Category/ Index

Sectoral

Open
10386.45 13146.96 6685.25 10933.73 5221.86 7346.79 5962.69 10697.11 8718.28 2056.14 7479.54 1808.42 3443.43

High
10449.14 13219.06 6743.77 11032.58 5333.12 7402.05 6004.89 10769.70 8774.95 2065.92 7524.41 1859.77 3457.08

Low
10232.45 12992.88 6644.65 10843.57 5207.74 7339.92 5950.51 10540.62 8656.84 2019.66 7394.13 1782.26 3428.34

Close
10275.31 13104.89 6732.06 10894.69 5314.31 7378.64 5973.85 10563.01 8708.99 2033.49 7425.77 1840.77 3441.49

52 Week High
10829.10 13235.92 6997.02 11615.08 5481.40 7794.11 6361.42 12910.54 9282.81 2416.29 8062.60 2212.31 3739.40

Full Market Capitalisation ( Cr. )

318578.58 671153.73 47968.49 264321.10 470865.92 289437.60 591652.74 577935.25 769323.76 443445.15 1647761.28 82269.80 809721.02

Turnover ( Cr. )
58.36 314.97 36.90 136.45 292.74 57.41 105.27 92.78 174.84 193.09 326.50 106.65 150.38

Low
7894.04 8947.37 5062.96 7806.90 3776.19 5757.37 5059.62 9191.03 7336.16 1725.21 6204.05 1347.79 3062.51

% to Total Mkt Cap

4.90 10.32 .74 4.06 7.24 4.45 9.10 8.88 11.83 6.82 25.33 1.26 12.45

% to Total Turnover
1.70 9.15 1.07 3.96 8.51 1.67 3.06 2.70 5.08 5.61 9.49 3.10 4.37

AUTO BANKEX CD CG FMCG HC IT METAL OIL&GAS POWER PSU REALTY TECk

Shristi Infrastructure Development Corporation Ltd (SIDCL) commenced commercial operations in 1999 with headquartered in Kolkatta. Current Price : Rs. 91.45** The company undertakes Face Value : Rs. 10 per share 52 wk High / Low : Rs. 203.30 / Rs. infrastructure construction, infrastructure 65.30 Total Traded Volumes : 704 shares** development as well as infrastructure consultancy. Market Cap : Rs. 204 crore** In construction space, the company Sector : Construction & builds roads, hotels, buildings and Engineering urban water systems. EPS (FY2012) : Rs. 2.68 per share Under infrastructure development, P/E (TTM) : 25.44 (x)^ Shristi has undertaken projects like P/BV (TTM) : 0.42 (x)^ Financial Year End : 1st April 31st integrated townships, healthcare, hospitality, retail malls, logistics March hub, entertainment & sports facilities, BSE Scrip Name : SHRISTI commercial & residential complex, BSE Scrip Code : 511411 **as on 17th September, 2012; ^ as industrial park & SEZs. It has a joint venture with Housing on June 2012 and Urban Development Corporation Limited (HUDCO), Asansol Durgapur Development Authority, West Bengal etc.

INDUSTRY ANALYSIS
Direction of Change for overall market need not necessarily lead to similar changes in all industry groups

Heavy goods industries( automobiles, rubber, steel, glass etc.) fare worse in economic recession than do consumer goods industries & services (food, telephone, power , banks) Individual companies

Industry Analysis Demands

Key sectors or subdivisions of overall economic activity that influence particular industries Relative strength or weakness of particular industry or other groupings under specific sets of assumptions about economic activity

Industry Performance
Wide dispersion in rates of return in different industries Performance varies from year to year Company performance varies within industries Risks vary widely by industry but are fairly stable over time

 Distinct group of productive or profit making enterprises - Product or Service chemical, airline, restaurant etc. - Sensitiveness to Economic Activity cyclical, defensive, and growth industry. - Cyclical industrys performance tends to be positively related to economic activity automobile, homebuilders, paper companies etc. - Defensive industries are pharmaceuticals industries, electric & gas utilities - Growth industries are characterized by rapid growth in sales and earnings

Classification of Industries

Key Characteristics in Industry Analysis

Past Sales and earnings Performance Permanence Attitude of Government toward the industry Labour Conditions Competitive Conditions Product Differentiation Advantage, Absolute Cost Advantage, Economies of Scale

