Study Report on Equity Research

A PROJECT REPORT Submitted by

Aashutosh Tejbahadur Singh

Batch 2010-12

In partial fulfillment for the award of the degree

Of

Master in Management Studies

Under the Guidance of

Prof. Jyoti Nair

Thakur Institute of Management Studies & Research Kandivali, Mumbai

Bonafide Certificate

This is to certify that this project report STUDY REPORT ON EQUITY RESEARCH is a bonafide work of Aashutsoh Tejbahadur Singh in part completion of the MASTER OF MANAGEMENT STUDIES has been done under my guidance.

The project is in nature of original work that has not so far been submitted for any degree of this university. References of work and relative sources of information have been given at the end of the project.

Signature of the candidate

(Aashutsoh Tejbahadur Singh)

Forwarded through the research guide

Signature of the guide:

Name of the guide: Prof. Jyoti Nair

Designation: HOD Finance, TIMSR

TABLE OF CONTENTS

Page No. Abstract Acknowledgements Introduction What is equity research Types of equity research Process Skills Applications Qualitative Factors Benefits Approaches of equity research Fundamental Analysis Approaches in Fundamental Analysis Steps in Fundamental Analysis Tools used in Fundamental Analysis Fundamental Analysis Benefits Fundamental Analysis Drawbacks Technical Analysis Principles 05 06 07 09 09 10 10 11 11 12 12 13 13 14 15 20 20 21 22
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Charts used in Technical Analysis Chart Properties Line chart Bar Chart Candlestick Chart Point and Figure Chart Chart Patterns Technical Analysis: Indicators & Oscillators TITAN Industries Ltd. Background TITAN Industries Ltd. Balance Sheet TITAN Industries Ltd. P&L Account TITAN Industries Ltd. Financials Ratios and Comments Bibliography

24 25 27 28 29 30 31 38 46 49 50 51 54 57

ABSTRACT

This report is an attempt to study the equity research. Equity research consists of two parts viz-a-viz fundamental analysis and technical analysis. This report briefly describes the processes, applications, benefits and drawbacks of equity research. In this report I have evaluated the ratios of TITAN Industries Ltd. and commented on the financials of the company.

ACKNOWLEDGEMENTS
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I would like to take this opportunity to thank my Company guide Mr. Amish Malbari, Sai Raj Investments who has taken all the time and effort to guide me through this project.

I would also like to thank Prof. Jyoti Nair, HOD Finance, Thakur Institute of Management Studies and Research, Mumbai, for her guidance, help and co-operation in the execution of this project.

I would like to thank the entire team of Sai Raj Investments Ltd. who come forward with helping hands whenever any assistance has been sought.

Without the support and guidance of all the people mentioned above it would have been very difficult for me to consummate this project.

INTRODUCTION
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Securities research is a discipline within the financial services industry. Securities research professionals are known most generally as "analysts," "research analysts," or "securities analysts;" all the foregoing terms are synonymous. Securities analysts are commonly divided between the two basic kinds of securities: equity analysts (researching stocks and their issuers) and fixed income analysts (researching bond issuers). However, there are some analysts who cover all of the securities of a particular issuer, stocks and bonds alike.

Securities analysts are usually further subdivided by industry specialization (or sectors) -- among the industries with the most analyst coverage are biotechnology, financial services, energy, and computer hardware, software and services. Fixed income analysts are also often subdivided by asset classamong the fixed income asset classes with the most analyst coverage are convertible bonds, high yield bonds (see high-yield debt), and distressed bonds (see distressed securities). (Although technically not securities, syndicated bank loans typically fall within the domain of fixed income analysts, and are covered, as if they were bonds, by reference to the industry of their borrowers or asset class in which their credit quality would place them.)

In the broadest terms, securities analysts seek to develop, and thereafter communicate to investors, insights regarding the value, risk, and volatility of a covered security, and thus assist investors to decide whether to buy, hold, sell, sell short, or simply avoid the security in question or derivative securities (see: derivative). To gather the information required to do so, securities analysts review periodic financial disclosures (such as made by United States-listed issuers to the S.E.C.) of the issuer and other relevant companies, read industry news and use trading history and industry information databases, interview managers and customers of the issuer, and (sometimes) perform their own primary research.

Securities analysts are generally employed in one of three capacities: sell-side analysts (who work for a broker-dealer and indirectly for broker-dealer's trading customers), buy-side analysts (who work for institutional investors, such as hedge funds, mutual funds, pension funds, proprietary trading operations of banks and brokers, endowments, and insurance companies), and independent
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analysts, who work for firms which sell research to sell-side and/or buy-side firms, but who do not themselves engage in securities transactions.

Buy-side analysts generally do their work in private; publishing research reports and issuing public opinions on a security is generally confined to sell-side and independent analysts. However, the amount of formally-published sell-side research is generally thought to be declining, as it becomes more difficult for brokers to gain a clear revenue stream from the investment. The direct connection between securities research and the underwriting of new issues, which enabled research analysts to claim a share of investment banking fees, was severed as a result of government investigations into excesses of some sell-side analysts in the late 1990s

WHAT IS EQUITY RESEARCH?

Equity research is a study of equities or stocks for the purpose of investments. Equities or common stock comprises a big chunk in any companys capital and shareholders need to know whether to stay invested in the company or sale the shares and come out. As an individual, it is time consuming to do equity research that is to study the company, its financial statements, products, management and take a decision about investment. Exactly for the same reason there are people working in research companies whose job is to do equity research and recommend companies for investment

TYPES OF EQUITY RESEARCH

Buy-side Research is a type of securities research. Buy-side research analysts work for institutional investors such as mutual funds, pension funds, hedge funds, proprietary trading operations of banks and brokers, endowments, and/or insurance companies. They perform research and provide recommendations solely for the advantage of the money managers of the company, not individual investors; this information is not available to anyone outside the firm. Buy-side analysts keep their research private, unlike sell-side analysts whose work is available to the public by way of published research reports. A sell-side analyst works for a brokerage firm and evaluates companies for future earnings growth and other investment criteria. They sometimes place recommendations on stocks or other securities, typically phrased as "buy", "sell", or "hold." They are incentivized by offering their recommendations to institutional investors clients, as well as by seeking investment banking deals with the firms they cover, although the latter is subject to significant regulatory restrictions, particularly in the United States. A proper title for some sell-side analysts is Equity Research Analyst.

PROCESS
Equity research process comprises of multiple steps. 1. Economic Analysis 2. Industry Analysis 3. Company Analysis 4. Financial Statement Analysis 5. Financial and Valuation Modeling 6. Report writing 7. Presentation or recommendation

SKILLS
1. Excellent financial analysis and research skills 2. Global and business analysis knowledge 3. Presentation and writing capabilities 4. Correct judgment

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APPLICATION
Equity research is used in many areas. Primarily, the research is used for the following purposes: 1. Investment evaluation 2. In Mutual Fund industry 3. For M&A deals 4. Financial Publications 5. Charitable endowments

QUALITATIVE FACTORS
There are host of factors beyond financial statements that are important for equity research and valuations. For example production quantities, sales quantities, consumption quantities, capacity utilization, geographical sales mix and per employee figures, these numbers have to be analyzed both on absolute and comparative basis with other companies in similar industries. Apart from financial analysis the companies are assessed on qualitative factors such as management, human resources, technology, production capabilities, order positioning, marketing and distribution channel, brand image, company reputation, market share, corporate governance. Other qualitative factors about the company could be announcement of changes in the strategy of the company, mergers acquisition, joint venture, foreign collaboration. It is also necessary to track the key trends in the industry in which the company operates, as these would have a bearing on the feasibility of survival and growth of the company. For this purpose PORTER`S 5 force model can be easily used. The data about the qualitative factors can be obtained from annual reports, company websites, business magazines and news papers. This data has to be consistent with the conclusion derived from quantitative analysis. This consistency provides soundness of the analysis. The qualitative analysis is also important from the point of view of predicting future performance of the company.

