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A Project Report On

“Fundamental Analysis of Equity shares” With

SHAREKHAN

LTD

Analysis of E q uity shares” With SHAREKHAN LTD Submitted by B. RAMARAJU 099505 SCHOOL OF

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.

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DECLARATION

This is to certify that the thesis titled “FUNDAMENTAL ANALYSIS OF EQUITY SHARES WITH SHARE KHANis 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

Place

.

July 8th, 2010

Hyderabad

(B.RAMA RAJU)

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Table of Contents

1 INTRODUCTION

 

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1.1

BRIEF INTRODUCTION ABOUT FUNDAMENTAL ANALYSIS

5

1.2

RESEARCH PLAN

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1.2.1 OBJECTIVES OF THE STUDY

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1.2.2 SCOPE OF THE STUDY

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1.2.3 SOURCES OF DATA

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1.2.4 TOOLS OF ANALYSIS

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1.2.5 LIMITATIONS OF THE STUDY

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2 COMPANY PROFILE

 

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3 ANALYSIS

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3.1 ABOUT IT SECTOR:

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3.2 OUTSOURCING

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3.3 DOMESTIC MARKETS

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3.4 INVESTMENTS

 

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3.5 GOVERNMENT INITIATIVES

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3.6 ROAD AHEAD

 

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3.7 FUNDAMENTAL ANALYSIS TOOLS

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3.8 ANALYSIS OF INFOSYS TECHNOLOGIES LTD:

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3.9 ANALYSIS

OF

TCS: TATA CONSULTANCY SERVICES

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3.10 ANALYSIS OF WIPRO:

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4 SUMMARY, SUGGESTIONS AND CONCLUSIONS

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4.1 SUMMARY:

 

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4.2 CONCLUSIONS

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4.3 SUGGESTIONS

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5 BIBLIOGRAPHY

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5.1 BOOKS:

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5.2 WEBSITES:

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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

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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.

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2 COMPANY PROFILE

SHAREKHAN

2 COMPANY PROFILE SHAREKHAN SSKI, a veteran equities solutions company with over 8 decades of experience

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

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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:

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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

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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.

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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

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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

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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:

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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:

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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.

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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.

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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.

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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

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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.

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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.

to each outstanding share of common stock. Earnings per share serve as an indicator of a

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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".

as "price multiple" or "earnings multiple". In general, a high P/E suggests that investors are expecting

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.

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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".

per share. Also known as the "price-equity ratio". A lower P/B ratio could mean that the

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

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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.

More mature companies tend to have a higher payout ratio. Dividend Yield A financial ratio that

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.

the dividend yield is the return on investment for a stock. Dividend yield is a way

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.

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If a lot of debt is used to finance increased operations (high debt to equity),

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).

shares. Also known as "return on net worth" (RONW). The ROE is useful for comparing the

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.

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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 & Software

Website : www.infy.com

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

Executive Officer & Managing Director Price Movement Technically Moving averages are considered vital in

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

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

Index Comparison

were doing good in an inclining trend. Index Comparison From the above graph it can be

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

outperformed the other indices, but Infosys underperformed IT index but outperformed other indices Ownership Pattern 29

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

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.

of

focus

in

the

late

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 & Software

Website : www.tcs.com

37

Management

Name

Designation

 

Ratan N Tata

Chairman

S Ramadorai

Managing Director

 

Suprakash Mukhopadhyay

Company

Secretary

&

Compliance

Officer

Price Movement

Secretary & Compliance Officer Price Movement From the above graph we can understand that the price

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

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

in handling operational expenditure. Index Comparison From the above graph it can be known that the

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

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
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 FY201012E, 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 FY200710 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

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

and continued its journey to 400 level. Performance Chart From the above graph it is depicting

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

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

Ownership Pattern

and Wipro also outperformed IT index. Ownership Pattern From the above graph we can understand that

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

48

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

50

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

increased from 20.06 to 33.96 which is high.

we

see

the

last

3

years

of

EPS

it

is

clearly

seen

that,

EPS

of

Wipro

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

51

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

52

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.

53

 

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.

54

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.

55

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:

56