BUSINESS ANALYTICS

Group No.-8

SANTOSH, PREM SAGAR & ANIMESH

BUSINESS ANALYTICS

SECURITY ANALYSIS & PORTFOLIO MANAGEMENT

2

CONTENTS

Introduction about Engineers India Limited

3-4

Collection of Historical Stock Price of E.I.L

4

Calculation of Historical Return and Historical risk of EIL’s Stock and interpretation

5

Collection of Suitable Market Return for the same period

6

Calculations of average monthly market return, historical variance and standard

deviation of the market

6-7

Calculation of beta of the stock and co-variance

7

Calculation and Explanation about the systematic risk and unsystematic risk of the

company

8-9

Characteristic Line between stock and market

9-10

Investment in Portfolio with risk free asset and calculation of portfolio return and risk,

Interpretation

11-12

Introduction of negative correlation stock (JSW Ispat Steel limit)

12-14

Calculation of Historical Return, risk,variance, correlation and co-variance of JSW Ispat

steel’s Stock:

15-16

Portfolio return, risk and result of the diversified portfolio

16-17

Statistics of Stocks return and Market movement

17

Analysis part of company’s sales and expected growth of return

18-22

CONCLUSION AND FUTURE PERFORMANCE

22-23

3

Introduction:-

Engineers India Limited

Engineers India Limited (EIL) was set up in 1965 to provide engineering and related technical services for

petroleum refineries and other industrial projects. EIL is working under the administrative control of Ministry

of Petroleum and Natural Gas (MoP&NG), Government of India. In addition to Petroleum Refineries, with

which EIL started initially, over the years it has diversified and excelled in various other fields. EIL today has

emerged as Asia’s leading design, engineering and turnkey contracting company providing a complete range of

project services needed to conceptualize, plan, design, engineer and construct projects to meet the specific

requirements of its clients in the following fields:

Petroleum Refining

Petrochemicals

Pipelines

Offshore Oil & Gas

Onshore Oil & Gas

Terminals & Storages

Mining & Metallurgy

Infrastructure

EIL is capable to provide services from concept to commissioning in all the sectors listed above and its

association with clients extend beyond the commissioning of their plants through monitoring the operation of

each plant and accumulating feedback on its performance. EIL can provide its services in the following modes:

a) Project Implementation Services (EPCM) such as Conceptual Studies, Feasibility Studies, Detailed

Project Reports, FEED Package, Basic Design Engineering Package (BDEP) Project Management, Planning &

Scheduling, Cost Engineering, Process Design, Detailed Engineering, Procurement Services, Construction

Management & Supervision, Commissioning and plant start‐up assistance etc.

b) Project Management Consultancy (PMC) Services

c) Specialist Services such as Heat & Mass Transfer Equipment Design, Engineering & Technology

Development and Design, Environmental Engineering, Information Technology Services, Specialist Materials

and Maintenance Services, Energy Conservation Services, Plant Operations & Safety including HAZOP

Studies, Safety Integrity Levels (SIL) studies and Risk Analysis, Yield and Energy and Optimisation Studies.

d) Engineering, Procurement & Construction (EPC) / Lump sum Turnkey (LSTK) Contracts

e) Open Book converted LSTK Projects

EIL has been involved in setting up of almost all the large projects that have come up in India in the Oil & Gas

Sector in the last four decades and has also successfully executed several assignments in the middle‐east and

south‐east Asia. EIL has to its credit more than 400 major projects successfully completed and operating

smoothly at the rated capacity, creating an array of satisfied clients.

In the course of setting up various projects, EIL has worked with a large number of process licensors and

4

engineering/construction/contracting companies worldwide and is well versed with the latest engineering codes

and practices followed internationally.

EIL is a strong technology based and technology oriented company and has developed extensive data bank,

computerized design tools, flexible yet integrated project control systems.

Stock Details of the E.I.L. is as follows;

Mkt.cap.

(crs.) 8025.83 Price

/book

3.86 Dividend 100% Div Yield (%) 2.10

Book

value(Rs.)

61.69 Face

value

5.00 Industry P/E 12.36 52 Weeks

(High-Low)

294.80-195.00

EPS(TTM) 18.89 P/E 12.61 P/C 12.24

Part-I,

(A) Collection of Historical Stock Price of E.I.L;

HISTORICAL STOCK PRICES

Company: Engineers India Limited

Period:-(June-2011 to May-2012)

Month

Open High Low Close No. of No. of Total

Turnover * Spread

Price Price Price Price Shares Trades (Rs.) (Rs.)

