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PROJECT REPORT ON EQUITY VALUATION OF RELIANCE CAPITAL LIMITED (RCL) Submitted by: KHUSHBU RAJ Roll No.
PROJECT REPORT
ON
EQUITY VALUATION OF RELIANCE CAPITAL LIMITED (RCL)
Submitted by:
KHUSHBU RAJ
Roll No. - 201
In partial fulfillment for the
full time
award/degree of two years
PGDM 2008-10 (Equivalent to MBA)
Under the Guidance of:
Mr. Vipul Chaurasia
Corporate Guide (AVP Operations)
GULF BULLS SECURITIES PVT. LTD.
FARIDABAD
New Delhi Institute of Management
60-61, Tughlakabad Institutional Area, New Delhi-110062
Equity Valuation of RCL
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I am extremely thankful to Mr. Sachin Gupta (Equity Manager), who gave me valuable directions and unflinching encouragement in this project. His inputs, support and motivation have been very significant for my work. I am also thankful to Mr. Vipul Chaurasia, Mr. Shailendra, Mr. Vishal, Mr. Mandeep, Miss Neelam and Miss JyotiVerma for their valuable guidance and encouragement provided throughout the project.

The completion of a project is never a unilateral effort. Through this sentence I wish to make a modest effort to thank and express my gratitude to all those who extended their co-operation and assistance for this project.

This report is the outcome of the sustained effort put in by me under the guidance of my industry mentors in Gulf Bulls Securities Pvt. Ltd. I would like to extend my gratitude to our esteemed institution, NDIM, for all that we have learnt, and the platform we have got.

Also, I acknowledge the inputs from my colleagues for their ideas & suggestions given in this project.

I am extremely thankful to Mr. Sachin Gupta (Equity Manager), who gave me valuable directions and
I am extremely thankful to Mr. Sachin Gupta (Equity Manager), who gave me valuable directions and

WITH REGARDS KHUSHBU RAJ

ACKNOWLEDGEMENT

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As a part of PGDM I, KHUSHBU RAJ, student of NDIM, New Delhi, underwent on Summer Internship for a period of two months (May-June 2009) on the project Equity Valuation of Reliance Capital Limited at Gulf bulls Securities Pvt. Ltd., Faridabad.

The project is being divided into the introduction of fundamental and technical analysis part where the ultimate aim of the project is to do equity valuation of Reliance Capital Limited (RCL).

I have done it to the best of my ability. And all the information and data in my project are authentic to the best of my knowledge and taken from reliable sources.

As a part of PGDM I, KHUSHBU RAJ, student of NDIM, New Delhi, underwent on Summer
As a part of PGDM I, KHUSHBU RAJ, student of NDIM, New Delhi, underwent on Summer

Equity Valuation of RCL

PREFACE

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  • (C) Relative Strength Index

(8) CHAPTER 8 : WORK DESCRIPTION (9) CHAPTER 9 : FINDINGS AND ANALYSIS (7) CHAPTER 10 : CONCLUSION ANS SUGGESTIONS (8) CHAPTER 11 : BIBLIOGRAPHY

(2) CHAPTER 2 : COMPANY PROFILE OF GBS (3) CHAPTER 3 : COMPANY PROFILE OF RCL (4) CHAPTER 4 : RESEARCH METHODOLOGY

(C) Relative Strength Index (8) CHAPTER 8 : WORK DESCRIPTION (9) CHAPTER 9 : FINDINGS AND

(7) CHAPTER 7 : TOOLS USED FOR TECHNICAL ANALYSIS

(C) Relative Strength Index (8) CHAPTER 8 : WORK DESCRIPTION (9) CHAPTER 9 : FINDINGS AND

(5) CHAPTER 5 : FUNDAMENTAL ANALYSIS

(1) CHAPTER 1 : EXECUTIVE SUMMARY

(6) CHAPTER 6 : TECHNICAL ANALYSIS

  • (B) Simple Moving Average

TABLE OF CONTENTS

  • (A) Fundamental Analysis

  • (B) Technical Analysis

  • (C) Company Analysis

  • (A) Economy analysis

  • (B) Industry Analysis

Equity Valuation of RCL

  • (A) Bollinger Bands

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This project report provides an analysis and valuation of the performance of Reliance Capital Limited stocks in the financial market over a period of one year and the effect of sensex movement, global and domestic stock market changes and the performance of global economy as a whole. It also includes the evaluation of the current and prospective profitability, liquidity and financial stability of RCL.

The methods used for analysis involves fundamental analyses using EIC approach, the effect of world major crash on Indian stock market and in turn on RCL share and also the technical analyses using various tools for equity valuation. The results of the data are analysed, which shows that the company performance is at par with the industry average.

The report finds the prospects of the company in future. The major weakness of the company includes extra control by fellow subsidiaries and its unplanned expansion. Its strengths include large market capitalization, excellent distribution network, etc.

The report also investigates the fact that the analysis conducted has limitations. Some of the limitations include are that the forcasting figures are not available.

Finally some suggestions and recommendations have also been incorporated which may prove to be helpful to be helpful for the financial market players.

The recommendations discussed include to play with RCL share as this share is very volatile and gaining value and strength day by day in current market conditions.

This project report provides an analysis and valuation of the performance of Reliance Capital Limited stocks
This project report provides an analysis and valuation of the performance of Reliance Capital Limited stocks

CHAPTER 1 : EXECUTIVE SUMMARY

Equity Valuation of RCL

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Equity Valuation of RCL

Vision Statement of Gulf Bulls Securities Pvt. Ltd.

Mission Statement of Gulf Bulls Securities Pvt. Ltd.

Page 6 Equity Valuation of RCL Vision Statement of Gulf Bulls Securities Pvt. Ltd. Mission Statement
Page 6 Equity Valuation of RCL Vision Statement of Gulf Bulls Securities Pvt. Ltd. Mission Statement

“Our vision is to grow our business and make our presence across the world.”

“Our mission is to create and introduce the new definition of investments around the globe.”

A Company registered under the Companies Act, 1956 .Gulf bulls is a professionally managed group headed by the directors, having vast experience in the stock market.

CHAPTER 2 : GULF BULLS SECURITIES PVT. LTD. Company Profile

The company offers financial information, analysis, investment guidance, news & views, which are designed to meet the requirements of everyone from a beginner to a savvy and well-informed trader.

The company is serving a diverse customer base of institutional and retail investors The Company has a balanced mix of revenues from emerging markets and is well positioned to leverage the growth potential offered by these markets.

GBS provides investors a robust platform to trade in Equities in NSE and BSE, and derivatives in NSE. The company has a worldwide vision and it along with its associates is currently providing state of the art stock broking services through all the major stock exchanges, trading through NSE & BSE, depository services through CDSL and all the services are available under the one roof. With its ability to evolve with the changing environment the Company has been able to put itself to the forefront of stock broking activities. With its network spreading across various parts of India, it has made a distinct mark among the stock broking houses and high net worth corporate as well as individuals.

Name

Designation

Mr. Vivek Rana

Chairman / Managing Director

 

Mr Rajiv Balhara

Director

 

Mr. Kuldeep Sharma

Director

 

Mr. Yajur Chaudhary

Director

 

Mr. Rajneesh Aggarwal

Director

 

Mr. Vipin Kumar

Director

 

Mr. Gajraj Singh

Director

 

Mr. Anil Kaushik

Director

EQUITY DERIVATIVES MUTUAL FUNDS INSURANCE

Name Designation Mr. Vivek Rana Chairman / Managing Director Mr Rajiv Balhara Director Mr. Kuldeep Sharma
Name Designation Mr. Vivek Rana Chairman / Managing Director Mr Rajiv Balhara Director Mr. Kuldeep Sharma

Management Team

Equity Valuation of RCL

BUSINESSES:

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CHAPTER 3 : RELIANCE CAPITAL LTD.

Reliance Mutual Fund is India's biggest Mutual Fund. Reliance Life Insurance is one of India's fastest growing life insurance company and among the top four private sector insurers. Reliance General Insurance is one of India's fastest growing general insurance company and among the top three private sector insurers. Reliance Money is one of the leading retail brokerage houses and distributors of financial products in India with over 3 million customers. Reliance Consumer finance has a loan book of over Rs. 8,600 crore at the end of March 2009.

Reliance capital limited has emerged as one of the 20 most valuable private sector companies in India, and is among the top 3 private sector companies in financial services. Over the last three years, its market capitalization has shot up by a dramatic 900 per cent to over Rs 30,000 crore (over US$ 7 billion), creating additional shareholder wealth of over Rs 27,000 crore(US$ 6 billion).

Reliance Capital is now India's fastest growing financial services powerhouse, serving over 15 million customers - a growth of over 200 per cent over the previous year. Its customer base is among the largest in India in the financial services space, is spread across 5,000 towns and cities, and served by over 12,000 technologically advanced distribution outlets, a 30,000 strong and motivated workforce and over 500,000 business partners.

Reliance Capital has a net worth of Rs. 7,491 crore (US$ 1.5 billion) and total assets of Rs. 24,260 crore (US$ 4.8 billion) as of March 31, 2009.

(e) Private equity and proprietary investments: stock broking: depository services: distribution of financial products: consumer finance; and other activities in financial services.

Reliance Capital has interests in (a) Asset management

CHAPTER 3 : RELIANCE CAPITAL LTD. Reliance Mutual Fund is India's biggest Mutual Fund. Reliance Life
CHAPTER 3 : RELIANCE CAPITAL LTD. Reliance Mutual Fund is India's biggest Mutual Fund. Reliance Life

Company Profile

  • (d) General insurance

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  • (C) Life insurance

  • (b) Mutual funds

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• Total income of Rs 4,919 crore (US$ 1 billion) - an increase of 128 per cent • Net profit of Rs 1,009 crore (US$ 229 million) - an increase of 43 per cent • Earnings per share of Rs 41.08 (US$ 0.9) - an increase of 34 per cent • Book value of Rs 245 (US$ 6) per share - an increase of 16 per cent • Total Assets of Rs. 15,374 crore (US$ 4 billion) - an increase of 134 per cent

Reliance Capital, a constituent of S&P CNX Nifty and MSCI India, is a part of the Reliance Anil DhirubhaiAmbani Group and is one of India’s leading and fastest growing privates sector financial services companies.

• Its net worth stands at almost Rs. 6,000 crore (US$ 1 billion), as on March 31, 2008, placing us among the top 3 private sector Indian companies in the financial services sector, after lClCl and HDFC

The highlights of the company's exceptionally strong operational and financial performance during the year 2007-08:

It

enjoy

the highest credit

ratings, of

`A1' and

`F1+', awarded by ICRA and FITCH,

respectively

 

It is this robust financial performance that has enabled us to recommend and substantially increase the dividend from 35 per cent to 55 per cent.

It has created a strong financial platform that will be the bedrock for accelerated future growth.

• Total income of Rs 4,919 crore (US$ 1 billion) - an increase of 128 per
• Total income of Rs 4,919 crore (US$ 1 billion) - an increase of 128 per

Strong Financial Platform

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Company Structure Equity Valuation of RCL Page 10
Company Structure Equity Valuation of RCL Page 10
Company Structure Equity Valuation of RCL Page 10

Company Structure

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Reliance Consumer Finance marks the entry of Reliance Capital Ltd. into the expanding consumer finance segment.

Reliance Consumer Finance marks the entry of Reliance Capital Ltd. into the expanding consumer finance segment. With a wide range of products which includes Vehicle loans (car and commercial), Home Loans, Loan Against Property and SME loans, this division strengthens the presence of Reliance Capital Ltd. in the retail finance segment. The primary focus of Reliance Consumer Finance is to build a quality loan portfolio and it has set up a risk management framework to achieve this.

Reliance Mutual Fund offers investors a well rounded portfolio of products to meet varying investor requirements. Reliance Mutual Fund has a presence in 415 cities across the country and constantly endeavors to launch innovative products and customer service initiatives to increase value to investors. Reliance Mutual Fund schemes are managed by Reliance Capital Asset Management Ltd., a wholly owned subsidiary of Reliance Capital Ltd.

Reliance Mutual Fund (RMF), a part of the Reliance - Anil DhirubhaiAmbani Group, is India's leading Mutual Fund, with average Assets under Management of Rs. 70,230 crores as on December 31, 2008, and an investor base of nearly 7.2 million.

Reliance Life Insurance will endeavor to attain a leadership position in the market over the next few years, by further expanding and strengthening its distribution network and offering a diverse array of products to suit the varied and specific needs of individual customers.

Reliance Life Insurance, a part of the Reliance Anil DhirubhaiAmbani Group is one of India's fastest growing life insurance company and among the top 4 private sector life insurers.

Reliance Life Insurance has a pan India presence and a range of products catering to individual as well as corporate needs. Reliance Life Insurance has 1,145 branches and over 142,00 agents.

It offers 35 products covering savings, protection & investment requirements.

Reliance Consumer Finance marks the entry of Reliance Capital Ltd. into the expanding consumer finance segment.

As on December 31, 2008, the loan book size was of Rs. 8,902 crores.

Reliance Mutual Fund (RMF)

Reliance Consumer Finance

Reliance Life Insurance

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Reliance Money is a comprehensive electronic transaction platform offering a wide range of asset classes. Its endeavour is to change the way India transacts in financial markets and avails financial services. Reliance Money is a single window, enabling you to access, amongst others in Equities, Equity & Commodities Derivatives, Mutual Funds, IPOs, Life& General Insurance products, Offshore Investments, Money Transfer, Money Changing and Credit Cards.

The Company has launched innovative products like India’s first Over-The-Counter Health insurance policy. Reliance General Insurance has an extended network of over 200 offices spread across 173 cities in 22 states, a wide distribution channel network, 24x7 customer service assistance and a full fledged website. It is also India’s first insurance company to be awarded the ISO 9001:2000 certification across all functions, processes, products and locations pan-India.

