A STUDY ON THE ANALYSIS OF PRICE MOVEMENT OF SHARES AND COMPANY PERFORMANCE WITH

RESPECT TO INFORMATION TECHNOLOGY AND AUTOMOBILE INDUSTRIES

CHAPTER 1

INTRODUCTION

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1.1 INTRODUCTION

This dissertation named “A study on the correlation between price movement of the

shares and the annual performance of the company with reference to the information

technology and the automobile industry” analyses the various features the impact of price

movements of the shares of the performance of the particular companies. The IT and the

automobile companies trading in NSC nifty are taken for my study. For that i followed

the major steps of the economy, industry and company and also various tools and

variables used for the analyzing the unaudited quarterly financial reports.

REASONS FOR THE PRICE MOVEMENT OF SHARES

A specific may have a temporarily high price when for what ever reason, there has been a

high demand for it. This demand may have nothing to do with the company it self but

may rather relate to, for example an institute investor trying to diversify out risk. There

are various reasons for the price movement of the shares :-

The market expects the earnings to rise rapidly in the future. For example a gold

mining company which has just begun to mine may not have made money yet

but next quarter it will most likely find the gold and make a lot of money. The

same applies to pharmaceutical companies often a large amount of their revenue

comes from the best few patented products, so when a promising new product is

approved, investors may buy up the stock.

The company was previously making a lot of money, but in the last year or

quarter it had a special one time expense (called a “charge”) which lowered the

earnings significantly. Stock holders understanding (possibly incorrectly) that

this was a one time issue, will still buy stock at the same price as before, and

only sell at the least that same price.

Hype for the stock has caused people to buy the stock for a higher price than

they normally would. This is called bubble. One of the most important uses of

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the P/E metric is to decide whether a stock is undergoing a bubble or anti-bubble

by the comparing its P/E to similar companies. Historically, bubbles have been

followed by crashes. As such prudent investors try to stay out of them

The P/E ratio (price-to-earnings ratio) of a stock (also called its "earnings

multiple", or simply "multiple", "P/E", or "PE") is a measure of the price paid for

a share relative to the income or profit earned by the firm per share. A higher P/E

ratio means that investors are paying more for each unit of income. It is a

valuation ratio included in other financial ratios. The reciprocal of the P/E ratio

is known as the earnings yield.

The price per share (numerator) is the market price of a single share of the

stock. The earnings per share (denominator) is the net income of the company

for the most recent 12 month period, divided by number of shares outstanding.

The EPS used can also be the "diluted EPS" or the "comprehensive EPS".

For example, if stock A is trading at $24 and the Earnings Per Share for the

most recent 12 month period is $3, then the P/E ratio is 24/3=8. Stock A said to

have a P/E of 8 (or a multiple of 8). Put another way, the purchaser is paying $8

for every one dollar of earnings.

By relating price and earnings per share for a company, one can analyze the

market's valuation of a company's shares relative to the wealth the company is

actually creating.

One reason to calculate P/Es is for investors to compare the value of stocks. If

one stock has a P/E twice that of another stock, all things being equal, it is a less

attractive investment. Companies are rarely equal, however, and comparisons

between industries, countries, and time periods may be misleading.

The company has some sort of business advantage which seems to ensure that it

will continue make money for a long time with very little risk. Thus investors

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are willing to buy the stock even at a higher price for the piece of mind that they

all not loose their money.

A large amount of money has been inserted into the stock market, out of

proportion of the growth of the companies across the same time period. Since

there are only limited amount of stocks to buy, supply and demand dictate that

the price of the stocks must go up. This factor can make comparing P/E ratios

over time difficult.

WHAT IS A PRICE?

To begin, we must first understand what price is, Financial theorists define stock

price at the present value of all future earnings expectation of the company, dividend by

tis number of shares outstanding. What this means is the earning capacity of the company

is what defines the price. Often, companies can get significant value out of a relatively

small investments in the assets because the ability for those assets to make money is

significant.

Even companies that loose money today can have a high share price because price is

based on the future earnings of the company. No enterprise is in the business to loose

money, so the expectation is that every business will make money some day. So long as

there is a potential for the future revenue streams to shareholders, there will be a price

there some one will pay for the shares.

The earnings that a company could make in the future, the growth that the company could

realize and the time to the realization of those goals are factors which affect the estimate

that market makes on the earnings potential

THE MARKET MECHANISM

The value of the publicity traded shares is liquidity. Publicity traded companies are worth

more than private ones simply because there is greater access to buyers and sellers, and

market efficiency can better determine share price. The stock market provides value to

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any company that chooses to list its shares because the company gains liquidity. In a

theoretical sense, any time some one buys the shares of the company in the market, they

are effectively stating that they believe the shares of the company are undervalued. The

fact that they are buying implies a belief and expectation that the shares will increase in

the future. At the same time, the person who is selling the share is experiencing the

opposite belief. By selling, they imply that the stock is over valued and the expectation

that the stock will go lower in the future. In this way, the stock market is forum for debate

on what the value of the company and its shares.

FACTORS CAUSING MOVEMENTS IN STOCK PRICE

There are four factors that cause movements in stock price.

1. New information

2. Uncertainty

3. Psychological factors

a) Fear

b) Greed

4. Supply and Demand

1. New information

In any financial ext book it may only find this factor mentioned as

the determinant of share price. Information is the key as it gives the market a reason to

value a stock at a particular price level. The market will price the stock based on all the

information that the public is aware of. As new information comes into the public realm,

the market will adjust the prices up and down based on how the market perceives the

information will effect the future earnings capacity of the company.

It is important to know how information flows from company to the public. The public is

supposed to learn new information through the insurance of news. The reality is that the

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information usually makes it out before the news is released. Rumors play a big part in

the flow of information, particularly today when technology allows for the rapid and wide

discrimination of the information. That close to the company has access to privileged

information that they will act upon by buying and selling in the market.

The ramification of this is that investors who wait for news to make investment decisions

often get into the stocks long after the information contened in the news has already been

priced in. “Buy on rumer, and sell on news” is a saying that has grown popular because it

is often the case that stocks move up in anticipation of positive news and then sell off

when expectation is answered by the news released.

Technical analysis is very important because it provides tools that allows investors to

identify the signs that new information is been stocked into the market before the news is

released. Stocks that trade abnormally often do so because of the significant new

information, both positive and negative. In this way technical analysis helps to reveal

fundamental changes in the company before the broader market is aware of it.

2. Uncertainty:

When the company will make in the future is far from certain. For this

reason, we should expect the stocks to bounce around a little bit because of the

nervousness of the market about the future of the company. The uncertain future of the

company will bring some volatility in share prices even during a period in which there

is no new information.

Companies that have established a performance record will tend to show less volatility

as determined by uncertainty. General motors which is a well established company with

many years of revenues, will show less volatility then an upset company that has not

yet had an opportunity to establish a track record of revenues and earnings. Because of

uncertainty these stock will trade difficultly and will provide different kinds of trading

opportunities.

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4. Psychological factors

Humans are behind the activities of the trading market. That

means human characteristics are also factors in how share prices move.

Understanding human psychology is extremely important in evaluating investment

opportunities because human psychology creates and accentuates many of the

opportunities that investors can capitalize on.

For example greed often causes stocks to go higher than they deserve to go.

By deserve I mean that they go higher than the present value of the future earnings

potentials can justify. New information can cause a freeze in the market that makes

investors loose sight of rational valuation and simply buy the for the fear of being left

behind.

Fear and greed present incorrect valuations in the market that can exist relatively for a

short period but long enough for smart investors for capitalizing on. Emotion in the

market can be viewed for the amplification I pulled and the stocks moves back to where

it should reside based on the information of the company.

