DB09051_Financial Markets_BirlaCotsyn - Base Version

8/9/2019 DB09051_Financial Markets_BirlaCotsyn - Base Version

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BIRLA COTSYN INDIA LTD.

Batch : PGCBM-16Name of the Project : Birla Cotsyn India Ltd.Course : Financial MarketsSMSID : DB09051SID : 2215293Study Center : Anna Nagar, Chennai

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Table of ContentsTable of Contents ........................................................................................................................................... ..2

1. Objective .......................................................................................................................................................3

2. Scope .............................................................................................................................................................33. Public Offerings ...........................................................................................................................................3

3.1 Introduction .............................................................................................................................................3

3.2 Need for Public offering ....................................................................................................................... ..33.3 IPO details .................................................................................................................................... ...... ....4

3.4 Book Running Lead managers/Syndicate Members ...............................................................................5

3.5 Share holding pattern ..............................................................................................................................8

3.6 Underwriting ...........................................................................................................................................9

3.7 Issuing Type ............................................................................................................................................9

3.8 Important Dates ......................................................................................................................... ...... .....10

3.9 Allotment Details ..................................................................................................................................10

3.10 Share value after Issue close date ......................................................................................................113.11 Observations/Comments ....................................................................................................................12

4. Options and Futures ....................................................................................................................................134.1 Options ..................................................................................................................................................13

4.1.1 Call Option .....................................................................................................................................13

4.1.2 Put Option ......................................................................................................................................16

4.1.3 Strategies ........................................................................................................................................18

4.2 Real Options .............................................................................................................................. ...... .....19

4.3 Futures ..................................................................................................................................................195. References ...................................................................................................................................................21

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1. Objective

The main objective of this assignment is to study on the public offerings of Birla Cotsyn India

Ltd., a Yash Birla Group company. The additional objectives is to study Options, Real Options,

Futures, Convertibles, Warrants and other Hybrid securities of Birla Cotsyn or of a company in

the same Industry.

2. Scope

The scope of this case study is to analyze only the public offerings made by Birla Cotsyn in the

recent past and comment on the same. The case study shall also discuss in detail on F&O listed

on NSE of Century Textiles, a major player in textile Industry.

3. Public Offerings

3.1 Introduction

Birla Cotsyn was setup in the year 1941on 24th day of September. The name by that time was

Jamod Ginning Company Private Ltd. The company was re christened as Birla Agro private Ltd

in the year 1998, 8th October. Finally, in the year 2005 on 9th December, the company got its

name- Birla Cotsyn India Private Ltd. It attained the status of a Public Limited Company on the

30th day of May, in the year 2006 under the present name of Birla Cotsyn India Ltd.

3.2 Need for Public offering

Birla Cotsyn had a proposal to expand the Integrated Textile plant, set up agarment manufacturing plant and also to establish retail outlets at anaggregate cost of Rs 32,020 lakhs. In order to raise the necessary fund forthe business enhancement, Birla Cotsyn planned to go public.

The split-up cost of the business expansion is as follows:

Project Cost (In Lakhs) % of Total cost % of Issue proceeds

Integratedtextile plant

28,919 90.31 78.50

ApprrelmanufacturingUnit

2,521 7.87 17.48

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Retail outlets 580 1.81 4.02

Total 32,020 100 100

The company plan to raise the fund through Term loans, Equity/Promoters contribution and

Subsidy.

Of the total Equity requirement for the entire project of Rs.16,353 Lakhs, the promoters have

brought in Rs 5,704.07 lakhs for implementation of the project. Of this promoters contribution,

an amount of Rs 1939.50 lakhs has been converted into equity and the rest is proposed to issueshares for the remaining amount of Rs.3,665 Lakhs. Finally Birla Cotsyn proposed to raise Rs

14,418 lakhs from the proposed issue which includes Rs.3665 lakhs of above mentioned

promoters contribution, employee reservation portion and the net issue to public.