Reliance Money is a group company of Reliance Capital; one of India's leading and fastest growing private sector financial services companies, ranking among the top 3 private sector financial services and banking companies, in terms of net worth. Reliance Capital is a part of the Reliance Anil DhirubhaiAmbani Group.

Reliance General Insurance, a part of the Reliance Anil DhirubhaiAmbani Group and a subsidiary of Reliance Capital, is one of India’s leading private general insurance companies with over 94 customized insurance products catering to the corporate, SME and individual customers.

Reliance Money is a comprehensive electronic transaction platform offering a wide range of asset classes. Its
Reliance Money is a comprehensive electronic transaction platform offering a wide range of asset classes. Its

Reliance General Insurance

Reliance Money

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• Revenues up from Rs.426 crore (US$ 97 million) to Rs. 4,919 crore (US$ 1 billion) - 12 fold increase

Reliance Asset Reconstruction Company is a premier asset reconstruction company, the principal sponsor / shareholder of which is the Reliance ADA group (through Reliance Capital Limited). The other sponsors / shareholders are Corporation Bank, Indian Bank, GIC of India, Dacecroft and Blue Ridge.

Conventionally identified with brick-and-mortar industry or large manufacturing projects, the power of execution is perhaps an even greater challenge in the services industry in today's highly complex and competitive market scenario. Execution is about the discipline of converting thought into reality.

Of aggregating tens of thousands of skilled people, establishing operating systems and processes, carrying out financial engineering, rolling out extensive distribution networks across the length and breadth of a geographically diverse country like India, and creating a seamless back-end of world class customer care.

It is this power of execution that has enabled Reliance Capital wrest market share from entrenched larger players and cross significant milestones in a short span of just the last three years:

Reliance Asset Reconstruction aspires to be the leading player in a healthy and robust financial market place targeted at economically beneficial resolution of NPAs and thereby contribute to the growth and development of the economy.

Reliance Capital symbolizes the power of execution for the Reliance ADA Group and this is the key attribute that sets us apart from our peers and competitors.

And to do all this in a macro environment where, despite massive unemployment, there are serious skill shortages accompanied by rising wage inflation.

• Net profits from Rs. 36 crore (US$ 8 million) to Rs. 1,009 crore (US$ 229 million) - 28 fold increase

• Revenues up from Rs.426 crore (US$ 97 million) to Rs. 4,919 crore (US$ 1 billion)
• Revenues up from Rs.426 crore (US$ 97 million) to Rs. 4,919 crore (US$ 1 billion)

Reliance Capital's growth: The Power of Execution

Reliance Asset Reconstruction

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• Total assets from Rs.2,810 crore (US$ 639 million) to Rs. 15,374 (US$ 4 billion) - over a 5 fold increase

Needless to say, this rapid growth and expansion is being pursued without compromising profitability or conservatism. In order to achieve this balance, we have adopted several strategies and measures. We have put in place a tiered system for branch operations, a measured approach towards allocation of capital, and a healthy mix of own and third party distribution reach. In addition, we have focused on optimization of costs and improvement of productivity.

We have not leveraged our balance sheet in any significant manner. We have not lent money to the sub-prime sectors or invested in leveraged products such as credit or foreign exchange derivatives. We have followed a rigorous evaluation approach in making investments and disbursing loans.

• India's largest Mutual Fund by far • India's largest broker and distributor of financial services and products • One of India's top 3 private general insurers • One of India's top 4 private life insurers

Our focus so far has been primarily retail. We are now looking at also expanding our horizons into the corporate and institutional space with the launch of new businesses such as asset reconstruction, institutional broking and private equity.

At Reliance Capital, we have remained largely insulated by the global contagion because we have married growth with rigorous financial discipline, profit with conservatism, and operating leverage with risk mitigation strategies.

It is noteworthy that this growth is purely organic - and achieved entirely in India. From being a small and insignificant asset management and investment arm of the Reliance Group, Reliance Capital has come to encompass the full spectrum of non banking financial services.

Seizing opportunity in the current turbulent times requires strategic agility, flawless execution, unremitting financial discipline, and an unwavering focus on profitability. These are the very

• Net worth from Rs. 1,438 crore (US$ 327 million) to Rs 5,929 crore (US$ 1 billion) - 4 fold increase

• Customers from 0.6 million to 15 million - 23 fold increase • Workforce from 2,317 to 30,000 - 13 fold increase

• Total assets from Rs.2,810 crore (US$ 639 million) to Rs. 15,374 (US$ 4 billion) -

Indeed, it is today a leading player in each of these businesses. We are:

• Total assets from Rs.2,810 crore (US$ 639 million) to Rs. 15,374 (US$ 4 billion) -

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• Increase our customer base - from 15 million to 50 million • Increase our distribution reach - from 4,000 to 20,000 cities and towns across India • Increase our employee base - from 30,000 to 100,000 • Increase the number of our business partners - from 500,000 to 1 million • Invest Rs. 2,000 crore (US$ 454 million) in our insurance businesses, taking our cumulative investment to over Rs 4,000 crore, or nearly a billion dollars • Enter the banking sector as and when the regulatory environment permits • Globalize operations leveraging our domestic experience and capabilities - selectively expand our asset management, life insurance and broking operations in emerging markets across Asia, Africa and Middle East Together, these investments and initiatives will further accelerate our growth momentum and lead to substantial value creation. Let me now turn to a brief overview of each of our businesses. I begin with the Reliance Mutual Fund.

qualities which have powered our success in the last three years, and will continue to do so in the future.

You will be glad to learn that we have drawn up exciting growth plans for the next 3 to 5 years:

• Increase our customer base - from 15 million to 50 million • Increase our distribution
• Increase our customer base - from 15 million to 50 million • Increase our distribution

Equity Valuation of RCL

Future plans

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The equity valuation is a method by which a particular company is analysed on different parameters and the decision on investment as well as the duration of it, is taken on that basis to maximise the return on the investment. Equity valuation mainly consists of two types of analysis:

Therefore, it is well advised for the investors to go into the details before investing his/her hard earned money in the stocks of a particular. She/he should see whether the company is worth investing or not and if it is, then what should be the duration of investment so that the return on investment is maximum.

In recent times, the market has become volatile like never before and the investors are at risk of losing money if they won’t invest carefully with proper research and analysis. The market is not a place to gamble and the investors who look it that way definitely lose money in the market.

The equity valuation is a method by which a particular company is analysed on different parameters
The equity valuation is a method by which a particular company is analysed on different parameters

CHAPTER – 4 : RESEARCH METHODOLOGY

  • 1. Fundamental Analysis

  • 2. Technical Analysis

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Too many economic indicators and extensive macroeconomic data can confuse novice investors. The same set of information on macroeconomic indicators can have varied effects on the same currencies at different times. It is beneficial only for long-term investments

Fundamental analysis involves examining the economic, financial and other qualitative and quantitative factors related to a security in order to determine its intrinsic value. While typically this method is used to evaluate the value of a company’s stock, its use can be extended for any kind of security, such as bonds or currency.

Fundamental analysis, which is also known as quantitative analysis, involves delving into a company’s financial statements (such as profit and loss account and balance sheet) in order to study various financial indicators (such as revenues, earnings, liabilities, expenses and assets). Such analysis is usually carried out by analysts, brokers and savvy investors.

1. Identifying the intrinsic value of a security. 2. Identifying long-term investment opportunities, since it involves real-time data.

∑ Too many economic indicators and extensive macroeconomic data can confuse novice investors. ∑ The same
∑ Too many economic indicators and extensive macroeconomic data can confuse novice investors. ∑ The same

CHAPTER 5 : FUNDAMENTAL ANALYSIS

Fundamental Analysis: Drawbacks

Fundamental Analysis: Benefits

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Advantages of Global Economy

The global economy has encouraged transportation on a wider scale for the free flow of goods and services across nations. This has, in turn, led to the emission of greenhouse gases. The global economy has also resulted in the loss of domestic jobs. The labour intensive industries of the developed countries find it profitable to shift to third world countries where wage rates are low. This leads to the displacement of labour in the developed countries. Further, it is difficult to formulate regulations and legislations that are undifferentiated across the globe.

Global economy has shown a conscious shift in economic activity from agriculture to service in both the developed and the developing world. There has also been a growth in total as well as per capita GDP mainly in the OECD (Organization for Economic Co-operation and Development) or the advanced countries, Eastern Europe and Asia. However, measuring poverty remains one of the most contentious issues and although numbers of people in poverty have declined in East and South Asia, freeing the world totally of poverty still poses the most

The global economy has equipped each and every economy of the world with the power to market goods and services across different countries in the globe. Before the global economy came into existence, the entire economy was ruled by the United States. But with the stings of global economy the power of the United States has shrunk to about 25%. The monopoly of United State would continue to slow downas more and more industrialization will take place across the world.

The global economy can reap the benefits of increasing economies of scale. With the opening up of the economy the industrial sector has benefited with the attainment of cheap labour, capital and technology. Small companies also witness rapid growth owing to a wider customer base. Many believe that the global economy has promoted international peace and cooperation.

Advantages of Global Economy The global economy has encouraged transportation on a wider scale for the
Advantages of Global Economy The global economy has encouraged transportation on a wider scale for the

(A) ECONOMY ANALYSIS

Disadvantages of Global Economy

GLOBAL ECONOMY

Equity Valuation of RCL

EIC APPROACH

challenging

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question.

World GDP (PPP): $65 trillion GDP Growth Rate: 5.2% Growth Rate of Industrial Production: 5% GDP by Sector: Services- 64% Industry- 32% Agriculture- 4% GDP Per Capita (PPP): $9,774 Population: 6.65 billion The Poor (Income below $2 per day): 3.25 billion (approximately 50%) Millionaires: 9 million (approximately 0.15%) Labour Force: 3.13 billion Exports: $13.87 trillion Imports: $13.81 trillion Inflation Rate - Developed Countries: 1% - 4% Inflation Rate - Developing Countries: 5% - 20% Unemployment - Developed Countries: 4% - 12% Unemployment & Underemployment - Developing Countries: 20% - 40%

The economy of Japan is the second largest economy in the world, after the United States at around US$4.5 trillion in terms of nominal GDP and third after the United States and China when adjusted for purchasing power parity. According to country-data.com,for three decades, Japan's overall real economic growth had been spectacular: a 10% average in the 1960s, a 5% average in the 1970s, and a 4% average in the 1980s. However, this trend changed dramatically when the recession pulled its economy in red. According to the Bloomberg.com, in the first quarter of FY 2008, the economy of Japan contracted by 3.3% as recessions in the U.S. and Europe triggered a record drop in exports.

The economy of the United States is the largest national economy in the world. Its GDP was estimated as $13.8 trillion in 2009. But the economic situation of the country deteriorated heavily because of the recession that started in December 2007. According to the National Economic Accounts, BEA the US economy contracted by 5.1% in the last quarter of the financial year 2008-09 which was more severe than 1% contraction in the Q3 of FY 2008-09.

The economy of the People's Republic of China is the second largest in the world after that of the United States with a GDP of$7.8 trillion (2008) when measured on a purchasing power

World GDP (PPP): $65 trillion GDP Growth Rate: 5.2% Growth Rate of Industrial Production: 5% GDPJapan is the second largest economy in the world, after the United States at around US$4.5 trillion in terms of nominal GDP and third after the United States and China when adjusted for purchasing power parity . According to country-data.com,for three decades, Japan's overall real economic growth had been spectacular : a 10% average in the 1960s, a 5% average in the 1970s, and a 4% average in the 1980s. However, this trend changed dramatically when the recession pulled its economy in red. According to the Bloomberg.com, in the first quarter of FY 2008, the economy of Japan contracted by 3.3% as recessions in the U.S. and Europe triggered a record drop in exports. The economy of the United States is the largest national economy in the world. Its GDP was estimated as $13.8 trillion in 2009. But the economic situation of the country deteriorated heavily because of the recession that started in December 2007. According to the National Economic Accounts, BEA the US economy contracted by 5.1% in the last quarter of the financial year 2008-09 which was more severe than 1% contraction in the Q3 of FY 2008-09. The economy of the People's Republic of China is the second largest in the world after that of the United States with a GDP o f$7 .8 trillion (2008) when measured on a purchasing power World Economic Statistics at a Glance Equity Valuation of RCL Economy of China Economy of Japan US Economy Page 19 " id="pdf-obj-18-45" src="pdf-obj-18-45.jpg">
World GDP (PPP): $65 trillion GDP Growth Rate: 5.2% Growth Rate of Industrial Production: 5% GDPJapan is the second largest economy in the world, after the United States at around US$4.5 trillion in terms of nominal GDP and third after the United States and China when adjusted for purchasing power parity . According to country-data.com,for three decades, Japan's overall real economic growth had been spectacular : a 10% average in the 1960s, a 5% average in the 1970s, and a 4% average in the 1980s. However, this trend changed dramatically when the recession pulled its economy in red. According to the Bloomberg.com, in the first quarter of FY 2008, the economy of Japan contracted by 3.3% as recessions in the U.S. and Europe triggered a record drop in exports. The economy of the United States is the largest national economy in the world. Its GDP was estimated as $13.8 trillion in 2009. But the economic situation of the country deteriorated heavily because of the recession that started in December 2007. According to the National Economic Accounts, BEA the US economy contracted by 5.1% in the last quarter of the financial year 2008-09 which was more severe than 1% contraction in the Q3 of FY 2008-09. The economy of the People's Republic of China is the second largest in the world after that of the United States with a GDP o f$7 .8 trillion (2008) when measured on a purchasing power World Economic Statistics at a Glance Equity Valuation of RCL Economy of China Economy of Japan US Economy Page 19 " id="pdf-obj-18-47" src="pdf-obj-18-47.jpg">

World Economic Statistics at a Glance

Equity Valuation of RCL

Economy of China

Economy of Japan

US Economy

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The stress in the financial markets of the United States that first emerged in the mid of 2007 transformed themselves into a full-blown global financial crisis leading to the fall in 2008 credit markets, stock markets crash, and insolvencies in the entire international financial system. The various measures taken by the government like liquidity injections by central banks proved to be inadequate to overcome the crisis. Initially none of the policies by the government gave a positive response. The United States government introduced a $700 billion rescue package and took equity positions in nine major banks and several large regional banks but was unable to manage the situation entirely.