5. Supply and Demand

While popular stocks like dell and general motors trade

millions of shares every day, the majority of the stocks that we can choose to invest do

not have much liquidity. As a result stocks that trade smaller value of shares are

subjected to fluctuation because of supply and demand. If a large share holder wants to

sell a large number of shares into the market with weak liquidity, the share holder can

dramatically move share price.

Supply and demand can take the short term balance out of the market and present

opportunities for investors to see that the balance is restored. Investors can anticipate

abnormal supply and demand verities can price reflects all the information which is

known about the company and the ability to make money in the future. As information

about the company’s prospects is made public, prices will change. Uncertainty of the

failure can bring added volatility which psychological factors can amplify the effect of

new information. Finally supply and demand can cause fluctuations not motivated by

new information.

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REASONS FOR THE COMPANIES TO CARE ABOUT THEIR STOCK PRICES

Companies live and die by their stock price, yet for the most part they don’t participate

in trading their stocks within the market. Companies receive money from the securities

market only when they first sell the security to the public in the primary market, which is

commonly referred to an initial public offer

1.Those in Management are often Shareholders Too

The first and most obvious reason why those in management care about the stock market

is that they typically have a monetary interest in the company. It's not unusual for the

founder of a public company to own a significant number the outstanding shares, and it's

also not unusual for the management of a company to have salary incentives or stock

options tied to the company's stock prices. For these two reasons, management acts as

stockholders and thus pay attention to their stock price.

2.Wrath of the Shareholders

Too often investors forget that stock means ownership. The job of management is to

produce gains for the shareholders. Although a manager has little or no control of share

price in the short run, poor stock performance could, over the long run, be attributed to

mismanagement of the company. If the stock price consistently underperforms the

shareholders' expectations, the shareholders are going to be unhappy with the

management and look for changes. In extreme cases shareholders can band together and

try to oust current management in a proxy fight. To what extent shareholders can control

management is debatable. Nevertheless, executives must always factor in the desires of

shareholders since these shareholders are part owners of the company.

3. Financing

Another main role of the stock market is to act as a barometer for financial health.

Analysts are constantly scrutinizing companies and reflecting this information onto its

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traded securities. Because of this, creditors tend to look favorably upon companies whose

shares are performing strongly. This preferential treatment is in part due to the tie

between a company's earnings and its share price. Over the long term, strong earnings are

a good indication that the company will be able to meet debt requirements. As a result,

the company will receive cheaper financing through a lower interest rate, which in turn

increases the amount of value returned from a capital project.

Alternatively, favorable market performance is useful for a company seeking additional

equity financing. If there is demand, a company can always sell more shares to the public

to raise money. Essentially this is like printing money, and it isn't bad for the company as

long as it doesn't dilute its existing share base too much, in which case issuing more

shares can have horrible consequences for existing shareholders.

4. The Hunters and the Hunted

Unlike private companies, publicly traded companies, if they allow their share price to

decline substantially, stand vulnerable to takeover by another company. This exposure is

a result of the nature of ownership in the company. Private companies are usually

managed by the owners themselves, and the shares are closely held. If private owners

don't want to sell, the company cannot be taken over. Publicly-traded companies, on the

other hand, have shares distributed over a large base of owners who can easily sell at any

time. To accumulate shares for the purpose of takeover, potential bidders are better able

to make offers to shareholders when they are trading at lower prices. For this reason,

companies would want their stock price to remain relatively stable, so that they remain

strong and deter interested corporations from taking them.

On the other side of the takeover equation, a company with a hot stock has a great

advantage when looking to buy other companies. Instead of having to buy with cash, a

company will simply issue more shares to fund the takeover. In strong markets this is

extremely common - so much that a strong stock price is a matter of survival in

competitive industries.

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5.Ego

Finally, a company may aim to increase share simply to increase their prestige and

exposure to the public. Managers are human too, and like anybody they are always

thinking ahead to their next job. The larger the market capitalization of a company, the

more analyst coverage the company will receive. Essentially, analyst coverage is a form

of free publicity advertising and allows both senior managers and the company itself to

introduce them to a wider audience.

For these reasons, a company's stock price is a matter of concern. If performance of their

stock is ignored, the life of the company and its management may be threatened with

adverse consequences, such as the

DETERMINING THE SHARE PRICES

Share prices in traded company are determined by market supply and demand, and thus

depend upon the expectations of the buyers and sellers. Among these the following are

important while investing

The company’s future and recent performance

Perceived risk

New product lines

Prospects for the companies of this type, the “market sector”

Prevailing moods and fashions.

1.2 SUBJECT BACK GROUND OF THE STUDY

The impact of the price movement of the shares on annual performance of the

companies continuous to be an important research question in finance. Some

companies enjoy high price o earnings ratio and other growth measures, while the

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measure remains negligible for others, the result is that the investor needs t be more

contingent that even before the reasons the possibility underlying abbreviations in

connections between stock price movements and annual performance. Investors

should consider whether the companies share is a good value, it is not always that

the stock should always be purchased of good performance of companies and sold

on bad performance. This paper attempt to find the price movement of the shares

and the performance of their respective companies. It is apparently that there are

extremely wide day-to-day changes in the price quote on most of the stock

exchanges. It is not possible to say whether it is economic or psychological realities

which are the major causes of the price fluctuatons in the stock markets. This is an

important issue, as it brings into account the analyzing the annual performance of

companies and the price movements of the shares of that particular companies to the

investors.

1.3 NEED FOR THE STUDY

Investor’s wealth is precious. Hence needs to analyze the prevailing

economic conditions of the country and also the shares of the respective

companies.

Investment is the commitment of fund expectation with some positive rate o

return and is always associated with risk, may be diversifiable non-

diversifiable or both for reducing the risk and increasing the return,

analyzing the securities, considering the price movement of the shares and

performance of the companies is a must.

As each investor has his own preference and choice of investments,

considering the shares and the relative movement of he shares and price

movements with companies performances enables of getting better

portfolio.

Portfolio management is assuming importance and more and more people

are showing interest in investing in companies which are doing good.

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CHAPTER 2

RESEARCH DESIGN

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2.1 INTRODUCTION

Research Design is the basic frame work which provides the guidelines for research. The

research design specifies the method for data collection analysis. There are mainly two

methods of collecting data, primary and secondary data collection..

2.2 STATEMENT OF THE PROBLEM

There was a research topic by V.C. Varma and others which concludes that price

movement of shares has absolutely no correlation with the annual performance of their

respective companies. This as a topic puts me in the interest of the researcher to

investigate and research in detail the status of the same as applicable to selected stocks

and their performance.

2.3 REVIEW OF LITERATURE

Amongst the literature of the most relevance to the price movement of shares and

company performance is the research topic by V.C.Varma. This provides a qualitative

explanation of the price fluctuations. He proposes that investor reacts due to the

psychological or sociological beliefs, exert a greater influence on the price movement of

the shares then good economic sense arguments, Varma believes that investor attitudes

are of greater importance in determining the price levels. He claims that substantial

change can be explained by a collective change of mind by the investing public which

can only be explained by the thoughts and beliefs on future events, is its psychology.

2.4 OBJECTIVES OF THE STUDY

To study the analysis of price movement of shares and company performance

with respect to Information Technology and Automobile Industry.

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To study the various factors affecting the price movement of shares and company

performance.

2.5 SCOPE OF THE STUDY

This study is done mainly under the IT and Automobile Industry trading in Secondary

Markets, so this study cannot be generalized. 35% of the share price movements depend

on the companies potential growth through analysis of growth measurements provided

valuable insights.

2.6 OPERATIONAL DEFINATIONS

Fundamental analysis:

It is really a logical and systematic approach to estimate the future dividends and share

price is determined by a number of fundamentals, industry, company and economic

fundamentals.