H-

L C-O

Jun-11 266 290.9 261 274.1 6,21,342 15,991 17,29,69,469 29.9 8.1

Jul-11 276.9 294.8 274 286.15 5,46,287 14,425 15,60,67,598 20.8 9.25

Aug-11 290.7 294 252.1 253.4 7,25,033 11,911 19,11,23,992 41.9 -37.3

Sep-11 253 270 245 247.05 5,06,583 15,484 13,03,83,219 25 -5.95

Oct-11 245.1 250 231.1 241.55 3,59,627 8,675 8,74,13,129 19 -3.55

Nov-11 243.1 253.7 203.1 211.85 6,71,291 10,844 15,86,08,028 50.7 -31.3

Dec-11 216.1 220.1 195 205.65 3,23,572 12,408 6,64,55,909 25.1 -10.5

Jan-12 208 248 201 230.85 26,56,953 66,252 61,60,15,723 47 22.85

Feb-12 232 288.5 230 272.8 30,53,172 68,038 80,99,55,937 58.5 40.8

Mar-12 274.8 284.2 251 254 13,77,044 24,026 36,94,20,619 33.2 -20.8

Apr-12 255 266 245.1 251.95 5,36,693 9,349 13,97,06,863 21 -3.05

May-12 254 257.6 220.4 221.3 2,42,043 9,948 5,63,13,776 37.2 -32.7

5

(B) Calculation of Monthly Return of E.I.L;

Calculation of Historical Return and Historical risk of EIL’s Stock:

S.NO MONTHS

O/P PRICE C/S

PRICES RETURN

Mean

return R-¯R (R-¯R)2

1 Jun-11 266 274.1 3.045112782 -1.7503 4.79541 22.99595

2 Jul-11 276.9 286.15 3.340556157 -1.7503 5.090853 25.91679

3 Aug-11 290.7 253.4 -12.8310973 -1.7503 -11.0808 122.7841

4 Sep-11 253 247.05 -2.35177865 -1.7503 -0.60148 0.36178

5 Oct-11 245.1 241.55 -1.44838841 -1.7503 0.301909 0.091149

6 Nov-11 243.1 211.85 -12.8547922 -1.7503 -11.1045 123.3098

7 Dec-11 216.1 205.65 -4.83572420 -1.7503 -3.08543 9.519861

8 Jan-12 208 230.85 10.98557692 -1.7503 12.73587 162.2025

9 Feb-12 232 272.8 17.58620691 -1.7503 19.3365 373.9004

10 Mar-12 274.8 254 -7.56914119 -1.7503 -5.81884 33.85895

11 Apr-12 255 251.95 -1.19607843 -1.7503 0.554219 0.307158

12 May-12 254 221.3 -12.8740157 -1.7503 -11.1237 123.7371

Total return: -21.0035635

∑(R-

¯R)2

998.9856

(C) Avg. Monthly return = -21.0035635/12

= -1.750297 %

(D)

Standard deviation(σ2) =

=

= ± 9.529788%

According to above standard deviation and Avg. return the range of Return will be -11.28 % to 7.78 %.

It means in worst situation stock will give us 11.28 % negative return and in best circumstances stock

will give us 7.78 % positive return.

Historical Variance = σ2

= 90.816872 %

(E)

Collection of Suitable Market Return for the same period;

6

HISTORICAL MARKET MOVEMENT

Indices :BSE 200

For the period: June 2011 to May 2012

Month Open High Low Close P/E P/B.V. Dividend Yield

June 2011 2,303.82 2,319.15 2,155.87 2,314.65 18.26 3.61 0.98

July 2011 2,325.75 2,361.08 2,253.99 2,256.48 18.51 3.22 1.31

August

2011 2,269.53 2,284.75 1,955.28 2,061.08 16.60 2.96 1.43

September

2011 2,086.41 2,131.58 1,968.11 2,028.27 16.42 2.92 1.46

October

2011 2,011.86 2,167.52 1,947.72 2,155.58 16.31 2.89 1.47

November

2011 2,141.49 2,163.27 1,880.74 1,953.03 17.30 2.84 1.50

December

2011 1,991.63 2,053.99 1,819.80 1,850.89 16.79 2.69 1.58

January

2012 1,857.46 2,102.54 1,835.84 2,097.94 17.36 2.81 1.53

February

2012 2,096.51 2,289.67 2,087.61 2,190.92 19.08 3.09 1.38

March 2012 2,186.05 2,237.66 2,092.37 2,157.89 18.82 3.04 1.41

April 2012 2,161.45 2,197.57 2,100.07 2,136.82 18.63 2.79 1.56

May 2012 2,148.08 2,150.62 1,953.17 2,003.10 17.42 2.50 1.71

(F)

