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Beta,CapitalStructure & Dividend Payout

MBA Part Time( 2011-14) - Group-4

Amit Kumar (56) Vijay Kumar (102) Vishal Jawa (104)

Rohit Bansal (90) Vikas Pandey (103 Vivek Mittal (105)

Contents 1. Inntroduction .......................................................................... 2. Beta ......................................................................................... 3. Capital structure ...................................................................... 4. Divident Policy analysis ........................................................... 1. Analysis of Ashok Leyland ...................................................... 2. Analysis of Bajaj Auto………………………………………………………… 3. Analysis of Bosch ..................................................................... 4. Analysis of Mahindra & Mahindra ........................................... 5.Analysis of Maruti Suzuki India Ltd……………………………………… 6. Analysis of Tata Motors ...........................................................

Brief Introduction of Automobile Industry

On the canvas of the Indian economy, automotive industry occupies a prominent place. Due to its deep forward and backward linkages with several key segments of the economy, automotive industry has a strong multiplier effect and is capable of being the driver of economic growth. A sound transportation system plays a pivotal role in the country's rapid economic and industrial development. The welldeveloped Indian automotive industry ably fulfils this catalytic role by producing a wide variety of vehicles: passenger cars, light, medium and heavy commercial vehicles, multi-utility vehicles such as jeeps, scooters, motorcycles, mopeds, three wheelers, tractors etc.

Automotive Industry comprises of automobile and auto component sectors and is one of the key drivers of the national economy as it provides large-scale employment, having a strong multiplier effect. Being one of the largest industries in India, this industry has been witnessing impressive growth during the last two decades. It has been able to restructure itself, absorb newer technology, align itself to the global developments and realize its potential. This has significantly increased automotive industry's contribution to overall industrial growth in the country.

One of the major industrial sectors in India is the automobile sector. Subsequent to the liberalization, the automobile sector has been aptly described as the sunrise sector of the Indian economy as this sector has witnessed tremendous growth.

Automobile Industry was delicensed in July 1991 with the announcement of the New Industrial Policy. The passenger car industry was, however, delicensed in 1993. No industrial licence is required for setting up of any unit for manufacture of automobiles except in some special cases. The norms for Foreign Investment and import of technology have also been progressively liberalized over the years for

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manufacture of vehicles including passenger cars in order to make this sector globally competitive.

At present 100% Foreign Direct Investment (FDI) is permissible under automatic route in this sector including passenger car segment. The import of technology/technological upgradation on the royalty payment of 5% without any duration limit and lump sum payment of US$ 2 million is also allowed under automatic route in this sector. With the gradual liberalization of the automobile sector since 1991, the number of manufacturing facilities in India has grown progressively.

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BETA In finance, the Beta (β) of a stock or portfolio is a number describing the volatility of an asset in relation to the volatility of the benchmark that said asset is being compared to. This benchmark is generally the overall financial market and is often estimated via the use of representative indices, such as the S&P 500. An asset has a Beta of zero if its returns change independently of changes in the market's returns. A positive beta means that the asset's returns generally follow the market's returns, in the sense that they both tend to be above their respective averages together, or both tend to be below their respective averages together. A negative beta means that the asset's returns generally move opposite the market's returns: one will tend to be above its average when the other is below its average. It measures the part of the asset's statistical variance that cannot be removed by the diversification provided by the portfolio of many risky assets, because of the correlation of its returns with the returns of the other assets that are in the portfolio. Beta can be estimated for individual companies using regression analysis against a stock market index. To estimate beta, one needs a list of returns for the asset and returns for the index; these returns can be daily, weekly or any period. Then one uses standard formulas from linear regression. The slope of the fitted line from the linear least-squares calculation is the estimated Beta. The y-intercept is the alpha. Beta specifically gives the volatility ratio multiplied by the correlation of the plotted data. To take an extreme example, something may have a beta of zero even though it is highly volatile, provided it is uncorrelated with the market. Tofallis (2008) provides a discussion of this,together with a real example involving AT&T. The graph showing monthly returns from AT&T is visibly more volatile than the index and yet the standard estimate of beta for this is less than one. The relative volatility ratio described above is actually known as Total Beta (at least by appraisers who practice business valuation). Total Beta is equal to the identity: Beta/R or the standard deviation of the stock/standard deviation of the market (note: the relative volatility). Total Beta captures the security's risk as a stand-alone asset (because the correlation coefficient, R, has been removed from Beta), rather than part of a well-diversified portfolio. Because appraisers frequently value closely held companies as stand-alone assets, Total Beta is gaining acceptance in the business valuation industry. Appraisers can now use Total Beta

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in the following equation: Total Cost of Equity (TCOE) = risk-free rate + Total Beta*Equity Risk Premium. Once appraisers have a number of TCOE benchmarks, they can compare/contrast the risk factors present in these publicly traded benchmarks and the risks in their closely held company to better defend/support their valuations.

Beta has no upper or lower bound, and betas as large as 3 or 4 will occur with highly volatile stocks. Beta can be zero. Some zero-beta assets are risk-free, such as treasury bonds and cash. However, simply because a beta is zero does not mean that it is risk-free. A beta can be zero simply because the correlation between that item's returns and the market's returns is zero. An example would be betting on horse racing. The correlation with the market will be zero, but it is certainly not a risk-free endeavor. A negative beta simply means that the stock is inversely correlated with the market. A negative beta might occur even when both the benchmark index and the stock under consideration have positive returns. It is possible that lower positive returns of the index coincide with higher positive returns of the stock, or vice versa. The slope of the regression line in such a case will be negative. If it were possible to invest in an asset with positive returns and beta −1 as well as in the market portfolio (which by definition has beta 1), it would be possible to achieve a risk-free profit. With the use of leverage, this profit would be unlimited. Of course, in practice it is impossible to find an asset with beta −1 that does not introduce additional costs or risks. Using beta as a measure of relative risk has its own limitations. Most analyses consider only the magnitude of beta. Beta is a statistical variable and should be considered with its statistical significance (R square value of the regression line). Higher R square value implies higher correlation and a stronger relationship between returns of the asset and benchmark index. If beta is a result of regression of one stock against the market where it is quoted, betas from different countries are not comparable. Staple stocks are thought to be less affected by cycles and usually have lower beta. Procter & Gamble, which makes soap, is a classic example. Other similar ones are Philip Morris (tobacco) and Johnson & Johnson (Health & Consumer Goods). Utility stocks are thought to be less cyclical and have lower beta as well, for similar reasons.

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'Tech' stocks typically have higher beta. An example is the dot-com bubble. Although tech did very well in the late 1990s, it also fell sharply in the early 2000s, much worse than the decline of the overall market. Foreign stocks may provide some diversification. World benchmarks such as S&P Global 100 have slightly lower betas than comparable US-only benchmarks such as S&P 100. However, this effect is not as good as it used to be; the various markets are now fairly correlated, especially the US and Western Europe.

CAPITAL STRUCTURE ANALYSIS A mix of a company's long-term debt, specific short-term debt, common equity and preferred equity. The capital structure is how a firm finances its overall operations and growth by using different sources of funds. Debt comes in the form of bond issues or long-term notes payable, while equity is classified as common stock, preferred stock or retained earnings. Short-term debt such as working capital requirements is also considered to be part of the capital structure. In finance, capital structure refers to the way a corporation finances its assets through some combination of equity, debt, or hybrid securities. A firm's capital structure is then the composition or 'structure' of its liabilities. For example, a firm that sells $20 billion in equity and $80 billion in debt is said to be 20% equityfinanced and 80% debt-financed. The firm's ratio of debt to total financing, 80% in this example, is referred to as the firm's leverage. In reality, capital structure may be highly complex and include dozens of sources. Gearing Ratio is the proportion of the capital employed of the firm which come from outside of the business finance, e.g. by taking a short term loan etc. The Modigliani-Miller theorem, proposed by Franco Modigliani and Merton Miller, forms the basis for modern thinking on capital structure, though it is generally viewed as a purely theoretical result since it disregards many important factors in the capital structure decision. The theorem states that, in a perfect market, how a firm is financed is irrelevant to its value. This result provides the base with which to examine real world reasons why capital structure is relevant, that is, a company's value is affected by the capital structure it employs. Some other reasons include bankruptcy costs, agency costs, taxes, and information

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asymmetry. This analysis can then be extended to look at whether there is in fact an optimal capital structure: the one which maximizes the value of the firm. Consider a perfect capital market (no transaction or bankruptcy costs; perfect information); firms and individuals can borrow at the same interest rate; no taxes; and investment decisions aren't affected by financing decisions. Modigliani and Miller made two findings under these conditions. Their first 'proposition' was that the value of a company is independent of its capital structure. Their second 'proposition' stated that the cost of equity for a leveraged firm is equal to the cost of equity for an unleveraged firm, plus an added premium for financial risk. That is, as leverage increases, while the burden of individual risks is shifted between different investor classes, total risk is conserved and hence no extra value created. Trade-off theory allows the bankruptcy cost to exist. It states that there is an advantage to financing with debt (namely, the tax benefits of debt) and that there is a cost of financing with debt (the bankruptcy costs and the financial distress costs of debt). The marginal benefit of further increases in debt declines as debt increases, while the marginal cost increases, so that a firm that is optimizing its overall value will focus on this trade-off when choosing how much debt and equity to use for financing. Empirically, this theory may explain differences in D/E ratios between industries, but it doesn't explain differences within the same industry. Pecking Order theory tries to capture the costs of asymmetric information. It states that companies prioritize their sources of financing (from internal financing to equity) according to the law of least effort, or of least resistance, preferring to raise equity as a financing means “of last resort”. Hence: internal financing is used first; when that is depleted, then debt is issued; and when it is no longer sensible to issue any more debt, equity is issued. This theory maintains that businesses adhere to a hierarchy of financing sources and prefer internal financing when available, and debt is preferred over equity if external financing is required (equity would mean issuing shares which meant 'bringing external ownership' into the company). Thus, the form of debt a firm chooses can act as a signal of its need for external finance. The pecking order theory is popularized by Myers (1984)[1] when he argues that equity is a less preferred means to raise capital because when managers (who are assumed to know better about true condition of the firm than investors) issue new equity, investors believe that managers think that the firm is overvalued and managers are taking advantage of this over-valuation. As a result, investors will place a lower value to the new equity issuance.

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There are three types of agency costs which can help explain the relevance of capital structure.

Asset substitution effect: As D/E increases, management has an increased incentive to undertake risky (even negative NPV) projects. This is because if the project is successful, share holders get all the upside, whereas if it is unsuccessful, debt holders get all the downside. If the projects are undertaken, there is a chance of firm value decreasing and a wealth transfer from debt holders to share holders. Underinvestment problem (or Debt overhang problem): If debt is risky (e.g., in a growth company), the gain from the project will accrue to debtholders rather than shareholders. Thus, management have an incentive to reject positive NPV projects, even though they have the potential to increase firm value. Free cash flow: unless free cash flow is given back to investors, management has an incentive to destroy firm value through empire building and perks etc. Increasing leverage imposes financial discipline on management. An active area of research in finance is that which tries to translate the models above as well as others into a decision theoretic setups that are timeconsistent and that have a dynamic structure similar to the one that can be observed in the real world. Managerial contracts, debt contracts, equity contracts, investment decisions, all have long lived, multi-period implications. Therefore it is hard to think through what the implications of the basic models above are for the real world if they are not embedded in a dynamic structure that approximates reality. A similar type of research is performed under the guise of Credit Risk research in which the modeling of the likelihood of default and its pricing is undertaken under different assumptions about investors and about the incentives of management, shareholders and debt holders. Examples of research in this area are Goldstein, Ju, Leland (1998) and Hennessy and Whited (2004).

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DIVIDEND POLICY ANALYSIS Dividend policy is concerned with taking a decision regarding paying cash dividend in the present or paying an increased dividend at a later stage. The firm could also pay in the form of stock dividends which unlike cash dividends do not provide liquidity to the investors, however, it ensures capital gains to the stockholders. The expectations of dividends by shareholders helps them determine the share value, therefore, dividend policy is a significant decision taken by the financial managers of any company. Coming up with a dividend policy is challenging for the directors and financial managers of a company, because different investors have different views on present cash dividends and future capital gains. Another confusion that pops up is regarding the extent of effect of dividends on the share price. Due to this controversial nature of a dividend policy it is often called the dividend puzzle. Various models have been developed to help firms analyse and evaluate the perfect dividend policy. There is no agreement between these schools of thought over the relationship between dividends and the value of the share or the wealth of the shareholders in other words. One school consists of people like James E. Walter and Myron J. Gordon (see Gordon model), who believe that current cash dividends are less risky than future capital gains. Thus, they say that investors prefer those firms which pay regular dividends and such dividends affect the market price of the share. Another school linked to Modigliani and Miller holds that investors don't really choose between future gains and cash dividends. Dividends paid by the firms are viewed positively both by the investors and the firms. The firms which do not pay dividends are rated in oppositely by investors thus affecting the share price. The people who support relevance of dividends clearly state that regular dividends reduce uncertainty of the shareholders i.e. the earnings of the firm is discounted at a lower rate, ke thereby increasing the market value. However, its exactly opposite in the case of increased uncertainty due to non-payment of dividends. Two important models supporting dividend relevance are given by Walter and Gordon.

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Walter's model James E. Walter's model shows the relevance of dividend policy and its bearing on the value of the share. Assumptions of the Walter model 1. Retained earnings are the only source of financing investments in the firm, there is no external finance involved. 2. The cost of capital, k e and the rate of return on investment, r are constant i.e. even if new investments decisions are taken, the risks of the business remains same. 3. The firm's life is endless i.e. there is no closing down. 4. Basically, the firm's decision to give or not give out dividends depends on whether it has enough opportunities to invest the retain earnings i.e. a strong relationship between investment and dividend decisions is considered. Model description Dividends paid to the shareholders are re-invested by the shareholder further, to get higher returns. This is referred to as the opportunity cost of the firm or the cost of capital, ke for the firm. Another situation where the firms do not pay out dividends, is when they invest the profits or retained earnings in profitable opportunities to earn returns on such investments. This rate of return r, for the firm must at least be equal to ke. If this happens then the returns of the firm is equal to the earnings of the shareholders if the dividends were paid. Thus, its clear that if r, is more than the cost of capital ke, then the returns from investments is more than returns shareholders receive from further investments. Walter's model says that if r<ke then the firm should distribute the profits in the form of dividends to give the shareholders higher returns. However, if r>k e then the investment opportunities reap better returns for the firm and thus, the firm should invest the retained earnings. The relationship between r and k are extremely important to determine the dividend policy. It decides whether the firm should have zero payout or 100% payout. In a nutshell :

If r>ke, the firm should have zero payout and make investments.

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If r<ke, the firm should have 100% payouts and no investment of retained earnings. If r=ke, the firm is indifferent between dividends and investments.

Modigliani-Miller theorem The Modigliani–Miller theorem states that the division of retained earnings between new investment and dividends do not influence the value of the firm. It is the investment pattern and consequently the earnings of the firm which affect the share price or the value of the firm. Assumptions of the MM theorem The MM approach has taken into consideration the following assumptions: 1. There is a rational behavior by the investors and there exists perfect capital markets. 2. Investors have free information available for them. 3. No time lag and transaction costs exist. 4. Securities can be split into any parts i.e. they are divisible 5. No taxes and floatation costs. 6. The investment decisions are taken firmly and the profits are therefore known with certainty. The dividend policy does not affect these decisions.

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ASHOK LEYLAND

LONG TERM BETA

SUMMARY OUTPUT Regression Statistics Multiple R 0.245 R Square 0.060025 Adjusted R Square 0.055129 Standard Error 0.078167 Observations 194 ANOVA df Regression Residual Total SS MS F Significance F 1 0.074915 0.074915 12.26077 0.000575 192 1.173146 0.00611 193 1.248061

Beta ( Slope ) : Ashok Leyland has a beta of 0.47 based on the monthly returns during August 2007 to March 2011. A beta of less than 1 means that Ashok Leyland's returns are less volatile than the market ( Sensex ) returns

Coefficients Standard Error t Stat P-value Lower 95%Upper 95% Lower 95.0% Upper 95.0% Intercept 0.001979 0.005612 0.352666 0.724726 -0.00909 0.013049 -0.00909 0.013049 Sensex Return 0.478025 0.136519 3.501538 0.000575 0.208756 0.747294 0.208756 0.747294 Ashok Ley Return Return Sensex Ashok Ley Return 0.0065 Sensex Return 0.000808 0.001713 Beta 0.471616

**SHORT TERM BETA
**

SUMMARY OUTPUT Regression Statistics Multiple R 0.287593 R Square 0.08271 Adjusted R Square 0.074802 Standard Error 0.077734 Observations 118 ANOVA df Regression Residual Total SS MS F Significance F 1 0.063201 0.063201 10.45941 0.00159 116 0.70093 0.006043 117 0.764131

Beta ( Slope ) : Ashok Leyland has a beta of 0.66 based on the weekly returns during April 2009 to Aug 2011. A beta of less than 1 means that Ashok Leyland's returns are less volatile than the market ( Sensex ) returns

Intercept Sensex Return

Coefficients Standard Error t Stat P-value Lower 95%Upper 95% Lower 95.0% Upper 95.0% 0.003707 0.007217 0.513698 0.60844 -0.01059 0.018 -0.01059 0.018 0.75305 0.232847 3.234101 0.00159 0.291868 1.214233 0.291868 1.214233

Ashok Leyland Sensex Return Return Ashok Leyland Return 0.006564 Sensex Return 0.000711 0.000956 Beta 0.743897

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CAPITAL STRUCTURE ANALYSIS

Capital Structure Analysis Year Mar '07 Mar '08 Mar '09 Mar '10 Mar '11 Total Debt 640.40 887.50 1,961.98 2,280.45 2,658.19 Equity Share Capital 132.39 133.03 133.03 133.03 133.03 Profit Before Tax 604.49 638.16 208.45 544.78 801.81 Interest 31.82 83.63 157.3 101.85 188.92 DE Ratio ( Longtern Liability / Shareholder Equity ) 4.84 6.67 14.75 17.14 19.98 Interest Coverage ( Pretax operating Profit / Interest ) 19.00 7.63 1.33 5.35 4.24

25.00

20.00

DE Ratio ( Longtern Liability / Shareholder Equity ) Interest Coverage ( Pretax operating Profit / Interest )

15.00

10.00

5.00

0.00

Mar '07 Mar '08 Mar '09 Mar '10 Mar '11

Interpretaion : As per graphs we have observed that the DE ratio iscoming down rapidly from 2007-09 and improved marginally after that, whereas DE ratio is continuously increasing. The firm have started making substantial use of debts and has reduced its borrowing from financial institution.

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DIVIDEND POLICY ANALYSIS

Year FV Book Value (Rs) Earning Per Share (Rs) Equity Dividend (%) Dividend Per Share P/E Times Dividend Yield Earnings Yield

0.30 0.20 0.10 0.00

Mar '07 Mar '08 Mar '09

Dividend Policy Analysis Mar '07 Mar '08 Mar '09 Mar '10 Mar '11 1 1 1 1 1 14.14 15.99 15.85 17.46 19.97 3.33 3.53 1.43 3.18 4.75 150 150 100 150 200 1.5 1.5 1 1.5 2 4.25 4.53 11.08 5.49 4.20 0.11 0.09 0.06 0.09 0.10 0.24 0.22 0.09 0.18 0.24

**Dividend Yield Earnings Yield
**

Mar '10 Mar '11

Interpetation: EPS is more fluctuating as compared to DPS.There is a steep decline in EPS from 2008 to 2009 but after that it has maintained a consistent growth. DPS is also running parallel to EPS but fluctuation is not much high.

Book Value (Rs)

40 20 0 Mar Mar Mar Mar Mar '07 '08 '09 '10 '11 Book Value (Rs)

Interpetation: The book value is consistently increasing and it shows the confidence market is showing in the company.

6 4 2

0

Earning Per Share (Rs) Dividend Per Share

Mar Mar Mar Mar Mar '07 '08 '09 '10 '11

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Interpetation: Earning yield has declined dratically from 07 to 09, but started improving after that. The dividend yield is on decline from 07-09 and hs started improving after that.

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**BAJAJ AUTO LTd.
**

LONG TERM BETA

SUMMARY OUTPUT Regression Statistics Multiple R 0.069128505 R Square 0.00477875 Adjusted R Square -0.023656143 Standard Error 0.180028406 Observations 60 ANOVA df Regression Residual Total 1 35 36 SS MS F Significance F 0.005446842 0.005446842 0.168059371 0.684340811 1.134357943 0.032410227 1.139804785

Beta ( Slope ) : Bajaj Auto has a beta of 0.1251 based on the monthly returns during April 2007 to Aug 2011. A beta of less than 1 means that Bajaj Auto's returns are less volatile than the market ( Sensex ) returns

Intercept Sensex Return

Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0% 0.049518832 0.029603479 1.672736886 0.103296207 -0.010579426 0.109617089 -0.010579426 0.109617089 0.125138512 0.305252775 0.40995045 0.684340811 -0.494557562 0.744834587 -0.494557562 0.744834587

Return for Bajaj Sensex Return Beta

Return for Bajaj Sensex Return 0.030805535 0.001176392 0.00940072 0.125138512

**SHORT TERM BETA
**

SUMMARY OUTPUT Regression Statistics Multiple R 0.334376 R Square 0.111807 Adjusted R Square 0.104406 Standard Error 0.029026 Observations 104 ANOVA df Regression Residual Total SS MS 1 0.012727 0.012727 120 0.101099 0.000842 121 0.113826 F Significance F 15.1058 0.000167 Beta ( Slope ) : Bajaj Auto has a beta of 0.1595 based on the weekly returns during April 2009 to Aug 2011. A beta of less than 1 means that Bajaj Auto's returns are less volatile than the market ( Sensex ) returns

Coefficients Standard Error t Stat P-value Lower 95%Upper 95% Lower 95.0% Upper 95.0% Intercept 0.003242 0.002654 1.221587 0.224258 -0.00201 0.008497 -0.00201 0.008497 Sensex Return 0.151776 0.039051 3.886618 0.000167 0.074458 0.229094 0.074458 0.229094 Bajaj Return Sensex Return Bajaj Return 0.000944 Sensex Return 0.000732 0.004586 Beta 0.159507

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**CAPITAL STRUCTURE ANALYSIS
**

Capital Structure Analysis Year Mar '07 Mar '08 Mar '09 Mar '10 Mar '11 Total Debt 1625.43 1334.34 1570 1338.58 325.15 Equity Share Capital 101.18 144.68 144.68 144.68 289.37 Profit Before Tax 1,701.06 1,075.24 939.07 2,400.28 4,306.77 Interest 5.34 5.16 21.01 5.98 1.69 DE Ratio ( Longtern Liability / Shareholder Equity ) 16.0647 9.222698 10.85153 9.252004 1.123648 Interest Coverage ( Pretax operating Profit / Interest ) 318.551 208.3798 44.69634 401.3846 2548.385

3000 2500 2000

1500 1000

500 0 Mar '07 Mar '08 Mar '09 Mar '10 Mar '11

**DE Ratio ( Longtern Liability / Shareholder Equity )
**

Interest Coverage ( Pretax operating Profit / Interest )

Interpretaion : As per graphs we have observed that the DE ratio iscoming down rapidly from 2007-09 and improved marginally after that, whereas DE ratio is continuously increasing. The firm have started making substantial use of debts and has reduced its borrowing from financial institution.

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DIVIDEND POLICY ANALYSIS Dividend Policy Analysis Mar '07 Mar '08 Mar '09 10 11 12 546.96 109.73 129.23 122.35 52.25 45.37 400 200 220 40 22 26.4 4.470454 2.100096 2.848358 0.073131 0.200492 0.204287 0.223691 0.476169 0.351079

Year FV Book Value (Rs) Earning Per Share (Rs) Equity Dividend (%) Dividend Per Share P/E Times Dividend Yield Earnings Yield

Mar '10 13 202.4 117.69 400 52 1.719772 0.256917 0.581472

Mar '11 14 169.69 115.42 400 56 1.470196 0.330014 0.680182

0.8 0.6 0.4 0.2 0 Mar Mar Mar Mar Mar '07 '08 '09 '10 '11

Dividend Yield Earnings Yield

Interpetation: Earning yield has shown more growth as compared to dividend yield. However the growth pattern for the both is running parallel.

Book Value (Rs)

1000 Mar… Mar… Mar… Mar… Mar… 0 Book Value (Rs)

Interpetation: The book value has dropped drastically from 2007 to 2008. However it is recovering at a modest growth rate consistently since 2008.

1 0.5 0 Mar Mar Mar Mar Mar '07 '08 '09 '10 '11 Dividend Yield Earnings Yield

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Interpetation: Earning yield has declined dratically from 07 to 09, but started improving after that. The dividend yield is on decline from 07-09 and hs started improving after that.

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BOSCH Ltd.

LONG TERM BETA

SUMMARY OUTPUT Regression Statistics Multiple R 0.53873 R Square 0.290231 Adjusted R Square 0.286534 Standard Error 0.030021 Observations 60 ANOVA df Regression Residual Total SS MS F Significance F 1 0.070758 0.070758 78.51036 5.37E-16 192 0.173042 0.000901 193 0.243801 Beta ( Slope ) : BOSCH has a beta of 0.4645 based on the monthly returns during April 2007 to Aug 2011. A beta of less than 1 means that BOSCH's returns are less volatile than the market ( Sensex ) returns

Intercept Sensex Return

Coefficients Standard Error t Stat P-value Lower 95%Upper 95% Lower 95.0% Upper 95.0% 0.003054 0.002155 1.416868 0.158142 -0.0012 0.007305 -0.0012 0.007305 0.464575 0.052431 8.860607 5.37E-16 0.361159 0.567991 0.361159 0.567991 BOSCH Return Sensex Return 0.001257 0.000785 0.00169 0.464575

BOSCH Return Sensex Return Beta

**SHORT TERM BETA
**

SUMMARY OUTPUT Regression Statistics Multiple R 0.459284 R Square 0.210942 Adjusted R Square 0.204367 Standard Error 0.025228 Observations 104 ANOVA df Regression Residual Total SS MS F Significance F 1 0.020418 0.020418 32.08011 1.03E-07 120 0.076377 0.000636 121 0.096795 Beta ( Slope ) : BOSCH has a beta of 0.4235 based on the weekly returns during April 2009 to Aug 2011. A beta of less than 1 means that BOSCH's returns are less volatile than the market ( Sensex ) returns

Coefficients Standard Error t Stat P-value Lower 95%Upper 95% Lower 95.0% Upper 95.0% Intercept 0.005242 0.002311 2.26829 0.025099 0.000666 0.009817 0.000666 0.009817 Return saensex 0.423535 0.074778 5.66393 1.03E-07 0.27548 0.571589 0.27548 0.571589

Return BOSCH saensex Return Return BOSCH 0.000793 Return saensex 0.000395 0.000933 Beta 0.423535

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**CAPITAL STRUCTURE ANALYSIS
**

Capital Structure Analysis Year Dec '07 Dec '08 Dec '09 Dec '10 Dec '11 Total Debt 245.09 264.36 284.31 276.39 307.14 Equity Share Capital 32.05 32.02 31.4 31.4 31.4 Profit Before Tax 730.06 771.04 657.54 1,045.86 1,490.54 Interest 3.75 8.73 1.19 3.93 0.43 DE Ratio ( Longtern Liability / Shareholder Equity ) 7.65 8.26 9.05 8.80 9.78 Interest Coverage ( Pretax operating Profit / Interest ) 194.68 88.32 552.55 266.12 3466.37

4000.00 3500.00

3000.00

2500.00

DE Ratio ( Longtern Liability / Shareholder Equity )

2000.00

1500.00 1000.00 Interest Coverage ( Pretax operating Profit / Interest ) 194.68 88.32 552.55 266.12 3466.37

500.00

0.00 Dec '07 Dec '08 Dec '09 Dec '10 Dec '11

Interpretaion : As per graphs we have observed that the DE ratio is constant , whereas interest coverage has improved after Dec 2010. The firm have started making substantial use of debts and has reduced its borrowing from financial institution.

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DIVIDEND POLICY ANALYSIS

Year FV Book Value (Rs) Earning Per Share (Rs) Equity Dividend (%) Dividend Per Share P/E Times Dividend Yield Earnings Yield

0.25

Dividend Policy Analysis Dec '07 Dec '08 Dec '09 Dec '10 Dec '11 10 10 10 10 10 799.78 966.58 1,078.14 1,305.15 1,505.92 190.07 197.93 188.11 273.55 357.52 250 250 300 400 500 25 25 30 40 50 4.21 4.88 5.73 4.77 4.21 0.03 0.03 0.03 0.03 0.03 0.24 0.20 0.17 0.21 0.24

0.20

0.15 Dividend Yield 0.10

Earnings Yield

0.05

0.00 Dec '07 Dec '08 Dec '09 Dec '10 Dec '11

Interpetation: Earning yield has declined dratically from 07 to 09, but started improving after that.The fluctutaion is very less in dividend.

Book Value (Rs)

2,000.00 0.00 Dec '07 '08 '09 '10 '11 Dec Dec Dec Dec Book Value (Rs)

**Interpetation: Book Value has improved gradually with time.
**

400 300 200 100 0 Dec Dec Dec Dec Dec '07 '08 '09 '10 '11

Earning Per Share (Rs) Dividend Per Share

Interpetation: Earning yield has declined dratically from 07 to 09, but started improving after that. The dividend yield is on decline from 07-09 and hs started improving after that. 21 | P a g e Group-4

22 | P a g e

Group-4

**Mahindra & Mahindra Ltd.
**

LONG TERM BETA

SUMMARY OUTPUT Regression Statistics Multiple R 0.6271732 R Square 0.3933462 Adjusted R Square 0.3901866 Standard Error 0.0603495 Observations 60 ANOVA df Regression Residual Total SS MS F Significance F 1 0.4534007 0.4534007 124.49025 1.322E-22 192 0.6992751 0.0036421 193 1.1526758 Beta ( Slope ) : M&M has a beta of 1.1760 based on the weekly returns during April 2007 to Aug 2011. A beta of greater than 1 means that M&M's returns are more volatile than the market ( Sensex ) returns

Intercept Sensex Return

Coefficients Standard Error t Stat P-value Lower 95% Upper 95%Lower 95.0% Upper 95.0% 0.0026952 0.0043329 0.6220365 0.5346559 -0.005851 0.0112414 -0.005851 0.0112414 1.1760014 0.1053999 11.15752 1.322E-22 0.968111 1.3838917 0.968111 1.3838917 M&M Return Sensex Return 0.0059416 0.0019873 0.0016899 1.1760014

M&M Return Sensex Return Beta

**SHORT TERM BETA
**

SUMMARY OUTPUT Regression Statistics Multiple R 0.501622296 R Square 0.251624928 Adjusted R Square 0.245388469 Standard Error 0.058106091 Observations 104 ANOVA df Regression Residual Total 1 120 121 SS MS F Significance F 0.13622566 0.13622566 40.34740396 3.96468E-09 0.405158143 0.003376318 0.541383803 Beta ( Slope ) : M&M has a beta of 1.0939 based on the weekly returns during April 2009 to Aug 2011. A beta of greater than 1 means that M&M's returns are more volatile than the market ( Sensex ) returns

Intercept Return saensex

Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0% 0.001386197 0.005322184 0.260456418 0.794958133 -0.009151356 0.01192375 -0.009151356 0.01192375 1.093979879 0.172227119 6.351960639 3.96468E-09 0.752982174 1.434977584 0.752982174 1.434977584

Return BOSCH Return saensex Beta

Return BOSCH Return saensex 0.004437572 0.00102068 0.000932997 1.093979879

23 | P a g e

Group-4

**CAPITAL STRUCTURE ANALYSIS
**

Capital Structure Analysis Year Mar '07 Mar '08 Mar '09 Mar '10 Mar '11 Total Debt 1636 2587.06 4052.76 2880.15 2405.29 Equity Share Capital 238.03 239.07 272.62 282.95 293.62 Profit Before Tax 1,437.68 1,406.77 991.57 2,774.26 3,519.61 Interest 19.8 87.59 134.12 156.85 70.86 DE Ratio ( Longtern Liability / Shareholder Equity ) 7 11 15 10 8 Interest Coverage ( Pretax operating Profit / Interest ) 73 16 7 18 50

80 70

60

50

40

30 20

**DE Ratio ( Longtern Liability / Shareholder Equity )
**

Interest Coverage ( Pretax operating Profit / Interest )

10

0 Mar '07 Mar '08 Mar '09 Mar '10 Mar '11

Interpretaion : As per graphs we have observed that the DE ratio has remained constant and attaind its peak when Interest coverage was at its bottom.Interest coverage dropped drastically from 2007-09, after that it has been iproving gradually .The firm have started making substantial use of debts and has reduced its borrowing from financial institution.

24 | P a g e

Group-4

DIVIDEND POLICY ANALYSIS

Year FV Book Value (Rs) Earning Per Share (Rs) Equity Dividend (%) Dividend Per Share P/E Times Dividend Yield Earnings Yield

0.35

Dividend Policy Analysis Mar '07 Mar '08 Mar '09 Mar '10 Mar '11 5 5 10 10 10 148.72 181.43 191.91 138.02 174.85 45 46 31 37 45 115 115 100 190 230 6 6 10 19 23 3 4 6 4 4 0.04 0.03 0.05 0.14 0.13 0.30 0.25 0.16 0.27 0.26

0.30 0.25

0.20 Dividend Yield 0.15 0.10 Earnings Yield

0.05 0.00

Mar '07 Mar '08 Mar '09 Mar '10 Mar '11

Interpetation: Earning yield has declined dratically from 07 to 09, but started improving after that and became constant march 2010 onward.The fluctutaion is very less in dividend.

Book Value (Rs)

250 200 150 100 50 0 Mar '07 Mar '08 Mar '09 Mar '10 Mar '11

Book Value (Rs)

**Interpetation: Book value has improved from 2007-09. But decline in 2009-10 and
**

recovered after that.

25 | P a g e

Group-4

50 45 40

35 30 25 20

15 10 5 0 Mar '07 Mar '08 Mar '09 Mar '10 Mar '11

**Dividend Per Share
**

Earning Per Share (Rs)

Interpetation: EPS has shown more fluctuation in compare to DPS. EPS have shown negative growth during the considered period.

26 | P a g e

Group-4

Maruti Suzuki

LONG TERM BETA

SUMMARY OUTPUT Regression Statistics Multiple R 0.530383 R Square 0.281307 Adjusted R Square 0.277563 Standard Error 0.047784 Observations 194 ANOVA df Regression Residual Total SS MS F Significance F 1 0.171594 0.171594 75.15147 1.81E-15 192 0.438396 0.002283 193 0.609991 Beta ( Slope ) : Maruti Suzuki has a beta of 0.7234 based on the monhtly returns during April 2007 to Aug 2011. A beta of less than 1 means that Maruti Suzuki's returns are less volatile than the market ( Sensex ) returns

Coefficients Standard Error t Stat P-value Lower 95%Upper 95% Lower 95.0% Upper 95.0% Intercept 0.002176 0.003431 0.634316 0.52663 -0.00459 0.008943 -0.00459 0.008943 Sensex Return 0.723466 0.083454 8.668995 1.81E-15 0.558861 0.888072 0.558861 0.888072 Maruti Suzuki Sensex Return Return Maruti Suzuki Return 0.003144 Sensex Return 0.001223 0.00169 Beta 0.723466

SHORT TERM BETA

27 | P a g e

Group-4

SUMMARY OUTPUT Regression Statistics Multiple R 0.522902 R Square 0.273427 Adjusted R Square 0.262582 Standard Error 0.033114 Observations 69 ANOVA df Regression Residual Total SS MS 1 0.027647 0.027647 67 0.073466 0.001097 68 0.101113 F Significance F 25.2137 4.04E-06 Beta ( Slope ) : Maruti Suzuki has a beta of 0.8306 based on the weekly returns during April 2009 to Aug 2011. A beta of less than 1 means that Maruti Suzuki's returns are less volatile than the market ( Sensex ) returns

Coefficients Standard Error t Stat P-value Lower 95%Upper 95% Lower 95.0% Upper 95.0% Intercept -0.00113 0.003987 -0.28346 0.777697 -0.00909 0.006827 -0.00909 0.006827 Sensex Return 0.830648 0.165424 5.021325 4.04E-06 0.50046 1.160836 0.50046 1.160836

Maruti Return Sensex Return Maruti Return 0.001465 Sensex Return 0.000482 0.000581 Beta 0.830648

**CAPITAL STRUCTURE ANALYSIS
**

Capital Structure Analysis Year Mar '07 Mar '08 Mar '09 Mar '10 Mar '11 Total Debt 630.8 900.2 698.9 821.4 309.3 Equity Share Capital 144.5 144.5 144.5 144.5 144.5 Profit Before Tax 2,285.20 2,494.90 1,710.80 3,628.10 3,220.30 Interest 37.6 59.6 51 33.5 24.4 DE Ratio ( Longtern Liability / Shareholder Equity ) 4.37 6.23 4.84 5.68 2.14 Interest Coverage ( Pretax operating Profit / Interest ) 60.78 41.86 33.55 108.30 131.98

140.00 120.00

100.00

80.00 60.00

**DE Ratio ( Longtern Liability / Shareholder Equity )
**

Interest Coverage ( Pretax operating Profit / Interest )

40.00

20.00 0.00 Mar '07 Mar '08 Mar '09 Mar '10 Mar '11

28 | P a g e

Group-4

Interpretaion : As per graphs we have observed that the DE ratio iscoming down rapidly from 2007-09 and improved marginally after that, whereas DE ratio is continuously increasing. The firm have started making substantial use of debts and has reduced its borrowing from financial institution.

DIVIDEND POLICY ANALYSIS

Year FV Book Value (Rs) Earning Per Share (Rs) Equity Dividend (%) Dividend Per Share P/E Times Dividend Yield Earnings Yield

0.25

Dividend Policy Analysis Mar '07 Mar '08 Mar '09 Mar '10 Mar '11 5 5 5 5 5 237.23 291.28 323.45 409.65 479.99 54.07 59.91 42.18 86.45 79.21 90 100 70 120 150 4.5 5 3.5 6 7.5 4.39 4.86 7.67 4.74 6.06 0.02 0.02 0.01 0.01 0.02 0.23 0.21 0.13 0.21 0.17

0.20

0.15 Dividend Yield 0.10 Earnings Yield

0.05

0.00 Mar '07 Mar '08 Mar '09 Mar '10 Mar '11

29 | P a g e

Group-4

Interpetation: EPS is more fluctuating as compared to DPS.There is a steep decline in EPS from 2008 to 2009 but after that it has maintained a consistent growth. DPS is also running parallel to EPS but fluctuation is not much high.

Book Value (Rs)

600 500 400

300

200 100 0

Book Value (Rs)

Mar '07

Mar '08

Mar '09

Mar '10

Mar '11

Interpetation: The book value is consistently increasing and it shows the confidence market is showing in the company.

100 90 80

70 60 50 40

30 20 10 0 Mar '07 Mar '08 Mar '09 Mar '10 Mar '11

**Earning Per Share (Rs)
**

Dividend Per Share

Interpetation: Earning yield has declined dratically from 07 to 09, but started improving after that. The dividend yield is on decline from 07-09 and hs started improving after that.

30 | P a g e

Group-4

TATA MOTORS

LONG TERM BETA

SUMMARY OUTPUT Regression Statistics Multiple R 0.77695572 R Square 0.603660191 Adjusted R Square 0.596182081 Standard Error 0.103518393 Observations 60 ANOVA df Regression Residual Total SS MS F Significance F 1 0.865039 0.865039 80.72363 3.1E-12 53 0.567951 0.010716 54 1.43299 Beta ( Slope ) : Tata Motor's has a beta of 1.444 based on the monthly returns during April 2007 to Aug 2011. A beta of more than 1 means that Tata Motor's returns are more volatile than the market ( Sensex ) returns

Intercept Sensex Return

Coefficients Standard Error t Stat P-value Lower 95%Upper 95% Lower 95.0% Upper 95.0% 0.000514162 0.014016 0.036683 0.970876 -0.0276 0.028628 -0.0276 0.028628 1.444365892 0.16076 8.984633 3.1E-12 1.121923 1.766809 1.121923 1.766809 Tata Motors Return Sensex Return 0.026054367 0.010889197 0.007539 1.444365892

Tata Motors Return Sensex Return Beta

**SHORT TERM BETA
**

SUMMARY OUTPUT Regression Statistics Multiple R 0.729811199 R Square 0.532624387 Adjusted R Square 0.529110284 Standard Error 0.048788336 Observations 104 ANOVA df Regression Residual Total 1 133 134 SS MS F Significance F 0.360776841 0.360776841 151.567693 1.01391E-23 0.316580129 0.002380302 0.67735697 Beta ( Slope ) : Tata Motors has a beta of 1.501 based on the weekly returns during April 2009 to Aug 2011. A beta of greater than 1 means that Tata Motor's returns are more volatile than the market ( Sensex ) returns

Intercept Sensex Return

Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0% 0.00770096 0.004237783 1.817214258 0.071435522 -0.000681211 0.016083131 -0.000681211 0.016083131 1.501635629 0.121972309 12.31128316 1.01391E-23 1.26037913 1.742892127 1.26037913 1.742892127 Tata Motors Return Sensex Return 0.005017459 0.001779673 0.001185157 1.501635629

Tata Motors Return Sensex Return Beta

31 | P a g e

Group-4

CAPITAL STRUCTURE ANALYSIS

Year Total Liabilities Total Assets Equity Share Capital Profit Before Tax Interest DE Ratio ( Longtern Liability / Shareholder Equity ) Interest Coverage ( Pretax operating Profit / Interest )

60 50 40 30 20 10 0

Capital Structure Analysis Mar '07 Mar '08 Mar '09 Mar '10 Mar '11 10879 14120 25560 31430 35912 10879 14120 25560 31430 35912 385 386 514 571 635 2574 2576 1014 2830 2197 456 472 705 1246 1384

28

37

50

55

57

6

5

1

2

2

DE Ratio ( Longtern Liability / Shareholder Equity ) Interest Coverage ( Pretax operating Profit / Interest )

Mar '07 Mar '08 Mar '09 Mar '10 Mar '11

Interpretaion : As per graphs we have observed that the DE ratio is gradually increasing from March 2007 onwards, whereas interest coverage is declining in the same period. They seem to move in opposite direction. The firm has started making substantial use of debts and has reduced its borrowing from financial institution.

32 | P a g e

Group-4

DIVIDEND POLICY ANALYSIS

Year FV Book Value (Rs) Earning Per Share (Rs) Equity Dividend (%) Dividend Per Share P/E Times Dividend Yield Earnings Yield

0.30 0.25 0.20

Dividend Policy Analysis Mar '07 Mar '08 Mar '09 Mar '10 Mar '11 10 10 10 10 10 178 203 241 259 315 50 53 19 39 29 150 150 60 150 200 15 15 6 15 20 4 4 12 7 11 0.08 0.07 0.02 0.06 0.06 0.28 0.26 0.08 0.15 0.09

0.15 0.10

0.05 0.00 Mar '07 Mar '08 Mar '09 Mar '10 Mar '11

Earnings Yield

Dividend Yield

Interpetation: Earning yield has declined dratically from 07 to 09, but started improving after that.The fluctutaion is very less in dividend.

Book Value (Rs)

350 300

250

200 150 Book Value (Rs)

100

50 0 1 2 3 4 5

Interpetation: Book value is steadily increasing. That implies that confidence of market/investor is increasing steadily.

33 | P a g e

Group-4

60 50 40

30 20

10 0 Mar '07 Mar '08 Mar '09 Mar '10 Mar '11

**Earning Per Share (Rs)
**

Dividend Per Share

Interpetation: EPS has declined faster than DPS however their fluctuation is in tandem with each other

34 | P a g e

Group-4

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