A

PROJECT REPORT
ON
“OVERVIEW OF EQUITY MARKET”
WITH
ANAND RATHI SHARES AND STOCK BROKERS LTD

SUBMITTED TO
MUMBAI UNIVERSITY
IN PARTIAL FULFILLMENT OF THE REQUIREMENT OF
MASTER OF MANAGEMENT STUDIES (MMS)

SUBMITTED BY
UDAY UTTAM MUGAL
(BATCH- 2017-2019)
UNDER THE GUIDANCE OF
PROF. VAIBHAV PATIL

ATHARVA INSTITUTE OF MANAGEMENT STUDIES,

Malad Marve Road, Charkop Naka, Malad (West) Mumbai 95

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 CERTIFICATE

This is to certify that the project titles as “Overview of equity market” In

Anand Rathi shares and stock broker ltd, Bhayander branch has completed
by Mr. UDAY UTTAM MUGAL student of MMS Finance Management of
Atharva Institute of Management Studies, Mumbai as a part of Summer
Internship in Academic Year 2017-2018.

Prof . VAIBHAV PATIL Dr. SUJATA PANDEY

(Project Guide) (Director)

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 STUDENT’S DECLARATION

I the undersigned hereby declare that the project report entitled “Overview of
Equity Market ” In Anand Rathi shares and stock broker.ltd. Submitted by me
is based on actual work carried out by me under the guidance of Prof. Vaibhav
Patil. Any reference to work done by any person or institute or any material
obtained from other source have been duly cited and referenced. It is further
stated that this work is not submitted anywhere else for any examination.

Place:
Date: Signature of Student
Uday Uttam Mugal
Roll No. - A-58
MMS (2017-2019)

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 ACKNOWLEDGEMENT

“Concentration, dedication, hard work and application are essential but not the
only factors to achieve desired goals; these must be supplemented by guidance
and co-operation of the people to make it success”
The following project is the result of proper direction to my efforts by my all
guides and my well-wisher. So it is my duty to record my sincere thanks for
their great help. I am highly grateful to MR. SUNIL SINGH (Senior Branch
Manager, Bhayander west, Anand Rathi) this platform to work on such
interesting project that gave deep insights of equity market.
I take the privilege to offer my hearty gratitude for the continuous support &
motivation provided by PROF. Vaibhav Patil (Internal Project Guide). I
learnt & gained the knowledge of various chapters of management through the
interaction with the top- level manager in the organization.

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5
 Table of Contents

SR NO. PARTICULARS PAGE NO

1 Executive Summary 7

2 Introduction of the Topic 8-9

3 Introduction of the Company 10-12

4 Literature Review 13

5 Overview of Equity Market and Data Analysis 14-37

6 Introduction of Non-Convertible Debenture 37

7 Introduction of Cash & Derivatives 38-42

8 Fundamental Analysis 43-52

9 Findings 53

10 Recommendations 54

11 Conclusion 55

12 Bibliography 56

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 Executive Summary

As per mandatory requirement of Mumbai University, the project was

undertaken as a partial fulfillment of Masters in Management Studies
curriculum within 60 days with Anand Rathi shares and stock broker Ltd. Some
partial training is being given to the student in summer training, exposing them
to real life situation of corporate world, which not only broaden their mental
horizon but also helps them to know various angels of actual work. This project
small duration is a mandatory requirement of M.M.S degree.
The project was done Anand Rathi shares and stock broker Ltd. The title of
project “Overview of Equity Market”. The main concentration of project is to
understand the equity market and its component like cash market and derivative
market, how its work, how the actual trading is done, what is IPO process and
various options strategy.

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 INTRODUCTION

India’s economy has come a long way, especially since the start of this century. It is
impossible to ignore India’s rise in every field. Every nation is keeping a close eye on India’s
growth story, and why not, since India is on its way to become a superpower.

India's major stock exchange has seen strong growth in recent times. The domestic market
capitalizations of the two largest exchanges have grown by more than 500% since the
beginning of 2003. This stands in contrast to China where domestic markets are
underdeveloped and have been on a steady downward trend over the last few years.

