A Project Report On

“Fundamental Analysis of Equity shares”

With
SHAREKHAN LTD

Submitted by
B. RAMARAJU
099505

SCHOOL OF MANAGEMENT
NATIONAL INSTITUTE OF TECHNOLOGY
WARANGAL-506004 (A.P)
 ACKNOWLEDGEMENT

Ideas are nobody‟s property. They belong to whoever express them the best. Any
project undertaken will be completed due to the brainwork of various personalities. I
would like to acknowledge all the people who had given me their valuable time.

I would like extend my earnest gratitude to SHARE KHAN LIMITED for giving me
opportunity to work with them. I am thankful to, Mr. Raja sir of SHARE KHAN
LIMITED for helping me in guiding the project.

Finally, I am thankful to, my Parents, Family, Friends, Colleagues and God Almighty
for their support and well wishes.

2
 DECLARATION

This is to certify that the thesis titled “FUNDAMENTAL ANALYSIS OF EQUITY

SHARES WITH SHARE KHAN” is a bonafide work done by Mr. B.RAMA RAJU,
roll no.099505, in partial fulfillment of the requirements of MBA Program and
submitted to NIT Warangal.

I also declare that this project is a result of my own efforts and that it has not been
copied from anyone and I have taken only citations from the literary resources which
are mentioned in the Bibliography section.

This work was not submitted earlier at any other university or institute for the award
of the degree.

Date July 8th, 2010

(B.RAMA RAJU)

Place Hyderabad

3
Table of Contents
1 INTRODUCTION ............................................................................................. 5
1.1 BRIEF INTRODUCTION ABOUT FUNDAMENTAL ANALYSIS .......... 5
1.2 RESEARCH PLAN ................................................................................... 6
1.2.1 OBJECTIVES OF THE STUDY .......................................................... 6
1.2.2 SCOPE OF THE STUDY..................................................................... 7
1.2.3 SOURCES OF DATA .......................................................................... 7
1.2.4 TOOLS OF ANALYSIS ...................................................................... 8
1.2.5 LIMITATIONS OF THE STUDY ........................................................ 8
2 COMPANY PROFILE ...................................................................................... 9
3 ANALYSIS ......................................................................................................18
3.1 ABOUT IT SECTOR: ................................................................................18
3.2 OUTSOURCING .......................................................................................19
3.3 DOMESTIC MARKETS ............................................................................20
3.4 INVESTMENTS ........................................................................................20
3.5 GOVERNMENT INITIATIVES ................................................................20
3.6 ROAD AHEAD .........................................................................................21
3.7 FUNDAMENTAL ANALYSIS TOOLS ....................................................22
3.8 ANALYSIS OF INFOSYS TECHNOLOGIES LTD: .................................27
3.9 ANALYSIS OF TCS: TATA CONSULTANCY SERVICES .....................36
3.10 ANALYSIS OF WIPRO: ...........................................................................44
4 SUMMARY, SUGGESTIONS AND CONCLUSIONS ....................................55
4.1 SUMMARY: ..............................................................................................55
4.2 CONCLUSIONS ........................................................................................55
4.3 SUGGESTIONS ........................................................................................55
5 BIBLIOGRAPHY ............................................................................................56
5.1 BOOKS:.....................................................................................................56
5.2 WEBSITES: ...............................................................................................56

4
 1 INTRODUCTION

1.1 BRIEF INTRODUCTION ABOUT FUNDAMENTAL ANALYSIS

Fundamental analysis is basically done for long term and midterm investment which
is also called as delivery based investment or trading. The main important aim behind
is to study and understand the company in which you are planning to invest your hard
earned money and get excellent returns.
What an investor should look for in a company to invest?

About Company:
What the company is doing and what are its businesses? How is the current demand
for their products and how the demand will be in future and so?
Earnings:
This is very important parameter. Broadly look into its last 3to 5 years earnings
whether the company has posted profits or losses. It‟s all about earnings. The bottom
line is investors want to know how much money the company is making and how
much it is going to make in the future. To find the earning status ratios used are EPS -
Earning per share

Current Valuation:
This is another very important factor which most of the investor forgets while doing
their investments. Generally most of the investors invest at higher valuations of shares
and when share prices start coming down then they keep worrying, so this should not
happen. Before investing one should check the current valuation of the share price and
invest only when the share price is at right rice and not at over priced share. This is
what happened in January 2008. Most of the people invested at very high valuations
and later on the share prices started to correct (falling down).
To find the current valuation of the stock the ratios used are

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PE ratio - Price to earnings ratio
Book value
PB ratio - Price to book value ratio

Future earnings growth:

It is very important to analyze how the company is going to do in future. How will be
its returns or its profits etc? Basically most of the investors invest in shares taking into
consideration Company‟s future growth prospects.
To find the future growth of the stock the ratios used are
PEG ratio - Price to earnings growth ratio
Current EPS and Forward EPS
Price to sales ratio

Debit status:
For any company to perform well in the future it is very important to be debt free or
less debit because if company is having large debits like borrowings, loans then it
becomes difficult for it to plan for any acquisitions, expansion plans take over plans,
dividend payout and very important its most of the net profit goes in paying the
interest and loans and other debits. So in other words if the company is having fewer
debits or no debit then they are having lots of cash in hand and they are free to take
any decision in coming future. To find the debit status of the company the ratios used
are Debit ratio

1.2 RESEARCH PLAN

1.2.1 OBJECTIVES OF THE STUDY

 To study the functioning of equity shares in capital market.

 To know the factors that effects price of the shares

 To find the profitable shares in the market.

 To know how to invest and when to invest in shares

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1.2.2 SCOPE OF THE STUDY

The study is limited to “Capital Market” in the Indian context and the BSE IT has
been taken as a representative sample for the study. The study can‟t be said as totally
perfect. Any alteration may come. The study has only made a humble attempt at
evaluation of shares in capital market only in Indian context.

The following are the steps involved in the study

 Selection of the script: The scripts selection is done on a random and the
scripts selected Are Infosys technologies limited, TCS limited, Wipro limited.
 Sources of Data: The data has been collected from the “BSE INDIA” and the
internet and Share Khan.
 Analysis: The analysis consist of the tabulation of the data valuating the shares
of 3 companies, representing the data with graphs and making the
interpretation using data.

1.2.3 SOURCES OF DATA

 Primary Data
To solve the problems on fundamental analysis:-
Primary data collect by discussing with my guide and other staff member of the
company
Observation
 Secondary Data
The sources of secondary data for solve the problems are:-
Company Annual Report
Company Internal Data
Internet

7
1.2.4 TOOLS OF ANALYSIS

These are the most popular tools of fundamental analysis. They focus on earnings,
growth, and value in the market. They are

 Earnings per Share – EPS

 Price to Earnings Ratio – P/E
 Projected Earnings Growth – PEG
 Price to Book – P/B
 Dividend Payout Ratio
 Dividend Yield
 Debt Equity ratio
 Return on Equity

1.2.5 LIMITATIONS OF THE STUDY

The following are the limitation of this study.

 The scope of the study is limited to Indian markets only.

 The data collected is completely restricted to the 3 companies. Hence this

analysis cannot be taken as universal.

8
 2 COMPANY PROFILE

SHAREKHAN
SSKI, a veteran equities solutions company with over 8 decades of experience in the
Indian stock markets. The SSKI Group comprises of Institutional Broking and
Corporate Finance. The Institutional broking division caters to domestic and foreign
institutional investors, while the Corporate Finance Division focuses on niche areas
such as infrastructure, telecom and media, SSKI has been voted as the Top Domestic
Brokerage House in the research category, by the Euro Money survey and Asia
Money survey.

Share khan is also about focus. Share khan does not claim expertise in too many
things. Share khan‟s expertise lies in stocks and that's what he talks about with
authority. So when he says that investing in stocks should not be confused with
trading in stocks or a portfolio-based strategy is better than betting on a single horse,
it is something that is spoken with years of focused learning and experience in the
stock markets. And these beliefs are reflected in everything Share khan does for you!
Share khan India‟s leading stockbroker is the retail arm of SSKI, An organization
with over eighty years of experience in the stock market. With over 240 share shops
in 110

Cities, and India‟s premier online trading destinations- Www.sharekhan.com, ours

customer enjoy multi-channel access at the stock
Markets, share khan offer u trade execution facilities for cash as well as derivatives on
the BSE & NSE and most importantly we bring you investment advice tempered by
eighty years of broking experience.
Through our portal Sharekhan.com, we‟ve been providing investors a powerful online
trading platform, the latest news, research and other knowledge-based tools for over

9
5years now. We have dedicated terms for fundamental and technical research so that
you get all the information your need to take the right investment decisions. With
branches
And outlets across the country, our ground network are one of the biggest in India.
We have a talent pool of experienced professionals specially designated to guide you
when you need assistance, which is why investing with us is bound to be a hassle-free
experience for you!

