LOVELY PROFESSIONALUNIVERSITY

ASSIGNMENT-1

SECURITY ANALYSIS AND PORTFOLIO

MANAGEMENT

TOPIC:

FUNDAMENTAL ANALYSIS
Submitted to: Submitted by:

Mr. Amarjit Saini Name : Abhinav Singh

Roll No. : B38

Reg. No.: 10900963

Section: RS1902
 Fundamental Analysis

Fundamental analysis involves examining the economic, financial and other qualitative and
quantitative factors related to a security in order to determine its intrinsic value. Fundamental
analysis is the study of economic, industry and company’s stock.
 At the company level, fundamental analysis may involve examination of financial data,
management, business concept and competition.
 At industry level, there might be an examination of supply and demand forces for the
product offered.
 For the national economy, fundamental analysis might focus on economic data to assess
the present and future growth of the economy.
Steps to fundamental analysis:
The most common way that fundamental analysis can be done is “three steps process”:
Economic analysis:- the first step to this type of analysis includes looking at macroeconomic
situation. This includes GDP, growth rates, inflation, interest rates, exchange rates, productivity
and energy prices.
Industry analysis:- This includes total sales, price levels, competition and their effects, foreign
competition as well as any entrances or exits from the industry.
Company analysis:- This includes at unit sales, prices, new products, earnings and chance of debt
or equity occurring.

GDP (Gross Domestic Product)

After almost 7% growth in 2008/09 fiscal year, in the first three months of 2010 India's economy
expanded 8.6% boosted by industrial production and services. But, is the third largest economy
in Asia able to keep its high rate of growth?

Years 2004 2005 2006 2007 2008 2009 2010

Growth 8.30
Rate % 6.20% 8.40% 9.20% 9.00% 7.40% 8.60%
 10.00%
9.20% 9.00%
9.00% 8.40% 8.60%
8.30%
8.00% 7.40%
7.00%
6.20%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
2004 2005 2006 2007 2008 2009 2010

8.30% 6.20% 8.40% 9.20% 9% 7.40% 8.60%

Inflation Rate
JA FE Ma AP Ma Ju JU
Year N B r R y n L Aug Sep Oct Nov Dec
16.2 14.8 14.8 13.3 13.7
2010 2 6 6 3 3              
10.4 9.2 11.8 11.6 11.6 11.4 13.5 14.9
2009 5 9.63 8.03 8.7 8.63 9 9 4 4 9 1 7
7.6 10.4 10.4
2008 5.51 5.47 7.87 7.81 7.75 9 8.33 9.77 9.77 5 5 9.7
5.6
2007 6.72 7.56 6.72 6.67 6.61 9 6.45 6.4 6.4 5.51 5.51 5.51
18
16
14
12
10
8
6
4
2
0
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

Foreign direct investment Inflow and Outflow (US dollar) in India

India attracted FDI equity inflows of US$ 2,214 million in April 2010. The cumulative amount
of FDI equity inflows from August 1991 to April 2010 stood at US$ 134,642 million, according
to the data released by the Department of Industrial Policy and Promotion (DIPP).
The services sector comprising financial and non-financial services attracted 21 per cent of the
total FDI equity inflow into India, with FDI worth US$ 4.4 billion during April-March 2009-10,
while construction activities including roadways and highways attracted second largest amount
of FDI worth US$ 2.9 billion during the same period. Housing and real estate was the third
highest sector attracting FDI worth US$ 2.8 billion followed by telecommunications, which
garnered US$ 2.5 billion during the financial year 2009-10. The automobile industry received
FDI worth US$ 1.2 billion while power attracted FDI worth US$ 1.4 billion. during April-March
2009-10, according to data released by DIPP.

In April 2010, the telecommunication sector attracted the highest amount of FDI worth US$ 430
million, followed by services sector at US$ 355 million and computer hardware and software at
US$ 172 million, according to data released by DIPP. During the financial year 2009-10,
Mauritius has led investors into India with US$ 10.4 billion worth of FDI comprising 43 per cent
of the total FDI equity inflows into the country. The FDI equity inflows in Mauritius is followed
by Singapore at US$ 2.4 billion and the US with US$ 2 billion.

The Foreign direct investment; net outflows (% of GDP) in India was reported at 1.58 in 2008,
according to the World Bank. Foreign direct investment are the net inflows of investment to
acquire a lasting management interest (10 percent or more of voting stock) in an enterprise
operating in an economy other than that of the investor. It is the sum of equity capital,
reinvestment of earnings, other long-term capital, and short-term capital as shown in the balance
of payments.

India Balance of Trade

Balance of trade deficit recorded to 10554 millions in June of 2010.India is leading exporter of
gems and jewelry, textiles, engineering goods, chemicals, leather manufactures and services.
India is poor in oil resources and is currently heavily dependent on coal and foreign oil imports
for its energy needs. Other imported products are: machinery, gems, fertilizers and chemicals.
Main trading partners are European Union, The United States, China and UAE.

