Investments

FIN -651 BHAVAN-MARSHALL INSTITUTE OF MANAGEMENT , BANGALORE

BMIM

STOCK VALUATION
Company Stock Valuation, Investments Module by Dr. Mukesh Chaudhary
TEAM: ANAND,ANUSHA,SUJITHA 7/1/2011

Overview of the sectors: Mining and metal: India boasts significant mineral resources. Growth is also likely to come from consumer 'upgrading' in the matured product categories. Estimated investment of $21 billion in opencast mining and $5 billion in underground mining will be required to attain the target production level by 2025. given the projected shortfall in coal supply and the current emphasis to increase coal production.4 billion in 2015. The mining sector has shown healthy growth over the past few years. The information given by our report will help the investors in their investments in the stocks. . Penetration level as well as per capita consumption in most product categories like jams. HUL (Hindustan Unilever limited)-FMCG. mining and metal. toothpaste. Although Indian firms manufacture mining equipment. Most of the global technology leaders are present in India as joint venture companies. firms will be competitive for providing highend. Nevertheless. skin care. The Indian government-owned mines contribute over 80 percent of the total value of mineral production. higher size equipment and advanced technologies. With 200 million people expected to shift to processed and packaged food by 2010. there is a strong trend in favor of private-sector led mining. producing 86 minerals. The FMCG market is set to treble from US$ 11. or have set up their own manufacturing facilities or marketing companies.1 billion. The three companies and their sectors are JSW STEELmining. BHEL (Bharat Electronics limited.Capital goods). Coal constitutes over 80 percent of all mining activities with a turnover projected to be $30 billion by 2012. The main goal of the project is to help the investor make an informed choice to invest in. Availability of key raw materials. The growth rate will likely continue. FMCGs: The Indian FMCG sector is the fourth largest sector in the economy with a total market size in excess of US$ 13.Investments FIN -651 BMIM Introduction: Our report tries to give a brief view about the evaluation of the stock price of the three companies in three different sectors.6 billion in 2003 to US$ 33.S. hair wash etc in India is low indicating the untapped market potential. cheaper labor costs and presence across the entire value chain gives India a competitive advantage. U. India needs around US$ 28 billion of investment in the food-processing industry.

84% 0. like plant and equipment.64% dividends to its share holders and the rest amount is invested to company activities and growth. The investments in the capital goods sector.35 times. greater the margin of safety for short term creditors & viseversa. Dividend Payback Ratio: HUL is paying 0.00 in Equity to meet this obligation.Investments FIN -651 BMIM Capital goods: The development of a strong and vibrant engineering and capital goods sector has been at the core of the industrial strategy in India since the planning process was initiated in 1951. .24times 5. The higher the value of debtor¶s turnover the more efficient is the management of debtors or more liquid the debtors are. RATIOS: HUL RATIOS: Current ratio Debt equity ratio Equity turn over ratio Asset turnover ratio Dividend payback ratio 0.64% Current ratio: This ratio indicates as of 0. Equity turnover Ratio: HUL debt equity ratio is pretty good because almost 30 times debtors are turned over a year.20% 29.The performance of the capital goods sector reveals that its fortunes are inextricably linked with that of the overall Indian industry. as well as inventory and accounts receivable. Asset turnover Ratio: The ability of a company to use its assets to generate sales is 5.84 current assets of HUL available for each rupee of current liability. The apparent consumption of the capital goods constitutes a constant share of the total gross domestic investment in the country. Its ratio considers all assets including fixed assets. Higher the ratio. Debt equity Ratio: Hindustan Unilever LTD has $0.20 cents of Debt and only $1. Have declined with the decline in the relative profitability of the capital goods sector with respect to the other sectors.35times 0. High degree of the correlation between the performances of the two sectors is further accentuated by high elasticity of capital goods industry to changes in industry growth.

26% dividends to its share holders and the rest amount is invested to company activities and growth. Dividend Payback Ratio: BHEL is paying 0.01 cents of Debt and $1.01% 5. Debt Equity Ratio: BHEL has $0. Asset Turn Over Ratio: The ability of BHEL to use its assets to generate sales is 5. The higher the value of debtor¶s turnover the more efficient is the management of debtors or more liquid the debtors are. as well as inventory and accounts receivable.26% 38. .15times 0.15 times.35times Current Ratio: This ratio indicates as of 1. Its ratio considers all assets including fixed assets.37% 0. like plant and equipment.00 in equity to meet this obligation.37 current assets of BHEL available for each rupee of current liability. Equity turn over ratio: BHEL debt equity ratio is pretty good because almost 30 times debtors are turned over a year. Higher the ratio greater the margin of safety for the short term creditors and lower the ratio lower the margin of safety for the long term creditors.Investments FIN -651 BMIM BHEL RATIOS ANALYSIS: Current ratio Debt equity ratio Asset turn over ratio Dividend payback ratio Equity turn over ratio 1.

Higher the ratio . The higher the value of debtor¶s turnover the more efficient is the management of debtors or more liquid the debtors are. Equity turnover Ratio: JSW debt equity ratio is pretty good because almost 45. .60 times. greater the margin of safety for short term creditors and viceversa.58% Current ratio: This ratio indicates as of 0.26% 45.20 cents of Debt and $1. Asset turnover Ratio: The ability of a company to use its assets to generate sales is 38. Debt equity Ratio: Debt equity ratio of JSW has $1.55% 1.58% dividends to its share holders and the rest amount is invested to company activities and growth.60times 0. JSW is performing pretty well.55 current assets of JSW available for each rupee of current liability.32times 36.Investments FIN -651 BMIM JSW STEEL RATIO ANALYSIS: Current ratio Debt equity ratio Equity turnover ratio Asset turnover ratio Dividend payback ratio 0.00 in Equity to meet this obligation.32 times debtors are turned over a year. Dividend Payback Ratio: JSW is paying 0.

