Ankit Winter Project Report
Ankit Winter Project Report
Ankit Winter Project Report
ON
I will not use this project report in future to use as submission to any other
university, institutions or any publisher, without written permission of my guide.
I also promise not to allow / permit any other persons to copy / publish any part /
full material of this report in any form.
Ankit S. Lapsiwala
MBA-Finance
CERTIFICATE
This is to certify that Mr. Ankit S. Lapsiwala has satisfactorily completed the
project work entitled, “Portfolio Management of CNX Midcap Index
Companies”. Based on the declaration made by the candidate and my
association as a guide for carrying out this work, I recommended this project
report for evaluation as a part of the MBA programme of Veer Narmad South
Gujarat University.
Place:
Date: ______________________
(Mr. Sameer Rohadia)
The project is forwarded for evaluation to Veer Narmad South Gujarat University,
Surat for viva-voce.
Place:
Date: ____________________
(Dr. R.S. Shah)
ACKNOWLEDGEMENT
The success of any task lies upon the efforts made by a person but it cannot be
achieved without co-operation of others. So I would like to tank G.I.D.C. Rajju
Shroff ROFEL Institute of Management Studies, Vapi, for giving me the
opportunity of doing this project as a special subject and provides such a
wonderful platform to represent ourselves as MBA students.
I am grateful to Kotak Securities Ltd. Surat for giving me the opportunity for dong
the projects on “Portfolio Management of CNX Midcap Companies” in their
esteemed organization. I owe our genuine thanks to Mr. Mrugesh Panchal
(Branch Manager), for doing project at their organization.
I delivered my special thanks to my family members and friends for their constant
support during the project.
Ankit S. Lapsiwala
MBA-Finance
EXECUTIVE SUMMARY
Under project title firstly I find out 9 securities, which has made technical break out
in CNX Midcap Index. Company selection is based on return and beta of that
security also. On the basis of Sharpe Model of optimum portfolio, only 6
companies remained in my portfolio out of 9 companies. I found out the risk and
return trade-off, beta, systematic and unsystematic risk, correlation between
security and market and between two securities also, and covariance of security
and market also. After which, the selected companies under portfolio, I found out
the portfolio return and risk on the basis of Markowitz and Sharpe Single Index
Model.
Chapter Particulars
2 Methodology of Project
Problem Identification
Objective of Study
Analysis Techniques
5 Limitations
6 Suggestions
7 Conclusion
8 Bibliography
9 Annexure
Chapter - 1
COMPANY PROFILE
The Kotak Mahindra Group was born in 1985 as Kotak Capital Management Finance
Limited. Uday Kotak, Sidney A. A. Pinto and Kotak & Company promoted this company.
Industrialists Harish Mahindra and Anand Mahindra took a stake in 1986, and that's when
the company changed its name to Kotak Mahindra Finance Limited. Since then it's been a
steady and confident journey to growth and success.
Kotak Securities Ltd., is one of India's largest brokerage and securities distribution
house in India. Over the years Kotak Securities has been one of the leading investment
broking houses catering to the needs of both institutional and non-institutional investor
categories with presence all over the country through franchisees and co-ordinates. Kotak
Securities Ltd. offers online (through www.kotaksecurities.com) and offline services
based on well-researched expertise and financial products to the non-institutional
investors.
Kotak Securities Limited is the world of Capital Markets where everything newsworthy
exists only in the present moment and where knowing the importance of timing,
sentiments and strategic forecasting makes the difference between profit and loss.
Kotak Securities Limited, a strategic joint venture between Kotak Mahindra Bank and
Goldman Sachs (holding 25% - one of the world’s leading investment banks and
brokerage firms) is India’s leading stock broking house with a market share of 7 - 8 %.
Kotak Securities Limited is one of the larger players in distribution of IPOs - it was ranked
number One in 2003-04 as Book Running Lead Manager in public equity offerings by
PRIME Database. It has also won the “Best Equity House” Award from Finance Asia -
April 2004.
The Company has a full-fledged Research division involved in macro economic studies,
Sectoral research and Company specific equity research combined with a strong and well
networked sales force which helps deliver current and up-to-date market information and
news.
Kotak Securities has 122 branches servicing more than 1,70,000 customers and
coverage of 187 cities. Kotaksecurities.com, the online division of Kotak Securities
Limited offers Internet Broking services and also online IPO and Mutual Fund
Investments. Kotak Securities Limited manages assets over 2500 cores of Assets under
Management (AUM).
Kotak securities provide portfolio Management Services, catering to the high end of the
market. Portfolio Management from Kotak Securities comes as an answer to those who
would like to grow exponentially on the crest of the stock market, with the backing of an
expert.
Kotak Securities Limited manages assets over Rs. 1700 crores through it’s Portfolio
Management Services (PMS) servicing high net worth clients with a large investible
surplus through its preferred client services in the mass affluent and wealth management
segments.
The company has a full-fledged research division involved in Macro Economic studies,
Sectoral research and Company Specific Equity Research combined with a strong and
well networked sales force which helps deliver current and up to date market information
and news.
Kotak Securities Research Center is a special research cell where some of India's finest
financial analysts bring you intensive research reports on how the stock market is faring,
when is the right time to invest, when to execute your order and more. KSL provides both
type of research reports.
a. Intraday calls
b. Special Reports
c. Market Mornings
e. Sectoral Report
f. Stock Ideas
g. Derivatives Reports
h. Portfolio Advices
Depending on what kind of investor you are, Kotak Securities Ltd. (KSL) brings customers
from fundamental or basic research and technical research. As an investor with Kotak
Securities, Customers get access to these research reports exclusively. Customers get
access to the following reports. Research process is given below.
I have been preparing the project report on “Portfolio Management of CNX Midcap
Companies at Kotak Securities Ltd., Surat” on the basis of optimum portfolio
preparation, fundamental analysis, and technical analysis, ratio analysis on year basis
and quarterly analyses. The portfolio optimization is totally a calculative work. The basic
methodology that I have undergone for this project is as follows:
Problem Statement:
The main objective is whether investment in CNX Midcap companies is more rewarding
or not. And if securities are more rewarding, can it be possible to prepare portfolio from
the Midcap companies.
Objectives
To find out target price, based on technical and fundamental analysis, of securities
included in portfolio.
To evaluate the CNX Midcap companies, whether they are given good return in
selected portfolio or demanded by the customer in the market.
Research Design:
Project is totally based on descriptive research. It is prepared on more structured way to
find out problem question. Under such descriptive research I have gone through
observational studies for technical analysis, calculative study for target price deciding and
risk and return for optimum portfolio preparation
Sampling:
I have mainly concentrated on convenience sampling. Because I found selected sources
is viable enough to provide the fundamental and technical analysis. Following companies
are selected based on: a) Have technical break out and fundamentally strong. b) Giving
good returns. c) Reporting good volumes in last couple of months. So selected
companies are as follows:
No. Company Name Industry
1 Kalpataru Power Transmission Ltd Transmission Line Towers / Equip.
2 Aurbindo Pharma Ltd. Pharmaceuticals - Bulk Drugs & Formin
3 Hindustan Construction Company Ltd. Construction
4 India Cements Ltd. Cement
5 Madras Cements Ltd. Cement
6 Strides Arcolab Ltd. Pharmaceuticals - Bulk Drugs & Formin
7 Thermax Ltd. Engineering
8 Titan Industries Ltd. Watch, Jewellery, Miscellaneous
9 Voltas Ltd. Diversified
Analysis Techniques
1) Optimum portfolio preparation
a. Finding expected risk and return of each securities and CNX Midcap Index
(market)
b. Beta, correlation, covariance of securities to the market.
c. Systematic and unsystematic risk of each securities.
d. Finding cutoff rate for selection of securities and on that basis finding
weights of securities for investment in portfolio for optimization.
2) Fundamental Analysis
a. Economy Analysis
b. Industry Analysis
c. Company Analysis
i. Ratio Analysis
ii. Annual and Quarterly results Analysis
iii. Estimating Target price for selected securities under optimum
portfolio.
3) Technical Analysis
a. Chart Patterns
b. Trend lines (Measuring Speediness of securities)
c. Market Indicators
i. Moving Average Crossover (20-50 days cuttings)
ii. Price Oscillator (2-10 days cuttings)
iii. Price Rate of Change (ROC)
d. Estimating target price based on previous support and resistance level
e. Deriving new support and resistance level for future intraday trading.
Chapter – 3
PORTFOLIO MANAGEMENT
Now this companies which I have selected, are they really going to offer the
investor a good return. So for that, investor should have to find out the risk and
return profile of each securities, how they are moving as the change in CNX
Midcap index. So once it found than the investor must evaluate such securities by
Sharpe optimum portfolio model, which will say what should be the size of your
portfolio as well as weight of investment for particular securities. So Risk and
return of such securities are as follows.
Disclosure
1. Above all data are calculated on the basis of prices of each securities of 3rd June
2006 to17th January 2007.
2. Cov. to Market indicates covariance between securities and CNX Midcap index.
3. Corr. to Market indicates correlation between securities and CNX Midcap index.
4. All the above details are shown in the annexure
(A)
As seen above table here Excess returns to beta ratio are already ranked from
highest to lowest. So selecting the optimal portfolio involves the comparison of (Ri
– Rf)/βi with C*. Here we have to find out cutoff rate, which helps in selecting
securities in our optimum portfolio. And securities whose excess return to beta
ratio is lower than the cutoff rate, are excludes from our portfolio.