India Balance of payment

INDIA's cumulative value of exports for the first 11 months of fiscal 2009-10 (April-2009 to
February-2010) stood at  US $ 152983 million (Rs 727345 crore) as against US $ 172379
million (Rs. 774585 crore) registering a negative growth of 11.3 per cent in Dollar terms and
6.1 per cent in Rupee terms over the same period last year. Country's cumulative value of
imports for the period April, 2009- February, 2010 was US $ 248401 million (Rs. 1180124
crore) as against US $ 287099 million (Rs. 1289412 crore) registering a negative growth of
13.5 per cent in Dollar terms and 8.5 per cent in Rupee terms over the same period last year.   

Oil imports during this 11-month period were valued at US$ 73230 million which was 18.2
per cent lower than the oil imports of US $ 89492 million in the corresponding period last
year. Non-oil imports during April, 2009- February, 2010 were valued at US$ 175171 million
which was 11.4 per cent lower than the level of such imports valued at US$ 197607 million in
 April 2008- February, 2009.                           
      

 
EXPORTS & IMPORTS (April-February, FY 2009-10)
 
  In $ Million In Rs Crore
Exports including re-exports
2008-09 172379 774585
2009-10 152983 727345
Growth 2009-10/2008-2009 (percent) -11.3 -6.1
Imports
2008-09 287099 1289412
2009-10 248401 1180124
Growth 2009-10/2008-2009 (percent) -13.5 -8.5
Trade Balance
2008-09 -114721 -514827
2009-10 -95418 -452779

The trade deficit for April 2009- February, 2010 was estimated at US $ 95418 million which was
lower than the deficit of US $ 114721 million during April 2008 -February, 2009.

FII in India
India, the second fastest growing economy after China, has recently seen positive foreign institutional
investor (FII) inflows driven by the sound fundamentals and growth opportunities.

According to analysts, the upward revision of economic growth from 5.8 per cent to 6.1 per cent,
better-than-expected performance of companies in the quarter ended-June 30, the proposed new
direct taxes code that might lead to savings in the tax payer’s money, and the trade policy with
an ambitious target of US$ 200 billion exports for 2010-11 have all revived the confidence of
FIIs investing in India. FIIs have made net investments of US$ 10 billion in the first six months
(April to September) of 2009-10. A major portion of these investments have come through the
primary market, than through buying via secondary markets. FII inflows into Indian equities
have been steady ever since the markets were opened up to FIIs in 1993. With the exception of
1999 and 2009, net flows have been positive. FIIs own a dominant 16% of Indian equities (worth
US$147bn) and account for 10-15% of the equity volumes.

Monetary Policy: Monetary policy is referred to as either being an expansionary policy, or a

contractionary policy, where an expansionary policy increases the total supply of money in the
economy rapidly, and a contractionary policy decreases the total money supply or increases it
only slowly. Expansionary policy is traditionally used to combat unemployment in a recession by
lowering interest rates, while contractionary policy involves raising interest rates to combat
inflation. Monetary policy is contrasted with fiscal policy, which refers to government
borrowing, spending and taxation.
Government Policies:

 In the recent Budget Government has increased the Central excise duty by Rs.
1/liter on Petrol & Diesel.

 Basic Duty increased by 5% on Crude Petroleum.

 7.5% basic Duty increased on Diesel.

 10% basic duty increased on other refines products stored.

 Government also increased MAT (Minimum Alternate Tax) up to 18% which was
15% in the last year.

India Stock Market Index

India's main stock market index, the SENSEX, rallied 2649 points or 17.07 percent during the
last 12 months. From 1979 until 2010 the SENSEX market value averaged 4404.72 points
reaching an historical high of 20873.33 points in January of 2008 and a record low of 113.28
points in December of 1979. This page includes: India Stock Market Index chart, historical data
and news.

Industry Analysis

Porter’s five force model

Threat of new entrants- There is low fear of new entrants in Iron and steel industry because the
industry requires huge investment to start business and also no one can leave industry
immediately due to huge investment and technology. It means entry and exit barriers both are
high so threat of new entrant is low for steel industry.

Threat of intense segment rivalry -: In Iron and steel industry a number of strong players are
available like HCL - Hindustan Copper Ltd., BALCO, HZL Ltd., NCDC, SAIL, and etc. for strong
competition. It makes the segment more competitive and crates the price war among all players
& more expensive which reduces the profit.
Threat of substitute-: In Iron and steel industry a number of substitutes are available to buyer so
they can easily go to any other. It places the limit a limit on price and on profit.
Threat of supplier’s bargaining power-: In Iron and steel industry bargaining power of
supplier is more because they can raise the price according to the change in environment. Price
also depend upon the factors like various tax, export duties etc or they can reduce the quantity
supplied. So this segment is unattractive because of high supplier’s bargaining power.
Threat of buyer’s bargaining power-: As we know that there are many options are available in
Indian market for purchasing the steel in different qualities, the threat of buyer’s bargaining power is
more. China is the largest importer of steel; if china found the cheap opportunity then it can easily turn on
to other.