REASON WHY YOU SHOULD CHOOSE SHARE KHAN?

 Experience:
SSKI has more than eight decades of trust and credibility in the Indian stock
market. In the Asia Money Broker‟s poll held recently, SSKI won the „India‟s best
broking house for 2004‟ award. Ever since it launched share khan as its retail broking
division in February 2000, it has been providing institutional-level research and
broking services to individual investors.
 Technology:
With our online trading account you can buy and sell shares in an instant from
any PC with an Internet connection. You will get access to our powerful inline trading
tools that will help you take complete control over your investment in shares.
 Accessibility:
In addition to our online and phone trading services, we also have a ground
network of 240 share shops across 110 cities in India where you can get personalized
services.
 Knowledge:
In a business where the right information at the right time can translate into
direct profit, you get access to wide range of information on our content- rich portal,
Sharekhan.com. You will also get a useful set of knowledge-based tools that will
empower you to take informed decisions.
 Convenience:
You can all our Dial-n-Trade number to get investment and execute your
transaction. We have a dedicated call-centre to provide this service via a toll-free
number from anywhere in India.
 Customer service:

10
 Our customer service team will assist you for any help that you need relating
to transactions, billing, demat and other queries, our customer service can be
contacted via a toll-free number, email or live chat on sharekhan.com
 Investment Advice:
Share khan has dedicated research teams for fundamental and technical
research. Our analysts constantly track the pulse of the market and provide timely
investment advice to you in the form of daily research emails, online chat, printed
reports on SMS on your phone.
A Share khan outlet offers the following services
 Online BSE and NSE executions (through BOLT and NEAT terminals)
 Free access to investment advice from Share khan‟s research team
 Share khan Value Line (a fortnightly publication with reviews of
recommendations, stocks to watch out for etc
 Daily research reports and market review (High Noon, Eagle Eye)
 Pre-market Report
 Daily trading calls based on technical analysis
 Cool trading products (Daring Derivatives, Trading Ring and Market Strategy)
 Personalized advice
 Live market information
 Depository services: Demat and Remat transactions
 Derivatives trading (Futures and Options)
 Commodity trading (MCX &NCDEX)
 MUTUAL FUNDS

 Portfolio and management services

 Internet-based online trading: Speed Trade, Speed Trade Plus
 All you have to do is walk into any of their 588 share shops across 213 cities
in India to get a host of trading related services – Their friendly customer
service staff will also help you with any account related queries you may have.

DEMAT SERVICES
Dematerialization and trading in the demat mode is the safer and faster alternative to
the physical existence of securities. Demat as a parallel solution offers freedom from
delays, thefts, forgeries, settlement risks and paper work. This system works through

11
depository participants (DPs) who offer demat services and the securities are held in
the electronic form for the investor directly by the Depository.

Share khan Depository Services offers dematerialization services to individual and

corporate investors. We have a team of professionals and the latest technological
expertise dedicated exclusively to our demat department, apart from a national
network of franchisee, making our services quick, convenient and efficient.
At Share khan, our commitment is to provide a complete demat solution which is
simple, safe and secure Online Services to Suit your Needs.With a Share khan online
trading account, you can buy and sell shares in an instant! Anytime you like and from
anywhere you like!

We were amongst the pioneers of online trading in India and have launched
sharekhan.com in February 2000.Since then; we have been at the forefront in
understanding customer needs, analyzing trends and bringing innovation in our
offerings. We have online trading products that are customized to the habits and
preferences of investors as well as traders.

You can choose the online trading account that suits your trading habits and
preferences - the Classic Account for most investors and Speed trade for active day
traders. Your Classic Account also comes with Dial-n-Trade completely free, which is
an exclusive service for trading shares by using your telephone.
Classical Account: This account allows the client to trade through our website and
is suitable for the retail investor. Our online trading website also comes with Dial-n-
Trade service that enables you to buy and sell shares by calling our dedicated toll free
number 1-600-227050.

Speed Trade: Speed trade is a next generation online trading products that brings
the power of your broker‟s terminal to your PC. It is ideal for active traders who
transact frequently during movements. SPEEDTRADE is an internet-based
application available on a CD, which provides everything a trader needs on one
screen, thereby, reducing the time required to execute a trade.

12
KEY FEATURES OF SPEED TRADE:

 Single Screen Trading Terminal

 Real – time Streaming Quotes

 Live Tic-by-Tic Intra – day Charting

 Instant Order / Trade Confirmations in the same window

 Hot keys similar to Broker‟s Terminal

 Customized Alerts based on multiple Parameters

 Back-up Facility to Place Trading on Direct Phone Lines

FEATURES
 Trading a/c with Demat a/c.
 Online orders on Phone.
 Timely Advice and Research Reports.
 Banking gateways with five banks.
(HDFC, CITIBANK, UTI, IDBI, OBC)
 Live streaming quotes.
 First year free demat a/c.
 Freedom from paper work.
 Trade from any net enabled PC.
 After- hour orders
 Mobile Alerts
RESEARCH- THE SCIENCE OF INVESTING
Research and in-depth knowledge of markets provide better analysis that speculations
or reactions to rumors. Our teams of dedicated analysts are therefore, constantly at
work to track performance and trends and determine and winners. That‟s why all our
trading – products have extremely high success rates! Our research products are
tailor-made to suit all your needs.
Long-term investing

13
Intra-day & short-term trading
High-income yields
Hedging products and lots more

SHAREKHAN PORTFOLIO MANAGEMENT SERVICES

Portfolio investing is a product where the Share khan team is primarily accountable.
Based on investors risk and return expectations, they can choose from:

TYPES

 PROTECH PMS (based on technical analysis of price movements)

 PROPRIME PMS (based on primary analysis of company fundamentals)

2 schemes here are a) Balanced scheme b) Aggressive scheme

 PROARBITRAGE PMS (based on utilization of arbitrage opportunities)

 PROTECH
Investing based on price movements

Product Offerings:

Nifty Thrifty: Nifty futures are bought and sold on the basis of an automated
trading system that generates calls to go long/short. The exposure never exceeds value
of portfolio i.e. there is no leveraging, but being short in Nifty allows you to earn even
in falling markets and there by generates linear returns.

Beta Portfolio: Stocks in long term technical up trends are identified at various
inflection points in their trading cycles. 80% of the portfolio is traded in delivery of
such stocks. 20% is used in creating and options book i.e. buying calls/puts of the
index/stocks to increase the portfolio beta and hedge against pitfalls. The use of
timing for delivery and options for a higher beta enables potentially a superior rate of

14
return by taking a risk on just 20% of capital. Unquestioningly money management
rules ensure that capital is not eroded. Portfolio rebalancing is done between the cash
and the options segments based on their profitability.

Product Approach:
Superior performance can be achieved through share market timing, by picking
stocks/nifty before the inflection points in their trading cycles.
Linear returns possible from having sell market positions in downtrends and by using
the options market to change the portfolio beta.
Money management rules will be in place.
Product Characteristics
Using swing/momentum based index trading system with stop/reverse trend
following.
You get the best of both worlds by:
Having positions in cash and options
Delivery positions enable profit maximization, while options positions offer high beta
short term profit in the same portfolio.
Low impact cost
Product Details
Minimum investment: Rs. 5 lakhs.
Lock in: 3 months
AMC fees: 0%
Reporting: Fortnightly reporting of Portfolio Net Worth, Monthly reporting of
Portfolio Holdings/Transactions.
Charges: 0.05% brokerage for derivatives, 0.03% for delivery, 20% profit sharing on
booked profits quarterly basis, 5% discount for 1 crore investments or 1 year lock in
period.
PROPRIME
Investing Based On Company Fundamentals
1. The Aggressive Scheme:
Ideal for investors looking at higher returns with high-risk appetite.
This portfolio consists of high growth stocks fulfilling any of the following
conditions:

15
Expected growth in profitability
Turnaround and corporate restructuring enabling value unlocking
Relatively low valuation
Mid to small cap companies
2. The Balanced Scheme:
Ideal for investors looking at steady returns with low risk appetite. This consists of a
blend of quality blue chip and growth stocks ensuring a balanced portfolio with
relatively medium risk profile.

