Aprojectreportone i Canalysisofcapitalgoodssectoratkotakmahindra 121027013325 Phpapp02

8/21/2019 Aprojectreportone i Canalysisofcapitalgoodssectoratkotakmahindra 121027013325 Phpapp02

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E-I-C Analysis of Capital Goods Sector

EXECUTIVE SUMMARY

An investment is a commitment of funds made in expectation of some positive

rate of return in future. An investor makes some sacrifice in the present in the hope of

desiring benefits in future. Now the most common question that arises is, which stocks to

pick from the wide range of securities and sectors. This calls for Security Analysis and

Security valuation.

The ndian stock market is semi!strong and is very volatile. The economies of

different countries like "SA # $hina have bearing on our economy. An example to

mention is "S recession which caused crash in stock market. %xcluding such systematic

risk, one can evaluate the future prospects of the company using fundamentals.

Kotak Mahindra is one of ndia&s leading financial conglomerates, offering

complete financial solutions that encompass every sphere, from commercial banking, to

stock broking, to mutual funds, to life insurance, to investment banking, the group caters

to the financial needs of individuals and corporates. The group has a net worth of over

's. (,)*+ crore, employs around -,** people in its various businesses and has a

distribution network of branches, franchisees, representative offices and satellite offices

across // cities and towns in ndia and offices in New 0ork, 1ondon, 2ubai, 3auritius

and Singapore. The 4roup services around .) million customer accounts. t has wonawards like 5est 6erforming %quity 5roker in ndia 7 $N5$ 8inancial Advisor Awards

9**:, Avaya $ustomer 'esponsiveness Awards ;9**-< in 8inancial Services Sector and

so on.

n the light of all the above, have undertaken a pro=ect on E-I-C analysis of

Capital Goods S!tor". This is an effort put to know the intrinsic value of the $apital

goods companies like 5harat >eavy %lectricals 1imited and 1arsen # Toubro. >ere, am

undertaking a study based on the fundamentals of the company through financial

statement analysis.

An investor should make thorough comparison of the prices of the security with

its true value. ?alue here refers to the intrinsic worth or the ?alue anchor. @nly with the

help of such evaluation the investor can decide as to buy hold or sell.

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Topic of the study'


(a% of th or)ani*ation ' K+TAK SECURITIES, .$li&

Main Objective

To /al.at th prfor%an! of Capital Goods !o%panis .ndr st.dy .sin) EIC

Analysis&"

Sub objectives:

0& AnalyBing the environmental factors that affect the security prices.

1& ndustry analysis of $apital goods Sector

2& To assess the fundamentals of the company in light of financial statements.

3& To arrive at intrinsic value of the company thus enabling the investor in assessing

the worth of the security.

4& had keen interest to enrich my knowledge in stock market.

Framework of study'

The proper order to proceed in 8undamental analysisis,

5irst, to analyBe the overall economy and securities markets.

S!ond, analyBe the industry with in which a particular company operates.

5inally, analysis of the company should be considered.The above analysis involves making a careful estimate of expected stream of benefits and

required return of common stock. The intrinsic value then can be obtained through 6C%

ratio or earning multiplier approach.

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Data Collection pproach'

S!ondary 6ata'

The study is mainly based on analysis of financial statements of the company i.e. balance

sheet and profit and loss account. The same has been collected throughD

$ompany websites and other related websites.

The information is also collected from various magaBines like ndian survey 9**:

by The >indu

News papers

Sa%pl Si*'

Two large cap companies are taken for study. They areD

5harat >eavy %lectricals 1imited

1arsen # Toubro

(d for th st.dy'

2ue to the present volatility in stock market, the biggest question that arises is whether to

invest in stocks or notE f yes, then which stocks to investE >ow are the securities

valuedE There is no precise answer to this and nobody can predict the stock movements

exactly. 8undamental analysis or %$ analysis is one of the approaches to security

valuation. %$ analysis gives the intrinsic value of the firm. An investor can compare the

present market price with the intrinsic value of the stocks and make his decisions

regarding investments in these stocks.

F!"D!"#S'

E!ono%y'

Fhen come to the !ono%i! fa!tors the global economies are getting

interrelated, the ndian market will no longer be limited to domestic economic

situation. %specially the "S market has a strong bearing on ndian stock market.



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Ind.stry 7 8En)inrin) 7 a/y9'

The demand driver for this sector is the @rder book.

3ost of these companies have an order book to sales ratio in the range of 9.(!/

times 80*- revenue. This implies that for the next two!to!three years, even if the

companies do not get fresh orders, they can still maintain revenue growth of *!

/* per cent..

The 6 growth during April ! Ganuary 9**-!*: has declined to :.-H when

compared to .9H 6 growth during 9**)!-. Tight monetary policy has resulted

in high interest rates which have been the ma=or factor contributing to the decline

in 6 growth.

Co%pany'

Fhen $i%uidity ratios are concerned, 5>%1 has an upper hand over 1#T. The

$urrent ratio, quick ratio and cash ratios of 5>%1 are better than 1#T.

5ut &fficiency ratios show the other picture. Total assets turnover, fixed assets

turnover ratio, inventory days and debtors turnover of 1#T are better than 5>%1.

1#T is able to utillise its assets more efficiently.

FhenSolvency ratiosare studied, we see that the debt component in 5>%1 has been

reduced to *.;80*-< from *.: ;80*(%1 has substantially reduced

in 80*- to *.as a result of redemption of :.:(H Non!convertible, secured,

'edeemable Taxable 5onds worth 's.(** crores

'rofitability ratios The 463 has been increasing and so is the N63. This shows

that the companies are performing efficiently and are using the resources in an

optimum way. The %6S and 26S has consistently increased in 5>%1 because ofincreased earnings and constant number of shares. Fhereas in case of 1#T, the %6S

has reduced in 80*- to 's./: due to increased number of shares arising from issue

of bonus.

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Market based returns the 6C% ratio which shows investors expectations have

increased for both the companies. 1#T has higher 6C% ratio of ./: as compared

to ./: of 5>%1.

Fhen compared to the specific indicators like sales growth, the 5>%1 will be in

the first place then followed by 1#T

The ?olatility of returns is high in 5>%1 as compared to 1#T. >ence 1#T is better

because it is more consistent.

Th /al. an!hor for #E: is Rs&1;33 and for :%1 is 's.9)// and the present market price is 's.:-*. >ence itis recommended to buy 5>%1 stock as its current market price is lower than its fair

value range.

Markt pri! > Val. ran)

#E: Rs&0?@ > Rs&1; to Rs&1@ #UY

9. ntrinsic value of 1#T is 's., ++).9 and the present market price is 's.9+:.:(.

>ence it is recommended to buy 1#T stock as its current market price is lower than

its fair value range.

Markt pri! > Val. ran)

: < T

Rs&1=?0&?4 > Rs&2=4 to Rs&34 #UY

. After a close scrutiny of economy industries and companies in considering the risk, it

may be recommended that international economy might affects the firms export

prospects, the price competition it faces from competitors, or the profit it makes from

abroad. nvestor should properly analyBe both globally and domestically before

taking investment decision.

/. The investor also should consider the budget decision and present years forecast of

different sectors

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C+MBA(Y BR+5I:E

TE K+TAK MAI(6RA GR+UB'

Iotak 3ahindra is one of ndia&s leading financial conglomerates, offering complete

financial solutions that encompass every sphere of life. 8rom commercial banking, to

stock broking, to mutual funds, to life insurance, to investment banking, the group caters

to the financial needs of individuals and corporates.

The group has a net worth of over 's. (,)*+ crore, employs around -,** people in its

various businesses and has a distribution network of branches, franchisees, representative

offices and satellite offices across // cities and towns in ndia and offices in New 0ork,

1ondon, 2ubai, 3auritius and Singapore. The 4roup services around .) million

customer accounts.