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BENEFITS

Mitigates emotional responses to avoid performance chasing Capitalizes on inter-country inefficiencies designed to maximize return potential Generates core-oriented portfolios seeking to ensure a strong portfolio platform Allows for diversification across both developed and emerging markets to provide true international exposure

Can be customized to meet specific investment guidelines to enable clients to meet individualized need

APPROACHES OF EQUITY RESEARCH

Equity research has two major approaches: Fundamental analysis and technical analysis. Fundamental analysis is based on the evaluation of operating and financial performance of the companies. Financial performance information of the companies is communicated to shareholders of the companies by the companies themselves on a quarterly and annual basis. Equity researchers use the same information for their analytical purposes. Professional equity researches are provided an opportunity to interact with managements of the companies and get clarifications on the information reported in financial statements through analyst meets that are scheduled after the financial statements are published and distributed. Analysts use financial performance information and related operating performance information of number of years to forecast future performance. So they need to acquire and keep financial statements of number of years. Electronic or digital databases are now available to provide financial statement information to analysts and investors.

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FUNDAMENTAL ANALYSIS
Fundamental analysis of a business involves analyzing its financial statements and health, its management and competitive advantages, and its competitors and markets. When applied to futures and forex, it focuses on the overall state of the economy, interest rates, production, earnings, and management. When analyzing a stock, futures contract, or currency using fundamental analysis there are two basic approaches one can use; bottom up analysis and top down analysis. The term is used to distinguish such analysis from other types of investment analysis, such as quantitative analysis and technical analysis. Fundamental analysis is performed on historical and present data, but with the goal of making financial forecasts. There are several possible objectives:

To conduct a company stock valuation and predict its probable price evolution, To make a projection on its business performance, To evaluate its management and make internal business decisions, To calculate its credit risk.

APPROACHES IN FUNDAMENTAL ANALYSIS

While carrying out fundamental analysis, investors can use any of the following approaches:

Top-down approach: In this approach, an analyst investigates both national and international economic indicators, like energy prices, GDP growth rates, inflation and interest rates. The analysis of total sales, price levels and foreign competition in a sector is also done in order to identify the best business in the sector.

Bottom-up approach: In this method, an analyst starts the search with specific businesses, irrespective of the industry or region.

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HOW DOES FUNDAMENTAL ANALYSIS WORK?

Fundamental analysis is done with the aim of predicting future performance of a company. It is based on the theory that market price of a security tends to move towards its 'real value' or the 'intrinsic value'. So when the intrinsic value of a security is higher than the securitys market value, it represents a time to buy. On the other hand, when the value of the security is lower than its market value, investors should sell it.

STEPS IN FUNDAMENTAL ANALYSIS

1. Macroeconomic analysis, that involves considering commodities, currencies, and indices. 2. Industry sector analysis that involves the analysis of companies which are a part of the sector. 3. Situational analysis of the company. 4. Financial analysis of a company. 5. Valuation

Valuation of any security is done through the discounted cash flow (DCF) model, which takes into consideration the following: 1. Dividends which is received by investors 2. Earnings or the cash flows of a company 3. Debt, that is calculated by using debt to equity ratio and current ratio (current assets/current liabilities)

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USE BY DIFFENENT PORTFOLIO STYLES

Investors may use fundamental analysis within different portfolio management styles.

Buy and hold 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.

Contrarian investors distinguish "in the short run, the market is a voting machine, not a weighing machine".[2] Fundamental analysis allows you to make your own decision on value, and ignore the market.

Value investors restrict their attention to under-valued companies, believing that 'it's hard to fall out of a ditch'. The value comes from fundamental analysis.

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).

TOOLS USED IN FUNDAMENTAL ANALYSIS

The analysis of a business' health starts with financial statement analysis that includes ratios. It looks at dividends paid, operating cash flow, new equity issues and capital financing. The earnings estimates and growth rate projections published widely by Thomson Reuters and others can be considered either 'fundamental' (they are facts) or 'technical' (they are investor sentiment) based on your perception of their validity. The determined growth rates (of income and cash) and risk levels (to determine the discount rate) are used in various valuation models. The foremost is the discounted cash flow model, which calculates the present value of the future

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Dividends received by the investor, along with the eventual sale price. (Gordon model) Earnings of the company, or Cash flows of the company.

The amount of debt is also a major consideration in determining a company's health. It can be quickly assessed using the debt to equity ratio and the current ratio (current assets/current liabilities). The simple model commonly used is the Price/Earnings ratio. Implicit in this model of a perpetual annuity (Time value of money) is that the 'flip' of the P/E is the discount rate appropriate to the risk of the business. The multiple accepted is adjusted for expected growth (that is not built into the model). Growth estimates are incorporated into the PEG ratio, but the math does not hold up to analyst. Its validity depends on the length of time you think the growth will continue. IGAR models can be used to impute expected changes in growth from current P/E and historical growth rates for the stocks relative to a comparison index.

Earnings

It is often said that earnings are the "bottom line" when it comes to valuing a company's stock, and indeed fundamental analysis places much emphasis upon a company's earnings. Simply put, earnings are how much profit (or loss) a company has made after subtracting expenses. During a specific period of time, all public companies are required to report their earnings on a quarterly basis through a 10-Q Report. Earnings are important to investors because they give an indication of the company's expected dividends and its potential for growth and capital appreciation. That does not necessarily mean, however, that low or negative earnings always indicate a bad stock; for example, many young companies report negative earnings as they attempt to grow quickly enough to capture a new market, at which point they'll be even more profitable than they otherwise might have been. The key is to look at the data underlying a company's earnings on its financial statements and to use the following profitability ratios to determine whether or not the stock is a sound investment.

Earnings Per Share

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Comparing total net earnings for various companies is usually not a good idea, since net earnings numbers don't take into account how many shares of stock are outstanding (in other words, they don't take into account how many owners you have to divide the earnings among). In order to make earnings comparisons more useful across companies, fundamental analysts instead look at a company's earnings per share (EPS). EPS is calculated by taking a company's net earnings and dividing by the number of outstanding shares of stock the company has. For example, if a company reports $10 million in net earnings for the previous year and has 5 million shares of stock outstanding, then that company has an EPS of $2 per share. EPS can be calculated for the previous year ("trailing EPS"), for the current year ("current EPS"), or for the coming year ("forward EPS"). Note that last year's EPS would be actual, while current year and forward year EPS would be estimates.

P/E Ratio

EPS is a great way to compare earnings across companies, but it doesn't tell you anything about how the market values the stock. That's why fundamental analysts use the price-to-earnings ratio, more commonly known as the P/E ratio, to figure out how much the market is willing to pay for a company's earnings. You can calculate a stock's P/E ratio by taking its price per share and dividing by its EPS. For instance, if a stock is priced at $50 per share and it has an EPS of $5 per share, then it has a P/E ratio of 10. (Or equivalently, you could calculate the P/E ratio by dividing the company's total market cap by the company's total earnings; this would result in the same number.) P/E can be calculated for the previous year ("trailing P/E"), for the current year ("current P/E"), or for the coming year ("forward P/E"). The higher the P/E, the more the market is willing to pay for each dollar of annual earnings. Note that last year's P/E would be actual, while current year and forward year P/E would be estimates, but in each case, the "P" in the equation is the current price. Companies that are not currently profitable (that is, ones which have negative earnings) don't have a P/E ratio at all. For those companies you may want to calculate the price-to-sales ratio (PSR) instead.

PEG

So is a stock with a high P/E ratio always overvalued? Not necessarily. The stock could have a high P/E ratio because investors are convinced that it will have strong earnings growth in the future and
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so they bid up the stock's price now. Fortunately, there is another ratio that you can use that takes into consideration a stock's projected earnings growth: it's called the PEG. PEG is calculated by taking a stock's P/E ratio and dividing by its expected percentage earnings growth for the next year. So, a stock with a P/E ratio of 40 that is expected to grow its earnings by 20% the next year would have a PEG of 2. In general the lower the PEG, the better the value because you would be paying less for each unit of earnings growth.

Dividend Yield

The dividend yield measures what percentage return a company pays out to its shareholders in the form of dividends. It is calculated by taking the amount of dividends paid per share over the course of a year and dividing by the stock's price. For example, if a stock pays out $2 in dividends over the course of a year and trades at $40, then it has a dividend yield of 5%. Mature, well-established companies tend to have higher dividend yields, while young, growth-oriented companies tend to have lower ones, and most small growing companies don't have a dividend yield at all because they don't pay out dividends.

