Security Analysis Assignment

SUBMITTED BY:-
NAME – Chirag
ENROLL. NO. – 19BSPHH01C0302

KHAITAN (INDIA)
Khaitan (India) Limited is an India-based company, which is engaged in manufacturing of sugar by
 crushing sugarcane. The Company's mill is located in the state of West Bengal. The Company has a
reserved area of approximately 154,310 hectares in Nadia and Murshidabad district within a radius
of approximately 60 kilometers. It has captive farmland of approximately 8,050 acres which
comprises over 20 farms stretched over the districts of Nadia and Murshidabad, and situated in the
Bengal Delta. Company Code is (KHAI.BO)

KOKUYO CAMLIN LIMITED

Kokuyo Camlin Limited is a holding company engaged in the business of dealing in consumer products.
The Company's products are classified into three business segments: School and Education products,
Fine Art and Hobby Materials, and Office Stationery products. Its product portfolio consists of inks,
writing instruments, colors, technical and drawing instruments, office stationery, markers, fine art,
notebooks, and scholastic and hobby art materials. Its student's products include adhesives, brush pens,
geometry box, oil pastels, pens, plastic crayons, sketch pen and washable crayons. Its office
professional's products include correction pens, gum and paste, markers and marker inks, and office
products accessories. Its artist and designer products include art materials, artist's pastels, artist's water
colors, artist's oil color, brushes and water color pencils. Its hobbyist's products include fabrica colors,
fabrica coneliner, hobby brushes, hobby mediums and sparkle colors. Company Code is KOCL.NS

Kothari Products Ltd

Kothari Products Ltd (KPL), Flagship Company of Kothari Group is a Top Player in PanMasala &
Gutkha. The Company Manufactures and exports Pan Parag Pan Masala, Gutkha and Parag Zarda in
India. The Company, promoted by M M Kothari in September 2003 as a private company, was
converted into a public company in November 1994. KPL Pioneered the revolutionary concept of low-
priced pouch packaging of Pan Masala in 1985. Pan Parag Consists of Areca nut, Cardamom, Katha,
Calcium and sandalwood. The Technology adopted by the Company is completely indigeneous. The
Company markets Pan Masala under the brand name Pan Parag, Flavoured Chewing Tobacco under the
brand name Parag and packs Coconut oil under the brand name 7-up. The Company has its Pan Masala
& Gutkha Plant located at Kanpur (UP), Jorhat, (Assam) and Noida (UP) and its Beverages Plant located
at Kanpur (UP), Nadiad (Gujarat) and Thane (Maharashtra). The Company has Subsidiaries namely
Sukhdum Constructions and Developers Ltd, Arti Web-Developers pvt Ltd. The Companies Products are
exported directly and through Merchant Exporters to Mexico, Australia, Singapore, Middle East, Japan,
Kenya, South Africa, U.K, New Zealand, Canada, Malaysia, Thailand etc., The Company went public
with its maiden issue in March 1995 at a premium of Rs.200/- to disinvest the promoters shareholding.
The Company during 2000-2001 entered in to a royalty agreement with Kothari Pouches for
Manufacturing and marketing of Zarda under the name of PAN PARAG. The Company also launched
PAN PARAG MAWA and GUTKA-2000 IN 2000. The Company also launched PAN PARAG KHAINI
on 8th December 2000, in selected areas of South India. The Company launched Two new Products
namely PARAG Sada Pan Masala & PAN PARAG 100% Gutkha in the year 2001-2002. The Erection
work at Ahmedabad factory was completed and production started w.e.f 25th July, 2002. During 2002-
2003, The Company launched three new products namely PARAG SUGANDHIT SUPARI, PAN
PARAG ONE 2 ONE & PAN PARAG 100% ZARDA.

The Company, during the year 2003-2004 appointed one new Franchise at Kathmandu, Nepal for
manufacturing the products of the Company under its brand name 'Parag'.
RISK AND RETURN ANALYSIS:

Following is the consolidated data of the assigned companies.

Table 1:

COMPANY RETURNS BETA CAPM ALPHA BUY/SELL

KHAITAN 0.015434505 0.975117313 0.204069433 0.188634928

(INDIA) SELL
LIMITED

KOKUYO -0.056188772 1.221089824 1.188303122 1.132114349

CAMLIN BUY
LIMITED

The Capital Asset Pricing Model (CAPM) describes the relationship between systematic risk
and expected return for assets, particularly stocks. CAPM is widely used throughout finance for pricing
risky securities and generating expected returns for assets given the risk of those assets and cost of
capital.

ERi = Expected return of investment

Rf = Risk-free rate

βi = Beta of the investment

ERm = Expected return of market

(ERm - Rf) = Market risk premium

Investors expect to be compensated for risk and the time value of money. The risk-free rate in the CAPM
formula accounts for the time value of money. The other components of the CAPM formula account for
the investor taking on additional risk. The co-variance measures the co-movement of two assets. Positive
co-variance i.e. 0.028998479 between the two mentioned companies shows that the assets returns could
be above or below their average returns at the same time. Return = (ending price-beginning
price)/beginning price * 100.
 Table: 2

ANALYSIS
RESULTS:      

MEAN 0.015434505 -0.056188772 0.063216414

VARIANCE 17.70055423 6.169184279 0.590308235

S.D. 4.207202661 2.483784266 0.768315193

CO-VARIANCE 0.028998479    

CORRELATION 0.002775032    
COMPANY 1- KHAITAN (INDIA) LTD.

COMPANY 2 - KOKUYO CAMLIN LTD.

1) Co-variance is positive which shows the positive relationship between the two stocks, it
generally evaluates how the mean values of two stocks move together.