Unaudited quarterly financial analysis:

Variables like compounded annual growth rate of sales, earnings per share, price-to

earnings are used for the analysis of the company performance.

2.7 METHODOLOGY

. This study entitled ‘A study on the analysis of price movement of shares and annual

performance of the companies with reference to IT and Automobile Industry’. Secondary

Data has been collected from

Ministry of Statistics

Various books on Portfolio Management

Magazines, Journals and Papers on Portfolio Management

Websites of Companies

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2.8 TOOLS OF DATA COLLECTION

There are two types of data collection method, primary and secondary data collections.

Secondary data is collected from various books, journals, annual reports of the companies

quarterly financial results and various other articles.

2.9 FIELD WORK

Field work of the study is related to collecting the data about economy, industries and

companies. Government policies towards the selected industries and companies are also

collected. Information regarding companies has been collected through websites,

economic times, magazines and papers.

2.10 METHOD OF ANALYSIS

The dissertation is fully based on the analysis of various factors of growth. For analyzing

the performance of the company quarterly financial reports are analyzed by using

variables such as CAGR, EPS, P/E, and Quality of Earnings ratio.

2.11 LIMITATIONS OF THE STUDY

Since the study is restricted to one month there are time constrains

Since this is done under IT and Automobile Industry, there is geographic

constraints.

Variables like CAGR, EPS, P/E, and Quality of Earnings ratio are used for

recommending good company but there are other factors like labour strikes,

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internal management policies, poor employer employee relationship also affect

company performance.

2.12 CHAPTER SCHEME

Chapter 1: Introduction deals with the Introduction to the topic, Market mechanism,

Reasons for the price movement of shares. It also consists of subject background of the

study and need for the study also.

Chapter 2: Research Design deals with statement of the problem, review of literature,

objectives of the study, scope of the study, methodology, tools of data collection and

limitations.

Chapter 3: Company Profile gives the profile of the IT and Automobile companies taken

for the study.

Chapter 4: It deals with Analysis and Interpretation of Data

Chapter 5: It consists of Summary of Findings, Conclusion and Recommendations

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CHAPTER 3

COMPANY PROFILE

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3.1 BAJAJ AUTO

Bajaj Auto is a major Indian automobile manufacturer. It is India's largest and the

world's 4th largest two- and three-wheeler maker. It is based in Pune, Maharashtra, with

plants in Waluj near Aurangabad, Akurdi and Chakan, near Pune. Bajaj Auto makes and

exports motorscooters, motorcycles and the auto rickshaw. It is widely believed that Bajaj

is headed for a de-merger into 2 separate companies: Bajaj Auto and Bajaj Finance. It is

expected that sum of the parts created, will be worth more that the current whole, as was

the case in the de-merger of Reliance Industries.

Company's history

Bajaj Auto came into existence on November 29, 1945 as M/s Bachraj Trading

Corporation Private Limited. It started off by selling imported two- and three-wheelers in

India. In 1959, it obtained license from the Government of India to manufacture two- and

three-wheelers and it went public in 1960. In 1970, it rolled out its 100,000th vehicle. In

1977, it managed to produce and sell 100,000 vehicles in a single financial year. In 1985,

it started producing at Waluj in Aurangabad. In 1986, it managed to produce and sell

500,000 vehicles in a single financial year. In 1995, it rolled out its ten millionth vehicle

and produced and sold 1 million vehicles in a year.

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3.2 HERO HONDA MOTORS

Hero Honda Motorcycles is the World's biggest manufacturer of motorcycles (by

quantity). Hero Honda is a 50:50 joint venture that began in 1984 between the Hero

group of India and Honda from Japan. It has been the world's biggest manufacturer of 2-

Hero Honda Motorcycle Ltd.

Type Public company BSE:HEROHONDA M

Founded January 19, 1984 in Gurgaon, Haryana, India

Headquarters Haryana, India

Key people Om Prakash Munjal, Founder

Mr. Brijmohan Lall Munjal, Chairman

Mr. Toshiaki Nakagawa, Joint Managing Director

Mr. Pawan Munjal, Managing Director, CEO

Industry Automotive

Products Motorcycles, Scooters

Revenue U$ 2.8 billion

Website www.HeroHonda.com

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wheeled motorized vehicles since 2001, when it produced 1.3 million motorbikes in a

single year. Hero Honda's Splendor is the world's largest selling motorcycle. Its 2 plants

are in Dharuhera and Gurgaon, both in Haryana, India. It specializes in dual use

motorcycles that are low powered but very fuel efficient

Company Profile

“Hero”, is the brand name used by the Munjal brothers in the year 1956 with the flagship

company Hero Cycles. The two-wheeler manufacturing business of bicycle components

had originally started in the 1940’s and turned into the world’s largest bicycle

manufacturer today. Hero, is a name synonymous with two-wheelers in India today. The

Munjals roll their own steel, make free wheel and other critical bicycle components and

have diversified into different ventures like product design. The Hero Group philosophy

is: “To provide excellent transportation to the common man at easily affordable prices

and to provide total satisfaction in all its spheres of activity”. The Hero group vision is to

build long lasting relationships with everyone (customers, workers, dealers and vendors).

The Hero Group has a passion for setting higher standards and “Engineering Satisfaction”

is the prime motivation, way of life and work culture of the Group.

In the year 1984, Mr. Brijmohan Lal Munjal, the Chairman and Managing Director of

Hero Honda Motors (HHM), headed an alliance between the Munjal family and Honda

Motor Company Ltd. (HMC). HHM Mission Statement is: “We, at Hero Honda, are

continuously striving for synergy between technology, systems, and human resources to

provide products and services that meet the quality, performance, and price aspirations of

our customers. While doing so, we maintain the highest standards of ethics and societal

responsibilities, constantly innovate products and processes, and develop teams that keep

the momentum going to take the company to excellence in the new millennium”. This

alliance became one of the most successful joint ventures in India, until the year 1999

when HMC had announced a 100% subsidiary, Honda Motorcycle & Scooter India

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(HMSI). This announcement caused the HHM stock price to decrease by 30 percent that

same day. Munjal had to come up with some new strategic decisions as, HMSI and other

foreign new entry companies were causing increased intensity of rivalry for HHM

3.2

3.3 MAHINDRA & MAHINDRA LTD.

Mahindra & Mahindra Limited (M&M) is a major automaker in India. It is the

flagship company of the Mahindra Group. The company was set up in 1945 as Mahindra

& Mohammed.[3] It traded steel with suppliers in England and the United States. M&M

began by assembling complete knock down (CKD) Jeeps in 1949. It expanded to

Mahindra & Mahindra Limited

Type Public

Founded 1945

Key people Keshub Mahindra (Chairman), Anand G.Mahindra (Vice-Chairman & Managing Director)

Industry Automotive and Tractor

Products utility vehiclescommercial vehiclestractor

Revenue 1596.90 M (2004)]

Employees 11,600

Website http://www.mahindra.com/

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indigenous manufacture of Jeep vehicles with a high level of local content under license

from Kaiser Jeep and later American Motors (AMC).

M&M soon branched out into manufacturing agricultural tractors and light commercial

vehicles (LCVs). It later expanded its operations to secure a significant presence in many

more important sectors. The company has now transformed itself into a group that caters

to the Indian and overseas markets with a presence in vehicles, farm equipment,

information technology, trade and finance related services, as well as infrastructure

development.

By 2005, M&M had become the largest producer of SUVs in India. The company has

recently started a separate sector, the Mahindra Systems and Automotive Technologies

(MSAT), to focus on developing components and offering engineering services.