Calculations of average monthly market return, historical variance and standard

deviation;

S.NO MONTHS

O/P

PRICE

C/S

PRICES RETURN

Mean

return R-¯R (R-¯R)2

1 Jun-11 2,303.82 2,314.65 0.470089 -1.24417 1.714259 2.938683

2 Jul-11 2,325.75 2,256.48 -2.978394 -1.24417 -1.73422 3.007533

3 Aug-11 2,269.53 2,061.08 -9.184721 -1.24417 -7.94055 63.05235

4 Sep-11 2,086.41 2,028.27 -2.786605 -1.24417 -1.54243 2.379105

5 Oct-11 2,011.86 2,155.58 7.143638 -1.24417 8.387808 70.35533

6 Nov-11 2,141.49 1,953.03 -8.800415 -1.24417 -7.55624 57.09683

7 Dec-11 1,991.63 1,850.89 -7.066574 -1.24417 -5.8224 33.90038

8 Jan-12 1,857.46 2,097.94 12.94671 -1.24417 14.19088 201.3811

9 Feb-12 2,096.51 2,190.92 4.503198 -1.24417 5.747368 33.03224

10 Mar-12 2,186.05 2,157.89 -1.288168 -1.24417 -0.044 0.001936

11 Apr-12 2,161.45 2,136.82 -1.139513 -1.24417 0.104657 0.010953

12 May-12 2,148.08 2,003.10 -6.749283 -1.24417 -5.50511 30.30627

Total return: -14.93003 ∑(R- 497.4628

7

¯R)2

Standard deviation (σ2) =

=

= ± 6.7248710700%

Historical Variance = σ2

= 45.22389090%

Like our stock Market Avg. return is also negative as -1.24417. So, we can say that there is a positive

correlation between Stock and Market return. Here the standard deviation of the Market movement is 6.7248 %.

So, we can see that the range of market movement is -7.9690 to 5.480701. It means in any circumstances

Market return will fluctuate from 7.9690 % negative to 5.480701 % positive.

(G)

Calculation of beta of the stock (E.I.L.)

S.NO MONTHS

stock return market

return

1 Jun-11 3.045112782 0.470089

2 Jul-11 3.340556157 -2.978394

3 Aug-11 -12.8310973 -9.184721

4 Sep-11 -2.35177865 -2.786605

5 Oct-11 -1.44838841 7.143638

6 Nov-11 -12.8547922 -8.800415

7 Dec-11 -4.8357242 -7.066574

8 Jan-12 10.98557692 12.94671

9 Feb-12 17.58620691 4.503198

10 Mar-12 -7.56914119 -1.288168

11 Apr-12 -1.19607843 -1.139513

12 May-12 -12.8740157 -6.749283

correlation coff.(r)= 0.774706294

Co-variance= r× σstock× σmaket

=0.774706294×9.529788×6.72487107

=49.64828899 %

Beta (ß) =

8

=

=1.09783320

Here the Beta of the stock is 1.09783320. Means stock volatility is equal to 109 %.In other word. If the Market

would go up 100 %, than stock would also go up to109 % and vise-versa. We can also say that stock has higher

market risk.

(H)

Calculation of total and systematic variance of the stock (E.I.L)

Total variance of the stock= 90.816872 %

Systematic Variance = ß2×Market variance

= (1.09783320)2×45.2238909

= 54.505539 %

Hence, Systematic risk is equal to 7.38 %.

The total risk of the stock is 9.53 %, out of which systematic risk is 7.38 %. So we can say that the unsystematic

risk of the stock is (9.53-7.38) equal to 2.15 %.

(I)

Explanation about the systematic risk and unsystematic risk of the company;

The systematic risk is also called as Non-Diversifiable risk. Because it’s cannot be eliminated. It is the relevant portion

of an asset’s risk attributable to market factors that affect all firms such as war, inflation, international incidents, and

political events.