Russia is a unique emerging market, in the sense that being the nucleus of a former superpower shows more anomalies. On one hand, its exports are primarily resource based, and on the other, it has a pool of technical talent in aerospace, nuclear engineering, and basic sciences. According to IMF, Russia has the world’s sixth largest economy by purchasing power parity.The Russian economy contracted by 9.5% YoY in the first three months of 2009, after a 1.2% GDP YoY growth in the last quarter of 2008, according to Tradingeconomics.com, Bloomberg.

parity (PPP) basis. It is the third largest in the world after the US and Japan with a nominal GDP of US$4.4 trillion (2008) when measured in exchange-rate terms. China has been the fastest-growing major nation for the past quarter of a century with an average annual GDP growth rate above 10%. But the impact of recession was also evident as the economy grew by 6.8% and 6.1% in the last two quarters of FY 2008, according to chinadaily.com.

The United Kingdom is a major developed capitalist economy. It is the world's sixth largest by nominal GDP and the seventh largest by purchasing power parity. It is the third largest economy in Europe after Germany's and France's in nominal terms, and the third largest after Germany's and Russia's in terms of purchasing power parity. According to the National Statistics department of UK, the economy contracted by 1.9% in the fourth quarter of FY 2008.

As we go through the GDP growth trend of one of the key economies in the world in the recent months, the impact of the recession becomes clear. However, the global economy has started showing signs of recovery with several macroeconomic indicators are turning green in the past two months. Now, we will take a detailed look at the Indian economy.

The stress in the financial markets of the United States that first emerged in the midRussia is a unique emerging market, in the sense that being the nucleus of a former superpower shows more anomalies. On one hand, its exports are primarily resource based, and on the other, it has a pool of technical talent in aerospace, nuclear engineering, and basic sciences. According to IMF, Russia has the world’s sixth largest economy by purchasing power parity.The Russian economy contracted by 9.5% YoY in the first three months of 2009, after a 1.2% GDP YoY growth in the last quarter of 2008, according to Tradingeconomics.com, Bloomberg. parity (PPP) basis. It is the third largest in the world after the US and Japan with a nominal GDP of US$4 .4 trillion (2008) when measured in exchange-rate terms. China has been the fastest-growing major nation for the past quarter of a century with an average annual GDP growth rate above 10%. But the impact of recession was also evident as the economy grew by 6.8% and 6.1% in the last two quarters of FY 2008, according to chinadaily.com. The United Kingdom is a ma j or developed capitalist economy . It is the world's sixth largest by nominal GDP and the seventh largest by purchasing power parity . It is the third largest economy in Europe after Germany's and France's in nominal terms, and the third largest after Germany's and Russia' s in terms of purchasing power parity. According to the National Statistics department of UK, the economy contracted by 1.9% in the fourth quarter of FY 2008. As we go through the GDP growth trend of one of the key economies in the world in the recent months, the impact of the recession becomes clear. However, the global economy has started showing signs of recovery with several macroeconomic indicators are turning green in the past two months. Now, we will take a detailed look at the Indian economy. An outlook on global economic prospects Economy of United Kingdom Equity Valuation of RCL Economy of Russia Page 20 " id="pdf-obj-19-50" src="pdf-obj-19-50.jpg">
The stress in the financial markets of the United States that first emerged in the midRussia is a unique emerging market, in the sense that being the nucleus of a former superpower shows more anomalies. On one hand, its exports are primarily resource based, and on the other, it has a pool of technical talent in aerospace, nuclear engineering, and basic sciences. According to IMF, Russia has the world’s sixth largest economy by purchasing power parity.The Russian economy contracted by 9.5% YoY in the first three months of 2009, after a 1.2% GDP YoY growth in the last quarter of 2008, according to Tradingeconomics.com, Bloomberg. parity (PPP) basis. It is the third largest in the world after the US and Japan with a nominal GDP of US$4 .4 trillion (2008) when measured in exchange-rate terms. China has been the fastest-growing major nation for the past quarter of a century with an average annual GDP growth rate above 10%. But the impact of recession was also evident as the economy grew by 6.8% and 6.1% in the last two quarters of FY 2008, according to chinadaily.com. The United Kingdom is a ma j or developed capitalist economy . It is the world's sixth largest by nominal GDP and the seventh largest by purchasing power parity . It is the third largest economy in Europe after Germany's and France's in nominal terms, and the third largest after Germany's and Russia' s in terms of purchasing power parity. According to the National Statistics department of UK, the economy contracted by 1.9% in the fourth quarter of FY 2008. As we go through the GDP growth trend of one of the key economies in the world in the recent months, the impact of the recession becomes clear. However, the global economy has started showing signs of recovery with several macroeconomic indicators are turning green in the past two months. Now, we will take a detailed look at the Indian economy. An outlook on global economic prospects Economy of United Kingdom Equity Valuation of RCL Economy of Russia Page 20 " id="pdf-obj-19-52" src="pdf-obj-19-52.jpg">

An outlook on global economic prospects

Economy of United Kingdom

Equity Valuation of RCL

Economy of Russia

Page 20

In this climate, growth prospects for both high-income and developing countries have deteriorated substantially, and the possibility of a serious global recession cannot be ruled out. Even if the waves of panic that has affected credit and equity markets across the world are soon brought under control, the crisis is likely to cause a sharp slowdown in financial markets that has already occurred and that is expected to continue. The tight credit conditions, weaker capital inflows to middle-income countries, and a sharp reduction in global import demand are expected to be the main factors driving the slowdown in developing countries. Import demand has decline by 3.4 percent in high-income countries during 2009, while net private debt and equity flows to developing countries has declined from $1 trillion in 2007 to about $530 billion in 2009, or from 7.7 to 3 percent of developing-country GDP.As a result, investment growth in developing

During this time, November 20, 2008, markets remained volatile despite of these measures and signs that credit conditions are improving somewhat in high-income countries. Both private and public sector interest rate was increased for developing countries, and a growing list of countries wereforced to seek assistance from the International Monetary Fund (IMF).

Virtually no country, developing or high- income, has escaped the impact of the widening crisis, although those countries with stronger fundamentals going into the crisis have been less affected. The deterioration in financing conditions has been most severe in countries with large current account deficits, and in those that showed signs of overheating and unsustainably rapid credit creation before the financial crisis intensified.

especially since mid-September, risk aversion has increased and capital flows to developing countries have seized up.As a result, the currencies of a wide range of developing countries depreciated sharply, and developing-market equity prices have lost almost all of their gains since the beginning of 2008. Bank lending and foreign direct investment inflows have declined since then.

At the same time, European governments have announced plans for equity injections and purchases of bank assets worth some $460 billion, along with up to almost $2 trillion in guarantees of bank debt.

Of the 20 developing countries whose economies have reacted most sharply to the deterioration in conditions (as measured by exchange rate depreciation, increase in spreads, and equity market declines), 6 come from Europe and Central Asia, and 8 from Latin America and the Caribbean.

During the initial phases of this financial crisis in 2007, the effects of the financial turmoil on developing countries were relatively modest.However, as the crisis intensified in 2008 and

In this climate, growth prospects for both high-income and developing countries have deteriorated substantially, and the
In this climate, growth prospects for both high-income and developing countries have deteriorated substantially, and the

Equity Valuation of RCL

Page 21

A pronounced recession is believed to have begun in mid-2008 in Europe, Japan, and most recently, the United States. This recession is projected to extend till 2009, yielding a decline in high-income country GDP of 0.1 percent that year. In developing countries, growth slowed to 4.5 percent in 2009, down from 7.9 and 6.3 percent in 2007 and 2008.Overall, global GDP expanded only 0.9 percent in 2009 below the rate recorded in 2001 and 1991 and indeed, the weakest since records became available beginning in 1970.

Getting inflation under control

Spreading the benefits of growth more equitably

Completing investment projects which are essential for long term development of

economy. Dealing with global financial uncertainty, which will make capital flows and exports more difficult.

After several years of rapid growth, 2009 has proved to be a testing for India. Inflation continues to pose threat. Inflation peaked at 12% in early august’2008 caused by both the demand pull factors caused by rapid growth and cost push inflation factors like rising oil prices. But in the present scenario with the fall in oil prices and reduction in interest rate, inflation reached to a single digit by November ’2008 further and dipped to 4.39% in by the end of the annual year in December ’2008.

The effect of global recession on Indian economy has caused falling house prices, crisis in the financial system, etc. Indian growth is dependent on the growth of the west. However, the Indian stock markets have been hit by global crisis. The Indian service sector and manufacturing sector has been adversely impacted. Indian government still has to target the growth of 10%.

After reaching the growth of 9.8% in 2007-08, since then growth reduced to 6.23%. This might not be a bad thing as it will avoid inflationary pressures building. However, some worry the global credit crunch could reduce growth causing too much of a slowdown.

countries has also slowed dramatically, rising only 3.5 percent in middle-income countries, compared with a 13.2 percent increase in 2007.

A pronounced recession is believed to have begun in mid-2008 in Europe, Japan, and most recently,
A pronounced recession is believed to have begun in mid-2008 in Europe, Japan, and most recently,

Challenges for Indian economy in 2009

INDIAN ECONOMY 2009

Equity Valuation of RCL

Page 22

The Indian rupee has had a surprisingly week year. The rupee has fallen from 39 rupee for $1 in January 2008, to 44 rupee in September. Real interest rates in India are still negative, but, if the Indian inflation rate is reduced and the govt. resist the temptation to go all out for growth otherwise rupee may face more difficulties.

The annual policy statement for 2009-10 is set in the context of a deep global economic slump and financial market turmoil. Governments and central banks around the world have responded to the crisis through both conventional and unconventional fiscal and monetary measures. And there is unprecedented co-ordinated policy action globally.

The first five year plan was presented by Jawaharlal Nehru in 1951. The main objectives of the first five year plans were agriculture, community development, communications, land rehabilitation.

The main objectives of the third five year plan were defense, price stabilization, construction of dams, cement and fertilizers plants, education etc.

The second five year plan mainly focused on hydroelectric projects, steel Mills, production of coal, railway tracks.

After the fall in sensex in 2008, the sensex could offer one of the best returns for global stock markets. India’s strong economic growth will buck the global trend for lower growth.

The five years plan in India is framed, executed and monitored by the Planning Commission of India. Currently, India is in its 11thfive year plan.

The Indian rupee has had a surprisingly week year. The rupee has fallen from 39 rupee
The Indian rupee has had a surprisingly week year. The rupee has fallen from 39 rupee

Objectives of all the Five Year's Plan:

Equity Valuation of RCL

  • 3 rd Plan (1961-66)

  • 2 nd Plan (1956-61)

  • 1 st Plan (1951-56)

Indian rupee 2009

Annual policy

Five Year Plans

Sensex 2009

Page 23

drinking

At this time Indira Gandhi was the prime minister and she nationalized of 19 major banks. The funds raised for industrialization was used in the Indo-Pak war of 1971. India also conducted nuclear tests in 1974.

The main objectives of the ninth five year plan were agriculture and rural development, food and nutritional security, empowerment of women, accelerating growth rates, providing the basic

The objectives of the seventh five year plan were Improving productivity by upgrading technology.

The tenth plan highlighted the need for reduction of poverty ratio, increase in literacy rates, reduction in infant mortality rate, economic growth, increase in forest and tree cover etc.

The major objectives of the eleventh five year plan are income generation, poverty alleviation, education, health, infrastructure, environment etc.

The major objectives of the fifth five year plan were employment, poverty alleviation, justice etc

The sixth five year plan focused on information technology, Indian national highway system,

drinking At this time Indira Gandhi was the prime minister and she nationalized of 19 major
drinking At this time Indira Gandhi was the prime minister and she nationalized of 19 major
  • 8 th Plan (1992-97) Modernization

tourism, economic liberalization,

  • 10 th Plan (2002-2007)

    • 9 th Plan (1997-2002)

Equity Valuation of RCL

  • 11 th Plan (2007-08)

    • 4 th Plan (1969-74)

    • 7 th Plan (1985-89)

    • 5 th Plan (1974-79)

    • 6 th Plan (1980-85)

requirements

Page 24

planning

such

industries

control,

family

health,

water,

target

price

eight

plan.

main

sanitation

year

five

the

the

etc.

etc.

was

of

of

as

∑ Agriculture:- 19.9% Industry: - 19.3% Service Sector: - 60.7% ∑ ∑
Agriculture:- 19.9%
Industry: - 19.3%
Service Sector: - 60.7%

The gross domestic product or GDP of any country is a yardstick to measure the size of its economy. It is defined as the total market value of all final goods and services of a country in a given period of time (normally a year). It is also considered the sum of value added at every stage of production of all final goods and services produced within a country in a given period of time. GDP = consumption + gross investment + government spending + (exports - imports) GDP = C + I + G + (X-M)

The Indian economy is the 12th largest in USD exchange rate terms. India's GDP has touched US$1.25 trillion. India is the second fastest growing economy of the world and during the fiscal year 2007-2008 India's GDP growth rate was nearly 9.5%. Indian economy is a diverse one, encompassing agriculture, textiles, handicrafts etc. Although many people are still dependent upon agriculture, the service sector is also playing a very important role in the Indian economy. Indian GDP per capita is $1,089 which is very nominal. But the crossing of Indian GDP over a trillion dollar mark puts India in the elite group of 12 countries with trillion dollar economy.