M&M has two main operating divisions:

The Automotive Division which manufactures utility vehicles, light commercial

vehicles and three wheelers

The Tractor (Farm Equipment) Division makes agricultural tractors and

implements that are used in conjunction with tractors, and has also ventured into

manufacturing of industrial engines

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3.4 TATA MOTORS LTD

Tata Motors Limited

Type Public (NYSE: TTM)

Founded 1960

Headquarters India

Industry automotive

Products commercial vehicles

Revenue $5.383 billion USD

Website www.tatamotors.com

Tata Motors Limited, formerly known as TELCO (TATA Engineering and Locomotive

Company), is India's largest passenger automobile and commercial vehicle

manufacturing company. It is also the world's 5th largest commercial vehicle

manufacturer. It is part of the Tata Group. Tata Motors is widely credited for putting

India on the automotive map by designing and developing its own range of cars. Tata

Motors date back to 1945 when they started making Trains. Tata Motors was first listed

on the NYSE in 2004. Tata Motors had created the wealth Rs 320bn during 2001-2006

and stood among top 10 wealth creators in India. It has its manufacturing base in

Jamshedpur, Lucknow and Pune. In 2004 it also bought Daewoo's truck manufacturing

unit in South Korea. In March 2005, it acquired a 21% stake in Hispano Carrocera SA,

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giving it controlling rights in the company. Tata Motors and the Fiat group have signed a

new memorandum of understanding (MoU) to establish a 50:50 joint venture to

manufacture passenger vehicles, engines and transmission systems for both domestic and

export markets

Tata Motors is a company of the Tata and Sons Group, founded by Jamshetji Tata. It is

currently headed by Ratan Tata.

The company has the workforce 0f 22000 employees working in its three plants and other

regional and zonal offices across the country.

Tata Motors' range of passenger cars is still not comprehensive by international

standards. In commercial vehicles Tata Motors commands an imposing 65% market share

in the domestic heavy commercial market. The company is trying to modernise its range

of commercial vehicles. Tata Motors hived off its vehicle finance business into a separate

subsidiary, TML Financial Services (TMLFS), in September 2006.

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3.5 MARUTI UDYOG LTD

Maruti Udyog Ltd

Type Public (BSE MARUTI, NSE MARUTI)

Founded 1981

Headquarters Gurgaon, Haryana, India

Key people Shinzo Nakanishi, ChairmanJagdish Khattar, MD

Industry Automotive

Products MarutiSuzuki

Revenue ~$2.5 billion (2005)

Employees 3,334

Slogan Count on us.

Website http://www.marutiudyog.com/

Maruti Udyog Limited is a publicly listed company in India. It is a leading four-wheeler

automobile manufacturer in South Asia. Suzuki Motor Corporation of Japan has the

controlling stake in the company. It was the first company in India to mass-produce and

sell more than a million cars. It is largely credited for having brought in an automobile

revolution to India. To this day it is the market leader in India in its segment

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The old logo of Maruti Udyog Limited later the logo of Suzuki Motor Corp. was also

added to it

Maruti Udyog Ltd is one of India's leading automobile manufacturers and the market

leader in the car segment, both in terms of volume of vehicles sold and revenue earned.

18.28% of the company is owned by the government, and 54.2% by Suzuki of Japan. The

Indian government held an Initial Public Offering of 25% of the company in June of

2003.

Maruti Udyog Limited (MUL) was established in February 1981, though the actual

production commenced in 1983. Through 2004, Maruti has produced over 5 Million

vehicles. Marutis are sold in India and various several other countries, depending upon

export orders. Cars similar to Marutis (but not manufactured by Maruti Udyog) are sold

by Suzuki in Pakistan and other South Asian countries.

The company annually exports more than 30,000 cars and has an extremely large

domestic market in India selling over five hundred thousand cars annually. Maruti 800,

till 2004, was the India's largest selling compact car ever since it was launched in 1983.

More than a million units of this car have been sold worldwide so far. Currently, Maruti

Alto tops the sales charts.

Due to the large number of Maruti 800s sold in the Indian market, the term "Maruti" is

commonly used to refer to this compact car model. Till recently the term "Maruti", in

popular Indian culture, was associated to the Maruti 800 model.

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3.6 WIPRO TECHNOLOGIES

Wipro Technologies.

Type Public (NYSE: WIT)

Founded 1945

Headquarters Bangalore, India

Key people Azim Premji, Chairman and Managing Director

Industry Information technology services

Revenue $3.47 billion USD

Net income $677 million USD

Employees 61,000+ (2006)

Slogan Applying Thought

Website www.wipro.com

Wipro Technologies (NYSE: WIT) is an IT service company established in 1980 in

India. It is a subsidiary of Wipro Limited (incorporated 1946, in operation since 1945). It

is headquartered in Bangalore. It is the third largest IT services company in India. It has

68,000 employees as of Apr 2007, inclusive of its BPO arm which it acquired in 2002.

28

Wipro Technologies has over 300 customers across USA, Europe and Japan including 50

of the Fortune 500 companies. Some of its customers are Boeing, Cisco, Ericsson, IBM,

Microsoft, Prudential, Seagate, Sony and Toshiba. It is listed on the New York Stock

Exchange and is part of its TMT (technology media telecom) index.

With revenue in the excess of US $3 billion, Wipro is one of India's major information

technology companies. Wipro has dedicated development centers and offices across

India, Europe, North America and Asia Pacific.

The current Chairman, Managing Director and majority stake owner is Azim Premji.

From inception, the software and hardware divisions have been headed by him.

History

Wipro was set up in Amalner, Maharashtra in 1945. Primarily an edible oil factory, the

chief products were Sunflower Vanaspati and 787 laundry soap (a by-product of the

Vanaspati operations). The company was called Western India Vegetable Products

Limited, with a minor presence in Maharashtra and Madhya Pradesh. In the 1970s and

1980s it began to expand and made forays into computing. In 1975, Wipro marketed

India's first homegrown PC. Wipro was the sole representative for Sun Microsystems in

India, before the Sun liaison office was set up in India, in the early nineties.

In 1995, it received ISO 9001 quality certification. In 1997, Wipro received CMM level 3

certification from the Software Engineering Institute. In 1998, it was certified at CMMi

level 5. In 2001, it was awarded the PCMM level 5 certification. In the same year,

Business Today rated it as India's most valuable company.

In June 2001, it was ranked among the top 100 best performing technology companies

globally by BusinessWeek. In November 2002, it was ranked among the top 10 software

services companies in the world by the same magazine. As of 2004, it was the 4th largest

company in the world in terms of market capitalization in IT services.

29

Wipro and its success in handling outsourced information technology from U.S.

businesses is detailed in Thomas L. Friedman's best-selling novel

3.7 SIEMENS AG

Siemens AG

Type Public (Aktiengesellschaft)(ISIN: DE0007236101, FWB: SIE, NYSE: SI)

Founded 1847 in Berlin, Germany

Headquarters Munich, Germany

Key people Klaus Kleinfeld,Chairman & CEO

Industry Conglomerates

Products Communication SystemsPower GenerationIndustrial Automation and ControlLightingMedical EquipmentTransportation and AutomotiveWater TechnologiesFinancingBuilding TechnologiesBusiness ServicesHome AppliancesConstruction

Revenue € 87.325 billion (2006)

Employees 480,000 (2007)

Slogan Global Network of Innovation

Website www.siemens.com

Siemens AG (ISIN: DE0007236101, FWB: SIE, NYSE: SI) is one of the world's largest

technology companies. Siemens has six major business divisions: Communication and

30

Information; Automation and Control; Power; Transportation; Medical; and Lighting.