Kotak Gro.p Brod.!ts < Sr/i!s'

5ank

1ife nsurance

3utual 8und

$ar 8inance

Securities

nstitutional %quities

nvestment 5anking

Iotak 3ahindra nternational

Iotak 6rivate %quity

Iotak 'ealty 8und

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K+TAK SECURITIES'

Iotak Securities 1td. ** H subsidiary of Iotak 3ahindra 5ank is one of the oldest and

largest broking firms in the ndustry with a market share of :.( H ;as on *th

Septemberouse in ndia.

8inance Asia Award ;9**(< ! 5est 5roker in ndia.

8inance Asia Award ;9**/< ! ndia&s best %quity >ouse.

6rime 'anking Award ;9**!*/< ! 1argest 2istributor of 6@&s.

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Iotak Securities is the first in providing many products and services which have now

become industry standards. Some of them are

8acility of 3argin 8inance to the customers.

nvesting in 6@Js and 3utual 8unds on the phone.

S3S alerts before execution of depository transactions.

3obile application to track portfolios.

Auto nvest ! A systematic investing plan in %quities and 3utual funds.

6rovision of margin against securities automatically against shares in your 2emat

account.

Iotak Securities has a full!fledged research division involved in 3acro %conomic

studies, Sectoral research and $ompany Specific %quity 'esearch combined with a strong

and well networked sales force which helps deliver current and up to date market

information and news.

Iotak Securities is also a depository participant with National Securities 2epository

1imited ;NS21< and $entral 2epository Services 1imited ;$2S1


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Iotak Securities sees investing from customerJs perspective, and make recommendations

based on their needs. The important goals of Iotak Securities is to simplify investing for

customers, along with that they also provide long term values to their customers.

Iotak Securities has a million reasons for customers to choose it. 1isted below are a few

STA#I:ITY' Fe are a **H subsidiary of Iotak 3ahindra 5ank and one of the oldest

and largest broking firms in the ndustry. Fe have been the first and only N58$ to

receive the license to be converted into a bank.

I((+VAT+RS I( TE I(6USTRY'Iotak Securities has been the first in providing

many products and services which have now become industry standards.

8irst to provide 3argin 8inancing to the customers.

8irst to enable investing in 6@Js and 3utual 8unds on the phone.

6roviding S3S alerts before execution of depository transactions.

1aunching of 3obile application to track portfolio.

Auto nvest ! A systematic investing plan in %quities and 3utual fund.

6rovision of margin against securities automatically against shares in your 2emat

account.

RE:IA#I:ITY'Iotak Securities accolades are a testimony to our services and high

standards. Iotak Securities has been awarded as

5est 6erforming %quity 5roker in ndia 7 $N5$ 8inancial Advisor Awards 9**:

Avaya $ustomer 'esponsiveness Awards ;9**-< in 8inancial Services Sector

5est 5rokerage 8irm in ndiaK by Asiamoney in 9**-

The 1eading %quity >ouse in ndia& in Thomson %xtel Surveys Awards for the

year 9**-.

%uro money Award ;9**) # 9**-< ! 5est 6rovider of 6ortfolio 3anagement

%quities.

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VA:UE'Fhether you are a customer with a small or large wallet siBe, customers can

expect Iotak Securities to bring value to customers in every form.

Luality 'esearch

Luick trade execution

1ow brokerages

Accounts that suit your investment profile

'isk 6rofiler

Superior $ustomer Service

SERVICE'Iotak Securities believe in high standards of service and that&s precisely

what they offer. t&s an honor to be awarded the most customer responsive company

award in the 8inancial nstitution sector by A?A0A 4lobal $onnect Award both in 9**)

and 9**-.

R+#UST TEC(+:+GY' Iotak securities developed proprietary trading platform

which is robust and among the best in the industry. t has more than (* technology

professionals constantly working on upgrading and speeding up all systems.

CE(TRA:ISE6 RISK MA(AGEME(T SYSTEM'"nlike many other players Iotak

Securities has a centraliBed risk management system. This allows them to offer the same

levels of service to customers across all locations.

EXCEBTI+(A: RESEARC'"nlike most other competitors Iotak Securities has

their own in house research team. Their in house research team is among the best in the

industry and they have years of experience in the financial markets. They scan through

the plethora of stocks and find the scripJs that have a high potential of providing you

good returns.

@ur investors get research Technical, 8undamental, 2erivatives, 3acro!economic and

mutual fund research.

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:ARGE BRESE(CE'Iotak Securities is present in *+ cities with :)- offices all over

the country. ts employee strength extends beyond (***.

+55ERI(GS +5 K+TAK SECURITIES'

@nce customers invest with Iotak Securities, they can en=oy access to a wide range of

products and services to help them make the most of their investments.

%asy %quity

%asy 2erivatives

%asy 6@.

%asy 3utual 8und

%asy nsurance

Iotak 6ortfolio 3anagement.

EASY EUITIES'

nvesting in equities was never so easy. As the 5est broker in ndia Iotak Securities

products and services are focused at making investments in equities as simple as writing a

cheque.

Rsar!h'KFhat do 5uyEK sn&t this a common question we all have while investing in

equitiesE

Iotak Securities in house research team is among the best in the industry and they have

years of experience in the financial markets. They scan through the plethora of stocks and

find the scripJs that have a high potential of providing good returns.

SMS Alrts' $ustomers can get expert tips and recommendations as S3S on their

mobile phone so that customers know what to invest in at all times.

Trinity A!!o.nt'A in account that integrates Trading, 5ank and 2emat account.

Fith Trinity Account transactions will be seamless and very convenient.

Co%ptiti/ #rokra)s' Iotak Securities brokerage rates are among the most

competitive in the industry. 1ow brokerage rates let customers concentrate on investing

their savings without worrying about the cost of investment.



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$all and Trade $ustomers can capitaliBe on market opportunities even when their

computer is inaccessible. $all # Trade essentially provides the convenience of trading in

equities by making a simple phone call.

KEAT'This superior trading platform to monitor market movements, view your gains

and losses and order placements instantaneously. Inow more

M-Trad't is exclusively designed to give instant access to the stock market through

mobile phone, thereby allowing to catch every little market movement when customers

are on the move.

Kotak S!.ritis (Fs't provides access to all news related to a stock, right from its

results, earnings, bonus, share holding patterns etc. Also helps in knowing about market

developments, latest happenings, stock movements and lots more.

TFin Ad/anta) '$ustomers can not only get exposure against the cash margin in their

trading account but can also automatically provide with exposure against the shares lying

idle in their 26 account.

EASY 6ERIVATIVES'

f customers are not averse of taking risks, derivatives can prove to be a good investment

option especially with Iotak Securities research.

Iotak Securities has strived to make investing in derivatives simpler. t provides

derivatives seminars educate new entrants in the derivatives market to be more equipped

with knowledge and techniques. @nce the customer has the knowledge of investing in

derivative instruments Iotak Securities daily derivative reports will provide customers

with strategies that may yield good returns.

$ustomers can also refer to the Iotak Securities Academy to learn more about

derivatives.

EASY IB+S'

nvesting in 6@Js is not complex anymoreD Iotak Securities has made investing in 6@Js

very simple. $ustomers have to do is one phone call, and that&s all. No paperwork no

queues, simply pick the phone or log on to www.kotaksecurities.com and place their

order within seconds.



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Iotak Securities also provide with you with information on 6@ News, 8orthcoming

6@Js and a lots more.

EASY MUTUA: 5U(6S'

No more paperwork, no more queues.Iotak securities have made investing in mutual

funds as simple as dialing a piBBa.

$ustomers can now invest in over *** different mutual fund schemes through us. And to

make this choice of choosing between which mutual funds scheme to invest in, it offers

customers an exclusive research.

nvestment in mutual fund can be made simply by logging on to

www.kotaksecurities.com or =ust making a phone call. No paperwork no queues. Simply

pick the phone or log on to www.kotaksecurities.com and place order.