Fund plan Proposed by the company:

S. No. Particulars Amount (In Lakhs)

1 Term Loan 15,459.00

2 EquityPublic / Promoters Contribution

16,353.00

3 Subsidy 208.00

TOTAL 32,020.00

3.3 IPO details

Birla Cotsyn went with an Initial Public Offering of 10,29,82,729 EquityShares Of Rs. 10/- Each for cash at a Price of Rs. 14/- Per Equity Shareaggregating to Rs. 14,418 Lakhs (Hereinafter Referred To As The Issue) .

The Issue comprises promoters Contribution of 2,61,75,587 Equity Shares ofRs. 10/- Each for cash at a price of Rs. 14/- Per Equity Share aggregating toRs. 3,665 Lakhs (Hereinafter Referred To As Promoters Contribution) andEmployee Reservation Of 51,78,571 Equity Shares of Rs. 10/-Each for cash oncompetitive basis at a price of Rs. 14/- Per Equity Share aggregating Rs. 725Lakhs (Hereinafter Referred to as the Employee Reservation Portion). TheIssue less The promoters contribution and Employee Reservation Portion isreferred to as Net Issue to Public (Hereinafter Referred to as The Net IssueOr Net Issue to the Public). The Net Issue would constitute 69.55%.

Equity Share Split-up

Equity Share Details1. Promoters Contribution 2,61,75,587 Equity Shares of Rs.10 each for

cash at a price of Rs 14/-aggregating

Rs.3665.00 lakhs.

2. Employee Reservations 51,78,571 Equity Shares of Rs.10 each for cash

on competitive basis at a price of Rs 14/-

aggregating Rs.725.00 lakh.( Allocation on

proportionate basis)

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3. Net Issue to the Public 7,16,28,571 Equity Shares of Rs.10 each for

cash at a price of Rs 14/-aggregating

Rs.10028.00 Lakhs

TOTAL 10,29,82,729 Equity Shares of Rs.10 each for

cash at a price of Rs14/- aggregating Rs.14418.00 lakhs.

Net- Issue Split-up

Net-Issue

A. Qualified Institutional buyers Upto 3,58,14,285 Equity Shares of Rs.10 each

for cash at a price of Rs 14/-aggregating upto

Rs.5014.00 lakhs.

Constituting upto 50% of the net issue to thePublic (allocation on proportionate basis)

(i) Out of which 5% i.e. 17,90,714

Equity Shares of Rs.10 each for

cash at a price of Rs 14/-

aggregating Rs.250.70 lakhs will

be available for allocation to

Mutual Funds only

(ii) The remaining QIB portion will be

available for allocation to QIBs,

including Mutual Funds.

B. Non-Institutional Portion At least 1,07,44,285 Equity Shares of Rs.10

each for cash at a price of Rs 14/- aggregating

Rs.1504.20.Lakhs constituting minimum of15% of the net issue to the Public. (allocation

on proportionate basis)

C. Retail Portion At least 2,50,70,000 Equity Shares of Rs.10

each for cash at a price of Rs 14/- aggregating

Rs.3509.80 Lakhs constituting atleast 35% of

the net issue to the Public (allocation on

proportionate basis)

3.4 Book Running Lead managers/Syndicate

Members

The Book Running Lead Managers:

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Registrar to the issue:

Co-Book Running Lead Mangers:

Co-Book Running Lead Managers

NEXGEN Capitals LimitedSEBI Regn. No: INM000010999

9-B, Netaji Subhash Marg,

Daryaganj,

New Delhi-110 002

Tel: 91 11 3011 1333

Fax: 91 11 3088 8866

Email: [email protected]

Website:www.nexgencapitals.com

Saffron Capital Advisors Private Limited

SEBI Regn . No: INM 000011211

Ground floor, VILCO Centre,Subhash Road, Behind Garware,

Vile Parle ( East)

Mumbai 400057

Tel: +91-22 26820654

Fax: +91-22 26820502

Email: [email protected]

Website:www.saffronadvisor.com

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Chartered Capital And Investment Limited