Product Approach:
Investments are based on 3 tenets:
Consistent, steady and sustainable returns
Margin of safety
Low volatility

Product Characteristics:
Bottom up stock selection
In-depth, independent fundamental research
High quality companies with sustainable competitive advantage
Disciplined valuation approach applying multiple valuation measures
Medium to long term vision, resulting in low portfolio turnover
Product Details:
Minimum investment: Rs. 5 lakh
Lock in: 3 months
Reporting: Online access to portfolio holdings, monthly reporting of Portfolio
Holdings/Transactions.
Charges:2.5% per annum AMC fees charged every quarter, 0.5% brokerage, 20%
profit sharing after 15% hurdles is crossed-chargeable at the end of the fiscal year.
PROARBITRAGE
Investing using arbitrage opportunities
Product Offerings:

16
Cash-future Arbitrage: It spots risk free opportunities that yield greater returns than
conventional risk free products. On spotting the opportunity, the stock is bought and
future is sold to lock in the spread. Position is liquidated if the spread thins before
time or on expiry, whichever comes earlier, in this manner, the scheme move from
one opportunity to another.
Product Approach:
There is an inherent opportunity in the spread that lies between cash and futures.
When the spread is high stocks are bought, at the same time futures are sold to lock in
the differences which is then bound to be Zero at expiry.

Product Characteristics:
Risk Free: On the whole, it is risk-free can be compared to RBI bonds and GILT
funds.
High Returns: As compared to other zero risk products, it offers roughly an 8% post
tax return.

Product Details
Minimum investment: Rs. 5 lakh
Lock in: 3 months
Reporting: Fortnightly reporting of Portfolio Net Worth, Monthly reporting of
Portfolio Holdings/Transactions.
Charges: 0.035% brokerage for cash, 0.075% for delivery.

17
 3 ANALYSIS

3.1 ABOUT IT SECTOR:

The Indian information technology (IT) industry has played a key role in putting India
on the global map. Thanks to the success of the IT industry, India is now a power to
reckon with. According to the annual report 2009-10, prepared by the Department of
Information Technology (DIT), the IT-BPO industry is expected to garner a revenue
aggregate of US$ 73.1 billion in 2009-10 as compared to US$ 69.4 billion in 2008-09,
growing at a rate of over 5 per cent. The report predicts that the Indian IT-BPO
revenues may reach US$ 225 billion in 2020.

According to DIT, the Indian software and services exports is expected to reach US$
49.7 billion in 2009-10 as compared to US$ 47.1 billion in 2008-09, registering an
increase of 5.5 per cent in dollar terms. Further, the IT services exports is estimated to
grow from US$ 25.8 billion in 2008-09 to US$ 27.3 billion in 2009-10, showing a
growth of 5.8 per cent.

Moreover, according to a study by Springboard Research published in February 2010,

the Indian information technology (IT) market is expected to grow at around 15.5 per
cent in 2010, on the back of growing investor confidence and favorable initiatives
taken by the government.

The data centre services market in the country is forecast to grow at a compound
annual growth rate (CAGR) of 22.7 per cent between 2009 and 2011, to touch close to
US$ 2.2 billion by the end of 2011, according to research firm IDC India's report
published in March 2010. The IDC India report stated that the overall India data
centre services market in 2009 was estimated at US$ 1.39 billion.

18
As per a report by the Internet and Mobile Association of India (IAMAI) and market
research firm IMRB, the total number of Internet users in India reached 71 million in
2009. The number of active users increased to 52 million in September 2009 from 42
million in September 2008, registering a growth of 19 per cent year-on-year, stated
the report.

According to IDC India, during January-March 2010, total PC sales in India reached
2,240,000 units registering a year-on-year increase of 33 per cent over the same
period in 2009. Desktop PC sales witnessed a year-on-year increase of 18 per cent
during January-March 2010, over the corresponding period last year to reach
1,436,000 units. The sales of Notebook computers also increased by 72 per cent year-
on-year, clocking 803,000 shipments.

3.2 OUTSOURCING

India is a preferred destination for companies looking to offshore their IT and back-
office functions. It also retains its low-cost advantage and is a financially attractive
location when viewed in combination with the business environment it offers and the
availability of skilled people.

Some big deals in the outsourcing space include:

 Wipro Ltd, an IT services company, has entered into a strategic collaboration

with Hitachi Data Systems, to offer co-branded products and services on

Hitachi Technology in India.
 Software company, Tata Consultancy Services (TCS) has won a multi-year

outsourcing contract from Norway-based telecom company, Telenor Norway

to provide application maintenance and development services.
 HCL Technologies has entered into a five-year IT infrastructure outsourcing

deal with Singapore Exchange (SGX) for US$ 110 million. The company has
also won a US$ 500 million strategic IT outsourcing contract from US-based
drug manufacturer, Merck Sharp and Dohme (MSD).
 Computer services firm, Mahindra Satyam has signed a four-year offshore

contract with Denmark-based IT company, KMD for US$ 48 million.

19
  Software exporter Patni Computer Systems won a five-year IT and back-office

contract potentially worth around US$ 200 million from US-based health
insurance provider Universal American.

3.3 DOMESTIC MARKETS

The market for enterprise networking equipment in India is estimated to grow from
US$ 1 billion in 2008 to US$ 1.7 billion by 2012, recording a compounded annual
growth rate (CAGR) of 15 per cent during this period, according to a study by
Springboard Research titled „Epicenter of Growth–Indian Enterprise Networking
Equipment Market Report' released in December 2009.

3.4 INVESTMENTS

 Between April 2000 and March 2010, the computer software and hardware

sector received cumulative foreign direct investment (FDI) of US$ 9,872.49

million, according to the Department of Industrial Policy and Promotion.
 The total investments of EMC Corporation, a leading global player of

information infrastructure solutions in India, will touch US$ 2 billion (over

US$ 2.01 billion) by 2014.
 Syntel, an IT company, plans to invest around US$ 50 million in its global

development centre in Chennai.

 Russian IT security software provider, Kaspersky Lab, will be investing US$ 2

million in its India operations at Hyderabad during the next financial year.

3.5 GOVERNMENT INITIATIVES

 The government has constituted the Technical Advisory Group for Unique
Projects (TAGUP) under the chairmanship of Nandan Nilekani. The Group
would develop IT infrastructure in five key areas, which includes the New
Pension System (NPS) and the Goods and Services Tax (GST)
 The government set up the National Taskforce on Information Technology and
Software Development with the objective of framing a long term National IT
Policy for the country

20
  Enactment of the Information Technology Act, which provides a legal
framework to facilitate electronic commerce and electronic transactions
 Setting up of Software Technology Parks of India (STPIs) in 1991 for the
promotion of software exports from the country, there are currently 51 STPI
centres where apart from exemption from customs duty available for capital
goods there are also exemptions from service tax, excise duty, and rebate for
payment of Central Sales Tax. But the most important incentive available is
100 per cent exemption from Income Tax of export profits, which has been
extended till 31st March 2011
 Government is also setting up Information Technology Investment Regions
(ITIRs). These regions would be endowed with excellent infrastructure and
would reap the benefits of co-sitting, networking and greater efficiency
through use of common infrastructure and support services
 Moreover, according to NASSCOM government, IT spend was US$ 3.2
billion in 2009 and is expected to reach US$ 5.4 billion by 2011. Further,
according to NASSCOM, there is US$ 9 billion business opportunity in e-
governance in India.

3.6 ROAD AHEAD

The Indian information technology sector continues to be one of the sunshine sectors
of the Indian economy showing rapid growth and promise.

According to a report prepared by McKinsey for NASSCOM called 'Perspective

2020: Transform Business, Transform India' released in May 2009, the exports
component of the Indian industry is expected to reach US$ 175 billion in revenue by
2020. The domestic component will contribute US$ 50 billion in revenue by 2020.
Together, the export and domestic markets are likely to bring in US$ 225 billion in
revenue, as new opportunities emerge in areas such as public sector and healthcare
and as geographies including Brazil, Russia, China and Japan opt for greater
outsourcing.