Dividend Payout Ratio

The dividend payout ratio shows what percentage of a company's earnings it is paying out to investors in the form of dividends. It is calculated by taking the company's annual dividends per share and dividing by its annual earnings per share (EPS). So, if a company pays out $1 per share annually in dividends and it has an EPS of $2 for the year, then that company has a dividend payout ratio of 50%; in other words, the company paid out 50% of its earnings in dividends. Companies that distribute dividends typically use about 25% to 50% of their earnings for dividend payments. The higher the payout ratio, the less confidence the company has that it would've been able to find better uses for the money it earned. This is not necessarily either good or bad; companies that are still growing will tend to have lower dividend payout ratios than very large companies, because they are more likely to have other productive uses for the earnings.

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Book Value

The book value of a company is the company's net worth, as measured by its total assets minus its total liabilities. This is how much the company would have left over in assets if it went out of business immediately. Since companies are usually expected to grow and generate more profits in the future, most companies end up being worth far more in the marketplace than their book value would suggest. For this reason, book value is of more interest to value investors than growth investors. In order to compare book values across companies, you should use book value per share, which is simply the company's last quarterly book value divided by the number of shares of stock it has outstanding.

Price / Book

A company's price-to-book ratio (P/B ratio) is determined by taking the company's per share stock price and dividing by the company's book value per share. For instance, if a company currently trades at $100 and has a book value per share of $5, then that company has a P/B ratio of 20. The higher the ratio, the higher the premium the market is willing to pay for the company above its hard assets. Price-to-book ratio is of more interest to value investors than growth investors.

Price / Sales Ratio

As with earnings and book value, you can find out how much the market is valuing a company by comparing the company's price to its annual sales. This measure is known as the price-to-sales ratio (P/S or PSR). You can calculate the P/S by taking the stock's current price and dividing by the company's total sales per share for the past year (or equivalently, by dividing the entire company's market cap by its total sales). That means that a company whose stock trades at $1 per share and which had $2 per share in sales last year will have a P/S of 0.5. Low P/S ratios (below one) are usually thought to be the better investment since their sales are priced cheaply. However, P/S, like P/E ratios and P/B ratios, are numbers that are subject to much interpretation and debate. Sales obviously don't reveal the whole picture: a company could be selling dollar bills for 90 cents each, and have huge sales but be terribly unprofitable. Because of the limitations, P/S ratios are usually used only for unprofitable companies, since such companies don't have a P/E ratio.
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Return on Equity (ROE)

Return on equity (ROE) shows you how much profit a company generates in comparison to its book value . The ratio is calculated by taking a company's after-tax income (after preferred stock dividends but before common stock dividends) and dividing by its book value (which is equal to its assets minus its liabilities). It is used as a general indication of the company's efficiency; in other words, how much profit it is able to generate given the resources provided by its stockholders. Investors usually look for companies with ROEs that are high and growing.

FUNDAMENTAL ANALYSIS - BENEFITS

1. The intrinsic value of a security can be identified using fundamental analysis 2. It also helps in identifying long-term investment opportunities, as it involves real- time data.

FUNDAMENTAL ANALYSIS - DRAWBACKS

1. Since there are too many economic indicators and extensive macroeconomic data, it can confuse novice investors. 2. The same set of information based on macroeconomic indicators may have varied effects on same currencies at different times. 3. It is useful only for long-term investments.

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TECHNICAL ANALYSIS
A method of evaluating securities by analyzing statistics generated by market activities, 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. While fundamental analysts examine earnings, dividends, new products, research and the like, technical analysts examine what investors fear or think about those developments and whether or not investors have the wherewithal to back up their opinions; these two concepts are called psych (psychology) and supply/demand. Technicians employ many techniques, one of which is the use of charts. Using charts, technical analysts seek to identify price patterns and market trends in financial markets and attempt to exploit those patterns. Technicians use various methods and tools, the study of price charts is but one. Technicians using charts search for archetypal price chart patterns, such as the well-known head and shoulders or double top/bottom reversal patterns, study technical indicators, moving averages, and look for forms such as lines of support, resistance, channels, and more obscure formations such as flags, pennants, balance days and cup and handle patterns. Technical analysts also widely use market indicators of many sorts, some of which are mathematical transformations of price, often including up and down volume, advance/decline data and other inputs. These indicators are used to help assess whether an asset is trending, and if it is, the probability of its direction and of continuation. Technicians also look for relationships between price/volume indices and market indicators. Examples include the relative strength index, and MACD. Other avenues of study include correlations between changes in options (implied volatility) and put/call ratios with price. Also important are sentiment indicators such as Put/Call ratios, bull/bear ratios, short interest, Implied Volatility, etc. There are many techniques in technical analysis. Adherents of different techniques (for example, candlestick charting, Dow Theory, and Elliott wave theory) may ignore the other approaches, yet many traders combine elements from more than one technique. Some technical analysts use subjective judgment to decide which pattern(s) a particular instrument reflects at a given time and what the interpretation of that pattern should be. Others employ a strictly mechanical or systematic approach to pattern identification and interpretation. Technical analysis is frequently contrasted with fundamental analysis, the study of economic factors that influence the way investors price financial markets. Technical analysis holds that prices already
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reflect all such trends before investors are aware of them. Uncovering those trends is what technical indicators are designed to do, imperfect as they may be. Fundamental indicators are subject to the same limitations, naturally. Some traders use technical or fundamental analysis exclusively, while others use both types to make trading decisions.

PRINCIPLES
Market action discounts everything Based on the premise that all relevant information is already reflected by prices, technical analysts believe it is important to understand what investors think of that information, known and perceived; studies such as by Cutler, Poterba, and Summers titled "What Moves Stock Prices?" do not cover this aspect of investing. Prices move in trends Technical analysts believe that prices trend directionally, i.e., up, down, or sideways (flat) or some combination. The basic definition of a price trend was originally put forward by Dow Theory. An example of a security that had an apparent trend is AOL from November 2001 through August 2002. A technical analyst or trend follower recognizing this trend would look for opportunities to sell this security. AOL consistently moves downward in price. Each time the stock rose, sellers would enter the market and sell the stock; hence the "zigzag" movement in the price. The series of "lower highs" and "lower lows" is a tell tale sign of a stock in a down trend. In other words, each time the stock moved lower, it fell below its previous relative low price. Each time the stock moved higher, it could not reach the level of its previous relative high price. Note that the sequence of lower lows and lower highs did not begin until August. Then AOL makes a low price that does not pierce the relative low set earlier in the month. Later in the same month, the stock makes a relative high equal to the most recent relative high. In this a technician sees strong indications that the down trend is at least pausing and possibly ending, and would likely stop actively selling the stock at that point.

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HISTORY TENDS TO REPEAT ITSELF

Technical analysts believe that investors collectively repeat the behavior of the investors that preceded them. To a technician, the emotions in the market may be irrational, but they exist. Because investor behavior repeats itself so often, technicians believe that recognizable (and predictable) price patterns will develop on a chart. Technical analysis is not limited to charting, but it always considers price trends. For example, many technicians monitor surveys of investor sentiment. These surveys gauge the attitude of market participants, specifically whether they are bearish or bullish. Technicians use these surveys to help determine whether a trend will continue or if a reversal could develop; they are most likely to anticipate a change when the surveys report extreme investor sentiment. Surveys that show overwhelming bullishness, for example, are evidence that an uptrend may reverse; the premise being that if most investors are bullish they have already bought the market (anticipating higher prices). And because most investors are bullish and invested, one assumes that few buyers remain. This leaves more potential sellers than buyers, despite the bullish sentiment. This suggests that prices will trend down, and is an example of contrarian trading. Recently, Kim Man Lui, Lun Hu, and Keith C.C. Chan have suggested that there is statistical evidence of association relationships between some of the index composite stocks whereas there is no evidence for such a relationship between some indexes composite others. They show that the price behavior of these Hang Seng index composite stocks is easier to understand than that of the index

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CHARTS USED IN TECHNICAL ANALYSIS

A chart is simply a graphical representation of a series of prices over a set time frame. For example, a chart may show a stock's price movement over a one-year period, where each point on the graph represents the closing price for each day the stock is traded:

Figure 1 provides an example of a basic chart. It is a representation of the price movements of a stock over a 1.5 year period. The bottom of the graph, running horizontally (x-axis), is the date or time scale. On the right hand side, running vertically (y-axis), the price of the security is shown. By looking at the graph we see that in October 2004 (Point 1), the price of this stock was around $245, whereas in June 2005 (Point 2), the stock's price is around $265. This tells us that the stock has risen between October 2004 and June 2005.