SEBI Regn . No: INM000004018

711, Mahakant, Opp.V.S. Hospital

Ellis Bridge,

Ahmedabad -380006

Tel: 91 79-26577571,26575337Fax: 91 79-26575731

Website: www.charteredcapital.net

Email: info@charteredcapiital .net

Syndicate Members:

Syndicate Members

SMC Global Securities Limited

SEBI Regn. No : INB/INF230771431

9-B, Netaji Subhash Marg,Daryaganj,

New Delhi-110 002Tel: 91 11 3011 1333

Fax: 91 11 3088 8866

Email : [email protected]

Website : www.smcindiaonline.com

Contact Person: Mr.Rakesh Gupta

Aryaman Financial Services Ltd

SEBI Reg. No : INM000006807

306-307, Mint Chambers, 45/47, Mint Road,

Fort,

Mumbai 400 001Tel. : 91 22 22618264/ 69

Fax : 91 22 22630434Email : [email protected]

Website : www.afsl.co.in

Saffron Global Markets pvt Limited

Ground floor, VILCO Centre,

Subhash Road, Behind Garware,

Vile Parle (East) Mumbai 400057

Tel: +91-22 26820654

Fax: +91-22 26820502

Email: bcil.ipo@saffronadvisor comWebsite: www.saffronadvisor.com

Contact Person: Mr. Sourabh

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3.5 Share holding pattern

The details of the share holding pattern before and after the issue are as follows:

It is observed from here that the promoters hold only 34.13 percent of the total stake once this

Issue is closed.

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3.6 Underwriting

Birla Cotsyn went for fully underwritten agreement where the BRLMs are made responsible for

bringing in the amount.

Name Number of Equity

Shares to be

Underwritten

Amount

Underwritten (In

Lakhs )

Allbank FinanceLtd.

714,285 100.00

NEXGENCapitals Ltd.

178,57,142 2500.00

Saffron CapitalAdvisorsPrivate Limited

25,00,000 350.00

CharteredCapital AndInvestmentLimited

178,57,142 2500.00

SMC GlobalSecuritiesLimited

178,57,142 2500.00

AryamanFinancialServices Ltd

25,00,000 2500.00

Saffron GlobalMarkets pvt

Limited

175,21,331 350.00

RelianceSecuritiesLimited

100 -

Total 768,07,142 10800.00

3.7 Issuing Type

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Birla Cotsyn went with Dutch auction underwriting. The Initial price band was set to Rs. 15/- TO

Rs. 18/- PER EQUITY SHARE of FACE VALUE of Rs. 10/- Each. Later the Price band was

revised to Rs. 12/- TO Rs. 14/- PER EQUITY SHARE of FACE VALUE of Rs. 10/- Each on

July 4, 2008 and the closing date is extended till July 09, 2008.

Based on the final submitted bids, the price was set to Rs. 14/- PER EQUITY SHARE of FACEVALUE of Rs. 10/- Each. The Final Demand at different bid prices is as follows:

Bid Price No. ofShares

% toTotal

CumulativeTotal

Cumulative %to Total

12 102550 0.1 105105887 100

13 6300 0.01 105003337 99.9

14 78839387 75.01 104997037 99.9

15 96250 0.09 26157650 24.89

16 22400 0.02 26061400 24.8

17 10850 0.01 26039000 24.77

18 3081050 2.93 26028150 24.76CUT OFF 22947100 21.83 22947100 21.83

3.8 Important Dates

Draft Offer documents filed with SEBI December 27, 2007

Red Herring documents filed with SEBI July 04, 2008

Final offer documents filed with SEBI July 25, 2008

Issue Open date June 30, 2008Issue Close date July 09, 2008 (Originally to close on July 4, 2008, Extended later on)

NSE and BSE Listing July 30, 2008

3.9 Allotment Details

The Issue received 15610 applications for 80201750 equity shares. The details of the applications

received in the Issue from EMPLOYEES, QIB, NON INSTITUTIONAL AND RETAILINDIVIDUAL INVESTOR categories are as under: (Before technical rejections)

Category No. of Applications

No. ofShares

Subscription

EMPLOYEES 19 165900 0.032

NON

INSTITUTIONALINVESTORS

67 55875750 5.2005

QUALIFIEDINSTITUTIONALINVESTORS

1 555800 0.0155

RETAILINDIVIDUALINVESTORS

15523 23604300 0.9415

TOTAL 15610 80201750 1.11

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Total Subscription = No. of Equity shares applied / (No. of Equity shares * Net Issue

contribution)

= 80201750/(102982729 * 69.55%)= 1.11

So the issue is oversubscribed 1.11 times.