EASY I(SURA(CE'

Iotak Securities brings customers a sure and secure insurance option without the hassles

and worries of a conventional insurance plan. Fith minimal paperwork and procedures,

customers get the dual benefit of a risk cover and savings. Fhat&s more, at the end of the

term, a minimum of premiums paid by customers will be returned depending on the

option they choose.

5I(A(CIA: B:A((I(G GR+UB A(6 B+RT5+:I+ MA(AGEME(T'

A structured portfolio is essential for reducing the risk of capital erosion as a result of

short!term volatility. Fith Iotak 8inancial 6lanning 4roup, these portfolios are more

than =ust structured!they&re tailor!made, too.

n today&s complex financial environment no one asset class tends to consistently

outperform another. Iotak Securities 8inancial 6lanning 4roup aims to help clients grow

exponentially on the crest of the stock markets.

And since the market is unpredictable by nature, the only way to beat it is constant

monitoring. That&s where the integration with Iotak Securities proves invaluable. $lients

benefit from the in!depth research, the wide network of experts, the international



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presence, and from the constant tab on the ndian and global financial scenario of Iotak

Securities.

A$o.t 5inan!ial Blannin) Gro.p'

The financial planning and distribution arm of Iotak Securities is involved in defining

financial goals, identifying investment vehicles and achieving them. The group

commenced its operations in the year 9**. 6resent over * locations with a large team of

relationship managers, has always endeavoured in servicing clientsD closely

understanding their needs, financial goals and advising ethically.

Brod.!ts'

This is done through quality service and access to a wide range of productsD products that

are customiBable. The financial planners thoroughly discuss and understand the desires of

each client. Their financial goals. Their risk appetite. Their time constraints.

6roducts offered range from those promising aggressive returns ;38s and 63S< to those

that aid diversification ;$ommodities, 4old, %quities etc.< to those that aim for capital

protection like insurance and capital guarantee products.

Bortfolio Mana)%nt Sr/i!'

Iotak Securities brings with it years of experience, expertise, research and the backing of

ndia&s leading stock broking house. The portfolio managers have over * years of

understanding diverse investment instruments and needs.

Iotak Securities is one of ndia&s oldest portfolio management companies. t is also one

of the largest with an A"3 worth 's.9(** crore. And for those who wish to grow their

wealth exponentially!it is also one of the best.

The 6ortfolio 3anagement Service combines competent fund management, dedicatedresearch and technology to ensure a rewarding experience for its clients.

%very investment portfolio is carefully engineered for clients in a phased manner.

'elationship managers help clients monitor, assess and tweak their portfolio at every

level. 'elationship 3anagers dispense personaliBed advice and ensure clients receive

quarterly research reports, account performance statements and 3S at their doorstep. A



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dedicated website and a customer service desk allow clients to keep a constant tab on

their portfolio&s performance. All in all, it translates into Bero paperwork.



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I(TR+6UCTI+( T+ TE T+BIC

I(VESTME(T SCE(ARI+'

nvestment is the employment of fund on assets with an aim of earning income on

capital appreciation. nvestment means the present consumption is sacrificed to get return

in future.

nvestment is good only for the purpose to get return from the selected or

choosing securities soD investors have to see the fundamental analysis. n fundamental

analysis, we can broadly classify into three types. @ne is %conomic AnalysisD ndustry

analysis and company analysis. These three are very important base of the securities or

stock of market. Fe have to study about this fundamental analysis.An ndian stock market has been no different. 3emories of its crash of 2ecember

++* are still there in the minds of many. After record rise in proceeding few years the

index fell precipitously and investor loss heavily. This phenomenon repeated every now

and then. Though the equity cult is fast spreading among the investor the hard fact is

ma=ority of stocks continue to remain volatile to date. All these are pointers to the fact

that the investor market is no longer holding an olive branch to investor in equity. 3uch

of the danger associated with it can be avoided and it need not be such nerve raking

experience, provided one approaches it as a rational decision making process. n short

Security analysis and portfolio management are hard work, requiring discipline and

patience, and the work is not always rewarded with exceptional returns.



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I(TR+6UCTI+( T+ TE C+(CEBT +5 SECURITY A(A:YSIS'

An investment is a commitment of funds made in expectation of some positive

rate of return in future. An investor makes some sacrifice in the present in the hope of

desiring benefits in future. The motive behind investment varies from person to person.

Some people invest in order to gain a sense of power or prestige. @ften the control of

corporate enterprises is a driving motive. 8or most investor however their interest in

investment is largely pecuniary to earn a return on their money. 5ut the return on stock

market security is sub=ect to risk. 'isk incase refers to the uncertainty surrounding actual

realiBation of the rate of return offered by an investment. The time element refers to

period of waiting required to reap the return. Accordingly early investment decision has

three key aspects.

They are,

'eturn

'isk

Time

There fore, investment process must be considered in terms above aspects. @ne should

approach any scheme of investment as a rational decision making process, in which he

should attempt to select a package of portfolio securities that meets predetermined set of

goals. These investors goal are usually expressed in terms of return. Almost all the cases,

the hard fact are that return and risk are inseparable. 8urther the maximum higher the

return the grater the risk.

Therefore the ultimate decisions to be made in the investment are two.

Fhat securities to be held

>ow many rupees should be allocated to each.

These decisions are made in three steps.

. Security analysis



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9. Security evaluation

. 6ortfolio analysis, selections and management.

Securities are marketable financial instruments that bestow on their owners the right to

make specific claims on particular assets. An individual security provides evidence of

their creditor ship or ownership depending on whether it is bond or stock, respectively. A

bond is loan that is paid off with interestD the investor lends money to the borrowing

company that issued bond. n contrast,stock ownership represents a cash investment a

future of a corporationD the investor owns a part of a corporation and share in its profits.

SECURITY A(A:YSIS'

8a9 Traditional investment analysis, when applied to securities, emphasiBes pro=ection of

prices and dividends. That is, the potential prices of a firmJs common stock and future

dividend stream are forecast, and then discounted back to the present.

$9 5asically modern security analysis deeply rooted in the fundamental concept. 5ut the

more modern approach to common stock analysis emphasiBes risks and return estimate

rather than mere price and dividend estimates, of course dependent on share price and

accompanying the dividend stream.

SECURITY EVA:UATI+('

t refers to the act of assessing the true worth of security. 5efore committing the fund on

stock exchange securities, the investor should make thorough comparison of the prices of

the security with its true value. The price refers to the price quoted for the security at the

stock exchange at a given movement of time. ?alue refers to the intrinsic worth. @nly

with the help of such evaluation the investor can decide as to buy hold or sell.

6I55ERE(T ABBR+ACES T+ EVA:UATI+('

There are essentially three approaches or school of thoughts on the matter of security

price evaluation, classified as

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8a9 5.nda%ntal Approa!h'

The concept of time value of money is the business of this approach. 3oney has a time

value. A rupee now is worth more than rupee a year from now. 8or different securities,

future benefits may me received at different times. %ven when the amount of future

payment is the same, differences in the speed of their receipt may create differences in

value. Time value of money suggests that earlier receipt is more desirable than later

receipt, even when the both are equal in the amount of certainty. 5ecause, earlier receipt

can be re invested to generate additional returns before later receipt come in. The force

operating is the principle of compound interest.

5ra%Fork' The proper order in which to proceed in 8undamental analysis is, first to

analyBe the overall economy and securities markets. S!ond, analyBe the industry with in

which a particular company operates. 5inally, analysis of the company should be

considered. The above analysis involves making a careful estimate of expected stream of

benefits and required return of common stock. The intrinsic value then can be obtained

through the present value analysis that is, the dividend discounts model. An alternative

method of valuation is the 6C% ratio or earning multiplier approach.