2) Company 1 shows higher S.D. in comparison to Company 2. So in Company 1 we are getting the
higher returns.

3) Correlation value is low and positive, which indicates that the portfolio is less risky.

STANDARD DEVIATION ANALYSIS

Standard deviation is a statistical measurement in finance that is applied to calculate annual rate of

return on investment, sheds light on the historical volatility of that investment. Higher standard
deviation shows the higher risk and low standard deviation represents lower risk. We will invest
on those companies in which we get the more return. Higher standard deviations represent higher
returns, so Khaitan (India) Ltd. is a company in which we are getting higher returns.

Table 4:

STANDARD DEV. 4.207202661

KHAITAN (INDIA)
LIMITED
 STANDARD DEV. 2.483784266Z
KOKUYO CAMLIN
LIMITED

Fig 1:

STANDARD DEVIATION
4.5 4.21
4
3.5
STANDARD DEVIATION

3
2.48
2.5
2
1.5
1
0.5
0
1 2
COMPANY

BETA ANALYSIS

Beta measures the responsiveness of a stock's price to the changes in the overall stock
market. On comparison of the benchmark index for e.g. NSE Nifty to a particular stock
returns, a pattern develops that shows the stock's openness to the market risk.

 KHAITAN (INDIA) LIMITED – The beta of the security is 0.975117313 which

means beta is less than 1 so defensive stock.

 KOKUYO CAMLIN LIMITED – The beta of the security is 1.221089824 which

means beta is greater than 1 so aggressive stock.
 ALPHA ANALYSIS

Active portfolio managers seek to generate alpha in diversified portfolios, with diversification

intended to eliminate unsystematic risk. Because alpha represents the performance of a portfolio
relative to a benchmark, it is often considered to represent the value that a portfolio manager adds
to or subtracts from a fund's return. In other words, alpha is the return on an investment that is not
a result of general movement in the greater market. As such, an alpha of zero would indicate that
the portfolio or fund is tracking perfectly with the benchmark index and that the manager has not
added or lost any additional value compared to the broad market.

 KHAITAN (INDIA) LIMITED: The alpha value is negative i.e. (-0.188634928.) So, the
stock is overpriced and at this particular time we should sell stocks.

 KOKUYO CAMLIN LIMITED: The alpha value is positive i.e. (1.132114349). So, the
stock is underpriced and at this particular time we should buy stocks.
 EFFICIENT FRONTIER

The efficient frontier is the set of optimal portfolios that offer the highest expected return for a
defined level of risk or the lowest risk for a given level of expected return. The efficient frontier
graphically represents portfolios that maximize returns for the risk assumed. Returns are dependent
on the investment combinations that make up the portfolio. The benefit of diversification resulting
from the curvature of the efficient frontier. The curvature is integral in revealing how diversification
improves the portfolio's risk / reward profile. Returns are dependent on the investment combinations
that make up the portfolio. The best combination to get maximum returns from KHAITAN (INDIA)
LIMITED and KOKUYO CAMLIN LIMITED is if they are invested in 1 & 0 combination of
these two stocks, getting the higher returns i.e. 8.850277114 in these portfolios.

Fig 2:

EFFICIENT FRONTIER
0.02
0.02
0.01 0.01
0 0
-0.01
-0.01 -0.01
RETURN

-0.02 -0.02
-0.03 -0.03
-0.03
-0.04 -0.04
-0.05 -0.05
-0.06
-0.06
1 2 3 4 5 6 7 8 9 10
RISK

EFFICIENT FRONTIER
PORTFOLIO ANALYSIS:
Table 5:

S1 S2 MEAN VARIANCE S.D.

0 1 -0.05619 6.169184279 3.084592139
0.1 0.9 -0.04903 5.174544314 2.587272157
0.2 0.8 -0.04186 4.656300108 2.328150054
0.3 0.7 -0.0347 4.615950177 2.307975089
0.4 0.6 -0.02754 5.052995017 2.526497508
0.5 0.5 -0.02038 5.967434627 2.983717313
0.6 0.4 -0.01321 7.359269007 3.679634503
0.7 0.3 -0.00605 9.228498157 4.614249079
0.8 0.2 0.00111 11.57512208 5.787561039
0.9 0.1 0.008272 14.39914077 7.199570384

1 0 0.015435 17.70055423 8.850277114

CORRELATION:

Correlation is measured on a scale of -1.0 to +1.0. If two securities have an expected return
correlation of 1.0 that means that they are perfectly correlated. When one gains 5%, the other
gains 5%; when one drops 10%, so does the other. A perfectly negative correlation (-1.0)
implies that one asset's gain is proportionally matched by the other asset's loss. A zero
correlation has no predictive relationship.
The correlation for the two securities is 0.002775032. The pair has a correlation lesser than 1. A
correlation below and up to 0.7 is reasonably good, but for less risk, it would be good to avoid
correlations above 0.80. Portfolios is showing a considerably low correlation value, indicating,
if there is a change in any of the securities in a particular portfolio, the other security has a quite
a less chance to get affected. Hence, these portfolios can also be considered to be less risky in
accordance to the rest of the portfolios. High variance in a stock is associated with higher risk,
along with the higher return.
CONCLUSION:
The main aim of this project is to get an effective understanding of the actual securities, the risk
associated with them in the Indian market. The prices of past 1 year for 2 different securities
are analyzed in terms of correlation, co-variance and risks associated with them.
Recommendations are given in comparison with the portfolio as a whole.

While analyzing the individual securities we calculated the expected return, risk associated
with it, beta, and abnormal return and after these calculations we can recommend whether to
buy or sell the individual security.
Summing up, correlation analysis is a simple tool that an individual investor can rely on while
making portfolio allocation results.