2.5 P5= DIV (1+g)/ (k-g) 1118.5/ (0.2333-0. k is calculated based on the CAPM model to calculate the returns of that particular stock Where.2333-g) g = 22. .186-0.5 2008 14 2009 1 2010 9.2= 9.08+ 1.2233) Value=950 CONCLUSION: According to the calculations the value of the stock is overpriced in the market because the value of the stock from the calculations we got is 950 which is lower than the current market price 1118.2 Div 2006 8 2007 12.45 (Based on the Regression between the stock return and the market return values) Expected return: k = Rs= 0.5(1+g)/(0.08) = 0.2337=23.  Here.33% Dividend discount model: Value of the stock = div/ (k-g) value = 9.33% Average growth: The current price of the stock (from the website): 1118. So for the investor it will be better if he sells the share of the company.45(0.Investments FIN -651 BMIM EVALUATION OF VALUE OF THE STOCK: JSW STEEL: By dividend discount model method To calculate the price of the share.6% (Based on 10 years Market Index Values) = 1. Rf = Risk free rate = 8% (Based on 10 years government bond) Rm = Market Return = 18.

k is calculated based on the CAPM model to calculate the returns of that particular stock Where.08+ 0.50(0.6% (Based on 10 years Market Index Values) = 0.842 CONCLUSION: According to the calculations the value of the stock is overpriced in the market because the value of the stock from the calculations we got is 283.5 2010 6.04% Dividend discount model: Value of the stock = div/ (k-g) Price = 6. .08) = 0.133-g) g = 11. Rf = Risk free rate = 8% (Based on 10 years government bond) Rm = Market Return = 18.  Here.02= 6.1104) = 283.02 Div 2006 5 2007 6 2008 9 2009 7.5072 (Based on the Regression between the stock return and the market return values) Expected return: k = Rs= 0.33% Average growth: The current price of the stock (from the website): 320.02.186-0.5(1+g)/(0.5 P5= DIV (1+g)/ (k-g) 320. So for the investor it will be better if he sells the share of the company.1333-0.5/ (0.133 k=13.842 which is lower than the current market price 320.Investments FIN -651 BMIM HUL(Hindustan Unilever Ltd) : By dividend discount model method To calculate the price of the share.

66 CONCLUSION: According to the calculations the value of the stock is overpriced in the market because the value of the stock from the calculations we got is 1941.25 2009 17 2010 23.6% (Based on 10 years Market Index Values) = 1. Rf = Risk free rate = 8% (Based on 10 years government bond) Rm = Market Return = 18.1840) Price = Rs.08) = 19.3 P5= DIV (1+g)/ (k-g) 2306.08+ 1.3/ (0.60% Average growth: The current price of the stock (from the website): 2306.5 2007 24.1.40% Dividend discount model: Value of the stock = div/ (k-g) Price = 23.095 (Based on the Regression between the stock return and the market return values) Expected return: k = Rs= 0. 1941.60% k=19.1960-g) g = 18.66 which is lower than the current market price 2306.3(1+g)/(0. So for the investor it will be better if he sells the share of the company .Investments FIN -651 BMIM BHEL (Bharat Electricals Ltd) : By dividend discount model method To calculate the price of the share.1960-0.186-0.  Here. k is calculated based on the CAPM model to calculate the returns of that particular stock Where.1= 23.1 Div 2006 14.5 2008 15.095(0.

The company has entered into MOUs with the governments of Chhattisgarh and Jharkhand for setting up of two power plants of 2520MW and 2640 MW capacity. electrical machines etc. is aggressively expanding into the power business. through its subsidiary Jindal Power Limited (JPL). HUL: HUL reported a substantial growth in net sales and volume and improvement in pricing. have witnessed a significant decline . heat exchangers. Thus the power business will not only drive growth for JSPL in the near future but also provide a cushion from the cyclicity of their steel business. refineries & petro-chemicals. Although commodity prices have fallen. infrastructure development activities and consumer spending have been adversely affected which in turn affects the overall performance of the company in the industry. HUL growth slow down due to steady loss in market share.Investments FIN -651 BMIM ECONOMIC FACTORS: JSW steels: Stock price Jindal steels & power limited was reduced almost by 60% following the sharp decline in steel demand and the subsequent fall in steel prices. Soaring raw materials prices. which are major consumers of steel. The effect of economic factors on the companies clearly states that due to downturn in the global economy and slowdown in credit growth. gas turbines. BHEL: The economic boom in India particularly in the last one decade has played a significant role in the success of the company. paper. Price positioning in some categories allows for low price competition. infrastructure development activities and consumer spending have been adversely affected. to a number of industries like metallurgical. Lot of Industrialization has been brought about. cement. which has always been a catalyst for BHEL¶s growth. . along with higher advertisement costs. JSPL. CONCLUSION: From the analysis above using the Dividend discount model for the evaluation of the stocks for three companies we found out that the stock prices are overvalued in all the three companies. From the point of view of investors it is better to sell all the stocks of the companies as they are overvalued so that the investors can reduce the loss. thus leading to a slowdown in the demand for steel. pumps. other than power utilities. respectively. Due to downturn in the global economy and slowdown in credit growth. HUL needs to spend more on advertisements in order to boost volumes and restrict the loss in market share. The construction and automobile sectors. adversely impacted the margins. BHEL manufactures and supplies major capital equipment and systems like captive power plants. mining. etc. The growth of these industries has multiplied the turnover of the company leaps and bounds in the last few years. industrial boilers. fertilizers. compressors.

Investments FIN -651 BMIM .

Investments FIN -651 BMIM .

Sign up to vote on this title
UsefulNot useful