EC+(+MIC A(A:YSIS

I(6USTRY A(A:YSIS

C+MBA(Y A(A:YSIS



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ST(T!C CO"S!D&(T!O"S OF &CO"OM!C) !"D*ST(+ "D COM'"+

"$+S&S (& S FO$$O,S:

809 E!ono%i! Analysis'

. A study of economic trends as indicated by rate of growth in gross national product,

employment, aggregate corporate profits, interest rate, exchange rates, savings and

investments, monsoon positions.

9. An analysis of the relationship between economic trends and economic policies and the

stability of such relationships.

. A study of world economic trends and their impact on ndian economy.

819 Ind.stry Analysis'

. mplications of pro=ected growth in gross national product for various industries.

9. mplications of plan priorities and plan expenditure for various industries.

. ?ulnerability of an industry for government regulations, and control of prices and

production.

/. mplications of industrial and fiscal policies of government for an industry.

(. Analysis of competitive conditions as reflected in any barriers to entry.

829 Co%pany Analysis'

. Trend analyses of companyJs market share.

9. An analysis of turn over of assets, operating and production efficiencies through ratio

analysis.

. 1everage and coverage ratio analysis.

/. An analysis of book value per share.

(. An assessment of quality of management

). An analysis of price .to .earning multiples.-. An analysis of growth in sales and dividends.

The basis tenets of this approach are as follows

%ach share has an intrinsic value. t can be determined by discounting the future stream

of benefits that does accrue to the holder of the security. 8or instance if rupees ** now is

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M rupees ** ' after one year. Fhere ' is the rate of return then the next question is if

we get rupees hundred after one year how much is it worth now. 'upees ** ' after

one year M ** now. Therefore rupees ** after one year M **C** ' and if ' M 9 H

then **C9 M .*:+.

8$9 T!hni!al Approa!h'

Technical analysis is an alternative approach to predicting the stocks price behavior.

Technical analysis is frequently used as a supplement to fundamental analysis rather than

as a substitute for it. Thus technical analysis can frequently does, confirm findings based

on fundamental analysis. Technical analysis is viewed mainly through price and volume

statistics. t helps in measuring price . volume, supply . demand relationship for overall

market as well as for individual stocks. Technicians seldom rely upon a single indicator,

as no one indicator is infallibleD they place reliance upon reinforcement provided by

groups of indicators.

8!9 Modrn Approa!h'

3arkovitiBe led down the foundation for this approach in +(. >e studied capital market

with the help of fairly sophisticated method of investigation and in general arrived at the

following conclusions.

Stock markets are reasonably efficient in reacting quickly and rationally to the

flow of information.

Successive price changes are independent. As a result past price behaviour cannot

be used to predict future price behaviour.

n the capital market, there is a positive relation ship between the risk and return.

This indicates, in general, investment in several securities would reduce the

variability of return and hence the risk ness of a portfolio.



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!nsi-hts of the topic:

The intrinsic value of an equity share depends on 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

companiesJ own performance. The fundamental school of thought appraised the intrinsic

value of shares through %!!$ Analysis. 1et us now understand what is fundamental

analysis.

,.T !S F*"DM&"T$ "$+S!S:

8undamental analysis is the analysis, wherein the investment decisions are taken on the

basis of the financial strength of the company. There are two approaches to fundamental

analysis, viB.

%!!$ analysis or the Top 2own approach to 8undamental analysis, and

$!!% analysis or the 5ottom up approach.

&CO"OM+/!"D*ST(+/COM'"+ "$+S!S:

n the Top down approach, first of all the overall %conomy is analyBed to =udge the

general direction, in which the economy is heading. The direction in which the economy

is heading has a bearing on the performance of various industries. ThatJs why %conomy

analysis is important. The output of the %conomy analysis is a list of industries, which

should perform well, given the general trend of the economy and also an idea, whether to

invest or not in the given economic conditions.

M&S*(!"# COM'"+0S F!""C!$ .&$T.:

4aining a true picture of a company&s finances means not only scrutiniBing the financial

statements but also analyBing relationships among various assets and liabilities, thus



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highlighting trends in a company&s performance and changes in its financial strength

relative to its competitors.

Gnral Stps to 5.nda%ntal E/al.ation:

%ven though there is no one clear!cut method, a breakdown is presented below in the

order an investor might proceed. This method employs a top!down approach that starts

with the overall economy and then works down from industry groups to specific

companies. As part of the analysis process, it is important to remember that all

information is relative. ndustry groups are compared against other industry groups and

companies against other companies. "sually, companies are compared with others in the

same group. 8or example, a telecom operator ;?eriBon< would be compared to another

telecom operator ;S5$ $orp


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aggressive growth!oriented strategy might be advisable. A growth strategy might involve

the purchase of technology, biotech, semiconductor and cyclical stocks. f the economy is

forecast to contract, an investor may opt for a more conservative strategy and seek out

stable income!oriented companies. A defensive strategy might involve the purchase of

consumer staples, utilities and energy!related stocks.

To assess a industry group&s potential, an investor would want to consider the overall

growth rate, market siBe, and importance to the economy. Fhile the individual company

is still important, its industry group is likely to exert =ust as much, or more, influence on

the stock price. Fhen stocks move, they usually move as groupsD there are very few lone

guns out there. 3any times it is more important to be in the right industry than in the

right stockO The chart below shows that relative performance of ( sectors over a -!month

time frame. As the chart illustrates, being in the right sector can make all the difference.

(arroF ithin th Gro.p:

@nce the industry group is chosen, an investor would need to narrow the list of

companies before proceeding to a more detailed analysis. nvestors are usually interested

in finding the leaders and the innovators within a group. The first task is to identify the

current business and competitive environment within a group as well as the future trends.

>ow do the companies rank according to market share, product position and competitive

advantageE Fho is the current leader and how will changes within the sector affect the

current balance of powerE Fhat are the barriers to entryE Success depends on an edge, be

it marketing, technology, market share or innovation. A comparative analysis of the

competition within a sector will help identify those companies with an edge, and those

most likely to keep it.

Co%pany Analysis:

Fith a shortlist of companies, an investor might analyBe the resources and capabilities

within each company to identify those companies that are capable of creating and

#a$asa$patilfrppt%$a&!o% 9/


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maintaining a competitive advantage. The analysis could focus on selecting companies

with a sensible business plan, solid management and sound financials.

5usiness 6lan:

The business plan, model or concept forms the bedrock upon which all else is built. f the

plan, model or concepts stink, there is little hope for the business. 8or a new business, the

questions may be these 2oes its business make senseE s it feasibleE s there a marketE

$an a profit be madeE 8or an established business, the questions may be s the

company&s direction clearly definedE s the company a leader in the marketE $an the

company maintain leadershipE

3anagement:

n order to execute a business plan, a company requires top!quality management.

nvestors might look at management to assess their capabilities, strengths and

weaknesses. %ven the best!laid plans in the most dynamic industries can go to waste with

bad management ;A32 in semiconductorsow long have they worked togetherE $an management deliver on its

promisesE f management is a problem, it is sometimes best to move on.

8inancial Analysis:

The final step to this analysis process would be to take apart the financial statements and

come up with a means of valuation. 5elow is a list of potential inputs into a financial

analysis.

#a$asa$patilfrppt%$a&!o% 9(


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#a$asa$patilfrppt%$a&!o% 9)


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+BERATI+(A: 6E5I(ITI+(S'

E!ono%i! Analysis'

%conomic analysis refers to analyBe the factors or indicators of the economy that affects

the stock market. This is also called non!diversifiable risk analysis where the risk

associated with the securities can not be diversified.

Ind.stry analysis'

ndustry analysis refers to analyBe the plan, priorities and vulnerability of an industry for

government regulations. The competitive conditions as reflected in any barriers to

industry also taken in to consideration.

Co%pany Analysis'

$ompany analysis includes analyBe the company as potentiality for growth, present

performance, risk associated with securities are considered as important.