Step – 2 Establishing Cutoff Rate
For a portfolio of i stock, C is given by:
i (Ri – Rf)/βi
σ2m ∑
i=1 σ2ei
Ci =
i
2
β
1+ σ2m ∑ i
i=1 σ2ei
Where
σ2m = Variance in the market index
σ2ei = Variance of a stock’s movement that is not associated with the movement of
the market index; that is the stock’s unsystematic risk.
Market Variance (σ2m) = 1.25
All securities, whose excess return-to-beta ratio is above the cutoff rate, are
selected and all whose ratios are below are rejected.
The value of C* is computed from the characteristics of all of the securities that
belong in the optimum portfolio. So here first 6 companies are those whose
excess return to beta ratio are more than Ci. Now to determine C*, we will take the
last securities as per ranked which is proving our condition i.e. excess return to
beta more than that of Ci. So the cutoff rate will be (C*) = 17.01.
Step – 3 Arriving at the Optimal Portfolio
Once we know which securities are to be included in the optimum portfolio, we
must calculate the percent invested in each securities. The percentage invested in
each securities is:
Zi
Xi = N
∑ Zj
i=1
Where
βi
Ri – Rf
Zi = βi C*
σ2ei
The second expression determines the relative investment in each securities, and
the first expression simply scales the weights on each securities so that they sum
to 1 (ensure full investment).
Dividing each Zi by the sum of the Zi, we would invest 0.39 (39%) of our funds in
Kalpataru Power, 32% in Madras Cement, 17% in Thermax, 3% in Voltas, 7% in
India Cement and 2% in Voltas.
The characteristics of a stock market make it desirable can be determined before
the calculation of an optimal portfolio is begun. The desirability of any stock is
solely a function of its excess return to beta ratio.
Risk and Return of Optimum Portfolio.
There are six securities in optimum portfolio. So following formulas are used to
find out risk and return profile for the securities.
N N
Variance on Portfolio (σ2p) = ∑ ∑ Xi Xj Covij
i=1 i=1
Sr. No. Company Standard Deviation(σi) Expected Return (Ri) Weight (Xi)
1 Kalpataru Power 1.95 0.38 0.39
2 Madras Cements 1.93 0.36 0.32
3 Thermax 2.38 0.35 0.17
4 Voltas 3.19 0.33 0.03
5 India Cements 2.42 0.36 0.07
6 Titan 2.52 0.32 0.02
Particulars
Portfolio Return 36.42 %
Portfolio Variance 2.029536
Portfolio Risk 1.424618
Sharpe Single Index Model and Risk & Return
Ri = αi + βi I
Ri = Expected Return on securities i.
αi = Expected Return on securities – βi X Expected Return on market.
I = Expected Return on Midcap Index (Market)
N
Return on Portfolio (Rp) = ∑ Xi (αi + βi I )
i=1
N
2 N
∑ X2i e2 i
2
Variance on Portfolio (σ p) = ∑ Xi βi σ2i +
i=1 i=1
Particulars
Portfolio Return 36.27 %
Portfolio Variance 1.903165
Portfolio Risk 1.379553
(B)
FUNDAMENTAL ANALYSIS
1) ECONOMY ANALYSIS
The economy has grown by 8.9 per cent for the April-July quarter of ’06-07, the
highest first-quarter growth rate since '00-01. The growth rate has been spurred
by the manufacturing sector, which has logged an 11.3 per cent rise in Q1 ’06-07,
according to the GDP data released by the Central Statistical Organisation. It was
10.7 per cent in the corresponding period of the last fiscal year. The GDP
numbers come just weeks after the monthly IIP growth figures have touched 12.4
per cent. Agriculture, which accounts for nearly a quarter of the GDP, has also
grown by a healthy 3.4 per cent, unchanged from the corresponding period of last
fiscal. Other propellers of GDP growth for the first quarter this fiscal have been the
trade, hotels, transport and communications sector which grew by 9.5 per cent
and construction, which grew by 13.2 per cent. In the corresponding period of last
fiscal, these sectors grew by 11.7 per cent and 12.4 per cent, respectively.
Electricity also grew by 5.4 per cent this first quarter as opposed to 7.4 per cent in
the same period last year. The overall growth in this sector was fuelled by growth
in July and August. The services sector also grew by 10.6 per cent in the first
quarter of ’06-07. It was only 9.8 per cent last year in the same period.
There has been exceptional growth rate in some specific industries, like
commercial vehicles at 36 per cent, telephone connections, by 48.9 per cent and
passenger growth in civil aviation by 32.2 per cent.
Some highlights:
India has more billionaires than China. This year there were 15 billionaires
in China but last year in India, there were 20 billionaires, according to the
Forbes magazine.
India has emerged as the world's fastest growing wealth creator, thanks to
a buoyant stock market and higher earnings.
A number of Indian companies surpassed last year's net profit in just six
months of the current fiscal, reflecting an accelerated growth in corporate
earnings.
Forty-four per cent of Top 100 Fortune 500 companies are present in India.
With its manufacturing and services sector on a searing growth path,
India’s economy may soon touch the coveted 10 per cent growth figure.
Industrial growth is India's merchandise exports (in US dollar terms and customs
basis) have been recording annual growth rates of more than 20 per cent since
2002-03. One of the factors which negative impacted the markets in December
2006 was the IIP growth reported for October 2006. The General Index of
Industrial Production for October 2006 stood at 237.7, a 6.2% growth over the
corresponding previous month. This was far lower than the consensus estimates
and acted as a trigger to a near 1000 points fall in the Sensex. The cumulative
growth for April-October 2006 was 10.3% over the corresponding period of the
previous year.
Manufacturing which has about 80% weights in IIP, witnessed a 6.0% growth
during the month. The electricity sector recorded a growth of 9.7%. The relatively
lower growth rate in manufacturing for October 2006 was mainly due to the
consumer durables and non-durables sectors, where production grew by 2.4%
and a negative 0.4%, respectively. This period sees lower industrial activity due to
higher number of non-working days and also drops in demand.
In 2004-05, such exports grew by 26.2 per cent – the highest annual growth rate
in the last three decades – to cross US$ 80 billion. Five major sectors – gems
and jewellery, engineering goods, petroleum products, ores & minerals, and
chemicals and related products – were the key drivers. Despite recording a
somewhat lower rate of growth of 18.9 per cent, exports during 2005-06 have
already reached US$ 92 billion.
Services exports grew by 71 per cent in 2005-06 to US$ 46 billion, and 75 per
cent to US$ 32.8 billion in April-September, 2006. In 2005-06, software service
exports grew by 34.4 per cent to US$ 17.2 billion and by 32 per cent to US$ 10.3
billion in the first half of 2005-06.
India’s foreign exchange reserves were US$ 166.2 billion as on October 20, 2006,
showing an increase of US$ 14.5 billion over end-March 2006 level.
Industrial Growth
= Inflation
During the month, inflation (wholesale price index-WPI) remained within the
Government’s target range of 5-5.5%. This is the eights straight week where
inflation has remained above 5%. This of concern, more so as it comes in the
wake of softer crude prices. While crude prices are higher on a YOY basis, they
have significantly come down from their heights of $ 78 a barrel.
While WPI in the target range of 5-5.5%, the consumer Price Index stands higher
at about 6.8%. This is due to the consistent high prices of primary and food
articles.
The government is undertaking several efforts to reign in prices. It has already
made attempts in the past to control prices of commodities like, sugar, cement etc.
the government has indicated that inflation for FY07 can be contained within 5-
5.5%.
= Exchange Rate
The rupee appreciated by about 1.6% against the US dollar during the month
December 2006. This is the third successive monthly gain for the rupee against
the US dollar. The rupee gained on the back of sustained flow of FII monies and a
reduction in crude prices. With crude imports accounting for nearly a third of the
total imports into India, the demand for dollars was that much lower.
= Increase in CRR.
The Reserve Bank of India raised the cash reserve ratio by 50 basis pints to 5.5%
in two phases, 25 basis points with effect from January 6, 2007. The hike in CRR
is expected to suck out approximately Rs. 135 bn from the banking system. This
mover came in the backdrop of higher inflation and robust growth in GDP. It was
in line with RBI’s earlier effort to slow down the overall credit growth and canalize
it to more productive sectors of the economy.
= Export Import
On the external front, exports touched the magical figure of $85 billion in till
December 2006 while imports were of the order of i$120 billion. Of these oil
imports comprised the major portion worth $43.8 billion as compared to $21.8
billion in fiscal year 2005. Owing to high import growth, the trade deficit. has
widened to $39.6 billion. For the current fiscal, the Government has targeted an
export growth of 20% i.e. to $120 billion.
= Fiscal Deficit
As regards Fiscal consolidation, the Government has been able to rain in the
fiscal deficit to 3.9% of GDP in December 2006 as against the budgeted estimate
of 4.3% reflecting the discipline in Government spending.