Standard Industrial Classification (SIC) System

classification based on what they produce. 11 broad divisions; within each division there are several major industry groups. Major groups within each division are further subdivided into smaller groups

Evaluating the Industry Life Cycle

Five Stage Model
Pioneering development Rapidly accelerating industry growth Mature industry growth Stabilization and market maturity Deceleration of growth and decline

Industry Life Cycle

Sales
Significant Expansion in Sales Rate of growth moderate Capital base widened & Rapid growth Tech/Product New strengthened Modertae Great Opportunity growth For profit Products Few may survive become Riskiest standardised & less innovative Market full of competitors Better to dispose shares

Industry turn out to be in loss Cos become obsolete and disappear Some that realize in advance enter into new ventures

Pioneering Stage

Growth Stabilization Decline Stage Stage Stage

Time

CIPLA Ranbaxy laboratories

Cadila Health Care

Dr Reddy Lab.

Lupin

Mereck

Pfizer

Novartis

Tata Tele
Day's High / Low Previous Close / Open Wtd. Avg Price

52 weeks H/L 18.25/10.5 12.00 / 11.67 11.53 / 11.75 11.88

Total Traded Value 31.46 (Lakh) TTQ / 2W Avg Q (Lakh) Circuit Limits 2.65 / 8.34 13.83 / 9.23

(in Cr.) Revenue Net Profit EPS Cash EPS OPM % NPM %

Jun-12 659.48 -162.66 -0.86 -0.09 20.25 -24.66

Mar-12 651.51 -123.40 -0.65 0.10 22.61 -18.94

FY11-12 2,488.44 -517.55 -2.73 0.14 21.98 -20.80

52 Weeks H/L 412/238 267.00 / 264.30 261.45 / 265.50 265.50 2.78 1.05 / 4.69 313.70 / 209.20 1,00,900 / 35,315

Bharti Air Tel

Day's High / Low Previous Close / Open

Mkt. Cap. Full / Fre 2,248 / 562 e Float (Cr.)

(in Cr.) Jun-12 Mar-12 FY11-12Wtd. Avg Price Revenue 10,980.60 10,757.20 41,603.80 Net Profit 1,470.00 1,574.30 5,730.00Total Traded Value (Cr.) EPS 3.87 4.15 15.09TTQ / 2W Avg Q (Lakh) Cash EPS 8.22 8.19 30.67 Circuit Limits OPM % 35.19 34.36 34.30 NPM % 13.39 14.63 13.77Mkt. Cap. Full / Free
Float (Cr.)

Reliance Communications
Day's High / Low

52 Weeks H/L 109.7/46.7

65.30 / 63.60

Previous Close / Open

Wtd. Avg Price Total Traded Value (Cr.) TTQ / 2W Avg Q (Lakh) Circuit Limits Mkt. Cap. Full / Free Float (Cr.)

63.75 / 64.70
64.51 7.49 11.61 / 33.49 76.50 / 51.05 13,261 / (in Cr.)4,641 Revenue Net Profit EPS Cash EPS OPM % NPM %

Jun-12 2,616.00 -252.00 -1.22 1.14 27.18 -9.63

Mar-12 2,645.00 804.00 3.90 6.35 65.22 30.40

FY11-12 11,110.00 156.00 0.76 9.19 28.45 1.40

Stabilization and Decline Stage Occurs due to various reasons such as

Change in Social Habits Government Regulations Improved Technology Labour Cost

The Business Cycle and Industry Sectors

Economic trends can and do affect industry performance By identifying and monitoring key assumptions and variables, we can monitor the economy and gauge the implications of new information on our economic outlook and industry analysis

The Business Cycle and Industry Sectors

Cyclical or Structural Changes
Cyclical changes in the economy arise from the ups and downs of the business cycle Structure changes occur when the economy undergoes a major change in organization or how it functions
Rotation strategy is when one switches from one industry group to another over the course of a business cycle

The Business Cycle and Industry Sectors

Economic Variables and Different Industries
Inflation Interest Rates International Economics Consumer Sentiment

The Stock Market and the Business Cycle

The Stock Market and the Business Cycle

peak

trough

The Stock Market and the Business Cycle

Basic Industries Excel oil , metal, timber Consumer Durables Excel cars , PC, Refrigerator

peak

Consumer Staples Excel Pharma, Food

Financial Stocks Excel

trough

Capital Goods Excel Machine tools, airplane, equipment

Performance of the BANKEX: During the period between 1 Jan 2002 and 13 June 2003, the total market capitalization of BANKEX stocks has increased from 22970 cr. to 55283 cr. while the total market capitalization of BSE TECk index stocks has fallen from 105956 cr. to 80787 cr. and that of FMCG Index stocks from 87637 cr. to 75947 cr. During this period, BANKEX rose by 62 percent showing impressive gains among other major indices. The average daily volatility of BANKEX from its inception to date has been 1.38% as compared to 2.24% for BSE TECk and 1.06% for BSE FMCG Index for the same period.

