Investment Analysis and Portfolio Management

Project: Identify two of the upcoming sectors which

are going to be performer in coming time
and identify 3 leading stocks from the sector
for investment.

Submitted to: Submitted by:

Dr. Mayank Kumar Group-10
Anand Bhardwaj (PGP09069)
Anup Sharma (PGP09233)
Brethishta Vidya R (PGP09146)
MD Faizan Ahmad (PGP09202)
Sumeet Bhatere (PGP09181)
Shreyans Jain (PGP09237)

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Key Parameters based on which we will be shortlisting the stocks to invest in
are:
1) P/E Ratio: Price/Earnings Ratio is a very significant ratio as it shows how much stock investors
are paying for each rupee of earning from the stock.
Moreover we will compare the Price Earnings ratio of the company with the industrial average to
get a better overview of the performance of the company in comparison of the industry.
For example a company has a P/E ratio of 15, that alone might feel like bit too expensive but if
we consider the industry P/E ratio of 18 and market average is 20 then it might seem a very good
deal.
But P/E ratio cannot be just used to evaluate any firm in isolation, other ratios must also be
considered while making a decision whether to buy a stock or not. Higher is usually better

2) Price – To – Book Value: This ratio is used to compare a company’s market price to the
book value of its shares in the balance sheet. When the Price/Book Value Ratio is lower than 1
then it means the stock is undervalued and the market is valuing the stock for less than the
actual intrinsic value of the share. Lower or Closer to 1 Is best
3) Debt - To – Equity Ratio: It basically shows the ratio of Debt in comparison to the
owners/shareholders’ funds in the company. A lower figure is better as financial risk is lower in
that case but on the other hand leveraging has its benefits as we get tax deductions because of
the interest is charged to income before Tax is calculated. So maintaining a balance is important
and the ratio cannot be a measure but has to be seen with other ratios as well.

4) Operating profit Margin: This ratio shows the operational efficiency and pricing power. It
is calculated by dividing operating profit by net sales. Higher OPM shows efficiency in procuring
raw materials and converting them into finished products." It measures the proportion of
revenue that is left after meeting variable costs such as raw materials and wages. The higher the
margin, the better it is for investors.

5) EV/EBITDA: EV is the Enterprise Value and this ratio is often used alongside the PE ratio in
valuation of the company. This ratio includes the value of debt and thus gives a more accurate
picture and is considered superior to the PE ratio. A lower ratio indicates that the company is
undervalued.
6) Return On Equity: ROE is one of the most important ratio as it tells the return that the
shareholders. It helps investors compare multiple companies and typically 15-20% is good ROE.
But again the ratio can be affected because the higher debt can also lead to higher ROE.
7) Interest Coverage Ratio: it means Interest divided by Earnings before Interest and Taxes.
It basically shows the solvency of a business and chances of failure to be able to pay the interest.
We can also use the EBITDA in place of EBIT.
8) Current Ratio: It shows the liquidity position of a company in meeting its short term
liabilities. A higher figure signals that the company's day-to-day operations will not get affected
by working capital issues. A current ratio of less than one is not good.

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 9) Asset Turnover Ratio: It shows how efficiently the management is using assets to generate
revenue. The higher the ratio, the better it is, as it indicates that the company is generating more
revenue per rupee spent on the asset.

10) Dividend Yield: it shows how much dividend is distributed per share. Higher the figure it
signals that the company is doing well but at the same time it doesn’t have any future
investment requirements which might concern the shareholders having a long term vision while
a low figure does not always means the investment might be bad

11) Beta Value (β): A company’s beta is a measure of the volatility, or systematic risk, of a
security compared to the broader market. The beta of a company measures how the company’s
equity market value changes with changes in the overall market. It is used in the Capital Asset
Pricing Model (CAPM) to estimate the return of an asset.