= FIIs
Foreign institutional investors' (FIIs) net investments in equities crossed US$ 7
billion in calendar 2006. FII net investment till 6 November 2006 has been US$
7.08 billion, according to the Securities and Exchange Board of India (SEBI).
As many as 151 new FIIs have opened their offices in India during first 10 months.
In the corresponding period last year, 166 new FIIs entered India. The total
numbers of FIIs that have set shops in India are 974 as on November 7.
INDUSTRY ANALYSIS
1) Cement Industry
Net profit of the top 10 cement companies more than doubled during the
quarter ended December 31, '06.
Cement production has logged an impressive growth of 13.3 per cent in
2005-2006 compared to only 3.6 per cent in the previous year.
Cement and clinker exports are poised to touch the 10-million tones (mt)
mark by the end of 2006-07, further boosted by a 12 per cent rise in
consumption in Gulf countries and massive redevelopment efforts in Iraq
and Afghanistan.
India is the second largest producer of cement in the world behind China
(1.06 billion tones). In 2005, India produced 142 mt of cement, accounting
for 6.4 per cent of global production of 2.22 billion tones. This position has
been achieved because of India's sustained growth at an average rate of
8.1 per cent over the past two decades.
The recent boom in the housing and construction industry in India has worked
wonders for cement manufacturing companies as they registered an average
growth of 95 per cent in their net profits for the quarter ended March 31, 2006.
Engineering Sector
The engineering sector is the largest segment of the overall Indian industrial
sector. India has a strong engineering and capital goods base. The important
groups within the engineering industry include machinery & instruments, primary
and semi finished iron & steel, steel bars & rods, non-ferrous metals, electronic
goods and project exports. The engineering sector employs over 4 million skilled
and semi-skilled workers (direct and indirect).
The sector can be categorised into heavy engineering and light engineering
segments. Heavy engineering segment forms the majority of the engineering
sector in India. In the year 2003-04, out of the total engineering production of US$
22 billion, the heavy engineering market contributed over 80 per cent with the light
engineering segment accounting for the remaining.
India has a well-developed and diversified industrial machinery/ capital base
capable of manufacturing the entire range of industrial machinery. The industry
has also managed to successfully develop advanced manufacturing technology
over the years. Among the developing countries, India is a major exporter of
heavy and light engineering goods, producing a wide range of items. The bulk of
capital goods required for power projects, fertiliser, cement, steel and
petrochemical plants and mining equipment are made in India. The country also
makes construction machinery, equipment for irrigation projects, diesel engines,
tractors, transport vehicles, cotton textile and sugar mill machinery.
Power Sector
India's power market is growing faster than most of the other countries. With an
installed generation capacity of 123 GW, generation of more than 600 billion kwh,
and a transmission & distribution network of more than 6.3 million circuit kms,
India has today emerged as the fifth largest power market in the world compared
to its previous position of eighth in the last decade.
India’s power market is growing faster than most of the other countries. With an
installed generation capacity of 123 GW, generation of more than 600 billion kWh,
and a transmission & distribution network of more than 6.3 million circuit kms,
India has today emerged as the fifth largest power market in the world compared
to its previous position of eighth in the last decade.
COMPANY ANALYSIS
The Company has secured orders worth Rs. 5.6 Billion (USD 125 Million) during
the reporting year covering over 5,000 villages. The Company is hopeful of
increasing its revenues in this segment significantly.
Industry Analysis
1. POWER SECTOR SCENARIO
a. Power Generation & Transmission:
i. Power is a critical infrastructure for economic development and for
improving the quality of life. Considering energy shortages in the country,
the Government has embarked on a plan to add 33,000 MW of capacity
in the public sector and 6,500 MW of capacity in the private sector in
immediate few years. In addition to these five ultra mega power projects
of 4,000 MW each are to be set up.
ii. Inadequate investments in transmission and distribution infrastructure
have resulted in power evacuation constraints from the generating
stations of fuel rich regions, and therefore an effective inter regional grid
network is required to be built. Accordingly, a perspective plan has been
developed to build 30,000 MW inter regional transmission capability by
2012.
b. Distribution and Rural Electrification:
i. Electricity has been one of the basic human. Accordingly, it is planned to
cover all non-electrified households by the year 2012. In order to
accelerate rural electrification, it has been proposed to treat Rural
Electrification as a basic minimum service in the Prime Ministers
Gramodaya Yojana. As per Budget announcement, under 'Rajiv
Gandhi Grameen Vidhyutikaran Yojana' 40,000 more villages will be
electrified in 2006-07 as compared to 10,000 villages in 2005-06.
JMC Projects has announced that the company has allotted as a part of it right
issue 24,89,420 shares constituting 15% of the share capital of the company to
Kalpataru Power Transmission, and 1,07,959 shares to an individual on 28
November 2006. After the above said allotment, the shareholding of Kalpataru
Power in the company has risen to 49.95% from 49.90%.
Kalpataru Power Transmission Ltd, on September 07, 2006 has decided to issue
and allot 4,777,000 Equity Shares of Rs.10/- each at a premium of Rs.717.00 per
equity share.
Expansion Plan
Kalpataru is a turnkey player in design, fabrication, construction and erection of
transmission lines and sub-station structures. The company has been actively
participating in the rural electrification projects in states like Uttar Pradesh, Bihar,
West Bengal and Harahan. The ongoing expansion plans in the domestic
transmission line networks would turn beneficial for the company due to its
dominant position in the transmission project business.
With its entry into the biomass power generation segment and, now, into pipeline
infrastructure, the company has slowly diversified its business model without
diluting its core competence in the transmission segment.
Sales and services income of the Company for the year 2005-06 was at
Rs.871.2 Crore. This represents a growth of 54% over the company’s
revenues for 2004-05. The increase was largely on account of all-round
good performance by all the Segments of the business. The revenues of
Power Transmission segment grew by 66%, Infrastructure segment grew
by 275% and Biomass Energy segment grew by 38%.
The operating profit for 2005-06 at Rs. 119.29 crore showed a remarkable
improvement of 97.73% over the previous year on a comparable basis.
Profit after tax stood at Rs. 66.53 crore as against Rs. 28.72 crore, which is
a steep increase of 132%.
Long term borrowing of the Company has increased by Rs. 75.0 Crore as
against increase of Rs. 29.6 Crore in the previous year due to availment of
fresh Long/Medium Term Loans. The total Debt/Equity ratio is at 1.39.
During the year the Company has been rated PR1+ and CARE AA rating
for its short term and long term fund raising of Rs. 250 Million each. The
Company has 5A1 rating from Dun & Bradstreet.
Ratio
Mar 2006 Mar 2005 Mar 2004 Mar 2003
Debt-Equity Ratio 1.39 0.97 1.24 1.51
Current Ratio 1.57 1.71 2.14 2.52
Total Assets 2.17 2.53 1.77 1.33
Debtors 3.95 4.95 3.92 3.59
OPM (%) 14.19 11.13 9.69 9.44
NPM (%) 7.92 5.30 4.10 3.31
EPS 26.11 26.45 13.00 8.24
ROCE (%) 29.77 26.90 16.34 12.56
RONW (%) 39.62 25.24 15.45 11.04
During the year, Company has achieved a record level of turnover of Rs.
871.2 Crore as against Rs. 566.8 crore in the previous year which shows a
healthy growth of 54% for the year.
Operating profit increased by 98% from Rs. 60.33 crore in 2004-2005 to
Rs. 119.29 crore in 2005-2006 and Profit after tax increased by 132% from
Rs. 28.72 crore in 2004-2005 to Rs. 66.53 crore 2005-2006.
Target Price Evaluation
TTM % Chg
Particulars Dec 2006 Sep 2006 Jun 2006 Mar 2006 31/12/06 Q307-Q207
Type 3Qtr 2Qtr 1Qtr 4Qtr
Net Sales 393.53 306.61 302.56 361.38 1364.08 28.35
Other Income 4.31 1.1 0.67 2.19 8.27 291.82
Total Income 397.84 307.71 303.23 363.57 1372.35 29.29
Total Expenditure 332.9 261.56 254.07 311.28 1159.81 27.27
Operating Profit 64.94 46.15 49.16 52.29 212.54 40.72
Interest 7.52 5.85 5.52 5.55 24.44 28.55
Gross Profit 57.42 40.3 43.64 46.74 188.10 42.48
Depreciation 4.81 3.15 3.44 3.2 14.60 52.70
Tax 13.81 8.8 10.83 13.69 47.13 56.93
Deferred Tax 0 1.13 0.36 -1.45 0.04 -100.00
Reported Profit After Tax 38.8 27.22 29.01 31.3 126.33 42.54
Equity Share 2.65 2.65 2.65 2.65 10.60 0.00
EPS 14.64 10.27 10.95 11.81 47.67 42.54
TTM EPS 47.67
CMP 1196.85
Company P/E 25.11
Industry P/E 26.6
As seen last three quarters of Year 06-07, and if we want to forecast the expected
sales and EPS of the company, we can do so by adding the last quarter of year
05-06 (Q4 0506), we can get the data for trailing twelve month (TTM). It shows
that company will definitely go for the results that have been achieved in last
quarter of 05-06. So from such we can get expected sales and EPS figures. Now
we can assume that such TTM results can be increased by 5% to 10% from the
expansion plans of company. So from such, target EPS are as follows.
TTM
YEAR 31/03/07(E) 31/03/07(E) 31/3/08(E)
31/12/06
Growth (%) ----- 5 10 25
SALES 1,364.08 1,432.28 1500.49 1705.10
Operating Profit 188.10 197.51 206.91 235.13
PAT 126.33 132.65 138.96 157.91
EPS (Rs.) 47.67 50.06 52.44 59.59
Valuation
At the current market price of Rs 1196.85, the company is quoting at the price to
earning ratio of 25.11 to its TTM EPS of 47.67. Looking at the performance of the
quarter ended 31/12/06, we expect the company to end the year FY07 with EPS
of Rs 52.44. For FY08, revenue is likely to grow at least by 25%, which translates
into EPS of Rs 59.59. The stock has potential to enjoy P/E of 26 to28, which
results into target price of as follows:
Shareholding Pattern
Particulars % Share Holding
Total Foreign 35.68
Total Institutions 22.76
Total Govt Holding 0.00
Total Non Promoter Corporate Holding 5.15
Total Promoters 26.89
Total Public & Others 9.54
Totals 100.00
The company was able to outperform the market by fuller capacity utilisation for
cement and by strategically withdrawing from clinker exports, which fell in 2005-06
to 1.56 Lac Ts from 8.11 Lac Ts in 2004-05. Cement exports were however
increased to 2.10 Lac Ts in 2005-06 as against 0.29 Lac Ts in 2004-05. With the
cement prices recovering during the second half of 2005-06, the Gross realisation
per TN of cement improved by about 8% over the previous year and this together
with substantial increase in volume, contributed to a jump in sales and other
income to Rs.1836.69 Crore from Rs.1402.30 crore in 2004-05 - an increase of
31%. Consequently, the income from operations registered a significant increase
of 75% to Rs.268.21 Crore from Rs.153.45 Crore in 2004-05 and the operating;
margins have improved to 14.60% from 10.94% in the previous year.
OPPORTUNITIES
The cement industry appears to have entered a boom phase. With the available
cement production being fully absorbed in the market place, given the anticipated
annual GDP growth of 7 to 8%, annual demand for cement in the country should
continue to grow at 8 to 10%. With the estimated demand for cement by 2011 at
213 Million Tones (NCAER study), substantial capacity addition is called for during
the next 5 years. With the firm demand supply scenario and even pockets of
scarcity, cement prices have already recovered smartly to satisfactory levels.
EXPANSION / MODERNISATION
Improvement in the financial position of the company, it is proposed to implement
a few capital expenditure schemes to increase significantly the clinker and cement
output at most of the units, to reduce energy consumption level and optimise other
parameters. The proposals include conversion of the Sankari plant from wet to
dry process. It is planned that all the capital expenditure proposals will be
implemented over the next 18 to 24 months. On such implementation, the overall
cement capacity will increase by about 2 million tones besides improvement in
physical parameters like consumption of power and fuel. The total outlay on such
schemes is estimated at Rs. 345 Crore. These capital proposals will tie financed
out of the proceeds of Foreign Currency Convertible Bonds (FCCB) referred to
earlier in the Report.
The Company has signed a MOU dated 111h May 2006 with the Government of
Himachal Pradesh for sending up a cement plant of 2 million tones per annum
capacity in Shimla District, Himachal Pradesh. The company under the said MOU
has to complete tie physical implementation of the project within 5 years and
introductory work has commenced for executing this project within 3 to 4 years.
Annual Result (Rs. In crore)
Particulars Mar 2006 Mar 2005 Mar 2004 Mar 2003 Mar 2002 % Chg.
Gross Sales 1829.44 1385.39 1232.9 1026.93 1188.56 32.05
Excise Duty 287.69 223.25 216 175.35 169.45 28.86
Net Sales 1541.75 1162.14 1016.9 851.58 1019.11 32.66
Other Income 16.82 80.31 29.64 6.07 124.68 -79.06
Total Income 1558.57 1242.45 1046.54 857.65 1143.79 25.44
Total Expenditure 1280.79 1025.6 916.08 824.95 858.44 24.88
Operating Profit 277.78 216.85 130.46 32.7 285.35 28.10
Interest 148.93 133.5 161.68 258.54 205.44 11.56
Gross Profit 128.85 83.35 -31.22 -225.84 79.91 54.59
Depreciation 78.87 78.77 81.51 81.39 87.47 0.13
Tax 2.33 0 0 8.2 0 0.00
Deferred Tax 2.34 0 -16.8 -114.06 -6.75 0.00
PAT 45.31 4.58 -95.93 -201.37 -0.81 889.30
Extra-ordinary Items 9.12 63.4 25.66 0 118.89 0.00
Adjusted PAT 36.19 -58.82 -121.59 -201.37 -119.7 -161.53
EPS. 2.38 0.33 0 0 0 1879.26
Dividend (%) 0.00 0.00 0.00 0.00 0.00 0.00
Equity share 190.77 138.59 138.59 138.59 138.59 37.65
Ratio
Particulars Mar 2006 Mar 2005 Mar 2004 Mar 2003
Debt-Equity Ratio 0.88 1.56 1.50 4.25
Current Ratio 3.12 3.29 3.04 2.13
Total Assets 0.56 0.42 0.36 0.47
Debtors 7.27 7.07 7.54 4.69
OPM (%) 18.02 18.66 12.83 3.84
NPM (%) 2.94 0.39 -9.43 -23.65
EPS 2.38 0.33 0.00 0.00
ROCE (%) 8.50 6.65 3.83 1.49
RONW (%) 2.60 0.36 -7.05 -48.09
If we want to forecast the expected sales and EPS of the company, we can do so
by adding the last quarter of year 05-06 (Q4 0506), we can get the data for trailing
twelve month (TTM). It shows that company will desire to achieve these results,
which was in last quarter of 05-06. Now by adding the result of Q3-07, Q2-07,
Q1-07, and Q4-06, we can get expected sales and EPS figures. Now we can
assume that such TTM results can be increased by 5% to 10% from the current
performance of the company. So from such, target EPS are as follows.
TTM % Chg
Particulars Dec 2006 Sep 2006 Jun 2006 Mar 2006 31/12/06 Q307-Q207
Type 3Qtr 2Qtr 1Qtr 4Qtr
Net Sales 472.41 516.35 485.23 422.76 1896.75 -0.09
Other Income 1.71 0.83 5.43 4.72 12.69 1.06
Total Income 474.12 517.18 490.66 427.48 1909.44 -0.08
Total Expenditure 339.36 343.78 319.7 346.39 1349.23 -0.01
Operating Profit 134.76 173.4 170.96 81.09 560.21 -0.22
Interest 34.66 36.42 38.89 31.44 141.41 -0.05
Gross Profit 100.1 136.98 132.07 49.65 418.8 -0.27
Depreciation 19.82 19.26 19.2 19.71 77.99 0.03
Tax 0.5 0.4 0.28 0.57 1.75 0.25
Deferred Tax 0 0 0 2.34 2.34 0.00
Reported Profit After Tax 79.78 117.32 112.59 27.03 336.72 -0.32
Equity Share 22.037 22.037 22.037 19.077 0 0.00
EPS 3.62 5.32 5.11 1.42 15.47 -0.32
TTM EPS 15.47
CMP 222.1
Company P/E 14.36
Industry P/E 17.30
TTM
YEAR 31/03/07(E) 31/03/07(E) 31/3/08(E)
31/12/06
Growth (%) ----- 5 10 25
SALES 1,896.75 1991.59 2086.43 2370.94
Operating Profit 560.21 588.22 616.23 700.26
PAT 336.72 353.56 370.39 420.90
EPS (Rs.) 15.47 16.24 17.02 19.34
Valuation
At the current market price of Rs 222.10, the company is quoting at the price to
earning ratio of 14.36 to its TTM EPS of 15.47. Looking at the performance of the
Q1-07, Q2-07, we expect the company to end the year FY07 with EPS of Rs 16 to
18. For FY08, revenue is likely to grow at least by 25%, which translates into EPS
of Rs 19.34. which results into target price of as follows.
Madras Cements Ltd (MCL), a flagship of the Ramco group, is a major player in
the blended cement category in South India and is very popular for its Ramco
brands of cements like `Ramco super steel cement' and `Ramco super grade
cement'. It also operates a ready mix concrete plant (RMC) near Chennai.
Between 1980 and 1985, it undertook a modernisation programme and replaced
its four cement mills in R N Nagar, Tamilnadu, with a single new combined
cement mill, which ensured substantial reduction in energy, and operation costs.