It is great news that the service sector is contributing more than half of the Indian GDP. It takes India one step closer to the developed economies of the world. Earlier mainly it was agriculture which contributed in the GDP.

∑ Agriculture:- 19.9% Industry: - 19.3% Service Sector: - 60.7% ∑ ∑ The gross domestic product
∑ Agriculture:- 19.9% Industry: - 19.3% Service Sector: - 60.7% ∑ ∑ The gross domestic product

GROSS DOMESTIC PRODUCTION (GDP )

Contribution of Various Sectors in GDP

Equity Valuation of RCL

Indian GDP

Page 25

However, manufacturing sector showed negative growth rate in the 4 th quarter, which pulled down the growth rate of Q4 GDP to 5.8% from 8.6% a year ago. Agriculture grew at a rate of 1.6% 2008-09 against 4.9% in 2007-08. Only mining, quarrying, community, social and personal services showed improved performance in 2008-09 over the previous fiscal. Community, social and personal services grew 13.1 per cent in 2008-09 from 6.8 per cent in the previous fiscal, driven by the pay hikes of government employees. Mining and quarrying was up by 3.6 per cent from 3.3%. electricity, gas and water supply as well as other service sectors grew at 3.4% compared to 5.3% in 2007-08. Construction growth was 7.2% in the fiscal against 10.1% in 2007-08.

The Indian economy grew by 7.8% in the first quarter, 7.7% in the second, and 5.8% in the next two quarters in 2008-09 financial year. However, the figures for the first quarters are revised. Compared to the previous fiscal, economic growth did exhibit a slowdown, due to decline in demand both domestically and overseas, leading to shrinking exports since October ’2008.

5.8% during of the last quarter of the fiscal, at the time when most of the developed economies have shrunk, puts India among the top most growing nations. The news was cheered by the stock market, which saw an immediate rise in the Sensex by 400 points to touch 14,692.27 at the BSE by mid-day, a level witnessed last in September 2008.

The Indian government is still looking up to improve the GDP of the country and so several steps have been taken to boost the economy. Policies of FDI, SEZs and NRI investment have been framed to give a push to the economy and hence the GDP.

In spite of the recessionary trends, India has managed to the economic growth of 6.7% during 2008-09, despite of the dismal performance by the manufacturing sector. A growth rate of

However, manufacturing sector showed negative growth rate in the 4 quarter, which pulled down the growth
However, manufacturing sector showed negative growth rate in the 4 quarter, which pulled down the growth

Equity Valuation of RCL

Current Scenario

Page 26

Per capita Income means how much an individual earns, of the yearly income that is generated

Per capita Income means how much an individual earns, of the yearly income that is generated in the country through productive activities. It means the share of each individual when the income from the productive activities is divided equally among the citizens. Per capita income is reported in units of currency. Per capita income reflects the gross national product of a country. Per capita income is also a measure of the wealth of a population of a nation when compared with other countries. It is expressed in terms of commonly used international currency such as Euro, Dollars because these currencies are widely known.

The per capita income of India has gone up as much as 14.2% in 2006-07. According to May 2007 data, the per capita income of India was Rs 29,382 a year or Rs 2,448.5 a month. This high rise in the per capita income of people has enabled them to spend more products like mobile, health etc. This high rise in the per capita income has also increased the savings of the people. Increase in house hold's income levels and the growth of 9.6% in the GDP have resulted in this increase of the per capita income of the people.

Per capita Income means how much an individual earns, of the yearly income that is generated

Per Capita Income of India: Current Scenario

PER CAPITA INCOME

Meaning and Significance

Equity Valuation of RCL

Page 27

A high rate of inflation can cause the following economic impediments:

The two backward states of the Indian republic Jharkhand and Orrissa are growing at a rapid rate in terms of the per capita income because of rise of industrial activities in these two states. Karnataka is at the top of the chart with the fastest growing per capita income (nearly 9.28%) followed by Gujarat with 8.92%.The per capita income in 17 states is below the national average of 8.4%. Per capita income shows the purchasing power of the states and so it is very important for the states to increase the per capita income of each person.

Inflation means a persistent rise in the price levels of commodities and services, leading to a fall in the currency’s purchasing power. The problem of inflation used to be confined to national boundaries, and was caused by domestic money supply and price rises. In this era of globalization, the effect of economic inflation crosses borders and percolates to both developing and developed nations.

One of the economic effects of inflation is the change in the marginal cost of producing money. This involves the appropriate 'price' of money which, in this case, is the nominal rate of interest. This 'price' indicates the return which has to be pre-determined to hold back the printing presses, in place of some other assets which offer the market interest rate.

In addition, if a country has a higher rate of inflation than other countries, its balance of trade is likely to move in an unfavorable direction. This is because there is a decline in its price competitiveness in the global market.

The value of investments are destroyed over time.

It is economically disastrous for lenders.

Arbitrary governmental control of the economy to control inflation can restrain economic

Central bankers believe that mild inflation, in the 1 to 2 per cent range, is the most benign for a country’s economy. High inflation, stagflation or deflation are all considered to be serious economic threats.

development of the country. Non-uniform inflation can lead to heavy competition in the global market and threaten the existence of small economies.

A high rate of inflation can cause the following economic impediments: The two backward states of
A high rate of inflation can cause the following economic impediments: The two backward states of

Per Capita Income of Various Indian States

Economic Effects of Inflation

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INFLATION

Page 28

Page 29

Current inflation

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Inflationary trend in India:

Current Inflation Trends in the World

High levels of inflation tend to lead to economic stagnation.

∑ Page 29 Current inflation Equity Valuation of RCL Inflationary trend in India: Current Inflation Trends
∑ Page 29 Current inflation Equity Valuation of RCL Inflationary trend in India: Current Inflation Trends
(%) Inflation Rate 121.6 1995-96 112.6 1994-95 100.0 1993-94 Index Year 12.60 7.99
(%)
Inflation Rate
121.6
1995-96
112.6
1994-95
100.0
1993-94
Index
Year
12.60
7.99

The current inflation rates across the world, as of April 2009, were low due to the global recession that peaked in September 2008. The recessionary pressures felt across the globe resulted in a massive decline in the supply of money. This, in turn, affected commodity prices, resulted in low inflation rates. Current inflation is measured by the International Monetary Fund.

According to an IMF report, headline inflation in the developed nations is expected to decline from 3.5% in 2008 to a record low of 0.25% in 2009. It is expected to recover to 0.75% in 2010. In the emerging economies, inflation is expected to fall to 5.75% in 2009 and 5% in 2010, from 9.5% in 2008. For the quarter ended March 31, 2009, the current inflation rates of major nations are listed in the table given below:

Countries

Current Inflation (%)

New Zealand

3

UK

2.9

Australia

2.5

EU

0.6

Japan

-0.3

US

-0.4

7.16 195.5 2006-07 206.1 2007-08 215.9 4.61 4.40 5.95 3.27 2005-06 3.60 3.41 5.46 6.48 4.38
7.16
195.5
2006-07
206.1
2007-08
215.9
4.61
4.40
5.95
3.27
2005-06
3.60
3.41
5.46
6.48
4.38
5.42
4.75
2.43
155.7
1996-97
127.2
1997-98
132.8
1998-99
140.7
1999-00
145.3
2000-01
Standard Deviation
2001-02
161.3
2002-03
166.8
2003-04
175.9
2004-05
187.3
7.16 195.5 2006-07 206.1 2007-08 215.9 4.61 4.40 5.95 3.27 2005-06 3.60 3.41 5.46 6.48 4.38
7.16 195.5 2006-07 206.1 2007-08 215.9 4.61 4.40 5.95 3.27 2005-06 3.60 3.41 5.46 6.48 4.38
7.16 195.5 2006-07 206.1 2007-08 215.9 4.61 4.40 5.95 3.27 2005-06 3.60 3.41 5.46 6.48 4.38

Equity Valuation of RCL

Page 30

.

There is visible link between trends in IIP and the growth in revenues of the CNX-500 companies over the past six years. According to an article published in Business Line, dated April 6, 2008 the two parameters were said to be positively correlated with a correlation co- efficient of close to 0.79.The correlation indicates that if the IIP numbers point to a possible slowdown, then corporate earnings numbers may well be headed the same way, unless higher agricultural growth or a far superior performance from the services sector offsets such a slowdown. Over the period of analysis, IIP and revenue growth have moved mostly in tandem, with only a few quarters of divergence. From a period of slow growth in early 2001, both the parameters have made a sharp comeback, accelerating sharply since 2005; the latest numbers once again bring the hint of a slowdown in the economy. Macro-economic factors such as inflation and interest rates also appear to have influenced the growth in both these variables.

Over the next couple of years, sales growth for corporate India began to accelerate and comfortably outpace the growth in IIP. By June 2004, the CNX 500 revenue growth was almost four times the IIP growth number. The increasing role of service industries such as construction, engineering services and IT, not captured in the IIP, could have aided corporate earnings in this period.The economy’s boom phase, starting 2005, was reflected in all the key indicators. By the quarter ended September 2006 GDP grew by 10.1 per cent over the previous year, IIP jumped to a 12 per cent growth and revenues of CNX 500 companies surged by 33 per cent for this quarter.

In 2001-02, both IIP and corporate revenue growth remained modest, with India Inc’s growth just about matching the IIP readings. A high base and a spike in inflation numbers the preceding year appear to have contributed to this challenging period. By 2002-03 however, both industrial production and corporate India’s sales were firmly on the recovery path.

IIP is an economic indicator that is released monthly by the Federal Reserve Board. The indicator measures the amount of output from the manufacturing, mining, electric and gas industries. The reference year for the index is 2002 and a level of 100.

Production data is often received directly from the Bureau of Labor Statistics and trade associations, both on physical output and inputs used in the production process. Each individual index is calculated using the Fischer index formula.

Investors can use the IIP of various industries to examine the growth in the respective industry. If the IIP is growing month-over-month for a particular industry, this is a sign that the companies in the industry are performing well.

There is visible link between trends in IIP and the growth in revenues of the CNX-500
There is visible link between trends in IIP and the growth in revenues of the CNX-500

INDEX OF INDUSTRIAL PRODUCTION

Equity Valuation of RCL

Page 31

The recent trend in IIP is quite dismal as far as the performance of India Inc.

The recent trend in IIP is quite dismal as far as the performance of India Inc. is concerned. The IIP data in the latter half of the financial year shows the declining trend in the Indian economy. Index of Industrial Production (IIP) for March 09 draws its worst performance since January 1993. The number has come at -2.3% against economists projection of a contraction in the range of 0.5% to 0.7%. As we look at the table, the cumulative growth for the FY 2008 was 2.4% which is way below than the cumulative growth figure of 8.5% in FY 2007.

During the Full year, April-March 2008-09, the six core sector industries registered a growth of 2.7% as against 5.9% during the corresponding period of the previous year. India's industrial production in March was squeezed down due to a sharp decline in the Capital Goods, Manufacturing and consumer durables even as Electricity and Mining components reported decent growth.

The number for the month of March this year was negative even as the six core industries which constitute 26.7% of the industrial output data grew at 2.9% in March, same as a year ago, raising hopes about a better factory output data for this month. This was the highest sequential core sector growth rate since September last year when it grew at 3.9%.

Now, we take a look at the IIP data released by the Central Statistical Organisation of the Ministry of Statistics and Programme Implementation on May 12, 2009. The data gives a detailed picture of IIP for the Fiscal year 2008-09.

The above trends clearly suggest that boom phases in the IIP have corresponded with those in corporate earnings, while slow phases have been reflected in a sales slowdown. In this context, the recent slowdown in IIP is a cause for concern on the pace of growth likely in India Inc.

The recent trend in IIP is quite dismal as far as the performance of India Inc.
The recent trend in IIP is quite dismal as far as the performance of India Inc.

Source: The Business Line, April 6, 2008

Equity Valuation of RCL

Page 32

Unemployment was recognised as a problem in India as early as 1950s but faster economic growth,

Unemployment was recognised as a problem in India as early as 1950s but faster economic growth, with special emphasis on employment intensive sectors like the small scale industry, was considered adequate to tackle it. But it was only during the seventh five year plan (1985-90) that the government started taking concrete steps to tackle the unemployment. The decades of 1980s showed a relatively higher GDP growth but the growth in unemployment outpaced it. Therefore, the government undertook a detailed assessment of employment and unemployment trends in 1990s and on the basis of the findings of this study, a new strategy to overcome the problem of rising unemployment rate in India. The subsequent five year plans saw an increased emphasis on the reduction of unemployment rate if not the complete abolishment. Therefore, government of India took a new initiative and came up with National Rural Employment Guarantee Act in 2005 to provide more employment opportunities to the rural people.

According to International Labour Organization, Unemployment is a state when a person is available to work and seeking work but currently without work.It is one of the most pressing problems of any economy especially the underdeveloped ones. This has macroeconomic implications too such as reduction in the output, reduction in tax revenue, and rise in the government expenditure.

The unemployment trends on a yearly basis are shown in the graph given below.

Unemployment was recognised as a problem in India as early as 1950s but faster economic growth,
Unemployment was recognised as a problem in India as early as 1950s but faster economic growth,

Source: CIA, World Fact

UNEMPLOYMENT

Equity Valuation of RCL

Page 33

Month

Mining

Manufacturing

 

Electricity

 

General

 
 

-104.73

-793.58

-101.69

-1000

 

2007

2008

2008

2007

2008

2008

2007

2008

2008

2007

2008

2008

-

-

-

-

-

-

-

-

-

-

-

-

2008

2009

2010

2008

2009

2010

2008

2009

2010

2008

2009

2010

 

161.

171.

177.

267.

   

215.

218.

233.

250.

266.

 

Apr*

2

1

6

1

285

287

2

2

6

7

3

270

 

168.

177.

 

280.

293.

 

225.

230.

 

263.

274.

 

May

1

4

5

1

6

1

1

6

 

158.

