Smriti Dabas

 Fundamental Factors  Technical Factors In this PPT, however, we will only discuss the former.

Technical Analysis (TA)Fundamental Analysis (FA) Looks at a share as a commodity. Studies only about historical share prices and their trend. Feels history repeats itself Gives lot of importance to sentiment and very little to Value Looks at share as unique by itself Analyses future outlook and Growth Looks for re-rating of stocks Attempts to get the intrinsic value of a stock and get undervaluation

 EIC Approach (Economy Industry Company)  Macroeconomics Analysis  Industry Analysis  Company Analysis  Fundamental Valuation

The EIC approach is a top down approach. For instance, if the economies of the world are not doing well, the investor is not in a hurry to make stock investments. If the Indian economy is not, investor should not jump in. If industry is not doing well, then investor is going to avoid that industry. If the industry may be doing well but if the company is not doing well, investor is going to avoid it.

a) Global Economy b) Domestic Economy Policy c) Economy Growth in the country

 Global Growth Rate- Real and Nominal GDPs  Coupling of economies  Risk appetite among investors- Dollar and Volatility indices  Flow of liquidity in markets

 Fiscal Policy of Government  Union Budget, Fiscal Deficit and Deficit Financing, Government borrowing  Monetary Policy of Reserve Bank of India  Interest rates, Inflation and Prices, Liquidity management  Regulatory changes  Foreign investment, Structural reforms

 Within the GDP it is also the sectoral growth that should be examined. If agriculture is doing well then rural demand goes up and shares of two wheelers and FMCG companies are benefited. The logic is simple. The farmers have more money in their pockets and they will spend it on these things. On the other hand if manufacturing sector growth is high due to low interest rates or infrastructure spending then Capital Goods, Engineering, and Construction shares go up.

 Cash Reserve Ratio (CRR)  Repo Rate  Bank Rate

 Impact of Interest Rates  Balance of Payment  Exchange Reserves & Exchange Rates  Business confidence & sentiment

 Export Markets  Import Competitiveness  Technology changes  Regulations and impact on functioning

 Management quality  Products  Market share  Competitive Position  Technology obsolescence

 PE Ratio (The Multiple) = Market Price per Share/ Earnings Per Share  EV/EBITDA Ratio= (Market Price x No of equity shares) + Term debt (called Enterprise value (EV) / Earnings before interest, taxes, depreciation, and amortization (EBITDA)  Marker Cap/Sales Ratio: (Market Price x No of equity shares)/Sales Turnover  PEG Ratio = PE/ (Expected Growth in Earnings Per share).

 Dividend Payout Ratio (also called Payout Ratio) = Dividend Per share (DPS)/Earnings Per Share (EPS).  Retention Ratio = 1-Dividend Payout Ratio (Proportion of earnings retained for investments)

Earnings per Share (EPS) (In Dollars) Owner of an Ordinary Share has a claim on earnings. EPS is his return on his investment (Stock Price).

 The next slide shall show you certain figures taken from the Balance Sheet of a company for the year ‘9-’10 & ‘10-’12.  In the quarter ended 30th June 2010, the company’s Total Income for the quarter was Rs crs which was 53% higher on y-o-y basis. Its Net Profit was Rs crs an increase of 76% y-o-y.  It expected that for the year as a whole the Total income would be Rs 2680 crs and the Net Profit Rs 1136 crs.  PRESENTLY, the share is close to life time high and trading at 716 on the NSE.  Its 52-wk Hi/Lo is 720/346.  the forward P/E of Sensex  The EV/EBIDTA  Sensex P/E in ‘9-’  Sensex EV/EBIDTA in ‘9-’

The Price/Book Value ratio is 3.11 up almost 100% compared to previous year. This is a bit worrying since this means that market price is going up much faster than the Book Value. The ROE for was 28.95% which in absolute terms is very good. The Price Earnings multiple at the current price of 716 is 18.5 (calculated by MP/EPS)based on FY EPS of ( note that P/E was just on 31st March ‘10 & has gone up, due to share going up!) Company is quoting only slightly less than the Sensex Trailing Twelve Months P/E of 20.5.

 Company has projected a Net profit of Rs 1136 Crs which gives an EPS of Rs 50.3 on an equity base of Rs crs. Considering the first quarter performance, this projection is reasonable and may be surpassed.  At the Current Market Price (CMP) of 716, there is a Forward P/E of 14.2 compared to the Sensex Forward P/E of This way it is clearly undervalued. The EV/EBIDTA is 7.21 (Visible in previous slide) which less than the Sensex EV/EBDITA. As far as dividend record is concerned, the Company has declared an enhanced dividend of 60% as compared to 50% in but still the Pay Out ratio has dropped considerably to 10.7 from

 Looking at the PEG ratio, the P/E now on TTM is The EPS Growth percentage for will be (50.3/38.72) x 100 = 29.9%. The PEG is 18.5/29.9 = Anything less than 1 is considered under valuation. So over all on valuation parameters, it is undervalued and worth buying.  In summary, it is a good buy at 716.  If interest rates keep going up faster than anticipated, relook at the company’s profitability and make sure the projected EPS is not affected.  If the growth in the commercial vehicle sector slows down, see if the disbursements targets are threatened and what is the impact. Also see if these lead to increase in Bad loans.  Keep a watch if commercial Banks enter the market.  Sometimes regulators increase capital adequacy norms for finance companies. These will dilute EPS. Keep a watch.