Corrlation'

$orrelation is a statistical measure of the degree to which the security returns move

together. The positive correlation means the variables move together. The negative

correlation suggests that move in opposite direction and Bero correlation shows that no

tendency to very either positive or negative direction.

#ta'

t measures the sensitivity of the return of a security to changes in returns to the market

portfolio. t may be positive or negative. The positive beta measures that if H changes

market index, more than H in individual security and vice versa.

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6'@G%$T 2%TA1S

Topic of the study'


(a% of th or)ani*ation ' K+TAK SECURITIES, .$li&

Main Objective

To /al.at th prfor%an! of Capital Goods !o%panis .ndr st.dy .sin) EIC

Analysis&"

Sub objectives:

;& AnalyBing the environmental factors that affect the security prices.

@& ndustry analysis of $apital goods Sector

?& To assess the fundamentals of the company in light of financial statements.

=& To arrive at intrinsic value of the company thus enabling the investor in assessing

the worth of the security.

0& had keen interest to enrich my knowledge in stock market.

Framework of study'

The proper order to proceed in 8undamental analysisis,

5irst, to analyBe the overall economy and securities markets.

S!ond, analyBe the industry with in which a particular company operates.

5inally, analysis of the company should be considered.

The above analysis involves making a careful estimate of expected stream of benefits and

required return of common stock. The intrinsic value then can be obtained through 6C%

ratio or earning multiplier approach.

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Data Collection pproach'

S!ondary 6ata'

The study is mainly based on analysis of financial statements of the company i.e. balance

sheet and profit and loss account. The same has been collected throughD

$ompany websites and other related websites.

The information is also collected from various magaBines like ndian survey 9**:

by The >indu

News papers

Sa%pl Si*'

Two large cap companies are taken for study. They areD

5harat >eavy %lectricals 1imited

1arsen # Toubro

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EC+(+MY A(A:YSIS'

The level of economic activity has an impact on investment in many ways. f the

economy grows rapidly, the industry can also be expected to show growth and vice!versa.

The analysis of macro economic environment is essential to understand the behaviour of

the stock prices. The commonly analysed macro economic factors are as followsD

. 4lobal economy

9. 4ross 2omestic 6roduct ;426igh interest rate reduces the value of future cash flow as well as

opportunities for investment.

?& #alan! of pay%nt 8#+B9, for rsr/s, < !han) rats'

&1chan-e ratemeasures the value of the rupee over the foreign currency. %xchange rate

decides international competitiveness of domestically produced goods and it can affect

import export, import and the rate of inflation domestically.

The 2O' 3balance of payment4is the record of a countryJs money receipts from and

payments abroad. The difference between receipts and payments may be surplus or

deficit. The 5@6 is a measure of the strength of rupee on external account. f the deficit

increases, the rupee may depreciate against other currencies, thereby affecting the cost of

imports.

The Fore1 reservesare also increasing year on year which shows a positive sign. The

reserves as on 3arch *( were 's. )+) crore and have been growing. @n Gune *- the

forex reserves stood at 's. :)+//+. This reserve amount includes S2'Js, 4old, 8oreign

currency assets, 'eserve tranche position in 38.

=& Infrastr.!t.ral fa!ilitis and arran)%nts'

The capital goods industry is driven by this factor. nvestment in infrastructuredevelopments indicates positive signal to the sectors in the economy, especially

manufacturing companies related to transportation. n order to gain from the trade the

transaction costs should be low. So the better facility reduces the cost of trade and enables

the companies for making profit.



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3ore specifically to mention are

Adequate and regular supply of electric power at a reasonable tariff

A well developed transportation and communication system

Assured supply of basic industrial raw material

'esponsive financial support for fixed assets and working capital.

Fith reference to such importance of infrastructure, our finance minister

Shri.6.$hidambaram mentioned that, to sustain + percent 426 growth, investment in

infrastructure should be increased from /.) percent to around : percent of 426 over the

%leventh 6lan period ;9**-C9ence the capital goods industries will play a ma=or role

in providing for this.

0& Snti%nts'

The sentiments of consumers and businessmen have an important bearing on economic

performance. Sentiments influence consumption and investment decisions and have a

bearing on the aggregate demand for goods and services

Th.s to s.% .p'Pndia is not on autopilot to greatness. 5ut it would take an incompetent

pilot to crash the plane&. These words of 3r. %dward 1uce very aptly define the contours

of the ndian economy. The economy has been growing at an average annual growth rate

of nearly )H since the +:*s, and at over :H during the last three years. 5esides, ndia

has also shown considerable resilience during the recent years and avoided adverse

contagion impact of several shocks. This has precipitated to increased confidence in the

country&s financial markets with a consistent increase in gross domestic investment rate

from 9(H of 426 in 80* to H in 80*). The gross domestic saving rate has also

improved from 9)H to 9H over the same period, contributed by a significant turn

around in public sector saving. A case in this point is that the inflows into mutual funds

alone have multiplied * times in the last decade and is currently at all time highsO

8or this buoyancy to sustain, the country will have to tide over several stumbling blocks.



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Inhrnt flaFs&&&

First, the poor state of the physical infrastructure, both in terms of quantity and quality.

Fhile with the healthy fundamentals of the domestic financial sector and the enhanced

interest of foreign investors, funding should not pose a problem, issues relating to

regulatory framework and rapid execution need to be addressed by the government.

Second, the fiscal consolidation. The recent budget of the central government targets a

gross fiscal deficit of H of 426 by 9**+. This requires fiscal empowerment, which is

possible through two routes ;i< elimination of subsidies or ;ii< elimination of tax

exemptions. Fhile in any economy fiscal consolidation is hard, it is particularly so in our

setting

Third, India is set to remain one of the youngest countries in the world in the next few

decades.This &demographic dividend& cannot be used to the economy&s advantage unless

prerequisites such as skill upgradation and sound governance to realiBe it are put in place.

Fourth, there is a need to shift the emphasis from foreign institutional investment to

attracting foreign direct investment, which is less volatile. This requires a more favorable

investment climate in general both for domestic and foreign capital.

Glo$al I%$alan!s&&&

As ndia does not depend on the international capital market for financing the fiscal

deficit, the extent of adverse consequences of the global developments would be muted.

>owever, there could be a spillover effect of global developments on domestic interest

rates and thus on fiscal position. Also, a faster rise in rates overseas could lead to a shift

in investor confidence to the international markets. 8urther, should there be a reversal ofcapital flows, asset prices may decline. Fith this there is a risk that rise in interest rates in

general could impact the housing market and expose the balance sheet of the households

to interest rate risk, increasing the risk of loan delinquencies for banks. 5anks in ndia

have invested significantly in government debt and other fixed income securities. f a rise



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in international rates gets reflected in domestic interest rates, banks will also have to

mark down the value of their investment portfolio.

M.ltilatral !onfidn!&&&

8inally, there needs to be the confidence of the investor community on multilateral

aspects such as political stability, terrorism combating ability and significance at global

economic platforms ;such as the 38 and Forld 5ank


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8rom a policy perspective, however, there has been a growing consensus that a private!

public partnership is required to remove difficulties concerning the development of

infrastructure in the country. The realiBation finally seems to be setting in. This makes the

future of the ndian engineering sector extremely bright. Apart from highway

development and construction and moderniBation of airports, the potential for the sector

lies in the oil and gas space, where high global demand has led to increased action in

exploration and production activities. >owever, scale and execution capabilities remain

the mantras for success.

#.d)t Mas.rs'

8ourth "366 at Tilaiya to be awarded shortlyD $hhattisgarh, Iarnataka,

3aharashtra, @rissa and Tamilnadu urged to bring five more "366s to the

bidding stage by extending the required support.

'a=iv 4andhi 4rameen ?idyutikaran 0o=ana to be continued during the %leventh

6lan period with a capital subsidy of 's 9:* bnD allocation of 's (( bn for 80*+.