In 1986, MCL implemented one more cement plant in Jayanthipuram, Andhra
Pradesh. In 1990-91, the company expanded the capacity of its factory by 100000
TPA at an estimated cost of Rs 21.5 cr. In 1992-93, it diversified into power
generation by setting up a 4-MW windmill at Muppandal in Kanyakumari,
Tamilnadu, which was upgraded by adding eight wind turbines of 250 kW, thereby
taking the generation capacity to 6 MW. In 1994-95, 70 additional windmills were
installed in Poolavadi, TN. The total Installed capacity of these plants, consisting
123 Wind Energy Generators is 34.44 MW. During 2004-05, The Company
commissioned a 36 MW Thermal Power Plant at Alathiyur. The company, for the
first time in India, commissioned a surface mine to modernise the mine operations
at Ramasamyraja Nagar factory. The company received ISO 9002 certification for
its units in Ramasamyraja Nagar, Alathiyur and ready mix concrete unit in
Vengaivasal. The company's new project Dry Motor Plant for manufacture of high
technology construction products such as render, skimcoat and dryconcrete
started production from January 2003 in Sriperumbudur, with the help of M.Tec,
Germany who conducted the training assistance to the architects, consultants,
builders and contractors to know about the advantages of new product. The
company subdivided its value of Equity shares from Rs 100/- to Rs.10/- in the ratio
1:10 with effective from Nov. 06, 2003.
Share holding Pattern
Particulars % Share Holding
Total Foreign 2.16
Total Institutions 21.96
Total Govt Holding 3.31
Total Non Promoter Corporate 8.85
Holding
Total Promoters 42.46
Total Public & Others 21.27
Totals 100.00
Clinker Sold 38 46
NEW PROJECTS:
The Company is setting up a cement project near Ariyalur with a capacity
of 2 million TPA. The estimated project cost is Rs.613.00 crore. The plant is
slated to be commissioned in the 4th quarter of 2007-2008.
The Company is establishing additional clinkering facility at Jayanthipuram
by installing a 4000 TPD kiln. The clinkering process will be integrated with
the existing production facilities, leading to an increase of cement
manufacturing capacity by 2 million TPA. The estimated project cost is
Rs.439.00 crore. The project is slated to be commissioned in the 2nd
quarter of 2007-2008. The project cost would be met from internal accruals
and from borrowings. On commissioning, the production capacity of the
Company will increase from 6 million TPA to 10 million TPA. The increase
in production capacity will help the Company to further consolidate its
market share.
Annual Results
Particulars Mar 2006 Mar 2005 Mar 2004 Mar 2003 Mar 2002 % Chg.
Gross Sales 1008.45 739.97 694.6 626.14 706.3 36.28
Excise Duty 0 0 0 0 0 0.00
Net Sales 1008.45 739.97 694.6 626.14 706.3 36.28
Other Income 4.9 5.14 5.21 4.22 3.11 -4.67
Total Income 1013.35 745.11 699.81 630.36 709.41 36.00
Total Expenditure 798.54 586.46 532.81 476.85 530.29 36.16
Operating Profit 214.81 158.65 167 153.51 179.12 35.40
Interest 34.35 35.89 49.6 66.17 77.5 -4.29
Gross Profit 180.46 122.76 117.4 87.34 101.62 47.00
Depreciation 65.19 63.34 63.27 64.01 60.96 2.92
Tax 32.75 7.4 4.15 1.85 3.2 342.57
Deferred Tax 3.5 -3.9 16.58 8.52 11.8 -189.74
PAT 79.02 55.92 33.4 12.96 25.66 41.31
Extra-ordinary Items -0.49 -1.56 -0.07 -0.8 0 -68.59
Adjusted PAT 79.51 57.48 33.47 13.76 25.66 38.33
EPS 65.41 46.29 27.65 10.73 0 41.30
Dividend (%) 150 100 75 60 60 50.00
Equity 12.08 12.08 12.08 12.08 12.08 0.00
Ratio
Particulars Mar 2006 Mar 2005 Mar 2004 Mar 2003
Debt-Equity Ratio 1.53 2.06 2.10 2.62
Current Ratio 0.77 0.88 0.71 0.77
Total Assets 1.01 0.72 0.77 0.64
Debtors 21.32 16.83 14.01 11.89
OPM (%) 21.30 21.44 24.04 24.52
NPM (%) 7.84 7.56 4.81 2.07
EPS 65.41 46.29 27.65 10.73
ROCE (%) 21.58 15.47 18.41 15.75
RONW (%) 20.10 16.70 11.41 4.81
TTM
YEAR 31/03/07(E) 31/03/07(E) 31/3/08(E)
31/09/06
Growth (%) ----- 5 10 25
SALES 1,290.63 1355.16 1419.69 1613.29
Operating Profit 410.26 430.77 451.29 512.83
PAT 211.07 221.62 232.18 263.84
EPS (Rs.) 174.73 183.46 192.20 218.41
Valuation
At the current market price of Rs 3430.00, the company is quoting at the price to
earning ratio of 19.63 to its TTM EPS of 174.73. Looking at the performance of the
quarter ended 31/09/06, we expect the company to end the year FY05 with EPS
of Rs 183 to 193. For FY08, revenue is likely to grow at least by 30%, which
translates into EPS of Rs 10.67. The stock has potential to enjoy P/E of 17 to 20,
which results into target price as follows:
In 1980, Wanson (India) Pvt Ltd, manufacturing coil type packaged boilers, was
amalgamated with Thermax India Pvt Ltd and Thermo-Dynamics Pvt Ltd. The
amalgamated company was renamed Thermax Pvt Ltd. Three companies -- Tulsi
Fine Chemicals Pvt Ltd, Kailas Castings Pvt Ltd, and T K Steel Industries were
later amalgamated with it and the company is now known as Thermax. Thermax is
engaged in the business of providing sustainable solutions in Energy &
Environment and company's core business comprise six major areas. They are
Boilers & Heaters, Absorption Cooling, Water & Waste Solutions, and Chemicals
for Energy & Environment applications, Captive Power & Cogeneration Systems
and Air Pollution & Purification. In 1995-96, its COGEN division signed a
distributorship agreement with Kawasaki Heavy Industries for packaging
Kawasaki's gas turbines up to 6 MW. The company has developed new
generation sewage treatment plant that occupies only 10% of the space required
by a conventional plant. Pilot plant trials have been completed successfully and
this technology will be commercialised soon for municipal sewage treatment.
During 1999-2000, Thermax Instrumentation Ltd, a joint venture between
Thermax and Fuji Electric of Japan was amicably broken up. It acquired ME
Engineering, a UK-based company belonging to the Beel Industrial Boilers Plc
(BIB) group. Thermax exited from Thermax Systems and Software by selling it at
a valuation of Rs 11 crore in exchange for one lac shares of Global Tele Systems
which are to be locked in for a specified period. Thermax has also sold its
industrial fans division to a Pune-based company, Universal Fans, for a valuation
of Rs 1.25 cr. Thermax Babcock & Wilcox Ltd (TBW) is a joint venture company
between Thermax and Babcock & Wilcox International Investments Co, USA
(BWII). During 2004-05 the company has acquired the 40% equity stake of
Thermax Babcock & Wilcox Ltd, which was held by Babcock & Wilcox
International Investments Co, USA. Consequent to this acquisition, TBW has
become a wholly owned subsidiary of Thermax. Thermax Energy Performance
Services Ltd (TEPS) is a 51:49 joint Venture between the company and EPS Asia
Inc. Due to the disputes between the JV Partners, TEPS may be wound up.
During 2001-2002, Thermax Water Technologies a wholly owned subsidiary of the
company was amalgamated with Thermax Ltd. The 36 MW power plants for
Shree Cement were commenced during 2002-03. The company has decided to
amalgamate Thermax Babcock & Wilcox Ltd and Thermax Captial Ltd, its wholly
owned subsidiaries with itself with effect from 1st April 2005. The Company has
increased its installed capacity of Ion Exchange Resins & Chemicals by 18391 MT
during 2004-05 and with this expansion the total installed capacity of Ion
Exchange Resins & Chemicals has increased to 33191 MT.
Subsidiaries
Subsidiary Sales 2005-06 2004-05
Thermax Instrumentation Limited (Cr.)
53.00
ME Engineering Limited, U.K.(loss on energy system) (GBP M)
7.20
Thermax Inc., U.S.A. (USD M) 8.70
12
Thermax Europe Ltd., UK. (GBP M) 8.20
1.90
Thermax Energy Performance Services Ltd. 1.80
Thermax Engineering Construction Co. Ltd (Cr.)
71.10
Thermax Hong Kong Limited, Hong Kong 45.40
Thermax do Brazil Energies e Equipamentos Ltda., Brazil
Companies Divisional Sales Turnover
Process Heat Division
Year Net Sales (Cr.) Growth % YOY % Exports Exports Growth %
2001-02 132.9 - 4.90 27.10 11.30
2002-03 140.1 5.40 34.00 32.10
2003-04 177.8 26.90 27.40 2.40
2004-05 230.4 29.60 28.40 34.30
2005-06 288.8 25.30 30.00 33.80
The packaged boiler and heater business earned revenues of Rs. 289 crore, a
growth of 26 percent. In the domestic market, textile, pharma, chemical and food
processing were the main sectors driving this business and the division
maintained a dominant market share.
Boiler and Heater Group
Year Net Sales (Cr.) Growth % YOY % Exports Exports Growth %
2001-02 146.50 5.80 11.90 136.30
2002-03 167.70 14.50 13.70 31.30
2003-04 242.20 44.40 16.80 78.00
2004-05 348.90 44.10 27.30 133.30
2005-06 463.00 34.20 25.30 23.20
The iron and steel industry continues to drive growth in this business.