Siemens' international headquarters are in Berlin and Munich, Germany. Siemens AG is

listed on the Frankfurt Stock Exchange and also on the New York Stock Exchange since

March 12, 2001. Worldwide, Siemens and its subsidiaries employ 480,000 people in 190

countries and reported global sales of €87.325 billion in fiscal year 2006.[2]

History

Siemens was founded by Werner von Siemens on October 1, 1847, based on the

telegraph he had invented that used a needle to point to the sequence of letters, instead of

using the Morse code. The company – then called Telegraphen-Bauanstalt von Siemens

& Halske – took occupation of its workshop on October 12.

In 1848, the company built the first long-distance telegraph line in Europe, spanning 500

km from Berlin to Frankfurt am Main. In 1850 the founder's younger brother, Sir William

Siemens (born Carl Wilhelm Siemens), started to represent the company in London. In

the 1850s, the company was involved in building long distance telegraph networks in

Russia. In 1855, a company branch opened in St Petersburg, headed by another brother,

Carl von Siemens.

In 1881, a Siemens AC Alternator, driven by a watermill, was used to power the world's

first electric street lighting in the town of Godalming, United Kingdom. The company

continued to grow and diversified into electric trains and light bulbs. In 1890, the founder

retired and left the company to his brother Carl and sons Arnold and Wilhelm. Siemens &

Halske (S&H) was incorporated in 1897.

In 1919, S&H and two other companies jointly formed the Osram lightbulb company. A

Japanese subsidiary was established in 1923.

During the 1920s and 1930s, S&H started to manufacture radios, television sets, and

electron microscopes. Before World War II Siemens was involved in the secret

rearmament of Germany.

31

During the Second World War, like many big companies in Germany at the time,

Siemens supported Hitler and participated in the "Aryanizing" of businesses. Siemens

used slave labor from concentration camps to build electric switches for military uses.

Siemens had many factories in and around famous extermination camps such as

Auschwitz. In one example, almost 100,000 men and women from Auschwitz worked in

a Siemens factory inside the extermination camp, supplying the electricity to the camp.

32

3.8 SATYAM COMPUTER SERVICES LTD

Satyam Computer Services Ltd.

Type Public (NYSE: SAY)

Founded (1987)

Headquarters Hyderabad, Andhra Pradesh, India

Key people Ramalinga Raju , ChairmanByrraju Rama raju, MD

Industry Information Technology

Revenue Over 1 billion (1096.30 million) USD (2006) (Google Finance Quote)

Employees 38,908

Slogan What Business Demands

Website www.satyam.comChinese VersionFrench VersionGerman VersionJapanese VersionPortuguese VersionKorean Version

Satyam Computer Services Ltd. is a consulting and information technology (IT)

services company based in India.

Satyam Computer Services Ltd. is headquartered at Hyderabad, India. It was founded by

B.Ramalinga Raju in 1987, Satyam meaning "truth" in Sanskrit. It offers a variety of IT

services spanning across different industry verticals. Satyam's network spans 55

countries, across six continents.

The company employs 40,000+ IT professionals across development centers in India, the

United States, the United Kingdom, the United Arab Emirates, Canada, Hungary,

33

Singapore, Malaysia, China, Japan and Australia. It serves over 489 global companies,

156 of which are Fortune 500 corporations. Satyam has strategic technology and

marketing alliances with over 50 companies.

Apart from Hyderabad, it has development centers in India at Chennai, Bangalore, Pune,

Mumbai, Nagpur, Delhi, Kolkata, and Bhubaneswar.

October 19, 2006 - Satyam Q2 Results Declared-- Profit Increased by 34.7%

YoY, with total 34,908 Leaders.(Every Satyamite is a Leader)

Satyam has been accorded the prestigious recognition by Most Admired

Knowledge Enterprise (MAKE) as a top Asian Knowledge Organization. The

MAKE Awards are given to leading Asian organizations that leverage enterprise

knowledge to create value through innovation, product or service excellence, and

operational effectiveness.

Satyam’s best-of-breed training programs and learning interventions for

Associates were accorded the prestigious [[American Society for Training &

Development’s (ASTD)\\ BEST Awards-recognition. Satyam was ranked 15th in

the ASTD’s Fourth Annual BEST Awards program, and is among the 39

organizations from India, South Africa, and the United States to receive this high-

status award.

34

3.9 INFOSYS TECHNOLOGIES LTD

Infosys Technologies Ltd.

Type Public (NASDAQ: INFY)

Founded July 2, 1981

Headquarters Electronics City, Hosur Road, Bangalore, India

Key people N. R. Narayana Murthy (Co-founder, Chairman of the Board and Chief Mentor)Nandan Nilekani (Co-founder and Executive Co-Chairman)S. "Kris" Gopalakrishnan (Co-founder, CEO and MD)S. D. Shibulal (Co-founder and COO)

Industry Software services

Products Finacle (a financial software package for the banking industry)

Services Information technology services and solutions

Revenue $3.1 billion USD

Employees ~72,241 (As on March 31, 2007)

Slogan Powered by Intellect, Driven by Values

Website www.infosys.com

Infosys Technologies Limited (NASDAQ: INFY) is an information technology (IT)

services company founded in Pune, India in 1981 by N. R. Narayana Murthy and six of

his colleagues. In 1983, Infosys moved its headquarters to Bangalore, the capital of

Karnataka. It operates nine development centers in India and has over 30 offices

worldwide. Annual revenues for fiscal year 2007 exceeded US$3.1 billion with a market

capitalization of over US$30 billion. With over 72,000 employees worldwide, Infosys is

one of India's largest IT companies.

35

History

Infosys was founded on July 2, 1981 by seven software professionals: N. R. Narayana

Murthy, Nandan Nilekani, N. S. Raghavan, S. Gopalakrishnan, S. D. Shibulal, K. Dinesh

and Ashok Arora. Murthy started the company by borrowing Rs.10,000 from his wife

Sudha Murthy. The company was incorporated as "Infosys Consultants Pvt Ltd.", with

Raghavan's house in Matunga, north-central Mumbai as the registered office.

In 1999 Infosys attained a SEI-CMM Level 5 ranking and became the first Indian

company to be listed on NASDAQ. In 2001 it was rated "Best Employer in India" by

Business Today, and in 2002 Business World named Infosys "India's Most Respected

Company". Infosys won the Global MAKE (Most Admired Knowledge Enterprises)

award, for the years 2004 and 2003, being the only Indian company to win this award.

36

3.10 TATA CONSULTANCY SERVICES

TATA CONSULTANCY SERVICES

Type Public

Founded 1968

Headquarters Mumbai, India

Key people Ratan Tata, Chairman of the Board,S. Ramadorai, CEO & MD

Industry Information Technology

Revenue US $ 4.3 Billion (Q4-FY 06-07)

Employees ~89425(Jan 2007)

Slogan Experience Certainty

Website http://www.tcs.com

Tata Consultancy Services Limited (TCS Limited) is an Indian information technology,

consulting, services and business-process outsourcing organization which commenced

operations in 1968. As of 2006, it is Asia's largest IT services firm with annualised

revenues of over US $4 billion (estimated for FY 2006-07) and has the largest number of

employees among all the Indian IT companies with strength of over 87,000. For fiscal

year 2005-06, it posted a net profit of Rs. 3,709 crore.

TCS is part of one of Asia's largest conglomerates and most respected groups, the Tata

Group, which has interests in areas such as energy, telecommunications, financial

services, chemicals, engineering and materials.

History

Tata Consultancy Services was established in 1968. Mr. Fakir Chand Kohli, an electrical

engineer, was brought in as the first General Manager of Tata Consultancy Services, from

37

the Tata Electric Companies (and now The Tata Power Company Limited), where he was

a Deputy General Manager.