's : bn to be provided for Accelerated 6ower 2evelopment and 'eforms 6ro=ect

;A62'6< in 80*+.

%xemption from /H additional duty of customs has been withdrawn on power

generation pro=ects ;other than mega power pro=ects


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2efence allocation to be increased by *H.

%xcise duty being exempted on end!use basis, on refrigeration equipment

;consisting of compressor, condenser units, evaporator, etc< above 9 T' ;tonnerefrigeration< utilising power of (* IF and above.

6arent company allowed to set!off the dividend received from its subsidiary

company against dividend distributed by the parent companyD provided that the

dividend received has suffered 22T and the parent company is not a subsidiary of

another company.

#.d)t +/r/iF'

Ky Bositi/s:

BoFr play' Since power utilities are one of the biggest consumers ;generation,

transmission and distribution< for engineering companies, reforms introduced in the

power sector like privatisation of S%5s will help in strengthening the order book siBe.

>uge addition in power generation capacity, in order to meet the demand supply gap will

be a big positive for the sector&

Infrastr.!t.r d/lop%nt' The government is focusing on development of

infrastructure like housing, airports, roads and ports. This will be big positive for

engineering and construction companies&

Ind.strial Ha!t ndustrial divisions of engineering companies are likely to benefit from

the increased focus on automation and capacity addition plans drawn by the ndia nc.

Ky ()ati/s:

Capti/ !o%ptition' 2uty free import of T#2 equipments by captive power generation

units, if allowed by government, can have some impact on margins of the T#2 ma=ors

because of competition.



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Bopl pro$l%' %ngineering companies, across the board, are facing troubled times

retaining key employees. This is due to increased levels of competition for talent from

3N$s, who have deep pockets and thus better paying capabilities. As a result of

increasing levels of attrition, some companies are facing execution issues&

C+MBA(Y IMBACT'

Allocation of "366s to support growth if equipment and service providers like

5>%1, 1#T and Siemens.

4reater focus on the T#2 front to be beneficial for A55, Siemens, $rompton

4reaves, %mco, 5harat 5i=lee. Also, companies providing T#2 pro=ect services

like Gyoti Structures and Ialpataru Transmission to benefit.

'emoval of exemption from additional customs duty on power generation,

transmission and distribution pro=ects to benefit domestic companies like 5>%1,

1#T, Siemens and 'eliance %nergy.

Skill development initiatives to pare pressure of attrition from companies like

1#T and 5>%1.

ncrease in defense allocation to aid prospects of Tata 6ower, 1#T and 5harat

%lectronics.

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I(6USTRY A(A:YSIS'

f one were to consider one of the biggest beneficiaries from any countryJs infrastructure

sector development, engineering companies have a vital role to play. As in any other

sector, choices for a retail investor are high for an equity investment. >owever, it does

that mean each stock in the sector is a 5"0E n this article, we have tried to discuss the

dynamics of this sector and the key aspects that one should look in, before selecting an

engineering stock.

BR+5I:E:

%ngineering, as a sector, has many facets. A company from this sector can be anequipment manufacturer ;like transformers and boilers%1,

1#T, %ngineers ndia< or a niche player ;like Thermax in environmental solutions, ?oltas

in electro!mechanical pro=ects, A55 for automation technologies and so on


42/119


barriers to entry are also high. 5ut in some cases, competition is also global in nature

;like dam construction, roads, refineries and power plants


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3ost of these companies have an order book to sales ratio in the range of 9.(!/ times

80*- revenue. This implies that for the next two!to!three years, even if the companies do

not get fresh orders, they can still maintain revenue growth of *!/* per cent.

6o%sti! %arkt:

The power sector accounts for approximately )*H of total revenues for this sector.

Therefore, growth in power capacities is very important for engineering companies. So

letJs have a brief look at key fundamental factors that influences power sector

performance.

>istorically, politics have played a vital role in shaping the power sector as opposed to

economics ;profitability in easy terms


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Ind.strial and Infrastr.!t.r spndin):

The industrial sector contributes around *H of the total revenues of engineering sector.

The demand from this segment largely depends on 426 growth, which in turn is a

function of the quantum of infrastructure spending and capacity expansion plans of

corporate ndia.

A lot depends on government policies. 8ormulation of policies favorable to industrial

sector can boost the investments and expansion plans for both private and public sector

companies. Talking of policies, when government increases participation of foreign

companies in infrastructure development, the sector gets a fillip. 2emand growth in this

sector is fuelled by expenditure in core sectors such as power, railways, infrastructure

development, and private sector investments and the speed at which the pro=ects are

implemented.

The top line trends of ma=or engineering companies since last five years have shown a

high degree of correlation with the 6 ;ndex of ndustrial 6roduction< growth. Thus a

fair idea can be taken about the sector looking at the 6 growth. 1etJs look at the

correlation in the graph below.

Eports:

Fhile an engineering company from ndia could tap global markets for contracts, there is

a vast difference when it comes to competitors. 6layers like 5echtel and 4% have muscle

power and have executed pro=ects on a global scale. This is one of the reasons increasing

#a$asa$patilfrppt%$a&!o% //


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contribution from international markets is not easy for any company. 'etail investors

have to tread with caution on this front. 2ue to intense competition in the international

arena, suppliers do not en=oy much bargaining power.

3oreover, in order to win big contracts you need to have big balance sheet siBe, because

only some part of entire contract money is paid up front and rest comes after installation

of pro=ect. 3oreover, in some cases, the engineering company buys stake in the pro=ects

during the financial closure.

Ky points to $ kpt in %ind $for in/stin)J

+rdr $ook and opratin) %ar)ins' @rder book, as we had said earlier,

indicates a companyJs standing in a year in terms of future growth in revenues. A

consistent rise in order book on a year on year basis ;and not quarter on quarter< is

also vital. Though order book may be huge for a company, it has to be

remembered that operating margins are low in pro=ects. n a downturn, operating

margins of an engineering company comes under pressure. f a company acts as

an engineering agency ;i.e. buys and installs equipment


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engineering company is dependent on the kind of order book, which then

translates into revenues. nternationally, the average of *./ times to *.( timesis a

benchmark. f price to earnings is used, it has to be remembered that the sector is

highly dependent on the economy. So, a 6C% in line with the long!term economic

growth could be useful.

Apart from what all has been said above, investor needs to look at the past record of the

management, its vision and its focus on business. After all itJs the management of the

company who is the final decision!maker and the future of the company solely depends

on the decisions taken by it

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B+RTERS 5IVE 5+RCE M+6E:'

S.pply'

Abundant supplies is available across most segments, except for technology

intensive executions.

6%and'

2emand growth in this sector is fuelled by expenditure in core sectors such as

power, railways, infrastructure development, private sector investments and the

speed at which the pro=ects are implemented. The 4ovt. has been spending

heavily on this sector and this has fuelled the growth of capital goods industry

#arrirs to ntry'

5arriers to entry are high at upper end of the industry as skilled manpower andtechnologies, and ability to fund large pro=ects are a prerequisite. >owever at the

lower end, the industry is more fragmented.

#ar)ainin) poFr of s.pplirs'

#a$asa$patilfrppt%$a&!o% /-


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5argaining power of suppliers is low because of intense competition. >owever, in

technology driven high!end segments, suppliers have the upper hand.

#a$asa$patilfrppt%$a&!o% /:


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#ar)ainin) poFr of !.sto%rs'

5argaining power for technology driven segments is low as there are very few

producers of engineering goods. And moreover the customer has very less

bargaining power in such industry as compared to 83$4

Co%ptition'

3a=ority of the companies compete in terms of pricing, experience in specific

field, product differentiation and timely completion of pro=ects. The sector is less

fragmented at top because the competencies required are high.

The other competitor is $hina which is providing equally good competition.

.

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C+MBA(Y A(A:YSIS

$ompany Analysis is the leg in the %$ analysis sequence. t may be organiBed into two

parts,

Q Study of 8inancials.