158.

 

273.

290.

 

211.

217.

 

255.

269.

 

Jun

6

8

6

4

7

1

3

2

   

161.

 

272.

291.

 

216.

225.

   

271.

 

Jul

157

4

9

6

2

9

255

3

   

160.

 

279.

   

219.

221.

 

260.

264.

 

Aug

156

4

2

284

9

6

3

7

   

162.

   

298.

 

210.

219.

 

260.

276.

 

Sep

154

9

281

4

1

3

5

2

 

169.

175.

 

280.

278.

 

221.

231.

 

262.

262.

 

Oct

6

1

2

6

4

2

6

9

 

174.

175.

 

278.

286.

 

210.

216.

   

267.

 

Nov

2

4

9

3

9

4

261

6

Dec

184.

188.

 

306.

304.

 

219.

223.

 

284.

284

 
 

Clearly, the unemployment rate has been declining in the recent years but there is a lot to be done as the rate of increase in the labour force may outpace the growth rate in employment generation in the coming years.

The Indian economy is facing tough times because of the recession. The Global financial crisis has been affecting India’s foreign trade since end-2008. It has been affecting investment flows too.

The table below shows India’s Balance of Payment for the period April-December 2008.

Month Mining Manufacturing Electricity General -104.73 -793.58 -101.69 -1000 2007 2008 2008 2007 2008 2008 2007
Month Mining Manufacturing Electricity General -104.73 -793.58 -101.69 -1000 2007 2008 2008 2007 2008 2008 2007

BALANCE OF PAYMENT

Equity Valuation of RCL

Page 34

1 1 3 5 6 1 7 186. 188. 301. 304. 223. 227. 281. 284. Jan
 
1 1 3 5 6 1 7 186. 188. 301. 304. 223. 227. 281. 284. Jan
 

1

1

 

3

5

 

6

1

 

7

     
 

186.

188.

 

301.

304.

 

223.

227.

 

281.

284.

 

Jan

7

1

9

8

8

9

9

8

 

183.

182.

 

296.

294.

 

211.

212.

 

276.

274.

 

Feb

6

2

8

2

3

7

2

2

 

205.

211.

 

327.

322.

 

227.

241.

 

304.

302.

 

Mar

8

1

9

5

1

3

9

6

Averag

                       

e

                         

Apr-

171.

   

287.

294.

 

217.

223.

   

274.

 

Mar

6

176

-

2

5

-

7

7

-

268

9

-

Source: rbi.com

 
1 1 3 5 6 1 7 186. 188. 301. 304. 223. 227. 281. 284. Jan

Equity Valuation of RCL

Page 35

Equity Valuation of RCL Page 36
Equity Valuation of RCL Page 36
Equity Valuation of RCL Page 36

Equity Valuation of RCL

Page 36

(i) Export growth turned negative during Q3 of 2008-09 for the first time after 2001-02 due

(i) Export growth turned negative during Q3 of 2008-09 for the first time after 2001-02 due to global economic slowdown. (ii) Import growth on BoP basis decelerated to a single digit during Q3 of 2008-09 after a gap of almost 6 years mainly led by lower crude oil prices and non-oil imports. (iii) The current account deficit at US$ 14.6 billion during Q3 of 2008-09 was the highest quarterly deficit since 1990. (iv)For the first time since Q1 of 1998-99, the capital account balance turned negative during Q3 of 2008-09 mainly due to net outflows under portfolio investment, banking capital and short term trade credit.

The key features of India’s BoP that emerged at the end of Q3 of fiscal 2008-09 were: the key features of India’s BoP that emerged in April-December 2008 were: (i) widening of trade deficit led by high growth in imports and slowdown in exports, (ii) increase in invisibles surplus, led by remittances from overseas Indians and software services exports, which financed about 65 per cent of trade deficit, (iii) higher current account deficit due to large trade deficit, (iv) lower net capital flows mainly led by large net outflows under portfolio investment and large repayments under short-term trade credit, and (v) sharp decline in reserves.

India’s Trade deficit on a balance of payments (BoP) basis has widened significantly by 52.04 percent to $ 105.33 26 billion in the nine months (April-December) of fiscal year*2008-09 from $ 68.28 billion in the comparable period in previous fiscal. The widening trade deficit is attributed to significant growth in imports. During the nine-month period (April-December, 2008) imports were up 30.60 percent to $ 238.86 billion from $ 182.89 percent in the comparable period in fiscal 2007-08.

Some of the major highlights of BoP for the Q3 2008 can be stated as follow:

(i) Export growth turned negative during Q3 of 2008-09 for the first time after 2001-02 due

Equity Valuation of RCL

Page 37

(v) The foreign exchange reserves on BoP basis (i.e., excluding valuation) declined due to widening of current account deficit combined with net outflows under the capital account. The largest decline in reserves during any one quarter in earlier years at US$ 4.7 billion was last observed in Q3 of 2005-06. (vi)On a BoP basis India’s Merchandise exports recorded a decline of 10.4% in the Q3 of 2008-09 as against an increase of 33% in the same quarter of 2007-08. (vii) Import payments, on a BoP basis, registered a lower growth rate of 8.9% in the Q3 of 2008-09 as compared to a high growth of 41.9% in the same quarter of the previous financial year. The slowdown in import growth is mainly attributed to oil import payment due to sharp fall in the prices of crude oil during this quarter. (viii) Capital account balance turned negative showing outflows of US$ 3.7 billion during the Q3 of 2008-09 (net inflows at US$ 31.0 billion during Q3 of 2007- 08) for the first time since Q1 of 1998-99 mainly due to net outflows under portfolio investment, banking capital and short-term trade credit. (ix)The gross capital inflows to India during Q3 of 2008-09 amounted to US$ 70.0 billion (US$ 127.3 billion in Q3 of 2007-08) as against gross outflows from India at US$ 73.6 billion (US$ 96.3 billion inQ3 of 2007-08). Other components of the capital account which recorded a fall during the quarter were inflows and outflows under foreign direct investment and external commercial borrowings, while inflows under short term trade credit also declined during the quarter. (x) Net FDI flows (net inward FDI minus net outward FDI) amounted to US$ 0.8 billion in Q3 of 2008-09 (US$ 2.0 billion in Q3 of 2007-08). Net inward FDI stood at US$ 6.7 billion during Q3 of 2008-09 (US$ 7.9 billion in Q3 of 2007-08). Net outward FDI remained buoyant at US$ 5.9 billion in Q3 of 2008-09 (US$ 5.8 billion in Q3 of

The trade in India is done in terms of US Dollar and therefore the US Dollar is considered to be hot currency in India. The Indian rupee is not a prominent one in the world. But it is a currency used by the people of a dynamic economy. Over the years the Indian government has maintained the exchange rate of Indian Rupee vis-a-vis US Dollar in the range of Rs. 40-47/US $ and this policy was adopted mainly to support export and improve trade balance. But last year rupee appreciated to a level of Rs. 37/US $ and then because of the impact of recession it depreciated to an unprecedented low of almost Rs. 52/US $. After then it gained some lost ground and appreciated to reach to a level which can be called a satisfactory level.

The table below gives the trend of exchange rate of Indian Rupee in terms of Dollar for the last one year.

(v) The foreign exchange reserves on BoP basis (i.e., excluding valuation) declined due to widening of
(v) The foreign exchange reserves on BoP basis (i.e., excluding valuation) declined due to widening of

EXCHANGE RATE

Equity Valuation of RCL

2007-08).

Page 38

TAXATION

The rupee was exchanged at the level of below Rs. 40/US $ for the first three months and for most part of the fourth month of last year. Then there was a sharp depreciation in Indian Rupee in terms of US $ and it reached to a level of Rs. 49.76 on October 24 th, 2008. Then INR gained some ground in November to reach to a level of Rs. 47.5/US $ on 7 th November, 2008. But the depreciation continued after that as INR reached a new low of Rs. 51.68/US $ on 6 th March, 2009 and after that a gradual appreciation is seen over the past few months this year. The situation is likely to remain the same and the rupee might see a level of Rs. 46-47/US $ for the rest of this year.

India Tax is regulated and administered by the Ministry of Finance under the Government of India. Taxation is the government's main source of revenue and several types of taxes are applied to different categories of the population.

The Income Tax Act of 1961 stipulates that any person who qualifies as an assessee and whose gross income is more than the exemption limit is required to pay Income Tax in accordance with the rates indicated by the Finance Act.

The following is a brief description government:

TAXATION The rupee was exchanged at the level of below Rs. 40/US $ for the first

Equity Valuation of RCL

in India by the

I
I

that are levied

Income Tax

Page 39

the taxes

some of

of

Page 40

Value Added Tax

Corporate Tax

Equity Valuation of RCL

For the Assessment Year 2009-10

Page 40 Value Added Tax Corporate Tax Equity Valuation of RCL For the Assessment Year 2009-10
Page 40 Value Added Tax Corporate Tax Equity Valuation of RCL For the Assessment Year 2009-10

Corporate tax for domestic companies is 33.6% and for foreign companies its 41.82%.

This is the tax that a manufacturer needs to pay while purchasing raw materials and a trader

*A surcharge of 10 per cent of the total tax liability is applicable where the total income exceeds Rs 1,000,000

needs to pay while purchasing goods. VAT is eventually expected to replace Sales Tax. All goods and services provided by business individuals and companies come under the ambit of VAT.

Purchase price - Rs 100 Tax paid on purchase - Rs 10 (input tax) Sale price - Rs 120 Tax payable on sale price - Rs 12 (output tax) Input tax credit - Rs 10 VAT payable - Rs 2

India Corporate Tax is the tax charged on the profits earned by associations and companies by several jurisdictions. The rate of Corporate Tax in India depends on whether the profits have been passed on to the shareholders or not.

Taxable income slab (Rs.)

 

Rate (%)

Up

to

1,50,000

 

Up

to

1,80,000

(for

women)

Up to 2,25,000 (for resident individual of 65 years or above)

NIL

1,50,001 – 3,00,000

 

10

3,00,001 – 5,00,000

 

20

5,00,001 upwards

 

30*

Foreign direct investment (FDI) in India has played an important role in the development of the

Foreign direct investment (FDI) in India has played an important role in the development of the Indian economy. FDI in India has – in a lot of ways – enabled India to achieve a certain degree of financial stability, growth and development. This money has allowed India to focus on the areas that may have needed economic attention, and address the various problems that continue to challenge the country.

A Capital Gain can be defined as an any income generated by selling a capital investment (business stocks, paintings, houses, family business, farmhouse, etc.). The 'gain' here is the difference between the price originally paid for the investment and money received upon selling it, and is taxable.

FDI investments are permitted through financial collaborations, through private equity or preferential allotments, by way of capital markets through Euro issues, and in joint ventures. FDI is not permitted in the arms, nuclear, railway, coal & lignite or mining industries.

A number of projects have been announced in areas such as electricity generation, distribution and transmission, as well as the development of roads and highways, with opportunities for foreign investors.

As per Section 115WB of the Finance Bill, expenses incurred for employees, by an employer (individual/company/local authority/trader) for purposes of entertainment, gifts, telephone, clubbing, festivals etc., will be treated as Fringe Benefits and will be taxed.

India has continually sought to attract FDI from the world’s major investors. In 1998 and 1999, the Indian national government announced a number of reforms designed to encourage FDI and present a favorable scenario for investors.

FDI has helped the Indian economy grow, and the government continues to encourage more investments of this sort – but with $5.3 billion in FDI in 2004 India gets less than 10% of the FDI of China.

As per the Finance Act of 1994, all service providers in India, except those in the state of Jammu

Foreign direct investment (FDI) in India has played an important role in the development of the

FOREIGN DIRECT INVESTMENT (FDI)

and Kashmir, are required to pay a Service Tax in India.

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Fringe Benefit Tax

Capital Gains Tax

Service Tax

Page 41

Page 42

Equity Valuation of RCL

Influence of FIIs on Indian Stock Market

Page 42 Equity Valuation of RCL Influence of FIIs on Indian Stock Market FOREIGN INSTITUTIONAL INVESTMENT
Page 42 Equity Valuation of RCL Influence of FIIs on Indian Stock Market FOREIGN INSTITUTIONAL INVESTMENT

FOREIGN INSTITUTIONAL INVESTMENT (FII)

Although the Chinese approval process is complex, it includes both national and regional approval in the same process.

The Indian national government also provided permission to FDIs to provide up to 100% of the financing required for the construction of bridges and tunnels, but with a limit on foreign equity of INR 1,500 crores, approximately $352.5m.

By 2004, India received $5.3 billion in FDI, big growth compared to previous years, but less than 10% of the $60.6 billion that flowed into China. Why does India, with a stable democracy and a smoother approval process, lag so far behind China in FDI amounts?

They increased depth and breadth of the market.

They played major role in expanding securities business.

Their policy on focusing on fundamentals of the shares had caused efficient pricing of shares.

Federal democracy is perversely an impediment for India. Local authorities are not part of the approvals process and have their own rights, and this often leads to projects getting bogged down in red tape and bureaucracy. India actually receives less than half the FDI that the federal government approves.

The current investments of FIIs isRs. 2,55,464.40 Cores. This is almost 9% of the total market capitalization. If we explain the things in simple terms, market pundits often attribute the rally of stock market and fall of stock market to the flow of funds by FIIs. We often hear the terms "FIIs Fuel the Market Run". If we analyze the impacts, then the major impacts are: -

Currently, FDI is allowed in financial services, including the growing credit card business. These services include the non-banking financial services sector. Foreign investors can buy up to 40% of the equity in private banks, although there is condition that stipulates that these banks must be multilateral financial organizations. Up to 45% of the shares of companies in the global mobile personal communication by satellite services (GMPCSS) sector can also be purchased.