Unsystematic risk is due to factors specific to an industry or a company like labor unions, product category,

research and development, pricing, marketing strategy etc. It can be eliminated through diversification

These may be the reason of unsystematic risk of a company

o 80.401 % of the total share capital of the company’s is held by the president of India in the Company.

So, the Govt Decision for this company may be affected.

9

o The Decision of CIEL may also be affected to this company because CIEL is the wholly owned

subsidiary company of EIL.

o EIL has executed a large number of modernization projects for most of the refining companies in India.

These include the project of IOCL, HPCL, BPCL, CPCL, KRL, Essar, MRPL, BRPL etc. so the risk

involved in these companies may be partly affected to the EIL also.

o Share Price may be affected by the Quarterly Report of the Company.

These may be Systematic Risk of Engineers India Limited:-

o The Crude Oil Policy of the Govt.

o Steel Price and foreign steel Exporter companies Prices

o Export Policy of Indian Government

o There has been slow down in investment in infrastructure sector.

o Overseas client interest in Indian Service provider for infrastructure consultancy and project service.

(J)

Characteristic Line, using SHARPE SINGLE INDEX MODEL

(Historical Characteristic Line)

S.NO MONTHS

stock return market

return

1 Jun-11 3.045112782 0.470089

2 Jul-11 3.340556157 -2.978394

3 Aug-11 -12.8310973 -9.184721

4 Sep-11 -2.35177865 -2.786605

5 Oct-11 -1.44838841 7.143638

6 Nov-11 -12.8547922 -8.800415

7 Dec-11 -4.8357242 -7.066574

8 Jan-12 10.98557692 12.94671

9 Feb-12 17.58620691 4.503198

10 Mar-12 -7.56914119 -1.288168

11 Apr-12 -1.19607843 -1.139513

12 May-12 -12.8740157 -6.749283

10

Part-II,

Interpretation: - I invested Rs.10, 000 in Engineers India Limited. At the End of May-12 this Investment gave me a

return of -1.7502975% returns. Means I loosed my money .My assets value after 12 months is Rs.9824.97 .In order to

minimize my risk and loss I will make a Portfolio with two assets and I’ll add one risk free asset.

Fixed Deposit in Axis Bank Ltd.

Period :-( 5 Years)

Return: - 8.4 % yearly

y = 0.5467x - 0.2873 R² = 0.6002

-15

-10

-5

0

5

10

15

-20 -10 0 10 20

Secu

rity

re

turn

Market(BSE 200) Return

Characteristic Line

market return

Linear (market return)

Rs.10000 Portfolio My

60% 40%

Investment Investment

In Fixed in Stock (EIL)

Deposit

11

Months June July Aug Sep Oct Nov Dec Jan Feb Mar Apr May

Returns 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7%

Average Return of Portfolio :

w1r1+w2r2= (0.40*-1.75) + (0.60*0.70), = -0.28 %

Portfolio risk:

Because Fixed Deposit is a Risk free Investment .so, the Slandered Deviation of the F.D will be ZERO (0).

Whether price of EIL’s share is goes up and goes down the return on F.D will be stable. So, we can say that

there is no correlation between F.D and EIL’S share and the correlation coefficient of these two investments

will be ZERO (0). If the correlation coefficient is zero than the co-variance will also be ZERO (0). Than the

risk in Stock will only the risk in Portfolio. So, Portfolio risk is:

=6.0271671 %

So, here when I invest my saving in more than one stock or one risky and one risk free asset than my negative

return has decrease and reached a level of -0.28 %. My risk in investment is also come down from 9.529% to

6.0271671%.

Hence we can say that diversification is very useful and important and it minimizes our risk.

Part-III,

Introduction:

JSW Ispat Steel limited

Ispat Industries Limited (IIL) is one of the leading integrated steel makers and the largest private sector

producer of hot rolled coils in India. Set up as Nippon Denro Ispat Limited in May 1984 by founding

chairman Mr M L Mittal, IIL has steadily grown into a Rs 9,400-crore company, assuming its position as

flagship of the reputed Ispat Group. A corporate powerhouse with operations in iron, steel, mining, energy and

infrastructure, the Group today figures among the top 20 business houses in the country.

Headquartered at Mumbai, IIL employs a total of 3000 people and is the leader in the national speciality steel

market. The company's core competency is the production of high quality steel, for which it employs cutting

edge technologies and stringent quality standards. It produces world-class sponge iron, galvanized sheets and

cold rolled coils, in addition to hot rolled coils, through its two state-of-the art integrated steel plants, located

at Dolvi and Kalmeshwar in the state of Maharashtra.

The sprawling 1,200 acres Dolvi complex houses the 3 million tonne per annum hot rolled coils plant, that

combines the latest technologies - the Conarc process for steel making and the compact strip process (CSP) -

12

introduced for the first time in Asia.

The complex also has a 1.6 million tonne per annum sponge iron (DRI) plant, which was

commissioned in 1994 as the world's largest and most efficient gas-based single mega module plant.

Moreover, the Dolvi complex is home to a 2 million tonne blast furnace and also boasts a mechanised multi-

functional jetty situated nearby, that facilitates the automation of raw material handling. A new 2.24 million

tonnes per annum sinter plant; a 1260 tonnes per day oxygen and a new electric arc furnace have also been

commissioned at IIL Dolvi.

Ispat is the only steel maker in India and among a few in the world to have total flexibility in

choice of steel making route, be it the conventional blast furnace route or the electric arc furnace route. Its

dual technology allows Ispat the freedom to choose its raw material feed, be it pig iron, sponge iron, iron ore,

scrap or any combination of various feeds. It also has total flexibility in choosing its energy source, be it

electricity, coal or gas.

The Kalmeshwar complex houses Ispat's 0.4 million tonnes cold rolling complex, which also includes

the galvanized plain/ galvanized corrugated (GP/GC) lines and India's first colour coating mill.

Technology and innovation have always been the cornerstones of IIL's quest for excellence and these state-

of-the-art plants facilitate the company's mission to attain and sustain market leadership, through

technological and product superiority.

The company's strengths lie in its integrated process management, knowledge management and control

systems. And its seamless supply chain management systems further the efficient use of raw materials, while

its staff of highly skilled engineers, technicians and managers with specialised domain knowledge, ensure the

choice of the relevant technology and the ability to produce international quality products at a competitive

price.

In line with its vision for the future, IIL is expanding its HRC capacity to 3.6 million. Moreover, it aims

to complete its vertical integration process, increase the proportion of high-grade and value-added steel

products in its product mix and leverage the advantage the modern design and the size of the facilities offers.

With investments of over US $2 billion, IIL is the seventh largest Indian private sector company in

terms of fixed assets. It aims to consolidate its market leadership in the national specialty steel market by

capitalising on the proximity of its manufacturing facilities to major consumers of flat steel products in

Maharashtra, while increasing its presence in international markets by using its convenient port location.

In the short span of time since its inception, Ispat Industries has steadily raised the bar - in terms of its

relentless pursuit of technological advancement, unwavering focus on innovation, strident emphasis on quality

products and its constant initiatives aimed at ensuring customer satisfaction. As it rapidly forges ahead on all

these fronts, IIL has successfully reinforced its position as market leader, while simultaneously making

technological breakthroughs and setting even higher standards for itself.

Stock Details of the JSW Ispat Steel is as follows;

Mkt.cap.

(crs.) 2650.22 Price

/book

17.26 Dividend 0.00 % Div Yield (%) -

Book

value(Rs.)

0.61 Face

value

10.00 Industry P/E 8.34 52 Weeks

(High-Low)

18.25-9.06

EPS - P/E - P/C 8.56

13

Investment in the stocks of Engineers India Limited & JSW Ispat steel Limited

Historical Price of JSW Ispat Steel Limited Period: - June 2011 to May 2012

Month Open High Low Close

No. of No. of Total

Turnover

* Spread

Shares Trades H-L

C-

O

Jun-11 21.9 22.2 18.05 22.10 1,45,29,709 21,362 29,25,81,420 4.15 -2.8

Jul-11 19.6 20.8 17.85 20.20 2,12,01,787 23,181 41,17,30,993 2.95 -1.7

Aug-

11 18.1 20.80 13 20.15 3,24,31,003 36,315 49,70,71,863 5.25 -3.5

Sep-11 14.7 17 13.01 16.82 1,76,48,178 27,429 25,80,82,458 2.99 -1.7

Oct-11 13 13.79 12.25 13.42 1,29,39,538 21,363 16,74,70,201 1.54 0.42

Nov-

11 13.42 15.10 9.65 14.52 1,39,08,636 19,355 15,90,60,670 3.95 -3.1

Dec-11 10.6 13.78 9.06 12.15 1,21,35,152 15,946 12,16,97,214 1.94 -1.3

Jan-12 9.75 13.94 9.14 10.80 2,80,55,140 41,955 34,53,29,047 4.8 3.49

Feb-12 13.25 15.9 13 14.58 3,54,29,252 52,803 51,84,07,481 2.9 1.33

Mar-12 14.55 15.39 11.95 15.30 1,70,17,045 27,649 23,10,51,036 2.87 -2

Apr-12 12.8 13.27 11.3 12.86 81,81,988 14,090 10,18,60,912 1.97 -0.9

May-

12 12.08 14.82 9.5 13.70 1,12,41,176 21,062 11,81,23,514 2.59 -2.1

Rs. 10,000.00 PORTFOLIO VALUE MY

70%

30%

EIL

JSW ISPAT STEEL

14

Calculation of Historical Return and Historical risk of JSW Ispat steel’s Stock:

S.NO MONTHS

O/P

PRICE

C/S

PRICES RETURN

Mean

return R-¯R (R-¯R)2

1 Jun-11 21.9 22.1 0.913242 7.967774 -7.05453 49.76642

2 Jul-11 19.6 20.2 3.061224 7.967774 -4.90655 24.07423

3 Aug-11 18.1 20.15 11.32597 7.967774 3.358193 11.27746

4 Sep-11 14.7 16.82 14.42177 7.967774 6.453995 41.65405

5 Oct-11 13 13.42 3.230769 7.967774 -4.737 22.43921

6 Nov-11 13.42 14.52 8.196721 7.967774 0.228947 0.052417

7 Dec-11 10.6 12.15 14.62264 7.967774 6.654868 44.28726

8 Jan-12 9.75 10.8 10.76923 7.967774 2.801457 7.84816

9 Feb-12 13.25 14.58 10.03774 7.967774 2.069962 4.284742

10 Mar-12 14.55 15.3 5.154639 7.967774 -2.81313 7.913728

11 Apr-12 12.8 12.86 0.46875 7.967774 -7.49902 56.23536

12 May-12 12.08 13.7 13.4106 7.967774 5.442822 29.62431

Total return: 95.61329

∑(R-

¯R)2

299.4574

Avg. Monthly return = 95.61329/12

=7.967774 %

Standard deviation (σ2) =

=

= ± 5.2176048%

Historical Variance = σ2

= 27.2234 %

Here the range of return of JSW Ispat steel is 2.7501692 to 13.1853788. It means the stock may give

us the return of 2.75 % in worst circumstances whereas 13.1853 % in best circumstances.

Correlation coff. And Covariance of these two Companies

S.NO MONTHS EIL JSW

1 Jun-11 3.045112782 0.913242

2 Jul-11 3.340556157 3.061224

3 Aug-11 -12.8310973 11.32597

15

4 Sep-11 -2.35177865 14.42177

5 Oct-11 -1.44838841 3.230769

6 Nov-11 -12.8547922 8.196721

7 Dec-11 -4.8357242 14.62264

8 Jan-12 10.98557692 10.76923

9 Feb-12 17.58620691 10.03774

10 Mar-12 -7.56914119 5.154639

11 Apr-12 -1.19607843 0.46875

12 May-12 -12.8740157 13.4106

correlation coff.(r)= -0.177408398

Co-variance = r× σeil× σjsw

=-0.177408398×9.529788×5.2176048

=-8.8212188 %

Here the correlation coefficient of these two companies is negative. Which means if the EIL’s price

will goes down than JSW’s Price may goes up and vise-versa.

Portfolio Return = W1r1 + W2r2

= (0.70×-1.750297) +(0.30×7.967774)

= 1.1651243 %

Portfolio risk =

= 0 4 0 81 8 0 0 4 0 0 0 0 8 8 1 188

= 44 00 4 010 04 11

=

=±6.576127

Result of the Portfolio:-

We can see that through diversification of investment into two stocks which have negative correlation, not

only risk can be minimize but also one company’s negative return can compensate with others positive return.

16

In above case the Individual risk of EIL’s is very high i.e. . 88 % but when we diversified my

Investment with JSW’s stock which has 5.2176048 % risk, than my Portfolio is left with only 6.576127 %

risk.