TCS' first software export project was undertaken in 1974 when it converted the Hospital

Information System from Burroughs Medium Systems COBOL to Burroughs Small

Systems COBOL. This project was carried out entirely in TCS Mumbai on the ICL 1903

Computer. A team of more than 12 people delivered this project to their first US based

customer, and thus the Indian Software Export Industry was born. By mid 1970s it had

spread its reach to Britain, Switzerland and the Netherlands. In 1979, TCS was the first

Indian software firm to open overseas office in New York.

In 1980, TCS and a sister Tata firm accounted for 63 % of the Indian software industry

exports, $4 million shared by 21 firms. New players like Datamatics, Patni Computers

have started to evolve in 1980’s. In 1984, TCS set up its office in Export Processing Zone

– Mumbai.

The early 1990s saw a tremendous surge in TCS's business, which also resulted in a

massive recruitment drive by the company. In early and mid-1990s, TCS re-invented

itself to become a software products company. In the late 1990s, to accelerate its revenue

growth, TCS decided to employ a three-pronged strategy – developing new products with

high revenue earning potential, tapping domestic and other fast growing markets and

focusing on inorganic growth through mergers & acquisitions. In late 1998, the company

decided to concentrate on new revenue opportunities including Y2K and Euro

conversion. E-business was a major area of focus in the late 1990s.

TCS started a project aimed at removing illiteracy in India with a pilot project in Andhra

Pradesh. In 2001, Tata Consultancy Services (TCS) commissioned the latest 64-bit

zSeries eServer from IBM, thereby becoming the first organization in the ASEAN and

South Asia region to adopt the latest technology in mainframe computing. In 2004, TCS

became a public listed company. In fiscal 2006 the Company's profit before taxes and

exceptional items aggregated Rs. 3,074.35 crore as compared to Rs. 2,308.65 crore in the

previous fiscal 2005 - a growth of 33.17%. In 2006, Tata Infotech Limited and three

38

wholly-owned subsidiaries of the company, namely Airline Financial Support Services

(India) Ltd (AFSL), Aviation Software Development Consultancy India Ltd (ASDC) and

TCS Business Transformation Solutions Ltd (TCS BTS) have amalgamated with the

company.

39

CHAPTER 4

DATA ANALYSIS AND INTERPRETATION

40

4.1 IMPORTANCE OF EIC ANALYSIS

The primary motive of buying a share is to sell it subsequently at a higher price.

In many cases, dividends are also expected. Thus the dividend and price changes

constitute the return from investing in shares. These values can only be estimated and not

predicted with certainty. These values are primarily determined by the performance of the

company, which in turn is influenced by the performance of the industry to which the

company belongs and the general economic and socio political scenario of the country.

An investor who would like to be rational and scientific in his investment

activity has to evaluate a lot of information about the past performance and expected

future performance of companies, industry and economy as a whole. Such valuation or

analysis is called fundamental analysis.

FUNDAMANAL ANALYSIS –MEANING

Fundamental analysis is really a logical and systematic approach to estimate the

future dividends and share price. It is based on the basic premise that share price is

determined by a number of fundamentals; industry fundamentals, company fundamentals

have to be considered while analyzing a security for investment purpose. Fundamental

analysis is in other words a detailed analysis of the fundamental factors affecting the

performance of the companies.

The intrinsic value of an equity share depends on a multiple factors. The earning

of the company, the growth rate and risk factor exposure of the company has a direct

bearing on the price of shares. 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 the

company’s own performance. So, it is mandatory to the investor to analyze broadly the

41

economic, industry factors before investment. Research also found the stock price

changes could be attributed to the following factors.

Economic wide factors 30-35%

Industry factors 15-20%

Company factors 30-35%

Other factors 15-25%

ECONOMY – INDUSTRY – COMPANY ANALYSIS FRAMEWORK

The multiple factors affecting the performance of a company can be classified

as:

(A) Economic wide factors such as growth rate of economy, inflation rate, foreign

exchange rate ….etc which affects all companies.

(B) Industry wide factors such as demand and supply gap of industry, hr emergence

of substitute product, changes in government policy relating to the

industry…..etc.

(C) Company specific factors such as the age of its plant the management, brand

image of its products, the labour management relations ……etc. These factors

are likely to make a company’s performance quite different from that of its

compatriots in the same industry.

42

ECONOMIC ANALYSIS

43

4.2 ECONOMIC ANALYSIS

The level of economic activity has as impact on price movement of share and

company performance in many ways. If the company grows rapidly, the industry can be

expected to show rapid growth and vice-versa. When the level of economic activity is

high stock prices are high reflecting the prosperous outlook for sales and profits of the

firms.

SECTORS OF INDIAN ECONOMY

There are three major sectors of Indian Economy. They are;

1) Agriculture

2) Industry

3) Services

Since IT and Automobile industry are taken for my study only that industries are

studied in detail.

44

4.2.1 CONTRIBUTION OF INDUSTRY TO THE ECONOMY

Index of industrial production which measures the overall industrial growth rate

was 10.1% in October 2005 as compared to 6.2% in October 2004. The largest sector

here holds the textile industry. Automobile sector has also demonstrated the inherent

strength of Indian labour and capital.

Below table and graph shows the contribution from industry to GDP over the

years.

Table No: 4.1

Table showing the contribution of industry to GDP over the years.

Years Share in GDP

2003-2004 27

2004-2005 27.3

2005-2006 29.5

2006-2007 31.1

Source: - Central statistical organization

45

Graph 4.1 showing the contribution of industry to GDP over the years.

Comment

Contribution to GDP from the industrial sector is increasing slowly over the years.

This is the second largest contribution to GDP.

46

4.2.2 CONTRIBUTION OF SERVICES TO GDP OVER THE YEARS

The services sector is the fastest growing sector. It has the largest share in the

GDP accounting for about 48% in 2000. Business services, communication, financial

services, community services, hotels and restaurants and trade services are among the

fastest growing sectors.

Table 4:2

Table showing contribution of services sector to GDP over the years.

Years Share in GDP

2003-2004 51.8

2004-2005 52.2

2005-2006 54

2006-2007 56.3

Source: - Central statistical organization

47

Graph: 4.2 Graph showing contribution of services sector to GDP over the years.

Comment

Service sector contribution is increasing in rapid speed. Because performance of IT

companies in India banks is good over the years. This has been reflecting in growth of

service sector.

48

INDUSTRY ANALYSIS

49

4.3 INDUSTRY ANALYSIS

An investor ultimately invests his money In the securities of one or more

specific companies. Each company can be characterized as belonging to as industry. The

performance of companies would, therefore, be influenced by the fortune of the industry

to which it belongs. For this reason as analyst has to study the fundamental factors

affecting the performance of different countries.

An industry is a group of firms that have similar technological structure of

production and produce similar products. An industry is defined as “ a group of firms

producing reasonably similar products, which serve the same needs of a common set of

buyers”

CLASSIFICATION OF SECTORS / INDUSTRIES

A) Manufacturing Sectors

1) Auto and ancillary industry

2) Cement industry

3) Oil and Natural Gas industry

4) Pharmaceutical industry

5) Steel industry

B) Service sectors

1) Computer and Information Technology Industry

4.3.1 AUTOMOBILE INDUSTRY

50

India, the world’s largest democracy, having a very large pool of scientific and

engineering talent in the world has marched forward is critical areas of development. The

country in the process of integrating world economy. The well developed Indian

automotive industry with the deep forward and backward linkage fulfills this catalytic

role by producing a wide variety of vehicles; such as passengers car, light and heavy

commercial vehicles, multi-utility vehicles such as jeeps, scooters, motorcycle, three

wheeler, tractors etc.

