Kunal J Shah

11BSPHH010742

Project Analysis Name Enrollment No Section Seat No : : : : Kunal J Shah 11BSPHH010742 B 46 Contents

Page No Risk and Return Analysis.. Beta Estimation.. Risk Analysis of two-asset portfolio. CAPM Analysis.. EPS Calculations Relative Valuation.. Dividend Discount Model (DDM). 2 2 2 3 3 4 5

Kunal J Shah

11BSPHH010742

Risk and Return Analysis:

Single Portfolio Risk Analysis BSE Index 0.011263659 0.16743750 0.000327129 JaiPrakash Associates 0.030126305 -0.27910143 -0.00193283 Indiabulls Real Estate 0.031458729 -0.38510685 -0.001397492

Standard Dev. Return Over Period (Jan10 Jan11) Average Rate of Return

Looking at the numbers of the two companies, we can say that JP Associates has lower Standard Deviation compare to the Indiabulls Real Estate. So we can say that JaiPrakash is more stable and Indiabulls is more volatile in the period given.

Beta Estimation:
Beta Estimation BSE JP Associates Indiabulls Real Estate 0.311 0.105

Beta estimation for both companies is less than 1, so both the companies share prices would be less volatile compared to changes in the market. And JP Associates Beta value is nearer to 1 with compare to Indiabulls, so JP Associates would be less volatile.

Risk Analysis of Two-Asset Portfolio

Two Risk Asset Variance Standard Deviation SD Reduction BSE + JP Assoc. 0.00027 0.01668 0.0040 BSE + Indiabulls 0.00048 0.02193 0.0088 JP Assoc. + Indiabulls 0.00053 0.02323 0.0075

Looking at the numbers we can say that BSE + JP Assoc. is the best combination as SD or Variance is the lowest for the combination.

Kunal J Shah

11BSPHH010742

CAPM (Capital Asset Pricing Model)

This model describes the relationship between risk and expected return and it is used in pricing of the risky securities. Assumptions: 1. Calculated market return of the data of 2 years for each company. 2. Beta estimation and Co-Variance is calculated on 2 years data. 3. The Data is on Daily basis. Variance 0.00012687 0.000907594 0.000989652 Std. Dev 0.011263659 0.030126305 0.031458729 Beta 0.311642362 0.105940477 CAPM 0.012259792 0.006147797

BSE Index JP Associates Indiabulls

Both companies have Beta < 1. So we can say that JP Associates is 31.16% more volatile than market and Indiabulls Real Estate is 10.59% volatile than market. The required return for 1% change in market for JP Associates is 1.2% and Indiabulls Real Estate is 0.6% Rf = 0.3%, Rm = 3.2%, Risk Premium (Rm-Rf) = 2.9%

EPS Calculations:
The portion of a company's profit allocated to each outstanding share of common stock. EarningsPer share(EPS) serves as an indicator of a company's profitability. EPS= (Net Income-Dividend on Preferred Stock) / (Number of Outstanding Shares) Values 0.1148 1.5751 1.1029 0.1776

EPS Sales Per Share Book Value Per Share CF Per share...(aprox.)

EPS for JP Associates is 0.114 INR. This can be used to find expected growth of the company.

Kunal J Shah

11BSPHH010742

Relative Valuation:
Relative valuation is a simple way to unearth low-priced companies with strong fundamentals. As such, investors use comparative multiples like the Price-Earnings ratio (P/E), Enterprise Multiple (EV/EBITDA) and Price-to-Book ratio all the time to assess the relative worth and performance of companies, and to identify buy and sell opportunities. The trouble is that while relative valuation is quick and easy to use, it can be a trap for investors. Here is how to do a relative valuation on a publicly listed company: 1. Create a list of comparable companies, often industry peers, and obtain their market values. 2. Convert these market values into comparable trading multiples, such as P/E, price-to-book, enterprise-value-to-sales and EV/EBITDA multiples. 3. Compare the company's multiples with those of its peers to assess whether the firm is over or undervalued. Relative valuation is very widespread. Key data - including industry metrics and multiples - is readily available from investor services like Multex, Reuters and Bloomberg for a small fee, if not free of charge. In addition, the calculations can be performed with fewer assumptions and less effort than fancy valuation models like discounted cash flow analysis (DCF). Company Information Company Indiabulls IRB Infra DLF Unitech Market capitalization (A) 61274.5 85243.98 524357.75 184813.86 Total debt (B) 112 653.79 12637.86 4923.56 Cash and cash equilvalent (C) 0.36 894.29 37.82 135.7 Enterprise value (A)+(B)-(C) 61162.5 84590.19 511719.89 179890.3

Earning Multiple Data Company Indiabulls IRB Infra DLF Unitech P/E 3436.60 1598.72 1280.30 2513.45 P/S 2430.56 852439.80 670.56 306.84 P/BV 9.60 98.67 48.63 149.95

Using the Earnings Multiples and Value Multiples we have found out that each equity share of JaiPrakash Associates has been estimated between INR 224.50 and INR 164.90

Kunal J Shah

11BSPHH010742

DDM(DIVIDEND DISCOUNT MODEL)

A procedure for valuing the price of a stock by using predicted dividends and discounting them back to present value. The idea is that if the value obtained from the DDM is higher than what the shares are currently trading at, then the shares are undervalued otherwise overvalued.

FOR JP Associates: Previous year dividend: 0.54 Ke (CAPM): 0.01225 Growth: 3346.5 Cr (sales turnover for 2010) Hence, Value of stock: (4*(1+0.033))/(Ke-growth) = Rs 337.33 Market Share price is Rs145.65 and value obtained from Dividend Discount Model is Rs337.33 so JP Associates stock is undervalued.