9Q Study of other factors.

The companies taken for %$ Analysis in this pro=ect areJ

0 #harath a/y El!tri!als :i%itd L#E:

1 :arsn and To.$ro L:


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BR+5I:E +5 TE C+MBA(IES U(6ER STU6Y'

#ARAT EAVY E:ECTRICA:S :IMITE6 L#E:'

+VERVIE'

#E:is the largest engineering and manufacturing enterprise in ndia in the energy!

relatedCinfrastructure sector, today. #E: was established more than /* years ago,

ushering in the indigenous >eavy %lectrical %quipment industry in ndia ! a dream that

has been more than realiBed with a well!recogniBed track record of performance. The

company has been earning profits continuously since +-!-9 and paying dividends since

+-)!--.

#E: has acquired certifications to Luality 3anagement Systems ;S@ +**ealth # Safety

3anagement Systems ;@>SAS :**< and is also well on its =ourney towards Total

Luality 3anagement.



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#E:has,

nstalled equipment for over +*,*** 3F of power generation !! for "tilities,

$aptive and ndustrial users.

Supplied over 9,9(,*** 3?A transformer capacity and other equipment operating

in Transmission # 2istribution network up to /** k? ;A$ # 2$


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t is the largest engineering and manufacturing enterprise of its kind in ndia and

one of the leading international companies in the power field.

5>%1 offers over :* products and provides systems and services to meet theneeds of core sectors like power, transmission, industry, transportation, oil # gas,

non!conventional energy sources and telecommunication.

A wide!spread network comprising / manufacturing divisions, : service centres,

/ power sector regional centres, : regional offices, besides a large number of

pro=ect sites spread all over ndia and abroad, enables 5>%1 to be close to its

customers and cater to their specialised needs with total solutions ! efficiently and

economically.

An S@ +*** certification has given the company international recognition for its

commitment towards quality. Fith an export presence in more than )* countries,

5>%1 is truly ndiaJs industrial ambassador to the world.



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+VERSEAS #USI(ESS:

#E:, ranking among the ma=or power plant equipment suppliers in the world, is one of

the largest exporters of engineering products # services from ndia. @ver the years,

#E:has established its references in around )* countries of the world, ranging from

the "nited States in the Fest to New ealand in the 8ar %ast. #E:&s export range

covers individual products to complete 6ower Stations, Turnkey $ontracts for 6ower

6lants, %6$ $ontracts, >?C%>? Sub!stations, @#3 Services for familiar technologies,

specialiBed after!market services like 'esidual 1ife Assessment ;'1A< studies and

'etrofitting, 'efurbishing # @verhauling, and supplies to manufacturers # %6$

contractors.

RESEARC A(6 6EVE:+BME(T'

To remain competitive and meet customers& expectations, 5>%1 lays great emphasis on

the continuous upgradation of products and related technologies, and development of new

products. #E:&s commitment to advancement of technology is reflected in its

involvement in the development of futuristic technologies like fuel cells and

superconducting generators. #E:&s investment in '#2 is amongst the largest in the

corporate sector in ndia. 6roducts developed in!house during the last five yearscontributed about -H to the revenues in 9**(!*).

#a$asa$patilfrppt%$a&!o% (/


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C+MBA(Y MA(AGEME(T:

#oard of 6ir!tors:

Name 2esignation

3r. Ashok I Aggarwal 2irector

3r. Anil Sachdev 2irector

3r. S I Gain 2irector

2r. Sura=it 3itra 2irector

3r. San=ay 3 2adlika 2irector

3r. Shekhar 2atta 2irector

3r. I 'avi Iumar $hairman and 3anaging director

3r. 5 S 3eena 6art Time 2irector

3r. 3adhukar 2irector

3r. $ S ?erma 2irector

3r. A I 3athur 2irector

3r. S 'avi 6art Time 2irector

3r. 5 6 'ao 2irector

3r. $ 6 Singh 2irector

3r. 3anish 4upta 2irector

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C+R+B+RATE (ES'

6ower equipments built by state!run 5harat >eavy %lectricals ;5>%1< registered

a record generation of /(/.) billion units of electricity in 9**-!*:, compared to

/9.) billion units in the year!ago period.

State!run power plant equipment maker 5>%1 has won orders worth around 's

9*.* billion from 5harathiya 'ail 5i=lee $ompany ;5'5$1eavy

%lectricals ;5>%1< a few of NT6$s supercritical ))*mw and :**mw pro=ects ona negotiated basis.

The government!owned 5harat >eavy %lectricals ;5>%1< has secured the state!

run $hhattisgarh State %lectricity 5oards ;$S%5s< contract to set up two power

plants in Iorba district quoting 's +.) million per 3w, the lowest it has ever

quoted for a power plant in the country,

State!run 5>%1 and Nuclear 6ower $orporation on 8riday signed a memorandum

of understanding ;3o"< to float a =oint venture ;G?< company for executing

nuclear power pro=ects in ndia and abroad

5harat >eavy %lectricals ;5>%1< will sign a memorandum of agreement ;3oAeavy %lectricals ;5>%1


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5harat >eavy %lectricals ;5>%1< is likely to spend nearly 's (* billion over the

next three years in its yet!to!be!formed =oint venture companies with power utility

NT6$ and Nuclear 6ower $orporation of ndia ;N6$1eavy %lectricals ;5>%1< bagged orders worth around 's 9*.* billion

for the supply and installation of the main plant package at the upcoming ,***

3F Nabinagar Thermal 6ower 6ro=ect in 5ihar, involving four units of 9(* 3F

each.

5harat >eavy %lectricals ;5>%1< plans to buy a local engineering company to

expand capacity. The power!equipment maker may buy a company of a siBe of

about 's / billion.5hel is seeking to expand capacity to help the countryJs effort

to add at least )** gig watt of electricity by 9**.

#a$asa$patilfrppt%$a&!o% (:


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:ARSE( A(6 TU#R+ L:


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+RGA(INATI+( STRUCTURE'

#a$asa$patilfrppt%$a&!o% )*


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IST+RY'

The evolution of 1#T into the country&s largest engineering and construction

organiBation is among the most remarkable success stories in ndian industry.

1#T was founded in 5ombay ;3umbai< in 0=2? by two 2anish engineers,

>enning >olck!1arsen and Soren Iristian Toubro. 5oth of them were strongly

committed to developing ndia&s engineering capabilities to meet the demands of industry.

5eginning with the import of machinery from %urope, 1#T rapidly took on

engineering and construction assignments of increasing sophistication. Today, the

company sets global engineering benchmarks in terms of scale and complexity..

G:+#A: BRESE(CE'

1#T has a global presence. A thrust on international business over the years has seen

overseas revenues growing steadily. The company has manufacturing facilities in ndia,

$hina, @man and Saudi Arabia. t has a global supply network with offices in *

locations worldwide, including >ouston, 1ondon, 3ilan, Shanghai, and Seoul.

$ustomers include global ma=ors in over * countries.

SU#SI6IARIES A(6 ASS+CIATES'

The 1#T 4roup has a number of subsidiaries # associates worldwide.

%ngineering and $onstruction

3achinery and ndustrial 6roducts

nformation Technology

8inancial Services

TEC(+:+GY'



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n every sphere of 1#T&s operations, technology is the key enabler, reinforcing its

leadership position, and sustaining its competitive strengths. Fhile for some, technology

is a means to an end, for 1#T, technology represents endless possibilities

E(GI(EERI(G A(6 C+(STRUCTI+('

n engineering and construction, 1#T&s technology capabilities include a strategic mix of

in!house strengths and the expertise of its =oint venture partners. %ngineering $enters at

3umbai, ?adodara and 2elhi carry out process design and simulation, analysis of

computational fluid dynamics, mechanical design, failure analysis and trouble shooting.

1#T has set up an engineering and pro=ect management centre in Abu 2habi, to

undertake oil and gas related pro=ects as well as engineering and consultancy services.