Quantitative Aspects of Industry Analysis

Competition Product Differentiation; Absolute Cost Advantage; Economies of Scale
Potential Entrants Threat of New Entrants Bargaining Power of Sppliers Industry Competitors Bargaining Power of Buyers

Sellers

Rivalry Among Them Threat of Substitute Products Substitutes

Buyers

Porters 5 Force Model

Structural Economic Changes and Alternative Industries

Social Influences
Demographics Lifestyles

Technology Politics and regulations

Economic reasoning Fairness Regulatory changes affect numerous industries Regulations affect international commerce

Analysis of Industry Competition

Competition and Expected Industry Returns
Porters concept of competitive strategy is described as the search by a firm for a favorable competitive position in an industry To create a profitable competitive strategy, a firm must first examine the basic competitive structure of its industry The potential profitability of a firm is heavily influenced by the profitability of its industry

Competitive Structure of an Industry

Porters Competitive Forces

Rivalry among existing competitors Threat of new entrants Threat of substitute products Bargaining power of buyers Bargaining power of suppliers

Estimating Industry Rates of Return

Present value using required rate of return for the equity in the industry Two-step P/E ratio approach uses expected value at the end of investment horizon and compute the expected dividend return during the period Valuation using the reduced form DDM

D1 Pi kg

Pi = the price of industry i at time t D1 = the expected dividend for industry i in period 1 equal to D0(1+g) k = the required rate of return on the equity for industry i g = the expected long-run growth rate of earnings and dividend for industry i

Estimating the Required Rate of Return

Influenced by the risk-free rate Expected inflation rate Risk premium for the industry versus the market business risk (BR) financial risk (FR) liquidity risk (LR) exchange rate risk (ERR) country political risk (CR)

Estimating the Expected Growth Rate

Earnings and dividend growth are determined by the retention rate and the return on equity Earnings retention rate of industry compared to the overall market Return on equity is a function of the net profit margin total asset turnover a measure of financial leverage

Industry Valuation Using the Free Cash Flow to Equity (FCFE) Model FCFE is defined as follows: Net income + Depreciation - Capital expenditures - D in working capital - Principal debt repayments + New debt issues

Industry Valuation Using the Free Cash Flow to Equity (FCFE) Model The Constant Growth FCFE Model

FCFE1 V kg
The Two-Stage Growth FCFE Model

The Earnings Multiple Technique

Estimating earnings per share start with forecasting sales per share
Industrial life cycle Input-output analysis Industry-aggregate economy relationship

earnings forecasting and analysis of industry competition

competitive strategy competitive environment industry operating profit margin industry earnings estimate industry earnings multiplier

Industry Profit Margin Forecast

Industrys operating profit margin (EBITDA / Sales) Depreciation expense interest expense tax rate

Quantitative Aspects of Industry Analysis

Historical Performance Government Regulations Labour Conditions Performance External Shocks Financial Issues Industry Share Price Valuation

Quantitative Aspects of Industry Analysis

End use Analysis - Technique used to identify sources of demand for an industrys products or services and how demand is going to change for each user Ratio Analysis It divides dates by aggregate economic data over a period of time and examines the result for trends Regression and correlation Analysis determines relationship between two or more variables whereas correlation analysis determines the degree to which two variables are related to one another

Industry Profit Margin Forecast

Depreciation expense
Generally increasing time series Specific estimate technique using the depreciation expense/PE ratio Subtract depreciation from operating profit margin to determine industrys net before interest and taxes

Industry Profit Margin Forecast

Interest expense is a function of financial leverage and interest rates 1. Calculate the annual total asset turnover (TATO) 2. Use your current sales estimate and an estimate of TATO to estimate total assets next year 3. Calculate the annual long-term (interest bearing) debt as a percent of total assets, 4. Estimate long-term debt for the next year