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CHART PROPERTIES

There are several things that you should be aware of when looking at a chart, as these factors can affect the information that is provided. They include the time scale, the price scale and the price point properties used.

THE TIME SCALE The time scale refers to the range of dates at the bottom of the chart, which can vary from decades to seconds. The most frequently used time scales are intraday, daily, weekly, monthly, quarterly and annually. The shorter the time frame, the more detailed the chart. Each data point can represent the closing price of the period or show the open, the high, the low and the close depending on the chart used.

Intraday charts plot price movement within the period of one day. This means that the time scale could be as short as five minutes or could cover the whole trading day from the opening bell to the closing bell.

Daily charts are comprised of a series of price movements in which each price point on the chart is a full days trading condensed into one point. Again, each point on the graph can be simply the closing price or can entail the open, high, low and close for the stock over the day. These data points are spread out over weekly, monthly and even yearly time scales to monitor both short-term and intermediate trends in price movement.

Weekly, monthly, quarterly and yearly charts are used to analyze longer term trends in the movement of a stock's price. Each data point in these graphs will be a condensed version of what happened over the specified period. So for a weekly chart, each data point will be a representation of the price movement of the week. For example, if you are looking at a chart of weekly data spread over a five-year period and each data point is the closing price for the week, the price that is plotted will be the closing price on the last trading day of the week, which is usually a Friday.

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THE PRICE SCALE AND PRICE POINT PROPERTIES

The price scale is on the right-hand side of the chart. It shows a stock's current price and compares it to past data points. This may seem like a simple concept in that the price scale goes from lower prices to higher prices as you move along the scale from the bottom to the top. The problem, however, is in the structure of the scale itself. A scale can either be constructed in a linear (arithmetic) or logarithmic way, and both of these options are available on most charting services.

If a price scale is constructed using a linear scale, the space between each price point (10, 20, 30, 40) is separated by an equal amount. A price move from 10 to 20 on a linear scale is the same distance on the chart as a move from 40 to 50. In other words, the price scale measures moves in absolute terms and does not show the effects of percent change.

If a price scale is in logarithmic terms, then the distance between points will be equal in terms of percent change. A price change from 10 to 20 is a 100% increase in the price while a move from 40 to 50 is only a 25% change, even though they are represented by the same distance on a linear scale. On a logarithmic scale, the distance of the 100% price change from 10 to 20 will not be the same as the 25% change from 40 to 50. In this case, the move from 10 to 20 is represented by a larger space one the chart, while the move from 40 to 50, is represented by a smaller space because, percentagewise, it indicates a smaller move. In Figure 2, the logarithmic price scale on the right leaves the same
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amount of space between 10 and 20 as it does between 20 and 40 because these both represent 100% increases. There are four main types of charts that are used by investors and traders depending on the information that they are seeking and their individual skill levels. The chart types are: the line chart, the bar chart, the candlestick chart and the point and figure chart. In the following sections, we will focus on the S&P 500 Index during the period of January 2006 through May 2006. Notice how the data used to create the charts is the same, but the way the data is plotted and shown in the charts is different.

LINE CHART

The most basic of the four charts is the line chart because it represents only the closing prices over a set period of time. The line is formed by connecting the closing prices over the time frame. Line charts do not provide visual information of the trading range for the individual points such as the high, low and opening prices. However, the closing price is often considered to be the most important price in stock data compared to the high and low for the day and this is why it is the only value used in line charts.

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BAR CHART

The bar chart expands on the line chart by adding several more key pieces of information to each data point. The chart is made up of a series of vertical lines that represent each data point. This vertical line represents the high and low for the trading period, along with the closing price. The close and open are represented on the vertical line by a horizontal dash. The opening price on a bar chart is illustrated by the dash that is located on the left side of the vertical bar. Conversely, the close is represented by the dash on the right. Generally, if the left dash (open) is lower than the right dash (close) then the bar will be shaded black, representing an up period for the stock, which means it has gained value. A bar that is colored red signals that the stock has gone down in value over that period. When this is the case, the dash on the right (close) is lower than the dash on the left (open).

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CANDLESTICK CHART

The candlestick chart is similar to a bar chart, but it differs in the way that it is visually constructed. Similar to the bar chart, the candlestick also has a thin vertical line showing the period's trading range. The difference comes in the formation of a wide bar on the vertical line, which illustrates the difference between the open and close. And, like bar charts, candlesticks also rely heavily on the use of colors to explain what has happened during the trading period. A major problem with the candlestick color configuration, however, is that different sites use different standards; therefore, it is important to understand the candlestick configuration used at the chart site you are working with. There are two color constructs for days up and one for days that the price falls. When the price of the stock is up and closes above the opening trade, the candlestick will usually be white or clear. If the stock has traded down for the period, then the candlestick will usually be red or black, depending on the site. If the stock's price has closed above the previous days close but below the day's open, the candlestick will be black or filled with the color that is used to indicate an up day.

Figure 3: A candlestick chart

29

POINT AND FIGURE CHARTS

The point and figure chart is not well known or used by the average investor but it has had a long history of use dating back to the first technical traders. This type of chart reflects price movements and is not as concerned about time and volume in the formulation of the points. The point and figure chart removes the noise, or insignificant price movements, in the stock, which can distort traders' views of the price trends. These types of charts also try to neutralize the skewing effect that time has on chart analysis.

Figure 4: A point and figure chart

When first looking at a point and figure chart, you will notice a series of Xs and Os. The Xs represent upward price trends and the Os represent downward price trends. There are also numbers and letters in the chart; these represent months, and give investors an idea of the date. Each box on the chart represents the price scale, which adjusts depending on the price of the stock: the higher the stock's price the more each box represents. On most charts where the price is between $20 and $100, a box represents $1, or 1 point for the stock. The other critical point of a point and figure chart is the reversal criteria. This is usually set at three but it can also be set according to the chartist's discretion. The reversal criteria set how much the price has to move away from the high or low in the price trend to create a new trend or, in other words, how much the price has to move in order for a column of Xs to become a column of Os, or vice versa. When the price trend has moved from one trend to another, it shifts to the right, signaling a trend change.

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CHART PATTERNS
A chart pattern is a distinct formation on a stock chart that creates a trading signal, or a sign of future price movements. Chartists use these patterns to identify current trends and trend reversals and to trigger buy and sell signals There are two types of patterns within this area of technical analysis, reversal and continuation. A reversal pattern signals that a prior trend will reverse upon completion of the pattern. A continuation pattern, on the other hand, signals that a trend will continue once the pattern is complete. These patterns can be found over charts of any timeframe. In this section, we will review some of the more popular chart patterns.

HEAD AND SHOULDERS This is one of the most popular and reliable chart patterns in technical analysis. Head and shoulders is a reversal chart pattern that when formed, signals that the security is likely to move against the previous trend. As you can see in Figure 1, there are two versions of the head and shoulders chart pattern. Head and shoulders top (shown on the left) is a chart pattern that is formed at the high of an upward movement and signals that the upward trend is about to end. Head and shoulders bottom, also known as inverse head and shoulders (shown on the right) is the lesser known of the two, but is used to signal a reversal in a downtrend.

Figure 1: Head and shoulders top is shown on the left. Head and shoulders bottom, or inverse head and shoulders, is on the right.
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Both of these head and shoulders patterns are similar in that there are four main parts: two shoulders, a head and a neckline. Also, each individual head and shoulder is comprised of a high and a low. For example, in the head and shoulders top image shown on the left side in Figure 1, the left shoulder is made up of a high followed by a low. In this pattern, the neckline is a level of support or resistance. Remember that an upward trend is a period of successive rising highs and rising lows. The head and shoulders chart pattern, therefore, illustrates a weakening in a trend by showing the deterioration in the successive movements of the highs and lows.