Major players in Auto and Ancillary industry

1) Bajaj Auto

2) Hero Honda motors

3) Mahindra and Mahindra

4) Tata Motors

5) Maruti Udyog

6) Ashok Leyland

Table 4:3

Table below showing the total production of automobiles over the years.

Years Total production

2000-2001 4759392

2001-2002 5316302

2002-2003 6759392

2003-2004 7229443

2004-2005 8461000

2005-2006 9802915

2006-2007 10792108

51

Table 4:4

Table below showing the growth rate of Automobile industry over the years.

Years Growth rate %

2000-2001 2.0

2001-2002 11.7

2002-2003 18.1

2003-2004 15.1

2004-2005 16.8

2005-2006 15.86

Graph 4:3

Graph below showing the growth rate of automobile industry.

Comment:

Automobile Industry is growing over the years. But in the year 2005 – 2006 the Industry

recorded a growth rate of 15.86% which is lower than the previous year 2004 – 2005

which recorded a growth rate of 16.8%.

4.3.2 IT INDUSTRY

52

Information technology is as effective tool in catalyzing economic activity,

efficient governance and H.R development India, is emerging as a leader in the field of

I.T industry. India has immense potential to emerge as global players, however, Indian

I.T companies need manufacture their own hardware products.

India’s success in software and service sectors because of attributed industry

knowledge and expertise of cutting edge technologies is significant.

The Indian software and services export was Rs 78,230 in 2004-2005 as

compared to Rs 58,240 in 2003-2004, as increase of 34%. This segment will continue to

show robust growth in future also.

India sustained leadership over other competing offshore sourcing destination is

driven by strong fundamentals comprising a large and growing pool of qualified

manpower, keen focus on defining and adhering to global equity standards, the

demonstrated emphasis on information security, the improving level and strong

government support focused on improving basic infrastructure and developing policies

and as effective regulatory regime that favor the growth of the industry.

Indian ITCS-BPO sector industry continues to grow from strength to strength,

witnessing high level of activity both onshore as well as offshore. Attribution level last

years remained high, between 25-40% as demand for trained talent out spaced supply.

Indian IT to be 55$ billion industry by 2008. The Indian IT industry witness a

CAGR of 23.1% between 2003 and 2008 with exports growing 25.3% and domestic

market 18.5%. The Indian IT industry will grow to Rs 2, 47,000Crore by the end of 2008

from Rs 87000Crore in 2003 according to IDC.

Table 4:5

53

Table showing the growth rate of IT industry over the years.

Years Growth rate %

2000-2001 31.3

2001-2002 16.4

2002-2003 21.1

2003-2004 21.9

2004-2005 25.4

2005-2006 38.2

2006-2007 39.0

Graph: 4.4

Graph showing the growth rate of IT industry over the years.

Comments:

The performance of IT industry is growing high. By 2008 the revenues is

expected to be at $ 10-80 billion.

54

COMPANY ANALYSIS

4.4 COMPANY ANALYSIS

55

Company analysis is a study of the variable that influences the future of a firm

both qualitatively and quantitatively. It is a method of assessing the comparative position

of a firm, its earning and profitability, the efficiency with which it operates its financial

position and its future with respect to the earning of its shareholders. The fundamental

nature of this analysis is that each share of a company has as intrinsic value which is

dependent on the company’s financial performance, quality of management and record of

its earning and dividend. They believe that the market price of a in a period of time will

move towards its intrinsic value. If the market price of a share is lower than the intrinsic

value, as evaluated by the fundamental analysis, then the share is supported to be

undervalued and it should be purchased, but its current market price shows that it is more

than the intrinsic value, then a according to the theory , the share should be sold.

The accuracy of a financial statement is usually identified if a qualified charted

accountant has certified the statements. In India, all firms have to get their documents

legally audited by a charted accountant before they are made available for public

presentation. Care must be taken to see that a responsible auditor has certified the

accounts of the firm.

Every investor in his own interest should see that the financial statement ate

complete in all the aspect. A standard should be such that it can assist financial analysis

and it also taken into consideration as many factor as possible. One of the changes is

price level change. Financial statement, which taken into, account as many changes as

possible to give account to the investor, should be considered a good statement, but it is

rather difficult to find out whether statement is complete because it works within the

framework of the rules that have been established for it.

When income is one of the best method of finding out the future of the firm. It

gives the past records of the firm and this becomes a base for making predictions for

making savings and its significance is to asses the earning of the firm.

56

ANALYSIS USING GROWTH RATIOS

INTRODUCTION

57

Financial statements are an important source of information for the evaluating the

performance and prospects of a firm. If properly analyzed and interpreted, the financial

statements can provide valuable insights into a firms performance.

Analyzing the financial statements is of the interest of the lenders, investors, security

analysis, managers and others. Financial analysis may be done for many purposes which

may range from a single analysis of a short term liquidity portion of the firm to a

comprehensive assignment of strengths and the weakness of the firm in various areas. It

is helpful in assigning corporate excellence, judging creditworthiness, forecasting bond

ratings, evaluating intrinsic value of equity shares, predicting bankruptcy and assessing

market risk.

UNAUDITED QUARTERLY FINANCIAL RESULTS

A listed company is required to furnish unaudited financial results on a quarterly

basis, within a month of the expiry period to the stock exchanges where the company is

listed from this it is possible to interpret the performance of the company. Further, the

company is required t advertise the details within 48 hours of disclosure. The

advertisement must be published at least in one of the national level news paper

published from the registered office of the company is located. The quarterly financial

report include

Net sales / income from operations

Other income

Total expenditure

Interest

Gross profit / loss after interest but before depreciation and tax.

Provision for taxation

Net profit / loss

Paid – up equity capital and reserves excluding revaluation results ( as per the

balance sheet of the previous accounting year)

The pro-forma requires a company to give the financial results for the quarters

ended, for the corresponding quarter of the previous accounting year. The listing

agreement stipulated certain conditions to maintain the quality of such disclosures.

58

59

4.5 VARIABLES USED FOR THE STUDY

By considering certain key items such as Sales, net income, earnings per share, P/E ratio

etc, it is easy to find out if the company is just keeping pace with inflation or is

experiencing real growth. Common growth rate calculations include compounded annual

growth rate and average growth rate. An approximately accurate report of actual

performance can be obtained from a company’s financial statements still there

differences in factors that affect a company’s performance this year as compare to last

year.

My study is confined to IT and Automobile companies listed in NSE Nifty. The variable

that I have taken for the study are:

1. CAGR - Compounded Annual Growth Rate

2. P/E - Price – to – Earnings Ratio

3. EPS - Earnings per share

4. Quality of Earnings

4.5.1 CAGR- COMPOUND ANNUAL GROWTH RATE

60

The Compound Annual Growth Rate is the inters rate at which a given present value

would grow to a given future value in a given amount of time. Compoud annual growth

rate is also called cumulative annual growth rate.

Formula is

CAGR = ( Fv/pv)1/n -1

Where Fv = future value

Pv = present value

N= number of years

Compound annual growth rate is an average growth rate over a period of several years. It

is a geometric average of annual growth rates. It measres the rate of change of a value

between two points in time

CAGR is used to describe the growth over a period of time of some element of the

business, usually revenue, although other measures. CAGR is widely used in growth

industry.

61

4.5.2 EARNINGS PER SHARE

The portion of a company’s profit allocated t each outstanding share of common stock is

earnings per share. EPs serves as a indicator of a company’s profitability

EPS= Equity earnings / Net income

No: of shares outstanding.

The most important item which the investors must take care to evaluate the earning that a

shareholder receives on his hare. The investor should also analyze the no: of equity

shares which have the privilege of conversions or options. He may also calculate the

price of convertible securities from the income statement may be used.