While Maharashtra is home to the largest number of affluent individuals of any state in India
and also the fastest growing affluent population, it is Delhi that has by far the highest
proportion of affluent individuals.

Equity market is often considered as the main engine driving the economy. Equity markets
allow savers to acquire stake in a firm, and sell it, if they need access to their savings or if
they want to alter their portfolio. At the same time, it allows firms to raise permanent capital
for asset creation. By incorporating information about future earnings potential in current
stock prices, the equity market also serves as a barometer to the state of the economy. This
makes the equity market an important constituent of financial markets.

In emerging countries, equity market plays an even more important role in economic
development. In many emerging markets, firms would need large quantum of fund to expand
and be able to pursue the prevalent high growth rates. Equity market is the only liquid
financial market in many emerging countries and hence its role in economic development can
not be overemphasized. In addition, world over, financial markets are getting less insular.
The investors in developed countries are seeking investment opportunities beyond the
confines of their domestic economy to enhance return and diversify risks.

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The Indian Equity Market is also the other name for Indian share market or Indian stock
market. The forces of the market depend on monsoons, global funds flowing into equities in
the market and the performance of various companies. The Indian market of equities is
transacted on the basis of two major stock indices, National Stock Exchange of India Ltd.
(NSE) and The Bombay Stock Exchange (BSE), the trading being carried on in a
dematerialized form. The physical stocks are in liquid form and cannot be sold by the
investors in any market. There are two types of funds in the Indian Equity Market: Venture
Capital Funds and Private Equity Funds. The primary trading is characterized in the equity
segment with average daily turnover exceeding Rs.6536 crores daily. The derivative
segment on the underlying equities is gaining prominence with turnover of Rs.5300- 6000
crores. The other market consist of debt market - which is currently dominated by primary
dealers, banks and wholesale investors

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About Company-

Incorporated in 1994, Anand Rathi is Mumbai, India based firm engaged in financial and

advisory services which includes wealth management, investment banking, corporate

advisory, brokerage & distribution of equities, commodities, mutual funds and insurance.

Anand Rathi is a full service broker offering brokerage services to retail and institutional

customers.

Anand Rathi has a presence in India as well as internationally through offices in Dubai and

Bangkok. Anand Rathi has network of 350+ branches and 1500+ franchise across India.

Anand Rathi provides options to invest in financial products including Equity, Derivatives,

Currency Futures, IPO, Mutual Funds, Commodities and Insurance. They also provide

current stock market information which includes stock prices, news, market research reports,

stocks tips, events, IPO News and company results though their website.

Anand Rathi Trades In: NSE, BSE, MCX, NCDEX, USE & NSEL

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Anand Rathi's Trading Platforms

Anand Rathi offers 7 trading platforms to its customers:

1. Trade Lite

A website based online trading platform offering trading in equity and commodities
& currency derivative segments.

2. Trade X'press

It's a browser based platform mainly designed for occasional investors. This platform
is idle for those investors who believe in buy and hold approach towards investment
in equities. It allows getting the updates real time

3. Trade X'pro

This platform is mainly suitable for active trader who does frequent transaction to
capture favourable short-term price movements. It is an EXE based desktop software
which offers dynamic charting, fully customizable display where add, delete and
rearrange columns as per your viewing preferences, lock terminal option so you can
lock your terminal when not in use and be assured that your account is not accessible
to anyone but yourself.

4. Trade X'pro+

This platform offers 'Tools of the Trade' from Anand Rathi that allows you to use tons
of investment services, trading advice, news and trading tools.

5. Trade Flexi

Trade Flexi is available for intra-day trading in equity Cash & Future segment. This
platform allows their investors to create intra-day position in the equity segment on

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 leveraged margin along with securing the same position with a risk cover by placing a
simultaneous stop loss market/limit order. It helps their investors to minimize the risk
through system generated stop loss market/limit order.

6. Trade On Move

This platform gives flexibility to their investors to access account from anywhere.
This is best suitable for those investors who are always on the move. Those can
access trained dealers without incurring any STD cost.