CUP AND HANDLE A cup and handle chart is a bullish continuation pattern in which the upward trend has paused but will continue in an upward direction once the pattern is confirmed.

Figure 2

As you can see in Figure 2, this price pattern forms what looks like a cup, which is preceded by an upward trend. The handle follows the cup formation and is formed by a generally downward/sideways movement in the security's price. Once the price movement pushes above the resistance lines formed in the handle, the upward trend can continue. There is a wide ranging time frame for this type of pattern, with the span ranging from several months to more than a year.

32

DOUBLE TOPS AND BOTTOMS This chart pattern is another well-known pattern that signals a trend reversal - it is considered to be one of the most reliable and is commonly used. These patterns are formed after a sustained trend and signal to chartists that the trend is about to reverse. The pattern is created when a price movement tests support or resistance levels twice and is unable to break through. This pattern is often used to signal intermediate and long-term trend reversals.

Figure 3: A double top pattern is shown on the left, while a double bottom pattern is shown on the right.

In the case of the double top pattern in Figure 3, the price movement has twice tried to move above a certain price level. After two unsuccessful attempts at pushing the price higher, the trend reverses and the price heads lower. In the case of a double bottom (shown on the right), the price movement has tried to go lower twice, but has found support each time. After the second bounce off of the support, the security enters a new trend and heads upward.

TRIANGLES Triangles are some of the most well-known chart patterns used in technical analysis. The three types of triangles, which vary in construct and implication, are the symmetrical triangle, ascending and descending triangle. These chart patterns are considered to last anywhere from a couple of weeks to several months.

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Figure 4

The symmetrical triangle in Figure 4 is a pattern in which two trend lines converge toward each other. This pattern is neutral in that a breakout to the upside or downside is a confirmation of a trend in that direction. In an ascending triangle, the upper trend line is flat, while the bottom trend line is upward sloping. This is generally thought of as a bullish pattern in which chartists look for an upside breakout. In a descending triangle, the lower trend line is flat and the upper trend line is descending. This is generally seen as a bearish pattern where chartists look for a downside breakout.

FLAG AND PENNANT These two short-term chart patterns are continuation patterns that are formed when there is a sharp price movement followed by a generally sideways price movement. This pattern is then completed upon another sharp price movement in the same direction as the move that started the trend. The patterns are generally thought to last from one to three weeks.

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Figure 5

As you can see in Figure 5, there is little difference between a pennant and a flag. The main difference between these price movements can be seen in the middle section of the chart pattern. In a pennant, the middle section is characterized by converging trendlines, much like what is seen in a symmetrical triangle. The middle section on the flag pattern, on the other hand, shows a channel pattern, with no convergence between the trendlines. In both cases, the trend is expected to continue when the price moves above the upper trendline.

WEDGE The wedge chart pattern can be either a continuation or reversal pattern. It is similar to a symmetrical triangle except that the wedge pattern slants in an upward or downward direction, while the symmetrical triangle generally shows a sideways movement. The other difference is that wedges tend to form over longer periods, usually between three and six months.

Figure 6
35

The fact that wedges are classified as both continuation and reversal patterns can make reading signals confusing. However, at the most basic level, a falling wedge is bullish and a rising wedge is bearish. In Figure 6, we have a falling wedge in which two trendlines are converging in a downward direction. If the price was to rise above the upper trendline, it would form a continuation pattern, while a move below the lower trendline would signal a reversal pattern. GAPS A gap in a chart is an empty space between a trading period and the following trading period. This occurs when there is a large difference in prices between two sequential trading periods. For example, if the trading range in one period is between $25 and $30 and the next trading period opens at $40, there will be a large gap on the chart between these two periods. Gap price movements can be found on bar charts and candlestick charts but will not be found on point and figure or basic line charts. Gaps generally show that something of significance has happened in the security, such as a better-than-expected earnings announcement.

There are three main types of gaps, breakaway, runaway (measuring) and exhaustion. A breakaway gap forms at the start of a trend, a runaway gap forms during the middle of a trend and an exhaustion gap forms near the end of a trend.

TRIPLE TOPS AND BOTTOMS Triple tops and triple bottoms are another type of reversal chart pattern in chart analysis. These are not as prevalent in charts as head and shoulders and double tops and bottoms, but they act in a similar fashion. These two chart patterns are formed when the price movement tests a level of support or resistance three times and is unable to break through; this signals a reversal of the prior trend.

36

Figure 7

Confusion can form with triple tops and bottoms during the formation of the pattern because they can look similar to other chart patterns. After the first two support/resistance tests are formed in the price movement, the pattern will look like a double top or bottom, which could lead a chartist to enter a reversal position too soon.

ROUNDING BOTTOM A rounding bottom, also referred to as a saucer bottom, is a long-term reversal pattern that signals a shift from a downward trend to an upward trend. This pattern is traditionally thought to last anywhere from several months to several years.

Figure 8
37

A rounding bottom chart pattern looks similar to a cup and handle pattern but without the handle. The long-term nature of this pattern and the lack of a confirmation trigger, such as the handle in the cup and handle, make it a difficult pattern to trade.

We have finished our look at some of the more popular chart patterns. You should now be able to recognize each chart pattern as well the signal it can form for chartists. We will now move on to other technical techniques and examine how they are used by technical traders to gauge price movements.

TECHNICAL ANALYSIS: INDICATORS AND OSCILLATORS

Indicators are calculations based on the price and the volume of a security that measure such things as money flow, trends, volatility and momentum. Indicators are used as a secondary measure to the actual price movements and add additional information to the analysis of securities. Indicators are used in two main ways: to confirm price movement and the quality of chart patterns, and to form buy and sell signals. There are two main types of indicators: leading and lagging. A leading indicator precedes price movements, giving them a predictive quality, while a lagging indicator is a confirmation tool because it follows price movement. A leading indicator is thought to be the strongest during periods of sideways or non-trending trading ranges, while the lagging indicators are still useful during trending periods. There are also two types of indicator constructions: those that fall in a bounded range and those that do not. The ones that are bound within a range are called oscillators - these are the most common type of indicators. Oscillator indicators have a range, for example between zero and 100, and signal periods where the security is overbought (near 100) or oversold (near zero). Non-bounded indicators still form buy and sell signals along with displaying strength or weakness, but they vary in the way they do this.

The two main ways that indicators are used to form buy and sell signals in technical analysis is
38

through crossovers and divergence. Crossovers are the most popular and are reflected when either the price moves through the moving average, or when two different moving averages cross over each other. The second way indicators are used is through divergence, which happens when the direction of the price trend and the direction of the indicator trend are moving in the opposite direction. This signals to indicator users that the direction of the price trend is weakening.

Indicators that are used in technical analysis provide an extremely useful source of additional information. These indicators help identify momentum, trends, volatility and various other aspects in a security to aid in the technical analysis of trends. It is important to note that while some traders use a single indicator solely for buy and sell signals, they are best used in conjunction with price movement, chart patterns and other indicators.

ACCUMULATION/DISTRIBUTION LINE
The accumulation/distribution line is one of the more popular volume indicators that measures money flows in a security. This indicator attempts to measure the ratio of buying to selling by comparing the price movement of a period to the volume of that period.

Calculated:

Acc/Dist = ((Close - Low) - (High - Close)) / (High Low) * Period's Volume

This is a non-bounded indicator that simply keeps a running sum over the period of the security. Traders look for trends in this indicator to gain insight on the amount of purchasing compared to selling of a security. If a security has an accumulation/distribution line that is trending upward, it is a sign that there is more buying than selling.

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AVERAGE DIRECTIONAL INDEX

The average directional index (ADX) is a trend indicator that is used to measure the strength of a current trend. The indicator is seldom used to identify the direction of the current trend, but can identify the momentum behind trends.

The ADX is a combination of two price movement measures: the positive directional indicator (+DI) and the negative directional indicator (-DI). The ADX measures the strength of a trend but not the direction. The +DI measures the strength of the upward trend while the -DI measures the strength of the downward trend. These two measures are also plotted along with the ADX line. Measured on a scale between zero and 100, readings below 20 signal a weak trend while readings above 40 signal a strong trend.