Absorption Cooling Division
Year Net Sales (Cr.) Growth % YOY % Exports Exports Growth %
2001-02 73.20 11.20 38.70 9.00
2002-03 75.60 3.30 44.10 17.60
2003-04 85.80 13.50 36.20 -6.70
2004-05 107.60 25.40 39.90 38.10
2005-06 121.60 13.00 36.90 4.70
Reduction in export in the American markets due to rising oil and gas prices. The
chemical and textile sectors were the main growth drivers during the year.
Cogen Division
Year Net Sales (Cr.)
2001-02 10.80
2002-03 85.60
2003-04 17.00
2004-05 136.90
2005-06 241.50
The outlook for this business remains positive with a healthy enquiry pipeline
spurred by the booming all round growth in Indian industry and the Skyrocketing
prices of fuel oil.
Water and Waste Solutions
Year Net Sales (Cr.) Growth % YOY
2001-02 45.10 -17.70
2002-03 59.20 31.30
2003-04 50.10 -15.40
2004-05 89.80 79.20
2005-06 104.00 15.60
Enviro Division
Year Net Sales (Cr.) Growth % YOY
2001-02 33.40 -6.70
2002-03 30.40 -9.00
2003-04 58.00 90.80
2004-05 118.00 103.40
2005-06 146.20 28.10
The healthy trend of investment in cement, power and steel is there
Chemical Division
Year Net Sales (Cr.) Growth % YOY % Exports Exports Growth %
2001-02 87.10 12.70 36.50 -11.80
2002-03 78.00 -10.40 36.10 -11.40
2003-04 77.60 -0.10 37.70 4.40
2004-05 88.00 13.40 42.50 27.70
2005-06 105.50 19.90 44.60 27.00
Risk
Competition risk
Falling tariffs are exposing the industry to cheaper imports. The company
has seen the entry of Chinese competition in larger range of boilers and
captive power plants. Growing size of orders in the Indian market has
attracted large international players and this trend is likely to gather
momentum.
Energy price fluctuations
The company recognizes that fluctuations in fuel and energy prices change
the viability of projects and also drives the use of alternate energy / fuel
sources. In a significant move the company has taken steps to acquire
capability in the large utility range of heat recovery steam generators for
gas based power plants. This will create new opportunities for the
company as gas becomes a major fuel in domestic power generation.
Exchange fluctuations and interest rate risks
The company is a net exporter. Exports are largely denominated in US
dollars and hence are subject to the risk of exchange fluctuations.
Expansion Plan
PAT is higher at Rs. 123.3 crore from Rs. 55.3 crore in the previous year.
EPS moved up significantly to Rs. 9.69 compared to Rs. 4.37 in 2004-05.
Ratio
Particulars Mar 2006 Mar 2005 Mar 2004 Mar 2003
Debt-Equity Ratio 0.00 0.00 0.00 0.00
Current Ratio 0.92 0.99 1.08 1.14
Total Assets 3.10 2.23 1.44 1.39
Debtors 7.43 6.30 5.55 5.35
OPM (%) 14.07 10.14 14.48 14.38
NPM (%) 8.31 6.04 9.59 9.39
EPS 10.34 23.20 22.70 20.24
ROCE (%) 43.60 22.65 20.90 19.93
RONW (%) 25.75 13.48 13.85 13.02
Target Price Evaluation
TTM % Chg
Particulars Sep 2006 Jun 2006 Mar 2006 Dec 2005 31/09/06 Q207-Q107
Type 2Qtr 1Qtr 4Qtr 3Qtr
Net Sales 482.29 318.59 468.99 356.55 1626.42 51.38
Other Income 8.76 10.58 11.07 5.82 36.23 -17.20
Total Income 491.05 329.17 480.06 362.37 1662.65 49.18
Total Expenditure 429.62 284.39 406.01 313.54 1433.56 51.07
Operating Profit 61.43 44.78 74.05 48.83 229.09 37.18
Interest 0.24 0.01 0.37 0.27 0.89 2300.00
Gross Profit 61.19 44.77 73.68 48.56 228.20 36.68
Depreciation 4.99 3.76 5.18 3.44 17.37 32.71
Tax 22.77 13.45 23.85 16.03 76.10 69.29
Deferred Tax -1.65 0.02 2.68 -0.37 0.68 -8350.00
Reported Profit After Tax 35.08 27.54 41.97 29.46 134.05 27.38
Equity Share 11.915 11.915 11.915 11.915 0.00 0.00
EPS 2.94 2.31 3.52 2.47 11.25 27.38
TTM EPS 11.25
CMP 405
Company P/E 36.00 (Face value Rs. 2 / Equity Share)
Industry P/E 32.20
Thermax has reported 27.38% growth in net profit for Q2 September 2006
to Rs 35.08 crore (Rs 27.54 crore).
Total income has risen 49.18% to Rs 491.05 crore (Rs 329.17 crore).
The company has a robust order-book position with an order backlog of Rs
2,973 crore on a consolidated basis as on 30 September 2006. This was
142% higher from that of last year. The company said it continues to get
major orders from iron & steel, cement, sugar and refining sectors.
By adding the last two-quarter of year 05-06 (Q4 05-06, Q3 05-06) and current
year 2 quarters, we can get the data for trailing twelve month (TTM). It shows that
company will desire to achieve these results, which will be at the end of FY 06-07.
Now by adding the result of Q2-07, Q1-07, Q4-06, and Q3-06, we can get
expected sales and EPS figures. Now we can assume that such TTM results can
be increased by 5% to 10% from the current performance of the company. So
from such, target EPS are as follows.
TTM
YEAR 31/03/07(E) 31/03/07(E) 31/3/08(E)
31/09/06
Growth (%) ----- 5 10 25
SALES 1,626.42 1707.74 1789.06 2033.03
Operating Profit 229.09 240.54 252.00 286.36
PAT 134.05 140.75 147.46 167.56
EPS (Rs.) 11.25 11.81 12.38 14.06
Valuation
At the current market price of Rs 405.00, the company is quoting at the price to
earning ratio of 36 to its TTM EPS of 7.10. Looking at the performance of the
quarter ended 31/09/06, we expect the company to end the year FY07 with EPS
of Rs 11.81 to 12.38 Rs. For FY08, revenue is likely to grow at least by 25%,
which converts into EPS of Rs 14.06. The stock has potential to enjoy P/E of 32 to
38, which results into target price as follows:
BRAND TITAN
Retailing:
The year 2005-06 was a year of enhanced focus on Retailing and the premier
retail chain, the World of Titan, grew to 180 stores across 106 cities with its
turnover growing by 25 % in value over 2004-05. The arrival of the mall
phenomenon is transforming the retailing landscape in India. Business
Development within Retailing was given force and dedicated resources were
added.
Customer Service:
The Service network is the largest in the watch industry in India. The current
network of 648 service centres in 316 towns covers 86% of the watch sales
population, providing service access to more than 3 million consumers. During
the year 2005-06, the network has been further strengthened by adding 55 new
service centres to provide better and faster service to the increasing Titan, Sonata
and Fastrack watch population in the market. Over 80 % of the watches received
for servicing are repaired and returned to customers within 30 minutes, which is a
benchmark in the industry.
Sonata:
Sonata within 8 years of its launch has grown to become simply, India’s largest
selling watch brand. The brand operates in the mass-market segment and has a
collection of more than 600 models, ranging from Rs.395 to Rs.1295.
The financial year ended on a high note, with the signing up of ace Indian
cricketer Mahendra Singh Dhoni, who will be Sonata's brand ambassador for the
next 2 years.
The brand during the year also saw the launch of an ambitious pilot called ‘Project
Swades’, addressing the enormous task of converting non-watch owners into
watch users.
Accessories & Licensing:
Besides recording 100% growth in its Sunglasses business under the Fastrack
brand and making its licensed watch brand Tommy Hilfiger, amongst the top three
fashion brands in terms of sales volumes.
The year saw a number of new initiatives to re-launch Fastrack watches including
a new identity and logo, innovative products affordably priced between Rs. 500-
2000 and a much talked about advertising campaign that sharply positioned the
brand as a desirable youth brand.
The coming financial year will also see the launch of Sunglasses under the Titan
brand name. This will be the first time that the Company will extend the Titan
brand into a product category beyond watches.
Precision Engineering
The Precision Engineering Division has progressed with the help of the Tata
Strategic Management Group. The division has also qualified to be one of the few
suppliers in India to have earned the coveted Q1 certification from Ford and has
earned the preferred supplier status from its key.
Watch Manufacturing
The Company’s new watch Assembly Unit II was established at Dehradun,
Uttranchal. The new facility with an assembly capacity of 5 million watches per
annum was specially made during October 2005. The unit is also availing the
benefits of exemption in Excise Duty, as announced under the new industrial
policy for the states of Uttranchal and Himachal Pradesh.
Jewellery
Jewellery is a very high involvement category and perhaps the only one where the
seller is presented the title of `family' jeweler.
Another driver of the category is that it is culture specific, especially with respect
to weddings. Weddings are the key drivers of commerce in this category making
up for approximately 70% sales.
Being a national jeweller, over 6,000 new designs are introduced in a year to cater
to the must-have jewellery, innovations in traditional jewellery and fashionable
diamond jewellery.