21
3.7 FUNDAMENTAL ANALYSIS TOOLS

These are the most popular tools of fundamental analysis. They focus on earnings,
growth, and value in the market. They are

Earnings per Share – EPS

Price to Earnings Ratio – P/E

Projected Earnings Growth – PEG

Price to Book – P/B

Dividend Payout Ratio

Dividend Yield

Debt Equity ratio

Return on Equity

EPS: Earnings per Share

The portion of a company's profit allocated to each outstanding share of common

stock. Earnings per share serve as an indicator of a company's profitability.

22
When calculating, it is more accurate to use a weighted average number of shares
outstanding over the reporting term, because the number of shares outstanding can
change over time. However, data sources sometimes simplify the calculation by using
the number of shares outstanding at the end of the period.

Price-Earnings Ratio - P/E Ratio

A valuation ratio of a company's current share price compared to its per-share
earnings. Also sometimes known as "price multiple" or "earnings multiple".

In general, a high P/E suggests that investors are expecting higher earnings growth in
the future compared to companies with a lower P/E. However, the P/E ratio doesn't
tell us the whole story by itself. It's usually more useful to compare the P/E ratios of
one company to other companies in the same industry, to the market in general or
against the company's own historical P/E. It would not be useful for investors using
the P/E ratio as a basis for their investment to compare the P/E of a technology
company (high P/E) to a utility company (low P/E) as each industry has much
different growth prospects.

The P/E is sometimes referred to as the "multiple", because it shows how much
investors are willing to pay per dollar/Rupee of earnings.

If a company has a P/E higher than the market or industry average, this means that the
market is expecting big things over the next few months or years. A company with a
high P/E ratio will eventually have to live up to the high rating by substantially
increasing its earnings, or the stock price will need to drop.

Price/Earnings to Growth - PEG Ratio

A ratio used to determine a stock's value while taking into account earnings growth.

23
PEG is a widely used indicator of a stock's potential value. It is favored by many over
the price/earnings ratio because it also accounts for growth. Similar to the P/E ratio,
a lower PEG means that the stock is more undervalued.

Keep in mind that the numbers used are projected and, therefore, can be less accurate.
Also, there are many variations using earnings from different time periods (i.e. one
year vs. five year).
Price-To-Book Ratio - P/B Ratio
A ratio used to compare a stock's market value to its book value. It is calculated by
dividing the current closing price of the stock by the latest quarter's book value per
share.
Also known as the "price-equity ratio".

A lower P/B ratio could mean that the stock is undervalued. However, it could also
mean that something is fundamentally wrong with the company. As with most ratios,
be aware that this varies by industry. Research has shown that stocks purchased with
low price-to-book ratio will, on average, have less downside risk than the average
stock and tend to outperform the overall market average as well. While there may not
be as many stocks trading below two-thirds of book value, regularly scanning the
market for companies with profitable operations - yet low P/B valuations - is a great
way to begin searching for undervalued stocks trading below fair value.

This ratio also gives some idea of whether you're paying too much for what would be
left if the company went bankrupt immediately.

Dividend Payout Ratio

24
The percentage of earnings paid to shareholders in dividends.
The payout ratio provides an idea of how well earnings support the dividend
payments. More mature companies tend to have a higher payout ratio.

Dividend Yield

A financial ratio that shows how much a company pays out in dividends each year
relative to its share price. In the absence of any capital gains, the dividend yield is the
return on investment for a stock.

Dividend yield is a way to measure how much cash flow you are getting for each
dollar invested in an equity position

Debt/Equity Ratio

A measure of a company's financial leverage calculated by dividing its total

liabilities by stockholders equity. It indicates what proportion of equity and debt the
company is using to finance its assets.
A high debt/equity ratio generally means that a company has been aggressive in
financing its growth with debt. This can result in volatile earnings as a result of the
additional interest expense.

25
If a lot of debt is used to finance increased operations (high debt to equity), the
company could potentially generate more earnings than it would have without
this outside financing. If this were to increase earnings by a greater amount than the
debt cost (interest), then the shareholders benefit as more earnings are being spread
among the same amount of shareholders. However, the cost of this debt financing
may outweigh the return that the company generates on the debt through investment
and business activities and become too much for the company to handle. This can lead
to bankruptcy, which would leave shareholders with nothing.

Return on Equity – ROE

The amount of net income returned as a percentage of shareholders equity. Return on

equity measures a corporation's profitability by revealing how much profit a company
generates with the money shareholders have invested.

Net income is for the full fiscal year (before dividends paid to common stock holders
but after dividends to preferred stock.) Shareholder's equity does not include preferred
shares.
Also known as "return on net worth" (RONW).

The ROE is useful for comparing the profitability of a company to that of other firms
in the same industry. ROE indicates know how well management is employing the
investors' capital invested in the company.

26
3.8 ANALYSIS OF INFOSYS TECHNOLOGIES LTD:

 Infosys Technologies Ltd, was established 1981 by seven people with US$
250. Today, Infosys is a global leader in the “next generation” of IT and
consulting with revenues of over US$ 4.8 billion.

 Its offerings span business and technology consulting, application services,

Systems integration, product engineering, custom software development,
maintenance, reengineering, IT infrastructure services and business process
outsourcing.

 Infosys has a global footprint with over 50 offices and development centers in
India, China, Australia, the Czech Republic, Poland, the UK, Canada, and
Japan. Infosys and its subsidiaries have 113,796 employees as on Marche 31,
2010.

Scrip ID : INFOSYS Group/index : A / Sensex Face value : 5.00

Scrip Code : 500209 Industry : IT Consulting Website : www.infy.com
& Software
Management
Name Designation

27
N R Narayana Murthy Chairman & Chief Mentor
V Balakrishnan Chief Financial Officer
Parvatheesam K Company Secretary & Compliance Officer
S Gopalakrishnan Chief Executive Officer & Managing Director

Price Movement

Technically Moving averages are considered vital in investing for long term view and
short term view .200 DMA ( Daily Moving Average – the average of closing prices
for the past 200 days ) .Mostly some Investors generally consider 200 DMA is the one
of the indicator in analysis tools for investing in long term view and the price stays
above 200 DMA they continue in holding , whenever it breaks they will exit .From
the above graph we can understand that the price of Infosys never broke 200 DMa
from Rs 1500 June 09 onwards and continued its journey to 2500 level.
Even 50 DMA is considered for shorter view and from the above graph almost scrip
traded above only and even broken sometimes the recovery has come very fast in
sustaining above that level.

Performance Chart

28
From the above graph it is depicting that Net sales and Net profit were doing good in
an inclining trend.
Index Comparison

From the above graph it can be known that the IT INDEX outperformed the
other indices, but Infosys underperformed IT index but outperformed other
indices

Ownership Pattern

29
From the above graph we can understand that FII holding is more than others.

PROFIT & LOSS ACCOUNT

Mar '08' Mar '09' Mar '10'
Income
Sales 15,648 20,264 21,140
Excise duty 0 0 0
Net Sales 15,648 20,264 21,140
Other Income 683 502 958
Stock Adjustments 0 0 0
Total Income 16,331 20,766 22,098
Expenditure
Raw Materials 18 20 0
Power & Fuel Cost 106 125 0
Employee Cost 7,771 9,975 10,356
Other Manufacturing 1,443 1697 2,317
Expenses
Selling and Admin Expenses 1,214 1367 215
Miscellaneous Expenses 132 172 883
Preoperative Exp 0 0 0
Capitalized
Total Expenses 10,684 13,356 13,771
Operating Profit 4,964 6,908 7,369
PBDIT 5,647 7,410 8,327
Interest 1 2 0
PBDT 5,646 7,408 8,327
Depreciation 546 694 807
Other Written Off 0 0 0
Profit Before tax 5,100 6,714 7,520
Extra-ordinary items 0 -1 0
PBT 5,100 6,713 7,520
Tax 630 895 1,717
Reported net Profit 4,470 5,819.00 5,803
Total value Addition 10,666 13,336.00 13,771.00
Preference Dividend 0 0 0
Equity Dividend 1,902 1345 1,434
Corporate Dividend Tax 323.00 228 240

30
Per Share Data
Shares in Issue(in Lakhs) 5,719.96 5728.3 5,728
Earning per Share 78.15 101.58 101.30
Equity Dividend (%) 665.00 470.00 500.00

BALANCE SHEET:

2008 2009 2010

Sources Of Funds
Total Share Capital 286 286 287
Equity Share Capital 286 286 287
Share Application Money 0 0 0
Preference Share Capital 0 0 0
Reserves 13,204.00 17,523.00 21,749.00
Revaluation Reserves 0 0 0
Net worth 13,490.00 17,809.00 22,036.00
Secured Loans 0 0 0
Unsecured Loans 0 0 0
Total Debt 0 0 0
Total Liabilities 13,490.00 17,809.00 22,036.00
Application Of Funds
Gross Block 4,508.00 5,986.00 3,779.00
Less: Accum 1,837.00 2,187.00 0
Depreciation
Net Block 2,671.00 3,799.00 3,779.00
capital Work in Progress 1,260.00 615.00 409
Investments 964.00 1,005.00 4,636.00
Inventories 0.00 0.00 0
Sundry Debtors 3,093.00 3,390.00 3,244.00
Cash and Bank Balance 657.00 805.00 9,797.00
Total Current Assets 3,750.00 4,195.00 13,041.00
Loans and Advances 2,804.00 3,303.00 4,201.00

31
Fixed deposits 5,772.00 8,234.00 0
Total CA Loans & 12,326.00 15,732.00 17,242.00
Advances
Deferred Credit 0 0 0
Current Liabilities 1,483.00 1,544 1,995.00
Provisions 2,248 1,798 2,035
Total CL & Provisions 3731 3342 4030
Net Current Assets 8595 12,390.00 13,212.00
Miscellaneous Expenses 0 0 0
Total Assets 13,490.00 17,809.00 22,036.00

2008 2009 2010

Earning per Share 78.15 101.58 101.30
Book Value(Rs) 235.84 310.90 384.69
PBV 6.56 5.77 7.17
PE 19.80 17.67 27.25
DPS 33.25 23.48 25.03
dividend payout 0.43 0.23 0.25
dividend yield 0.02 0.01 0.01
RONW 0.33 0.33 0.26
Debt Equity Ratio 0 0 0

Earnings are profits. Quarterly or yearly company‟s increasing earnings generally

makes its stock price move up and in some cases some companies pay out a regular
dividend. This is Bullish sign and indicates that the company‟s is in growth.

When the company declares low earnings then the market may see bearishness in the
stock price and hence its share price starts deceasing and corrects further if the
company doesn‟t provide any sufficient justification for low earnings.

From the table, it is known that Infosys could report rise in its yearly earnings
(RPAT).

What is that we have to look in EPS of the company?

We should look for high EPS stocks and the higher the better is the stock.

32
If we see the last 3 years of EPS it is clearly seen that, EPS of Infosys
increased from 78.15 to 101.30 which is very high.
The high P/E suggests that investors are expecting higher earnings growth in the
future compared to companies with a lower P/E. This generally happen in bull market
and share price keeps on increasing. Basically in bull market share prices keep
increasing without giving more importance to its current valuation and once market
realizes that it is over priced then they start selling.
On the other side, a low P/E of high growth stocks may indicate that the market has
ignored these stocks which are also known as value stocks. Many investors try finding
low P/E ratios stocks of high value growth companies and make investments in such
stocks which may prove real diamonds in future.

Book value is the total value of the company's assets that shareholders would
theoretically receive if a company were liquidated (closed).
Basically PB ratio is mostly utilized by smart investors to find real wealth in shares,
so investing in stocks having low PB ratio is to identify potential shares for future
growth. Generally, if the ratio comes below 1 then it is considered as value investing.
But this doesn‟t mean that the ratio coming to 1.2 or 1.5 is not value investing. It also
depends on its future growth prospects.

Lower the PEG ratio the less you pay for each unit in future earning growth. So the
conclusion is you can invest in high P/E stocks but the projected earning growth
should be high so that companies can provide good returns. Looking at the opposite
situation; a low P/E stock with low or no projected earnings growth is not going to
give you good returns in future because its PE is low means investors are not ready to
pay high and its PEG is also low because companies do not have any good future
growth or expansion plans so investment in such stocks could prove less or no returns.

The higher the ratio the more risk for company to manage going forward. So look for
company‟s having low debit ratio. Generally it is considered that debit ratio less then
1is good investment option. But even some investor considers higher debt ratio

33
Provided the company is having good growth prospects.

If company has fewer debits then company can make more profit instead paying for
its debits like interests rates, loans etc. Here Infosys has zero debt, so Investors who
averse the risk prefer to invest in Infosys.

This measurement tells you what percentage return a companies pays out to
shareholders in the form of dividends. Older, well-established companies tend to
payout a higher percentage than do younger companies and their dividend history can
be more consistent.
Debt equity ratio:
For any company in IT industry debt equity ratio should be less than 2.
For Infosys if we see debt equity ratio for past 3 years it is continuous to be „0‟.so
Infosys is a debt free company. That means company is doing well with out requiring
debt. So from investors‟ point of view it is risk free company. So investors can invest
in this company.
Return on equity:
Minimum return on investment that every company should maintain is 15%, It is good
if it is more than 15%.
If we see the ROE of Infosys for the past 3 years it succeeded in maintaining ROE
more than 15% in fact exactly double to the minimum ROE.
Note:
If actual growth rates are very high (more than 30%), please don‟t pay a PE of more
than 30 times, in this situation considering PEG model is useless. Because such high
growth rates are not sustainable over the long term.

Investment Arguments

Strong growth in US and emerging geographies to combat Europe crisis:

Though Europe continues to be a spoilt sport for the Indian IT industry till the
concerns wear out, some of the other levers for the company‟s growth are the
recovery in the IT spend from the US and emerging geographies. The company also
expects to get increasing wallet share from its existing clients and is witnessing

34
improvement in IT spends more on offshore. Moreover to combat the European
concerns the company plans to proactively increase investments in creating
capabilities and hence plans for strong manpower intake in FY2011. Growth is
expected to remain broad-based with key verticals like BFSI, energy and utilities and
high-margin services like consulting and package implementation are expected to do
well.

Strong volume led growth with stable pricing to maintain profitability though the
cross-currency movement remains a concern; the company‟s short-term hedging
policy is expected to arrest its impact on operational profitability to a large extent.
However, the increasing attrition rate is a cause for concern. Hence, employee cost is
expected to move up going forward to retain the best of the talents, as the job
opportunities are coming back with buoyancy in the overall economy. However, on
the back of strong volume-backed growth and stable pricing, it is believed that the
company will maintain the EBIT margins albeit in a narrow band going forward.

Outlook and Valuation

Infosys is expected to register CAGR of 19% in top-line over FY2010-12E backed by

17% CAGR in volumes. However, EPS is likely to register subdued CAGR of 12.6%
during the period on account of lower EBIT margins and increased tax rate. The stock
is currently trading at 23.7x FY2011E EPS of Rs118 and 20x FY2012E EPS of
Rs138. Though adverse macro economic factors like the Europe crisis and cross-
currency movements are cause for concern for the IT companies, growth will be
sustained through volumes with pricing remaining stable. Thus, the stock was valued
at 21xFY2012E earnings with a target price of Rs2977.

As Intrinsic Value/target price = Expected EPS*Appropriate P/.E

= 138 * 21.57

= Rs2977.12

In line with the upward revision in Infosys‟s guidance for FY2011E and expected
higher infusion of gross manpower, FY2011E and FY2012E top-line estimates were
upgraded. However, other income is expected to be lower on account of the expected

35
unfavorable cross-currency movement. PAT is estimated to be slightly higher in
FY2011E compared to the earlier estimates, as volume growth would take care of
lower margins. However, PAT in FY2012E would be slightly lower than earlier
estimates, as margins are expected to dip with the rise in employee costs to arrest
higher attrition.

3.9 ANALYSIS OF TCS: TATA CONSULTANCY SERVICES

Tata Consultancy Services Limited (TCS) is an Indian software services and

consulting company. It is one of India‟s oldest and largest providers of information
technology and business process outsourcing services. As of 2007, it is Asia‟s largest
information technology firm. The company is listed on the National Stock Exchange
and Bombay Stock Exchange in India.TCS is part of one of Asia‟s largest
conglomerates, the Tata Group, which has interests in areas such as energy,
telecommunications, financial services, manufacturing, chemicals, engineering,
materials, government and healthcare.