Foreign Institutional Investors is used to denote an investor, it is mostly of the form of a institution or entity which invests money in the financial markets of a country. The term FII is most commonly used in India to refer to companies that are established or incorporated outside India, and is investing in the financial markets of India. These investors must register with the Securities & Exchange Board of India (SEBI) to take part in the market.

Day

(Points

Loss

in Gross

Purchases

(Rs. Gross

Sales

(Rs. Net

Investments

(Rs.

Sensex)

Crores)

Crores)

Crores)

21/01/2008 (1408)

3062.00

1060.30

2001.80

22/01/2008 (875)

2813.30

1618.20

1195.10

18/05/2006 (856)

761.80

527.40

234.40

17/12/2007 (826)

670.00

869.00

-199.00

18/10/2007 (717)

1107.00

1372.50

-265.50

18/01/2008 (687)

1077.20

1348.40

-271.20

21/11/2007 (678)

640.70

791.80

-151.10

16/08/2007 (643)

989.50

750.30

239.20

02/08/2007 (617)

534.50

542.00

-7.50

01/08/2007 (615)

809.40

956.90

-147.50

From this table, we can see that the major falls are accompanied by the withdrawal of investments by FIIs. Take the case on January 18, 2008, the Sensex lost almost 687 points. Here, the net sales by FIIs were Rs. 1348.40 Crores. This is a major contributor to the fall on that day. But contrary to that day, take the case on January 21, 2008, the Sensex lost 1408 points and the gross sales was Rs. 1060.30 Crores and the purchases were Rs. 3062.00 Crores. So this can be concluded that after the fall of market, FIIs had invested again into the market. From this, we can see the effect of FIIs.

These impacts made the Indian stock market more attractive to FIIs and also domestic investors, which involves the other major player MF (Mutual Funds). The impact of FIIs is so high that whenever FIIs tend to withdraw the money from market, the domestic investors become fearful and they also withdraw from market.

Just to show the impact, we analyze below the 10 biggest falls of stock market: -

Day (Points Loss in Gross Purchases (Rs. Gross Sales (Rs. Net Investments (Rs. Sensex) Crores) Crores)
Day (Points Loss in Gross Purchases (Rs. Gross Sales (Rs. Net Investments (Rs. Sensex) Crores) Crores)

Major Intra Day Collapses in BSE Sensex

Equity Valuation of RCL

Page 43

For policy purposes, real GDP growth in 2008-09 may be placed in the range of 8.0 to

8.5 per cent, assuming that (a) global financial and commodity markets and real economy will be broadly aligned with the central scenario as currently assessed and (b) domestically, normal monsoon conditions prevail. In view of the lagged and cumulative effects of monetary policy on aggregate demand and assuming that supply management would be conducive, the policy endeavour would be to bring down inflation from the current high level of above 7.0 per cent to around 5.5 per cent in 2008-09 with a preference for bringing it as close to 5.0 per cent as soon as possible.

In view of the monetary overhang, it is necessary to moderate monetary expansion and plan for a rate of money supply in the range of 16.5-17.0 per cent in 2008-09 in

Year

Net Investment

  • 2003 30458.7

  • 2004 38965.1

  • 2005 47181.2

  • 2006 36539.7

  • 2007 71486.5

  • 2008 (10/08/08)

-29169

∑ For policy purposes, real GDP growth in 2008-09 may be placed in the range of
∑ For policy purposes, real GDP growth in 2008-09 may be placed in the range of

MONETARY POLICY FOR 2008-09

Net Investments of FII from 2003-08

Equity Valuation of RCL

Page 44

2008-09 is placed at around 17.0 per cent or around Rs.5,50,000crore. Based on an overall assessment of the sources of funding and the overall credit

requirements of the various productive sectors of the economy, the growth of non-food credit including investments in bonds/debentures/shares of public sector undertakings and private corporate sector and commercial paper (CP) is placed at around 20.0 per cent in 2008-09. Given the unprecedented complexities involved and the heightened uncertainties at this

juncture, there are some key factors that govern the setting of the stance of monetary policy for 2008-09 viz., (i) the challenge of escalated and volatile food and energy prices; (ii) even as investment demand remains strong, supply elasticities are expected to improve further; (iii) recent initiatives in regard to supply-management by the Government of India and measures relating to the cash reserve ratio by the Reserve Bank of India; (iv) the importance of anchoring expectations relating to both global and domestic developments. In view of the above unprecedented uncertainties and dilemmas, it is important to take

informed judgements with regard to the timing and magnitude of policy actions; and such judgements need to have the benefit of evaluation of incoming information on a continuous basis. To demonstrate on a continuing basis a determination to act decisively, effectively and

swiftly to curb any signs of adverse developments in regard to inflation expectations. The Reserve Bank will continue with its policy of active demand management of

liquidity through appropriate use of the CRR stipulations and open market operations (OMO) including the MSS and the LAF, using all the policy instruments at its disposal flexibly, as and when the situation warrants. Barring the emergence of any adverse and unexpected developments in various sectors of the economy, assuming that capital flows are effectively managed, and keeping in view the current assessment of the economy including the outlook for growth and inflation, the overall stance of monetary policy in 2008-09 will broadly be:

• to respond swiftly on a continuing basis to the evolving constellation of adverse international developments and to the domestic situation impinging on inflation expectations, financial stability and growth momentum, with both conventional and unconventional measures, as appropriate.

• to ensure a monetary and interest rate environment that accords high priority to price stability, well-anchored inflation expectations and orderly conditions in financial markets while being conducive to continuation of the growth momentum.

consonance with the outlook on growth and inflation so as to ensure macroeconomic and financial stability in the period ahead.

Consistent with the projections of money supply, the growth in aggregate deposits in

∑ 2008-09 is placed at around 17.0 per cent or around Rs.5,50,000crore. Based on an overall
∑ 2008-09 is placed at around 17.0 per cent or around Rs.5,50,000crore. Based on an overall

Equity Valuation of RCL

Page 45

The measures taken by Government to counter the effects of the global meltdown on the Indian economy, have resulted in a short fall in revenues and substantial increases in government expenditures, leading to a temporary deviation from the fiscal consolidation path mandated under the FRBM Act during 2008-09 and 2009-2010.

The revenue deficit and fiscal deficit for R.E.2008-09 and B.E.2009-2010 are, as a result,

higher than the targets set under the FRBM Act and Rules. The grounds due to which this temporary deviation has taken place, are detailed in the

Fiscal Policy Overview above and also in the Macro-economic Framework Statement being presented in the Parliament. The fiscal policy for the year 2009-2010 will continue to be guided by the objectives of keeping the economy on the higher growth trajectory amidst global slowdown by creating demand through increased public expenditure in identified sectors. However, the medium term objective will be to revert to the path of fiscal consolidation at the earliest, with improvement in the economic situation.

The Interim Budget 2009-2010 is being presented in the backdrop of uncertainties prevailing in the world economy. The impact of this is seen in the moderation of the recent trend in growth of the Indian economy in 2008-09 which at 7.1 per cent still however makes India the second fastest growing economy in the World.

Bank Rate – 6.0%

Repo Rate -4.75%

Reverse Repo Rate -5.25%

CRR- 5%

SLR – 24%

PLR – 12.75%

Saving Bank Rate – 3.5%

• toemphasise credit quality as well as credit delivery, in particular, for employment-intensive sectors, while pursuing financial inclusion.

∑ The measures taken by Government to counter the effects of the global meltdown on the
∑ The measures taken by Government to counter the effects of the global meltdown on the

Fiscal Policy for the ensuing financial year

Equity Valuation of RCL

Monetary Measures

FISCAL POLICY

Page 46

(1) To boost the economy the govt. of India announced its first stimulus package in order to combat recession on 8 th December,2008, but it did not proved to be enough to handle the situation. The package announced was for Rs. 3,00,000 crores. (2) To revive the economy 2 nd fiscal stimulus package was announced on 3 rd

(3) The 3 rd stimulus package was announced on 25 th February, 2009, and also announced cutting excise duty and service tax. Service tax was reduced from a level of 12% to a level of 10 %.

(1) To boost the economy the govt. of India announced its first stimulus package in order
(1) To boost the economy the govt. of India announced its first stimulus package in order

Fiscal stimulus packages announced by the Govt.of India:

Equity Valuation of RCL

January,2009.

Page 47

'Markets in India' are well protected by legal guidelines and efficient administrators. With a liberal and proactive government at the center the road ahead for 'Markets of India' is very rosy. 'Market India' has witnessed exponential growth over past one and half decade. Liberal and transparent financial policies has effected free-in-flow of FII and as a result of which 'India Market' has grown to a colossal monster in the international market. Foreseeing sure and substantial returns on investments (ROI) companies are pro- actively listing on the stock market indexes. Government agencies once much hated for red tape and bribes has shed its image. Professionalism is their new mantra. Public Enterprises like IOC, ONGC, BHEL, NTPC, SAIL, MTNL, BPCL, HPCL and GAIL, SBI, LIC, Hindustan Antibiotics Limited, Air India etc. to name a few, are giving Private Indian companies a good run for their money. Private giants like Reliance Industries Limited, Infosys, Tata, Birla Corporation, Jet Airways, Ranbaxy, Biocon, Bajaj Auto, ICICI are breaking their own records every financial years.

'Markets in India' has witnessed meteorite rise of the Indian Software, Telecommunication and Banking Industry. This has propelled growth of Urban Indian class which, in turn has increased consumerism. Today, each and every type of industry of 'Market India' like Infrastructure, Pharmaceutical & Biotechnology, Banking & Insurance, Electronics, FMCG etc. has tremendous growth potential. Retail Industry along with Agriculture & Food industry are yet to contribute their share to the growth story of 'Market India'.

India Financial Market promotes the savings of the economy, providing an effective channel for transmitting the financial policies. It is a well-developed, competitive, efficient and integrated financial sector. There are large number of buyers and sellers of the financial product, the prices are fixed by the market forces of demand and supply within the Indian Financial Market. The other markets of the economy assist the functioning of the financial market in India.

The ever-growing and fast-maturing 'India Market' is a lucrative business destination for developed countries. With 7-8% of GDP growth, huge analytical, young and English speaking work force the 'pull' for opportunities are luring. The bandwidth of 'India Market' is enviably wide and very deep.

'Markets in India' are well protected by legal guidelines and efficient administrators. With a liberal and
'Markets in India' are well protected by legal guidelines and efficient administrators. With a liberal and

(B) INDUSTRY ANALYSIS

Equity Valuation of RCL

India Financial Market

India Market

Page 48

Real-time India Financial Indices – BSE 30 Index, Sector Indexes, Stock Quotes, Sensex

Charts, Bond prices, Foreign Exchange, Rupee&Dollar Chart Indian Financial Market news

Stock News – Bombay Stock Exchange, BSE Sensex 30 closing index, S&P CNX-Nifty

NSE, stock quotes, company information, issues on market capitalization, corporate earning statements, Indian Business Directory Fixed Income – Corporate Bond Prices, Corporate Debt details, Debt trading activities,

Interest Rates, Money Market, Government Securities, Public Sector Debt, External Debt Service Foreign Investment – Foreign Debt Database composed by BIS, IMF, OECD,& World

Bank, Investments in India & Abroad Global Equity Indexes – Dow Jones Global indexes, Morgan Stanley Equity Indexes

Currency Indexes – FX & Gold Chart Plotter, J. P. Morgan Currency Indexes

National and Global Market Relations

Mutual Funds

Insurance

Loans

Forex and Bullion

The Indian Financial services industry is very diversified in nature with every domain of finance is covered by the industry. The main emphasis of our analysis will be on Non Banking Financial Companies (NBFCs) and Insurance sector. IBFSL is basically an NBFC which also offers insurance services apart from providing finance to the people as well as private companies and partnership firms.

The financial services refer to the services provided by the finance industry. The finance industry encompasses a broad range of organizations that deals with money. Among these organizations are Banks, credit card companies, consumer finance companies, stock brokerages, investment funds and some government supported and sponsored enterprises.

A clear insight with informations on the Indian Financial Market will thus be the most useful tip for the investors and the marketers of both India and the foreign countries

∑ Real-time India Financial Indices – BSE 30 Index, Sector Indexes, Stock Quotes, Sensex ∑ Charts,
∑ Real-time India Financial Indices – BSE 30 Index, Sector Indexes, Stock Quotes, Sensex ∑ Charts,

The Financial Market in India focuses on these features:

(1) Financial Services Industry

Equity Valuation of RCL

TARGET INDUSTRY

Page 49

Page 50

Equity Valuation of RCL

AN OVERVIEW ON INSURANCE INDUSTRY

(2) Non Banking Financial Companies

Page 50 Equity Valuation of RCL AN OVERVIEW ON INSURANCE INDUSTRY (2) Non Banking Financial Companies
Page 50 Equity Valuation of RCL AN OVERVIEW ON INSURANCE INDUSTRY (2) Non Banking Financial Companies

NBFCs are doing functions akin to that of banks, however there are a few differences:

The Insurance Act of 1938 was the first legislation governing all forms of insurance to provide strict state controls over insurance business.

The business of life insurance in India in its existing form started in India in the year 1818 with the establishment of the Oriental Life Insurance Company in Calcutta.

The insurance sector in India has come a full circle from being an open competitive market to nationalisation and back to a liberalised market again. Tracing the developments in the Indian insurance sector reveals the 360-degree turn witnessed over a period of almost two centuries.

A non-banking institution which is a company and which has its principal business of receiving deposits under any scheme or arrangement or any other manner, or lending in any manner is also a non-banking financial company (residuary non-banking company).

In 19 th January, 1956, the life insurance in India was completely nationalized through the Life Insurance Corporation Act of 1956. At that time, there were 245 insurance companies of both Indian and foreign origin. Government accomplished its policy of nationalization by acquiring the management of the companies. Bearing this objective in mind, the Life Insurance Corporation (LIC) of India was created on 1 stSeptember, 1956 which has grown in leaps and bounds henceforth, to become the largest insurance company in India.

