INVESTMENT CLUB TASK

Rohitakshi Sharma
MBA HR|UBS  
Reliance Industries:
Return on Equity:

ROE= Net income/Shareholder’s Equity

Profit before taxes Profit After Tax Shareholder's Equity Return on Equity

2011-12 25408 19724 169445 11.640355277524

2012-13 26217 20879 182030 11.470087348239
2013-14 28763 22493 197074 11.413479200706
2014-15 31114 23566 218482 10.786243260314
2015-16 38737 29745 240176 12.384667910199
2016-17 40034 29901 263709 11.338634631355
2017-18 49426 36075 314647 11.465229288695
2018-19 55227 39588 387112 10.226497757755
ROE stands at the average of 10% for last decade therefore, a constant.

Debt to Equity Ratio

D/E= Total Liabilities/ Shareholder’s Equity

Total Liabilities Shareholder's Equity Debt to Equity

2011-12 327191 169445 1.930956947682
2012-13 362357 182030 1.990644399275
2013-14 428843 197074 2.176050620579
2014-15 504486 218482 2.309050631173
2015-16 598997 240176 2.493991905936
2016-17 706802 263709 2.680234652591
2017-18 811273 314647 2.578359240673
2018-19 997360 387112 2.576411994462
2019-20 1163015 424584 2.739187063102
The D/E ratio of Reliance Industries is increasing due to its subsidiaries in oil, gas and petrochemical
industries. Reliance Telecommunications on the other hand has been the fastest growing subsidiary
in Reliance Industries.

The recent news by Reliance Industries raised speculation that it will use the profit from Jio ltd to
pay debts in oil, gas and petrochemical industries and move to faster growing industries like
telecommunication and wireless communication.

In June 2020, after the heavy investments, Mukesh Ambani announced that RIL has become net-
debt free.
Profit Margin:

Profit Margin= Net Income / Net Sales

Net Income Net Sales Profit Margin

2011-12 19724 357677 5.514472554847
2012-13 20879 395957 5.273047325846
2013-14 22493 433521 5.188445311761
2014-15 23566 374372 6.294808372421
2015-16 29745 272583 10.9122725922
2016-17 29901 303954 9.837343808603
2017-18 36075 390823 9.230521233397
2018-19 39588 568337 6.965585559272
2019-20 39354 595887 6.604272286524

Enterprise Value:

Enterprise Value= Market Cap + Net Debt – Cash and Cash Equivalents

=1367923 Cr + 0 – 30920 Cr

=1337003Cr

EV/ EBIDTA= 1337003/102280=13

EV/ Sales= 1337003/595887=2.24

P/E Ratio:

PE Ratio= Market Value per Share/Earnings per share

PE Ratio of Reliance =2080/58.62=35.48

PE Ratio of Nifty = 21.64

Stock is fairly over-valued.

Recent Investments:

Investor Stake (%)  Investment (MN

 $)
1. Facebook 9.90 5700
2. Silver lake 2.1 1338
3. VISTA 2.30 1500
4. General Atlantic 1.30 873
5. KKR 2.30 1500
6. Mubadala 1.85 1200
7. Abu Dhabi
1.16 750
Investment Authority
8. TPG 0.93 600
9. L. Catterton 0.39 250
10. Public Investment
2.3 1500
Fund of Saudi Arabia
11. Qualcomm 0.15 97
12. Google 7.73 $4.5 billion

Source: JagranJosh.com

The Future Prospect of RIL looks promising as the management is taking bold decisions and with the
rise of Jio, and entry of Reliance in other industries other than Oil and Gas makes it a promising
investment.

ITC Ltd:
Company Analysis:

Strengths:
ITC Ltd. is the leading the tobacco segment in India. The stringent government guidelines increase
the barriers to entry for new companies.

The low cost of goods and production of cigarettes and high selling price gives extremely high profit
margins.

The heavy excise duty poses a challenge to the company.