AROON
Aroon indicator is a relatively new technical indicator that was created in 1995. The Aroon is a trending indicator used to measure whether a security is in an uptrend or downtrend and the magnitude of that trend. The indicator is also used to predict when a new trend is beginning.

The indicator is comprised of two lines, an "Aroon up" line (blue line) and an "Aroon down" line (red dotted line). The Aroon up line measures the amount of time it has been since the highest price during the time period. The Aroon down line, on the other hand, measures the amount of time since the lowest price during the time period. The number of periods that are used in the calculation is dependent on the time frame that the user wants to analyze.

40

Figure 1

AROON OSCILLATOR
An expansion of the Aroon is the Aroon oscillator, which simply plots the difference between the Aroon up and down lines by subtracting the two lines. This line is then plotted between a range of 100 and 100. The centerline at zero in the oscillator is considered to be a major signal line determining the trend. The higher the value of the oscillator from the centerline point, the more upward strength there is in the security; the lower the oscillator's value is from the centerline, the more downward pressure. A trend reversal is signaled when the oscillator crosses through the centerline. For example, when the oscillator goes from positive to negative, a downward trend is confirmed. Divergence is also used in the oscillator to predict trend reversals. A reversal warning is formed when the oscillator and the price trend are moving in an opposite direction.

The Aroon lines and Aroon oscillators are fairly simple concepts to understand but yield powerful information about trends. This is another great indicator to add to any technical trader's arsenal.

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MOVING AVERAGE CONVERGENCE

The moving average convergence divergence (MACD) is one of the most well known and used indicators in technical analysis. This indicator is comprised of two exponential moving averages, which help to measure momentum in the security. The MACD is simply the difference between these two moving averages plotted against a centerline. The centerline is the point at which the two moving averages are equal. Along with the MACD and the centerline, an exponential moving average of the MACD itself is plotted on the chart. The idea behind this momentum indicator is to measure short-term momentum compared to longer term momentum to help signal the current direction of momentum.

MACD= shorter term moving average - longer term moving average

When the MACD is positive, it signals that the shorter term moving average is above the longer term moving average and suggests upward momentum. The opposite holds true when the MACD is negative - this signals that the shorter term is below the longer and suggest downward momentum. When the MACD line crosses over the centerline, it signals a crossing in the moving averages. The most common moving average values used in the calculation are the 26-day and 12-day exponential moving averages. The signal line is commonly created by using a nine-day exponential moving average of the MACD values. These values can be adjusted to meet the needs of the technician and the security. For more volatile securities, shorter term averages are used while less volatile securities should have longer averages.

Another aspect to the MACD indicator that is often found on charts is the MACD histogram. The histogram is plotted on the centerline and represented by bars. Each bar is the difference between the MACD and the signal line or, in most cases, the nine-day exponential moving average. The higher the bars are in either direction, the more momentum behind the direction in which the bars point.

As you can see in Figure 2, one of the most common buy signals is generated when the MACD crosses above the signal line (blue dotted line), while sell signals often occur when the MACD
42

crosses below the signal.

Figure 2

RELATIVE STRENGTH INDEX

The relative strength index (RSI) is another one of the most used and well-known momentum indicators in technical analysis. RSI helps to signal overbought and oversold conditions in a security. The indicator is plotted in a range between zero and 100. A reading above 70 is used to suggest that a security is overbought, while a reading below 30 is used to suggest that it is oversold. This indicator helps traders to identify whether a securitys price has been unreasonably pushed to current levels and whether a reversal may be on the way.

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Figure 3

The standard calculation for RSI uses 14 trading days as the basis, which can be adjusted to meet the needs of the user. If the trading period is adjusted to use fewer days, the RSI will be more volatile and will be used for shorter term trades.

ON-BALANCE VOLUME
The on-balance volume (OBV) indicator is a well-known technical indicator that reflects movements in volume. It is also one of the simplest volume indicators to compute and understand.

The OBV is calculated by taking the total volume for the trading period and assigning it a positive or negative value depending on whether the price is up or down during the trading period. When price is up during the trading period, the volume is assigned a positive value, while a negative value is assigned when the price is down for the period. The positive or negative volume total for the period is then added to a total that is accumulated from the start of the measure.

It is important to focus on the trend in the OBV - this is more important than the actual value of the OBV measure. This measure expands on the basic volume measure by combining volume and price movement

44

STOCHASTIC OSCILLATOR
The stochastic oscillator is one of the most recognized momentum indicators used in technical analysis. The idea behind this indicator is that in an uptrend, the price should be closing near the highs of the trading range, signaling upward momentum in the security. In downtrends, the price should be closing near the lows of the trading range, signaling downward momentum.

The stochastic oscillator is plotted within a range of zero and 100 and signals overbought conditions above 80 and oversold conditions below 20. The stochastic oscillator contains two lines. The first line is the %K, which is essentially the raw measure used to formulate the idea of momentum behind the oscillator. The second line is the %D, which is simply a moving average of the %K. The %D line is considered to be the more important of the two lines as it is seen to produce better signals. The stochastic oscillator generally uses the past 14 trading periods in its calculation but can be adjusted to meet the needs of the user.

Figure 4

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TITAN Industries Ltd. Background

As a result of joint venture between the Tata Group and Tamil Nadu Industrial Development Corporation, the Titan Industries Limited (TIL) was born in the year 1984 and commenced its business in the year 1986. Started as a watch company, Titan Industries' main focus has been to increase the breadth and depth of its portfolio of product offerings. The company has four main business units, such as Watches, Jewellery, Eyewear and Precision Engineered Components. International labels such as Tommy Hilfiger and Hugo Boss are now a part of its basket; along with Fastrack a brand targeting youth and the mid-range brand Sonata. It has manufacturing and assembly operations at Hosur, Dehradun, Roorkee and Baddi in Himachal Pradesh and an ECB plant in Goa. Titan's manufacturing units of the Watch and Jewellery divisions at Hosur, Karnataka are certified under ISO 9001: 2000 Quality Management System standards and ISO 14001 Environment System Standard. Under in Watch Business, the company manufactures four main watch brands viz. Titan for the premium segment, Fastrack - focused on the youth and trendy fashion space, Sonata for the mass market and Xylys for the premium market. In Jewellery business, Tanishq is India's largest and fastest growing jewellery brand with a premium range of gold jewellery studded with diamonds or coloured gems and a wide range in 22kt pure gold. Platinum also a part of the product range and the Gold Plus' is the recent retail offering for the mass market with plain gold jewellery. Titan Eye+ is currently on a pilot mode with 5 stores in 2 cities and has sunglasses under Fastrack brand and prescription eyewear consisting of Frames, Lenses, Sunglasses, Accessories and Contact Lenses of in-house brands and other premium brands. The company's Precision Engineering Division supplies precision components to the avionics and the automotive industry. TIL has set up an integrated watch manufacturing facility at Hosur in Tamil Nadu in the year 1987 with initial technical knowhow from Europe and Japan. The Company played a part in capital market with rights issue in October 1992 to the part of finance for its expansion programmes. In 1995, the company diversified into Jewellery under the brand name of Tanishq to capitalize on a fragmented market operating with no brands in urban cities. Apart from the domestic market, the company started the manufacturing of watches for several prestigious international brands during the year 1997. Sonata, the second watch brand of the company was launched in the year 1998. The Company leveraged its manufacturing competencies and branched into Precision Engineering Products and Machine Building from the year 2003. The company has diversified into fashion Eyewear by launching Fastrack Eye-Gear
46