A non-banking financial company (NBFC) is a company registered under the Companies Act, 1956 and is engaged in the business of loans and advances, acquisition of shares/stock/bonds/debentures/securities issued by government or local authority or other securities of like marketable nature, leasing, hire-purchase, insurance business, chit business, but does not include any institution whose principal business is that of agriculture activity, industrial activity, sale/purchase/construction of immovable property.

(i) An NBFC cannot accept demand deposits (demand deposits are funds deposited at a

depository institution that are payable on demand -- immediately or within a very short period -- like your current or savings accounts.) (ii) It is not a part of the payment and settlement system and as such cannot issue cheques

to its customers; and (iii) Deposit insurance facility of DICGC is not available for NBFC depositors unlike in case of banks.

Currently, India is the 5th largest market in Asia by premium following Japan, Korea, China and Taiwan. The US$ 30 billion insurance business in India is expected to grow 17 per cent in fiscal 2008-09* if the country’s economy clocks 7.6 percent GDP. In fiscal 2007-08 life insurers grew their business by 23.3 percent to Rs.930 billion while general insurers posted growth of about 14 percent in premium income to Rs 298 billion. Presently the total number of insurers registered with the Insurance Regulatory and Development Authority (IRDA) stands at 42; 21 in life insurance and 21 in general insurance segments. Some joint ventures include Tata AIG, Bajaj Allianz, ICICI Prudential, SBI Life, HDFC Standard Life, Birla Sunlife, Max New York Life and Bharti AXA Life.

The Indian insurance sector has a turnover of around Rs 26,287 crore. The current FDI in this sector stands at around Rs 2500 crore and market experts expects FDI to zoom by about 2.5 times once the FDI cap is raised by another 23 percent to 49 percent.Meanwhile, on the expected line of foreign investors, the Congress(I)-led UPA government in New Delhi has introduced the Insurance Laws (Amendment) Bill 2008 in the upper house of Indian Parliament on December 22, 2008 that seeks to raise the Foreign Direct Invest (FDI) cap in the insurance sector from existing 26 percent to 49 percent.

“Furthermore, over the medium and long term, India’s insurance market will continue to experience major changes as its operating environment increasingly deregulates. On the one hand, a mix of new products, new delivery systems and a greater awareness of risk will generate growth. On the other hand, competition will remain intense as private sector insurers and those about to enter India seek to win market share from the more established public sector entities,” the report indicated.

India is the fifth-largest country in Asia in terms of total insurance premium. The premium income in the country increased to 4.7 percent of GDP in fiscal 2006-07 from 3.3 percent in the fiscal 2002-03.Total premium in the insurance industry grew at a CAGR of 28.1 percent during the same period. The life insurance sector grew at a CAGR of 29.3 percent outsmarting the general insurance sector’s CAGR of 21.3 percent.

The General Insurance Business (Nationalization) Act of 1972 was formulated with the objective of nationalizing nearly 100 general insurance companies and subsequently amalgamating them into four basic companies namely National Insurance, New India Assurance, Oriental Insurance and United India Insurance which have their headquarters in four metropolitan cities.

The Insurance Regulatory and Development Authority (IRDA) Act of 1999 deregulated the insurance sector in India and allowed the entry of private companies into the insurance sector. Moreover, the flow of Foreign Direct Investment (FDI) was also restricted to 26 % of the total capital held by the Indian Insurance Companies.

Currently, India is the 5th largest market in Asia by premium following Japan, Korea, China andp osted growth of about 14 percent in premium income to Rs 298 billion. Presently the total number of insurers r egistered with the Insurance Regulatory and Development Authority (IRDA) stands at 42; 21 in life insurance and 21 in general insurance segments. Some joint ventures include Tata AIG, Bajaj Allianz, ICICI Prudential, SBI Life, HDFC Standard Life, Birla Sunlife, Max New York Life and Bharti AXA Life. The Indian insurance sector has a turnover of around Rs 26,287 crore. The current FDI in this sector stands at around Rs 2500 crore and market experts expects FDI to zoom by about 2.5 times once the FDI cap is raised by another 23 percent to 49 percent.Meanwhile, on the expected line of foreign investors, the Congress(I)-led UPA government in New Delhi has introduced the Insurance Laws (Amendment) Bill 2008 in the upper house of Indian Parliament on December 22, 2008 that seeks to raise the Foreign Direct Invest (FDI) cap in the insurance sector from existing 26 percent to 49 percent. “Furthermore, over the medium and long term, India’s insurance market will continue to experience major changes as its operating environment increasingly deregulates. On the one hand, a mix of new products, new delivery systems and a greater awareness of risk will generate growth. On the other hand, competition will remain intense as private sector insurers and those about to enter India seek to win market share from the more established public sector entities,” the report indicated. India is the fifth-largest country in Asia in terms of total insurance premium. The premium income in the country increased to 4.7 percent of GDP in fiscal 2006-07 from 3.3 percent in the fiscal 2002-03.Total premium in the insurance industry grew at a CAGR of 28.1 percent during the same period. The life insurance sector grew at a CAGR of 29.3 percent outsmarting the general insurance sector’s CAGR of 21.3 percent. The General Insurance Business (Nationalization) Act of 1972 was formulated with the objective of nationalizing nearly 100 general insurance companies and subsequently amalgamating them into four basic companies namely National Insurance, New India Assurance, Oriental Insurance and United India Insurance which have their headquarters in four metropolitan cities. The Insurance Regulatory and Development Authority (IRDA) Act of 1999 deregulated the insurance sector in India and allowed the entry of private companies into the insurance sector. Moreover, the flow of Foreign Direct Investment (FDI) was also restricted to 26 % of the total capital held by the Indian Insurance Companies. Equity Valuation of RCL Page 51 " id="pdf-obj-50-21" src="pdf-obj-50-21.jpg">
Currently, India is the 5th largest market in Asia by premium following Japan, Korea, China andp osted growth of about 14 percent in premium income to Rs 298 billion. Presently the total number of insurers r egistered with the Insurance Regulatory and Development Authority (IRDA) stands at 42; 21 in life insurance and 21 in general insurance segments. Some joint ventures include Tata AIG, Bajaj Allianz, ICICI Prudential, SBI Life, HDFC Standard Life, Birla Sunlife, Max New York Life and Bharti AXA Life. The Indian insurance sector has a turnover of around Rs 26,287 crore. The current FDI in this sector stands at around Rs 2500 crore and market experts expects FDI to zoom by about 2.5 times once the FDI cap is raised by another 23 percent to 49 percent.Meanwhile, on the expected line of foreign investors, the Congress(I)-led UPA government in New Delhi has introduced the Insurance Laws (Amendment) Bill 2008 in the upper house of Indian Parliament on December 22, 2008 that seeks to raise the Foreign Direct Invest (FDI) cap in the insurance sector from existing 26 percent to 49 percent. “Furthermore, over the medium and long term, India’s insurance market will continue to experience major changes as its operating environment increasingly deregulates. On the one hand, a mix of new products, new delivery systems and a greater awareness of risk will generate growth. On the other hand, competition will remain intense as private sector insurers and those about to enter India seek to win market share from the more established public sector entities,” the report indicated. India is the fifth-largest country in Asia in terms of total insurance premium. The premium income in the country increased to 4.7 percent of GDP in fiscal 2006-07 from 3.3 percent in the fiscal 2002-03.Total premium in the insurance industry grew at a CAGR of 28.1 percent during the same period. The life insurance sector grew at a CAGR of 29.3 percent outsmarting the general insurance sector’s CAGR of 21.3 percent. The General Insurance Business (Nationalization) Act of 1972 was formulated with the objective of nationalizing nearly 100 general insurance companies and subsequently amalgamating them into four basic companies namely National Insurance, New India Assurance, Oriental Insurance and United India Insurance which have their headquarters in four metropolitan cities. The Insurance Regulatory and Development Authority (IRDA) Act of 1999 deregulated the insurance sector in India and allowed the entry of private companies into the insurance sector. Moreover, the flow of Foreign Direct Investment (FDI) was also restricted to 26 % of the total capital held by the Indian Insurance Companies. Equity Valuation of RCL Page 51 " id="pdf-obj-50-23" src="pdf-obj-50-23.jpg">

Equity Valuation of RCL

Page 51

Eligibility Norms for Entry into the Insurance Business

 

Entity

Criteria for formation

Capital Requirements (Equity)

Company

The Company

must be

a

Life

Insurance

/

public

company.

Foreign

General Insurance: Rs

investors

hold up

can

to

100 crore

49%

of

shares

in

the

Health

Insurance:

Rs

company.

 

50 crore

Co-operative Society

Must be registered under

Re-insurance:

Rs

200

central

 

state

or

Acts.

crore

Foreign investment limit of

26%.

Cannot

be

re-

insurers.

 

Branch of a foreign company

Branches

of foreign

Net owned funds of the

companies can only be re- insurers. Indian partner not needed.

company must be at least Rs 5000 crore.

 

Source: The Insurance Law (Amendment) Bill,

 
   

2008

 
   

Banks which satisfy the eligibility criteria given below will be permitted to set up a joint venture company for undertaking insurance business with risk participation, subject to safeguards. The maximum equity contribution such a bank can hold in the joint venture company will normally be 50 per cent of the paid-up capital of the insurance company. On a selective basis the Reserve Bank of India may permit a higher equity contribution by a promoter bank initially, pending divestment of equity within the prescribed period (see Note 1 below).

i.

The net worth of the bank should not be less than Rs.500 crore;

ii.

The CRAR of the bank should not be less than 10 per cent;

iii.

The level of non-performing assets should be reasonable;

iv.

The bank should have net profit for the last three continuous years;

v.

The track record of the performance of the subsidiaries, if any, of the concerned bank should be satisfactory.

Any scheduled commercial bank would be permitted to undertake insurance business as agent of insurance companies on fee basis, without any risk participation. The subsidiaries of banks will also be allowed to undertake distribution of insurance product on agency basis.

The eligibility criteria for joint venture participant will be as under as on March 31, 2000:

Eligibility Norms for Entry into the Insurance Business Entity Criteria for formation Capital Requirements (Equity) Company
Eligibility Norms for Entry into the Insurance Business Entity Criteria for formation Capital Requirements (Equity) Company

Equity Valuation of RCL

Barriers to Entry

Page 52

The CRAR of the NBFC engaged in loan and investment activities holding public

deposits should not be less than 15 per cent and for NBFCs at 12 per cent irrespective of their holding public deposits or not. The level of non-performing assets should be not more than 5 per cent of the total

outstanding leased/hire-purchase assets and advances taken together. The NBFC should have net profit for the last three continuous years.

The track record of the performance of the subsidiaries, if any, of the NBFC concerned

should be satisfactory. Regulatory compliance and servicing public deposits, if held.

Non-Banking financial companies (NBFCs) with a net-owned fund not less than Rs. 500 crores have been allowed by RBI to enter into insurance business as a joint venture participant.NBFCs with a net-owned fund of Rs. 2 crores have been permitted to undertake insurance business as an agent of insurance companies on fee basis without any risk participation.The equity participation of the NBFC in the joint venture will be up to 50 per cent.

Banks which are not eligible as joint venture participant, as above, can make investments up to 10% of the net worth of the bank or Rs.50 crore, whichever is lower, in the insurance company for providing infrastructure and services support. Such participation shall be treated as an investment and should be without any contingent liability for the bank.

i.

The CRAR of the bank should not be less than 10%;

ii.

The level of NPAs should be reasonable;

iii.

The bank should have net profit for the last three continuous years.

All banks entering into insurance business will be required to obtain prior approval of the Reserve Bank. (Source: RBI)

The eligibility criteria for joint venture participant, according to the RBI guidelines, mandate that the owned fund of NBFC should not be less than Rs. 500 crores.

 The CRAR of the NBFC engaged in loan and investment activities holding public  deposits
 The CRAR of the NBFC engaged in loan and investment activities holding public  deposits

The eligibility criteria for these banks will be as under:

Eligibility norms for NBFCs

Equity Valuation of RCL

Page 53

Page 54

Strengths

SHARE DATA

Equity Valuation of RCL

SWOT ANALYSIS OF RELIANCE CAPITAL

(C) COMPANY ANALYSIS

Page 54 Strengths SHARE DATA Equity Valuation of RCL SWOT ANALYSIS OF RELIANCE CAPITAL (C) COMPANY
Page 54 Strengths SHARE DATA Equity Valuation of RCL SWOT ANALYSIS OF RELIANCE CAPITAL (C) COMPANY

4) Company issued 36.57 lakh policies during the year as compared to14.60 lakh in the

1) One of the India’s leading and fastest growing private sector financial services companies, and rank among top 3 private sector financial services and banking companies, in terms of net worth.

5)

previous year thereby registering a growth of 150%. RGIC has been able to give highest ROI of 11.27% in last 5 years. The net worth has

6)

doubled to Rs. 4.94 billion from last years Rs.2.59 billion. Excellent outreach with large distribution network

2)

Strong position in financial services category.

3)

It is the first insurance company to be awarded the ISO 9001:2000 Certification across all functions, processes, product and location pan-India. The quality insurance process provides an edge over other players.

Market Cap

22,392.58

BSE Sensex

911.75

BSE Code

500111

NSE Code

RELCAPITAL

Face Value

Rs.10

52-Week High/Low

1470/274

Index

BSE 100 ,BSE 200

Group

A

Listed on BSE/NSE

-

1) Detarffing- IRDA has removed controls on pricing Genaral Insurance business with effect from 1 January

1) Detarffing- IRDA has removed controls on pricing Genaral Insurance business with effect from 1 st January 2008. 2) General Insurance industry in India has grown at 15% CAGR in terms of gross premium collection. 3) The company has moved to third position amongst Private Sector insurers in financial year 2008 and is ranked 7 th amongst the industry with 14 general insurance players.

