Stock Exchange

“A STUDY ON FUNDAMENTAL ANALYSIS OF FIVE MAJOR PLAYERS OF CEMENT INDUSTRY IN INDIA WITH SPESIAL REFERENCE TO COCHIN STOCK EXCHANGE”

MINI

PROJECT REPORT

Submitted by

KAROJ.GEORGE Under the guidance of JACOB PRATABARAJ

Submitted in partial fulfilment of the requirements For the award of the degree of

“MASTER OF BUSINESS ADMINISTRATION” Of Karunya University 2007-2008

SCHOOL OF MANAGEMENT KARUNYA UNIVERSITY COIMBATORE – 641 114

INTRODUCTION Investment refers to the process of putting money or money’s worth in some opportunities for the purpose of making or reaping returns out of it. This money or money’s worth is excess over expenditure ie, savings. It mainly done in order to ensure safety and also to hedge against inflation (devaluation of money value).investing in various types of assets is an investing activity that attracts people from all walks of life irrespective of their occupation, economic status, education and family back ground. When a person has more money than he requires for current consumption, he would be considered as a potential investor. The investor who have extra cash could invest in shares, securities, bonds or any other assets like gold or real estate or could simply deposit in his bank account. The financial system consists of organised sector and unorganised sector and unorganised financial system comprises money lenders, indigenous bankers, lending pawn brokers, land lords, traders etc. this part of the financial system is not directly under the control of Reserve bank OF India. On the other hand, the organized financial system comprises money market and stock market. Fundamental analysis is used to calculate the intrinsic value of shares. It may help the investor to take decision easier. It gives a general idea about where to invest, which area to be selected etc. fundamental analysis and Technical analysis are the commonly used tools to analyse a market. Both these methods have their own merits and demerits. So to be rational in decision making it is better to use them together. in

capital market the price movements are caused by both fundamental and irrational factors. THEORETICAL PERSPECTIVE MONEY MARKET The position of money markets in our economy system has become important with the recent liberalization of monetary policies. Money market ensures efficient functioning of the financial system and provides increased flexibility in banks operation. I.S.G Wilson defined money market as a “centre in which financial institutions congregate for the purpose of dealing impersonally in monetary asset”. A money market is a mechanism in which large parts of the financial transaction of a particular country or of the world are cleared. It has two components- call money market and bill market. Call money market is that part of national money market where day to day surplus fund, mostly of banks, is traded in. it is a centre where the borrower and lender of money and near money assets are bought together. Bill market was introduced by RBI in 1952. Under this, RBI made advances to scheduled commercial banks in the form of demand loans against their promissory notes. The main objective of the bill market is to reduce the reliance on cash credit arrangement. Therefore, the bill market is to reduce the reliance on cash credit arrangement. Therefore, bill market scheme promotes an active market so that the lending activities of the bank could be shared by other banks. A freely operating money market is a sensitive barometer of current conditions in the financial markets. The money market can be classified as organised as organised money market and unorganised money market.

CAPITAL MARKET Capital market is generally understood as the market for long-term funds. This market supplies funds for financing the fixed capital requirement of trade and commerce as well as the long-term requirements of the government. The long-funds are made available through various instruments such as debentures, preference shares and

common shares. The capital market can be local, regional, national or international. The capital market is classified into two categories, namely, primary market or new issue market and secondary market or sock exchange. As a rule, only when a country’s primary market is alone, it is possible to ensure a good degree of activity in the secondary market because it is primary market which ensures a continuous flow of securities to the secondary market. On the country, if secondary market is only active but not transparent and disciplined. it becomes difficult to develop and sustain the cult of equity and related investment in the primary market. This is because the liquidity which the secondary market imparts to such investments in the hands of the investors is adversely affected.

PROFILE OF THE SELECTED COMPANY ACC LTD The Associated Cement Company Limited is a trend setter and a benchmark for Indian cement industry. It enjoys excellent equity. A prominent overseas presence and figuring on the elite list of consumer super brands of India but most importantly ACC has been amongst the first Indian companies to make environmental protection, it is a cornerstone of its corporate objectives. The historic merger of ten existing cement companies lead to the establishment of ACC - melding into a cohesive organization in the year 1936 at Maharashtra. Its a big company in cement manufacturing and offers the services of Ready mixed concrete and Consultancy service. This company is listed by Bombay Stock Exchange, National Stock Exchange and in London . The house of TATA was intimately associated with ACC upto1999, after 1999 they sold their stake to AMBUJA Cement group. In the year 2005 an association was initiated between ACC and HOLCIM of Switzerland and in the same year company acquired the 98.84% of the equity shares of Tarmac India private Ltd . At January 1st 2006 the Tarmac India private Ltd was merged with ACC which operated two ready mix plants in Mumbai. ACC Ltd has four subsidiary companies namely Bulk Cement Corporation of India (BCCI), ACC Machinery Company Ltd (AMCL), ACC Nihon Castings Ltd (ANCL) and The Cement Marketing Company of India Ltd. As of the financial year 2007-08 ACC divested its entire stake in its engineering subsidiary ACC Nihon Castings Ltd.

The company received an award as 'Good Corporate Citizen' for the year 2005-2006. During the year 2007 company acquired 100 % of the equity stake of Lucky Minmat Private Limited for Rs 35 crs and also acquired 14.3 % equity stake in Shiva Cement Limited. Meanwhile the company divested its entire equity shares in Almatis ACC Ltd to the Almatis group. The overseas contract with YANBU Cement Company in the kingdom of Saudi Arabia is successfully ongoing relationship from last 28 years and has been renewed up to February 28, 2011. .

GUJARATH AMBUJA CEMENTS LIMITED The Joint Venture between the public sector Gujarat Industrial Investment Corporation (GIIC) and Narottam Sekhsaria & Associates was the reason for confinement of the company. The company was incorporated in the year 1981 as Ambuja Cements Pvt Ltd and it was rehabilitated into a public limited company on 19th March 1983 as Gujarat Ambuja Cements Ltd, cement production is the role of the company in nature and a cost efficient cement manufacturer in the country. It is a National Quality ISO 9002 certified company, the only cement company have this so. It's also the first to receive the same and also have ISO 14000 Certification for environmental systems. The total cement capacity of the company is 18.5 million tonnes (MT), having five cement plants at Ambuja Nagar Gujarat (5 MT), Darlaghat Himachal Pradesh (6 MT), Upperwahi Maharashtra (2.5 MT), Rabriyawas Rajasthan (2 MT) and in Chhaattisharh West Bengal (3 MT). It is also having three Bulk Cement Terminals at Surat with a storage capacity of 15,000 tonnes has bulk cement unloading facility, Panvel with a storage capacity of 17,500 tonnes has a bulk cement unloading facility and in Galle 120 kms from Colombo, Sri Lanka. Handles million tonnes of cement annually. The port terminal of the company Muldwarka Gujarat, all weather port, 8 kms from Ambuja Nagar plant, handles ships with 40,000 DWT. Is also equipped to export clinker and cement and import coal and furnace oil. A fleet of seven ships with a capacity of 20500 DWT ferry bulk cement to the packaging units. The company's cement plant was commissioned in 1985, had set up in technical collaboration with Krupp Polysius, Germany, Bakau Wolf and Fuller KCP. The 12.6

MW diesel-generating sets were commissioned during the year, which were imported in the year 1988-89. The company got necessary approvals for setting up another cement plant with 1 million tonne capacity per annum at Himachal Pradesh in the year 1991. The Company undertook bulk cement transportation, by sea, to the major markets of Mumbai, Surat and other deficit zones on the West Coast. Transportation was to be carried out by three specially designed ships during the year 1992. During the year 1994, the company's Muller location 1.5 million tonne cement project with clinkeriation facility at site in H.P and grinding facility both at Suli & Ropar in Punjab was bespoken. In 1997, Kodinar plant of the company was originated its commercial production.

GRASIM INDUSTRIES LIMITED With a total grey cement capacity of 13.12 million tonnes per annum (tpa), Grasim is among the largest producers of grey cement in India. Its units are located at Jawad and Raipur in Madhya Pradesh, Shambhupura in Rajasthan, Malkhed in Karnataka, Sikka in Gujarat, and Reddipalayam in Tamil Nadu.All the plants are located close to sizeable limestone mines and are fully automated to ensure consistent quality. All the company’s cement units are equipped with state-of-the-art equipment and are certified with ISO 9001 for quality systems, and ISO 14001 for environment management systems. Its national brands are UltraTech Cement (formerly Birla Plus), Birla Super and Birla Ready Mix concrete. Vikram Cement The first production line of this unit at Jawad (Madhya Pradesh) went on stream in 1985, with a capacity of 0.5 million tpa. Today, with a capacity of a 4.20 million tpa, Vikram Cement has emerged as a premium regional brand, well-reputed for its strength and consistently superior performance. The Vikram Cement unit is one of the few plants to have its own Central Research and Development Centre. The first ISO 9001 cement plant in the country, Vikram Cement has also taken the lead in innovative

raw

mix

designs

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process

conditions.

MADRAS CEMENT LIMITED Madras Cements (MCL), a flagship company of the Ramco group, is a major player in the blended cement category in south India. The company was incorporated in the year 1957. MCL is the sixth largest cement producer in the country and the second largest in South India.

The Company undertook to replace the 4 cement mills at its Ramasamyraja Nagar Works, which were 20 years old, by a single new Combidan Cement Mill'. The mill was commissioned at end of the year 1985. A 132 KVA sub-station and the limestone crushing plant were installed during the same year. The project was commissioned during December of the year 1986. Two D.G. sets were installed in the middle of the year 1988 to meet 60% of the unit's power requirement at Jayanthipuram. The Company had set up the 4 MW windmill farm in the year 1992 at Muppandal, Kanyakumari district, Tamil Nadu. Asia's largest one to be commissioned in the Private sector was set up. All the 16 wind turbines of the company were commissioned in March of the year 1993. In the same year 1993, an additional capacity was created by adding 8 Nos. wind turbines of 250 KW each at Muppandal wind mill farm taking the generation capacity to 6 MW. During the year 1994, MCL had upgraded the capacity of its Jayanthipuram Unit to 1.1 million tonnes and also upgraded the cement mills capacity in R. R. Nagar. The Company substantially increased the capacity of windmills by installation of 70 more windmills. In the year 1995, the company enhanced power generation capacity at Jayanthipuram unit to 15.3 MW by commissioning an additional diesel generator set to maintain normal production in view of frequent power-cut and power tripping. During the year 1997, MCL had commissioned its third cement plant in Alathiyur; it was the second in Tamil Nadu. The clinker plant of the Alathiyur unit was commissioned in March while the grinding unit was commissioned in May of the same year 1997. The Company had embarked into Ready Mix Concrete business in the year 1998. Also in the same year, MCL made tie-up with Visakhapatnam Steel Plant (VSP) for procuring slag, a blast furnance residue and a crucial input for slag cement.

INDIA CEMENTS LIMITED

Shri Sankaralinga Iyer was a pioneer of heavy industry in the South. Primarily a banker, he ventured into the field of industry with a rare devotion and confidence with the prime objective of developing major industries in the state. With his banking experience and interest in exploring the mineral potential of South India, he went ahead boldly with his scheme of building a cement plant in the vicinity of Thalaiyuthu, where extensive

deposits of limestone were assuredly available. Shri Sankaralinga Iyer with his energy and drive gave the cement project a realistic form and content. Two men with vision to inspire dreams for an industrial India. Two men with the ability to translate those dreams into reality. And the ability to build enduring relationships..... To build the future. In his task of establishing the enterprise, Shri Iyer was ably assisted by Shri T.S. Narayanaswami, who is always identified with the formation and running of The India Cements Limited. Shri T.S.Narayanswami was the catalyst who saw the project through numerous hurdles and made it emerge as a viable and marketable proposition. He looked beyond Cement to Aluminium production, Chemicals and Plastics and Shipping after he had fully established the India Cements' potential for expansion. A pioneer Industrialist and visionary, Shri T.S. Narayanswami played a dynamic role in the resurgence of industrialisation in free India .

COMPANY PROFILE

COCHIN STOCK EXCHANGE INTRODUCTION COCHIN STOCK EXCHANGE LTD. is one of the premier Stock Exchanges in India, established in the year 1978. The exchange had a humble beginning with just 5 companies listed in 1978 -79, and had only 14 members. Today the Exchange has more than 508 members and 240 listed companies. In 1980 the Exchange computerized its offices. In order to keep pace with the changing scenario in the capital market, CSE took various steps including trading in dematerialized shares. CSE introduced the facility for computerized trading - "Cochin Online Trading (COLT)" on March 17, 1997. CSE was one of the promoters of the "Interconnected Stock Exchange of India (ISE)". The objective was to consolidate the small, fragmented and less liquid markets into a national level integrated liquid market. With the enforcement of efficient margin system and surveillance, CSE has successfully prevented defaults. Introduction of fast track system made CSE the stock exchange with the shortest settlement cycle in the country at that time. By the dawn of the new century, the regional exchanges faced a serious challenge from the NSE & BSE. To face this challenge CSE promoted a 100% subsidiary called the "Cochin Stock Brokers Ltd. (CSBL)" and started trading in the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). CSBL is the first subsidiary of a stock exchange to get membership in both NSE & BSE. CSBL also became a depository participant in the Central Depository Services

Ltd. The CSE has been playing a vital role in the economic development of the country in general, and Kerala in particular and striving hard to achieve the following goals:

VISION • Providing investors with high level of liquidity whereby the cost and time involved in the entry into and exit from the market are minimized. • Bringing in high tech solutions and make all operations absolutely transparent. • Building infrastructure for capital market by turning CSE into a financial super market. • Serve the investors of the region. • Professional stock broking and investment management. • Imparting Capital Market knowledge to all intermediaries on a continuous basis. MISSION “To play a vital role in the economic development of the region and to protect investors” The Cochin Stock Exchange has been playing a vital role in the economic development of the country in general, and Kerala in particular and striving hard so as to achieve the goals. LEGAL FRAMEWORK OF THE ORGANISATION The Cochin Stock Exchange is directly under the control and supervision of Securities & Exchange Board of India (the SEBI), and is today a demutualized entity in accordance with the Cochin Stock Exchange (Demutualization) Scheme, 2005 approved and notified by SEBI on 29th of August 2005. Demutualization essentially means de-linking and separation of ownership and trading rights and restructuring

the Board in accordance with the provisions of the scheme. The Exchange has been demutualised and the notification thereof published in the Gazette.

MANAGEMENT OF CSE LTD. The policy decisions of the CSE are taken by the Board Of Directors. The Board is constituted with 12 members of whom less than one-fourth are elected from amongst the trading member of CSE, another one fourth are Public Interest Directors selected by SEBI from the panel submitted by the Exchange and the remaining are Shareholder Directors. The Board appoints the Executive Director who functions as an ex-officio member of the Board and takes charge of the administration of the Exchange. DEPARTMENTS Systems The Systems Department is the heart of the various operations of CSE. The department provides the necessary technical support for screen based trading and the computerized functioning of all the other departments. The activities of the department include: Developments of software needed for the functions of the exchange. Maintenance of Multex software, which enables online trading with NSE and BSE. Maintenance of an effective network of computers for the smooth functioning of the exchange. Providing the necessary services to the Settlement and Surveillance Departments. The support for maintenance of depository participants’ accounts with the CSBL Department The major back office system soft wares used are NESS and BOSS respectively for NSE and BSE trades calculations. These soft wares are developed in-house by the software professionals at the Exchange and are used to maintain the entire records of all the trades that occur each day. It also does all the required calculations for deductions and also generates reports required by the brokers and their clients.

The trading software used in CSBL is Multex, developed by CMC. The advantage of using Multex is that both BSE and NSE scrip can be traded using this facility. CSBL has provided trading facility in equities through Multex to a large number of their clients over the Wide Area Network. Currently, the clients are connected by . VPN, ISDN, DIAL –UP, VSAT ETC.

Surveillance The Exchange has set up the Surveillance Department to keep a close watch on price movements of scrip and to detect market abuse like price rigging, monitor abnormal prices and volumes which are not consistent with normal trading pattern etc. The main objective of the department is to ensure a free and fair market, to avoid manipulations and to manage risks. The surveillance function at the exchange has assumed greater importance in the last few years. SEBI has directed the Exchange to set up a separate surveillance department with staff exclusively assigned for this function. The Surveillance Department ·

Keeps a close watch on the price movement of scrip.

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Detects market manipulations like price rigging.

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Monitors abnormal changes in prices and volumes which are not consistent with normal trading pattern.

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Monitors the member brokers’ positions to ensure that defaults do not occur.

Settlement Settlement Department is a key department of the Exchange, dealing with cash and securities. It assists the brokers in settling the matters related to their pay-in and

payout, recovery of dues and settling issues related to bad deliveries. This department is headed by a Deputy Manager assisted by two Senior Officers who take care of the operations involved in the settlement activities in CSE. The Exchange follows the T+2 settlement system.

Membership The Membership Department screens applications from prospective members to ensure that they are eligible to be members of the Exchange as per provisions of the Securities Contracts Regulation Act. It is also verified whether they are ‘Fit and Proper’ persons eligible to be members as per the SEBI (Criteria for Fit and Proper persons) Regulation 2004. The eligible applications are processed and forwarded to SEBI for the purpose of obtaining registration with SEBI. The department continuously follows up the status of the applications with SEBI and provides necessary data if any required by SEBI. The members are informed of their fee liability as and when information in this regard is obtained from SEBI.

The

Membership Department also assists SEBI by ensuring proper delivery of notices and letters issued by SEBI to the concerned members. The changes in status and constitution of the Brokers are sent for approval to the Governing Board of the Exchange and thereafter to SEBI and Members are given necessary directions wherever required. Change in address and contact information are updated in the Finance and Accounting System and SEBI intimated

Marketing The Marketing Department interacts with the brokers of the exchange trading both within the state and outside and collects their opinions and suggestions. These are brought to the notice of the Committee constituted for the purpose and decisions of the committee are placed for approval of the Governing Board of the Exchange .The efforts are aimed at improving the quality and efficiency of the service offered. In addition, the department conducts extensive surveys and campaigns in remote areas and where necessary organizes awareness programmes about capital markets. Experts

with sufficient experience in the trade brief the participants and address their queries. Talk shows and interviews are conducted on television channels, clippings are displayed in theatres all with a view to increase public awareness and motivate their interest in the Capital Markets .The marketing wing also coordinates the off campus programmes of the CSE Institute and organizes regular classes at authorized centers after verifying the availability of suitable infrastructure and facilities.

Listing The Listing Department guides prospective companies desirous of being listed on the Exchange by providing the knowledge base and information on the statutory requirements that have to be complied with. The major functions undertaken by the department include post-listing monitoring and compliance with the listing agreement, monitoring the listing agreements and reviewing the provisions of listing agreement from time to time with specific reference to SEBI Regulations/Circulars that are in force. The department also ensures diligence in scrutinizing listing applications and adhering to the Listing Norms. The department also performs the processing of the documents submitted by companies on new listings/additional listings and provides them with the listing approval/trading permission and also ensures that listing fee/processing fee is paid at the stipulated time. Legal Guided by the Officer-Legal, the Legal Department is primarily responsible for advising the management of the merits and demerits of legal issues involving the Exchange. The department consistently monitors the compliance parameters in terms of the Companies Act, SEBI Act, Securities Contracts Regulation Act and other related statutes. Listing Guidelines and related criteria stipulated by SEBI, and the rules, regulations, directives and circulars issued by SEBI with regard to trading in the Capital Market are consistently scrutinized and necessary directions are given to the concerned departments to ensure strict and continued compliance. Relevant developments are brought to the notice of the members and the investing public. Officer-Legal is the Compliance Officer as per the provisions of SEBI regulations and

also functions as Secretary to the Board of Directors. Other major activities undertaken by the department relate to Investor Grievance Service, Arbitration and Resolution of issues pertaining to declared defaulters.

Finance The Finance Department controls the financial transactions of the Exchange and is the life line of the organization. The department is headed by a Finance Officer.

The activities of the department include ·

Fund Management

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Interaction with bankers

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Maintaining general accounts of the Exchange

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Preparation of various financial statements.

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Maintaining payrolls and cash register.

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Coordinating accounting transactions of different branches and departments.

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Taxation

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Budgeting and Expense research.

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Maintenance of internal control system.

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Liaison with external and internal auditors

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Annual Report Generation

INDUSTRY PROFILE

CEMENT INDUSTRY PROFILE OF CEMENT INDUSTRY The Indian Cement industry is the second largest cement producer in the world, with an installed capacity of 144 million tones. The industry has undergone rapid technological up gradation and vibrant growth during the last two decades, and some of the plants can be compared in every respect with the best operating plants in the world. The industry is highly energy intensive and the energy bill in some of the plants is as high as 60% of cement manufacturing cost. Although the newer plants are equipped with the latest state-of-the-art equipment, there exists substantial scope for reduction in energy consumption in many of the older plants adopting various energy Conservation measures. The Indian cement industry is a mixture of mini and large capacity cement plants, ranging in unit capacity per kiln as low as 10 tpd to as high as 7500 tpd. Majority of the production of cement in the country (94% ) is by large plants, which are defined as plants having capacity of more than 600 tpd. At present there are 124 large rotary kiln plants in the country. The Ordinary Portland Cement (OPC) enjoys the major share (56%) of the total cement production in India followed by Portland Pozzolana Cement (PPC) and Portland Slag Cement (PSC). A positive trend towards the increased use of blended cement can be seen with the share of blended cement increasing to 43%. There is

regional imbalance in cement production in India due to the limitations posed by raw material and fuel sources. Most of the cements plants in India are located in proximity to the raw material sources, exploiting the natural resources to the full extent. The southern region is the most cement rich region while other regions have almost same cement production capacity. The Indian cement industry is about 90 years old and its main sources of energy are thermal and electrical energy. The thermal energy is generally obtained from coal, and the electrical energy is obtained either from grid or captive power plants of the individual manufacturing units.

SALIENT FEATURES OF INDIAN CEMENT INDUSTRY •

Indian cement industry is the second largest in the world with an installed capacity of 135 MTPA. It accounts for nearly 6% of the world production.

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There are 124 large plants and around 365 mini plants. The industry presents a mixed picture with many new plants that employ state-of-the-art dry process technology and a few old wet process plants having wet process kilns.

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Production from large plants (with capacity above 1 MTPA) account for 85% of the total production.

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The cement industry has achieved significant progress in terms of reducing the overall energy intensity.

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Dry process plants that the weighted average thermal energy consumption was 734 kCal/kg clinkers, and weighted average electrical energy consumption was 89 kWh/tonne of cement. The best energy consumption are 692 kCal/kg. Clinker and 66 kWh/ton of cement.

QUANTITATIVE DETAILS The energy intensity of the all the dry process plants (cost of energy as percentage of total production cost of packed cement) varies from 29 to 61%. This is observed to vary with the vintage of the plant, the technology employed by the plants and the type of cement produced. Specific thermal and electrical energy consumption for the plants ranges between 692 – 879 kCal/kg. of clinker and 66 – 127 kWh/ton of cement produced (product mix) respectively. The specific electrical energy also includes the energy consumed in packing, plant utilities and plant lighting. The reasons for wide range in specific energy consumption can be mainly attributed to the differing equipment configuration employed in different sections of the plants by various cement plants. For example, plants employing ball mills for grinding have reported higher specific electrical energy consumption as compared to plants having vertical roller mills. In addition, other factors like the plant capacity, its capacity utilisation, vintage, product mix, process control system, maintenance aspects, raw material characteristics and above all the management’s attitude and operational practices of plant personnel are also important. Besides, various external parameters like quality of coal, raw materials and power supply have their own repercussions. A large number of plants have put in vertical roller mills for raw meal section. The balls mills are still operating in the clinker grinding and coal milling sections in some of the plants. Some of the newer plants have installed roller press and vertical roller mills in the clinker grinding section as well. Comparison of energy performance of Indian cement industry with other countries reveals that there exists scope for improving the energy performance of the Indian cement industry. The best reported (as per CMA data) energy performance figures in the world re 65 kWh/t of cement and 650 kCal/kg of clinker whereas the best in India is 69 kWh/t of cement and 665 kCal/kg of clinker. This clearly bring out the fact that although we have some of the best plants in the world in terms of energy performance, there are many plants where there exists scope for reducing energy consumption.

TECHNOLAGICAL CHANGE

Continuous technological upgrading and assimilation of the latest technology has been going on in the cement industry. Presently 93% of the total capacity in the industry is based on modern and environment friendly dry process technology and only 7% of the capacity is based on the old wet and semi-dry process technology. there is tremendous scope for waste heat recovery in cement plants and there by reduction in the emission level. One project co-generation of the power utilizing waste heating an Indian cement plant is being implemented with Japanese assistance under green aid plan. The induction of advanced technology has helped the industry immensely to conserve energy and fuel to save material substantially.

REVIEW OF LITERATURE

REVIEW OF LITERATURE INTRODUCTION FUNDAMENTALANALYSIS The intrinsic value of an equity share depends on a multitude of factors. The earnings of the company, the growth rate and the risk exposure of the company have a direct bearing on the price of the share. These factors in turn rely on the host of other factors like economic environment in which they function, the industry they belong to, and finally companies’ own performance. The fundamental school of thought appraised the intrinsic value of shares through. ECONOMIC ANALYSIS INDUSTRY ANALYSIS COMPANY ANALYSIS ECONOMIC ANALYSIS The level of economic activity has an impact on investment in many ways. if the company grows rapidly, the industry can also be expected to show rapid growth and vice versa. When the level of economic activity is low, stock prices are low, and when the level of economic activity is high, stock prices are high reflecting the prosperous

outlook for sales and profits of the firms. The analysis of macro economic environment is essential to understand the behaviour of the stock prices. INDUSTRY ANALYSIS An industry is a group of firms that have similar technological structure of production and produce similar products. At any stage in the economy, there are some industries which are growing while others are declining. The performance of companies will depend among other things upon the state of the industry as a whole and the economy. If the industry is prosperous the companies, within the industries may also be prosperous although a few may be in a bad shape. The performance of a company is thus a function not only of the industry and of the economy, but more importantly, on its own performance. The market price of the company is empirically found to depend up to 50% on the performance of the industry and economy COMPANY ANALYSIS The Specific market and economic environment may enhance the performance of a company for a period of time. But it is ultimately the firm’s own capability that will judge its performance over a long period of time. For this reason the firms in the same industry are compared to one another ascertained which one is the best performer. We can get two in formations from company analysis. One is internal information and other one is external information. The internal information consist of data and events made by public firms concerning their operations. It mainly take the form of interim and annual reports to share holders, and public and private statements of officers and managers of the firm.

REVIEW OF FUNDAMENTAL ANALYSIS. 1. As per the study of JOHN BURR WILLIAMS Fundamental analysis of a business involves analyzing its financial statements and health, its management and competitive advantages, and its competitors and markets. The term is used to distinguish such analysis from other types of investment analysis, such as quantitative analysis and technical analysis .Fundamental analysis is performed on historical and

present data, but with the goal of making financial forecasts. There are several possible objectives: •

To conduct a company stock valuation and predict its probable price evolution,

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To make a projection on its business performance,

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To evaluate its management and make internal business decisions, credit risk.

2. According to KEN LITTLE in his book titled “Seven steps defensive stock selection” for he says there are mainly 7 tools of fundamental analysis they are Price to Earnings Ratio – P/E Projected Earning Growth – PEG Price to Earnings per Share – EPS Price to Book – P/B Dividend Payout Ratio Dividend Yield

3. As per the study of INVESTOR GUIDE STAFF, in their articles titled “INVESTING STRATEGIES”. They say Fundamental analysis is a method used to determine the value of a stock by analyzing the financial data that is 'fundamental' to the company. That means that fundamental analysis takes into consideration only those variables that are directly related to the company itself, such as its earnings, its dividends, and its sales. Fundamental analysis does not look at the overall state of the market nor does it include behavioural variables in its methodology. It focuses exclusively on the company's business in order to determine whether or not the stock should be bought or sold. Critics of fundamental analysis often charge that the practice is either irrelevant or that it is inherently flawed. The first group, made up largely of proponents of the efficient market hypothesis, say that fundamental analysis is a useless practice since a stock's price will always already take into account the company's financial data . In other words, they argue that it is impossible to learn

anything new about a company by analyzing its fundamentals that the market as a whole does not already know, since everyone has access to the same financial information. The other major argument against fundamental analysis is more practical than theoretical. These critics charge that fundamental analysis is too unscientific a process, and that it's difficult to get a clear picture of a company's value when there are so many qualitative factors such as a company's management and its competitive landscape 4. According to KNOJ BADAMI Fundamental analysis is a stock valuation method that uses financial and economic analysis to predict the movement of stock prices. The fundamental information that is analyzed can include a company's financial reports, and non-financial information such as estimates of the growth of demand for products sold by the company, industry comparisons, and economy-wide changes, changes in government policies etc. To a fundamentalist, the market price of a stock tends to move towards it's “real value” or “intrinsic value”. If the “intrinsic/real value” of a stock is above the current market price, the investor would purchase the stock because he knows that the stock price would rise and move towards its “intrinsic or real value” If the intrinsic value of a stock was below the market price, the investor would sell the stock because he knows that the stock price is going to fall and come closer to its intrinsic value. All this seems simple. Now the next obvious question is how do you find out what the intrinsic value of a company is? Once you know this, you will be able to compare this price to the market price of the company and decide whether you want to buy it (or sell it if you already own that stock). To start finding out the intrinsic value, the fundamentalist analyzer makes an examination of the current and future overall health of the economy as a whole. After you analyzed the overall economy, you have to analyze firm you are interested in. You should analyze factors that give the firm a competitive advantage in it’s sector such as management experience, history of performance, growth potential, low cost producer, brand name etc. Find out as much as possible about the company and their products. 5. As per the study of BEN MCLURE is the cornerstone of investing. In fact, some would say that you aren't really investing if you aren't performing fundamental analysis.Because the subject is so broad, however, it's tough to know where to start. There are an endless number of investment strategies that are very different from each other, yet almost all use

the fundamentals. The goal of this tutorial is to provide a foundation for understanding fundamental analysis. It's geared primarily at new investors who don't know a from an While you may not be a "stock-picker extraordinaire" by the end of this tutorial, you will have a much more solid grasp of the language and concepts behind security analysis and be able to use this to further your knowledge in other areas without feeling totally lost. The biggest part of fundamental analysis involves delving into the financial statements. Also known as quantitative analysis, this involves looking at, and all the other financial aspects of a company. Fundamental analysts look at this information to gain insight on a company's future performance. A good part of this tutorial will be spent learning about the balance sheet, income statement, and how they all fit together. But there is more than just number crunching when it comes to analyzing a company. This is where qualitative analysis comes in - the breakdown of all the intangible, difficult-tomeasure aspects of a company. Finally, we'll wrap up the tutorial with an intro on valuation and point you in the direction of additional tutorials you might be interested in. (Also, although it's not required, you might find it helpful to read our tutorial, as well as our tutorial on, before starting.) 6. From the point of view of K.A. Mohamed, Mohamed H, Abdel-Azim Fundamental

analysis or financial ratio analysis fails to capture the benefits of a simultaneous multi-dimensional benchmarking relative to a company's peers. The paper's main objective is to predict bank stock performance one year ahead by a composite efficiency metric based on an approach we call fundamental relative analysis. For the first time, the paper's approach brings together financial ratios commonly used in banking, generalized data envelopment analysis and simulated annealing to rank 68 Japanese regional banks on stock performance predicted from relative efficiency scores. An application of this ranking in a profitable investment strategy by designating long and short portfolios underscores the potential commercial value of the methodology. The study also makes a number of other methodological contributions such as using the highly flexible range-adjusted measure which captures non-proportional projections more suited to the reality of the business world and super-efficiency scores that allow better discrimination of efficiency scores. When set up as a self-updating system, the approach would be useful to investors and industry watchers, who will be better informed about which ratios to monitor in forecasting stock performance. The methodology demonstrated in the context of Japanese banks

is generalizable to any industry in any country

7. According to Small Stocks on Aug 1, 2008 In brief, Fundamental relies on the assumption that at any point in time there is a basic intrinsic - or fundamental - value of a stock. If this is significantly different from current market, then there is an opportunity for a profit to be made, and subsequently an investment to occur. Probably at this point you are asking yourself what exactly do you mean by an intrinsic value? And quite frankly, it’s a reasonable question to ask. Intrinsic value is determined by looking at factors that affect the underlying demand and supply for the stock being analysed. It’s basically the of the nuts and bolts of th company - what makes it? The level of its,equity, assets, liabilities and so on. Thus, you could easily consider Fundamental to be a study of what causes variation in a stock to occur, and more succinctly why this variation occurs. Obviously for this to take place accurately, Fundamental relies on information about the company – and accurate, perfectly disseminated company information at that. Perfectly Disseminated Information – What in the world are we talking about? To clarify, this just refers to another section of world of known as Efficient Market Hypothesis. For Fundamental to occur flawlessly market information must be conveyed to efficiently, immediately, and acted on rationally. It is assumed that when investors are armed with new information, they act rationally in their behaviour, and make unbiased decisions regarding their future investment decision-making. Now you are most likely thinking that in the real world there is no way that all information communicated to the market is immediate or efficient, and you would be absolutely correct because there is no way that it could be conveyed 100% of the time. Nevertheless, it doesn’t mean for the purposes of studying this field, we can’t assume in a perfectly happy world, that all market information is passed on immediately and as a result Fundamental is flawless. These types of assumptions must occur so that theories can be derived and improved upon, because this is what the world’s major stock markets hope to achieve: a fair, orderly and transparent market. Realistically, this is not the case however, and as a result it represents a large crack in the underlying assumptions that Fundamental theory is based on. Variation is not reflected instantaneously in the market, because market information is not disseminated immediately and as a result there is not an immediate variation in the of a stock. This doesn’t mean that you go and burn all your literature regarding this topic though, because Fundamental Analysis is a vital tool for a number of reasons. Firstly because by undertaking such,analysts are helping the market to have a better idea of a companies position, and secondly because it

increases the transparency of market information which, in turn, helps to improve market efficiency process at its core. This leads onto the context of the basic of a stock being based solely on historical data. Clearly, if a stock is based entirely on historical information then returns will never be able to increase above the market level of returns. Equivalently, if a Fundamental Analyst is able to make superior projections of the relevant variables influencing stock prices then, in accordance with the efficient market hypothesis, they could be expected to outperform the market. This implication suggests that even if an excellent valuation model is derived that could stocks exactly; any model that relies solely on historical data cannot be expected to do better than a marginal buy-and-hold strategy

8. According to PEIXIS Published: October 06, 2007. Analysis (FA) is the study of any data that might be expected to impact the price or perceived value of an investment product, other than analyzing the trading patterns of that stock itself. FA is the examination of the underlying forces that affect the well being of the economy, industry groups, and companies. As with most analysis, the goal is to derive a forecast and profit from future price movements. At the company level, fundamental analysis may involve examination of financial data, management, business concept and competition. At the industry level, there might be an examination of supply and demand forces for the products offered. For the national economy, fundamental analysis might focus on economic data to assess the present and future growth of the economy. By believing that prices do not accurately reflect all available information, fundamental analysts look to capitalize on perceived price discrepancies. Interest rates for example, are considered the single most important economic factor determining the exchange rates of currencies. One reason for this is that large multinational investors would prefer to hold a bank account in the currency that yields the highest return in terms of interest, all other things being equal. Inflation is one of the key factors in deciding the level of interest rates. For this reason any financial data released that will affect interest rates or inflation is of great importance to a trader, as it will offer trading opportunities as the market re-values itself.

9. According to Thomas Smith, When reading about or researching company performance, you often will be reflecting on earnings calculations - but do these numbers make any sense to you? And could you tell the difference between a P/E ratio and a PEG ratio? The stock price (per share) of a company divided by its most recent 12-month earnings per share is called its (P/E ratio). If this P/E ratio is then divided by expected earnings growth going forward, the result is called the (PEG ratio). Information available about how to determine a stock's proper ratios and use them to effectively value a stock talk about metrics like the stock's historic ratios, use them to compare industry ratios, or use them in statements like "a PEG below 1 is good". This information isn't wrong, but if you need to understand and find these ratios for yourself, you'll need some extra help. EARNINGS YIELD The best way to understand the significance of the P/E ratio is to turn it upside down. If you divide the earnings by the price (E/P) you get the inverse of the P/E ratio, which is called the. The earnings yield tells an investor how much return (on a per-share basis) the stock's shareholders earned over the past 12 months, based on the current share price. Remember that earnings, regardless of whether they are paid out in the form of a dividend or retained by the company for reinvestment into further growth opportunities, still belong to the shareholders. Shareholders hope that these earnings will grow going forward, but there is no way to perfectly predict what that growth will be. EARNINGS YIELD VS. BOND YIELDS Investors have a vast array of investment options at their disposal at all times. For the purposes of this discussion, let's assume that the choice is limited to stocks or bonds. Straight bonds, whether government or corporate, pay a guaranteed fixed rate of return for some period of time, as well as a guaranteed return of the original investment at the end of that fixed period. The earnings yield on a stock is neither guaranteed nor of a definite time period; however, earnings can grow, while bond yields remain fixed. How do you compare the two? What are the key factors to consider? (For further reading, check out Get Acquainted With Bond Price/Yield Duo.) GROWTH RATE, PREDICTABILITY AND FIXED-INCOME RATES The key factors you need to consider are: growth rate, earnings predictability and current fixed-income rates. Let's assume you have $10,000 to invest and that U.S government Treasury bonds of five-year maturity are yielding 4%. If you invest in these bonds, you can

earn interest of $400 per year (4% of $10,000) for a cumulative return of $2,000 over five years. At the end of five years, you get your $10,000 investment back when the bond matures. The cumulative return over the five-year period is $20% ($2,000/$10,000).

10. According to Andrew Beattie, The era of the company founder doubling as the CEO and controlling shareholder is over. Now such situations are the exception rather than the rule. Consequently, a diverse group of investors holds the company's outstanding shares. A company's first priority has to be to please the owners. That said, not all shareholders are equal; therefore, a corporation's first goal should be to create shareholder value for long-term shareholders Let's take a look at the importance of the distinction between long- and shortterm shareholders by examining a share buyback situation. A share buyback is a common way for companies to increase the value of their outstanding shares, but there are good and bad reasons for doing this. The good reason to do a share buyback is that profits and cash reserves are strong, and there are no opportunities for growth within the core business at the time. Ironically, this is when management usually goes on a spree of unrelated acquisitions to try to look innovative and growth-oriented - often to the detriment of the company's future, when the useless parts are sold off at a loss. Simply buying back shares would do much more for shareholders because the shares can always be resold if an opportunity presents itself. (Learn more about repurchase strategies at A Breakdown Of Stock Buybacks.) A buyback is a bad idea when short-term investors sway the board simply to juice their short-term gains and get out with the cash. Raiders - the reformed Carl Icahn among them used proxy fights to force short-term solutions like share buybacks and spinoffs to increase the share price and then flee, leaving the company cash-stripped and without its strongest divisions. This schism between the short-term and long-term shareholders influences many decisions, but in general, companies benefit most over the long term by striving to please long-term shareholders

RESEARCH METHODOLOGY

METHODOLOGY RESEARCH DESIGN The study is aimed at analysis of securities from a selected sector viz, cement industry. The tools used, fundamental analysis, is objective and empirically proven to value securities. The five companies that contribute to the portfolio construction are selected on the basis of earning per share and the relative market capitalization they have. The past performance and the volume of trading in the market are also taken in to consideration. These five companies are in turn selected from a bigger list of ten companies, which are taken on random basis from the NSE (National stock exchange) NIFTY cement industry. It gives investor an idea as to the avenues in cement and marketing industry where in he could make his investment. SOURCE OF DATA Data was collected from primary as well as secondary sources.

PRIMARY SOURCES  Discussion with members, staff and brokers of CSBL  Observation of trading sessions.

SECONDARY SOURCES  Various web sites of stock markets  Software packages of CSE  Published financial documents of companies.  Financial research reports of government and non-government organisations.  Various books and journals of portfolio management.

PERIOD OF STUDY The research was conducted for a period of two months; ie, 15 DECEMBER to 15 FEBRUARY.

COMPANIES SELECTED

COMPANY

SCRIP CODE AS PER MULTEX SOFTWARE

ASSOCIATED CEMENT ACC COMPANIES LTD GRASIM INDUSTRIES LIMITED

GIL

GUJARAT AMBUJA CEMETS LTD

GACE

MADRAS CEMENT LTD

MDCE

INDIA CEMENTS LTD

ICL

TOOLS AND TECHNIQUES USED The main purpose of fundamental analysis is to find out the intrinsic value of a security. The intrinsic value is the true economic worth of a financial asset. Other than intrinsic value various ratios are also used to compare the company with other companies and with the industry.

Profit After Tax (PAT) Earning Per Share (EPS) = No. of equity shares

Amount declared as dividend Dividend Per share (DPS) = No of equity shares

Dividend per share Pay Out Ratio = Earning Per Share

PAT Return On Equity = Net worth

Net worth

= Share capital + Reserve and Surplus

Market price of share Price Earning Ratio = EPS

Current asset Current Ratio

= Current liability

Price Earning Average = Average of the price earning range.

Total debt Debt Equity Ratio = Owner’s capital

PAT Net Profit Margin = Net sales

THE INTRENSIC VALUE CALCULATION

Dividend Per Share Dividend Pay Out Ratio (DPOR) = Earning Per Share

Sum of DPOR for 5 years Average DPRO for five years = 5 Average retention ratio = 1 – Average DPOR

Sum of ROE for 5 years Average Return On Equity = 5

Long term growth rate in dividend and earnings = Average retention ratio * Average ROE

Sum of PE ratio for 5 years Normalized average price earning = 5

INTRENSIC VALUE

=

Projected EPS * Normalized average price earning

Ratio

Projected DPS = Dividend for the year * ( 1 + Growth rate )

OBJECTIVES

1. To analyze the growth rate of the organisation 2. The main objective of the study is to compare the intrinsic value of scrip’s with market values and recommends, buy or sell options. 3. Analysis of company performance through various ratios 4. To find the earning performance of the organization. 5. To get an idea for the investor for making investment.

ANALYSIS AND INTERPRETATION

Performance evaluation of five major players in cement industry in India is done by calculating Pay out ratio; R.O.E, PE ratio etc and calculations are based on the data for the final year ending 31 March over the years. ACC LIMITED TABLE 1.1 PAY OUT RATIO YEAR 2008 2007 2006 2005 2004 E.P.S 73.2 63.60 37.79 20.19 10.78 D.P.S 20.00 15.00 10.06 7.03 4.00 Pay Out Ratio 0.27 0.24 0.27 0.35 0.37 Source: Compiled from the audited financial statements of ACC LTD for the respective years The table reveals the E.P.S of Acc Ltd shows a Steady increase from 10.78 in 2004 to 73.2 in 2008. This is a good boost to build the investors confidence in the company. The D.P.S & Pay out ratio shows a decrease from the year 2003 to 2008. This indicates that company had adopted measure for retaining the profits rather than paying out as dividend. This in turn will help the company to have funds accumulated for future growth. CHART 1.1

PAY OUT RATIO 0.4

PAY OUT RATIO

0.35 0.3 0.25 0.2

PAY OUT RATIO

0.15 0.1 0.05 0 2008

2007

2006

2005

2004

YEARS

TABLE 1.2 RETURN ON EQUITY YEAR Share Capital

2008 187.83

2007 187.48

2006 184.72

2005 178.74

2004 177.40

Reserve & Surplus Net Worth Profit After Tax R.O.E

3964.78

2955.16

1951.21

1418.45

1175.79

4152.61 1438.59

31426.40 1231.84

21359.30 5441.80

15971.90 3783.90

13531.90 2002.40

34.64

39.20

25.48

23.69

14.80

Table reveals the R.O.E of ACC ltd shows a steady increase from 14.80 in 2004 to 34.64 in 2008. This shows the increase in Net Profit. This is a good boost to build the investors confidence in the company TABLE 1.3 PRICE EARNING RATIO YEAR 2008

Market price 504.85

E.P.S 73.2

P.E Ratio% .689

Source: Compiled from the audited financial statements of ACC Ltd for the respective years TABLE 1.4 RATE OF GROWTH YEAR Sales P.A.T E.P.S D.P.S

2008 6878.0 0 1438.5 9 73.2 20.00

2007 56603.40

2006 31601.80

2005 38874.00

2004 32746.10

1231.84

5441.80

3783.90

2002.40

63.60 15.00

37.79 10.06

20.19 7.03

10.78 4.00

The Net profit Ratio indicates that the profitability of the company is improving over the years and indicates the efficiency in the management

TABLE 1.5 RATIOS YEAR Current Ratio

2008 1.00

2007 1.00

2006 0.91

2005 0.92

2004 0.95

2003 0.93

Debt Equity .18 0.40 0.72 0.95 1.07 1.46 Ratio Net Profit 23.56 21.76 17.22 9.73 6.11 3.64 Margin % Source: Compiled from the audited financial statements of ACC LTD for the respective years The current Ratio of ACC Ltd throughout the period under study is below the benchmark of 2:1 Table indicates that the liquidity and short term solvency of the company is not satisfactory The Debt Equity Ratio of ACC Ltd throughout the period under study is below the maximum limit of 1:1 indicates long term solvency of the firm is satisfactory

YEAR

SALES

2008

68780.0

2007

56603.40

2006

31601.80

2005

38874.00

2004

32844.70

TABLE 1.6 COMPARISON OF SALES TURN OVER OF ACC LIMITED

Source: Compiled from the audited financial statements of ACC LTD for the respective years CHART 1.2

SALES TURN OVER 70000 60000 50000 PAT

40000 30000

SALES

20000 10000 0

2008

2007

2006

2005

2004

YEARS

TABLE 1.7 COMPARISON OF PROFIT AFTER TAX OF ACC LTD

YEAR 2008 2007 2006 2005 2004

P.A.T(RS.MN) 1438.59 1231.84 5441.80 3783.90 2002.40

Source: Compiled from the audited financial statements of ACC LTD for the respective years CHART 1.3

PROFIT AFTER TAX 6000 5000 4000 PAT 3000 P.A.T(RS.MN)

2000 1000 0

2008

2007

2006

2005

2004

YEARS

TABLE 1.8 COMPARISON OF RETURN ONEQUITY YEAR 2008 2007 2006 2005 2004

R.O.E % 34.64 39.20 25.48 23.69 14.80

Source: Compiled from the audited financial statements of ACC LTD for the respective years CHART 1.4

RETURN ON EQUITY 45 40 35 ROE

30 25 20

Series1

15 10 5 0 2008

2007

2006

2005

YEARS

CALCULATION OF INTRINSIC VALUE OF ACC LTD  Average Payout Ratio = 0.27+0.24+.27+0.35+0.43 5 = 0.31  Average Retention Ratio =1-.31 = 0.69  Average Return On Equity =34.64+39.20+25.48+23.69+14.80

2004

5 =27.56  Normalized P.E Ratio = 0.689  Long Term Growth Rate in Dividend & Earnings =P.E Ratio * Average Retention Ratio = 0.689* 0.69 = 0.475%  Projected Earnings Per Share =Earning Per Share * Growth In Equity Growth in Equity = Average Retention Ratio * Average Return On Equity = 0.69 * 27.56 = 19.02 Projected Earning Per Share = 73.2 * 19.02 = 1392.26  Intrinsic Value = Projected E.P.S * P.E ratio =1392.26*0.689 = 959.27

The market price as on 31 January 2008 is 504.85. Since the market price is lower than intrinsic value (959.27), such share is considered to be under priced and this share is suitable for investment.

GRASIM INDUSTRIES LTD TABLE 2.1 PAY OUT RATIO YEAR 2008 2007 2006 2005 2004 E.P.S 239.03 167.5 94.10 96.62 85.01 D.P.S 30 27.5 20.0 16 14 Pay Out Ratio 0.13 0.16 0.21 0.16 0.16 Source: Compiled from the audited financial statements of GRASIM INDUSTRIES for the respective years The Table reveals the E.P.S of Grasim Industries shows a steady increase from 85.01 in 2004 to 239.03 in 2008. This is a good boost to build the investors confidence in the company.

The DPS shows a steady increase and Pay out ratios shows fluctuation in all 5 year. This indicates the company has adopted measure for retaining the profits rather than paying out as dividend. This in turn will help the company to have funds accumulated for future growth. CHART 2.1 PAY OUT RATIO

PAY OUT RATIO

0.25 0.2 0.15 PAY OUT RATIO 0.1 0.05 0 2008

2007

2006

2005

2004

YEARS

TABLE 2.2 RETURN ON EQUITY YEAR Share Capital Reserve & Surplus

2008 916.90 8044.12

Net Worth

8135.81

Profit After Tax

2232.6

R.O.E

27.44

2007 916.90 61383.5 0 62300.4 0 15358.1 0 24.65

2006 916.90 48903.90

2005 916.90 42366.60

2004 916.90 35191.40

49820.80

43283.50

36108.30

8632.10

8857.10

7792.60

17.33

20.46

21.58

Source: Compiled from the audited financial statements of GRASIM INDUSTRIES for the respective years TABLE 2.3 PRICE EARNING RATIO YEAR Market Price E.P.S P.E Ratio% 2008 1197.30 239.03 0.5 Source: Compiled from the audited financial statements of GRASIM INDUSTRIES for the respective years

TABLE 2.4 RATE OF GROWTH YEAR Sales P.A.T E.P.S D.P.S

2008 10278.68 2232.6 239.03 0.30

2007 86044.50 15358.10 167.5 27.5

2006 66728.10 8632.10 94.10 20

2005 62060.70 8857.10 96.62 16

2004 52217.50 7792.60 85.01 14

Source: Compiled from the audited financial statements of GRASIM INDUSTRIES for the respective years

TABLE 2.5 RATIOS YEAR Current Ratio

2008 0.90

2007 0.94

2006 0.93

2005 0.86

2004 0.82

Debt Equity Ratio Net Profit Margin %

0.43

0.44

0.43

0.51

0.63

20.15

17.85

12.94

14.27

14.94

Source: Compiled from the audited financial statements of GRASIM INDUSTRIES for the respective years The current Ratio of GRASIM INDUSTRIES throughout the period under study is below the benchmark of 2:1, YEAR SALES The Table indicates that the 2008 10278.68 liquidity and short term 2007 86044.50 solvency of the company is not 2006 66728.10 satisfactory. 2005 62060.70 The debt Equity Ratio of 2004 52217.50 Grasim Industries throughout the period under study is below the maximum limit of 1:1, indicates long term solvency of the firm is satisfactory.

TABLE 2.6 COMPARISON OF SALES TURN OVER OF GRASIM INDUSTRIES LTD

Source: Compiled from the audited financial statements of GRASIM INDUSTRIES for the respective years

CHART 2.2

SALES TURN OVER

90000 80000 70000 60000 SALES 50000 40000 30000 20000 10000 0

SALES

2008

2007

2006

2005

2004

YEARS

TABLE 2.7 COMPARISON OF PROFIT AFTER TAX OF GRASIM INDUSTRIES LTD

YEAR 2008 2007 2006 2005 2004

P.A.T(RS.MN) 2232.6 15358.10 8632.10 8857.10 7792.60

Source: Compiled from the audited financial statements of GRASIM INDUSTRIES for the respective years CHART 2.3 PROFIT AFTER TAX 25000 20000 15000 PAT 10000

P.A.T(RS.MN)

5000 0

2008

2007

2006

2005

YEARS

TABLE 2.8 COMPARISON OF RETURN ON EQUITY YEAR 2008 2007 2006 2005 2004

R.O.E % 27.44 24.65 17.33 20.46 21.58

2004

Source: Compiled from the audited financial statements of GRASIM INDUSTRIES for the respective years

CHART 2.4

RETURN ON EQUITY 30 25

ROE

20 15

Series1

10 5 0 2008

2007

2006

2005

2004

YEARS

CALCULATION OF INTRINSIC VALUE OF GRASIM INDUSTRIES LTD  Average Payout Ratio = 0.13+0.16+0.21+0.16+0.16

5 = 0.164  Average Retention Ratio =1-.164 = 0.84  Average Return On Equity =27.44+24.65+17.33+20.46+21.58 5 =22.29  Normalized P.E Ratio = 0.5  Long Term Growth Rate in Dividend & Earnings =P.E Ratio * Average Retention Ratio = 0.84 * 0.5 = 0.42%  Projected Earnings Per Share =Earning Per Share * Growth In Equity Growth in Equity = Average Retention Ratio * Average Return On Equity = 0.84 * 22.29 = 18.72 Projected Earning Per Share = 239.03 * 18.72 = 4475.50  Intrinsic Value = Projected E.P.S * P.E ratio =4475.50*0.5 = 2237.75 The market price as on 31 January 2008 is 1197.30. Since the market price is lower than intrinsic value (2237.75), such share is considered to be under priced and this share is suitable for investment. GUJARAT AMBUJA CEMENTS LTD TABLE 3.1 PAY OUT RATIO

YEAR 2008 2007 2006 2005 2004 E.P.S 11.03 6.32 3.27 17.75 13.40 D.P.S 175 16.5 90 80 70 Pay Out Ratio 0.16 0.26 0.28 0.45 0.52 Source: Compiled from the audited financial statements of GUJARATH AMBUJA CEMENT for the respective years

The Table reveals the EPS of Gujarat Ambuja Cement shows a fluctuating trend over the years. This is not favorable to build the investors confidence in the company. The DPS & Payout ratio was showing an increasing trend but in the last year it is decreased due to several market fluctuations. This indicates the company had adopted measure for retaining the profits rather than paying out as dividend. This in turn will help the company to have funds accumulated for future growth CHART 3.1 PAY OUT RATIO 0.6

PAY OUT RATIO

0.5 0.4 0.3

PAY OUT RATIO

0.2 0.1 0 2008

2007

2006

2005

2004

YEARS

TABLE 3.2 RETURN ON EQUITY YEAR Share Capital Reserve & Surplus

2008 3044.8 4356.39

2007 3033.70 31872.1

2006 2703.80 19080.10

2005 1794 18422.90

2004 1553.00 14612.50

Net Worth

46608.7

Profit After Tax R.O.E

1769.1 3.79

0 34905.8 0 1503.25 4.31

21783.90

20216.90

16165.50

4682.90 21.50

3367.90 16.66

2220.90 13.74

Source: Compiled from the audited financial statements of GUJARATH AMBUJA CEMENT or the respective years TABLE 3.3 PRICE EARNING RATIO YEAR 2008

Market Price 70.45

E.P.S 11.03

P.E Ratio% 0.64

Source: Compiled from the audited financial statements of f GUJARATH AMBUJA CEMENT or the respective years TABLE 3.4 RATE OF GROWTH YEAR 2008 2007 2006 2005 2004 Sales 56713.9 62141.60 25979.50 19583.40 17347.20 P.A.T 1769.1 1503.25 4682.90 3367.90 2220.90 E.P.S 11.03 6.32 3.27 17.75 13.40 D.P.S 175 165 90 80 70 Source: Compiled from the audited financial statements of GUJARATH AMBUJA CEMENT for the respective years

TABLE 3.5 RATIOS

YEAR Current Ratio

2008 1.05

2007 0.91

2006 0.63

2005 0.76

2004 1.12

Debt Equity 0.15 0.35 0.57 0.83 1.10 Ratio Net Profit 29.67 24.19 18.03 17.20 12.80 Margin % Source: Compiled from the audited financial statements of GUJARATH AMBUJA CEMENT for the respective years The current ratio of Ambuja Cements throughout the period under study is below the benchmark 2:1. Table indicates that the liquidity and short term solvency of the company is not satisfactory. The Debt Equity Ratio throughout the period under study is below the maximum limit of 1:1, indicates long term solvency of the firm is satisfactory.

TABLE 3.6 COMPARISON OF SALES TURN OVER OF GUJARATH AMBUJA CEMENT LIMITED

YEAR 2008 2007 2006 2005 2004 years

SALES 56713.9 62141.60 25979.50 19583.40 17347.20

Source: Compiled from the audited financial statements of GUJARATH AMBUJA CEMENT for the respective

CHART 3.2

SALES TURN OVER 70000 60000 50000 SALES 40000 30000

SALES

20000 10000 0

2008

2007

2006

2005

2004

YEARS

TABLE 3.7 COMPARISON OF PROFIT AFTER TAX OF GUJARATH AMBUJA CEMENT LTD

YEAR 2008 2007 2006 2005 2004

P.A.T(RS.MN) 1769.1 1503.25 4682.90 3367.90 2220.90

Source: Compiled from the audited financial statements of GUJARATH AMBUJA CEMENTS for the respective years CHART 3.3 PROFIT AFTER TAX 5000 4500 4000 3500 3000 PAT 2500 2000 1500 1000 500 0

P.A.T(RS.MN)

2008

2007

2006

2005

YEARS

TABLE 3.8 COMPARISON OF RETURN ON EQUITY

2004

YEAR 2008 2007 2006 2005 2004

R.O.E % 3.79 4.31 21.50 16.66 13.74

Source: Compiled from the audited financial statements of GUJARATH AMBUJA CEMENTS for the respective years CHART 3.4 RETURN ON EQUITY 25

ROE

20 15 Series1 10 5 0 2008

2007

2006

2005

2004

YEARS

CALCULATION OF INTRINSIC VALUE OF GUJARATH AMBUJA CEMENT LTD

 Average Payout Ratio = 0.16+0.26+0.28+0.45+0.52 5 = 0.334  Average Retention Ratio =1-.334 = 0.67  Average Return On Equity =3.79+4.31+21.5+16.66+13.74 5 =12.00  Normalized P.E Ratio = 0.64  Long Term Growth Rate in Dividend & Earnings =P.E Ratio * Average Retention Ratio = 0.64 * 0.67 = 0.43%  Projected Earnings Per Share =Earning Per Share * Growth In Equity Growth in Equity = Average Retention Ratio * Average Return On Equity = 0.67 * 12.00 = 8.04 Projected Earning Per Share = 11.03 * 8.04 = 88.68  Intrinsic Value = Projected E.P.S * P.E ratio =88.68*0.64 = 56.75

The market price as on 31 January 2008 is 70.45. Since the market price is higher than intrinsic value (56.75), such share is considered to be over priced and this share is not suitable for investment.

MADRAS CEMENTS LTD TABLE 4.1 PAY OUT RATIO YEAR 2008 2007 2006 2005 2004 E.P.S 336.24 251.17 63.31 44.93 26.69 D.P.S 40.00 25.00 15.00 10.01 7.51 Pay Out 0.12 0.10 0.24 0.22 0.28 Ratio Source: Compiled from the audited financial statements of MADRAS CEMENTS for the respective years The table reveals that EPS of Madras Cement shows a steady increase from 26.69 in 2004 to 336.24 in 2008. This is a good boost to build the investors confidence in the company. The DPS shows a steady increase in all years. But pay out ratio is fluctuating all the year, comparing to last year it is increased. This indicates the company had adopted measures for retaining the profits rather than paying out as dividend. This in turn will help the company to have funds accumulated for future growth. CHARTS 4.1 PAY OUT RATIO 0.3

PAY OUT RATIO

0.25 0.2 0.15

PAY OUT RATIO

0.1 0.05 0 2008

2007

2006 YEARS

2005

2004

TABLE 4.2 RETURN ON EQUITY YEAR Share Capital Reserve & Surplus Net Worth

2008 2007 2006 2005 2004 119.0 120.78 120.78 120.78 120.78 9419. 6542.80 3811.00 3227.70 2805.90 5 9538. 6663.58 3931.78 3348.48 2926.68 5 Profit After Tax 4082. 3080.10 790.20 559.24 333.99 9 R.O.E 4.28 4.62 2.01 1.67 1.14 Source: Compiled from the audited financial statements of MADRAS CEMENTS for the respective years TABLE 4.3 PRICE EARNING RATIO YEAR 2008

Market Price 64.25

E.P.S 336.24

P.E Ratio% 0.19

Source: Compiled from the audited financial statements of MADRAS CEMENTS for the respective years TABLE 4.4 RATE OF GROWTH YEAR 2008 2007 2006 2005 204 Sales 2011.03 15735.10 10091.00 7389.80 6953.20 P.A.T 4082.9 3080.10 790.20 559.24 333.99 E.P.S 336.24 251.17 63.31 44.93 26.69 D.P.S 40 25.00 15.00 10.01 7.51 Source: Compiled from the audited financial statements of MADRAS CEMENTS for the respective years

TABLE 4.5 RATIOS YEAR Current Ratio

2008 0.67

2007 0.65

2006 0.53

2005 0.56

2004 0.59

Debt Equity Ratio Net Profit Margin %

1.43

1.21

1.78

2.08

2.35

22.98

19.57

7.83

7.57

4.80

Source: Compiled from the audited financial statements of MADRAS CEMENTS for the respective years The Current Ratio of Madras Cements throughout the period under study is below the benchmark of 2:1. The table indicates that the liquidity and short term solvency of the company is not satisfactory. The Debt Equity Ratio of Madras Cements throughout the period under study is above the maximum limit of 1:1, indicates long term solvency of the firm is satisfactory.

TABLE 4.6 COMPARISON OF SALES TURN OVER OF MADRAS CEMENTS LIMITED YEAR SALES 2008 20110.30 2007 15735.10 2006 10091.00 2005 7389.80 2004 6953.20

Source: Compiled from the audited financial statements of MADRAS CEMENTS for the respective years CHART 4.2 SALESTURN OVER 25000 20000 SALES

15000 10000

SALES

5000 0

2008

2007

2006 YEARS

2005

2004

TABLE 4.7 COMPARISON OF PROFIT AFTER TAX OF MADRAS CEMENTS LTD YEAR 2008 2007 2006 2005 2004

P.A.T(RS.MN) 4082.9 308.01 790.20 559.24 333.99

Source: Compiled from the audited financial statements of MADRAS CEMENTS for the respective years CHART 4.3 PROFIT AFTER TAX 800 700 600 500 PAT 400 P.A.T(RS.MN)

300 200 100 0

2008

2007

2006 YEARS

2005

2004

TABLE 4.8 COMPARISON OF RETURN ONEQUITY YEAR 2008 2007 2006 2005 2004

R.O.E % 4.28 4.62 2.01 1.67 0.14

Source: Compiled from the audited financial statements of MADRAS CEMENTS for the respective years CHART 4.3

ROE

RETURN ON EQUITY 5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0

Series1

2008

2007

2006 YEARS

2005

2004

CALCULATION OF INTRINSIC VALUE OF MADRAS CEMENTS LTD  Average Payout Ratio = 0.12+0.10+0.24+0.22+0.28 5 = 0.19  Average Retention Ratio =1-.19 = 0.81  Average Return On Equity =4.28+4.62+2.01+1.67+1.14 5 =2.74  Normalized P.E Ratio = 0.19  Long Term Growth Rate in Dividend & Earnings =P.E Ratio * Average Retention Ratio = 0.19 * 0.81 = 0.15%  Projected Earnings Per Share =Earning Per Share * Growth In Equity Growth in Equity = Average Retention Ratio * Average Return On Equity = 0.81 * 2.74 = 2.22 Projected Earning Per Share = 336.24 * 2.22 = 746.45  Intrinsic Value = Projected E.P.S * P.E ratio =746.5*0.19

= 141.83

The market price as on 31 January 2008 is( 64.25) Since the market price is lower than intrinsic value (141.83), such share is considered to be under priced and this share is suitable for investment.