7. Trade Mobi

Trade Mobi supports Blackberry and Android devices. This platform allows their
investors to access instantly and manages trades through mobile phone. Supported
Exchange segment are NSE Cash, NSE F&O, BSE Cash, NSE Currency, NCDEX,
MCX and MCX-SX.

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 REVIEW OF LITERATURE

Gupta (1972) in his book has studied the working of stock exchanges in India and has given a
number of suggestions to improve its working. The study highlights the' need to regulate the
volume of speculation so as to serve the needs of liquidity and price continuity. It suggests
the enlistment of corporate securities in more than one stock exchange at the same time to
improve liquidity. The study also wishes the cost of issues to be low, in order to protect small
investors Panda (1980) has studied the role of stock exchanges in India before and after
independence. The study reveals that listed stocks covered four-fifths of the joint stock sector
companies. Investment in securities was no longer the monopoly of any particular class or of
a small group of people. It attracted the attention of a large number of small and middle class
individuals. It was observed that a large proportion of savings went in the first instance into
purchase of securities already issued. Gupta (1981) in an extensive study titled `Return on
New Equity Issues' states that the investment performance of new issues of equity shares,
especially those of new companies, deserves separate analysis. The factor significantly
influencing the rate of return on new issues to the original buyers is the `fixed price' at which
they are issued. The return on equities includes dividends and capital appreciation. This study
presents sound estimates of rates of return on equities, and examines the variability of such
returns over time.

L.C.Gupta (1992) revealed the findings of his study that there is existence of wild speculation
in the Indian stock market. The over speculative character of the Indian stock market is
reflected in extremely high concentration of the market activity in a handful of shares to the
neglect of the remaining shares and absolutely high trading velocities of the speculative
counters. He opined that, short- term speculation, if excessive, could lead to "artificial price".
An artificial price is one which is not justified by prospective earnings, dividends, financial
strength and assets or which is brought about by speculators through rumors, manipulations,
etc. He concluded that such artificial prices are bound to crash sometime or other as history
has repeated and proved.

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 What is an ‘Equity’/Share?

There are only two ways in which a business can make money.
» The first is debt. The essence of debt is that you promise to make fixed payments in the
future (interest payments and repaying principal). If you fail to make those payments, you
lose control of your business.
» The other is equity. With equity, you do get whatever cash flow is left over after you have
made debt

Total equity capital of a company is divided into equal units of small denominations, each
called a share. For example, in a company the total equity capital of Rs.2,00,00,000 is
divided into 20,00,000 units of Rs.10 each. Each such unit of Rs10 is called a Share. Thus,
the company is said to have 20, 00,000 equity shares of Rs.10 each. The holders of such
shares are members of the company and have voting rights.

In financial markets, stock is the capital raised by a corporation through the issuance and
distribution of shares. A person or organization which holds shares of stocks is called a
shareholder. The aggregate value of a corporation's issued shares is its ‘market
capitalization’. When one buys a share of a company he becomes a shareholder in that
company. Shares are also known as Equities. Equities have the potential to increase in value
over time. Research studies have proved that equities have out performed than most other
forms of investments in the long term. Equities are considered the most challenging and also
the most rewarding, when compared to other investment options.

Equity capital represents ownership capital. Equity shareholders collectively own the
company and enjoy the rewards and bear the risks of ownership. Thus, if the company makes
profits, the shareholders will get a part of the profits in the form of dividends. But if the
company makes losses, the shareholders will have to face erosion in the value of their capital.

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Equity can also take different forms:
» For very small businesses it can be owners investing their savings.
» For slightly larger businesses it can be venture capital.
» For publicly traded firms it is common stock.

Most companies are usually started privately by their promoter(s). However, the promoters’
capital and the borrowings from banks and financial institutions may not be sufficient for
setting up or running the business over a long term. So companies invite the public to
contribute towards the equity and issue shares to individual investors. The way to invite share
capital from the public is through a ‘Public Issue’. Simply stated, a public issue is an offer to
the public to subscribe to the share capital of a company. Once this is done, the company
allots shares to the applicants as per the prescribed rules and regulations laid down by SEBI.

Primarily, issues can be classified as a Public, Rights or Preferential issues (also known as
private placements). While public and rights issues involve a detailed procedure, private
placements or preferential issues are relatively simpler.

The classification of issues is as below:

Initial Public Offering (IPO) is when an unlisted company makes either a fresh issue of
securities or an offer for sale of its existing securities or both for the first time to the public.
This paves way for listing and trading of the issuer’s securities.

A follow on public offering (Further Issue) is when an already listed company makes
either a fresh issue of securities to the public or an offer for sale to the public, through an
offer document.

Rights Issue is when a listed company which proposes to issue fresh securities to its existing
shareholders as on a record date. The rights are normally offered in a particular ratio to the
number of securities held prior to the issue. This route is best suited for companies who
would like to raise capital without diluting stake of its existing shareholders.

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A Preferential Issue is an issue of shares or of convertible securities by listed companies to
a select group of persons under Section 81 of the Companies Act, 1956 which is neither a
rights issue nor a public issue. This is a faster way for a company to raise equity capital. The
issuer company has to comply with the Companies Act and the requirements contained in the
Chapter pertaining to preferential allotment in SEBI guidelines which inter-alia include
pricing, disclosures in notice etc.

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The first company to issue shares of stock was the Dutch East India Company, in 1602. The
innovation of joint ownership made a great deal of Europe's economic growth possible
following the Middle Ages. The technique of pooling capital to finance the building of ships,
for example, made the Netherlands a maritime superpower. Before adoption of the joint-
stock corporation, an expensive venture such as the building of a merchant ship could only be
undertaken by governments or by very wealthy individuals or families.

Debt vs. Equity

Why does a company issue stock? Why would the founders share the profits with thousands
of people when they could keep profits to themselves? The reason is that at some point every
company needs to raise money. To do this, companies can either borrow it from somebody or
raise it by selling part of the company, which is known as issuing stock. A company can
borrow by taking a loan from a bank or by issuing bonds. Both methods fit under the
umbrella of "debt financing." On the other hand, issuing stock is called "equity financing."

Issuing stock is advantageous for the company because it does not require the company to
pay back the money or make interest payments along the way. All that the shareholders get in
return for their money is the hope that the shares will some day be worth more. The first sale
of a stock, which is issued by the private company itself, is called the initial public offering
(IPO).

It is important to understand the distinction between a company financing through debt and
financing through equity. When you buy a debt investment such as a bond, you are
guaranteed the return of your money (the principal) along with promised interest payments.
This isn't the case with an equity investment. By becoming an owner, you assume the risk of
the company not being successful. Just as a small business owner isn't guaranteed a return,
neither is a shareholder. As an owner your claim on assets is lesser than that of creditors.
This means that if a company goes bankrupt and liquidates, you, as a shareholder, don't get
any money until the banks and bondholders have been paid out; we call this absolute priority.

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Shareholders earn a lot if a company is successful, but they also stand to lose their entire
investment if the company isn't successful.

The advantages of equity capital are:

 It represents permanent capital and hence there is no liability for repayment.
 It does not involve any fixed obligation for payment of dividends.
 It enhances the creditworthiness of the company as a large equity capital base provides a
high degree of comfort to lenders on the company's ability to meet debt liabilities.

However, there are also certain disadvantages of raising funds by way of equity capital.

These are:
 The cost of equity capital, as discussed later, is the highest among all instruments.
 Equity dividends are paid from the post-tax profits and hence do not offer any tax
advantages.
 Sale of equity to outsider’s results in a loss of control for the existing shareholders as the
new shareholders will have a right to ownership in the company.

Primary Markets

Primary market is the place where issuers create and issue equity, debt or hybrid instruments
for subscription by the public; the secondary market enables the holders of securities to trade
them. Primary market is a market for raising fresh capital in the form of shares. Public
limited companies that are desirous of raising capital funds through the issue of securities
approach this market. The public limited and government companies are the issuers and
individuals, institutions and mutual funds are the investors in this market. The primary
market allows for the formation of capital in the country and the accelerated industrial and
economic development.

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 Methods Of Marketing in Primary Markets

 PUBLIC ISSUE

A public limited company can raise the amount of capital by selling its shares to the public.
Therefore, it is called public issue of shares or debentures. For this purpose it has to prepare a
'Prospectus'. A prospectus is a document that contains information relating to the company
such as name, address, registered office and names and addresses of company promoters,
managers, Managing Director, directors, company secretary, legal advisors, auditors and
bankers. It also includes the details about project, plant location, technology, collaboration,
products, export obligations etc. The company has to appoint brokers and underwriters to sell
the minimum number of shares and it has to fix the date of opening and closing of
subscription list.

 PRIVATE PLACEMENT

A Company makes the offer of sale to individuals and institutions privately without the issue
of a prospectus. This saves the cost of issue of securities. The securities are placed at higher
prices to individuals and institutions. Institutional investors play a very important role in the
private placement. This has become popular in recent days.

 OFFER FOR SALE

A Company sells the securities through the intermediaries such as issue houses, and
stockbrokers. This is known as an offer for sale method. Initially, the company makes an
offer for sale of its securities to the intermediaries stating the price and other terms and
conditions. The intermediaries can make negotiations with the company and finally accept
the offer and buy the shares from the company.

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  BOUGHT OUT DEALS

A Company makes an outright sale of equity shares to a single sponsor or the lead sponsor
and such deals are known as bought out deals. There are three parties involved in the bought
out deals. The promoters of the company, sponsors and co-sponsors, sponsors are merchant
bankers and co-sponsors are the investors. There is an agreement in which an outright sale of
a chunk of equity shares is made to a single sponsor or the lead sponsor. The sale price is
finalized through negotiations between the issuing company and the purchasers

 INITIAL PUBLIC OFFER

When a company makes public issue of shares for the first time, it is called Initial Public
Offer. The securities are sold through the issue of prospectus to successful applicants on the
basis of their demand. The company has to appoint underwriters in order to guarantee the
minimum subscription. An underwriter is generally an investment banking company. The
underwriter agrees to pay the company a certain price and buy a minimum number of shares,
if they are not subscribed by the public. The underwriter charges some commission for this
work. He can sell these shares in the market afterwards and make profit. There may be two or
more underwriters in case of large issue.

The company has to issue a prospectus giving full information about the company and the
issue. It has to issue share application forms through the brokers and underwriters. The
brokers collect orders from their clients and place orders with the company. The company
then makes the allotment of shares with the help of stock exchange. The share certificate are
delivered to the investors or credited to their demat accounts through the depository. This
method saves time and avoids complicated procedure of issue of shares.

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  RIGHT ISSUE

When an existing company issues shares to its existing shareholders in proportion to the
number of shares held by them, it is known as Rights Issue. Rights issue is obligatory for a
company where increase in subscribed capital is necessary after two years of its formation or
after one year of its first issue of shares, whichever is earlier. SEBI has issued guidelines for
issue of right shares. Accordingly, only a listed company can make right issue. Rights issue
can be made only in respect of fully paid up shares. No reservation is allowed for rights issue
of fully or partly convertible debentures. The company has to make announcement of rights
issue and once the announcement is made it cannot be withdrawn. The company has to make
the appointment Registrar but underwriting is optional. It has also to appoint category I
Merchant Bankers holding a certificate of registration issued by SEBI. Letter of offer should
contain disclosures as per SEBI requirements. The rights issue should be open for minimum
period of 30 days, and maximum up to 60 days. The company has to make an agreement with
the depository for materialization of securities to be issued in demat form. A minimum
subscription of 90 per cent of the issue should be received. A no complaints certificate is to
be filed by the Lead Merchant Banker with the SEBI after 21 days from the date of issue of
offer document.

 BONUS ISSUE

Bonus shares are the shares allotted by capitalization of the reserves or surplus of a company.
Issue of bonus shares results in conversion of the company's profits or reserves into share
capital. Therefore, it is capitalization of company's reserves. Bonus shares are issued to the
equity shareholders in proportion to their holdings of the equity share capital of the company.
Issue of bonus shares does not affect the total capital structure of the company. It is simply a
capitalization of that portion of shareholders equity which is represented by reserves and
surplus. The issues of bonus shares are issued subject to certain rules and regulations. Issue
of bonus shares reduces the market price of the company's shares and keeps it within the
reach of ordinary investors.