Life Cycle of Iron and steel Industry

The table below indicates the trend in growth of production of some important minerals in our
country.

Production in Million Tonnes

Year Coal Copper Ore Lead & Iron Ore Limestone Bauxite
Zinc Ore
1951 34.98 0.37 0.01 3.71 2.96 0.06
1961 55.71 0.42 0.15 12.26 15.73 0.48
1971 75.64 0.68 0.30 32.97 25.26 1.45
1981 127.32 2.01 0.96 42.78 32.56 1.75
1991 237.76 5.05 1.82 60.03 75.02 3.86
1993 260.60 5.15 2.10 63.26 87.72 4.81
1994 267.52 4.78 1.90 64.91 86.77 4.70
1995 284.59 4.77 2.10 73.00 93.64 5.09
1996 304.10 4.75 2.06 71.59 120.87 5.35
1997 316.68 4.26 2.01 78.36 123.56 5.17
1998 319.90 4.38 2.23 77.34 116.61 5.91
1999* 313.55 3.28 3.08 73.05 108.29 5.24

Minerals & Economy

The gross value of mineral production in India in 1995 is estimated to be approximate

Rs.2, 70,000 million up from about Rs.1,800 million in 1961, i.e. by nearly 150 times. Mineral
wealth and its exploitation have substantially contributed to the growth of national economy. The
contribution of mineral production to the Gross National Product went up from 1.02% in 1960-
61 to 1.54% in 1980-81. Minerals continued to play a vital role in India’s overseas trade too.

Role of Iron and Steel Industry in India GDP-Facts

 The Iron and Steel Industry in India is one of the fastest growing sectors
 The demand drivers for the Indian Iron and Steel industry are increase in the activities
of the automobiles industry, real estates industry, transportation system, aircraft
industry, ship building industry, etc.
 India ranks 5th in the world in terms of production of steel
 The amount of crude steel produced in 2006-07 was 50.71 million tonnes
 The amount of finished steel produced in 2006-07 was 51.9 million tonnes
 The production of finished steel was increased by 16.52%
  The production of finished carbon steel was 24.8 million tonnes in the year 2006-07
 It is expected that India would become the second biggest producer of steel within the
year 2016 and the production per year would be 137 million tonnes
 The exports pertaining to the steel industry was 6.26 % during the period 2006-07

Role of Iron and Steel Industry in India GDP-Growth in Future

 The Arcelor Mittal, which is the largest steelmaker in the world, has plans of
establishing two Greenfield steel projects with capacity of 12 million tonnes annually,
in India
 Acerinox SA, one of the important stainless steel manufacturers in collaboration with
Nisshin Steel, Japan is setting up a steel plant in India
 The Tata Steel ranks 5th in the world steel production and the company have plans of
expanding its capacity by the year 2015
 SAIL, India's biggest producer of steel has plans of increasing the production to 24.98
million tonnes annually
 Sinosteel Corp, China are planning to invest US$ 4 billion to set up a 5 million tonnes
capacity Greenfield steel plant
 The acquisition of the Corus, the Anglo-Dutch steel manufacturer by the Tata Steel
 The Algoma Steel, Canada was acquired by Essar Global for US$ 1.63 billion

Company Analysis

NMDC Ltd
Industry :Mining / Minerals

 Incorporation Year   1958

 Chairman   Rana Som
 Managing Director   
 Company Secretary   Kumar Raghavan
 Auditor   Ramamoorthy N & Co / Sreeramamoorthy & Co
  Khanji Bhavan 10-3-311/A,
 Registered Office   Castle Hills Masab Tank,
  Hyderabad,  500173,  Andhra Pradesh
 Telephone   91-040-23538713-20
 Fax   91-040-23538711
 E-mail   hois@nmdc.co.in
 Website   http://www.nmdc.co.in
 Face Value (Rs)  1
 BSE Code   526371
 BSE Group  A
Listing   Bangalore,Chennai,Delhi,Kolkata,Mumbai,NSE
  
AGM Month   Aug

Share price- 249.25, on 3rd Sep, 2010

Previous close- 248.8

MKT capital- 98820.15 cr.

Financial Position
Particulars Value Date

PE ratio 28.67 03/09/10

EPS (Rs) 8.69 Mar, 10

Sales (Rs crore) 2,517.99 Jun, 10

Face Value (Rs) 1  

Net profit margin (%) 48.56 Mar, 10

Last dividend (%) 100 24/05/10

Return on average equity 24.19 Mar, 10

P/E P/BV
Market Cap EV/EBIDTA ROE ROCE D/E
Company (TTM) (TTM)
(Rs. in Cr.) (x) (%) (%) (x)
(x) (x)

NMDC 97,412.68 23.20 6.83 22.09 26.6 40.3 0.00

Intrinsic Value= EPS*P/E

= 8.69*23.20

= 201.608
The intrinsic value of the company is less than the market price which indicates
that the investor should not purchase the shares of the company and who already
have the shares of NMDC ltd should sell it.