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7/25/2019 Fundeamental Analysis of Kolte Patil
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1.INTRODUCTION TO FUNDAMENTAL
ANALYSIS
FUNDAMENTAL ANALYSIS:
Fundamental analysis is the examination of the underlying forces that affect the
well being of the economy, industry groups, and companies. As with most analysis, the
goal is to derive a forecast and profit from future price movements. At the company
level, fundamental analysis may involve examination of financial data, management,
business concept and competition. At the industry level, there might be an examination
of supply and demand forces for the products offered. For the national economy,
fundamental analysis might focus on economic data to assess the present and futuregrowth of the economy. To forecast future stock prices, fundamental analysis combines
economic, industry, and company analysis to derive a stock's current fair value and
forecast future value. If fair value is not eual to the current stock price, fundamental
analysts believe that the stock is either over or under valued and the market price will
ultimately gravitate towards fair value. Fundamentalists do not heed the advice of the
random walkers and believe that markets are weak form efficient.
!y believing that prices do not accurately reflect all available information,fundamental analysts look to capitali"e on perceived price discrepancies.
STRENGTHS AND WEAKNESS OF FUNDAMENTAL
ANALYSIS
STRENGTHS
Long-term Tren!:
Fundamental analysis is good for long#term investments based on long#term
trends, very long#term. The ability to identify and predict long#term economic,
demographic, technological or consumer trends can benefit patient investors who pick
the right industry groups or companies.
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"#$%e S&ott'ng:
$ound fundamental analysis will help identify companies that represent good
value. $ome of the most legendary investors think long#term and value. %raham and
&odd, arren !uffett and (ohn )eff are seen as the champions of value investing.
Fundamental analysis can help uncover companies with valuable assets, a strong
balance sheet, stable earnings and staying power
WEAKNESS
T'me Con!tr#'nt!:
Fundamental analysis may offer excellent insights, but it can be extraordinarilytime consuming. Time#consuming models often produce valuations that are
contradictory to the current price.
In%!tr()Comn( S&e*'+'*:
*aluation techniues vary depending on the industry group and specifics of each
company. For this reason, a different techniue and model is reuired for different
industries and different companies. This can get uite time consuming and limit the
amount of research that can be performed.
S%,e*t''t(:
Fair value is based on assumptions. Any changes to growth or multiplier
assumptions can greatly alter the ultimate valuation. Fundamental analysts are
generally aware of this and use sensitivity analysis to present a base#case valuation, a
best#case valuation and a worst#case valuation. +owever, even on a worst case, most
models are almost always bullish, the only uestion is how much so.
An#$(!t /'#!:
The maority of the information that goes into the analysis comes from the
company itself. -ompanies employ investor relations managers specifically to handle
the analyst community and release information.
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W0#t '! +%n#ment#$ #n#$(!'!
Fundamental Analysis involves examining the economic, financial and other ualitative
and uantitative factors related to a security in order to determine its intrinsic value. It
attempts to study everything that can affect the security's value, including
macroeconomic factors like the overall economy and industry conditions/ and
individually specific factors like the financial condition and management of companies/.
Fundamental analysis, which is also known as uantitative analysis, involves delving
into a company0s financial statements such as profit and loss account and balance
sheet/ in order to study various financial indicators such as revenues, earnings,
liabilities, expenses and assets/. $uch analysis is usually carried out by analysts,
brokers and savvy investors.
1any analysts and investors focus on a single number##net income or earnings/##to
evaluate performance. hen investors attempt to forecast the market value of a firm,
they freuently rely on earnings. 1any institutional investors, analysts and regulators
believe earnings are not as relevant as they once were. &ue to nonrecurring events,
disparities in measuring risk and management's ability to disguise fundamental earnings
problems, other measures beyond net income can assist in predicting future firm
earnings.
Two Approaches of fundamental analysis2
hile carrying out fundamental analysis, investors can use either of the followingapproaches2
3 .Top#down approach2 In this approach, an analyst investigates both international andnational economic indicators, such as %&4 growth rates, energy prices, inflation andinterest rates.
The $earch for the best security then trickles down to the analysis of total sales, pricelevels and foreign competition in a sector in order to identify the best business in thesector
5. !ottom#up approach2 In this approach, an analyst starts the search with specificbusinesses, irrespective of their industry6region.
Ho2 oe! +%n#ment#$ #n#$(!'! 2or3!Fundamental analysis is carried out with the aim of predicting the future performance of
a company. It is based on the theory that the market price of a security tends to move
towards its 'real value' or 'intrinsic value.' Thus, the intrinsic value of a security being
higher than the security0s market value represents a time to buy. If the value of the
security is lower than its market price, investors should sell it
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T0e !te&! 'no$e 'n +%n#ment#$ #n#$(!'! #re:
3. 1acroeconomic analysis, which involves considering currencies, commodities andindices.
5. Industry sector analysis, which involves the analysis of companies that are a part ofthe sector.
7. $ituational analysis of a company.
8. Financial analysis of the company.
9. *aluation.
The valuation of any security is done through the discounted cash flow &-F/ model,which takes into consideration2
3. &ividends received by investors
5. :arnings or cash flows of a company
7. &ebt, which is calculated by using the debt to euity ratio and the current ratio currentassets6current liabilities/
F%n#ment#$ An#$(!'! Too$!
These are the most popular tools of fundamental analysis.
:arnings per $hare ; :4$
4rice to :arnings
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Financial ratios are tools for interpreting financial statements to provide a basis forvaluing securities and appraising financial and management performance.
A good financial analyst will build in financial ratio calculations extensively in a financialmodelingexercise to enable robust analysis. Financial ratios allow a financial analyst to2
$tandardi"e information from financial statements across multiple financial years toallow comparison of a firm0s performance over time in a financial model.
$tandardi"e information from financial statements from different companies to allowapples to apples comparison between firms of differing si"e in a financial model.
1easure key relationships by relating inputs costs/ with outputs benefits/ andfacilitates comparison of these relationships over time and across firms in a financialmodel.
In general, there are 8 kinds of financial ratios that a financial analyst will use most
freuently, these are2
4er+orm#n*e r#t'o!
Wor3'ng *#&'t#$ r#t'o!
L'5%''t( r#t'o!
So$en*( r#t'o!
These 8 financial ratios allow a good financial analyst to uickly and efficiently addressthe following uestions or concerns2
4er+orm#n*e r#t'o!hat return is the company making on its capital investment>hat are its profit margins>
Wor3'ng *#&'t#$ r#t'o!+ow uickly are debts paid>+ow many times is inventory turned>
L'5%''t( r#t'o!-an the company continue to pay its liabilities and debts>
So$en*( r#t'o! 6Longer term7hat is the level of debt in relation to other assets and to euity>Is the level of interest payable out of profits>
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8.ECONOMIC ANALYSIS
The economic analysis aims at determining if the economic climate is conclusive
and is capable of encouraging the growth of business sector, especially the capital
market. hen the economy expands, most industry groups and companies areexpected to benefit and grow. hen the economy declines, most sectors and
companies usually face survival problems. +ence, to predict share prices, an
investor has to spend time exploring the forces operating in overall economy.
:xploring the global economy is essential in an international investment setting. The
selection of country for investment has to focus itself to examination of a national
economic scenario. It is important to predict the direction of the national economy
because economic activity affects corporate profits, not necessarily through tax
policies but also through foreign policies and administrative procedures.
Too$! +or E*onom( An#$(!'!
The most used tools for performing economic analysis are2
%ross &omestic 4roduct %&4/
1onetary policy and ?iuidity
Inflation
Interest rates
International influences
Fiscal policy
Influences on long term expectations
Influences on short term expectations
3/ %ross &omestic product
%&4 is one measure of economic activity. This is the total amount of goods andservices produced in a country in a year. It is calculated by adding the market values ofall the final goods and services produced in a year.It is a gross measurement because it includes the total amount of goods and servicesproduced, of which some merely replace goods that have depreciated or have worn out.It is domestic production because it includes only goods and services produced withinthe country.
5/ Inflation
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Inflation can be defined as a trend of rising prices caused by demand
exceeding supply. @ver time, even a small annual increase in prices of say 3 will
tend to influence the purchasing power of the nation. In others word, if prices rise
steadily, after a number of years, consumers will be able to buy only fewer goods
and services assuming income level does not change with inflation.
7/ Interest rate
Interest rate is the price of credit. It is the percentage fee received or paid byindividual or organi"ation when they lend and borrow money. In general, increases ininterest rate, whether caused by inflation, government policy, rising risk premium, orother factors, will lead to reduced borrowing and economic slowdown.
8/ International influences
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9.INDUSTRY ANALYSIS
An industry analysis helps inform business managers about the viability of their current
strategy and on where to focus a business among its competitors in an industry. The
analysis examines factors such as competition and the external business environment,
substitute products, management preferences, buyers and suppliers. Industry analysis
involves reviewing the economic, political and market factors that influence the way the
industry develops. 1aor factors can include the power wielded by suppliers and buyers,
the condition of competitors. And the likelihood of new market entrants.
&ata needs for industry analysis2
Industry analysis reuires a variety of uantitative and ualitative data. Though onesingle source for all the data needs might not found, industry associates, businesspublications and the department of economic analysis perform a comprehensive
industry analysis. A suggestive list of data categories that are utili"ed for performingindustry analysis is listed below.
4roduct lines
4roduct growth
-omplementary product
:conomics of scale
$uppliers
?abors
$ubstitute products
!uyers and their behavior
4roduct pattern cyclical, seasonal/
-ost structure
Too$! +or 'n%!tr( #n#$(!'!
-ross#sectional industry
Industry performance over time
&ifferences in industry risk
4rediction about market behavior
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-ompetitors over the industry life cycle
INDUSTRY 4ROFILE:
India0s real estate market is expected to reach B$C 3DE billion by 5E5E from B$C 7.Dbillion in 5E38. :mergence of nuclear families, rapid urbanisation and rising householdincome are likely to remain the key drivers for growth in all spheres of real estate,including residential, commercial and retail.
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&elhi0s -entral !usiness &istrict -!&/ of -onnaught 4lace has been ranked as thesixth most expensive prime office market in the world with occupancy costs at B$C 3Eper s ft per annum, according to a survey by -!
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The %roup is currently developing in excess of 79 million s.ft. of real estate, with
over 7E proects in and around 1umbai.
The %roup also has its presence in +yderabadand 4une.
?odha %roup employs over 7EEE associates and site#based employment
includes 59,EEE workers.
It was the first Indian real estate company to introduce a -ustomer
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investment decision process of an institutional investor. The focus of the ualitativedata, as revealed in the annual report# as in the director0s speech.
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ROI:
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&4$ can be calculated by using the following& # $um of dividends over a period usually 3 year/$& # $pecial, one time dividends$ # $hares outstanding for the period
4)O RATIO:The amount of earnings paid out in dividends to shareholders. Investors can use thepayout ratio to determine what companies are doing with their earnings
-alculated
DI"IDEND YEILD:financial ratio that shows how much a company pays out in dividends each year relativeto its share price. In the absence of any capital gains, the dividend yield is the return oninvestment for a stock. &ividend yield is calculated as follows
=. COM4ANY 4ROFILEIntro%*t'on
Jolte#4atil has been creating landmarks for 59 years.
Founded 5 decades ago and guided by a simple yet profound philosophyL '-reation, notconstruction', Jolte#4atil &evelopers ?td. is one of the foremost real estate companieswhich is headuartered in 4une. ?isted on )$: and !$: Jolte#4atil is 4une's largestdeveloper and has completed 3 crore s. ft. of landmark developments in 4une and!engaluru. It is also present in 1umbai with some upscale redevelopment proects.
+eaded by a team of visionaries and dynamic leaders, Jolte#4atil has till date builtproects in multiple segments such as residential, commercial, retail, IT parks, andintegrated townships. The long standing mission of the company is to dedicate itself tocreate spaces that blend in with the surroundings and exude vitality and aestheticappeal, making the spaces present#perfect and future#proof. The core values of thecompany honesty, innovation, excellence eco#friendliness, technology, sustainability,
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value and commitment to time schedules are perfectly aligned with the living andworking spaces it builds.
H'!tor(
The -ompany was setup as a partnership firm in 3D and later incorporated under thename Jolte#4atil &evelopers ?td. J4&?/ on 59 )ovember 33,by 1r. n'ng &re!en*e 'n /eng#$%r%xpanding presence in high demand 'engaluru market 1; "ear presence and
strong 10 member team catering to 'engaluru market4ncreased contribution expected going !orward with *$+ ms!$ o!
ongoing
For#( 'nto M%m,#' m#r3etUnlocking potential o! societ" redevelopment space as an entr" strateg"
5urrent port!olio includes three pro)ects in high value locations with a
saleable area o! 0$( ms!$=o aid margin expansion and reduce working capital c"cle going !orward
S%&&$( +$e>','$'t( ,#!e on em#n
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5urrent !ocus on residential markets with onl" 10% commercial market
exposure 5reating availabilit" at ever" point o! price spectrum
A#n*e Con!tr%*t'on Te*0no$og(arl" adopters o! new construction technolog" Providing strong deliver"
capabilities uperior .ualit" o! construction
Ro,%!t /#$#n*e S0eet 4o!'t'on5onservative approach to debt >nancing based on pro)ect execution and cash
?ow visibilit" @et debt-e.uit" ratio at 0$*x as on (1st ecember, *01(
ssigned A5:447 B
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.RESEARCH DESIGN OF THE STUDY
INTRODUCTION:
:very stock available in the markets has a value called market price, which is the
indicator of the company0s performance. According to fundamental analysis we will try to
find the intrinsic value of a particular stock, which is the true value of the stock, based
on which investment arguments take place.
STATEMENT OF 4RO/LEM:
:very asset, financial as well as real, has value. The key to successfully investing
in and managing these assets lies in understanding not only what the value is, but the
sources of the value. Any asset at can be valued but some assets are easier to value
than others, and the details of the valuation will vary from case to case. Thus, the
valuation of a share of a real estate property will reuire different information and follow
a different format from the valuation of a publicly traded stock. hat is surprisingL
however, is not the difference in valuation techniues across assets, but the degree of
similarity in basic principles. There is undeniably uncertainty associated with valuation.
@ften the
Bncertainty comes from the asset being valued, although the valuation model may add
to that ascertained.
A postulate of sound investing is that an investor does not pay more for asset
than it0s worth. This statement may seem logical and obvious as financial assets are
acuired for the cash flows expected from owning them, which implies that the price that
is paid for any asset should reflect the cash flows it is expected to generate.
The problem in valuation is not that there are not enough models to value an
assetL it is that there are too many. -hoosing the right model to use in valuation is as
critical to arriving at a reasonable value as understanding how to use the model.
Analysts use a wide variety of models from simple to the sophisticated. These models
often make different assumptions about pricing, but they do share some common
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characteristics so in the study we tried to use price#earnings multiples and discounted
cash flow models of valuation.
O/BECTI"ES OF THE STUDY:
3. To understand the macroeconomic variables those will an impact on the company
progress.
5. To study the various trends, opportunities, challenges of the industry in which the
company operates.
7. To understand the various policies of the company those have impact on the
financial performance of the company.
8. To understand the various investment valuation models that can be used.
9. To select the appropriate model that suits the stock.
. Find the intrinsic value of the stock and compare with market value of the study.
G. To recommend whether to buy, hold or sell the stock based on the analysis.
SCO4E OF THE STUDY:
The study basically tries to identify the intrinsic value of the company by using
the published financial details of the company. The study is restricted to one particularcompany in the sector. The study also includes testing the intrinsic value of the
company.
RESEARCH METHODOLOGY:
T(&e o+ re!e#r*0:
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4r'm#r( #t#
Those are the data that are obtained by a study specially designed to fulfill the
data needs of the problem. 1eeting the company professionals personally collected the
information necessary for the study.
Se*on#r( #t#
The sources of secondary data for solve the problems are2#
-ompany Annual
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LIMITATIONS OF THE STUDY:
The study was confined only to one particular sector.
The study was more confined with secondary data.
The study assumes no changes in the tax rates in the country.
The study was done for a short period of time, which might not hold true over a
long period of time.
As the scope is defined by the researcher it restricts the number of variables
which Influence the industry.
7. DATA ANALYSIS
The processof evaluating datausing analytical and logical reasoning to examineeach
componentof the data provided. This formof analysisis ust one of the many steps
that must be completedwhen conducting a research experiment.&ata from various
sources is gathered, reviewed, and then analy"ed to form some sort of finding or
conclusion. There are a variety of specific data analysis method, some of which
include data mining,text analytics, business intelligence,and data visuali"ations
&ata can be of several types
Kuantitative data is a numberKualitative data is a pass6fail or the presence of a characteristic
Kuantitative data is data measured or identified on a numerical scale. )umerical datacan be analy"ed using statistical methods, and results can be displayed using tables,charts, histograms and graphs.
The term ualitative data is used to describe certain types of information. This is almost
the converse of quantitative data, in which items are more precisely described as datain terms of uantity and in which numerical values are used. +owever, data originallyobtained as ualitative information about individual items may give rise to uantitativedata if they are summari"ed by means of counts.
Kualitative data described items in terms of some uality or categori"ation that may be'informal' or may use relatively ill#defined characteristics such as warmth and flavor.+owever, ualitative data can include well#defined aspects such as gender, nationalityor commodity type.
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