An engineering centre in Shar=ah is an extended arm in the 4ulf. This is supplemented

through collaborations with key partners 1#T!?aldel for engineering services in the

upstream hydrocarbon sector, 1#T!$hiyoda for the mid and down stream sectors, and

1#T Sargent # 1undy for the power sector.

The engineering services provided by 1#T&s %ngineering 2esign 'esearch $enters at

$hennai and Iolkatta include feasibility studies, pro=ect reports, system engineering,

architectural, structural and civil design for infrastructure development pro=ects.

#a$asa$patilfrppt%$a&!o% )9


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1#T!'amboll $onsulting %ngineers provides civil engineering and consultancy services

for a wide range of pro=ects in the transportation sector ! ports, airports, highways and

bridges.

MA(U5ACTURI(G'

1#T&s design # engineering capabilities in manufacturing enable it to set new

benchmarks in terms of scale, sophistication and speed. The $ompany has dedicated

engineering centres at the manufacturing locations. Two &Technology 2evelopment

$entres& have been set up to develop new products and manufacturing technologies. 1#T

also collaborates with the organisations like S'@ to bolster its capabilities in the

strategic sectors of aerospace, defence and nuclear power. 1#T&s %lectrical and

%lectronics 2ivision, is a pioneer in the design of switchgear and switchboards that are

engineered for tropical conditions. t has built further on this experience, and has

leveraged its '#2 strengths to develop a host of new products and features. n 9**)!*-,

the division filed applications for over :* patents. $umulatively, 1#T&s %lectrical #

%lectronics 2ivision has applied for and secured 9/- patents ! a landmark for an ndian

company. 6atent applications cover innovations made on a variety of low voltage

indigenously developed switchgear products like the air circuit breakers ;A$5s< and

moulded case circuit breakers ;3$$5s


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#oard of 6ir!tors'

(a% 6si)nation

3r. Subodh 5hargava Additional 2irector1t. 4en. Surinder Nath Non %xecutive 2irector

3r. I ?enkataramanan Fhole Time 2irector

3r. 0 3 2eosthalee Fhole Time 2irector

3r. G 6 Nayak Fhole Time 2irector

3rs. 5hagyam 'amani 2irector

3r. I ? 'angaswami Fhole Time 2irector

3r. A 3 Naik $hairman and 3anaging director

3r. N 3ohan 'a= Nominee 2irector3r. 3 ? Iotwal Fhole Time 2irector

3r. Thomas 3athew T Nominee 2irector

3r. " Sundarara=an Non %xecutive 2irector

3r. ' N 3ukhi=a Fhole Time 2irector

3r. S N Talwar Non %xecutive 2irector

3r. ? I 3agapu Fhole Time 2irector

3r. 3 3 $hitale Non %xecutive 2irector

#a$asa$patilfrppt%$a&!o% )/


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C+RB+RATE (ES'

1#T to develop 's ( bn integrated commercial complex at Navi 3umbai.

1#T to bag 's /:* bn order in Goint ?enture with 3itsubishi >eavy ndustries.

1#T secures 's 9* bn contract from 5ombay 2yeing for developments at the

Textile 3ills # Spring 3ills complexes at Forli and Fadala regions of 3umbai

respectively.

$airn had awarded a 's ) billion contract to 1#T in 8ebruary for the laying of a

heated pipeline for transporting crude oil from 5armer in 'a=asthan to Salaya in

4u=arat.

1arsen # Toubro ;1#T< bagged four orders worth 's ).:- billion from the

4overnment of 'a=asthan, 5hushan Steel!@rissa, SA1 5okaro Steel 6lant and

the 2amodar ?alley $orporation ;2?$ebi $oal and

%lectricity $o of $hina.

1arsen # Toubro ;1#T


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contracts to supply S$A2A system for onshore control centers ;@$$< for

offshore operations of @il and Natural 4as $orporation ;@N4$


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:i%itations'

t is static measure of resources available at a point in time to meet the current

obligations. The current reservoir of cash does not have a logical or causal relation to its

future cash flows. These cash flows depend on factor excluded from the ratio i.e sales,

expenditure, cash, profits.

#E: :


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Intrprtation'

#E:! Thecash and cash equivalents have increased from 's./.+- crore in 9**(!*)

to 's. (:*:.+ crore in 9**)!*- reflecting the sound liquidity of the company. @n the

other hand, this increase has been set off by decrease in loans and advances.

:


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*uic( +,cid est /atio 0 +Current ,ssets 1 In'entor2 Current iabilities

#E: :


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known as acid!test ratio. $ompanies with ratios of less than cannot pay their current

liabilities and should be looked at with extreme caution. 8urthermore, if the acid!test ratio

is much lower than the liquid ratio, it means current assets are highly dependent on

inventory. t is expressed as

A$sol.t Cash Ratio O 8C.rrnt Assts 7 Sto!k 7 6$tors9P C.rrnt :ia$ilitis

Intrprtation'

Again in cash ratio, 1#T falls behind 5>%1. The later being a 6S" was able to maintain

its liquidity better than 1#T. especially in the 80*) the value is very low. The reason for

this is, the balance of fixed deposits with scheduled banks is less as compared to other

years. This amount is utiliBed to meet the expenses of the company

#a$asa$patilfrppt%$a&!o% -*


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#& TUR(+VER RATI+S

%fficiency or Turnover 'atios measures the efficiency of asset management. %ach

turnover ratio defines the asset differently. These ratios are based on the relationship

between the level of activity, represented by sales or cost of goods sold and levels ofvarious assets.

5IXE6 ASSETS TUR(+VER RATI+'

The firm may wish to know its efficiency of utiliBing fixed assets. This ratio measures

sales per rupee of investment in fixed assets and is given by,

5id assts t.rno/r RatioO(t salsPGross $lo!k

Sometimes Net fixed assets ;depreciated value< are used for computing the turnover ratio.

As a result the ratio may be higher in the case of an old established company as compared

to new one, other things being equal. This may render comparison of firmJs over a period

or with other firms meaningless.



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Intrprtation'

4ross 5lock and capital Fork in progress increased by 's. 9.++ crore, and 's. -.+-crore during the year *- due to $apital expenditure incurred on ongoing capacity

augmentation programme at various manufacturing units and the erection and

commissioning facilities at pro=ect sites has lead to increase in the ratios of 5>%1. The

capital expenditure on capacity addition has lead to increase in the ratio of 5>%1.

@n the other side 1#T has been able to maintain stable ratio of around ) times which is

far more than 5>%1. nterpreting the reciprocals, we may say that for generating a sale

of 'e., 5>%1 needs 's.*.9/ investment in fixed assets as compared to 1#T which

needs investment of 's.*.).

T+TA: ASSETS TUR(+VER RATI+'

This ratio shows the firmJs ability in generating sales from all financial resources

committed to total assets. The ratio is also known as the investment turnover ratio. The

#a$asa$patilfrppt%$a&!o% -9


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higher the turnover ratio, the more efficient is the management and utiliBation of assets

while low turnover ratio is indicative of underutiliBation of available resources and

presence of idle capacity

Total Assts t.rno/r ratioO (t SalsPtotal assts

FhereD

Total assets M Net fixed Assets $urrent Assets

#E: :


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assets together. 5>%1 over the years have increased the sales per rupee invested. The

5>%1Js vision for 9*9 insists the company to improve its efficiency .

I(VE(T+RY 6AYS'

A financial measure of a company&s performance that gives investors an idea of how long

it takes a company to turn its inventory ;including goods that are work in progress, if

applicable< into Sales.

In/ntory t.rno/r ratio O Cost of Goods SoldPA/ra) in/ntory

In/ntory 6ays O In/ntory t.rno/r ratioP2;

$ost of goods sold include material cost, labour cost and other manufacturing expenses

such as fuel # power, repa

Documents

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