ITC is entering FMCG to diversify its services, and has already launched various successful brands like
Vivel, Yippee, Fiama, Sunfeast, Ashirwad etc.
ITC has a strong balance sheet and virtually debt free.

ITC is a cash rich conglomerate.

Weakness:
The heavy excise duty poses a challenge to the company.

The awareness programs by government lead to depiction of graphic warning on the packets, may
cause some concern to the company.

ITC Ltd is also entering into FMCG and hospitality, however, major leading brands like HUL have
already gained high market share. The ROI on Hotel business is low and amid pandemic, poses
another challenge.

Return on Equity:

ROE= Net income/Shareholder’s Equity

Profit After Tax Shareholder's Equity Return on Equity

2011-12 6258 18791 33.3031770528444

2012-13 7608 22287 34.1364921254543
2013-14 8891 26262 33.8549996192217
2014-15 9663 30735 31.4397266959492
2015-16 9344 32929 28.3762033465942
2016-17 10289 45340 22.6929863255404
2017-18 11271 51400 21.9280155642023
2018-19 12592 57949 21.7294517593056

Debt to Equity Ratio

D/E= Total Liabilities/ Shareholder’s Equity

 Total Liabilities Shareholder's Equity Debt to Equity
2011-12 26391 18791 1.404448938322
2012-13 30085 22287 1.349890070445
2013-14 35329 26262 1.345251694463
2014-15 40848 30735 1.329038555393
2015-16 45952 32929 1.39548726047
2016-17 51651 45340 1.13919276577
2017-18 55898 51400 1.087509727626
2018-19 64241 57949 1.108578232584
2019-20 71739 64029 1.120414187321

ITC is a cash rich and company with a strong balance sheet. Also it is almost debt-free.

Profit Margin:

Profit Margin= Net Income / Net Sales

Net Income Net Sales Profit Margin

2011-12 6258 26516 23.60084477297
2012-13 7608 31618 19.79252324625
2013-14 8891 35306 21.54874525576
2014-15 9663 38817 22.90491279594
2015-16 9344 39192 24.65554194734
2016-17 10289 42768 21.848110737
2017-18 11271 43449 23.68063706875
2018-19 12592 48340 23.31609433182
2019-20 15306 49388 25.4960719203
Since, the cost of production of cigarette is very low, and selling price is extremely high, most of the
profits comes from the Cigarette business as the margin is very high.

The ROI in Hotel business is only 1-2%

The FMCG is newer segment for ITC but sales are relatively lower than peers.

P/E Ratio:

PE Ratio= Market Value per Share/Earnings per share

PE Ratio of ITC =188/12.45= 15.1

PE Ratio of Nifty = 21.64

PE Ratio of HUL= 76.21

Stock is fairly under-valued.

Conclusion:

ITC is a blue-chip stock which yields good dividend. It is a leading tobacco company venturing into
FMCG and other areas. The financial statements of ITC are solid and it is being traded at a
undervalued price. Therefore, it is a value investment for long-term perspective.

Also, since current price is lower than average price due to pandemic, one can buy at 188 and sell in
1 -2 years at a higher price of 250 per share.

Apollo Tyres:
Industry Analysis:

In March 2020, the automobile industry and thus tyre industry was hit badly. All the industries are
recovering at their own pace. The growth is slower for Tyre manufacturers, as the sales of cars took
great hit. However, as the industry gains momentum, prices of Apollo stocks may rise.

PE Ratio:

PE Ratio of Apollo Tyres = 11.69

PE Ratio of NIFTY= 21.64

PE Ratio of MRF= 24.9

PE Ratio of Ceat= 21.4

PE Ratio of Goodyears= 26.58

ROE:
The average rate of return is 12-15% with low risk.

Growth:
The company has shown stable growth at 2% every year.

Since it is a low risk stock with average returns, currently trading at a very undervalued price, it can
be a good investment for a short term perspective.