Steps Followed:
1) We took the top 10 companies of each sector on the basis of highest
market capitalization in the industry
2) Analyzed the companies on the basis of each ratio and selected the top 5
companies for each ratio
3) Compared the Beta values for all the companies and selected the lowest
betas as theory is that investor would choose the lowest beta stock given
same returns
4) If there is any clash then lower beta stock is selected
5) Recommended the 3 stock on the basis of above criteria

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Industry Overview: IT
AI in IT Industry
Artificial intelligence (AI) has reached a tipping point. The combination of the technology, data
and talent that make intelligent systems possible has reached critical mass, driving extraordinary
growth in AI investment. Across the world, G20 countries have been building up their AI capabilities.

Established companies are moving far beyond experimentation. Money is flowing into AI technologies and
applications at large companies. The number of patents filed on AI technologies in G20 countries has increased at a
more than 26 percent compound annual growth rate since 2010. Funding for AI startups has been growing at a
compound annual growth rate of almost 60 percent. Governments in leading G20 countries are embracing
AI for public good.

In an Accenture TechVision 2017 survey of business and IT executives,

 80 percent of respondents in India—higher than the 68 percent global average— believe that AI will transform
their organization significantly or completely over the next three years.
 More than 88 percent of respondents in India anticipate making moderate-to extensive investments in one or
more AI-related technologies over the next three years

Market

The global artificial intelligence market size is expected to reach $169,411.8 million in 2025, from $4,065.0 million
in 2016 growing at a CAGR of 55.6% from 2018 to 2025. Asia pacific region market is projected to grow at a much
higher rate of 59.6%.

The Artificial Intelligence Industry in India is currently estimated to be $230 Million (annual) in revenue, up from
$180 Million a year ago. Currently, there are around 40,000 AI professionals in India.

There is a growing interest in AI with even the Indian Government doubling up spends/efforts in AI and ML
research. Realising the growth potential, Indian tech giants
are increasing their investments and developing AI powered
platforms.

Indian Tech giants leveraging Artificial Intelligence Platforms

1. TCS ignio™ :
 100% y-o-y annual growth in both customer acquisition and revenue since inception in 2015
 ignio™ manages over 1.5 million technology resources autonomously for 50+ clients globally
 ignio™ is used by many Fortune 500 customers to transform their IT operations
 one of the fastest software products to achieve $100M in revenue

2. Wipro Holmes:
 Launched over 30 months ago, Wipro Holmes has found increased traction for the IT major with more
than 180 of its clients using this automation technology.

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  the management expects to save up to $46.5 million and free up around 3,000 engineers from
mundane software maintenance activities, and also generate $60-70 million in revenue by selling this
platform
3. HCL DryIce :
 By reducing application development, testing and deployment cycle-times, it
enables the developers to focus more on value creation activities
 Leveraging AI powered DryIce, HCL technologies aims to achieve 29% growth in
Revenue/employee, 85% increase in EBIT/Employee
4. Infosys NIA :
 Infosys Nia Contracts Analysis uses a Machine Learning architecture at its core,
enabling it to read contractual documents the way humans would
 Automatic extraction of contractual information saving over 30,000 person hours
a year.
5. Other Companies that are implementing AI

Way Forward
A look at the revenues of the top three IT companies tells the emerging story. Market leader TCS saw more than 50
per cent year-on-year revenue growth (constant currency terms) in its digital business in the third quarter of FY19,
which now contributes 30.1 per cent to the overall revenues. Infosys also registered a 33 per cent revenue growth
year-on-year in the same period, with digital business brining in 31.5 per cent of the overall revenues. Wipro saw a
35.4 per cent year-on-year increase with digital business now accounting for 33.2 per cent of the overall revenues.

Though the term 'digital' is yet to be standardised, many use it as a term to include automation and AI. Even
though IT services companies are yet to break up services lines and business, signs of automation and AI becoming
important elements for both revenue and operating margin improvements and hence provide interesting
investment avenues.

On the basis of Market capitalization we have shortlisted top 10 companies in IT sector in

India, from which we’ll be recommending the 3 stocks to purchase

Sector: IT
Key ratios TCS Infosys Wipro HCL Tech Tech Mahindra
P/E Ratio (industry = 22.63) 24.62 23.09 17.41 13.95 15.84
Price to Book Value 8.84 5.30 2.765 3.40 3.27
Debt-to-Equity Ratio 0 0 0.1 0 0
Operating Profit Margin 28.38 24.39 18.2 40.05 18.98
EV/EBITDA 17.4 14.30 12.58 12.26
ROE 51.78 32.39 19.08 32.64 24.91
Interest Coverage Ratio 240.44 - 19.8 621.69 126.92
Current Ratio 2.85 2.86 1.34 2.89 1.69
Asset Turnover Ratio 1.59 1.27 0.95 0.9 1.27
Dividend Yield (Div/Share 1.42 2.71 0.29 0.96 2.03
price)

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 Beta Value(β) (Past 1Yr) 0.42 0.42 0.31 0.369 0.56

Sector: IT
Key ratios Oracle L&T Mphasi Mindtree Hexaware
FinServ Infotech s Tech
P/E Ratio (industry = 22.63) 20.58 18.54 15.96 16.40 18.21
Price to Book Value 5.78 5.74 3.26 3.74 4.67
Debt-to-Equity Ratio 0 0 0.03 5.31 4.41
Operating Profit Margin 52.99 19.34 26.18 15.15 30.49
EV/EBITDA 13.43 14.18 18.18 13.21 17.72
ROE 33.05 31.29 23.57 22.80 26.07
Interest Coverage Ratio - 455 146 341.2 -
Current Ratio 6.07 3.27 1.67 3.23 3.94
Asset Turnover Ratio 0.93 1.4305 0.91 1.68 0,89
Dividend Yield (Div/Share 0 1.17 2.9 4.39 2.3
price)
Beta Value(β) (Past 1Yr) 0.422 0.58 0.31 0.369 0.56

Recommendation:
1) TCS - 2,093.25 INR −24.00 (1.13%) (18 Jul, 12:15 pm IST)
2) Infosys - 2,093.25 INR −24.00 (1.13%)(18 Jul, 12:15 pm IST)
3) HCL Tech - 1,025.90 INR −14.85 (1.43%)(18 Jul, 12:16 pm IST)

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INDUSTRY OVERVIEW: SOLAR ENERGY
Power is one of the most critical components of infrastructure crucial for the economic growth and welfare of
nations. Being the most diversified power sector in the world, sources of power generation range from
conventional sources such as coal, lignite, natural gas, oil, hydro and nuclear power to viable non-conventional
sources such as wind, solar, and agricultural and domestic waste. In order to meet the increasing demand for
electricity in the country, massive addition to the installed generating capacity is required.

Solar Installed Capacity (GW) Growth

30
26
25

20
17

15

10

0
Q3 CY 2017 Q3 CY 2018
Owing to the strong and determined focus on promotion of
renewable energy by the Indian government, India now holds the third spot among a total of 40 countries on the
EY’s Renewable Energy Country Attractiveness Index.

Market Size
Solar energy generation is an industry that is growing by leaps and bounds in India. The solar installed capacity in
the country at the end of Q3 CY 2018 was about 26 GW, a 53 percent increase compared to 17 GW of solar installed
as of Q3 CY 2017.

The new expanded solar panel in Jan 2015, hopes to generate 100 GW of solar capacity in the next four years. This
is quite a tall order considering that the end-to-end solar capacity of the whole world was around 303 GW in 2017.
The marked improvements in the technological field of solar thermal power storage makes it a possibility.