Tata Consultancy Services was established in the year 1968. It began as the “Tata
Computer Centre”, a division of the Tata Group, whose main business was to provide
computer services to other group companies. However, the potential of
computerization and computer services was realized early on, and an electrical
engineer from the Tata Electric Companies, Fakir Chand Kohli, was brought in as the
first General Manager. Soon after, the company was named Tata Consultancy
Services. TCS‟s first software export project was undertaken in 1974 when it
converted the Hospital Information System from Burroughs Medium Systems
COBOL to Burroughs Small Systems COBOL. This project was carried out entirely
in TCS Mumbai on the ICL 1903 Computer. In 1980, TCS and a sister concern
accounted for 63% of the Indian software industry exports, $4 million shared by 21

36
firms. In 1984, TCS set up an office in the Santacruz Electronics Export Processing
Zone (SEEPZ) – Mumbai. The early 1990s saw a tremendous surge in TCS‟s
business, which also resulted in a massive recruitment drive by the company. In early
and mid-1990s, TCS re-invented itself to become a software products company. In the
late 1990s, to accelerate its revenue growth, TCS decided to employ a three-pronged
strategy – developing new products with high revenue earning potential, tapping
domestic and other fast growing markets and focusing on inorganic growth through
mergers & acquisitions. In late 1998, the company decided to concentrate on new
revenue opportunities including Y2K and Euro conversion. E-business was a major
area of focus in the late 1990s.
In 1999, TCS started an annual IT Quiz called TCS IT WIZ in India. It has been a
great success and a matter of craze among young students inclined towards IT while
in 2004, TCS became a publicly listed company. In 2008 Tata Consultancy Services
was involved in a variety of industries. Some of these included telecom, government,
insurance, manufacturing, high tech, and banking and financial services. They offer
product life cycle management and systems integration to their customers.

TCS topped the Dataquest DQTop20 list of IT Services providers in India for 2008.
TCS also ranked among Top 25 in Business Week‟s 2007 Information Technology
100. In 2007, TCS was awarded top position in 2007 “Global Services” 100 „Top 10
Best Performing IT Services providers‟ category.

Alliances:

TCS has alliances with: Adobe, Amdocs, ATG, BEA, Business Objects, Cognos,
Cordys, EMC2 Documentum, HP, Hyperion, IBM, Informatica, Intel, Mercury,
Interactive, Microsoft, Microstrategy, Oracle: Global Integrator Certified Advantage
Partner, Red Hat, SAP: Global Services Partner, SAS, Software AG, Sun, Tibco,
Vignette

Scrip ID : TCS Group/index : A / Sensex Face value : 1.00

Scrip Code : 532540 Industry : IT Consulting Website : www.tcs.com
& Software

37
Management

Name Designation
Ratan N Tata Chairman
S Ramadorai Managing Director
Suprakash Mukhopadhyay Company Secretary & Compliance
Officer

Price Movement

From the above graph we can understand that the price of TCS never broke 200 DMA
from Rs 340 June 09 onwards and continued its journey to 800 level.

Performance Chart

38
From the above graph it is depicting that Net sales and Net profit were doing good in
a inclining trend. We can also know that percentage change in Net Profit is greater
than percentage change in Net Sales. This shows the efficiency of management in
handling operational expenditure.

Index Comparison

From the above graph it can be known that the IT INDEX outperformed the other
indices, even TCS also outperformed IT index.

Ownership Pattern

39
From the above graph we can understand that Promoters holding is more than others.

PROFIT & LOSS ACCOUNT

Mar '08' Mar '09' Mar '10'
Income
Sales 18,537 22,404 23,045
Excise duty 2.83 2.08 0.39
Net Sales 18,533.72 22,401.92 23,044.45
Other Income 440.45 -456.24 182.1
Stock Adjustments -0.04 1.73 -1
Total Income 18,974.13 21,947.41 23,225.17
Expenditure
Raw Materials 45.81 53.67 24
Power & Fuel Cost 135.57 164.34 184
Employee Cost 6,015 7,370 7,882
Other Manufacturing 5,688 6,947.60 6,447
Expenses
Selling and Admin Expenses 991 1,218.41 1,268
Miscellaneous Expenses 632 628.71 571
Preoperative Exp 0 0 0
Capitalized
Total Expenses 13,508.07 16,382.82 16,375.90
Operating Profit 5,026 6,021 6,667
PBDIT 5,466 5,565 6,849

40
Interest 3 7 10
PBDT 5,462.64 5,557.15 6,839.73
Depreciation 459 417 469
Other Written Off 0 0 0
Profit Before tax 5,003.86 5,139.69 6,370.38
Extra-ordinary items -38 -103 -14
PBT 4,966.34 5,036.58 6,356.40
Tax 458 340 738
Reported net Profit 4,508.76 4,696.21 5,618.51
Total value Addition 13,462 16,329.15 16,352.15
Preference Dividend 0 7 17
Equity Dividend 1,370 1,370.05 3,914.43
Corporate Dividend Tax 233 234.02 658
Per Share Data
Shares in Issue 9,786.10 9,786.10 19,572
Earning per Share 46.07 47.92 28.62
Equity Dividend (%) 1,400.00 1400.00 2,000.00

BALANCE SHEET

2008 2009 2010

Sources Of Funds
Total Share Capital 197.86 197.86 295.72
Equity Share Capital 97.86 97.86 195.72
Share Application Money 0 0 0
Preference Share Capital 100 100 100
Reserves 10,806.95 13,248.39 14,820.90
Revaluation Reserves 0 0 0
Net worth 11,004.81 13,446.25 15,116.62
Secured Loans 9.27 32.63 29.25
Unsecured Loans 8.98 7.74 6.49
Total Debt 18.25 40.37 35.74
Total Liabilities 11,023.06 13,486.62 15,152.36
Application Of Funds
Gross Block 3,240.64 4,359.24 4,871.21

41
Less: Accum 1,300.11 1,690.16 2,111
Depreciation
Net Block 1,940.53 2,669.08 2,760.52
capital Work in Progress 889.74 685.13 940.72
Investments 4,509.33 5,936.03 7,893.39
Inventories 17.19 16.95 6.78
Sundry Debtors 3,747.01 3,717.73 3,332.30
Cash and Bank Balance 402.24 479.93 212.31
Total Current Assets 4,166.44 4,214.61 3,551.39
Loans and Advances 3,104.74 3,910.85 4,101.84
Fixed deposits 125.28 1,125.33 3,183.85
Total CA Loans & 7,396.46 9,250.79 10,837.08
Advances
Deferred Credit 0 0 0
Current Liabilities 2,525.56 3,604 3,352.74
Provisions 1,187 1,450 3,927
Total CL & Provisions 3,713.00 5,054.41 7,279.35
Net Current Assets 3,683.46 4,196.38 3,557.73
Miscellaneous Expenses 0 0 0
Total Assets 11,023.06 13,486.62 15,152.36

2008 2009 2010

Earning per Share 46.07 47.92 28.62
Book Value(Rs) 111.43 136.38 76.72
PBV 6.53 3.08 10.72
PE 15.80 8.76 28.72
DPS 14 14 20
dividend payout 0.30 0.29 0.70
dividend yield 0.02 0.03 0.02
RONW 0.41 0.35 0.37
Debt Equity Ratio 0.01 0.01 0.01

From the table, it is known that TCS could report rise in its yearly earnings (RPAT).

If we see the last 3 years of EPS it is clearly seen that, EPS of TCS
decreased from 46.02 to 28.60 which is very high. Here deduction in EPS was caused by
Dilution of shares.

42
Investment Arguments

Strong deal pipeline and uptick in discretionary spends exhibit strong business
prospectus:

Though Europe continues to be a spoilsport for the Indian IT industry, TCS‟s current
bottom‟s up statistics are in disconnect with the weak macroeconomic indicators, as
the company is witnessing strong IT spends from the US, UK and emerging markets.
Though there are concerns related to business prospects from Continental Europe, the
same had witnessed growth of 1.2% qoq in constant currency terms in 1QFY2011.
Further, the company‟s demand pipeline is quite robust, comprising large
transformational deals, and is witnessing an uptick in discretionary IT spends with 15
such critical deals coming from new clients, exhibiting strong improvement in the
company‟s business prospects. Moreover, the company‟s UK government‟s pension-
related project seems to be on track with no major concerns seen in its ramp up. The
company has also raised its gross employee-hiring target to 40,000 for FY2011 from
the earlier 30,000, exhibiting a positive demand environment. Though TCS does not
give direct guidance, based on the current cues from the management and our
analysis, it is believed that TCS will witness strong volume-backed performance in
FY2011. The pricing for the company is expected to remain stable with an upward
bias on account of key transformational deals in the pipeline.

Adverse cross-currency and higher attrition impacts to be mitigated by other

operational levers: The adverse cross-currency movement remains a concern as TCS
has higher dependence on Europe. However, we believe the same would be combated
through hedges and strong growth in other markets. TCS‟s total outstanding hedge
position as in 1QFY2011 stands at around US $455mn, at an INR/USD strike rate of
46.3. TCS now focuses on smaller-tenure hedges in view of volatile currency, which
would prove helpful in the current business environment.

The higher attrition rate of 13.1% observed in 1QFY2011 was mainly on account of
overall buoyancy in the job market, driven by strong economic recovery and
employees leaving for higher studies, which generally happens in first quarter of a
financial year. However, the company‟s promotional drives and focus on talent
retention are expected to restrain growth in attrition rate going forward. Though we

43
expect employee costs to increase going forward, management‟s focus would remain
on capping non-employee costs through better managerial efficiency and by growing
its offshore leverage the way it did during 1QFY2011.

Outlook & Valuation: Despite a weaker macro-economic scenario, TCS continued to

perform well during the quarter. The company has a strong deal pipeline, including
large transformational deals with an uptick in discretionary spends. The company also
raised its gross employee-hiring target to 40,000 for FY2011 from the earlier 30,000,
exhibiting a positive demand environment.

The company is expected to deliver a top-line CAGR of 17.9% over FY2010–12E,

backed by a 19% CAGR in volumes. However, EPS is likely to register an 11.7%
CAGR during the same period on account of increased tax rate. The stock is currently
trading at 20.7x FY2011E EPS of Rs40.3 and 19x FY2012E EPS of Rs43.8. Although
the ongoing crisis in Europe and adverse cross-currency movements are causes for
concern for IT companies, it is believed that growth will be sustained through
volumes with stable pricing. The stock was valued at 21x FY2012E earnings, similar
to its historical average of 21x during FY2007–10 and at par with target PE multiple
of 21x for Infosys. An Accumulate rating was recommended on the stock.

3.10 ANALYSIS OF WIPRO:

The Company was incorporated on 29th December in 1945, at Mumbai. The
Company Manufacture vegetable ghee, vanaspati, refined oils including salad oil,
soap, waxs and oil milling trading in oils and oilseeds.
Wipro Technologies is a global services provider delivering tett55chnology-driven
business solutions. Wipro is the No.1 provider of integrated business, technology and
process solutions on a global delivery platform. Azim Premji is the Chairman of
Wipro Technologies. He took over the mantle of leadership of Wipro at the age of 21
in 1966. Under his leadership, the fledgling US$ 2 million hydrogenated cooking fat
company has grown to a US$1.76 billion IT Services organization serving customers
across the globe. Wipro is presently ranked among the top 100 Technology companies
in the world. It has 66,000+ employees, serves 592 clients, and has 46 development
centers across globe.

Wipro Technologies deals in following businesses:

44
  IT Services: Wipro provides complete range of IT Services to the

organization. The range of services extends from Enterprise Application

Services (CRM, ERP, e-Procurement and SCM) to e-Business solutions.
Wipro's enterprise solutions serve a host of industries such as Energy and
Utilities, Finance, Telecom, and Media and Entertainment.
 Product Engineering Solutions: Wipro is the largest independent provider of

R&D services in the world. Using "Extended Engineering" model for

leveraging R&D investment and accessing new knowledge and experience
across the globe, people and technical infrastructure, Wipro enables firms to
introduce new products rapidly.
 Technology Infrastructure Service: Wipro's Technology Infrastructure

Services (TIS) is the largest Indian IT infrastructure service provider in terms

of revenue, people and customers with more than 200 customers in US,
Europe, Japan and over 650 customers in India.
 Business Process Outsourcing: Wipro provides business process outsourcing

services in areas Finance & Accounting, Procurement, HR Services, Loyalty

Services and Knowledge Services. In 2002, Wipro acquiring Spectramind and
became one of the largest BPO service players.
 Consulting Services: Wipro offers services in Business Consulting, Process

Consulting, Quality Consulting, and Technology Consulting.

Group Companies of Wipro:

 Wipro Infrastructure Engineering: It has emerged as the leader in the

hydraulic cylinders and truck tipping systems market in India.

 Wipro InfoTech: It is one of the leading manufacturers of computer hardware

and a provider of systems integration services in India.

 Wipro Lighting: It manufactures and markets the Wipro brand of luminaries.

Wipro Lighting offers lighting solutions across various application areas such
as commercial lighting for modern work spaces, manufacturing and
pharmaceutical companies, designer petrol pumps and outdoor architecture.

Achievements of Wipro

45
  First Indian IT Service Provider to be awarded Gold-Level Status in
Microsoft's Windows Embedded Partner Program.
 World's largest independent R&D Services Provider.

 World's 1st PCMM Level 5 software company.

 World's 1st IT Services Company to use Six Sigma.

 The first to get the BS15000 certification for its Global Command Centre.

 Among the top 3 offshore BPO service providers in the world.

 Only Indian company to be ranked among the 'Top 10 Global Outsourcing

Providers' in the IAOP-Fortune Global 100 listings.

 First company in the world to be certified in BS 7799 (2002) security

standards.

Scrip ID : WIPRO Group/index : A Face value : 2.00

/SENSEX
Scrip Code : 507685 Industry : IT Website :
Consulting & www.wipro.com
Software
Name Designation
Mr. Azim H Premji Chairman & Managing Director
Mr. V Ramachandran Company Secretary & Compliance Officer
Mr. P M Sinha Director
Mr. B C Prabhakar Director
Mr. Bill Owens Director
Dr. Jagdish N Sheth Director
Dr. Ashok S Ganguly Director
Mr. N Vaghul Director
Mr. Suresh C Senapaty Executive Vice President & Chief Financial Officer

Price Movement

46
From the above graph we can understand that the price of Wipro never broke 200
DMa from Rs 170 June 09 onwards and continued its journey to 400 level.

Performance Chart

From the above graph it is depicting that Net sales and Net profit were doing good in
a inclining trend.
Index Comparison

47
 From the above graph it can be known that the IT INDEX outperformed the
other indices, and Wipro also outperformed IT index.
Ownership Pattern

From the above graph we can understand that Promoters holding is more than others.
PROFIT & LOSS ACCOUNT

2008 2009 2010

Income
Sales 17,658.10 21,612.80 23,006.30
Excise duty 165.5 105.5 84.3
Net Sales 17,492.60 21,507.30 22,922.00
Other Income 326.9 -480.4 875.3
Stock Adjustments 187.00 -3.80 111.00
Total Income 18,006.50 21,023.10 23,908.30
Expenditure
Raw Materials 3,139.30 3,438.80 4,140.40
Power & Fuel Cost 0.00 154.00 141.40
Employee Cost 7,409.10 9,249.80 9,062.80
Other Manufacturing 299.80 1,687.80 2,071.80
Expenses

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Selling and Admin Expenses 557.80 1,523.00 1,475.10
Miscellaneous Expenses 2,558.00 691.40 640.00
Preoperative Exp 0.00 0.00 0.00
Capitalized
Total Expenses 13,964.00 16,744.80 17,531.50
Operating Profit 3,715.60 4,758.70 5,501.50
PBDIT 4,042.50 4,278.30 6,376.80
Interest 116.80 196.80 108.4
PBDT 3,925.70 4,081.50 6,268.40
Depreciation 456.00 533.60 579.60
Other Written Off 0.00 0.00 0.00
Profit Before tax 3,469.70 3,547.90 5,688.80
Extra-ordinary items 0.00 0.00 0.00
PBT 3,469.70 3,547.90 5,688.80
Tax 406.40 574.10 790.80
Reported net Profit 3,063.30 2,973.80 4,898.00
Total value Addition 10,824.70 13,306.00 13,391.10
Preference Dividend 0.00 0.00 0.00
Equity Dividend 876.50 586.00 880.90
Corporate Dividend Tax 148.90 99.60 128.30
Per Share Data
Shares in Issue 14,615.00 14,649.81 14,682.11
Earning per Share 20.96 20.30 33.36
Equity Dividend(%) 300.00 200.00 300.00

