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Investment Security Analysis and

Portfolio Management Assignment

By

SURYA KESAVAN G (215117071)

Department of Management Studies

National Institute of Technology

Tiruchirappalli – 620015

October 2018

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Table of Contents
Portfolio .................................................................................................................................................. 2
ITC ....................................................................................................................................................... 2
Exide ind .............................................................................................................................................. 4
GODREJ INDUSTRIES ........................................................................................................................... 6
Infibeam .............................................................................................................................................. 7

Portfolio

Stocks % of Capital Invested


ITC 25 %
EXIDE INDUSTRIES 20 %
GODREJ INDUSTRIES 45 %
INFIBEAM 10 %

ITC
ITC Ltd is in the FMCG sector, having a market capitalization of Rs. 360,646.81 crores. It has
reported a sales of Rs. 10,707.03 crores and a net profit of Rs. 2,818.68 crores for the
quarter ended June 2018. The company management includes Yogesh Chander Deveshwar
(Chairman), Sunil Behari Mathur (Non Executive Director), Nakul Anand (Executive Director),
Sahibzada Syed Habib ur Rehman (Non Executive Director), Meera Shankar (Non Executive
Director) among others.

Amount Invested : 25 % of the Capital

Reason for Investment : Fundamentally strong company.

Profitability Ratios :

ITC is consistently giving returns of above 20%. It is a positive note for ITC for investing in it.

Mar 18 Mar 17 Mar 16 Mar 15 Mar 14


Return on 21.83 22.49 29.94 31.31 33.51
Networth /
Equity (%)
Return on 20.96 21.52 28.18 29.54 31.68
Capital
Employed
(%)

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Dividend History

The Company has maintained an average dividend yield of 1.96 % over the last 5 financial
years.

Liquidity and Credit Analysis

Current Ratio

Higher current ratio implies healthier short term liquidity comfort level. A current ratio
below 1 indicates that the company may not be able to meet its obligations in the short run.
However, it is not always a matter of worry if this ratio temporarily falls below 1 as many
times companies squeeze out short term cash sources to achieve a capital intensive plan
with a longer term outlook. ITC’s average current ratio over the last 5 financial years has
been 1.82 times which indicates that the company is comfortably placed to pay for its short
term obligations.

Long term Debt to Equity Ratio

Companies operating with high long term debt to equity on their balance sheets are
vulnerable to economic cycles. In times of slowdown in economy, companies with high
levels of debt find it increasingly difficult to service the interest on their borrowings as profit
margins decline. We believe that long term debt to equity ratio higher than 0.6 – 0.8 could
affect the business of a company and its results of operations.

ITC’s average long term debt equity ratio over the 5 financial years has been 0.00 times
which indicates that the company operates with negligible level of debt and accordingly is
placed well to withstand economic slowdowns.

Interest Coverage ratio

Interest coverage ratio indicates the comfort with which the company may be able to
service the interest expense (i.e. finance charges) on its outstanding debt. Higher interest
coverage ratio indicates that the company can easily meet the interest expense pertaining
to its debt obligations. Interest coverage ratio of below 1.5 should raise doubts about the
company’s ability to meet the expenses on its borrowings. Interest coverage ratio below 1
indicates that the company is just not generating enough to service its debt obligations.

ITC’s average interest coverage ratio over the last 5 financial years has been 415.55 times
which indicates that the company can meet its debt obligations without any difficulty.

Ownership pattern

ITC is one of India’s biggest professionally managed companies with no clear promoter
group. Many large financial institutions hold varying amounts of stakes in ITC but no one in

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particular exercises significant influence in decision making. This gives the management
enormous freedom and autonomy in diversification.

In its latest stock exchange filing dated 31 March 2017, institutional holding in the company
stood at 55.81% (FII+DII). Large institutional holding indicates the confidence of seasoned
investors. At the same time, it can also lead to high volatility in the stock price as institutions
buy and sell larger stakes than retail participants.

Risk (Calculated using one year share price):

Standard Devaition 17.83199

Mean 271.3817

Coefficient of variation 0.065708

Risk seems to be little as the coefficient of variation is low.

Exide ind

Exide India Ltd (EIL) is the largest lead acid battery manufacturer in India with leadership in
Auto OEM and replacement segment, in a largely duopolistic market. In the past, EIL’s
topline remained muted mainly after subdued OEM demand and lower than anticipated
growth from the industrial space.

Amount Invested : 20 % of the capital

Reason for Investment : Electric cars are the future of automotive industries. Warren
buffet has 10 % stake in chinese electric car company BYD & rising prices of Tesla shares are
the evidences of it. Since EXIDE is an leader in AUTO OEM, subsequently the company will
grow with the introduction of electric cars in India.

Profitability Ratios

Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018

ROCE 24.59 27.75 25.51 25.16 25.40 20.11 19.22

ROE / RONW 15.20 17.84 15.74 16.00 16.54 14.63 12.90

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Dividend History

The Company has maintained an average dividend yield of 1.16 % over the last 5 financial
years.

