Professional Documents
Culture Documents
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The project is based on the topic ³Fundamental Analysis of Stocks´ with Grow
More Investment Consultancy.
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uc Savings increased as interest was given on daily basis which created vital
corpus for mobilizing investment in critical areas.
uc Tax benefits given at Haridwar attracted Hero Honda to open a plant which
reduced its tax from 22% to 22%.
uc ! investors believe that latching onto good businesses allows
the investor's asset to grow with the business. Fundamental analysis lets
them find 'good' companies, so they lower their risk and probability of wipe-
out.
uc Managers may use fundamental analysis to correctly value 'good' and 'bad'
companies. Eventually 'bad' companies' stock goes up and down, creating
opportunities for profits.
uc Managers may also consider the economic cycle in determining whether
conditions are 'right' to buy fundamentally suitable companies.
uc Reduction in the cost of the lotts that would help in increasing the
investment as well as small investors would be able to invest more freely.
uc A seminar should be arranged for the investors for giving them information
about various factors to be considered before & after investing.
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The project is done on ³
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Investment Consultancy' Chikhali. This project was undertaken with an aim to
gather information & obtain knowledge about the stock market. The study was
conducted in NSE stock market segment with primary focus on the µAutomobile,
Banking, Cement, Petroleum & FMCG sector.¶
Looking at the volatility in the Indian capital market for the past few years, it
becomes necessary to undertake the study of this type of new and emerging field in
the capital market. Besides this another thing which makes the study of the topic
important is that not many people in our country are aware about this type of
analysis, thus it will help in building some sort of awareness about the topic.
The project covers various factors that affect the of stock market, though one
must keep in mind that there are certain limitations to the project as it is limited to
a specific topic, but still the project covers Economic, Industry & Company
Analysis of stocks, are some of the important aspects covered in the project.
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ucTo analyze stocks fundamentally i.e. economic, industry & company wise.
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Lack of knowledge or half-knowledge on how the stock markets operate
can be dangerous and result in losses and blocking of your funds. The key to
successful stock market operations lies in researching and monitoring the
innumerable investment options round the clock. It calls for a high degree of
expertise and commitment, knowing the profitability of any investment proposal
involves a lot of mathematical analysis along with experienced expertise of market
trends which affect the returns on each investment and the risk attached with each
such investment. Thus deciding about the most profitable investment is in itself a
specialized activity resulting in emergence of investment
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The company was started in 1987 and Mr. Motilal Oswal and Mr. Raamdeo
Agrawal to form Motilal Oswal through acquisition of membership on The BSE.
The company created Inquire (Indian Equity Research) in 1994 for extensive
research on the Stock market. It was also in the same year that the company
entered Institutional broking business. The company was rechristened to Motilal
Oswal Securities Ltd in 1995. Mr. Oswal joined the Governing Board of The Stock
Exchange, Mumbai in 1998. In the same year the Wealth Creation Study
culminated into Wealth Creation Seminar and Awards function.
They have a diversified client base that includes retail customers (including
High Net worth Individuals), mutual funds , foreign institutional investors,
financial institutions and corporate clients. They are headquartered in Mumbai and
as of June 30th, 2010, had a network spread over 586 cities and towns comprising
1,481 Business Locations operated by their Business Partners and us. As at June
30th, 2010, we had 6, 42,934 registered customers.
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Analysts researching over 27 sectors and 24 commodities. From a fundamental,
technical and derivatives research perspective; Motilal Oswal's research reports
have received wide coverage in the media (over a 1000 mentions last year). Their
consistent efforts towards quality equity research have reflected in an increase in
the ratings and rankings across various categories in the Asia Money Brokers Poll
over the years.
Their unique Wealth Creation Study, authored by Mr. Raamdeo Agrawal, Jt.
Managing Director, is now in its 15th year. Investors keenly await this annual
study for the wealth of information it has on the companies that created wealth
during the preceding five years.
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Equity
Derivatives
Portfolio Management
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Online Trading
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Asset Management
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,c Motilal Oswal Securities bagged the No.1 Broker Award in the ET Now ±
StarMine Analyst Awards 2009
rc MOSL was 'Rated No.1 ± Best recommendations Mid & Small Caps' and
won awards in 3 out of 4 categories
wc MOSL awarded the prestigious Nasscom - CNBC TV 18 IT User Award ±
2008
Úc MOSL awarded 'The Best Franchisor in Financial Services' by Franchisee
World Magazine 2008 for the second consecutive year.
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With over 5 years experience in India and a large client base, they stand proud as
one of the leading players in the financial services arena.
Grow more investments team is one that anticipates understands and proactively
solves shares and investment planning frustrations-Preserving wealth, controlling
risk and minimizing taxes.
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An Examination and evaluation of the various factors affecting the value of the security is
called
. Security analysis is about is about valuing the assets, debt, warrants and
equity of companies from the perspective of outside investors and publicly available information.
Security analysis is the first step undertaken in the process of investment decisions. The
task involves determining prospective benefits from investment in a security, the conditions
subject to which that may be received, and the likelihood of such conditions
In the sense the task involves forecasting future conditions, the prospective benefits from holding
a security given these conditions, and arriving at µwhat ought to be¶ the price for the security
,given these benefits and adjusting for the inherent time and risk.
is an approach to determine this¶ what ought to be price¶.
Its objective is to identify the under priced and overpriced securities in the market place so that
the investment decisions-buying and selling can be done.
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Fundamental Analysis is based on the premise that a security has an intrinsic value at any given
time. This value is a function of underlying economic values-specifically, expected returns and
risk. By assessing these fundamental determinants of intrinsic value of a security, it is possible to
determine an estimate of its intrinsic value .this estimated intrinsic value can be compared to the
current market price of the security The proper order in which to proceed in fundamental
analysis is, first to analyze the overall economy and securities markets. Second analyze the
industry within with a particular company operates. Finally analysis of the company should be
considered.
Researchers have found that stock prices changes can be attributed to the following factors
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One of the fundamental analyses is that the price on the stock market does not fully reflect a
stock¶s ³real´ value. After all, why would you be doing price analysis if the stock market were
always correct? In financial jargon, this true value is known as the intrinsic value.
For example: let¶s say that a company¶s stock was trading at Rs20. After doing extensive
homework on the company, you determine the intrinsic value of the firm to be Rs250c
The essence of such an analysis is to project a firm¶s sales in future years. For projecting
the future of the firms, a sound understanding of the environment in which the firm is operating
is a prerequisite.
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A wise man once said, ³No man is an island´. No person can work and live in isolation. External
forces are constantly influencing an individual¶s actions and affecting him. Similarly, no industry
or company can exist on isolation. It may have splendid managers and tremendous product.
However, its sales and its costs are affecting by factors, some of which are beyond its control ±
the world economy, price inflation, taxes and a host of others. It is important, therefore, to have
an appreciation of the politico-economic factors that affect an industry and a company.
The GNP is the value of all goods and services produced by the resources owned by the nation.
Though GNP does not differentiate between resources owned by the citizens of the country
within the country and abroad, it does not include the value of goods and services produced
totally by resources owned by foreigners.