Tanishq karigar parks, housing over 300 craftsmen grew to 1400 kgs. Production
this year, growing 40% over last year. These karigars are located in Hosur. For
diamond jewellery, the manufacturing team achieved 80% in-house productivity
and initiated programs for skill and technology enhancement across levels.
The Jewellery Division's turnover grew at 48% over last year making it the biggest
contributor in the Company's portfolio. 14 new stores were added this year and
Tanishq is now present through 83 exclusive stores in 61 cities. The Division has
earned an EBIT of Rs 46.37 crore, a growth of 81% over last year’s EBIT. This
growth was achieved, operating under the constraint of selective Excise Duty.
The Company achieved an export turnover of Rs.88 cores during the year.
Associates Company Sales Profit
Titan International (Middle East) FZE (TIME) US $ 12.67 US $ 0.35
Titan Watches & Jewellery International (Asia Pacific) Pvt. Ltd.(TAPL) SGD 10.15 M SGD 0.05 M
Titan International Marketing Ltd. (TIML) in London Loss GBP 0.36 M
Investment
Investment in brand building and advertising, and these outlays crossed Rs. 101
crore in 2005-06, up from Rs. 77 crore the year before. All the brands of the
Company are doing exceedingly well. February 2006 saw the introduction
Of the high-end Swiss brand XYLYS.
Promoted in 1954 by Tata Sons and Volkart Brothers, a Swiss firm operating in
India since 1851. Voltas is India's premier engineering company of the Rs. 400
billion Tata Group, one of India's largest and best-known conglomerates. Voltas
has established a strong leadership presence as India's premier air-conditioning
company and as a provider of engineering and back-up services. The company's
strengths lie in design and manufacture of industrial equipment, management and
execution of electro-mechanical projects, souring, installation and servicing of
technology based systems and representation of global technology leaders,
serving diverse industrial sectors and application. Its products include Room
Airconditioner and Refrigeration Equipment, Water Coolers, Forklift Trucks,
Cranes, Pumps and Modular Office Furniture Systems. During 2004, the company
made alliance with Al Hashar Group, a leading business house in the Middle East,
for the distribution of Coolling Appliances of Voltas in Oman. During 2005-2006,
the Company set up a new Plant at Pantnagar in Uttaranchal for manufacture of
some of the more profitable commercial refrigeration products.
The Middle East market for Electro-mechanical and plumbing projects continues
to look good. While the construction activity is currently focused in and around
Dubai, there remains substantial scope for construction spending in Abu Dhabi
and Qatar. The company has recently won a Rs. 5.0 bn order for MEP project
from Bahrain. This order would be executed over the next two years.
The domestic market for AC products continues to witness traction fuelled by the
IT and retail segments. The order backlog has also increased substantially to Rs.
6.0 bn and order inflows have grown 56% in FY06. The company also sees
substantial opportunity arising from the airport modernization and construction
sector. It is already executing air-conditioning project for Hyderabad Airport.
In the projects business, past experience with a particular customer can help in
getting new projects. In this regard, the company stands a good chance of winning
the Delhi Airport project as the main project developer in Hyderabad and Delhi is
the same (GMR group).
The company has appointed the Boston consulting Group with the objective of
advising the company on how to scale up its business from the current levels and
business portfolio restructuring.
Shareholding Pattern
Particulars %Share Holding
Total Foreign 28.11
Total Institutions 22.1
Total Govt Holding 0
Total Non Promoter Corporate Holding 3.05
Total Promoters 27.32
Total Public & Others 19.42
Totals 100.00
SUBSIDIARIES AND JOINT VENTURES
The sales performance of the Company's room air conditioner business was as
under:
1. WRAC: Window Room Air Conditioner
2. SAC: Split Air Conditioner
Industry Sales Company Sales Company Share
(No.) % (No.) % %
2004-05 2005-06 Growth 2004-05 2005-06 Growth 2004-05 2005-06
WRAC 757000 885000 16.9 80000 1004400 25.5 10.6 11.3
SAC 238000 390000 63.8 46700 80750 72.9 19.6 20.7
Total 995000 1275000 28.1 126700 181190 43 12.7 14.2
Source: Company estimates
OPPORTUNITIES AND OUTLOOK
A) Electro-Mechanical Projects And Services
a. HVAC demand will also grow as a result of the continued high growth rate in
the service sector. Additionally, HVAC growth will be increased by the
Government's policies in liberalizing FDI in retail, SEZs, steel, power,
modernization and setting up of new airports and regional hubs and other
infrastructure sectors, could help bring the electro-mechanical concept into
India.
b. The West Asian region, especially the Gulf (UAE - Dubai and Abu Dhabi), is
in the midst of experiencing an economic boom and there is major and
extraordinary activity in construction.
c. Many new international airports are coming up in the region, along with
massive plans for upgradation, extension and expansion for the existing
ones.
d. Even the infrastructure for Power and Water is undergoing huge upgradation
and capacity increase.
e. The Company is expecting a share of business arising out of investment in
entertainment and leisure-related projects.
Interest Rates:
Due to inflationary pressures arising from crude oil and metal prices, interest rates
have been consolidating over the last couple of years. In view of the Company’s
good liquidity position, there is unlikely to be a significant direct impact on its
working arising from this. However, there could be some impact caused by
interest rates on the overall performance.
The company’s order book for electromechanical projects was strong at Rs 1,900
crore as on 30 June 2006. Of these, orders worth Rs 600 crore are from domestic
firms whereas the rest are from overseas, mostly from UAE.
By adding the last quarter of year 05-06 (Q4 05-06) and current years’ 3 quarters,
we can get the data for trailing twelve month (TTM). It shows that company will
desire to achieve these results, which will be at the end of FY 06-07. Now by
adding the result of Q3-07, Q2-07, Q1-07, and Q4-06, we can get expected sales
and EPS figures. Now we can assume that such TTM results can be increased by
5% to 10% from the current performance of the company. So from such, target
EPS are as follows.
YEAR TTM 31/12/06 31/03/07(E) 31/03/07(E) 31/3/08(E)
Growth (%) ----- 5 10 25
SALES 2,193.12 2302.78 2412.43 2741.40
Operating Profit 149.76 157.25 164.74 187.20
PAT 89.91 94.41 98.90 112.39
EPS (Rs.) 2.72 2.86 2.99 3.40
Valuation
At the current market price of Rs 103.80, the company is quoting at the price to
earning ratio of 38.17 to its TTM EPS of 2.72. Looking at the performance of the
quarter ended 31/12/06, we expect the company to end the year FY07 with EPS
of Rs 2.86 to 3.00. For FY08, revenue is likely to grow at least by 25%, which
translates into EPS of Rs 3.40. The stock has potential to enjoy P/E of 36 to 40,
which results into target price as follows:
Technical
Break out
Chart pattern is highly consolidated which is seen from the support and
resistance level. As price is on life time high which shows that previous 52
week high price is been breaking out. Now currently stock is moving around
1200 Rs, which shows that there are new buyers available in the market so
seller will negotiate more at that time.
Trend lines indicate that stock is in full speed, which make new records day
wise. Selling pressure is very low here seller will negotiate more because
price is on lifetime high, so price will go up in future.
Market Indicators
Sell
1 Buy
Price Rate of Change (ROC)
By seeing 1st chart person who has taken long position, should hold the
stock because stock is in bullish face. He should have to exit when small
term moving average drops below the long run moving average line. So by
using medium terms cutting stock will definitely give good returns.
In Price ROC, we come to know that in month January 2007, stock deals
with high volatile as comparing with previous days’ price. One can do trade
in intraday for getting more return like t and it is sure that stock will give
high return in long run.
Target Price
Price 1 (Date) Price 2 (Date)
Previous Recorded High 1059.40 (05/04/06)
Previous Recorded Low 527.80 (09/06/06) 725.05 (12/09/06)
So from the previous day’s closing price, we can call for today’s resistance and
support level. R-1 and S-1 is the new level for today’s intraday business.
When securities cross R-1, than R-2 will be new resistance level and R-1 will
become support level for R-2.
And on the other side when securities crosses S-1, than S-2 will be new support
level and S-1 will become resistance level for S-2.
Madras Cement Technical Analysis
So from the previous day’s closing price, we can call for today’s resistance and
support level. R-1 and S-1 is the new level for today’s intraday business.
When securities cross R-1, than R-2 will be new resistance level and R-1 will
become support level for R-2.
And on the other side when securities crosses S-1, than S-2 will be new support
level and S-1 will become resistance level for S-2.
India Cement Technical Analysis
The above chart is totally based on highly consolidated pattern. Under such
pattern stock is moving between its support and resistance line.
Stock has reported a slow speed in their movement as per 1st trend line but
2nd and 3rd trend line suggest that stock is moving so fast since last four,
five months so stock is more volatile in nature.
Since last 5 to 6 months volume is increasing, which is good sign for the
stock future.
Market Indicators
Stock is showing
good because long
run MA line is
below the line of
short term moving
average line. So
hold the stock. N
new buyer enter
after 249.00
So from the previous day’s closing price, we can call for today’s resistance and
support level. R-1 and S-1 is the new level for today’s intraday business.
When securities cross R-1, than R-2 will be new resistance level and R-1 will
become support level for R-2.