Liquidity and Credit Analysis

Current Ratio

Exide Industries’s average current ratio over the last 5 financial years has been 2.00 times
which indicates that the Company has been maintaining sufficient cash to meet its short
term obligations.

Long term Debt to Equity Ratio

Exide Industries’s average long term debt to equity ratio over the last 5 financial years has
been 0.00 times which indicates that the Company is operating with negligible level of debt
and is well placed to meet its obligations.

Interest Coverage ratio

Exide Industries’s average interest coverage ratio over the last 5 financial years has been
130.22 times which indicates that the Company has been generating enough for the
shareholders after servicing its debt obligations.

Ownership pattern

In its latest stock exchange filing dated 31 March 2017, Exide Industries reported a
promoter holding of 45.99 %. Large promoter holding indicates conviction and sincerity of
the promoters. We believe that a greater than 35 % promoter holding offers safety to the
retail investors.

At the same time, institutional holding in the Company stood at 32.85 % (FII+DII). Large
institutional holding indicates the confidence of seasoned investors. At the same time, it can
also lead to high volatility in the stock price as institutions buy and sell larger stakes than
retail participants.

Risk (Calculated using one year share price):

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Standard Deviation 28.68695

Mean 236.5818

Coefficient of variation 0.121256

Risk seems to be little as the coefficient of variation is low.

GODREJ INDUSTRIES
Founded in 1897, Godrej Industries Limited is part of the Godrej group and operates in the
business of ‘Oleochemicals’ (chemicals derived from plant and animal fats, used in biodiesel
production, detergents etc.), surfactants, finance & investments and real estate
management. The Company has interests in property development, oil palm plantation,
animal feeds and agro-products, poultry, personal care and household care, through its
subsidiaries and associate companies.

Godrej Ind operates two plants, one at Valia in the state of Gujarat and a second at Vikhroli
in suburban Mumbai. The Company is setting up one new manufacturing facility at
Ambernath which is expected to be operational in Q3 FY 2013-14. The Company’s products
are exported to 40 countries in North and South America, Asia, Europe, Australia and Africa.
The Company was formerly known as Godrej Soaps Limited and changed its name to Godrej
Industries Limited in April 2001.

Amount invested : 45 % of the capital

Profitability ratios

Particulars FY 2014 FY 2015 FY 2016 FY 2017 FY 2018


ROCE 9.25 7.89 9.48 2.39 9.11
ROE / RONW 11.94 11.84 13.03 -8.9 13.40

Though the profitability ratios are not looking attractive. The future of this sector looks
bright. The real estate sector will boom in 2018, this is stated by many top market voices,
ace investor Rakesh jhunjhunwala has added two real-estate stocks to his portfolio in the
March quarter.

Dividend History

The Company has maintained an average dividend yield of 0.80 % over the last 5 financial
years.

Liquidity and Credit Analysis

Current Ratio

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Godrej Ind’s average current ratio over the last 5 financial years has been 1.38 times which
indicates that the Company has been maintaining sufficient cash to meet its short term
obligations.

Long Term Debt to Equity Ratio

Godrej Ind’s average long term debt to equity ratio over the last 5 financial years has been
0.28 times which indicates that the Company operates with low level of debt and is placed
well to withstand economic slowdowns.

Interest Coverage ratio

Godrej Ind’s average interest coverage ratio over the last 5 financial years has been 2.23
times which indicates that the Company has been generating enough for the shareholders
after servicing its debt obligations.

Ownership pattern

In its latest stock exchange filing dated 31 March 2017, Godrej Ind reported a promoter
holding of 74.77 %. Large promoter holding indicates conviction and sincerity of the
promoters. It is believed that greater than 35 % promoter holding offers safety to the retail
investors.

At the same time, institutional holding in the Company stood at 16.71 % (FII+DII). Large
institutional holding indicates the confidence of seasoned investors. At the same time, it can
also lead to high volatility in the stock price as institutions buy and sell larger stakes than
retail participants.

Risk (Calculated based on 1 year historical data) :

Standard Devaition 59.48749

Mean 727.3681

Coefficient of variation 0.081785

Risk seems to be little as the coefficient of variation is low.

Infibeam

Amount invested : 10 % of the capital

Reason for investment :

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Shares of Infibeam Avenues plunged over 70 per cent on 28.09.2018. The crash came a day
ahead of the company’s scheduled annual general meeting (AGM) on 29.09.2018

Reason for fall : An old WhatsApp message resurfaced on several groups. “Forensic analysis
of the company’s financials had reflected flags and alleged, among other things, that the
company had given interest-free and unsecured loans to its units,” said the message.

Infibeam denied all the allegations in the message.

So it is a value buy now. Since none of the company fundamentals have changed but the
price got reduced by 70 % due to an rumour. The shares will soon start recovering. Bought
shares at the price of Rs. 60. The average price of infibeam this year is RS. 150.