EQUI TY RESEARCH

ASSI GNMENT 2 MODI FI ED

DUE Date: 20
th
Oct 2014
Total marks 25/50 ( may be increased)
Given- one Company ( will be giving the company names to you on mail) for equity research from Mid
Cap or large cap for equity analysis.
(For banking ratios will change slightly than those given).
Here the major focus is using fundamental analysis to perform equity analysis.
Part 1 Use fundamental analysis for equity research .
1. Macroeconomic overview of the country
a. Economic overview stating monitory policy
b. Economic Indicators (Write only one paragraph for each parameter ; ~ 4 pages)
i. GDP
ii. Growth,
iii. Saving and investment,
iv. Price levels and inflation,
v. Interest rates,
vi. Balance of payment,
vii. Forex reserve and exchange rates,
viii. Infrastructure development and
ix. Sentiments.
2. Industry overview of the selected companies ( ~8 pages)
a. Sensitivity to the business Cycle
b. Industry Life cycle
c. Structure and characteristic of an Industry
d. Profit potential of the Industries : Porter model each force to be discussed used the
model for the merits and demerits
3. Company analysis of the non financial and financial parameters
a. For Non-Financial statement ( ~3 pages)
i. Company Core competency
ii. Strategy
iii. Management quality
b. For financial-(~15 to 21 pages)
i. Financial statements (3 pages) for both the companies B/s and P&L
overview.
1. Year ending :Financial date of year end
2. Equity : The paid up equity capital at the year end
3. Net worth : total paid up equity capital and free R & S, excluding the
revaluation reserves
4. Enterprise Value = Market Cap + Debt cash & Bank balances
5. Capital employed : total paid up equity capital, preference capital
and free R & S, excluding the revaluation reserves
6. Gross block: GB of fixed assets at cost, net balance in revaluation
reserves if any, excluding capital work in progress.
7. Sales : Gross sales inclusive of excise duty, discounts etc. ( for
manufacturing companies)
8. Other Income.

ii. Ratios (5 pages)(significance of values) (table and observation latest one
only)(8 pages)
1. Debt equity
2. Current ratio
3. Inventory turnover
4. Debtors turnover
5. Interest coverage
6. Profit before Interest, Depreciation and Tax Margin (PBIDTM)
7. Profit before Depreciation and Tax Margin
8. Adjusted Profit After Tax Margin
9. Return of Capital Employed ( ROCE) = (Adjusted profit before tax +
interest)/Equity Paid+ Free reserves+ excluding revaluation reserves
+ pref. cap+ total debts)
10. Return on net worth (RONW) = ( PAT Pref. Div.)/( Equity Paid up
+ Free Reserves, excluding revaluation reserves)
11. Enterprise value / PBIDT = Market Cap + Debt Cash and bank
balances/ Profit
12. Closing share price on a date ( latest
13. Latest P/E
14. High/ Low in 52 weeks
15. Important notations ( only vale and one line definition)
a. Growth rate
b. Bonus details
c. Other Income
d. PBIDT, PBDT, PBIT, PBT, PAT, extraordinary PAT or
EPAT
e. Adjusted PAT or APAT
f. Cash profit (reported profit after tax or RPAT +
Depreciation.

iii. Sensitivity analysis (1 page) only one iteration for sales dropping to 95% and
effect on PAT.
iv. Z-score formula ( 1 page) for predicting bankruptcy; only 1 calculation (<1
pg.)
T1 = Working Capital / Total Assets
T2 = Retained Earnings / Total Assets
T3 = Earnings Before Interest and Taxes / Total Assets
T4 = Market Value of Equity / Total Liabilities
T5 = Sales/ Total Assets
Z score bankruptcy model:
Z = 1.2T1 + 1.4T2 + 3.3T3 + 0.6T4 + .999T5
Zones of Discrimination:
Z > 2.99 -Safe Zones
1.81 < Z < 2.99 -Grey Zones
Z < 1.81 -Distress Zones


v. Equity Analysis using ( ~ 10 pages)
1. Calculate Book value and find market value. Calculate Price to
Book value, P/E and
2. Dividend Discount model
a. Single period valuation; calculate r using the given formulae:
i. Po = D1/(1+r) + P1/(1+r)
ii. r = (D1/P0) + g
b. Zero Growth (Walter Model) and or Constant Growth
(Gordon Model);
i. where Po(Walter) = D/r
ii. Where Po(Gordon) = D1/( r-g)
3. Free Cash Flow ( to equity) Method ( 3 years horizon advised)
a. EV = ( Free CF1)/(1+WACC) +(Free CF2
)/(1+WACC)^2+
(Free CF3)/(1+WACC)^3++(Free
CFh)/(1+WACC)^h +
Vh/(1+WACC)^h( horizon value)
4. Relative Valuation method
a. Po = D1/ ( r-g) ; Po = [ E1 (1-b)]/[r ROExb]; b: plough
back ratio and 1-b is dividend payout ratio and r is required
rate of return; ROExb = g is expected growth rate. It also
implies P/E = (1-b)/ (r-g)
vi. CAPM Model (1 page)- Calculate expected returns. { Ri= Rf + beta(i)x( Rm-
Rf)} assume ( Rm from Sensex or Nifty 50 and Rf from T Bills)
Part II: The above is said to be business analysis now the part 2 is concluding the analysis as summary as
comprehension. (1- 2 pages)

Note:
1. Printed matter both in hard and soft copy format.
2. Submission with viva voce individually.
3. Format for hard copy: A4 size ; Times new roman; with index; line space 1.15; margin normal;
project report under Equity research 313F.
4. Total pages between 40 to 50.
5. Take help from Prowess database or money control
6. The assignment is process orientation.
7. Companies have been allocated for each student, in next mail.
8. Individual Assignment