BALANCE SHEET

49
 2008 2009 2010
Sources Of Funds
Total Share Capital 292.3 293 293.6
Equity Share Capital 292.3 293 293.6
Share Application Money 58 1.5 1.8
Preference Share Capital 0 0 0
Reserves 11,260.40 12,220.50 17,396.80
Revaluation Reserves 0 0 0
Networth 11,610.70 12,515.00 17,692.20
Secured Loans 4 0 0
Unsecured Loans 3,818.40 5,013.90 5,530.20
Total Debt 3,822.40 5,013.90 5,530.20
Total Liabilities 15,433.10 17,528.90 23,222.40
Application Of Funds
Gross Block 2,282.20 5,743.30 6,761.30
Less: Accum 0 2,563.70 3,105.00
Depreciation
Net Block 2,282.20 3,179.60 3,656.30
capital Work in Progress 1,335.00 1,311.80 991.1
Investments 4,500.10 6,895.30 8,966.50
Inventories 448.10 459.60 606.90
Sundry Debtors 3,646.60 4,446.40 4,754.70
Cash and Bank Balance 3,732.10 1,902.10 1,938.30
Total Current Assets 7,826.80 6,808.10 7,299.90
Loans and Advances 4,231.30 4,202.00 5,519.40
Fixed deposites 0 2,507.10 3,726.00
Total CA Loans & 12,058.10 13,517.20 16,545.30
Advances
Deffered Credit 0 0 0.00
Current Liabilities 3,361.60 5,564.30 4,706.00
Provisions 1,380.70 1,810.70 2,230.80
Total CL & Provisions 4,742.30 7,375.00 6,936.80
Net Current Assets 7,315.80 6,142.20 9,608.50
Miscellaneous Expences 0.00 0.00 0.00
Total Assets 15,433.10 17,528.90 23,222.40

2008 2009 2010

Earning per Share 20.96 20.30 33.36

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Book Value(Rs) 79.05 85.42 120.49
PBV 4.68 4.87 3.34
PE 17.67 20.47 12.08
CAGR -0.03 0.64
DPS 6 4 6
dividend payout 0.29 0.20 0.18
dividend yield 0.02 0.01 0.01
RONW 0.26 0.24 0.28
Debt Equity Ratio 0.33 0.4 0.31

From the table, it is known that Wipro could report rise in its yearly earnings (RPAT).

If we see the last 3 years of EPS it is clearly seen that, EPS of Wipro
increased from 20.06 to 33.96 which is high.

Wipro has good long term prospects and good growth

Investment Arguments

Broad-based volume led growth with uptick in discretionary spends and stable
pricing environment

The strong growth witnessed in Wipro‟s package implementation service revenues

during 1QFY2011 reflects the pick-up in discretionary spends of clients. Significant
spend is currently happening in social customer relationship management (CRM),
which if it grows further as expected would certainly assure strong top-line and better
profitability for the company going forward. Further, the consumer package goods
(CPG), retail & transportation, energy & utilities and the healthcare verticals are
witnessing strong demand pipeline and are expected to grow strongly. The financial
services vertical is also witnessing steady demand pick. The company is witnessing a
stable pricing environment from most of its clients with some expected to give an
upward revision going forward.

Non-linear initiatives to drive growth

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Wipro‟s non-linear initiatives include implementation of shared services model
thereby executing more projects without any major employee deployment, which
would result in costs savings. Other such initiatives include its platform oriented
integrated IT and BPO offerings and intellectual property related revenues. Such
offerings help to drive better profitability in projects without incurring of additional
fixed costs. The company expects these initiatives to contribute ~14% of its revenues
in FY2011.

Outlook and Valuation

Wipro is expected to record 18.2% CAGR in top-line, while bottom-line is expected

to clock 14.5% CAGR over FY2010-12E. The stock is currently trading at 19.2x
FY2011E EPS of Rs21.7 and 16.8x on its FY2012E EPS of Rs24.7. Wipro was
valued at 19x FY2012E earnings (historical average of 19.5x during FY2002- 2010),
and at 9.5% discount to our Infosys target P/E multiple of 21x (historical discount of
4.5% during 2002-10). An Accumulate on the stock is recommended.

Peer group comparison:

Infosys Tcs Wipro
LTP 2,760.05 822.10 403.00

Change % 0.04 4.85 0.25

52 WH/L 2911.55/1770.80 844.00/413.60 451.80/246.78
Results (in CR) Mar-10 Mar-10 Mar-10
Sales 21,140.00 23,044.45 23,177.60
PAT 5,803.00 5,618.51 4,898.00
Ratios
NPM % 27.45 24.38 21.13
EPS 101.22 28.61 33.61
Ownership Jun-10 Mar-10 Mar-10
Promoter & Promoter 9,20,84,978 1,45,07,63,306 1,16,75,72,260
Grp
Indian 9,20,84,978 1,45,07,63,306 1,16,75,72,260
Public 37,49,91,027 50,64,57,690 27,64,54,659
Institution 25,25,20,758 39,68,65,591 13,11,42,156
FII 20,56,88,974 24,33,37,254 10,61,09,353
DII 4,68,31,784 15,35,28,337 2,50,32,803

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Non Institution 12,24,70,269 10,95,92,099 14,53,12,703
Bodies Corporate 3,42,57,152 1,27,23,880 4,10,60,212

If we clearly observe the ownership pattern of 3 companies, we can find some

relationship between market price of share, and ownership pattern. Even though
Infosys net profit is less than Tcs net profit, but Infosys share is trading at highest
price than TCS share.

Bonus and Dividends

Infosys Tcs Wipro

Bonus History
2010 BONUS 2:3
2009 BONUS 1:1
2008
2007
2006 BONUS 1:1 BONUS 1:1
Dividend
History
2010 15 16 6
2009 23.5 12 4
2008 37.25 14 4
2007 12.5 13 8
2006 43.5 13.5 5

We should not just conclude that, which company share is cheaper by just seeing at
market price of the respected company.

If we compare the price earnings ratio of 3 companies for FY2009 (Mar 2010), we
will get to know, which company share is getting at cheap.

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 Market Price P/E
Infosys 2760.05 27.25
Tcs 822.10 28.72
Wipro 403.00 12.08

If we go by Market price Infosys is seen as costly, but if we see the P/E ratio, Infosys
is cheaper than TCS.

If we take the dividend history of 3 companies for past 5 years, Infosys is constantly
giving highest dividends against peers. So for the Investors who look forward for
fixed income Infosys is best option as it is debt free too.

NOTE: If P/E ratio of one particular share is more than 30, Investors should be careful
in buying that particular share, because that P/E ratio is the result of rise in price of
the share. This price rise is due to market sentiments, so it is not a true rise, so it will
go down soon.
As all 3 companies are well-established companies, they are giving dividends for each
year, so investors who look for fixed income can prefer to invest in these shares.

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4 SUMMARY, SUGGESTIONS AND CONCLUSIONS

4.1 SUMMARY:

By taking 3 companies as a sample from IT sector a research on “fundamental

analysis of equity shares” has been done. 3 major IT companies have been taken as
sample and the shares of those companies were valuated using “fundamental
analysis”. As a result all company shares were recommended to buy and hold for
some time. This report is recommending Investors who averse risk to invest in Infosys
as it is debt free company and also recommending investors who do want fixed
income to invest in all 3 companies as those companies have been giving dividends
continuously for 5 years. Growth rate of IT sector is also in the range of 13%-17%. So
in future also these companies will see highest net profits which are positive sign for
investors.

4.2 CONCLUSIONS
1. The scripts are having fluctuations regardless of any pattern, i.e. we cannot find
any correlation between the market situation and price fluctuation as there are so
many factors influencing the market price.
2. Profitability of a company affects the price of share in long term; in short term
price of share depends on the market sentiments.
3. There is no correlation between market price of the share and net profit. Infosys
share is trading at higher price than Tcs, even though Tcs gets more Net profit
than Infosys.

4.3 SUGGESTIONS
1. Investors are suggested to take professionals help who have high knowledge in
stock market.
2. Analysts should not recommend particulate share to buy/sell by taking one
ratio into consideration. He should think from all sides.
3. Investors should not follow fundamental analysis blindly should consider
market sentiments also.

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5 BIBLIOGRAPHY

5.1 BOOKS:

 Fischer, Donald.E & Ronald Jordan, Security analysis and Portfolio

Management.
 Portfolio Management & Equity Research by the Institute of chartered
financial analysts of India.
 V.K.Bhalla, Investment Management: Security Analysis & Portfolio
Management.

5.2 WEBSITES:

 www.bseindia.com
 www.moneycontrol.com
 www.sharekhan.com
 www.investopedia.com

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