The day by day subscription of Birla Cotsyn is given below for reference:

Bidding Status (IPOSubscription day by day)

No. of times issue is subscribed(BSE + NSE)

As on Date QIBs Non Inst Retail Empl. Total

Day 1 - 30-Jun-2008 17:00:00IST

0.017 0.3323 0.0181 0 0.06

Day 2 - 01-Jul-2008 17:00:00IST

0.017 0.7198 0.3381 0 0.22

Day 3 - 02-Jul-2008 17:00:00

IST

0.017 1.1629 0.5073 0 0.34

Day 4 - 03-Jul-2008 17:00:00IST

0.017 1.1646 0.5499 0.0029 0.35

Day 5 - 04-Jul-2008 17:00:00IST

0.017 1.4633 0.9038 0.0275 0.51

Day 6 - 07-Jul-2008 17:00:00IST

0.013 1.4065 0.7263 0.0221 0.44

Day 7 - 08-Jul-2008 17:00:00IST

0.013 3.1167 0.7394 0.041 0.69

Day 8 - 09-Jul-2008 17:00:00IST

0.013 5.7497 0.9164 0.0415 1.11

3.10 Share value after Issue close date

The Birla Cotsyn stock price went down by 30% on the first day of trade and it never hit the offer

price of Rs.14. The stock price keep falling till the price reached Rs. 4 and it keep on fluctuatingaround Rs. 4. Later Birla Cotsyn split the Face Value from Rs.10 to Rs.1 effective from October

23, 2009.

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3.11 Observations/Comments

For the Initial Price band of Rs.15 to Rs.18, the total subscription was only 35% as on 4th

July, 2008. Later the price band is modified to Rs. 12 to Rs.14 and the Issue close date is

extended from 4th July to 9th July.

Even though the Issue close is extended for a period of 5 days, the overall subscription

seems to be pretty low.

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The Percentage of stake hold by the promoters of Birla Cotsyn is 34.13 only which is not

a good sign.

Birla Cotsyn split the Face Value from Rs.10 to Rs.1 effective from October 23, 2009.

EPS of Birla Cotsyn went even low after the Face value split up and this is not considered

to be a good sign.

After Face value spilt up, Birla Cotsyn is considered to be a penny share This stock is not held by any Mutual Fund

4. Options and FuturesBirla Cotsyn stock doesnt have Options and Futures trading. Century Textiles, a player in the

same industry is considered for study of Options and Futures.

4.1 Options

An option is a contract giving its owner the right to buy and sell an asset at a fixed price on or

before a given date.

4.1.1 Call Option

A call option gives the owner the right to buy an asset at a fixed price during a particular period.

Below mentioned are few call options of Century textiles listed on NSE. All the listed call options

are Call American, where the option may be exercised anytime up to the expiration date. The

other type of call option available is Call European, where the option can be exercised only onthe expiration date.

InstrumentType

Underlying ExpiryDate

OptionType

StrikePrice

HighPrice

LowPrice

PrevClose

LastPrice

Number

ofcontracts

traded

Turnoverin Rs.Lakhs

UnderlyingValue

OPTSTK CENTURYTEX

25-Feb-10 CA 460 5.4 5.4 45 5.4 4 15.79 471.45

OPTSTK CENTURYTEX

25-Mar-10 CA 480 20 15.1 72.15 19.95 3 12.68 471.45

The expiration date for all the call options is 25th Feb, 2010. The exercise price of the one call

option is Rs. 460 and the other is Rs. 480.