The gross domestic product measures the value of the products within the country irrespective of
the ownership of resources used in the production. A high degree of correlation is generally
observed between the GNP and the GDP through their definitions imply that GNP is more
related to the nation¶s income then the GDP. While GNP is more useful in predicting sales of
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consumption goods, GDP is more related to the nations production and hence useful in
predicting the sales of intermediate products.
A stable political environment is necessary for steady, balanced growth. If a country is ruled by a
stable government which takes decision for a long term development of the country, industry and
companies prosper. On the other hand, instability causes insecurity, especially if there is the
possibility of a government being ousted and replaced by another that hold diametrically
different political and economic beliefs.
India has gone through a fairly difficult period. There had been terrible political instability after
the ouster of Mr. Narasimha Rao from the Prime Minister ship. Successive elections held did not
give any single political party a clear majority and mandate. As a result there were coalitions of
unlike. This led to considerable jockeying for power and led to the breakup of the governments
and fresh elections.
There has also been much grandstanding such as the mandal recommendations in order to
capture votes. These led to riots. There were other religious and ethnic issues that also led to
violence such as the Babri Masjid/ Ram Janmabhoomi issue. All these shook the confidence of
the developed world in security and stability of India. Tourism fell.
Foreign direct investment fell. Investments were held back. These had an adverse impact on the
development of the economy. In recent times this scenario has changed. The government, even
though a coalition has been stable. Its policies have been doing well. There are predictions that
by 2050, India would be one of the three most powerful nations in the world. This has led to
remove interest in India and investors are back.
Wars have a similar effect. The war has had an effect on exports of goods. The tragedy of 9/11
affected the entire world. Many industries are yet to fully recover. In conclusion, the political
stability of a country is of paramount importance. No industry or company can grow and prosper
in the midst of political turmoil.
A country needs foreign exchange reserves to meet its commitments, pay for its import and
service foreign debts. Without foreign exchange, a country would not be able to import materials
or goods for its development and there is also a loss international confidence in such a country.
In 1991, India was forced to devalue the rupee as our foreign exchange reserves were, at $532
million very low, barely enough for few weeks imports. The crises were averted at that time by
an IMF loan, the pledging of gold, and the devaluation of the rupee.
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Companies exporting to such countries have to be careful as the importing companies may not be
able to pay for their purchases because the country does not have adequate foreign exchanges.
An Indian company which had exported machines to an African company a few years ago. The
importing company paid the money to its bank. It lies there still. The payment could not be sent
to India as the central bank refused the foreign exchange to make the payment. Following the
liberalization moves initiated by the Narsimha Rao Government and endorsed/supported by
successive governments, India by 31 December 1999 had foreign investments in excess of 28
billion and in 2003; the reserves are in excess of $100billion.
The problem the reserve bank of India faces is managing the huge reserves. In order to
discourage short term flows, the Reserve bank has lowered interest rates and even mandated that
the interest paid should not exceed 24 basis points over LIBOR on foreign currency funds and
non-resident deposits.
This is a real risk and one must be cognizant of the effect of a revaluation or devaluation
of the currency either in home country or in the country the company deals in. Devaluation
in the home country would make the company¶s products more attractive in other
countries. It would also make imports more expensive and if a company is dependent on
imports, margins can get reduced. On the other hand, a devaluation in the country to
which one exports would make the company's products more expensive and this
can adversely impact sales. A method by which foreign exchange risks can be hedged is by
entering into forward contracts, i.e. advance purchase or sale of foreign exchange thereby
crystallizing the exposure.
In India our currency has been appreciating against the dollar. Thus, the threat investors or
recipients of dollars face is that the rupees that they finally receive are less than that they
expected. This is an about turn from the situation earlier. As a consequence many have
begun quoting in rupees.
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Inflation has an enormous effect in the economy. Within the country it erodes purchasing
power. As a consequence, demand falls. If the rate of inflation in the country from which
a company imports is high then the cost of production in that country will automatically go
up. This might reduce the cost competitiveness of the product finally manufactured.
Conversely, if the rate of inflation in the country to which one exports is high, the products
become more attractive resulting in increased sales.
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The USA and Europe have fairly low inflation rates (below 2%). In India, inflation has
been falling steadily in recent times. It is currently estimated between 3.7% and 4%. Low
inflation within a country indicates stability and domestic companies and industries
prosper at such times.
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A low interest rate stimulates investment and industry. Conversely, high interest rates
result in higher cost of production and lower consumption. When the cost of money is
high, a company's competitiveness decreases. In India, the government, through the
Reserve Bank, has been successful in lowering interest rates. Increasing competition
among banks has also helped.
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The level of taxation in a country has a direct effect on the economy. If tax rates are low,
people have more disposable income. In addition they have an incentive to work harder
and earn more and an incentive to invest. This is good for the economy. It is interesting
to note that in every economy there is a level between 35% to 55% where tax collection
will be the highest. While the tax rates may go up, collection will decline. This is why
there it has been argued that the rates in India must be lowered.
Government policy has a direct impact on the economy. A government that is perceived to
be pro- industry will attract investment. The liberalization policies of the Narsimha Rao
government excited the developed world and foreign companies grew keen to invest in
India and their existing stakes in their Indian ventures. The initiative of the former BJP
government in improving the infrastructure grabbed the attention of foreign investors. The
present government continues to focus on infra- structure as it is realized progress at a
decent rate would not be possible without infrastructure.
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All developing economies suffer from budget deficits as governments spend to improve
the infrastructure ± build roads, power stations and the like. India is no exception.
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The Indian economy is an agrarian one and it is therefore extremely dependent on the
monsoon. Economic activity often comes to a stand still in late March and early April as
people wait to see whether the monsoon is likely to be good or not.
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A company analysis is often preceded by an industry analysis the success or failure of a company
to a large extent is influenced by the environment of the industry in which it operates. A
thorough understanding of the industry facilitates the evaluation process of overall performance
of the company.
The second step in the Security Analysis of common stocks is industry analysis. Convinced that
the economy and the market are attractive from the standpoint of investing in common stocks,
the investor should proceed to consider those industries that promise the most opportunities in
the near future.
Industries are analyzed in terms of their stage in the life cycle. The idea is to assess the general
health and current position of the industry. This may be followed by an assessment of the
position of the industry in relation to the business cycle and macroeconomic conditions an
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analysis of the competitive structure prevailing in the industry and a study of the impact of
government policy changes on the industry.
A common situation of joint costs occurs when business units can share intangible assets such as
brand names and know how. The cost of creating an intangible asset need only be borne once.
The asset may then be freely applied to any other business, subject only to any costs of adapting
or modifying it. Thus situation in which intangible assets are shared can lead to substantial
economies.
The growth and the performance of the companies are affected by various external
factors, which are beyond their control. These external factors affect their sales and earning. In
the first stage of the top-down analysis, we consider the economic variables, which affect
performance. The factors can be classified in to five groups.
¦c Technology
¦c Government
¦c Social changes
¦c Demographics
¦c Foreign influence
For each of these categories, there are some themes that affect only a particular industry and
the analyst must follow two main issues.
,c He/she should not fall into the role of a statistician; rather he should concentrate on trends
that would have significant effect on the industry over three to five year period.
rc The significant effects he identified have to be expressed in quantifiable firm.
In many research reports, one basic assumption is that the industry¶s external
environment would repeat itself. Past trends are likely to continue in the future and thus most
industry sales projections are based on time-series analysis. But in the case of new industries,
historical data will not be available as 99% of the public companies are beyond the start-up
stage: an analyst can extrapolate brief historical results into forecast. An analyst, while relying on
historical data, should be wary of important reversals and thus make appropriate adjustment in
his/her forecasts.
The initial analysis of technology focuses on the survival of the fittest. It determines the
capability of the firms to maintain the demand for its product and not to lose the market to its
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substitutes arising from newer technology. In the ever changing technological environment, it
becomes imperative for the companies to adjust to newer technology demands lest they will lose
their competition in the industry.
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The government rules and regulation affect the firms to a great extent. Any firm should be well
aware of the rules and regulations governing the industry and should according plan its ventures.
A negative shift in the fortunes in the country could lead to unfavorable government actions,
resulting in lower earnings. The estimated projections may have to be modified accordingly.
Most business organizations complain about regulations are the major contributing factor for
promoting worker safety, consumer protection and for ensuring fair play. There are two sides to
government influence. Some government regulations have helped in encouraging multiple
businesses also. On the negative side, some of its regulations may affect the prospects of the
industry itself.
For instance: a ban on tobacco by a regulatory action of the government will diminish the
industry¶s prospects. If the government places emphasis on environment control, then it will be a
boon to the environment services sector.
Social changes include fashion and lifestyle changes. Lifestyle changes related to the long-term
changes whereas fashion is highly unpredictable and occurs in short-term. The analyst should be
rally careful while studying the social changes in the economy that the analyst should not
confuse fashion with lifestyle changes and vice versa. It can be highly misleading and can tamper
the efficiency of industry analysis.
Demographic is the science that studies the vital statistics of population such as age, distribution
and income. By observing the trends in these statistics, an analyst develops investment themes
regarding various industries. Demographic trends unfold over a long period of time and they are
more easily identifiable then other external factors. Analysts agree on the existence of a foreign
trend.
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When trade extends across the borders, industries get affected by changes taking place all over
the world.
When choosing an industry, it would be prudent for the investor to bear in mind or determine
the following details:
At the final stage of Security Analysis, the investor analyzes the company. His analysis has
two thrusts:
c How has the company performed vis-à-vis other similar companies and
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c How has the company performed in comparison to earlier years? It is imperative that one
completes the politico economic analysis and the industry analysis before a company¶s
analyzed because the company¶s performance at a period of time is to an extent a
reflection of the economy, the political situation and the industry. The different issues
regarding accompany that should be examined are
¦c The management.
¦c The company.
¦c The Annual Report.
¦c Ratios.
¦c Cash Flow.
The single most important factor one should consider when investing in a Company and one
often never considered is its management. It is upon the quality, competence and vision of the
management that the future of company rests. A good, competent management can make a
company grow while a Weak, inefficient management can destroy a thriving company.
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An aspect not necessarily examined during an analysis of fundamentals is the company. This is
because the company is one's perception of the state of a company -it cannot necessarily be
supported by hard facts and figures.
A company may have made losses consecutively for two years or more and one may not wish to
touch its shares - yet it may be a good company and worth purchasing into. There are several
factors one should look at.
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The primary and most important source of information about a company is its Annual Report. By
law, this is prepared every year and distributed to the shareholders. Annual Reports are usually
very well presented. A tremendous amount of data is given about the performance of a company
over a period of time. The average shareholder looks no further. If an Annual Report is
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impressive, if the company has made a profit and if a reasonable dividend has been paid, he is
typically content in the belief that the company is in good hands .This must not be the criterion
by which to judge a company. The intelligent investor must read the annual report in depth; he
must read between and beyond the lines; he must peep behind the figures and find the truth and
only then should he decide whether the company is doing well or not. The Annual Report is
broken down into the following specific parts:
1c !
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The Director¶s Report is a report submitted by the directors of a company to its shareholders,
advising them of the performance of the company under their stewardship. It is, in effect, the
report they submit to justify their continued existence. the Director¶s Report provides an investor
valuable information:
c It enunciates the opinion of the directors on the state of the economy and the political
situation vis-à-vis the company.
c Explains the performance and the financial results of the company in the period under
review. This is an extremely important part. The results and operations of the various
separate divisions are usually detailed and investors can determine the reasons for their
good or bad performance.
c The Director¶s Report details the company¶s plans for modernization, expansion and
diversification. Without these, a company will remain static and eventually decline.
c Discusses the profit earned in the period under review and the dividend recommended by
the directors.
c Elaborates on the directors' views of the company's prospects in the future.
c Discusses plans for new acquisition and investments.
The auditor represents the shareholders and it is his duty to report to the shareholders and the
general public on the stewardship of the company by its directors. Auditors are required to report
whether the financial statements presented do, in fact, present a true and fair view of the state of
the company. Investors must remember that the auditors are their representatives and that they
are required by law to point out if the financial statements are not true and fair. They are also
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required to report any change, such as a change in accounting principles or the non provision of
charges that result in an increase or decrease in profits.
The published financial statements, of a company in an Annual Report consist of its Balance
Sheet as at the end of the accounting period detailing the financing condition of the company at
that date, and the Profit and Loss Account or Income Statement summarizing the activities of the
company for the accounting period.
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The Balance Sheet details the financial position of a company on a particular date; of the
company's assets (that which the company owns), and liabilities (that which the company owes),
grouped logically under specific heads. It must however, be noted that the Balance Sheet details
the financial position on a particular day and that the position can be materially different on the
next day or the day after.
The balance sheet tells investors a lot about a company¶s fundamentals: how much debt the
company has, how much it needs to collect from customers, how much cash and equivalents it
possesses and what kinds of funds the company has generated over time.
Assets, liability and equity are the three main components of the balance sheet.
There are two main types of assets: current assets and non current assets. Current assets are
likely to be used up or converted into cash within one business cycle usually treated as twelve
months. Three very important current asset items found on the balance sheet are cash,
inventories, accounts receivables.
Non current assets are those assets that are not turned into cash easily, expected to be
turned into cash within a year and have a life-span of over a year. They can refer to tangible
assets such as machinery, computers, buildings and land. Noncurrent also can be intangible
assets such as goodwill, patents or copyright.
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There are two main types of liabilities: current liabilities and noncurrent liabilities. Current
liabilities are obligations the firm must pay within a year, such as payments owing to suppliers.
Noncurrent liabilities represent what the company owes in a year or more time. Noncurrent
liabilities represent bank and bondholder debt. On the other side of the balance sheet are the
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liabilities. These are the financial obligations a company owes to outside parties. Like assets,
they can be both current and long-term. Long term liabilities are debts and other non debt
financial obligations, which are due after a period of at least one year from the date of the
balance sheet.
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Equity represents what shareholders own, so it is often called shareholder¶s equity. Equity is
equal to total assets minus total liabilities.
The two important equity items are paid-in capital and retained earnings. Paid-in capital
is the amount of money shareholders paid for their shares when the stock was first offered to the
public. Retained earnings are a tally of the money the company has chosen to reinvest in the
business rather than pay to shareholders. Investors should look closely at how a company puts
retained capital to use and how a company generates a return on it.
Financial analysis is the process of identifying the financial strengths and weakness of the firm
by property establishing relationship between the items of the balance sheet and the profit and
loss account.
Financial analysis also known as analysis refers to the process of determining according to
Metcalf and tutored is a process of evaluating the relationship between components parts of
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Ratio: ³Ratio is the numerical or quantitative relationship between two items or variables´.
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identical, in that, some conclusion can be drawn from them, analysts can pickup one among the
identical ratios to infer something and may leave others unattended. For instance: return on
assets and the return on equity will yield the same result since there will not be any significant
difference in the denominator of these ratios. However, the analyst has to use his judgment
capacity to make a selection of these ratios to arrive at a meaningful comparison and conclusion.
The analyst should also look into the ways in which these ratios are calculated because there may
not be any consistency in their calculations.
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For the first four of these ratios, the denominator is weighted average of the number of
common share at the end of year in which these ratios are calculated. For the rest of the ratios,
the denominator is the number of common shares outstanding on the balance sheet date. This is
because in the former category, the numerator figures are income statement figures and in the
latter the numerators are balance sheet figures.
The per share ratios are less concentrated on the magnitudes of sales, profits, invested
capital and the aggregate market value of the firm than on the share value. The earnings per share
do not take all the details of the income statement into account and may lead to misinterpretation
by the user.
A share does not indicate a fixed proportion of the ownership of a company and this
year¶s share value cannot be compared with that of the last year in economic terms. Thus if
comparison of the per share figures over a period is done without taking economic factors such
as inflation into account, then the conclusions may not be meaningful.
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While computing the future earnings per share, provisions have to be made for the number of
share expected to be outstanding for the year in which the ratio is to be calculated. The number
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of share outstanding at a given point of time may be influenced by the actions of the firms such
as introduction of stock splits, rights issues, etc. a stock split will dilute the earnings per share.
So an analyst must be aware of such changes taking place in the activities of the firm.
To calculate this ratio, outstanding shares should be weighted by the dividends paid. Historical
dividends would be adjusted for splits, stock dividends, rights, etc.
This ratio gives an idea about the ability of a firm to leverage itself, to pay dividends and to
enjoy financial flexibility. But cash flow does not belong to the equity holders alone because the
debtors also have claim over them.
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A security analyst should gain additional information from the relationship between the price of
a share and the earnings, dividends, asset value and sales. These relationships are defined by the
following ratios:
¦c Price-Earnings Ratio
¦c Earnings Yield
¦c Dividend Yield
¦c Price-To-Book Value.
The major problem encountered in the calculation of these ratios is the time period
considered. For instance: the earnings may be the mean of earnings over a number of years or
merely the last year¶s result. Earnings used in p/e multiple is the last year¶s figure or current
fiscal year¶s or an estimate of the forthcoming year. Since the earnings change widely from one
period to another due to a number of factors, an analyst must be cautious to identify the time
period used and also to know if the figures are actual or estimated. Even the price used may be
actual or estimated. It may be an average or the price at a peak period. So the analyst should
exercise due diligence in interpreting the price ratios so that misconceptions can be avoided.
This ratio has two sensitive components. The numerator depends on the market expectations and
perceptions about the firm¶s performance. The denominator represents the earnings left for
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distribution to the firm¶s shareholder after meeting the claims of the debtors. Both these
components are subject to wide fluctuations from time to time.
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c Profitability ratios
c Growth rate.
c Co-stability ratios
c Pay-out-ratio
c Credit ratio
The most commonly used profitability ration is the ratio of net profit to total capital. This ratio is
a measure of overall performance of a business in terms of total funds provided by all types of
investors rather than single group of investors. It measures management¶s ability to deploy its
funds profitably irrespective of the mode of funding used. The numerator is usually an after tax
but it can also be earnings before interest and tax (EBIT) so that it can be used for inter firm
comparisons effectively, irrespective of their taxable nature.
With profitability ratios, caution should be exercised while choosing the numerator and the
denominator in that they should be mutually consistent. For example: if short-term borrowings
are excluded from the capital used in the denominator, then the corresponding interest should be
deducted from the return used in the numerator.
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These are also termed as activity ratio. They provide information on changes the take place in a
form and would demand on explanation from the analysts. They are:
These ratios are prone to wide variations based on changes in operations and the financial
structure of a corporation.
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Information required for the project was collected through primary and
secondary sources. Information from both the sources was properly analyzed and
systematically noted.
It is second hand data, which is generated for some other purpose, which can
be used by anybody. The information available was meant for general purpose;
however it is stored & used for the purpose of project report only. Following
sources were used:
1)c Reference Books
2)c Web-sites
3)c News Channels.
The sources of secondary data are quite wide. Various medium were used to
gather the information, each of them were used for a specific purpose which is
discussed in brief as follows:
,1
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These were used with view to collect certain theoretical concepts and the
theory part of the project, as unless and until one understands the theory he cannot
go ahead.
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In today¶s modern world the use of computer & internet is inevitable.
Internet has now become a primer source of information of any type. It is not only
quick but also very economical source of information. The data which is collected
from internet is very recent & of practical information.
w1ÿ* !
Various news channels were also used as a source of information which
gave day to day information about the markets.
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Banking Sector
HDFC Bank
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Hero Honda is relatively new company in India incorporated in 1983 by two partners Hero from
India and Honda from Japan. In 1985 Hero Honda launched its first bike CD100 which was the
biggest hit of that time.
After launching splendor in 1994 it picked up the growth rapidly and became the leading bike
manufacturer in world by 2000.
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Hero Honda has consistently grown at double digits since inception. The company sold half a
million two wheelers in a single month²a feat unparalleled in global automotive history.
Hero Honda bikes currently roll out from its three manufacturing facilities. Two of these are
based at Dharuhera and Gurgaon in Haryana and the third was inaugurated at Haridwar,
Uttrakhand in April last year. These plants together are capable of producing out 4.4 million
units per year.
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Hero Honda's extensive sales and service network now spans over 3000 customer touch points.
These comprise a mix of dealerships, service and spare points, spare parts stockiest and
authorized representatives of dealers located across different geographies.
,1c Bajaj
r1c TVS
w1c Yamaha
cñ
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India ended 2008-09 with GDP falling from over 9 per cent in the previous year to a little over
six and a half per cent. Today, however, India has been one of the first countries to stage a
recovery. In the first quarter of 2009-10, Indian GDP grew in excess of 6 per cent²compared to
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5.8 per cent in the previous quarter. This compares with 0.3 per cent growths posted by Germany
and France, two countries in Europe where the recession is believed to have ended.
India¶s growth resilience today is being equated with China¶s. This is an important development.
Even eighteen months ago, India¶s ability to catch up with China was questioned. With China
easily clocking double digit growth rates, it was assumed that India would take a few more years
to come close. Now, as China¶s export-centric economy struggles on the one hand to cope with
dwindling global trade, and on the other, tries to grapple with a potential bubble in its real estate
and stock market, the baton of providing the world sustainable growth in the short term has
passed to India.
There were two dimensions to the economic slowdown. In the first half of the year in review,
inflation ran into double digits as a result of the global crude shock and the global food grain
shortage. To control inflation, the RBI clamped down on money supply, and reduced liquidity in
the economy. By the time inflation started coming under control, domestic interest rates started
shooting up. Meanwhile, the global crisis erupted, putting further pressure on liquidity levels.
By the second half of the year, slowdown was clearly apparent in export-intensive sectors, both
in the manufacturing and service side. By December, the slowdown turned into de-growth. The
cutback in demand from Europe and the US was so sharp that even a competitive rupee, which
devalued by around 12 per cent during the year, couldn¶t act as a buffer.
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It wasn¶t an easy year for the two wheeler industry. Rising interest rates and the economic
slowdown resulted in delayed consumer decision making and a rise in loan defaults. Over the
course of the year, banks withdrew financing facilities from satellite towns. The share of
financing, which had increased rapidly to 50-60 per cent of the total retail sales by early 2007,
has now come down to below 30 per cent.
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The government has created conditions to ensure that India¶s overall savings rate (close to 38 per
cent of GDP) remains high, and continues to grow. High savings in India are creating a vital
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corpus for 38obilizing investments in critical areas such as infrastructure, and for fuelling
domestic growth.
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The company aims to increase its total installed capacity to 5.7 million from 5.4 million by
August 2010. This will be done through an incremental investment of Rs 130 crore at its third
and newest plant at Haridwar. The company has two plants in the Gurgaon area, besides one at
Haridwar which enjoys tax benefits. Largely due to the increasing production levels at the
Haridwar plant, the company¶s overall tax rate for 2009-10 has come down to 21.18 per cent
from 28 per cent in the previous fiscal.
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Several cost rationalization initiatives were also taken which have yielded excellent results in
the improved bottom line.
³However, for the industry as a whole, the steadily rising input costs remain a concern area. The
price of steel is at an all-time high, and the prices of other commodities are also on the rise. For
more than a year, the industry has also been reeling under very high interest rates and lack of
consumer finance. Going forward, we expect the government to address these issues for the
industry to be able to make a turnaround,´
The first quarter net profit of Rs500 crore posted by Hero Honda Motors Ltd has been better-
than-expected. Hero Honda has pruned costs thanks to its factory in Haridwar, Uttarakhand.
Analysts estimate at least a quarter of Hero Honda¶s motorcycles are manufactured at Haridwar.
In the last June quarter, this was about 5%. Thanks to various incentives such as an excise tax
waiver for 10 years, income-tax exemption and an investment subsidy at this plant, the firm¶s
sales net realizations and profitability are much higher. On a per unit basis, average realizations
grew 7.1% to Rs34,058 per unit.
Raw material savings also were better than expected, especially with a steeper fall in aluminium
prices, say analysts. Two-wheelers use more aluminium (as a percentage of total metal used)
than four-wheelers. Raw material costs as a ratio of net sales fell to 67.6% last quarter compared
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with 72.5% in the year-ago period. Consequently, operating profit almost doubled to Rs604 crore
and operating margin rose by 5.1 percentage points.
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With a helping hand of government¶s stimulus package and lowered interest rates on
auto loans, the automobiles industry recorded a growth of 26.41%. The industry recorded
sales of 12.3 million units, highest ever, making the current financial year 2009-10 the most
successful in its history.
The four wheeler segment posted a growth of 25.10% growth and the two wheelers
witnessed a surge of 26%. Mr. Pawan Goenka, President of the SIAM (Society of Indian
Automobile Manufacturers) expected a growth of 10-15%. He also stated that by the year
2015-16 the industry is expected to be worth US$145bn.
The domestic car sales boomed with manufacturers selling 155,600 cars in March, compared
with 129,585 a year ago increasing by 20.1%. Sales of trucks and buses rose 61.2% to 67,362
units in the month, SIAM said.
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Today, the Rs 12,357 crore (Rs 123.57 billion) Hero Honda commands a 57 per cent share in the
motorcycle market, in which half a dozen players are slugging it out, including Japanese
multinationals, Suzuki and Yamaha. In an extremely tough 2008-09, Hero Honda managed to
sell higher volumes up 12 per cent in the process growing its net profit by 32 per cent. In 2008,
the stock made it to the list of the top three Sensex scrips, together with Hindustan Unilever and
Glaxo0
Hero Honda retains the number one position in the 100cc segment with its Splendour and
Passion brands; Bajaj Auto has begun snapping at its heels.In the second half of 2009-10,
33,264 units were added per month to the 100cc motorcycle pie against the first half. And Bajaj
Auto claims that its 100cc sales were up 34,867 units per month during these six months, despite
the fact that it launched Discover only in August last year.S Sridhar, Bajaj¶s CEO- two
wheelers, said his company¶s 100cc market share rose by six percentage points to 23% in the
October-May period, while Hero Honda¶s share in 100cc segment fell from 69% to 64%.
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Hero Honda Motors Ltd announced a 49 per cent increase in its net profit at Rs 598.8 crore
for the fourth quarter ended March 31; 2010.The growth was due to a combination of the
Government's fiscal stimulus, the availability of cheap financing and the low base effect from the
previous fiscal. Hero Honda enjoys a 59 per cent market share in the two-wheeler segment.
Combined with the highest ever turnover and unit sales in a single quarter, the highest ever net
profit set a new record for both the company and the industry0cc
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ÿñACC
ÿÿINE012A01025
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(ACC Limited) is India's foremost manufacturer of cement and concrete. ACC's operations
arespread throughout the country with 16 modern cement factories, more than 40 Ready mix
concrete plants, 20 sales offices, and several zonal offices. It has a workforce of about 9,000
persons and a countrywide distribution network of over 9,000 dealers.
ACC has rich experience in mining, being the largest user of limestone. As the largest cement
producer in India, it is one of the biggest customers of the domestic coal industry, of Indian
Railways, and a considerable user of the country s road transport network services for inward and
outward movement of materials and products.
ACC s brand name is synonymous with cement and enjoys a high level of equity in the Indian
market. It is the only cement company that figures in the list of Consumer SuperBrands of India.
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India is developing into an open-market economy, yet traces of its past autarkic policies remain.
Economic liberalization, including reduced controls on foreign trade and investment, began in
the early 1990s and has served to accelerate the country's growth, which has averaged more than
7% per year since 1997.
Starting with agriculture¶s dominance post the independence era, presently, the Services sector
has acquired the centre stage by contributing over 50% towards the country¶s GDP. The
following chart indicates the growing contribution of the Services sector in the economy, with
decreasing dependence on agricultural produce, the large reliance of which on the monsoon
makes it uncertain.
Moreover, the Services sector, unlike the agricultural sector which employs around 50%
of the population, employs just 33% of the population.
Figures in %
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India¶s GDP growth released for the last quarter of 2009-10 turned out to be robust; it
showed a record growth of 8.6 percent as compared to the growth of 5.8 percent in the same
quarter of previous year. For the fiscal 2009-10 India's economy grew by 7.4 percent which is an
upward revision from earlier estimates of 7.2 percent due to higher-than-anticipated growth in
agriculture, mining and manufacturing sectors. Given the impressive IIP numbers, and the good
monsoons, the GDP is expected to grow a healthy rate of 8.6% in the next fiscal. Inflation is a
concern that is placing a cap on the GDP growth rate, which could have otherwise grown at 9.2%
(McKinsey Report). Thus it is now the prerogative of the RBI to tame the inflation by raising its
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key rates of its monetary policy. It has already done it for four times in the current fiscal, and is
expected to do the same when it meets on Sept. 16th 2010 for its monetary policy review.
c -
India GDP Per Capita stands at 718 US dollars, according to the World Bank. The GDP per
capita is obtained by dividing the country¶s gross domestic product, adjusted by inflation, by the
total population. India Gross Domestic Product is worth 1296 billion dollars or 2.09% of the
world economy, according to the World Bank. India Gross Domestic Product (GDP) expanded at
an annual rate of 8.60 percent over the last quarter. India's diverse economy encompasses
traditional village farming, modern agriculture, handicrafts, a wide range of modern industries,
and a multitude of services. Services are the major source of economic growth, accounting for
more than half of India's output with less than one third of its labor force. The economy has
posted an average growth rate of more than 7% in the decade since 1997, reducing poverty by
about 10 percentage
points.
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India¶s annual inflation slipped just below double digits to 9.97 percent in July, compared to
10.55 percent the previous month, official data released Monday showed.
The annual inflation figure, based on wholesale prices, is a more broad-based barometer of the
price change in items. May¶s wholesale price index (WPI) was revised upwards to 11.14 percent
from 10.16 percent. Data released by the commerce ministry showed that prices of food articles
spiked slightly at 14.94 percent last month, against 14.6 percent in June, while those for fuels
increased 14.29 percent in the last month. Fuel prices were up 14.32 percent in June. Prices of
primary articles went up by 14.94 percent in July, climbing slightly faster from the 14.6 percent-
level in June. Manufactured products became expensive by 6.15 percent during the last month.
As graph shows that inflation rate is rising year by year but it has started showing a declining
trend starting with the start of 2010 Inflation in economy is not good from investor¶s point of
view. When inflation rate raises it become the reason of extra costs to business, thereby
squeezing their profit margin and leading to real decline in profitability and thereby reducing the
dividends on variable income securities, but this situation is bound to change with government
making every possible effort of taming the same.
c /
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The prevailing economic conditions, both domestic and global, suggest the Indian stock
market is poised to continue to rally in 2010 even though US and European Markets have yet to
recover from recession effect. Key factor remains the impact of Q4 results and strong GDP
growth of around 8%. However point of caution needs to be the phase wise withdrawal of
financial support given by Indian government to the market. So far, the recovery in India has
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been driven by domestic consumption and government expenditure. However, corporate
investment is expected to surge in 2010 due to the strong GDP growth which will increase
capacity utilization.
c ÿñ
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India benchmark interest rate stands at 4.50 percent. In India, interest rate decisions are taken by
the Reserve Bank of India's Central Board of Directors. The official interest rate is the
benchmark repurchase rate Data in graph shows that in 2009 and 2010 interest rate are far less
than previous year. Means government is helping the businessmen so that they can continue their
business without any difficulty in economic crisis type of condition by reducing the interest rate.
Low interest rate is good from investor¶s point of view.
Although the interest rates have hiked a bit from where they started in the year 2010, still
they are far below the rates prevailing in previous years, so it¶s not a point to worry about.
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An industrial slowdown early in 2008, followed by the global financial crisis, led annual GDP
growth to slow to 6.5% in 2009, still the second highest growth in the world among major
economies. India escaped the brunt of the global financial crisis because of cautious banking
policies and a relatively low dependence on exports for growth. Domestic demand, driven by
purchases of consumer durables and automobiles, has re-emerged as a key driver of growth, as
exports have fallen since the global crisis started.
India's fiscal deficit increased substantially in 2008 due to fuel and fertilizer subsidies, a
debt waiver program for farmers, a job guarantee program for rural workers, and stimulus
expenditures. The government abandoned its deficit target and allowed the deficit to reach 6.8%
of GDP in FY10. Nevertheless, as shares of GDP, both government spending and taxation are
among the lowest in the world. The government has expressed a commitment to fiscal stimulus
in FY10, and to deficit reduction the following two years.
c
The year 2009 was an important year for the Indian cement industry. When the year began, the
Indian economy was in a recession amidst the global slowdown that was still prevailing. The
cement industry then faced the prospects of a substantial cement capacity addition with no sign
that demand would grow significantly.
However, the forecasts were wrong - demand was robust, capacity creation was delayed,
cement plants achieved higher capacity utilization and market prices were favorable. With
commodity prices including fuel remaining subdued, most cement manufacturers were able to
record good financial performances in 2009. The cement industry posted a steady growth of
about 10.3% during the year under review.
Overall cement dispatches in 2009 were approximately 195 million tonnes, up from 177
million tonnes in 2008. Growth was registered across all regions, led by rapid developments in
infrastructure and a stable housing sector. The demand-supply scenario was generally at balance
with high levels of capacity utilization in most of the regions. In 2009, capacity additions of the
order of 26.88 million tonnes went on stream. There was some delay in the materialization of
fresh capacity addition which helped ease the pressure on selling prices. The industry¶s cost
profile improved on account of lower procurement prices of coal and other commodities
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India's industrial output grew at its fastest year-on-year pace in almost two decades at 16.8% in
December, signaling a strong recovery. The manufacturing sector constituting around 80% of
industrial output, expanded by 18.5% to set the pace with growth. As a pointer to rising domestic
consumption strengthening future growth, consumer durables industries such as automobiles
surged 46% and capital goods output rose by 38.8%.
The latest numbers are much higher than a revised annual rise of 11.8% in November as
well as forecasts of around 12%. It is the highest year-on-year growth registered in the index of
industrial production (IIP) since April 1995, when the new series, which uses 1993-94 as base
year, started. Even in the old series of the IIP, with base year 1980-81, March 1990 was the only
month that had ever registered a higher growth rate, 23.8%. Besides manufacturing, mining
output grew by 9.5% in December against 2.2% a year ago, while electricity generation rose by
5.4% against 1.6% in the previous corresponding period.
c ñ
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India is the world's second largest producer of cement with total capacity of 224 million tones
(MT) as on April 30, 2010, according to the Cement Manufacturer¶s Association. During May
2010, the cement production touched 14.50 MT as compared to 13.28 MT in May 2009. The
cement dispatches quantity was 14.21 MT in May 2010 over 13.06 MT in the corresponding
month in May 2009.
Moreover, the government's continued thrust on infrastructure will help the key building material
to maintain an annual growth of 9-10 per cent in 2010, according to India's largest cement
company, ACC. In January 2010, rating agency Fitch predicted that the country will add about
50 million tonne cement capacity in 2010, taking the total to around 300 million tonne.
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The Indian cement industry has witnessed a phenomenal capacity addition to the tune of
about 52 mn tonnes in the last two financial years which accounted for about 24% of the
industry¶s capacity of 218 mn tonnes at the end of FY09. In the last two financial years, the
cement industry has registered a double-digit growth in capacity addition compared to moderate
growth of 3-7% registered during period FY 03-07. As a result, industry¶s capacity utilization
rate which showed a rising trend up to FY07 has dropped to a level of 83% in FY09.
In FY09, the GDP growth slowed down to 6.7% compared to the 9% growth reported in
FY08. However, cement consumption growth in FY09 at 8.4% has been able to maintain its
multiplier factor with GDP growth at 1.25 times. In FY09, all the regions except the Western and
the Northern region have outperformed the industry in consumption growth. The Eastern region
continued its buoyant performance and registered the highest cement consumption growth of
11.3% on yoy basis. The Southern and Central regions also reported impressive double-digit
growth of 10.4% in cement consumption. But, the Northern region has registered the lowest
growth in the cement demand on yoy basis comparatively, poor demand growth registered by the
Western region was on account of high base of the last year and also slightly subdued demand.
c ÿñ)ÿññÿ
,c Cement and gypsum products have received cumulative foreign direct investment (FDI)
of US$ 1708.69 million between April 2000 and March 2010, according to the
Department of Industrial Policy and Promotion.
rc Madras Cements Ltd is planning to invest US$ 178.4 million to increase the
manufacturing capacity of its Ariyalur plant in Tamil Nadu to 4.5 MT from 2 MT by
April 2011.
wc Surya Group plans to invest US$ 873.3 million in a new 5 million MT cement plan to be
set up in Gujarat.
Úc Jaiprakash Associates plans to invest US$ 640 million to increase its cement capacity.
c -ñ
ÿñÿÿ ñ
The cement industry is pushing for increased use of cement in highway and road
construction. The Ministry of Road Transport and Highways has planned to invest US$ 354
billion in road infrastructure by 2012. Housing, infrastructure projects and the nascent trend
of concrete roads would continue to accelerate the consumption of cement.
c Increased infrastructure spending has been a key focus area. In the Union Budget 2010-
11, US$ 37.4 billion has been provided for infrastructure development.
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c The government has also increased budgetary allocation for roads by 13 per cent to US$ 4.3
billion.
c
c Total consolidated income for the year 2009 was Rs. 8,725 crore, an increase of 9% as
compared to Rs. 7,974 crore in 2008.
c Consolidated profit before exceptional items and tax for the year 2009 was Rs. 2,251
crore against Rs. 1,582 crore in the 2008, an increase of 42%. Consolidated profit after
tax for the year 2009 was Rs. 1,564 crore as against Rs. 1,100 crore in 2008, an increase
of 42%.
c The expansion project of the Bargarh Plant was substantially completed during the year.
c The satellite grinding units which were set up as a part of Wadi expansion programme at
Thondebhavi in Chikballapur District and Kudithini in Bellary District in Karnataka were
also partly commissioned during the last quarter of 2009.
c There was substantial progress during the year under review in the company¶s on-going
projects at Wadi and Chanda, which are slated for completion in the first half of 2010.
c Work was started on a project to set up a 2.5 MW wind energy farm in Maharashtra.
"!!
c The EPS has grown to a figure of Rs. 85.59 in FY 2009 from Rs. 29.49 in FY 2005.
c The P/E ratio stands at an impressive Rs. 9.87
c The Net Profit Margin has not been growing from the past 3-4 years, although the
Operating Profit Margin has increased. The reason being the 3
*
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of 0.09
c The Inventory Turnover Ratio has doubled to 25.22 from 12.29 in a span of five years.
This shows that the
! $$
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progressed.
c The Fixed Assets Turnover ratio has become > 1 which shows sound capability and
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c The Current Ratio has decreased to 0.66 which gives a $
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facing trouble in getting paid for receivables (as Quick Ratio has decreased as well).
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c The Financial Charges Coverage Ratio (before tax), has increased to an excellent figure
of 32.02 which shows
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the company has reduced the level of debt/equity even though sales are increasing.
¦c ! N S Sekhsaria
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! Paul Hugentobler
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Naresh Chandra
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ÿñHDFC
ÿINE001A01036
%
[Rs.Cr.] 91,926
;
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Finance - Banks - Private Sector
"
The Housing Development Finance Corporation Limited (HDFC) was amongst the first to
receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in the
private sector, as part of the RBI's liberalisation of the Indian Banking Industry in 1994. The
bank was incorporated in August 1994 in the name of 'HDFC Bank Limited', with its registered
office in Mumbai, India. HDFC Bank commenced operations as a Scheduled Commercial Bank
in January 1995.
,1c Kotak Mahindra Bank Ltd.
r1c Lakshmi Vilas Bank Ltd.
w1c ING Vysya Bank Ltd.
Ú1c Federal Bank Ltd.
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During the year under review, the Indian economy belied expectations with the speed of its
recovery from the global financial crisis. The economy showed great traction with the country¶s
GDP growing at 7.4% in FY 2009-10. The low agricultural output on account of a deficient
monsoon was offset by a strong industrial revival and continued buoyancy in the services sector.
One of the key concerns for the authorities during the year was the sharp increase in inflation,
predominantly driven by primary commodities. In March 2010, the headline Wholesale Price
Index touched 9.9%. Although the surge in inflation was mainly a supply side phenomenon, the
Reserve Bank of India (RBI) took various measures to anchor inflationary expectations.
While the RBI has been adopting a measured and calibrated approach towards withdrawing
the monetary stimulus package, credit off-take picked up significantly in the last quarter of FY
2009-10, signifying rising optimism and confidence in the economy.
c ÿñ
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Liquidity conditions remained comfortable during the year. In line with the interest rate
movements in the economy, HDFC revised its Retail Prime Lending Rate (RPLR) and its
Corporate Prime Lending Rate (CPLR) for non-individual loans during the year under review.
The CPLR is a dynamic benchmark based on an index of money market instruments.
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RBI forced all the banks to pay the interest rates on day-to-day basis for all the savings bank
accounts customers. As we have known, this would cause more spending for the banks because
the millions of customers keep the money idle in the savings bank accounts. Till last year, banks
paid only less interest money for those savings.
Effective this April 2010, the new rules comes to effective. We can expect all the banks will
introduce lot of new fees and charges on our account to compensate those losses. Here I am
writing about the new rules announced by HDFC bank which is effective from 1st July, 2010.
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¦c The number of transactions in a Savings Account is restricted to 100 transactions per half
year.
¦c 5 cash transactions at branch will be allowed free per month. Every additional transaction
will be charged @ Rs 100 per transaction effective 1st July 2010.
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¦c Cheque return charges will be revised effective 1 April 2010 as under:
÷c First cheque return in a quarter ± Rs 350/-
÷c From second cheque return in the same quarter – Rs 750/- per return
÷c For accounts not maintaining AQB, Rs 400/- for first cheque return in a quarter
and Rs 800/- per return from the second cheque return in the same quarter.
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The subprime crisis peaked in September 2008 following the collapse of Lehman Brothers.
Many forecasts that 2009-10 would be the year of reckoning for the Indian economy and for
Indian banking, both of which had successfully weathered the crisis until then. But some
disagreed & said that banking would be a bright spot in the economy given the strengths inherent
in the sector.
The pessimists have been proved wrong about the Indian economy ² the economy is
projected to grow at more than 7% in 2009-10. They were proved even more wrong about the
banking sector. The Bankex has outperformed the Sensex during April-December 2009. It rose
by 123% while the Sensex rose by 73%. In 2008-09, the Bankex had declined by 40%, a little
more than the decline of 37% in the Sensex.
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half of the current year, some high-cost deposits would also get re-priced and would further
cushion the margins. The management expects NIMs to average between 3.9 per cent and 4.2
per cent.
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The Reserve Bank of India (RBI) increased statutory liquidity ratio by 100 basis point
from 24% to 25 %, effective from November 8, 2009. SCBs (scheduled commercial
banks) are currently maintaining SLR investments at 27.6% of their Net Demand
Time Liability (NDTL); as such the increase in SLR will not impact the liquidity
position of the banking system and credit to private sector. Meanwhile CRR, repo and
reverse repo rates have been left unchanged.
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During the year (up to Oct 9, 2009) deposits grew by 20% while credit growth was
significantly lower at 10.8%. Going forward, RBI has projected deposits to grow by
18% as compared to 20% set out in first quarter review. In 2009-10, credit expanded
by Rs.1,14,800 crore, while in order to achieve a projected a growth of 20% banks
will need to expand credit by Rs.4,40,00 crore in the remaining part of the year,
which is highly unlikely.
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With a view to improve the safety of banking sector, RBI has advised banks to
increase the provisioning cover and enhance the financial soundness. RBI has
indicated a provisioning coverage ratio of not less than 70% including the specific
and floating provisions. Banks should achieve this norm by end of September 2010.
We conclude that this move will impact the performance of banks which have lower
coverage including SBI (currently at 45%), Canara Bank (28%), and ICICI Bank
(52%) based on the latest reported figures0 However, financial institutions including
Axis Bank, HDFC Bank, and Federal Bank have a provision coverage ratio of more
than 70%. Therefore, banks with higher coverage ratio will not be impacted by the
increase in provision coverage ratioc
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Even as growth in the home loan market stayed in the single digit in 2009-10, larger banks
managed to expand their market share in this segment, by edging out smaller players.
The top 10 banks' home loan portfolio grew at 13.8 per cent for 2009-10, even as overall bank
lending to housing grew only 8 per cent. State Bank of India saw a 32 per cent growth in its
home loan portfolio for 2009-10 and became the top mortgage lender among banks. The top ten
banks garnered 65 per cent of the total outstanding housing loans (of scheduled commercial
banks) in 2009-10, up from 61.5 per cent last year.
Housing loans were among the rapidly growing segments of retail lending, which saw a tepid 4
per cent expansion in 2009-10. Education loans, at 31 per cent, grew the fastest.
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SBI contributed 78 per cent of the incremental home lending in 2009-10. SBI's teaser loans, apart
from getting it new customers, prompted a good number of borrowers to switch to the bank.
SBI's consistent ahead-of-market growth in home loans has seen its market share improving from
17 per cent in March 2008 to 24 per cent by March 2010.
* !
ICICI Bank from being the largest mortgage lending bank fell to second place in the last year.
The bank's home loan book shrank 17 per cent over the year. Other private banks such as HDFC
Bank and Axis Bank witnessed expansion in their home loan portfolios, which were up by 74 per
cent and 41 per cent respectively.
Bank of India was the only major public sector bank to witness a single digit growth rate of 7
per cent. Non-Banking financial companies active in this segment such as HDFC and LIC
Housing Finance saw their book expanding by 15 per cent and 38 per cent respectively. As the
teaser rates are being phased out it remains to be seen if there would be a shift in incremental
market share to private players and NBFCs.
01c
Mr. C.M. Vasudev has been appointed as the Chairman of the Bank with effect from 6th July
2010 subject to the approval of the Reserve Bank of India and the shareholders. Mr. Vasudev has
been a Director of the Bank since October 2006. A retired IAS officer, Mr. Vasudev has had an
illustrious career in the civil services and has held several key positions in India and overseas,
including Finance Secretary, Government of India, Executive Director, World Bank and
Government nominee on the Boards of many companies in the financial sector.
The Bank's Managing Director, Mr. Aditya Puri, has been a professional banker for over 25
years. Before joining HDFC Bank in 1994, he was heading Citibank's operations in Malaysia.
The Bank's Board of Directors is composed of eminent individuals with a wealth of experience
in public policy, administration, industry and commercial banking. Senior executives
representing HDFC are also on the Board.
Senior banking professionals with substantial experience in India and abroad, head various
businesses and functions and report to the Managing Director. Given the professional expertise
of the management team and the overall focus on recruiting and retaining the best talent in the
industry, the bank believes that its people are a significant competitive strength.
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Executive Director
! Director
ÿ-! ! Director
Director
## Director
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ÿÿ-
uc Savings increased as interest was given on daily basis which created vital
corpus for mobilizing investment in critical areas.
uc Tax benefits given at Haridwar attracted Hero Honda to open a plant which
reduced its tax from 22% to 22%.
uc At the initial quarter of F.Y. 2009 it was expected that due to economic
slowdown there would be less demand for cement but later on Demand-
Supply Ratio of cement was matched.
uc Income of ACC Cement grew by 9% & that of Hero Honda by 28% in 2009-
10.
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uc The data is collected from the Secondary source, so the study will have
slight variation than what the study includes in reality.
uc The time period of 50 days was not sufficient to study the stock market
completely.
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ÿ(ÿ
! investors believe that latching onto good businesses allows
the investor's asset to grow with the business. Fundamental analysis lets them find
'good' companies, so they lower their risk and probability of wipe-out. Managers
may use fundamental analysis to correctly value 'good' and 'bad' companies.
Eventually 'bad' companies' stock goes up and down, creating opportunities for
profits. Managers may also consider the economic cycle in determining whether
conditions are 'right' to buy fundamentally suitable companies.
Managers may use fundamental analysis to determine future growth rates for
buying high priced growth stocks. Managers may also include fundamental factors
along with technical factors into computer models (quantitative analysis).
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As said earlier investment in equity market is growing fast, but still there are
certain things that need to be considered while & after investing. Thus this section
deals with a certain recommendations which would help in better development of
this market.
uc Reduction in the cost of the lotts that would help in increasing the
investment as well as small investors would be able to invest more freely.
uc A seminar should be arranged for the investors for giving them information
about various factors to be considered before & after investing.
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Samir K Barua
V Raghunathan
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