Industry Profit Margin Forecast

Interest expense (cont.) 5. Calculate the annual interest cost as a percent of long-term debt and analyze the trend 6. Estimate next years interest cost of debt for this industry based upon your prior estimate of market yields 7. Estimate interest expense based on the following estimates: (Interest Cost of Debt) (Outstanding Long-Term Debt)

Industry Profit Margin Forecast

Tax rate Regression analysis Time series plot After estimating the tax rate, multiply the EBT per share value by (1 - tax rate) to estimate earnings per share Derive an estimate of industrys net profit margin as a check on your EPS estimate

Estimating an Industry Earnings Multiplier

Macroanalysis relationship between multiplier for the industry and the market variables that influence the multiplier:
required rate of return (k)
function of the nominal risk-free rate plus a risk premium

expected growth rate of earnings and dividend dividend payout ratio

Estimating an Industry Earnings Multiplier

Microanalysis Estimate the variables that influence the industry earnings multiplier and compare them to the comparable values for the market P/E Industry multiplier versus the market multiplier Comparing dividend-payout ratios Estimating the required rate of return (k) Estimating the expected growth rate (g) g = Retention Rate (b) X Return on Equity (ROE) = (b) X (ROE)

Simple Linear Regression

Linear regression analysis establishes a relationship between a dependent variable and one or more independent variables. In simple linear regression analysis there is only one independent variable. If the data is a time series, the independent variable is the time period. The dependent variable is whatever we wish to forecast.

Simple Linear Regression

Regression Equation This model is of the form: Y = a + bX
Y = dependent variable X = independent variable a = y-axis intercept b = slope of regression line

Simple Linear Regression

Constants a and b The constants a and b are computed using the following equations:
a= x 2 y- x xy n x 2 -( x)2

b=

n xy- x y n x2 -( x)2

Simple Linear Regression

Once the a and b values are computed, a future value of X can be entered into the regression equation and a corresponding value of Y (the forecast) can be calculated.

Example: Share Price ABC Ltd.

Simple Linear Regression Price of the share has grown steadily
over the past six years, as evidenced below. Use time series regression to forecast the price for the next three years. Price (1000s) Price (1000s)

Year 1 2 3

2.5 2.8 2.9

Year

4 5 6

3.2 3.3 3.4

Example: ABC Price

Simple Linear Regression x 1 2 3 4 5 6 Sx=21 Sy=18.1 y x2 xy 2.5 1 2.5 2.8 4 5.6 2.9 9 8.7 3.2 16 12.8 3.3 25 16.5 3.4 36 20.4 Sx2=91 Sxy=66.5

 Simple Linear Regression

91(18.1) 21(66.5) a 2.387 2 6(91) (21)

6(66.5) 21(18.1) b 0.180 105

Y = 2.387 + 0.180X

 Simple Linear Regression

Y7 = 2.387 + 0.180(7) = 3.65 or 3,650 students Y8 = 2.387 + 0.180(8) = 3.83 or 3,830 students Y9 = 2.387 + 0.180(9) = 4.01 or 4,010 students

Note: Enrollment is expected to increase by 180 students per year.

Simple Linear Regression

Simple linear regression can also be used when the independent variable X represents a variable other than time. In this case, linear regression is representative of a class of forecasting models called causal forecasting models.

Coefficient of Correlation (r)

The coefficient of correlation, r, explains the relative importance of the relationship between x and y. The sign of r shows the direction of the relationship. The absolute value of r shows the strength of the relationship. The sign of r is always the same as the sign of b. r can take on any value between 1 and +1.

Coefficient of Correlation (r)

Meanings of several values of r:
-1 a perfect negative relationship (as x goes up, y goes down by one unit, and vice versa) +1 a perfect positive relationship (as x goes up, y goes up by one unit, and vice versa) 0 no relationship exists between x and y +0.3 a weak positive relationship -0.8 a strong negative relationship

Coefficient of Correlation (r)

r is computed by:

n x ( x ) n y ( y )
2 2 2 2

n xy x y

Coefficient of Determination (r2)

The coefficient of determination, r2, is the square of the coefficient of correlation. The modification of r to r2 allows us to shift from subjective measures of relationship to a more )specific (Y y 2 2 r measure. ( y y )2 r2 is determined by the ratio of explained variation to total variation: