chsp 5 industry analysis

7/31/2019 Chsp 5 Industry Analysis

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Sectoral

AUTO 10386.45 10449.14 10232.45 10275.31 10829.10 7894.04 318578.58 4.90 58.36 1.70

BANKEX 13146.96 13219.06 12992.88 13104.89 13235.92 8947.37 671153.73 10.32 314.97 9.15

CD 6685.25 6743.77 6644.65 6732.06 6997.02 5062.96 47968.49 .74 36.90 1.07

CG 10933.73 11032.58 10843.57 10894.69 11615.08 7806.90 264321.10 4.06 136.45 3.96

FMCG 5221.86 5333.12 5207.74 5314.31 5481.40 3776.19 470865.92 7.24 292.74 8.51

HC 7346.79 7402.05 7339.92 7378.64 7794.11 5757.37 289437.60 4.45 57.41 1.67

IT 5962.69 6004.89 5950.51 5973.85 6361.42 5059.62 591652.74 9.10 105.27 3.06

METAL 10697.11 10769.70 10540.62 10563.01 12910.54 9191.03 577935.25 8.88 92.78 2.70

OIL&GAS 8718.28 8774.95 8656.84 8708.99 9282.81 7336.16 769323.76 11.83 174.84 5.08

POWER 2056.14 2065.92 2019.66 2033.49 2416.29 1725.21 443445.15 6.82 193.09 5.61

PSU 7479.54 7524.41 7394.13 7425.77 8062.60 6204.05 1647761.28 25.33 326.50 9.49

REALTY 1808.42 1859.77 1782.26 1840.77 2212.31 1347.79 82269.80 1.26 106.65 3.10

TECk 3443.43 3457.08 3428.34 3441.49 3739.40 3062.51 809721.02 12.45 150.38 4.37

Category/Index

Open High Low Close52 Week

Full MarketCapitalisation

Turnover

High Low ( Cr. )% to TotalMkt Cap

( Cr. )% to TotalTurnover
http://beta.bseindia.com/indices/indiceswatch.aspx?iname=AUTO&sensid=19&type=sect&graphpath=/applet/images/graf_appAUTO.gifhttp://beta.bseindia.com/indices/indiceswatch.aspx?iname=BANKEX&sensid=03&type=comp&graphpath=/applet/images/graf_appBANKEX.gifhttp://beta.bseindia.com/indices/indiceswatch.aspx?iname=BSECD&sensid=04&type=sect&graphpath=/applet/images/graf_appBSE_CD.gifhttp://beta.bseindia.com/indices/indiceswatch.aspx?iname=BSECG&sensid=02&type=sect&graphpath=/applet/images/graf_appBSE_CG.gifhttp://beta.bseindia.com/indices/indiceswatch.aspx?iname=BSEFMCG&sensid=06&type=sect&graphpath=/applet/images/graf_appBSEFMC.gifhttp://beta.bseindia.com/indices/indiceswatch.aspx?iname=BSEHC&sensid=08&type=sect&graphpath=/applet/images/graf_appBSE_HC.gifhttp://beta.bseindia.com/indices/indiceswatch.aspx?iname=BSEIT&sensid=10&type=sect&graphpath=/applet/images/graf_appBSE_IT.gifhttp://beta.bseindia.com/indices/indiceswatch.aspx?iname=METAL&sensid=12&type=sect&graphpath=/applet/images/graf_appMETAL.gifhttp://beta.bseindia.com/indices/indiceswatch.aspx?iname=OILGAS&sensid=14&type=sect&graphpath=/applet/images/graf_appOILGAS.gifhttp://beta.bseindia.com/indices/indiceswatch.aspx?iname=POWER&sensid=15&type=sect&graphpath=/applet/images/graf_appPOWER.gifhttp://beta.bseindia.com/indices/indiceswatch.aspx?iname=BSEPSU&sensid=01&type=comp&graphpath=/applet/images/graf_appBSEPSU.gifhttp://beta.bseindia.com/indices/indiceswatch.aspx?iname=REALTY&sensid=091&type=sect&graphpath=/applet/images/graf_appREALTY.gifhttp://beta.bseindia.com/indices/indiceswatch.aspx?iname=TECK&sensid=02&type=comp&graphpath=/applet/images/graf_appTECK.gifhttp://beta.bseindia.com/indices/indiceswatch.aspx?iname=TECK&sensid=02&type=comp&graphpath=/applet/images/graf_appTECK.gifhttp://beta.bseindia.com/indices/indiceswatch.aspx?iname=REALTY&sensid=091&type=sect&graphpath=/applet/images/graf_appREALTY.gifhttp://beta.bseindia.com/indices/indiceswatch.aspx?iname=BSEPSU&sensid=01&type=comp&graphpath=/applet/images/graf_appBSEPSU.gifhttp://beta.bseindia.com/indices/indiceswatch.aspx?iname=POWER&sensid=15&type=sect&graphpath=/applet/images/graf_appPOWER.gifhttp://beta.bseindia.com/indices/indiceswatch.aspx?iname=OILGAS&sensid=14&type=sect&graphpath=/applet/images/graf_appOILGAS.gifhttp://beta.bseindia.com/indices/indiceswatch.aspx?iname=METAL&sensid=12&type=sect&graphpath=/applet/images/graf_appMETAL.gifhttp://beta.bseindia.com/indices/indiceswatch.aspx?iname=BSEIT&sensid=10&type=sect&graphpath=/applet/images/graf_appBSE_IT.gifhttp://beta.bseindia.com/indices/indiceswatch.aspx?iname=BSEHC&sensid=08&type=sect&graphpath=/applet/images/graf_appBSE_HC.gifhttp://beta.bseindia.com/indices/indiceswatch.aspx?iname=BSEFMCG&sensid=06&type=sect&graphpath=/applet/images/graf_appBSEFMC.gifhttp://beta.bseindia.com/indices/indiceswatch.aspx?iname=BSECG&sensid=02&type=sect&graphpath=/applet/images/graf_appBSE_CG.gifhttp://beta.bseindia.com/indices/indiceswatch.aspx?iname=BSECD&sensid=04&type=sect&graphpath=/applet/images/graf_appBSE_CD.gifhttp://beta.bseindia.com/indices/indiceswatch.aspx?iname=BANKEX&sensid=03&type=comp&graphpath=/applet/images/graf_appBANKEX.gifhttp://beta.bseindia.com/indices/indiceswatch.aspx?iname=AUTO&sensid=19&type=sect&graphpath=/applet/images/graf_appAUTO.gif


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Current Price : Rs. 91.45**Face Value : Rs. 10 per share52 wk High / Low : Rs. 203.30 / Rs.65.30Total Traded Volumes : 704 shares**Market Cap : Rs. 204 crore**Sector : Construction &

EngineeringEPS (FY2012) : Rs. 2.68 per shareP/E (TTM) : 25.44 (x)^P/BV (TTM) : 0.42 (x)^Financial Year End : 1st April 31stMarch

BSE Scrip Name : SHRISTIBSE Scrip Code : 511411**as on 17th September, 2012; ^ ason June 2012

Shristi Infrastructure DevelopmentCorporation Ltd (SIDCL) commencedcommercial operationsin 1999 with headquartered in Kolkatta.

The company undertakes

infrastructureconstruction, infrastructuredevelopment as well as infrastructureconsultancy.

In construction space, the companybuilds roads, hotels, buildings andurban water systems.

Under infrastructure development,Shristi has undertaken projects likeintegrated townships, healthcare,hospitality, retail malls, logistics

hub, entertainment & sports facilities,commercial & residential complex,industrial park & SEZs.

It has a joint venture with Housingand Urban Development CorporationLimited (HUDCO), Asansol Durgapur

Development Authority, WestBengal etc.


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INDUSTRY ANALYSIS

Direction of Change for overall market neednot necessarily lead to similar changes in allindustry groups

Heavy goods industries( automobiles, rubber,steel, glass etc.) fare worse in economicrecession than do consumer goods industries &

services (food, telephone, power , banks)Individual companies


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Industry Analysis

Demands Key sectors or subdivisions of overalleconomic activity that influence

particular industries Relative strength or weakness of

particular industry or other

groupings under specific sets ofassumptions about economic activity


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Industry Performance Wide dispersion in rates of return indifferent industries

Performance varies from year to year Company performance varies within

industries

Risks vary widely by industry but arefairly stable over time


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Classification of Industries Distinct group of productive or profit making

enterprises- Product or Service chemical, airline, restaurant

etc.- Sensitiveness to Economic Activity cyclical,

defensive, and growth industry.- Cyclical industrys performance tends to bepositively related to economic activity automobile, homebuilders, paper companies etc.

- Defensive industries are pharmaceuticals

industries, electric & gas utilities- Growth industries are characterized by rapid

growth in sales and earnings


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Key Characteristics in Industry Analysis

Past Sales and earnings Performance Permanence Attitude of Government toward the

industry Labour Conditions Competitive Conditions Product

Differentiation Advantage, AbsoluteCost Advantage, Economies of Scale


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Standard Industrial

Classification (SIC) System classification based on what they

produce.

11 broad divisions; within eachdivision there are several majorindustry groups. Major groups within

each division are further subdividedinto smaller groups


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Evaluating the Industry

Life CycleFive Stage Model Pioneering development

Rapidly accelerating industry growth

Mature industry growth

Stabilization and market maturity Deceleration of growth and decline


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Industry Life Cycle

Pioneering Growth Stabilization DeclineStage Stage Stage Stage

Time

Sales

Rapid growthTech/Product New

Great OpportunityFor profitFew may surviveRiskiest

Significant

Expansionin SalesRate of growthmoderateCapital basewidened &strengthened

ModertaegrowthProductsbecomestandardised& lessinnovativeMarket full

ofcompetitorsBetter todisposeshares

Industry turn outto be in lossCos become

obsolete anddisappearSome that realizein advance enterinto new ventures


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Ranbaxy laboratories

Dr Reddy Lab.

CIPLA

Cadila Health Care


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Lupin Mereck

Pfizer Novartis


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Tata Tele 52 weeks H/L18.25/10.5

Day's High / Low 12.00 / 11.67

Previous Close /

Open 11.53 / 11.75

Wtd. Avg Price 11.88

Total Traded Value(Lakh)

31.46

TTQ / 2W Avg Q

(Lakh)2.65 / 8.34

Circuit Limits 13.83 / 9.23

Mkt. Cap. Full / Free Float (Cr.)

2,248 / 562

(in Cr.) Jun-12 Mar-12 FY11-12Revenue 659.48 651.51 2,488.44Net Profit -162.66 -123.40 -517.55

EPS -0.86 -0.65 -2.73Cash EPS -0.09 0.10 0.14OPM % 20.25 22.61 21.98NPM % -24.66 -18.94 -20.80

Bharti Air Tel 52 Weeks H/L412/238

Day's High / Low 267.00 / 264.30

Previous Close / Open 261.45 / 265.50


Total Traded Value (Cr.) 2.78

TTQ / 2W Avg Q (Lakh) 1.05 / 4.69


Mkt. Cap. Full / Free

Float (Cr.) 1,00,900 / 35,315

(in Cr.) Jun-12 Mar-12 FY11-12

Revenue 10,980.60 10,757.20 41,603.80Net Profit 1,470.00 1,574.30 5,730.00EPS 3.87 4.15 15.09Cash EPS 8.22 8.19 30.67OPM % 35.19 34.36 34.30NPM % 13.39 14.63 13.77


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RelianceCommunications

52 Weeks H/L 109.7/46.7

Day's High / Low 65.30 / 63.60

Previous Close / Open 63.75 / 64.70


Total Traded Value (Cr.) 7.49

TTQ / 2W Avg Q (Lakh) 11.61 / 33.49


Mkt. Cap. Full / FreeFloat (Cr.)

13,261 / 4,641(in Cr.) Jun-12 Mar-12 FY11-12Revenue 2,616.00 2,645.00 11,110.00Net Profit -252.00 804.00 156.00

EPS -1.22 3.90 0.76Cash EPS 1.14 6.35 9.19OPM % 27.18 65.22 28.45NPM % -9.63 30.40 1.40


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Stabilization and Decline StageOccurs due to various reasons such

as Change in Social Habits Government Regulations

Improved Technology Labour Cost


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The Business Cycle and

Industry Sectors Economic trends can and do affectindustry performance

By identifying and monitoring keyassumptions and variables, we canmonitor the economy and gauge the

implications of new information onour economic outlook and industryanalysis


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Industry Sectors Cyclical or Structural Changes Cyclical changes in the economy arise

from the ups and downs of the businesscycle

Structure changes occur when theeconomy undergoes a major change inorganization or how it functions

Rotation strategy is when one switches fromone industry group to another over the courseof a business cycle


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Industry Sectors Economic Variables and DifferentIndustries

Inflation Interest Rates

International Economics

Consumer Sentiment

Th St k M k t d


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The Stock Market andthe Business Cycle

Th St k M k t d


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trough

peak

Th St k M k t d


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Financial

Stocks Exceltrough

peakConsumerDurables

Excel

cars , PC,

Refrigerator

Capital Goods

Excel Machine

tools, airplane,

equipment

Basic

Industries

Excel oil ,

metal, timber

ConsumerStaples Excel

Pharma,

Food


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Performance of the BANKEX: During the period between 1 Jan 2002 and 13 June 2003, the total

market capitalization of BANKEX stocks has increased from 22970 cr.to 55283 cr. while the total market capitalization of BSE TECk indexstocks has fallen from 105956 cr. to 80787 cr. and that of FMCGIndex stocks from 87637 cr. to 75947 cr. During this period,

BANKEX rose by 62 percent showing impressive gains among othermajor indices. The average daily volatility of BANKEX from itsinception to date has been 1.38% as compared to 2.24% for BSE TECkand 1.06% for BSE FMCG Index for the same period.


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Quantitative Aspects of IndustryAnalysis

Competition Product Differentiation;Absolute Cost Advantage; Economies ofScale

Industry

Competitors

Rivalry Among

Them

Potential Entrants

Sellers Buyers

Substitutes

Threat of New Entrants

Threat of Substitute Products

BargainingPower of

Buyers

BargainingPower of

Sppliers

Porters 5 Force Model


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Structural Economic Changes andAlternative Industries

Social Influences Demographics

Lifestyles

Technology Politics and regulations

Economic reasoning

Fairness Regulatory changes affect numerous

industries

Regulations affect international commerce


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Analysis of Industry

CompetitionCompetition and Expected IndustryReturns Porters concept of competitive strategy is

described as the search by a firm for afavorable competitive position in an industry

To create a profitable competitive strategy,a firm must first examine the basic

competitive structure of its industry The potential profitability of a firm isheavily influenced by the profitability of itsindustry


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Competitive Structure of

an Industry Porters Competitive Forces Rivalry among existing

competitors Threat of new entrants

Threat of substitute products Bargaining power of buyers

Bargaining power of suppliers

Estimating Industry Rates of


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Estimating Industry Rates ofReturn

Present value using required rate of return for theequity in the industry

Two-step P/E ratio approach uses expected value at theend of investment horizon and compute the expected

dividend return during the period Valuation using the reduced form DDM

gk

DPi

1Pi = the price of industry i at time tD

1= the expected dividend for industry i in period 1 equal

toD0(1+g)

k = the required rate of return on the equity for industry i

g = the expected long-run growth rate of earnings and

dividend for industry i


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Estimating the Required Rate

of Return Influenced by the risk-free rate Expected inflation rate

Risk premium for the industry versus the market

business risk (BR)

financial risk (FR)

liquidity risk (LR)

exchange rate risk (ERR) country political risk (CR)

stimating t e xpecte Growt


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stimating t e xpecte GrowtRate

Earnings and dividend growth are determinedby the retention rate and the return onequity

Earnings retention rate of industrycompared to the overall market

Return on equity is a function of

the net profit margin total asset turnover a measure of financial leverage


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Industry Valuation Using the Free CashFlow to Equity (FCFE) Model

FCFE is defined as follows:Net income

+ Depreciation

- Capital expenditures- D in working capital

- Principal debt repayments

+ New debt issues


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Industry Valuation Using the Free

Cash Flow to Equity (FCFE) Model The Constant Growth FCFE Model

The Two-Stage Growth FCFE Model

gkFCFEV

1


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The Earnings Multiple Technique Estimating earnings per share

start with forecasting sales per share Industrial life cycle Input-output analysis Industry-aggregate economy relationship

earnings forecasting and analysis ofindustry competition competitive strategy competitive environment

industry operating profit margin industry earnings estimate industry earnings multiplier


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Industry Profit Margin Forecast

Industrys operating profit margin(EBITDA / Sales)

Depreciation expense

interest expense

tax rate


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Quantitative Aspects of

Industry Analysis Historical Performance Government Regulations

Labour Conditions Performance

External Shocks

Financial Issues Industry Share Price Valuation


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Quantitative Aspects of

Industry Analysis End use Analysis - Technique used toidentify sources of demand for anindustrys products or services and howdemand is going to change for each user

Ratio Analysis It divides dates byaggregate economic data over a periodof time and examines the result fortrends

Regression and correlation Analysis determines relationship between two ormore variables whereas correlationanalysis determines the degree to which

two variables are related to one another


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Depreciation expense Generally increasing time series

Specific estimate technique using the

depreciation expense/PE ratio Subtract depreciation from operating

profit margin to determine industrys net

before interest and taxes


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Interest expense is a function of financial leverageand interest rates

1. Calculate the annual total asset turnover (TATO)

2. Use your current sales estimate and an estimateof TATO to estimate total assets next year

3. Calculate the annual long-term (interest bearing)debt as a percent of total assets,

4. Estimate long-term debt for the next year


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Interest expense (cont.)5. Calculate the annual interest cost as apercent of long-term debt and analyze the

trend6. Estimate next years interest cost ofdebt for this industry based upon yourprior estimate of market yields

7. Estimate interest expense based on thefollowing estimates: (Interest Cost ofDebt) (Outstanding Long-Term Debt)


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Tax rate Regression analysis

Time series plot

After estimating the tax rate, multiply the EBTper share value by (1 - tax rate) to estimateearnings per share

Derive an estimate of industrys net profit

margin as a check on your EPS estimate

stimating an In ustry arnings


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stimating an In ustry arningsMultiplier

Macroanalysis relationship between multiplier for theindustry and the market

variables that influence the multiplier: required rate of return (k)

function of the nominal risk-free rate plus arisk premium

expected growth rate of earnings anddividend

dividend payout ratio


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Estimating an Industry Earnings

Multiplier Microanalysis Estimate the variables that influence the industry

earnings multiplier and compare them to the

comparable values for the market P/E Industry multiplier versus the market multiplier Comparing dividend-payout ratios Estimating the required rate of return (k)

Estimating the expected growth rate (g)g = Retention Rate (b) X Return on Equity (ROE)= (b) X (ROE)


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Simple Linear Regression

Linear regression analysis establishes arelationship between a dependent variableand one or more independent variables.

In simple linear regression analysis there

is only one independent variable. If the data is a time series, the

independent variable is the time period.

The dependent variable is whatever wewish to forecast.


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Simple Linear Regression Regression Equation

This model is of the form:

Y = a + bX

Y = dependent variable

X = independent variablea = y-axis intercept

b = slope of regression line


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Constants a and bThe constants a and b are computedusing the following equations:

2

2 2

x y- x xya =

n x -( x)

2 2

xy- x yb =

n x -( x)

n


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Simple Linear Regression Once the a and b values arecomputed, a future value of X can be

entered into the regression equationand a corresponding value of Y (theforecast) can be calculated.


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Example: Share Price

ABC Ltd. Simple Linear RegressionPrice of the share has grown steadilyover the past six years, as evidenced below. Use timeseries regression to forecast the price for the next three

years.

Price PriceYear (1000s) Year (1000s)

1 2.5 4 3.22 2.8 5 3.33 2.9 6 3.4


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Example: ABC Price Simple Linear Regression

x y x2 xy1 2.5 1 2.52 2.8 4 5.63 2.9 9 8.74 3.2 16 12.8

5 3.3 25 16.56 3.4 36 20.4Sx=21 Sy=18.1 Sx2=91 Sxy=66.5


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Y = 2.387 + 0.180X

2

91(18.1) 21(66.5)

2.3876(91) (21)a

6(66.5) 21(18.1)0.180

105

b


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Y7 = 2.387 + 0.180(7) = 3.65 or 3,650 students

Y8 = 2.387 + 0.180(8) = 3.83 or 3,830 studentsY9 = 2.387 + 0.180(9) = 4.01 or 4,010 students

Note: Enrollment is expected to increase by 180students per year.


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Simple Linear Regression Simple linear regression can also beused when the independent variable

X represents a variable other thantime.

In this case, linear regression isrepresentative of a class offorecasting models called causalforecasting models.

ff f


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Coefficient of

Correlation (r) The coefficient of correlation, r, explains therelative importance of the relationship betweenx and y.

The sign of r shows the direction of therelationship.

The absolute value of r shows the strength ofthe relationship.

The sign of r is always the same as the sign ofb.

r can take on any value between 1 and +1.

ff f


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Coefficient of

Correlation (r) Meanings of several values of r:-1 a perfect negative relationship (as xgoes

up, ygoes down by one unit, and vice versa)+1 a perfect positive relationship (as xgoes up,ygoes up by one unit, and vice versa)

0 no relationship exists between xand y

+0.3 a weak positive relationship-0.8 a strong negative relationship

ff f


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Coefficient of

Correlation (r) r is computed by:

2 2 2 2( ) ( )

n xy x yr

n x x n y y

C ffi i f


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Coefficient of

Determination (r2

) The coefficient of determination, r2,is the square of the coefficient of

correlation. The modification of rto r2 allows usto shift from subjective measures ofrelationship to a more specificmeasure.

r2 is determined by the ratio ofexplained variation to total variation:

2

2

2( )( )Y yry y

chsp 5 industry analysis

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