9) Reserves and surplus has increased 5 times to Rs. 4.998 billion from Rs. 1.04 billion last year. 10) The company has earned Rs. 1034 crores of New Premium Business in Financial Year 2008 which is 41% share of the Private Sector Industry & 33% of the Industry as whole

1)

Dependence on fellow subsidiaries for various supplies.

  • - Extra control of interference from fellow subsidiaries

2)

Sudden expansion in the year 2007-08 by establishing more than 125 branches has

  • - It has 200 branches across 171 cities and over 2000 intermediaries. The setup provided by the company is very strong and very effective distribution network and consequently a very strong penetration in the market.

New entrants -Future General India Life Insurance Company Ltd. –September 2007. -IBDI Fortis Life Insurance Company Ltd. -December 2008

7) Experts and research team to make strategies and product for the company as well as client based to resolve the problem.

Capture the 17% of the private sector share and 7% share of the general insurance industry.

  • - Company is ranked number one in the New Premium Business in Financial Year

increased operation and administration expense due to which loss is incurred.

1) Detarffing- IRDA has removed controls on pricing Genaral Insurance business with effect from 1 January

Equity Valuation of RCL

Opportunities

Weaknesses

Page 55

Threats

8)

1)

Balance sheet

(Rs Crore)

 

Mar ' 08

Mar ' 07

Mar ' 06

Mar ' 05

Mar ' 04

Sources of funds

Total Share capital

127.97

127.84

223.40

246.16

246.16

Equity share capital

127.84

127.84

223.40

246.16

246.16

Share application money

-

-

49.48

-

-

Preference share capital

0.13

-

-

-

-

Reserves & surplus

1,271.84

1,310.08

3,849.58

4,915.07

5,779.07

Networth

1399.81

1437.92

4,122.46

5,161.23

6,025.23

Secured loans

-

-

167.50

145.00

2,454.48

Unsecured loans

1,550.34

1,240.00

-

1,256.36

6,871.10

Total Debt

1550.34

1,240.00

167.50

1,401.36

9,325.58

Total Liabilities

2,950.15

2,677.92

4,289.96

6,562.59

15,350.81

Application of funds

Gross block

541.45

541.25

375.71

298.63

336.24

Less : revaluation reserve

-

-

-

-

-

Less : accumulated depreciation

284.35

327.71

207.36

214.52

231.61

Net block

257.10

213.54

168.35

84.11

104.63

Capital work-in-progress

18.97

13.05

13.13

14.60

17.45

Investments

1,541.41

1,644.00

2,230.62

2,434.34

4,715.39

Inventories

402.83

306.05

6.19

0.82

0.82

Sundry debtors

42.84

2.39

43.02

254.15

185.21

Cash and bank balance

25.36

5.45

186.95

174.95

33.76

Total Current assets

471.03

313.89

236.16

429.29

219.79

Loans and advances

1214.46

625.46

1818.82

389.04

20578.20

Fixed deposits

-

-

-

-

680.15

Total net current assets

14,159.85

2,534.12

1,660.95

1,013.91

209.62

Total CA, loans and advances

1685.49

939.35

2054.98

2448.96

11658.14

Deferred credit

-

-

-

-

-

Current liabilities

501.09

85.29

91.86

110.70

917.79

Balance sheet (Rs Crore) Mar ' 08 Mar ' 07 Mar ' 06 Mar ' 05
Balance sheet (Rs Crore) Mar ' 08 Mar ' 07 Mar ' 06 Mar ' 05

BALANCE SHEET OF RCL

Equity Valuation of RCL

Page 56

Provisions 51.73 46.73 85.26 108.72 227.01 Total current liabilities and 552.82 132.02 177.12 219.42 1144.80 provisions

Provisions

 

51.73

46.73

85.26

108.72

227.01

Total

current

liabilities

and

552.82

132.02

177.12

219.42

1144.80

provisions

 

Net current assets

 

1132.67

807.33

1877.86

4029.54

10313.34

Miscellaneous expenses

 

-

-

-

-

-

Total Assets

 

2950.15

2677.92

4289.96

6562.59

15350.81

Contingent liabilities

 

223.33

148.17

89.99

66.46

38.55

Book value(Rs.)

 

109.95

112.95

182.75

210.12

245.29

Holders

Percentage holding

Indian promoters

53.49

Banks Financial Inst & Insurance

3.47

FII’s

21.02

Private Corporate Bodies

4.89

NRI’s

0.52

Government

0.02

Others

0.69

General Public

15.90

Provisions 51.73 46.73 85.26 108.72 227.01 Total current liabilities and 552.82 132.02 177.12 219.42 1144.80 provisions
Provisions 51.73 46.73 85.26 108.72 227.01 Total current liabilities and 552.82 132.02 177.12 219.42 1144.80 provisions

SHAREHOLDING PATTERN OF RCL

Source: Money.Rediff.com

Source: Money.Rediff.com

Equity Valuation of RCL

Page 57

 

Year

Divident (%)

 

May,2009

65

 

Apr,2008

55

 

Apr,2007

35

 

Apr,2006

32

 

Apr,2005

30

 

Apr,2004

29

 

Apr,2003

29

 

Apr,2002

29

 

Apr,2001

29

 

Apr,2000

28

 

Apr,1999

28

 

Jun,1998

28

 

Jul,1997

28

Year Divident (%) May,2009 65 Apr,2008 55 Apr,2007 35 Apr,2006 32 Apr,2005 30 Apr,2004 29 Apr,2003
Year Divident (%) May,2009 65 Apr,2008 55 Apr,2007 35 Apr,2006 32 Apr,2005 30 Apr,2004 29 Apr,2003
Year Divident (%) May,2009 65 Apr,2008 55 Apr,2007 35 Apr,2006 32 Apr,2005 30 Apr,2004 29 Apr,2003
Year Divident (%) May,2009 65 Apr,2008 55 Apr,2007 35 Apr,2006 32 Apr,2005 30 Apr,2004 29 Apr,2003

Source: Money.Rediff.com

DIVIDENT POLICY

Equity Valuation of RCL

Page 58

   

2004

2005

2006

2007

2008

 

Liquidity

and

         

solvency ratio

Current ratio

 
  • 3.05 11.60

  • 7.12 19.36

 

10.18

Current

 
  • 0.80 11.60

  • 0.68 19.36

 

10.18

ratio(inc

std

loans)

Quick ratio

 
  • 2.32 11.57

  • 4.80 19.34

 

10.14

Leverage ratio

         

Long

term

-

-

0.04

0.27

1.55

debt/equity

Total

1.11

0.86

0.04

0.27

1.55

debt/equity

Profitability

         

ratio

Operating

103.07

97.75

  • 95.11 88.80

 

80.65

profit %

Gross

profit

15.64

87.64

  • 91.53 87.99

 

79.83

margin %

Net

profit

30.87

37.63

  • 82.78 73.24

 

49.30

margin %

Payout ratios

         

Divident

39.37

41.24

  • 15.12 15.56

 

15.41

payout

ratio(net

profit)

Divident

28.16

32.66

  • 14.50 15.39

 

15.15

payout

ratio(cost

profit)

Cash

earning

71.02

63.19

  • 85.64 84.64

 

85.96

retention ratio

 
2004 2005 2006 2007 2008 Liquidity and solvency ratio Current ratio 3.05 11.60 7.12 19.36 10.18
2004 2005 2006 2007 2008 Liquidity and solvency ratio Current ratio 3.05 11.60 7.12 19.36 10.18

RATIO ANALYSIS

Equity Valuation of RCL

Page 59

Analysis : The current ratio of more than 1 means that the firm has more current
Analysis : The current ratio of more than 1 means that the firm has more current

Analysis: The current ratio of more than 1 means that the firm has more current assets than current claims against them. Hence, we can conclude from the graph that the current ratio of the year 2007 is better followed by the year 2006. But the current ratio of the year 2008 dropped down to10.18 compared to previous year.

Analysis: There has been a slowdown in current ratio including std loans as well, in the year 2008 compared to the previous scenario. Showing a decline in company’s performance.

Analysis : The current ratio of more than 1 means that the firm has more current
Analysis : The current ratio of more than 1 means that the firm has more current

Equity Valuation of RCL

Page 60

Analysis : A quick ratio of 1 or more does not necessarily imply sound liquidity position.
Analysis : A quick ratio of 1 or more does not necessarily imply sound liquidity position.

Analysis: A quick ratio of 1 or more does not necessarily imply sound liquidity position. A company with a low value of quick ratio may really be prospering and paying its current obligation in time if it has been turning over its inventories efficiency.

Analysis: An increasing trend in long term debt equity ratio denotes that year on year the %age of leaders financing into the company is increasing.

Analysis : A quick ratio of 1 or more does not necessarily imply sound liquidity position.
Analysis : A quick ratio of 1 or more does not necessarily imply sound liquidity position.

Equity Valuation of RCL

Page 61

Analysis : It denotes the ratio of dividents per share by earnings per share. Divident which
Analysis : It denotes the ratio of dividents per share by earnings per share. Divident which

Analysis: It denotes the ratio of dividents per share by earnings per share. Divident which is distributed among the shareholders and earnings which is not distributed among the shareholders. Hence, we can say that the smaller part of the net profit is distributed among the shareholders and less is retained into the business, although it d\shows a downward trend.

Owners, and the graph clearly denotes that the contribution of lenders has been greater in the year 2008 compared to previous years. And this ratio shows an uneven trend.

Analysis: This shows the contribution of lenders in the funding of the company in comparison to

Analysis : It denotes the ratio of dividents per share by earnings per share. Divident which
Analysis : It denotes the ratio of dividents per share by earnings per share. Divident which

Equity Valuation of RCL

Page 62

Analysis : This also shows the same thing of the part of the cash profit earned

Analysis: This also shows the same thing of the part of the cash profit earned and has almost similar trends.

Analysis : This also shows the same thing of the part of the cash profit earned
Analysis : This also shows the same thing of the part of the cash profit earned

Equity Valuation of RCL

Page 63

  • 2. It is more a study of probabilities than of actual value.

Technical analysis is applicable to commodities, stocks, futures, foreign exchange (forex), indices or any tradable instrument, the price of which is influenced by supply and demand trends. It is used by day traders and short-term investors participating in investment markets, such as the stock market and the foreign exchange (forex) market. This type of analysis is also very useful for hedgers.

Technical analysis involves the study of past market data related to price and volume with the purpose of forecasting future price movements. Technical analysis does not help in making absolute predictions. Rather it helps in projecting the “likely" price movement over time.

  • 3. When it is used in conjunction with fundamental analysis and company and industry related

  • 2. Allows investors to judge the direction of the current trend and enables them to gauge the

  • 1. Helps to identify a trend, allowing investors to make predictions on future trends.

2. It is more a study of probabilities than of actual value. Technical analysis is applicable
2. It is more a study of probabilities than of actual value. Technical analysis is applicable

news, it minimizes the chances of an investor incurring losses.

  • 1. It draws heavily on a person’s opinion or interpretation.

CHAPTER 6 : TECHNICAL ANALYSIS

  • 3. Useful only for short-term investments

best time to take a position in the market.

Drawbacks of Technical Analysis

Benefits of Technical Analysis

Equity Valuation of RCL

Page 64

Analysis : As a result of the world major crash by the mid of the year
Analysis : As a result of the world major crash by the mid of the year

Analysis: As a result of the world major crash by the mid of the year 2007, its effect was seen in Indian market by September ‘2008. The sensex moved down from the range of14000 and above till August to 13000 in September and slowly to 10000 in October and down to 8000 by the mid of March’2009. By the end of the financial year 2008-09 sensex reached upto 10000.

MOVEMENT OF RELIANCE CAPITAL LTD. DURING THE FINANCIAL YEAR 2008-09

Analysis : As a result of the world major crash by the mid of the year
Analysis : As a result of the world major crash by the mid of the year

MOVEMENT OF SENSEX DURING THE FINANCIAL YEAR 2008-09

Equity Valuation of RCL

Page 65

Equity Valuation of RCL Page 66
Equity Valuation of RCL Page 66
Equity Valuation of RCL Page 66
Equity Valuation of RCL Page 66

Equity Valuation of RCL

Page 66

  • (C) Reliance plans to absorb refinery unit-20 March, 2009

NOTE: Effect of world major crash was seen in Indian market and the prices of RCL share felt down drastically in september’2008from the level of 1200 to the level of 500.

  • (B) Reliance Capital along with HDFC Ltd. Takes stake in 98 companies in 2008 compared with 86 a year ago-13 March, 2009

(A)Reliance Money tied up with Kuoni Travel India to buy and sell foreign exchange at the travel firms 75 retail establishments across the country-25 March, 2009

(D)Reliance Capital announces that 8 months following the approval it got to set up an asset

  • (E) Reliance money announces its entry into Investment Banking Business-30 Sep, 2008

  • (I) Reliance Capital Ltd. plans to enter Investment Banking Business-15 Sep, 2008

  • (F) Reliance Capital Ltd. approves declaration of dividend-16 Sep, 2008

(C) Reliance plans to absorb refinery unit-20 March, 2009 NOTE: Effect of world major crash was

(G)Reliance Capital Ltd. plans Foray into various sectors-16 Sep, 2008

(H)Reliance Capital Ltd. plans Housing Finance Arm-16 Sep, 2008

(C) Reliance plans to absorb refinery unit-20 March, 2009 NOTE: Effect of world major crash was
  • management company in the south east country-20 Nov, 2008
    (J) RCL launched Reliance Money in Saudi Arabia-3 July, 2008

Interpretation: Highest price-1620(2-May-2008)

Market before the effect of crash in Indian market:

Market after the effect of crash in Indian market:

Interpretation: Resistance level-520

Lowest price-274.2(9-Mar-2009)

Equity Valuation of RCL

Support level-1110

Support level-420

Resistance level-1380

EFFECTS OF NEWS: