Security Analysis & Portfolio Management

(F-04) Contributors: - Prof.Neeraj Marathe

1 PGDM- Semester-III, Human Resources

Sr.No. Lecture 1

Particulars Introduction to the syllabus, briefing about the study pattern, feedback and suggestions from students. No concept from the syllabus to be covered here. Defn of investment. Investment v/s speculation, introduction to various investment avenues, investment objectives & constraints. Capital market equity & debt, primary & secondary. Distinction. Explanation & discussion. Equity primary market-different methods. Basic functioning of secondary market. Secondary market discussion. Measures of risk standard deviation, coefficient of correlation, covariance. CAPM, SML, CML, efficient market hypothesis Fundamental analysis top down and bottom-up approaches. Economy analysis Industry analysis industry life cycle, Porters model. Company analysis qualitative AR reading. Company analysis quantitative (ratios) DDM, DCF approaches to valuation PE ratio Technical analysis theory, types of charts, basic concepts Basics of bonds

Lecture 2

Lecture 3

Lecture 4

Lecture 5 Lecture 6

Lecture 7 Lecture 8

Lecture 9 Lecture 10 Lecture 11 Lecture 12 Lecture 13 Lecture 14 Lecture 15

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Lecture 16

Portfolio management process introduction, investment policy statement Choice of asset mix Formulation of portfolio strategy Portfolio execution Portfolio revision Portfolio evaluation Mutual funds basics

Lecture 17 Lecture 18 Lecture 19 Lecture 20 Lecture 21 Lecture 22

All students are urged to refer to the recommended book while preparing for the lectures. Additional inputs on current affairs and recent happenings will be given by the faculty.

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SAPM Cases

Case 1 and 2: Investment Avenues Study the following info and a) List down the investment objectives and investment constraints for each of them. b) Suggest various investment/s, best suited in accordance with the objectives and constraints in each case.

1. Mr. Nitin is a 36 year old married person. He has a 7 year old son. He works in an MNC, getting (in-hand) salary of Rs.90000 per month. His wife is a home-maker. Monthly expenses (all included) are Rs.40000. 2. Mr. Desai is a 59 year old person. He has just retired and has received Rs.50 lakhs as total retirement benefits. He lives with his wife in an owned house. His monthly expenses are Rs.15000 (all included). He no longer has any other source of income. 3. Miss Shefali is a 24 year old person. She is single and works in an IT company. Her take-home pay is Rs.30000. Her bare-minimum expenses are Rs.12000. Other expenses (parties, movies n stuff) are in the range of Rs.10000-15000 per month. You may use a combination of various investment avenues, like insurance, mutual funds, bank deposits, direct equity, real-estate, etc. Ignore taxes

Case 3: IPO review To be given separately Case 4: Sector review We have had an in-depth discussion on the cement industry in India. Write a report on Indias cement industry, with specific reference to Porters Model. Case 5: Annual report review To be given separately. 4 PGDM- Semester-III, Human Resources

Case 6 and 7: Ratio analysis

Balance sheet
Mar 2009 Rs.Cr SOURCES OF FUNDS : Equity Share Capital Reserves Total Total Shareholders Funds Secured Loans Unsecured Loans Total Debt Total Liabilities APPLICATION OF FUNDS : Gross Block Less : Accumulated Depreciation Net Block Investments Current Assets, Loans & Advances Inventories Sundry Debtors Cash and Bank Loans and Advances Total Current Assets Less : Current Liabilities and Provisions 9.46 10.85 11.36 3.81 35.48 8.22 14.53 7.01 2.97 32.73 8.85 10.66 2.97 7.3 29.78 10.24 11.15 1.68 6.27 29.34 6.37 7.23 0.65 4.37 18.62 11.93 6.12 0.55 3.24 21.84 15.43 7.48 7.95 0.01 13.58 6.73 6.85 0.03 12.24 6.18 6.06 0.03 11.93 5.64 6.29 0.03 11.01 5.51 5.5 0.03 10.81 4.21 6.6 0.03 3.5 26.99 30.49 0 0 0 30.49 3.5 19.38 22.88 0 0 0 22.88 3.5 12.93 16.43 0 0 0 16.43 3.5 9.85 13.35 3.4 0.98 4.38 17.73 3.5 7.08 10.58 1.88 2.54 4.42 15 3.5 6.58 10.08 3.24 2.73 5.97 16.05 Mar 2008 Rs.Cr Mar 2007 Rs.Cr Mar 2006 Rs.Cr Mar 2005 Rs.Cr Mar 2004 Rs.Cr

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Current Liabilities Provisions Total Current Liabilities Net Current Assets Deferred Tax Assets Deferred Tax Liability Net Deferred Tax Total Assets

7.6 6.73 14.33 21.15 1.63 0.25 1.38 30.49

12.4 4.84 17.24 15.49 0.79 0.28 0.51 22.88

10.18 9.3 19.48 10.3 0.35 0.31 0.04 16.43

10.01 7.89 17.9 11.44 0.32 0.35 -0.03 17.73

3.75 5.37 9.12 9.5 0.48 0.51 -0.03 15

8.2 3.69 11.89 9.95 0.33 0.86 -0.53 16.05

CMP Rs.125/-. Dividend Rs.5 per share. Face value Rs.10.

Profit and loss a/c

Mar 2009 Rs.Cr INCOME : Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income EXPENDITURE : 110.58 5.74 104.84 2 1.1 107.94 108.02 7.8 100.22 0.83 -0.82 100.23 85.99 6.42 79.57 1.11 -1.45 79.23 74.99 6.67 68.32 1.06 3.65 73.03 59.1 4.51 54.59 0.93 -5.72 49.8 44.14 3.48 40.66 0.91 3.26 44.83 Mar 2008 Rs.Cr Mar 2007 Rs.Cr Mar 2006 Rs.Cr Mar 2005 Rs.Cr Mar 2004 Rs.Cr

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Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Administration Expenses Miscellaneous Expenses Total Expenditure Operating Profit Interest Gross Profit Depreciation Profit Before Tax Tax Fringe Benefit tax Deferred Tax Reported Net Profit

60.85 0.41 11 7.41 11.89 0.27 91.83 16.11 0.12 15.99 1.44 14.55 5.6 0.4 -0.87 9.42

58.44 0.4 9.14 6.41 10.55 0.28 85.22 15.01 0.14 14.87 1.06 13.81 5 0.3 -0.31 8.82

48.82 0.44 6.97 4.83 8.17 0.19 69.42 9.81 0.43 9.38 1.04 8.34 3 0.29 -0.07 5.12

45.85 0.44 5.71 3.31 8.63 0.25 64.19 8.84 0.39 8.45 1.06 7.39 2.55 0.39 0 4.45

29.38 0.37 4.76 1.92 7.47 0.58 44.48 5.32 0.52 4.8 0.92 3.88 1.6 0 -0.51 2.79

29.25 0.31 3.97 1.45 6.12 0.04 41.14 3.69 0.57 3.12 0.79 2.33 0.81 0 0.01 1.51

Analyze the given financial statements through ratio analysis and comment on the same.

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Case 8: Discounted cash flow Study the following cash-flow statement. Calculate the value per share, using discounted cash-flow method. List your assumptions clearly and fully.
Particulars Mar 09 Rs. Cr. Cash flow from operating activities PBT 14.54 13.81 8.35 7.39 Mar 08 Rs. Cr. Mar 07 Rs. Cr. Mar 06 Rs. Cr.

Operating profit before WC changes Trade and other recv Inventories Trade payables Loans & advances Current liabilities Cash generated from operations Taxes paid Net cash from operating activities

15.74 3.68 (1.24) (4.26) (0.84) 1.04 14.12 (5.44) 8.68

14.85 (3.86) 0.63 2.01 (1.71) 0.96 12.88 (5.01) 7.87

9.69 0.50 1.39 (0.39) (0.02) (0.36) 10.81 (3.50) 7.31

8.77 (3.93) (3.87) 4.88 0.15 1.59 7.59 (2.96) 4.63

Purchase of fixed assets Sale of fixed assets

(2.79) 0.21

(2.12) 0.21

(0.96) 0.21

(2.08) 0.20

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Net cash used in investing activities

(2.28)

(1.78)

(0.73)

(1.87)

Net cash used in financing activities

(2.05)

(2.05)

(5.29)

(1.74)

Net increase in cash & equivalents Opening cash Closing cash

4.35 7.01 11.36

4.04 2.97 7.01

1.29 1.68 2.97

1.02 0.65 1.67

Companys equity capital is Rs.3.5 crores. FV Rs.10.

Case 9: Subhiksha To be given separately

Case 10: ITC To be given separately.

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SAPM assignments

Assignment 1: Debt-equity ratio Return on net worth Return on capital employed Fixed asset turnover Debtor days Inventory days Current ratio PE Ratio Price to cash EPS EV/EBIDTA Market cap to sales Price to book value Dividend yield Dividend payout

Operating profit margin (EBIDTA) PBT margin PAT margin Raw material consumed to sales

Write down a short note on each of the above ratios. The note should include the formula for the ratio as well as what does the ratio represent i.e. what do you understand by viewing the ratio?

Assignment 2: Write a detailed note on the entire IPO process in the equity market.

Assignment 3: Write a detailed explanatory note on Bond Market in India. 10 PGDM- Semester-III, Human Resources

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