sunglasses, as well as Prescription Eyewear. The company's Precision Engineering Division supplies precision components and also manufactures dashboard clocks as OEM to car manufacturers in Europe and America. The division also provides fully integrated Automation solutions. PHDCII award for Corporate Social Responsibility - 2003 was surrendered to hands of the company. The Company has implemented the Authorisation Matrix in its ERP system in the Time Products Division by empowering various types of transactions based on graded level of authority during the year 2004. During 2004-05 the company has launched two brands namely Fastrack sunglasses and Tommy Hilfiger Watches. The company has entered into the fragrance business through launch of Evolve and these are available in UAE, OMAN and Bahrain and in the same period of 2004-05 the company has set up a new watch assembly unit was established at Baddi Himachal Pradesh with an assembly capacity of 2 Million watches per annum. During the year 2005, bolstered by the success of Tanishq, a range of premium branded Jewellery, the company launched its second Jewellery brand under the name of Gold Plus aimed at the mass market and for capitalizing on the opportunity in small towns and rural India. The year 2005-06 saw one of the bigger 'internal' mergers, between the Retailing team and Customer Service. Christened as the Retailing Services Group, its objective is to have a specialized and integrated team, focused on retail strategy and operations for all brands of the Time Products Division. The later part of the year 2006, saw the high profile launch of XYLYS, a new brand in the fast growing premium 'Swiss Made' market segment. This brand targets the growing breed of young, affluent, fashionable yet discerning consumers, who seek to make a sophisticated style statement by the watches they wear. The brand was launched in Mumbai, Delhi, Bangalore and Hyderabad. The Time Products Division of the company was awarded the JRD QV Award in 2006. Titan has won the Brand Leadership award at the India Brand Summit. Both Titan and Tanishq have been adjudged 'Most Admired Brands' as well as 'Retailer of the Year' by Images Fashion Forum in consecutive years. TIL being named the No.1 Brand in the Consumer Durables category in the 'Brand Equity' Survey of The Economic Times, a leading Indian financial daily. Titan was once again selected as the most admired watch brand in the country during 2006-07. The premium brand, Xylys, which had been launched a year before, expanded its footprint to 11 towns of the country in the year 2007. Titan Industries wins SAP-ACE 2007 Awards. In January of the year 2008, TIL launched its all-new collection of chronograph, multifunction and retrograde watches with international styling, Octane from Titan. The collection embodies speed, energy and power. In same month and year, TIL made a tie-up with Sankara Nethralaya for a technical collaboration for training optical store personnel for Titan Eye+, the optical division of the company. TIL has set foot in Pakistan, encompass the set up of a large World of Titan showroom in Lahore and a Titan exclusive
47

store in Karachi during the period of April 2008. The Company made its partnership with the World Wildlife Fund (WWF-India) in June 2008, main aim of the tie-up is to spread awareness about some of the most endangered species in India through a collection of uniquely designed Titan watches. The Company is working towards sustaining this momentum in the current and upcoming years also. The domestic watch division is pursuing aggressive growth through the ever-increasing strength of all its major brands. Constant exploration of new consumer segments, introduction of innovative new products, which would fuel consumer demand, and the rapid growth of our retail net work would certainly drive this growth. The Jewellery division continues to set for itself very ambitious growth targets, through various key initiatives including launching of new collections, setting up new Tanishq and Gold Plus stores, improving the walk-ins, and improving the merchandising at the stores. The Precision Engineering Division of the Company will be targeting a significant top line growth and most importantly to achieve a break even in terms of profitability.

48

BALANCE SHEET
Balance Sheet in Rs. Cr. Mar '11 12 mths Sources Of Funds Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Networth Secured Loans Unsecured Loans Total Debt Total Liabilities Application Of Funds Gross Block Less: Accum. Depreciation Net Block Capital Work in Progress Investments Inventories Sundry Debtors Cash and Bank Balance Total Current Assets Loans and Advances Fixed Deposits Total CA, Loans & Advances Deffered Credit Current Liabilities Provisions Total CL & Provisions Net Current Assets Miscellaneous Expenses
Total Assets

Mar '10 12 mths 44.39 44.39 0 0 679.99 0 724.38 72.79 0 72.79 797.17

Mar '09 12 mths 44.39 44.39 0 0 506.85 0 551.24 116.76 58.65 175.41 726.65

Mar '08 12 mths 44.39 44.39 0 0 391.78 0 436.17 188.11 69.78 257.89 694.06

Mar '07 12 mths 44.39 44.39 0 0 283.06 0 327.45 172.67 74.34 247.01 574.46

44.39 44.39 0 0 980.99 0 1,025.38 67.7 0 67.7 1,093.08

672.15 389.08 283.07 19.36 9.13 1,993.83 113.68 1,094.89 3,202.40 220 0 3,422.40 0 2,420.79 220.08 2,640.87 781.53 0 1,093.09

624.33 361.7 262.63 12.29 7.63 1,340.33 93.61 61.72 1,495.66 200.99 125 1,821.65 0 1,172.28 134.74 1,307.02 514.63 0 797.18

593.04 558.07 318.56 285.61 274.48 272.46 19.52 9.99 7.66 47.39 1,202.69 1,021.09 106.22 96.45 54.69 51.91 1,363.60 1,169.45 128.82 111.34 0 0 1,492.42 1,280.79 0 0 974 842.68 93.44 73.9 1,067.44 916.58 424.98 364.21 0 0 726.64 694.05

515.48 264.34 251.14 15.97 27.02 677.48 92.06 50.73 820.27 179.06 0 999.33 0 571.26 151.96 723.22 276.11 4.21 574.45
49

Contingent Liabilities Book Value (Rs)

93.07 231

72.19 163.19

65.46 124.18

58.41 98.26

76.01 73.77

PROFIT & LOSS ACCOUNT

Profit & Loss account

in Rs. Cr. Mar '11 12 mths

Mar '10 12 mths 4703.12 28.7 4674.42 8.62 111.66 4794.7 3561.05 17.47 275.64 6.11 458.69 30.86 -0.04 4349.78

Mar '09 12 mths 3926.09 44.34 3881.75 -5.91 178.67 4054.51 2940.86 16.11 234.2 8.99 427.47 86.2 -0.09 3713.74

Mar '08 12 mths 3098.2 47.35 3050.85 -4.39 297.89 3344.35 2431.79 13.9 189.66 5.96 358.05 84.12 -0.02 3083.46

Mar '07 12 mths 2181.69 46.22 2135.47 4.71 246.22 2386.4 1620.65 11.55 157.4 5.6 331.79 69.63 -0.52 2196.1

Income Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Admin Expenses Miscellaneous Expenses Preoperative Exp Capitalised Total Expenses

6570.86 49.97 6520.89 56.08 500.28 7077.25 5304.24 21.29 392.97 8.58 0 708.49 0 6435.57

Operating Profit PBDIT Interest PBDT Depreciation Other Written Off Profit Before Tax Extra-ordinary items PBT (Post Extra-ord Items) Tax

585.6 641.68 8.21 633.47 34.48 0 598.99 -3.22 595.77 165.36

436.3 444.92 63.52 381.4 60.08 0 321.32 -2.92 318.4 68.08

346.68 340.77 68.46 272.31 41.76 0 230.55 -10.92 219.63 60.68

265.28 260.89 39.44 221.45 29.73 0 191.72 2.57 194.29 44.02

185.59 190.3 33.07 157.23 25.59 0 131.64 -0.2 131.44 37.32

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Reported Net Profit Total Value Addition Preference Dividend Equity Dividend Corporate Dividend Tax Per share data (annualised) Shares in issue (lakhs) Earning Per Share (Rs) Equity Dividend (%) Book Value (Rs)

430.42 1131.32 0 110.97 18 443.89 96.96 250 231

250.32 788.73 0 66.58 11.06 443.89 56.39 150 163.19

158.96 772.88 0 44.39 7.54 443.89 35.81 100 124.18

150.27 651.68 0 35.51 6.04 443.89 33.85 80 98.26

94.33 575.44 0.39 22.19 3.83 443.89 21.16 50 73.77

COMPARATIVE & COMMON SIZE STATEMENT

BALANCE SHEET Rs. In Cr. COMMONSIZE STATEMENT 2011 % 2010 %

COMPARATIVE STATEMENT As at 31st March 2011 Rs. in Cr. Sources Of Funds Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Networth Secured Loans Unsecured Loans Total Debt Total Liabilities Application Of Funds Gross Block Less: Accum. Depreciation Net Block Capital Work in Progress 44.39 44.39 0.00 0.00 980.99 0.00 1025.38 67.70 0.00 67.70 1093.08 As at 31st March 2010 Rs. in Cr. 44.39 44.39 0.00 0.00 679.99 0.00 724.38 72.79 0.00 72.79 797.17 Increase/ (decrease) Rs. in Cr. % Change %