62

4.5.3 QUALITY OF EARNINGS RATIO

Quality of Earnings refers to the probability of earnings trends continuing and extend to

which earnings could represent distributable cash.

Quality of Earnings Ratio = Net profit after taxation

Cash flow from operating activities

An erratic earning performance over a period of time, over a period of years is less

desirable than a study level of earnings. A history of increasing earnings ratio is

preferable. Quality of earnings has got a correlation with the share prices. Financial

analysts often express the opinion that the earnings of one company are of a higher

quality than the earnings of other similar companies. The concept arise because each

companies management can choose from a variety of accounting principles. In judging

the quality of earnings the financial analysts should consider whether the accounting

principles selected by the management leads to a conservative measurement of earnings.

63

4.5.4 PRICE TO EARNINGS RATIO

The P/E ratio of a stock is a measure of the price paid for a share relative to the income or

profit earned by the firm per share. A higher P/E ratio means that investors are paying for

each unit of income. It is the broadest and most widely used overall measure of

performance.

P/E ratio = market price per share

Net income per share

This measure involves an amount not directly controlled by the company: the market

price of its common stock. Thus the P/E ratio is the best indicator of how investors judge

the performance of different companies and market mechanism.

64

ANALYSIS USING GROWTH MEASURES

4.6 Table showing the compounded annual growth rate of revenue of the companies for the year

2006 – 2007

Company Name CAGR (%)

Bajaj Auto 4.352

Hero Honda Motors 4.266

Mahindra and Mahindra 4.185

Maruthi Udyog 9.110

Tata Motors .268

Infosys 11.01

Satyam Computers 5.36

Siemens .184

TCS 5.17

Wipro 5.99

Source: Secondary Data

Comment:

65

Infosys recorded a high CAGR of 11.01 % while Siemens recorded CAGR of .184 %

which is the lowest of 10 companies.

CAGR should be used because Arithmetic averaging of growth numbers gives incorrect

results. Although no historical data is a substitute for a forecast the CAGR is the better

indication of the trend. Using this formula an investor can calculate what is the annual

rate of rate of return was for any particular investment. CAGR is used in business to

describe the growth over a period of time of some element of the business, revenue, sales

etc…

Thus CAGR of Infosys represents the smoothed annualized gained over the investment

horizon. Maruthi udyog also recorded a CAGR of 9.11 % over the year 2006 and 2007.

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4.7 Table showing EPS of companies for the Year 2006- 2007

Company Name EPS

Bajaj Auto 76.53

Hero Honda Motors 48.36

Mahindra and Mahindra 31.58

Maruthi Udyog 23.88

Tata Motors 35.22

Infosys 64.50

Satyam Computers 35.26

Siemens 86.62

TCS 95.03

Wipro 57.38

Source: Secondary Data

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Comment:

Earnings Per Share is generally consider to be the single most important variable in

determining the share price. Here the table shows that TCS has the high EPS of 95.03

Rupees for the year 2006 -2007.

The number of shares used for the calculation can be either basic or the shares that could

potentially enter the market. Two companies could generate the same EPS number but

one could do so with less equity.

4.8 Table showing the Quality of earnings of the companies for the year 2006-2007

Company Name Quality of

Earnings

Bajaj Auto .370

Hero Honda Motors .365

Mahindra and Mahindra .338

Maruthi Udyog .353

Tata Motors .315

Infosys .789

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Satyam Computers .436

Siemens .375

TCS .538

Wipro .421

Source: Secondary Data

Comment:

Infosys recorded a high quality of earnings of .789 while Tata Motors has the lowest

quality of earnings of .315.

The quality of earnings helps to know what are the profits a company is generating and

operating cash flows helps to determine the percentage of cash generated from operating

activity. An investor should always go for a firm with good earning quality. Earnings are

set to be of high quality if they can be distributed in cash and are derived primarily from

continuing operation that are not volatile and the methods used in measuring profits are

conservative. Conversely earnings are said to be of low quality if they have only a small

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percentage of distributable cash, are derived from non operating sources and are

computed using accounting methods.

4.9 Table showing the Price to Earnings Ratio of Companies over the year 2006-2007

Company Name P/E

Bajaj Auto 35.5

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Hero Honda Motors 14.57

Mahindra and Mahindra 22.80

Maruthi Udyog 33.3

Tata Motors 20.33

Infosys 31.02

Satyam Computers 12.87

Siemens 14.14

TCS 13.18

Wipro 9.512

Source: Secondary Data

Comment:

Wipro has the lowest P/E ratio of 9.512 while Bajaj Auto recorded a P/E of 35.5

The lowest P/E stocks dramatically outperform the higher P/E ratio stocks. Portfolio with

the lowest P/E ratio is having the higher return than the market return. A higher P/E ratio

means that investors are paying more for each unit of income. It is better to analyze the

industry and the company performance before going for investment.

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CHAPTER 5

SUMMARY OF FINDINGS, CONCLUSION AND

RECOMMENDATIONS

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5.1 FINDINGS:

Infosys recorded a high CAGR while Siemens recorded CAGR which is the

lowest of 10 companies for the year 2006-2007.

TCS has the high EPS for the year 2006 -2007 while Maruthi Udyog recorded the

lowest EPS for the year 2006-2007 .

Infosys recorded a high quality of earnings while Tata Motors has the lowest

quality of earnings for the year 2006-2007.

Wipro has the lowest P/E ratio while Bajaj Auto recorded a P/E for the year 2006-

2007.

Since the share prices are moving over the month it is impossible to predict a

generalized value for the variables.

From the industry analysis it is clear that the growth rate of IT and Automobile

industry is increasing.

Besides the factors used for analysis there are several other factors like labour

strikes management, employee employer relationship which judge the

performance of companies.

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5.2 CONCLUSION:

Investors are interested in predicting the future behaviour of stock market. The efficient

market hypothesis is yet to be acclaimed in the age of IT and Globalization. The

existence of market for securities is of advantage to both the issuers and investors. To

investors it gives an opportunity to select an optimal investment strategy. This paper

presents an explicit model for the role of price movement of shares with the annual

performance of companies.

Studying the fundamental factors which influence the market price and also the

performance of the company is a part of any investor before going for investment. The

investor should look at the price movements of the particular company over the years and

should go for better portfolio.

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5.3 RECOMMENDATIONS:

Besides looking at the company performance the investor should analyse the

economy and the industry as a whole.

It is better to invest in companies with good market value, good performance in

revenue and should consider the various factors affecting the performance before

investing.

I would recommend Infosys as good for investment because as it has high quality

of earnings and high compounded annual growth rate.

Even though the industry may perform well, several ratios like, financial ratios,

growth ratios, sales etc.. should be properly analyzed with reference to that

company and also with the industry.

As P/E ratio is directly related to market price per share and the Earnings per

share while looking at the P/E ratio one should analyze the return and go for

better portfolio.

A higher P/E ratio indicates that the stocks are extremely overvalued. If the firm

does not earn a huge growth of earnings it will increase the amount paid by each

investor to the share.

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BIBLIOGRAPHY

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Books:

Jain Rajiv, A premium of Guide to Investor, 2004

Narora M N, Management Accounting, Himalaya Publishing House, 2003

Chandra Prasanna, Investment Analysis and Portfolio Management, Himalaya

Publishing house, 2003

Chandra Prasanna, Financial Management, Tata McGraw Hill publishing

company Ltd., 6th Edition, 2004.

Journals:

ICFAI, Chartered Financial Analyst, Feb 2006

ICFAI, Chartered Financial Analyst, Jan 2006

ICFAI, Security Analysis, 2006

Website:

www.economictimes.com

www. earningsindia.com

www.nseindia.com

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