Investment Scenario
Under this new target, India hopes to get the following by 2022
 US$ 100 billion in solar power investments
 40 GW of solar energy generation solely from rooftop units
 Another 60 GW of overall solar capacity

Growth
 Initially, the National Solar Mission of the government of India had set a target of achieving 20 GW solar
capacity by 2022. However, the dedicated steps undertaken by the government to reach the target four
years ahead of the agreed-upon schedule.
 Average price of generating solar electricity is 18% less than that of electricity from coal-based fuel
sources.
 Even though India’s solar capacity has reached the 20 GW milestone, solar energy accounted for 1.67% of
the total electricity generation in the country.
 When it comes to year-over-year growth though, solar is growing by a stunning 86% from 2016 to 2017

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Government Initiatives
Power sector has been identifies as a key sector of focus so as to promote sustained industrial growth. As of August
2018, the MNRE set solar power tariff caps at Rs 2.50 (US$ 0.04) and Rs 2.68 (US$ 0.04) unit for developers using
domestic and imported solar cells and modules, respectively as an initiative to boost solar power in the Indian
power sector

The Road Ahead

 Achieve 175 GW capacity in renewable energy by 2022, which includes 100 GW of solar power and 60 GW
of wind power
 The Union Government of India is preparing a 'rent a roof' policy for supporting its target of generating 40
GW of power through solar rooftop projects by 2022
 The Government of India is planning to invite bids for the largest solar tender in the world, for installing 20
GW of solar power capacity

Implementation
As of July 11, 2019 SJVN Ltd entered memorandum of understanding (MoU) with Bharat Heavy Electrical Ltd (BHEL)
with the aim of developing partnership between parties to mutually engage in the commercialization of solar
power plant through participation in tariff/viability gap funding based competitive bidding process. BHEL will act as
an engineering, procurement, construction and project management contractor for SJVN projects. Additionally,
BHEL will also be responsible for operation and maintenance services after assigning of the project. SJVN Ltd has
authorized five projects totalling 2015.2 megawatt (mw) of installed capacity involving solar and wind.

Key ratios Solar Waa Websol Synergy Ujaas Surana

Industry Solar Energy Green Energy Solar Ltd
(India) Ltd Sytem Ltd Ltd
P/E ratio 40.33 5.06 -2.43 22.82 15.90 35.5
P/BV 7.87 0.12 0.86 5.58 0.57 0.70
D/E 0.38 1.41 0.88 1.16 0.59 0.42
EV/ EBITDA 19.67 3.31 -20.53 11.81 9.32 9.41
OPERATING 18.59 41.66 -33.22 8.34 12.28 9.34
PROFIT
MARGIN
ROE 21.12 2.81 -33.65 11.93 2.98 1.87
INTEREST 9.18 1.26 -3.73 0.59 1.07 1.67
COVERAGE
RATIO
CURRENT 1.35 1.55 0.43 1.19 2.23 8.07
RATIO
ASSET 107.86 17.31 19.49 114.19 33.32 43.89
TURNOVER

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RATIO

Div Yield 0.00 0.00 0.00 0.00 0.00 0.00

Beta(last one 0.59 0.52 1.69 1.42 1.13 0.68
year)

Key Ratios XL Energy Urja Global Gita Renewable Indosolar Suzlon

PE RATIO -0.01 70 -1.16 -0.06 -0.32

PRICE TO BOOK VALUE 0 1.15 0.11 -0.61 -0.47
DEBT EQUITY RATIO -1.74 0 0 -0.74 -0.73
OPERATING PROFIT MARGIN -336.89 1.45 18.8 -5.43 9.9
EV/EBITDA -1,616.80 75.91 31.18 -35.95 33.16
Dividend Yield -54.98 0.01 -0.88 -0.58 -2.27
ROE 22.03 1.05 -9.44 35.37 105.55
INTEREST COVERAGE RATIO 5.76 0 0 6.01 5.34
CURRENT RATIO 0.07 1.13 0.31 0.05 0.4
ASSET TURNOVER RATIO 0.03 41.88 0.59 42.23 29.84
BETA 0.13 0.97 0.01 0.5 2.23

Recommendations:
1) Surana Solar Lt (stock price on 18th July, 2019-INR 6.85)
2) Ujaas Energy Ltd (stock price on 18th July, 2019-INR 5.20)
3) Waa Solar (stock price on 18th July, 2019-INR 33.45)

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