INDIA CEMENT LTD TABLE 5.1 PAY OUT RATIO YEAR 2008 2007 2006 2005 2004 E.P.S 22.28 20.64 2.38 0.33 0.00 D.P.S 20.00 26.04 0.00 0.00 0.00 Pay Out 0.89 1.26 0.00 0.00 0.00 Ratio Source: Compiled from the audited financial statements of INDIACEMENTS for the respective years The table reveals that the EPS of India cement Ltd show a steady increase from 0.00 in 2004 to 22.28 in 2008. This is a good boost to build the investors confidence in the company. The DPS and Pay out ratio shows fluctuations in all the years so we cant say any conclusion. CHART 5.1 PAY OUT RATIO 0.4

PAY OUT RATIO

0.35 0.3 0.25 0.2

PAY OUT RATIO

0.15 0.1 0.05 0 2008

2007

2006 YEARS

2005

2004

TABLE 5.2 RETURN ON EQUITY YEAR Share Capital Reserve & Surplus Net Worth Profit After Tax R.O.E

2008 281.87 3039.2 4 3321.11 637.54 19.00

2007 260.37 1948.16

2006 215.77 1527.24

2005 163.59 1111.71

2004 163.59 1197.16

2208.53 478.83 21.68

1743.01 45.31 2.60

1275.30 4.58 0.36

1360.75 -95.93 -7.05

Source: Compiled from the audited financial statements of INDIA CEMENTS for the respective years TABLE 5.3 PRICE EARNING RATIO YEAR 2008

Market Price 102

E.P.S 22.28

P.E Ratio% 0.46

Source: Compiled from the audited financial statements of INDIA CEMENTS for the respective years

TABLE 5.4 RATE OF GROWTH YEAR 2008 2007 2006 2005 2004 Sales 3044.25 22552.10 15417.50 11621.40 10169.00 P.A.T 637.54 478..8 45.31 4.58 -95.93 E.P.S 22.28 20.64 2.38 0.33 0.00 D.P.S 20 26.04 0.00 0.00 0.00 Source: Compiled from the audited financial statements of INDIA CEMENTS for the respective years

TABLE 5.5 RATIOS YEAR Current Ratio

2008 1.88

2007 2.20

2006 1.80

2005 1.61

2004 1.47

Debt Equity Ratio Net Profit Margin %

0.96

1.55

2.81

5.39

4.76

5.64

2.12

0.29

0.04

-0.94

Source: Compiled from the audited financial statements of INDIA CEMENTS for the respective years The current ratio of India cement at present is 1.88 which is below the benchmark of 2:1. This indicates that the liquidity and short term solvency of the company is satisfactory. The debt equity ratio at present is 0.96 which is below the benchmark 1:1, indicates long term solvency of the firm is satisfactory.

TABLE 5.6 YEAR 2008 2007 2006 2005 2004

SALES 3044.25 22552.10 15417.50 11621.40 10169.00

COMPARISON OF SALES TURN OVER OF INDIA CEMENT LIMITED

Source: Compiled from the audited financial statements of INDIA CEMNTS LTD for the respective years

CHART 5.2

SALES TURN OVER 25000 20000 SALES

15000 10000

SALES

5000 0

2008

2007

2006 YEARS

2005

2004

TABLE 5.7 COMPARISON OF PROFIT AFTER TAX OF INDIA CEMENT LTD

YEAR 2008 2007 2006 2005 2004

P.A.T(RS.MN) 637.54 478.83 45.31 4.58 -95.93

Source: Compiled from the audited financial statements of INDIA CEMENTS LTD for the respective years

CHART 5.3

PROFIT AFTER TAX 6000 5000 4000 PAT 3000 P.A.T(RS.MN)

2000 1000 0

2008

2007

2006 YEARS

2005

2004

TABLE 5.8 COMPARISON OF RETURN ON EQUITY YEAR 2008 2007 2006 2005 2004

R.O.E % 19.00 21.68 2.60 0.36 -7.05

Source: Compiled from the audited financial statements of INDIA CEMENTS LTD for the respective years CHART 5.4 RETURN ON EQUITY 45 40 35 ROE

30 25 20

Series1

15 10 5 0 2008

2007

2006 YEARS

2005

2004

CALCULATION OF INTRINSIC VALUE OF INDIA CEMENT LTD  Average Payout Ratio = 0.89+1.26+0.00+0.00+0.00 5 = 0.143  Average Retention Ratio =1-.43 = 0.57  Average Return On Equity =19.00+21.68+17.33+2.60+.36 4 =10.91  Normalized P.E Ratio = 0.46  Long Term Growth Rate in Dividend & Earnings =P.E Ratio * Average Retention Ratio = 0.46 * 0.57 = 0.26%  Projected Earnings Per Share =Earning Per Share * Growth In Equity Growth in Equity = Average Retention Ratio * Average Return On Equity = 0.57 * 10.91 = 6.21 Projected Earning Per Share = 22.28 * 6.21 = 138.36  Intrinsic Value

= Projected E.P.S * P.E ratio =138.36*0.46 = 63.64

The market price as on 31 January 2008 is 70.45. Since the market price is higher than intrinsic value (56.75), such share is considered to be over priced and this share is not suitable for investment.

FINDINGS AND SUGGESTIONS

FINDINGS ACC LTD  By analyzing the fundamental aspects, it can be seen that the intrinsic value of this security is higher than its market price. In such situation it is optimum to buy the share. This under priced share is suitable for investment.  The Current Ratio of ACC Ltd for 2008 is 1.00, which is below the benchmark of 2:1. This indicates that the liquidity and short term solvency of the company is not satisfactory.

 The present Debt Equity Ratio is 0.18, indicating that the company is, below the maximum limit of 1:1, indicates long term solvency of the firm is satisfactory. The increase in EPS & ROE indicates that the profitability of the company is growing.  The Net Profit Ratio, a good indicator of Profitability, is showing an increasing trend over the years (2004 – 2007) ie, 6.11 to 23.56 indicates that the profitability of the company is growing.

GRASIM INDUSTRIES LIMITED  The Current Ratio of Grasim Cement for 2008 is 0.90, which is below the benchmark of 2:1. This indicates that the liquidity and short term solvency of the company is not satisfactory.  The present Debt Equity ratio is 0.43, indicating that the company is, below the maximum limit of 1:1, indicates long term solvency of the firm is satisfactory.

 The Net Profit Ratio, a good indicator of profitability, is showing an increasing trend over the years (2004 – 2008) ie, 14.94 to 20.15 indicates that the profitability of the company is growing.  As the intrinsic value of the scrip is having very much difference with current market price, it is recommended to buy. If the investment is already done, the

shares are recommended to hold on. As the industry is performing well so this share are highly recommended.

GUJARATH AMBUJA CEMENTS LIMITED.  The Current ratio of Ambuja Cement for 2008 is 1.05, which is below the benchmark of 2:1. this indicates that the liquidity and short term solvency of the company is not satisfactory.  The present Debt equity Ratio is 0.15, indicating that the company is above the maximum limit of 1:1, indicates long term solvency of the firm is satisfactory.

 The Net Profit Ratio, a good indicator of profitability, is showing an increasing trend over the years 2004 – 2008 ie,12.80 to 29.67 indicates that the profitability of the company is growing.  The intrinsic value of the share is higher than the market price. Such share is considered to be under priced and is not suitable for investment, and if already bought, such shares are recommended to sell soon. MADRAS CEMENT LIMITED.  The Current ratio of Madras Cement for 2008 is 0.67, which is below the benchmark 2:1. This indicates that the liquidity and short term solvency of the company is not satisfactory.  The present Debt equity Ratio is 1.43, indicating that the company is above the maximum limit of 1:1, indicates long term solvency of the firm is not satisfactory.

 The net profit ratio, a good indicator of profitability, is showing an increasing trend over the years (2004-2008) ie, 4.80 to 22.98 indicates that the profitability of the company is growing.  The market price of the share is lower than the intrinsic value; hence the share is suitable for investment.

INDIA CEMENTS LIMITED  The current ratio of India Cement for 2008 is 1.88, which is below the benchmark of 2:1. This indicates that the liquidity and short term solvency of the company is not satisfactory.  The present Debt Equity Ratio is 0.96, indicating that the company is above the maximum limit of 1:1, indicates long term solvency of the firm is satisfactory.

 The Net Profit Ratio, a good indicator of profitability, is showing an increasing trend over the years (2004 – 2008) ie,-0.94 to 5.64 indicates that profitability of the company is growing.  By analyzing the fundamental aspects, it can be seen that the intrinsic value of this security is lower than its market price. In such situation it is optimum to sell the share. This overpriced share is not suitable for investment.

SUGGESTIONS  Current Ratio was below the bench mark 2:1, the firm finds it difficult to pay its current liability out of current assets. It can be said that the liquidity position is unfavourable. By increasing the current and working capital the firm’s liquidity can be made favourable  By analyzing the fundamental aspects, it can be seen that intrinsic value of some securities are lower than its market price. In such situations it is optimum to sell thee share. The overpriced share is not suitable for investment.  By this analysis, it is not good to invest in Ambuja Cements and The India Cements because these shares are overpriced as on 22/01/2009.

 It is better to hold and invest in ACC Ltd, Grasim Industries Ltd, Madras cement because its EPS, ROE, Net Profit etc have a significant and steady growth over the years. Also these are under priced shares. They also keep a favourable liquidity. These are good to build the investors confidence in these companies.

CONCLUSION

CONCLUSION The fundamental analysis is focusing on intrinsic value of shares which are effective use of trading strategies is a guide line for investors to avoid risk and get more return. But some care has been taken to avoid risk and get more return. But some care has been taken to make the study of market situation. Adequate effort is taken is minimized and discrepancy arise through technical problem. It is considered that these could be helpful in getting a general idea on using intrinsic values of shares by the traders. From the analysis it was inferred that each security has got the potential to produce more return than the market index. All most all of the securities were more volatile to the market risk. Financial year of 2008 witnessed better times for India cement companies with strong growth being registered by India inc. This pushed the economy into a higher growth trajectory of 8.52% GDP growth, leading to improvement in infrastructural spending by Government as well as private sector companies will boost the growth.

BIBLIOGRAPHY