The following are certain factors that determine the call option values:

Exercise price

Higher the exercise price, lower the Call option value

Expiration date

Higher the expiration period, Higher the call option value

Stock Price

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http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25FEB2010CA460.0024FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25FEB2010CA460.0024FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25FEB2010CA460.0024FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25FEB2010CA460.0024FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25MAR2010CA480.0024FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25MAR2010CA480.0024FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25MAR2010CA480.0024FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25MAR2010CA480.0024FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25FEB2010CA460.0024FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25FEB2010CA460.0024FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25FEB2010CA460.0024FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25FEB2010CA460.0024FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25FEB2010CA460.0024FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25FEB2010CA460.0024FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25FEB2010CA460.0024FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25MAR2010CA480.0024FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25MAR2010CA480.0024FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25MAR2010CA480.0024FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25MAR2010CA480.0024FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25MAR2010CA480.0024FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25MAR2010CA480.0024FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25MAR2010CA480.0024FEB2010&symbol=CENTURYTEX&flag=1


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Higher the stock price (Value of underlying asset), Higher the call option value

Volatility

Higher the volatility, Higher the call option value

Interest Rate

Higher the interest rate, higher the call option value

Given below is the quote of Century Textiles for Call American:

The Intrinsic value of an option shall be calculated by feeding the options determinants in the

Black-Scholes calculator:

Stock Price : 468.10

Strike Price : 470.00

Interest Rate : 7.5%

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Expiry Time : 2 days

Annualised Volatility : 55.83%

The Intrinsic value calculated using the Black-scholes calculator onwww.tradingtoday.comsite

is Rs. 6.9077

Annualized Volatility:

The volatility value plays an important role while determining the Intrinsic value. Volatility is

defined as the variation or dispersion or deviation of an assets returns from their mean.

Sample example (only 5 samples) of Volatility calculation in Excel using logrelative method:

Date Closing value (CV) Logrelarive Std Deviation Volatility

24-Feb-09 153.7

25-Feb-09 172.8 0.117132206

26-Feb-09 178 0.029648694

27-Feb-09 179.1 0.006160759

2-Mar-09 173.75 -0.030326825 0.062711 0.140226

Step-1: Calculate the log relative values

Log relative value on 25-Feb-09 is ln( CV 25-Feb/CV 24-Feb)Step-2: Calculate the Standard deviation

Standard deviation value is stdev(all log relative values)

Step-3: Calculate the Volatility

Volatility is calculated using formula: standard deviation value * Sqrt(no. of samples-1)

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Annualized Volatility rate calculated for Century Textiles using the logrelative method described

by A.A.Kotze is 58.84% (close to the value specified in NSE Quote). ( Stock closing dates from

24-Feb-2008 to 24-Feb-2010 are used for calculation) . Refer below excel for more details.

CENTURYTEX -Annual volatility calculation.x

4.1.2 Put Option

A put option gives the owner the right to sell an asset at a fixed price during a particular period.

Below mentioned are few put options of Century textiles listed on NSE. All the listed put options

are Put American, where the option may be exercised anytime up to the expiration date.

InstrumentType

UnderlyingExpiryDate

OptionType

StrikePrice

HighPrice

LowPrice

PrevClose

LastPrice

Numberof

contractstraded

Turnoverin Rs.Lakhs

UnderlyingValue

OPTSTK CENTURYTEX

25-Feb-10 PA 450 7.5 7 16.25 7.5 80 310.27 471.45

OPTSTK CENTURYTEX

25-Feb-10 PA 460 1 1 10 1 2 7.82 471.45

The expiration date for all the put options is 25th Feb, 2010. The exercise price of the one put

option is Rs. 450 and the other is Rs. 460.

The following are certain factors that determine the put option values:

Exercise price

Higher the exercise price, higher the put option value

Expiration date

Higher the expiration period, Higher the put option value

Stock Price

Higher the stock price (Value of underlying asset), Lower the put option value

Volatility

Higher the volatility, Higher the put option value

Interest Rate

Higher the interest rate, lower the put option value

Given below is the quote of Century Textiles for Call American:

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http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25FEB2010PA450.0024FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25FEB2010PA450.0024FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25FEB2010PA450.0024FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25FEB2010PA450.0024FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25FEB2010PA460.0024FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25FEB2010PA460.0024FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25FEB2010PA460.0024FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25FEB2010PA460.0024FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25FEB2010PA450.0024FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25FEB2010PA450.0024FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25FEB2010PA450.0024FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25FEB2010PA450.0024FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25FEB2010PA450.0024FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25FEB2010PA450.0024FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25FEB2010PA450.0024FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25FEB2010PA460.0024FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25FEB2010PA460.0024FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25FEB2010PA460.0024FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25FEB2010PA460.0024FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25FEB2010PA460.0024FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25FEB2010PA460.0024FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25FEB2010PA460.0024FEB2010&symbol=CENTURYTEX&flag=1


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The Intrinsic value of an option shall be calculated by feeding the options determinants in the

Black-Scholes calculator:

Stock Price : 471.45

Strike Price : 450.00

Interest Rate : 7.5%

Expiry Time : 1 day

Annualised Volatility : 55.83%

The Intrinsic value calculated using the Black-scholes calculator onwww.tradingtoday.comsite

is Rs. 0.3124

FM&B Page 17
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4.1.3 Strategies

Protective Put:

The strategy of buying a put and buying a underlying stock is called a protective put.

Below given are the open market value and Option of a Century Textile listed on NSE (As on

date 25th Feb 2010).

Instrument

TypeUnderlying

Expiry

Date

Option

Type

Openmarket

/StrikePrice

Last

PriceLot Size

Total

Price/Position

NSE CENTURYTEX25-Mar-

10 N/A464.65(Open) 464.65 848 394023.2

OPTSTK CENTURYTEX25-Mar-

10 PA460

(Strike) 20 848 16960

The Investment required for this position is: (464.65*848) + (20*848) = Rs. 410983.2

The breakeven point of protective put in this case is the sum of open price and cost of put

option. i.e. Breakeven Price = 464.65 + 20 = Rs. 484.65. This is the starting price from which the

protective put starts giving profit.

Advantages & Disadvantages:The protective put strategy will limit the maximum loss and at the same time the upside

maximum profit is unlimited. The disadvantage is that the cost of put option eats into the profit.

Protective put is used mainly when a person has underlying stock of a company and wanted to be

on the safer side and avoid huge loss.

FM&B Page 18
http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25MAR2010CA480.0025FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25MAR2010CA480.0025FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25MAR2010CA480.0025FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25MAR2010CA480.0025FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25MAR2010PA460.0025FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25MAR2010PA460.0025FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25MAR2010PA460.0025FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25MAR2010PA460.0025FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25MAR2010CA480.0025FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25MAR2010CA480.0025FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25MAR2010CA480.0025FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25MAR2010CA480.0025FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25MAR2010CA480.0025FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25MAR2010CA480.0025FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25MAR2010PA460.0025FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25MAR2010PA460.0025FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25MAR2010PA460.0025FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25MAR2010PA460.0025FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25MAR2010PA460.0025FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=OPTSTKCENTURYTEX25MAR2010PA460.0025FEB2010&symbol=CENTURYTEX&flag=1


19/21


4.2 Real Options

It is observed from Birla Cotsyn Red herring prospectus that as per ESOP plan 2007, the grant of

options to employees was authorized.

As per the ESOP, the options granted would vest over a period of Six years from the date of

Grant. The employees of the company who have been covered under this plan have a period of 5

years from the date of vesting to exercise the options that would vest.

The intrinsic value of the option shall be calculated using Black-Scholes calculator by placing the

exercise price, current market price, volatility of stock, risk free rate and exercise time( i.e. 5

years from now).

4.3 FuturesFutures contract is a forward contact which specifies that a certain commodity will be exchanged

at a specific time in the future at a price specified today.

Below mentioned are few futures contracts of Century textiles listed on NSE:

InstrumentType

UnderlyingExpiryDate

HighPrice

LowPrice

PrevClose

LastPrice

Numberof

contractstraded

Turnoverin Rs.Lakhs

UnderlyingValue

FUTSTK CENTURYTEX

25-Feb-10 477.4 465 467.6 472 2603 10406.3 471.45

FUTSTK CENTURYTEX

25-Mar-10 478 466.7 467.6 473.05 1712 6854.56 471.45

Given below is the quote of Century Textiles for Futures contract:

FM&B Page 19
http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=FUTSTKCENTURYTEX25FEB2010--24FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=FUTSTKCENTURYTEX25FEB2010--24FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=FUTSTKCENTURYTEX25FEB2010--24FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=FUTSTKCENTURYTEX25FEB2010--24FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=FUTSTKCENTURYTEX25MAR2010--24FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=FUTSTKCENTURYTEX25MAR2010--24FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=FUTSTKCENTURYTEX25MAR2010--24FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=FUTSTKCENTURYTEX25MAR2010--24FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=FUTSTKCENTURYTEX25FEB2010--24FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=FUTSTKCENTURYTEX25FEB2010--24FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=FUTSTKCENTURYTEX25FEB2010--24FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=FUTSTKCENTURYTEX25FEB2010--24FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=FUTSTKCENTURYTEX25FEB2010--24FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=FUTSTKCENTURYTEX25MAR2010--24FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=FUTSTKCENTURYTEX25MAR2010--24FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=FUTSTKCENTURYTEX25MAR2010--24FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=FUTSTKCENTURYTEX25MAR2010--24FEB2010&symbol=CENTURYTEX&flag=1http://www.nseindia.com/marketinfo/fo/foquote.jsp?key=FUTSTKCENTURYTEX25MAR2010--24FEB2010&symbol=CENTURYTEX&flag=1


20/21


The open interest of the Futures contract is 17.6%, market lot size is 848.VWAP is 471.44 and

the settlement price is 472.55.

Derivatives:

It is observed from the annual report of Century Textiles that it makes use derivatives to reduce

the variability of firm cash flows. As major chunk of revenues for Century textiles is through

exports, It is good to include derivatives keeping in mind the market fluctuations happening

frequently over time.

FM&B Page 20


21/21


5. References

http://www.sebi.gov.in/http://www.nseindia.com/

http://www.nse-india.com/content/circulars/cmls13252.html

http://www.cmlinks.com/pub/ba/bashow.asp?code=28612

http://indian-stock-market-news.blogspot.com/2008/07/birla-cotsyn-ipo-finally-oversubscribed.html

http://indian-stock-market-news.blogspot.com/2008/07/birla-cotsyn-extends-ipo-closing-

date.html

http://economictimes.indiatimes.com/investors-guide/Birla-Cotsyn-IPO-expensive-at-

offer-price/articleshow/3178690.cms

http://www.optionvueresearch.com/webtools2/FairMarketValueCalculator.asp

http://www.money-zine.com/Calculators/Investment-Calculators/Black-Scholes-Calculator/

http://www.bseindia.com/cirbrief/new_notice_detail.asp?noticeid={E541551D-F9F5-

409C-9E28-64538828BD56}noticeno=20080729-

6&dt=7/29/2008&icount=6&totcount=25&flag=0

http://www.nseindia.com/companytracker/cmtracker.jsp?

symbol=BIRLACOT&cName=cmtracker_nsedef.css

Stock Price Volatility: a primer by Dr. A.A.Kotze

FM&B Page 21
http://www.sebi.gov.in/http://www.sebi.gov.in/http://www.nseindia.com/http://www.nse-india.com/content/circulars/cmls13252.htmlhttp://www.cmlinks.com/pub/ba/bashow.asp?code=28612http://indian-stock-market-news.blogspot.com/2008/07/birla-cotsyn-ipo-finally-oversubscribed.htmlhttp://indian-stock-market-news.blogspot.com/2008/07/birla-cotsyn-ipo-finally-oversubscribed.htmlhttp://indian-stock-market-news.blogspot.com/2008/07/birla-cotsyn-extends-ipo-closing-date.htmlhttp://indian-stock-market-news.blogspot.com/2008/07/birla-cotsyn-extends-ipo-closing-date.htmlhttp://economictimes.indiatimes.com/investors-guide/Birla-Cotsyn-IPO-expensive-at-offer-price/articleshow/3178690.cmshttp://economictimes.indiatimes.com/investors-guide/Birla-Cotsyn-IPO-expensive-at-offer-price/articleshow/3178690.cmshttp://www.optionvueresearch.com/webtools2/FairMarketValueCalculator.asphttp://www.money-zine.com/Calculators/Investment-Calculators/Black-Scholes-Calculator/http://www.money-zine.com/Calculators/Investment-Calculators/Black-Scholes-Calculator/http://www.bseindia.com/cirbrief/new_notice_detail.asp?noticeid=%7BE541551D-F9F5-409C-9E28-64538828BD56%7Dnoticeno=20080729-6&dt=7/29/2008&icount=6&totcount=25&flag=0http://www.bseindia.com/cirbrief/new_notice_detail.asp?noticeid=%7BE541551D-F9F5-409C-9E28-64538828BD56%7Dnoticeno=20080729-6&dt=7/29/2008&icount=6&totcount=25&flag=0http://www.bseindia.com/cirbrief/new_notice_detail.asp?noticeid=%7BE541551D-F9F5-409C-9E28-64538828BD56%7Dnoticeno=20080729-6&dt=7/29/2008&icount=6&totcount=25&flag=0http://www.nseindia.com/companytracker/cmtracker.jsp?symbol=BIRLACOT&cName=cmtracker_nsedef.csshttp://www.nseindia.com/companytracker/cmtracker.jsp?symbol=BIRLACOT&cName=cmtracker_nsedef.csshttp://www.sebi.gov.in/http://www.nseindia.com/http://www.nse-india.com/content/circulars/cmls13252.htmlhttp://www.cmlinks.com/pub/ba/bashow.asp?code=28612http://indian-stock-market-news.blogspot.com/2008/07/birla-cotsyn-ipo-finally-oversubscribed.htmlhttp://indian-stock-market-news.blogspot.com/2008/07/birla-cotsyn-ipo-finally-oversubscribed.htmlhttp://indian-stock-market-news.blogspot.com/2008/07/birla-cotsyn-extends-ipo-closing-date.htmlhttp://indian-stock-market-news.blogspot.com/2008/07/birla-cotsyn-extends-ipo-closing-date.htmlhttp://economictimes.indiatimes.com/investors-guide/Birla-Cotsyn-IPO-expensive-at-offer-price/articleshow/3178690.cmshttp://economictimes.indiatimes.com/investors-guide/Birla-Cotsyn-IPO-expensive-at-offer-price/articleshow/3178690.cmshttp://www.optionvueresearch.com/webtools2/FairMarketValueCalculator.asphttp://www.money-zine.com/Calculators/Investment-Calculators/Black-Scholes-Calculator/http://www.money-zine.com/Calculators/Investment-Calculators/Black-Scholes-Calculator/http://www.bseindia.com/cirbrief/new_notice_detail.asp?noticeid=%7BE541551D-F9F5-409C-9E28-64538828BD56%7Dnoticeno=20080729-6&dt=7/29/2008&icount=6&totcount=25&flag=0http://www.bseindia.com/cirbrief/new_notice_detail.asp?noticeid=%7BE541551D-F9F5-409C-9E28-64538828BD56%7Dnoticeno=20080729-6&dt=7/29/2008&icount=6&totcount=25&flag=0http://www.bseindia.com/cirbrief/new_notice_detail.asp?noticeid=%7BE541551D-F9F5-409C-9E28-64538828BD56%7Dnoticeno=20080729-6&dt=7/29/2008&icount=6&totcount=25&flag=0http://www.nseindia.com/companytracker/cmtracker.jsp?symbol=BIRLACOT&cName=cmtracker_nsedef.csshttp://www.nseindia.com/companytracker/cmtracker.jsp?symbol=BIRLACOT&cName=cmtracker_nsedef.css

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