And on the other side when securities crosses S-1, than S-2 will be new support
level and S-1 will become resistance level for S-2.
Thermax Technical Analysis
1 2
From the 1st chart, we come know that there is Rounding Bottom pattern,
which signal that each bottom after support level moves in upward
direction. And another reason is that stock has achieved its technical break
out in early days of January 2007. So it indicates that previous buyer at Rs.
400 (52 week high) will definitely come out from the market. So price will go
up in future.
2nd chart shows various trend lines, which measures the speediness of the
stock in the market. 1st trend line seems to be a long term support level,
while 2nd gear/ trend line shows the stock is moving so fast in the market.
Once stock breaks the 2nd support level than second target for support
level is 1st trend line. Reason for bullish signal in stock is that now a days
stock is reporting high volume in intraday business, which is seen from the
December 2006 figure.
Why I am not purchasing stock at Rs. 200. The basic reason behind is
that there is not any support level that stock has previously achieved. So
once there is up movement taking place in the stock, which results into
particular buying opportunity.
Market Indicator
Moving Average Crossover
Hold stock
Sell
3
Buy
Price Oscillator
Seeing 3rd chart, investor should hold there stock because short term
moving average (20 days) line is in upward direction from the long term
moving average (50 days). 20 days moving average shows, stock is in
bullish position. There are various cuttings for moving average crossover.
o Very short term cuttings 2-5 or 2-10 days
o Medium term cuttings 20-50 or 20-100 days
o Long term and more reliable cutting is 50-200 days
Target Price
Price 1 (Date) Price 2 (Date) Price 3 (Date)
Previous Recorded High 405.00 (17/04/06) 417.00
Previous Recorded Low 206.00 (14/06/06) 280.10 (20/09/06) 353.00 (13/12/06)
So from the previous day’s closing price, we can call for today’s resistance and
support level. R-1 and S-1 is the new level for today’s intraday business.
When securities cross R-1, than R-2 will be new resistance level and R-1 will
become support level for R-2.
And on the other side when securities crosses S-1, than S-2 will be new support
level and S-1 will become resistance level for S-2.
Titan Technical Analysis
1 2
2nd trend`
Support
Resistanc
1st trend
From the 1st chart, we come know that there is bullish head & shoulder
pattern. Titan made a first shoulder at around 650 Rs. after than it back to
its neck line but again stock tries to find out new support level beyond the
level of previous shoulder level and as a result one head comes in to
picture. So once head completed than again one shoulder comes in to
picture as the same or nearer price to the previous shoulder support level.
So bullish head & shoulder indicates that the stock will go up in future
because the volume is very low at all that point of head and shoulder
2nd shows various trend lines, which measures the speediness of the stock
in the market. 1st trend line seems to be a long term support level, while 2nd
gear/ trend line shows the stock is moving so fast in the market. Once stock
breaks the 2nd support level than second target for support level is 1st trend
line.
Market Indicators
3 4
Sell Sell
Buy
Buy
Buy
3rd chart shows the moving average of crossover between 20 days and 50
days (cuttings). This 20-50 cutting is for medium term perspective. Red line
indicate 20 days moving average while black line is for 50 days moving
average. Now a days stock is on bullish side because 20 days moving
average line is above the 50 days line.
a) When Red line cuts below the black line and go in upward direction than
price will go up in future which shows there is buying opportunity in the
stock.
b) When Red line cuts above the black line and goes in downward than
price will go down in future which shows selling otherwise big loss can
happen.
The Price Oscillator is a momentum indicator that plots the difference
between two moving averages i.e. 20 days and 50 days. The PPO uses
percentages. The PPO is most effective in wide-swinging trending markets
and tends to lag price movements. Under this stock...
o Crossovers –buy when the PPO crosses up over its signal line and
sell or sell short when it cross down through its signal line. Also look
to buy and sell when the PPO crosses up or down through the zero
line.
o Divergence – The PPO will generally lag the underlying slightly (i.e.
when a stock moves up so will the PPO but slightly delayed), but
when a divergence occurs where the PPO fails to confirm the
underlying issue's movement, the stock price typically reverses. So if
a stock is rallying and the PPO tops out and starts to head down, a
big hint is being given that the stock too will top out soon. On the
other hand, if a stock falls but the PPO flattens out and starts to
move up, a near-term bottom in the stock is likely.
Target Price
Price 1 (Date) Price 2 (Date) Price 3 (Date)
Previous Recorded High 894.95 (06/06/06) 849.00 (17/10/06)
Previous Recorded Low 450.00 (22/05/06) 533.00 (24/07/06) 657.25 (12/12/06)
So from the previous day’s closing price, we can call for today’s resistance and
support level. R-1 and S-1 is the new level for today’s intraday business.
When securities cross R-1, than R-2 will be new resistance level and R-1 will
become support level for R-2.
And on the other side when securities crosses S-1, than S-2 will be new support
level and S-1 will become resistance level for S-2.
Voltas Technical Analysis
By seeing the above chart, we come to know that chart pattern is highly
consolidated. It has already made a support and resistance level. And
since last couple of month stock is moving in this direction. But stock has
achieved its 1st technical break out at that time market show high volume.
Once stock crosses its new resistance level and holds that level for couple
of days than we can say that stock is ready to go in upward direction.
By seeing trend line, stock has already caught its speed.
Large volume suggesting that stock is in demand in market.
Not enter in to stock at
this time because short
Market Indicators term MA may cross the
Moving Average Crossover long Run MA. So
Bearish Market
Price Oscillator
Over here moving average crossover propose that Voltas may fall in
coming future because by using 20-50 days cuttings short term MA line is
very nearer to long term MA line.
As said in above statement, I can say that in 2nd chart the stock is having
more sellers because it is below the zero line. So oversold situation is
existing in the market.
Below some target are given. Investor should come in to market when
stock touch above 118 and holds for couple of days than good opportunity
of buying as well as good return.
Target Price
Price 1 (Date) Price 2 (Date) Price 3 (Date)
Previous Recorded High 118.95 (22/09/06)
Previous Recorded Low 66.00 (24/07/06) 90.00 (20/10/06) 108.01 (08/01/06)
So from the previous day’s closing price, we can call for today’s resistance and
support level. R-1 and S-1 is the new level for today’s intraday business.
When securities cross R-1, than R-2 will be new resistance level and R-1 will
become support level for R-2.
And on the other side when securities crosses S-1, than S-2 will be new support
level and S-1 will become resistance level for S-2.
Chapter – 5
LIMITATIONS OF PROJECT
Insufficient time because of this limit period, I have chosen only six companies
which is giving good return. But in market there are lots of securities which
offering more return as comparing with selected securities. So, that could not be
find out from the overall point of view best investment opportunities in selected
companies from that sector.
Due to insufficient data given in the financial statement, some financial ratio could
not be found out.
Indian stock market is not stable. It keeps on fluctuating so ratio derived today
may not consider as useful tool of valuation tomorrow.
As the study is depending on the information from the different sources, the
reliability of study is depending on the reliability of information.
Lack of technology which could make the common or retail investor aware about
the trend or the chart patterns design by the stocks movements. They have to
always rely over the brokers for getting this information.
Its not concrete source wherein the investor can rely on patterns or charts as the
stock can show the adverse movement or different movement than what is
anticipated in the charts
Chapter – 6
SUGGESTION
Investors can also analysis the shareholding pattern of different companies. The
experts in stock market speak that if foreign institutional investors and mutual
funds hold high percentage in total company’s share holding, company has good
potential for growth. Because FIIs and MFs have good research techniques to
observer the companies’ financial performance and that’s why they are willing to
invest for particular companies in India.
While preparing the portfolio, the investors should consider Midcap companies
also, if they are providing good returns. The portfolio of the investors should be
diversified in such a way that it consist the whole market behavior i.e. it should
have qualities of Largecap, Smallcap as well as Midcap companies.
Chapter – 7
CONCLUSION
The sectors which are selected have a good potential to outperform the market in
long-term to its good fundamentals. And companies, which are selected, have
made technical breakout in December 2006, so such companies will perform
better in recent future.
Kalpataru Power and Titan will prove to be good as per both fundamental and
technical in future. Because such companies are now days more demanded by
and offering good returns to investor. So investments in such companies are
considered to be more worthy.
If selected securities are performing as per target prices, investor should include
those securities in their portfolio.
Chapter – 8
BIBLIOGRAPHY
Book
Securities Analysis and Portfolio Management, sixth edition, Donald E
Fisher, Ronald J. Jordan, Portfolio management 571-572, Risk-Return and
Markowitz formula 575-576, risk return of portfolio formula 582-584, risk return
and Sharpe model 589-592, simple Sharpe portfolio optimization 610-614.
Websites
http://www.indiabulls.com/equities/techanalysis/tech_analysis.asp
http://www.kotaksecurities.com/news/EquityHome.htm
http://www.leavittbrothers.com/education/technical_analysis/
http://www.bseindia.com/about/abindices/bsemidsmcap.asp
http://www.nseindia.com
o Equities – market information – historical data – securities wise price
volume data
Magazine
Capital Market, Jan 15 – 28, 2007, page number 24–25, ratio 29, cement-south
India 34, engineering 42, transmission line towers/equipment 63, miscellaneous
63, diversified mega 65.