Not only risk but my EIL’s return was negative i.e. -1.750297 %, but when we increase the stock in

my portfolio my portfolio returns has gone up to 1.1651243 %.Hence, I can say that Diversification is such

type of useful tool, that can save our fund and capital investment effectively.

Statistics of Stocks return and Market movement :

MONTHS

EIL'S

RETURN

JSW'S

RETURN

BSE 200'S

MOVEMENT

Jun-11 3.045112782 0.913242 0.470089

Jul-11 3.340556157 3.061224 -2.978394

Aug-11 -12.8310973 11.32597 -9.184721

Sep-11 -2.35177865 14.42177 -2.786605

Oct-11 -1.44838841 3.230769 7.143638

Nov-11 -12.8547922 8.196721 -8.800415

Dec-11 -4.8357242 14.62264 -7.066574

Jan-12 10.98557692 10.76923 12.94671

Feb-12 17.58620691 10.03774 4.503198

Mar-12 -7.56914119 5.154639 -1.288168

Apr-12 -1.19607843 0.46875 -1.139513

May-12 -12.8740157 13.4106 -6.749283

-20

-10

0

10

20

30

40

BSE 200'S MOVEMENT

JSW'S RETURN

EIL'S RETURN

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Analysis part of company’s sales and expected growth of return

Govt. Bond:-

India sold Rs 150 billion ($2.7 billion) of bonds on 27th

July 2012. The Reserve Bank of India set a cut-off

of 8.1148 per cent or Rs 100.22 on the 8.15 per cent 2022 paper, lower than 8.1222 per cent forecast in a

Reuter’s poll. The cut-off price for 8.07 per cent 2017 bonds was Rs 100.03, yielding 8.06 per cent, the RBI

said, higher than the poll forecast of 8.02 per cent. For the 8.97 per cent 2030 bonds, the cut-off price was Rs

104.7, yielding 8.4590 per cent; lower than the poll forecast of 8.4695 per cent. For the 8.33 per cent 2036

bonds, the cut-off price was Rs 97.80, yielding 8.5458 per cent; lower than the poll forecast of 8.5654 per cent.

Calculation of expected return of the stock(through CAPM Method);

CAPM = Rf+ß (Rm-Rf)

= 8.1148+1.09783320(9.5-8.1148)

= 9.6355 %

Company EIL is a zero debt company. So there is no Long term liability in company’s balance sheet

except share capital. Hence we can say that the cost of equity will be the total cost or weighted average

cost of capital.

WACC = 9.64 %

(A)

Following are the Investment of company in fixed assets;

Particulars 2007-08 2008-09 2009-10 2010-11

Fixed Assets 5035.89 6077.39 7189.38 8201.26

Capital expenditure 57702.15 123351.90 151619.05 219334.16

Turn over 73775.21 153246.28 199379.70 282328.44

In the above table we can see that company has increased his investment year by year as 20.68 %,

18. % and 14.0 % .Similarly Company’s capital expenditure has also increased by 11 . %, .

% and 44. %. By this company’s sales income has also increased by 10 . %, 0 % and 41. 1 %.

On 23rd

Mar. 2010 the company had split its share into 1:2 ratio and the face value of the company’s

share become Rs. 5 from Rs. 10. And on same date company also issued bonus share into 2:1 ratio to

their existing stock holders.

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The company’s flow of dividend is as under:

Announcement Date Effective Date Dividend Type Dividend (%)

01-02-12 15-02-12 Interim 40.00

26-05-11 26-08-11 Final 80.00

09-03-11 22-03-11 Interim 20.00

28-01-10 26-03-10 Interim 1,000.00

26-11-09 21-12-09 Interim 60.00

12-06-09 09-09-09 Final 140.00

11-12-08 29-12-08 Interim 45.00

03-06-08 10-09-08 Final 70.00

06-12-07 26-12-07 Interim 40.00

31-05-07 05-09-07 Final 60.00

16-01-07 05-02-07 Interim 35.00

28-05-12 28-05-12 Final 80.00

(B)

Dividend payout ratio:-

Total dividend distributed during the year/PAT

=

=32.24 %

Expected return of the stock:-

According to CAPM method: = 9.6355 %.

According to Dividend Yield Method (Ke) = D1/P

= 9.25/238

= 3.89 %

According to Dividend growth model (Ke) = (D1/P)+g

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= (9.25/238)+.06

= 9.887 %

(C) Earnings per Share of the company as per the company’s annual report is equal to 1 . 1(Basic and Diluted)

(D)

Company’s Sales growth rate: - (according to Higgins’s sustainable growth model)

(p) Profit margin of the company: (PBT/Net sales) 78453.46/298365.07 =0.2629

(d)Dividend payout ratio =0.3224

(L) Debt equity ratio of the firm = Nil

(T) The ratio of total assets/total sales of the firm 340152.76/298365.07 =1.14

=

=0.1852 or 18.52 % growth rate

It means we can expect that if this year company’s PBT is 78453.46 lakhs than next year company’s

PBT may be with 18.52 % growth 92983Lakhs.

(E)

Management Discussion and analysis report:-

Business overview:

A. The Company was able to maintain a healthy order book and gained business worth 4055

crores.

B. The Hydrocarbon sector continues to play a dominant role in the Company's overall

business scenario.

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C. EIL strengthened its presence in the Infrastructure sector by winning new orders like

contracts from Unique

Identification Authority of India (UIDAI) for office buildings at Delhi & Bangalore, Rajiv

Gandhi Institute of Petroleum Technology (RGIPT) for development of Assam Centre for

RGIPT at Sibsagar, Ministry of Home Affairs, New Delhi for Third Party Inspection

Services for Indo-China Border Road Works, IIIT-Delhi for construction of IIIT-D

Campus.

D. EIL also entered in strategic alliances in Oman and UAE for partnering in execution of

turnkey projects.

E. EIL continues to provide a large number of value added specialized services in filed

relating to Project Feasibility Studies, Risk Analysis, Environment Management, Energy

Efficiency Management, Refinery Optimization and Materials and Maintenance Services.

Business Environment, Risk and opportunities,

A. Oil supply shall remain sluggish in near future due to slow grow th in supply from non-

OPEC countries and unrest in oil producing countries. As a consequence crude oil prices

are expected to remain at higher levels for the next 2 years.

B. The impact of crude prices and certain policy issues such as gas pricing and fuel subsidy

release may influence the schedule for the upcoming projects.

C. To marginalize such industry risks and sustain steady long term growth, diversification in

related sectors namely Fertilizer, City Gas, Nuclear and Renewable were planned.

D. EIL is acquiring new clients and expansion to markets with growth potential will be

pursued aggressively.

(F)

Risk perception of the management:

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A. Based on the probability, impact of the risk and cost of controls, the company’s risks are

prioritized.

B. Risks, their root causes, controls and action plans are prepared by process owners and

updated regularly.

These may be the reason of unsystematic risk of a company:

a. 80.401 % of the total share capital of the company’s is held by the president of India in the

Company. So, the Govt Decision for this company may be affected.

b. The Decision of CIEL may also be affected to this company because CIEL is the wholly

owned subsidiary company of EIL.

c. EIL has executed a large number of modernization projects for most of the refining

companies in India. These include the project of IOCL, HPCL, BPCL, CPCL, KRL, Essar,

MRPL, BRPL etc. so the risk involved in these companies may be partly affected to the

EIL also.

d. Share Price may be affected by the Quarterly Report of the Company.

These may be Systematic Risk of Engineers India Limited:-

i. The Crude Oil Policy of the Govt.

ii. Steel Price and foreign steel Exporter companies Prices

iii. Export Policy of Indian Government

iv. There has been slow down in investment in infrastructure sector.

v. Overseas client interest in Indian Service provider for infrastructure consultancy and

project service.

(G)

CONCLUSION AND FUTURE PERFORMANCE:

Engineers India Limited is India’s leading publicly held company engaged in the areas of hydrocarbon,

metal, mining and infrastructure consultancy.

According to ministry of petroleum and natural gas, domestic crude oil refining sector is likely to

significant capacity in twelfth five year plan.EIL is likely to be benefit from this as it enjoys

entrenched relationship with PSU majors like HPCL, BPCL, IOC etc.

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In order to widen its spectrum of offering, company has entered into various favourable joint venture

with domestic as well as international players.

We believe that the company is well poised to post 21 % CAGR in revenues and 13% CAGR in Net

profit between FY 11-13. We recommend BUY on EIL with one year DCF based price target of

RS.320.

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