so the investor should sell their shares to earn more profit.

4.10.4. C.RSI Chart


Interpretation:


EMA chart

2009 2010 2011

CLOSING PRICE

12 EMA

50 EMA

200 EMA


In 2009 & 2010 the company touch 30 point and shown oversold

position. In 2011 the company touch 70 point had shown overbought

position.

4.10.5 TATA MOTORS LTD

4.10.5.A. EMA Chart


Interpretation:

12 day EMA indicating short term trend, 50 day EMA indicating

medium term trend and 200 day EMA indicating long term trend. In 2009

& 2010 shows bearish trend but the end of that year prices moving back to

previous high level. In 2011 shows bullish trend or increasing trend.


MACD chart

0

2009 2010 2011


4.10.5.B. MACD Chart


Interpretation:

In 2009 & 2010 the MACD lines are above the zero line so the

investor should sell their shares to earn more profit. In 2011 the MACD

lines are below the zero line its clear that the securities are worth for

investment or in other terms the trend is said to have turned bullish.

4.10.5.C RSI Chart


70

30

0

RSI chart

2009 2010 2011



Interpretation:

In 2009 & 2010 Tata Motors had touch 70 point, it shown

overbought position In 2011 company touch 30 point it indicate oversold

position.



CHAPTER-5

FINDINGS AND

SUGGESTIONSPGI SOM, Anna Universty


5.1 FINDINGS

ASHOK LEYLAND LTD

The stock is said to be over priced as the intrinsic value of the

security Rs.17.42 is lower than the current market price of the security

Rs.22.30 (as on 31st March 2011).

This means that the investor should sell the share as the

price of the security may reduce in future.

The projected Earnings per Share (EPS) and Dividend per

Share (DPS) of the security is estimated to be Rs.1.37 and Rs.1.09

respectively.

The expected return from Ashok Leyland Ltd, when index

moves up by 30.93% is 46.73.

HERO HONDA MOTORS LTD

The stock is said to be under priced as the intrinsic value of the

security Rs.1581.55 is lower than the current market price of Rs.1832.55

(as on 31st March 2011).

This means that the investor should sell the share as the price of

the security may reduce in future.

The projected EPS and DPS of the security are estimated to be

Rs.94.05 and Rs.30.94 respectively.

The expected return from Hero Honda Motors Ltd, when index

moves up by 30.93% is 31.35.

MAHINDRA & MAHINDRA LTD

The stock is said to be under priced as the intrinsic value of

the security Rs.545.38 is higher than the current market price of Rs.523.50




This means that the investor should buy the share as the

price of the security may come up in future.

The projected EPS and DPS of the security is estimated to be


The expected return from Mahindra & Mahindra Ltd, when

index moves up 30.93% is 74.75.

MARUTI SUZUKI INDIA LTD


the security Rs.824.89 is lower than the current market price of

Rs.1289.40 (as on 31st March 2011).

This means that the investor should sell the share as the

price of the security may reduce in future.

The projected EPS and DPS of the security is estimated to be


The expected return from Maruti Suzuki India Ltd, when

index moves up 30.93% is 45.33.

TATA MOTORS LTD


the security Rs.326.77 is lower than the current market price of Rs.842.57


This means that the investor should sell the share as the price

of the security may reduce in future

The projected EPS and DPS of the security is estimated to

be Rs.21.83 and Rs.6.96 respectively.

The expected return from Tata Motors Ltd, when index

moves up 30.93% is 66.91.



5.2 SUGGESTIONS:

As per the analysis done, the following suggestions are

recommended:-

ASHOK LEYLAND LTD

The intrinsic value of the share is less than the market price. This

reveals that the shares of the company are overpriced at present. In this

case best suited recommendation would be to sale the shares in order to

avoid future loss.

HERO HONDA MOTORS LTD

The intrinsic value of share is less than the market price. This reveals

that the shares of the company are overpriced at present. In this case best

suited recommendation would be to sale the shares in order to avoid

future loss.

MAHINDRA & MAHINDRA LTD

The calculated intrinsic value of its share is Rs.545.38 which is higher

than the current market priceRs.523.50. Here the recommendation would

be to keep away from selling off the shares in anticipation of likelihood

profits.

MARUTI SUZUKI INDIA LTD

The calculated intrinsic value of its share is Rs.824.89 which is lower

than its present market price Rs.1289.40 (as on 31st March 2011). This



avoid future loss.

TATA MOTORS LTD

The calculated intrinsic value of its shares is Rs.326.77 which is higher

than its current market price Rs.842.57 (as on 31st March 2011). This





avoid future loss.



5.3 CONCLUSION

In this report “Security Analysis of major five automobile

companies” is done. It comprises of fundamental analysis, risk

measurement and technical analysis. Data were collected from secondary

sources. The analysis is done with five years data for fundamental analysis

and three years data for technical analysis.

The fundamental analysis is focusing on intrinsic value of shares,

which have effective use in buying strategies. The current market price is

compared with future predicted price to determine the whether the share

is under priced or overpriced. The technical analysis of the securities

revealed their performance in the stock market indicating the bullish and

bearish trend. Technical analysis is an approach which concentrates on

price movements and ignores the fundamentals of the share.

The purpose of the whole project was to identify the performance of

securities of the selected companies in particular and that of the

automobile industry in general. From the analysis it was identified that

each security has got the potential to produce more return than the market

index. No system has consistently outperformed the market. There is no

system that does not call for human judgment and input. All systems

require thought and sum assumptions.



BIBLIOGRAP

HY3



BOOKS

Preethi Singh, 2006, Investment Management, Himalaya Publishing

house New Delhi.

Kevin S, 2007, Security Analysis and Portfolio Management, Prentice

Hall of India New Delhi.

Kevin S, 2003, Portfolio Management, Prentice hall of India New

Delhi.

khan M.Y and Jain P.K,2006, Financial Management, Tata McGraw

Hill Publishing company Ltd New Delhi

Kothari C.R .2001.Reserch Method And Technique.Wishwa

Prakashan New Delhi

Pandey I.M, 2008, Financial Management, Tata McGraw Hill

Publishing company Ltd New Delhi

Pandian Punithavathy, 2008, Security Analysis and Portfolio

Management, Vikas Publishing Press New Delhi.

WEBSITES

http://www.cochin stock exchange.com

http://www.Bombay stock exchange.com

http://www.Moneycontrol.com

http://www.Capitaline.com

http://www.Ashokleyland.com

http://www.Herohonda.com

http://www.Maruthisuzukiinia.com

http://www.Mahindra&mahindra.com

http://www.Tatamotors.com


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