301.00 301.00 -5.09 -5.09 295.91

44.27 41.55 -6.99 -6.99 37.12

89.75 93.81 6.19 6.19 100.00

85.30 90.87 9.13 9.13 100.00

672.15 389.08 283.07 19.36

624.33 361.70 262.63 12.29

47.82 27.38 20.44 7.07

7.66 7.57 7.78 57.53

61.49 35.59 25.90 1.77

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78.32 45.37 32.94 1.54

Investments Inventories Sundry Debtors Cash and Bank Balance Total Current Assets Loans and Advances Fixed Deposits Total CA, Loans & Advances Deffered Credit Current Liabilities Provisions Total CL & Provisions Net Current Assets Miscellaneous Expenses Total Assets

9.13 1993.83 113.68 1094.89 3202.40 220.00 0.00 3422.40 0.00 2420.79 220.08 2640.87 781.53 0.00 1093.09

7.63 1340.33 93.61 61.72 1495.66 200.99 125.00 1821.65 0.00 1172.28 134.74 1307.02 514.63 0.00 797.18

1.50 653.50 20.07 1033.17 1706.74 19.01 -125.00 1600.75 1248.51 85.34 1333.85 266.90 295.91

19.66 48.76 21.44 1673.96 114.11 9.46 -100.00 87.87 106.50 63.34 102.05 51.86 37.12

0.84 182.40 10.40 100.16 292.97 20.13 0.00 313.09 221.46 20.13 241.60 71.50 100.00

0.96 168.13 11.74 7.74 187.62 25.21 15.68 228.51 147.05 16.90 163.96 64.56 100.00

Contingent Liabilities Book Value (Rs)

93.07 231.00

72.19 163.19

PROFIT & LOSS ACCOUNT

COMPARATIVE STATEMENT As at 31st March 2011 Rs. in Cr. 6570.86 49.97 6520.89 56.08 500.28 7077.25 As at 31st March 2010 Rs. in Cr. 4703.12 28.70 4674.42 8.62 111.66 4794.70 Increase/ (decrease) Rs. in Cr. 1867.74 21.27 1846.47 47.46 388.62 2282.55 % Change % 39.71 74.11 39.50 550.58 348.04 47.61 Rs. in Cr. COMMONSIZE STATEMENT 2011 % 100.00 0.76 99.24 0.85 7.61 107.71 2010 % 100.00 0.61 99.39 0.18 2.37 101.95

INCOME Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income EXPENDITURE Raw Materials Power & Fuel Cost

5304.24 21.29

3561.05 17.47

1743.19 3.82

48.95 21.87

80.72 0.32

75.72 0.37 52

Employee Cost Other Manufacturing Expenses Selling and Admin Expenses Miscellaneous Expenses Preoperative Exp Capitalised Total Expenses Operating Profit PBDIT Interest PBDT Depreciation Other Written Off Profit Before Tax Extra-ordinary items PBT (Post Extra-ord Items) Tax Reported Net Profit Total Value Addition Preference Dividend Equity Dividend Corporate Dividend Tax Per share data (annualised) Shares in issue (lakhs) Earning Per Share (Rs) Equity Dividend (%) Book Value (Rs)

392.97 8.58 0.00 708.49 0.00 6435.57 585.60 641.68 8.21 633.47 34.48 0.00 598.99 -3.22 595.77 165.36 430.42 1131.32 0.00 110.97 18.00

275.64 6.11 458.69 30.86 -0.04 4349.78 436.30 444.92 63.52 381.40 60.08 0.00 321.32 -2.92 318.40 68.08 250.32 788.73 0.00 66.58 11.06

117.33 2.47 -458.69 677.63 0.04 2085.79 149.30 196.76 -55.31 252.07 -25.60 277.67 -0.30 277.37 97.28 180.10 342.59 44.39 6.94

42.57 40.43 -100.00 2195.82 -100.00 47.95 34.22 44.22 -87.07 66.09 -42.61 86.42 10.27 87.11 142.89 71.95 43.44 66.67 62.75

5.98 0.13 0.00 10.78 0.00 97.94 8.91 9.77 0.12 9.64 0.52 9.12 -0.05 9.07 2.52 6.55 17.22 1.69 0.27

5.86 0.13 9.75 0.66 0.00 92.49 9.28 9.46 1.35 8.11 1.28 6.83 -0.06 6.77 1.45 5.32 16.77 1.42 0.24

443.89 96.96 250.00 231.00

443.89 56.39 150.00 163.19

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RATIOS & COMMENTS

Mar '11 Mar '10 Investment Valuation Ratios Face Value Dividend Per Share Operating Profit Per Share (Rs) Net Operating Profit Per Share (Rs) Free Reserves Per Share (Rs) Bonus in Equity Capital Profitability Ratios Operating Profit Margin(%) Profit Before Interest And Tax Margin(%) Gross Profit Margin(%) Cash Profit Margin(%) Adjusted Cash Margin(%) Net Profit Margin(%) Adjusted Net Profit Margin(%) Return On Capital Employed(%) Return On Net Worth(%) Adjusted Return on Net Worth(%) Return on Assets Excluding Revaluations Return on Assets Including Revaluations 10 25 131.93 10 15 98.29

1,469.02 1,053.05 --148.39 --

8.98 8.37 8.45 7.11 7.11 -6.54 55.55 41.97 42.29 231 231

9.33 8.02 8.04 6.75 6.75 5.34 5.34 48.67 34.55 35.39 163.19 163.19 48.67

Return on Long Term Funds(%) 55.55 Liquidity And Solvency Ratios

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Current Ratio Quick Ratio Debt Equity Ratio Long Term Debt Equity Ratio Debt Coverage Ratios Interest Cover Total Debt to Owners Fund Financial Charges Coverage Ratio

1.3 0.54 0.07 0.07 73.96 0.07 78.16

1.39 0.35 0.1 0.1 15.26 0.1 7.05 5.89

Financial Charges Coverage Ratio Post Tax 57.63 Management Efficiency Ratios Inventory Turnover Ratio 3.3 Debtors Turnover Ratio 62.92 Investments Turnover Ratio Fixed Assets Turnover Ratio Total Assets Turnover Ratio Asset Turnover Ratio Average Raw Material Holding Average Finished Goods Held 3.3 9.7 5.97 9.7 ---

3.53 46.78 3.53 8.33 6.37 8.33 24.99 90.75 39.63

Number of Days In Working Capital 43.15 Profit & Loss Account Ratios Material Cost Composition 81.34 Imported Composition of Raw Materials Consumed 70.54 Selling Distribution Cost Composition Expenses as Composition of Total Sales --

76.18

66.15 7.66

1.94

2.17
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Cash Flow Indicator Ratios Dividend Payout Ratio Net Profit Dividend Payout Ratio Cash Profit Earning Retention Ratio Cash Earning Retention Ratio AdjustedCash Flow Times 29.96 27.74 70.26 72.45 0.14 31.01 25.01 69.72 75.47 0.23

Mar '07 Earnings Per Share Book Value 21.16 73.77

Mar '08 33.85 98.26

The current ratio of the company has gone down from 1.39 to 1.3 which is below the industry standards of 1.33. This is due to the fact that there was a tremendous increase in the current liabilities of the company i.e. 202.02% whereas the current assets grew 187.87%. The current ratio going down is not a major cause of concern as the sales and profitability of the company have increased by 39.5% and 44.22% respectively. The company also managed to repay its long term debt and reducing it by about 5%. This helped the company to save on its interest which is reflected in the interest coverage ratio which is at 73.96% as compared to last years 15.26%. The company has managed to increase its assets by 7.6% and the ROA has increased by almost 41%. The company reduced its long term debt equity ratio from 10% to 7% by repaying its long term debts.

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BIBLIOGRAPHY
http://en.wikipedia.org/wiki/Securities_research http://titan.co.in/files/download/annual-report-10-11.pdf http://www.indiainfoline.com/Markets/Company/Fundamentals/Management-Discussions/TitanIndustries-Ltd/500114 http://www.moneycontrol.com/financials/titanindustries/balance-sheet/TI01 http://www.moneycontrol.com/financials/titanindustries/cash-flow/TI01 http://www.moneycontrol.com/financials/titanindustries/profit-loss/TI01 https://www.zionsbank.com/pdfs/biz_resources_book-6.pdf Chandra Prasasnna, Financial Management, Tata McGraw Hill, 7th edition

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