IBS Bangalore

Academic Year – 2022-24

FINANCIAL MANAGEMENT 1
Semester 1
Course Faculty: Dr. G.V Kesava Rao

Company 1

Company 2

Learning Outcomes from the Project Task: Analyzing and comparing the
performance of 2 stocks and determining the risk and return associated with them over 5
years.

SUBMITTED BY:

Name: Enrollment No: Section:

Ankita M. Sharma 22BSOCBL0561 D
Priyasha 22BSOCBL0197 D

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 INTRODUCTION

Name of the company Industry Index

Edelweiss Group Financial
Nifty
Services
50

Deccan Cements
Cement Nifty
Limited
Manufacturing 50

Edelweiss Group:

The Mumbai, India-based Edelweiss Group is a provider of investments and financial

services. Rashesh Shah and Venkat Ramaswamy jointly founded in 1995.

Through subsidiaries, the firm offers a range of financial services, including brokerage,
life and general insurance, private equity, and other investment-related services.

Edelweiss Group has a network of authorized individuals and sub-brokers all throughout
India.

Edelweiss Group is registered with the Bombay Stock Exchange, the MCX Stock
Exchange, and the National Stock Exchange of India.

The company initially concentrated on advisory services and worked on private equity
syndication, mergers, and acquisitions (M&A).

The corporation has a 50million rupee capital mark in 2000. In 2017, it purchased
Rooshnil Securities.

Edelweiss Financial Services Ltd is in the Finance sector, having a market capitalization of
Rs. 5,203.23 crores.

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 Deccan Cements Limited:

Incorporated in July 1979 Deccan Cements manufactures cement by a technocrat

entrepreneur Mr. M B Raju, who is also its current Executive Chairman.

DCL has a very strong network of more than 1000 cement dealers and consignment agents
spread throughout the length and breadth of Andhra Pradesh and Telangana and also, in the
other southern states of Tamil Nādu, Karnataka and Kerala as well as the neighboring states
namely Maharashtra, Madhya Pradesh, Chattisgarh and Odisha. 

Deccan Cements Standalone June 2022 Net Sales at Rs 194.02 crore, down 13.48%.

Net Sales at Rs 194.02 crore in June 2022 down 13.48% from Rs. 224.24 crore in June 2021.

Quarterly Net Profit at Rs. 20.68 crore in June 2022 down 43.86% from Rs. 36.83 crore in

June 2021.

EBITDA stands at Rs. 37.54 crore in June 2022 down 35.31% from Rs. 58.03 crore in

June 2021.

Deccan Cements EPS has decreased to Rs. 14.76 in June 2022 from Rs. 26.30 in June 2021.

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 RISK & RETURN ANALYSIS

The data has been taken for both the companies from BSE India for five years
i.e. 2017, 2018, 2019, 2020, and 2021. The adjusted closing prices for both stocks
have been taken to calculate the average daily returns. The risk and recovery have
been calculated for Edelweiss Ltd. and DCL Ltd.., and BSE 50 for the 5 years
mentioned above. The tables below show the same:

  Company 1 (EDELWEISS FINANCIAL SERVICES LTD)

Annual Annualized
Annual Annualized Daily Annual Standard Standard
Year
Return Return Variance Deviation Deviation
(Risk) (Risk)
2017-18 0.20% 64.2% 0.000683216 0.026138401 0.409964801
0.536377289
2018-19 -0.02% -4.0% 0.001169515 0.034198167

2019-20 -0.56% -74.7% 0.001991296 0.044623935 0.699899072

2020-21 0.26% 88.7% 0.001157501 0.034022070 0.533615312
2021-22 0.01% 2.7% 0.000842432 0.029024679 0.455234296

EDELWEISS
1
0.8
0.6
0.4
0.2
0
-0.2 1 2 3 4 5
-0.4
-0.6
-0.8
-1

Series1 Series2 Series3 Series4 Series5

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 Company 2 (Deccan Cements Limited)
Financial Year Annual Annualized Annual Annual S.D Annualized
Return Return Variance Risk S.D Risk
2017-2018 -0.31% -0.534863829 0.001305082 0.036125922 0.571200983
2018-2019 -0.04% -0.089617757 5.04E-04 0.02245425 0.350746596
2019-2020 -0.03% -0.08281524 1.08E-03 0.032911001 0.519326843
2020-2021 0.42% 1.841802248 6.87E-04 2.62E-02 0.413574178
2021-2022 -0.21% -0.162837533 0.000413922 0.020345068 0.186465625

DCL
200.00%
150.00%
100.00%
50.00%
0.00%
1 2 3 4 5
-50.00%
-100.00%

Series1 Series2 Series3 Series4 Series5

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   BSE INDEX RETURN
Annualized
Average
Average Daily Annualized Daily Annual Standard
Year Standard
Return Return Variance Deviation
Deviation
(Risk)
2017-18 0.08% 0.21543954 3.97468E-05 0.00630451 0.099608305
2018-19 -0.01% -0.034187893 7.98029E-05 0.008933245 0.13954175
2019-20 0.09% 0.242072332 2.40E-04 0.015478417 0.244245303
2020-21 0.11% 0.311387788 9.72E-05 9.86E-03 0.1555882
2021-22 0.03% 0.021903263 0.000168783 0.012991644 0.119070385

BSE INDEX
35.00%
30.00%
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
1 2 3 4 5
-5.00%
-10.00%

Series1 Series2 Series3 Series4 Series5

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 CORRELATION

The correlation between both companies indicates the movement of the stocks in
relation to each other and is frequently used to determine optimum portfolio
allocation to reduce risks. Correlation is used in advanced portfolio management,
computed as the correlation coefficient, which has a value between -1.0 and +1.0.

CORRELATION
Edelweiss&
Year Edelweiss & BSE DCL & BSE
DCL
2017-18 -0.0963 0.179 0.0336
2018-19 -0.0395 0.449 0.0934
2019-20 -0.18323 0.407 -0.0381
2020-21 0.0239 0.296 0.0104
2021-22 0.0578 0.350 0.0285

INTERPRETATION

 It can be interpreted that there is a moderate correlation between Edelweiss

financial services Limited & DCL Ltd. which indicates a moderate
relationship between the stocks of the two companies.

 The correlation between Edelweiss financial services Ltd. and Market Index
has witnessed a weak correlation.

 The correlation between DCL Ltd. and Market Index over the years has
witnessed a weak correlation

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 CORRELATION
0.5

0.4

0.3

0.2

0.1

0
1 2 3 4 5
-0.1

-0.2

-0.3

Series1 Series2 Series3

CAPITAL ASSET PRICING MODEL (CAPM)

The Capital Asset Pricing Model (CAPM) is a model that describes the
relationship between the expected return and risk of investing in a company's
stock. It is based on the idea of systematic risk (also known as non-diversifiable
risk) that investors need to be compensated for in the form of a risk premium. A
risk premium is a rate of return more significant than the risk-free rate.

CAPM evaluates whether a stock is fairly valued when its risk and the time value
of money are compared to its expected return. It is widely used for pricing risky
securities and generating expected returns for assets, given the risk of those assets
and the cost of capital.

Beta Of Stocks
Year Edelweiss DCL
2017-18 0.6788 0.1930
2018-19 1.9539 0.2350
2019-20 1.0226 -0.0811
2020-21 0.6837 0.0277
2021-22 1.0117 0.0447

Beta (β) measures a stock's volatility about the overall market.

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INTERPRETATION

 From F.Y. 2017 to F.Y. 2022, Edelweiss Ltd. has higher beta values than DCL
Ltd, indicating that Edelweiss Ltd. is more volatile in the market.

 In all the years, Edelweiss Ltd & DCL ltd. had a defensive stock with beta
values less than 1, preferably in a bear market.

BETA OF THE COMPANY

2.5

1.5

0.5

0
1 2 3 4 5

Series1 Series2

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 Expected Return using CAMP Calculation
Year Edelweiss DCL
2017-18 14% - 0.63%
2018-19 -40% 47.29%
2019-20 73% 31.84%
2020-21 18% 1.497%
2021-22 0% 0%

INTERPRETATION

 There are negative returns in both the companies for the last consecutive 5 years,
which indicates that the investor should further invest in the stock of both the
companies.

CAPM MODEL
120.00000%

100.00000%

80.00000%

60.00000%

40.00000%

20.00000%

0.00000%
1 2 3 4 5
-20.00000%

Series1 Series2

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 CONCLUSION

Different statistical measures, i.e., risk-return, correlation, minimum variance

portfolio, beta, and expected returns for the companies Edelweiss Financial
Services Ltd and DCL Ltd and BSE have been calculated considering 5 years of
data starting from 2017 to 2022.

Interpretations have been made to analyze different relationships between the two
companies as well as between the company and the index.

The above analysis of return-risk,correlation, beta, and expected return was

calculated for 5 years and the results were analyzed accordingly.

It can be interpreted and concluded that if the investor decides to invest in a

portfolio, he must invest in the Portfolio of Edelweiss Ltd. since it has incurred
higher returns as compared to the other two portfolios and comparatively lower
risk. The Portfolio has incurred losses so the investor should sell it out.

The investor can see which stock to invest in and which to divest, and where to
diversify to minimize risk using the CAPM model. He can make a choice based on
the premium offered whether he should go for investing in a risky market or risk-
free investment options giving him fixed risk-free returns.

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