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  BOOK-BUILDING

Companies generally raise capital through public issue. In these cases companies decide the
size of the issue and also the price at which the shares are to be offered to the investors.
However in this system the issuer is not able to ascertain the price that the market may be
willing to pay for the shares, before launching the issue. This is where book building can
come to their aid. This method is also known as the ‘price discovery method’. This is a
mechanism whereby the price is determined on the basis of actual demand as evident form
the offers given by the various institutional investors and the underwriters.

In the actual public offer process, investors are not involved in determining the offer price,
whereas in book building pricing is determined on the basis of investor feedback which
assures investor demand. Since the issue price after the issue marketing there is flexibility in
the issue size and the price of the shares.

The following stages are involved in the book-building process:

1. Appointment of book-runners.
2. Drafting of prospectus and getting approval from SEBI.
3. Circulating draft prospectus.
4. Maintaining offer details.
5. Intimation of aggregate orders to the book-runner.
6. Bid analysis.
7. Mandatory underwriting.
8. Filing copy of prospectus with registrar of companies.
9. Opening bank accounts for collection of application money.
10. Collection of applications.
11. Allotment of shares.
12. Payment schedule and listing of shares.

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 Secondary Markets

A market, which deals in securities that have been already issued by companies, is called as
secondary market. It is also known as stock market. It is the base upon which the primary
market is depending. For the efficient growth of the primary market a sound secondary
market is an essential requirement. The secondary market offers an important facility of
transfer of securities activities of securities.

Secondary market essentially comprises of stock exchanges, which provide platform for
purchase and sale of securities by investors. In India, apart from the Regional Stock
Exchanges established in different centers, there are exchanges like the National Stock
Exchange (NSE), who provide nation wide trading facilities with terminals all over the
country. The trading platform of stock exchanges is accessible only through brokers and
trading of securities is confined only to stock exchanges.

The activities of buying and selling of securities in a market are carried out through the
mechanism of stock exchange. There are at present 24 Stock Exchanges in India, recognized
by the government. The first organized stock exchange was established in India at Bombay in
1887. When the Securities Contracts (Regulation) Act was passed in 1956, only 7 stock
exchanges were recognized. There are three important stock exchanges in Bombay namely
the Bombay Stock Exchange, National Stock Exchange and over the Counter Exchange of
India. There has been a substantial growth of capital market in India during the last 25 years.

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 FUNCTIONS OF THE SECONDARY MARKET
1. To facilitate liquidity and marketability of the outstanding equity and debt instruments.

2. To contribute to economic growth through allocation of funds to the most efficient

channel through the process of disinvestment to reinvestment.

3. To provide instant valuation of securities caused by changes in the internal environment

(that is, company-wide and industry wide factors). Such valuation facilitates the
measurement of the cost of capital and the rate of return of the economic entities at the
micro level.

4. To ensure a measure of safety and fair dealing to protect investors’ interest.

5. To induce companies to improve performance since the market price at the stock
exchanges reflects the performance and this market price is readily available to investors.

LISTING

Listing is a process involved in listing something with some one. It is a permission to quote
shares and debentures officially on the trading floor of the stock exchange. The listed shares
appear on the official list of securities for the purpose of trading security listing is a step that
is required to register and to place on record the security of a company with the appropriate
authority i.e. the recognized stock exchange. Securities are required to be listed under Section
9 of the Securities Contract (Regulation) Act, 1956. Thus, listing simply means the inclusion
of any security for the purpose of trading in a recognized stock exchange. Only public
companies are allowed to list their securities in the stock exchange. Private Limited
companies cannot get listing facility. They shall first convert themselves into public limited
companies and their Articles of Association shall contain prohibitions as laid down in the
listing agreement and as applicable to public limited companies.

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The issuer wishing to have trading privileges for its securities satisfies listing requirements
prescribed in the relevant statutes and in the listing regulations of the Exchange. It also
agrees to pay the listing fees and comply with listing requirements on a continuous basis. All
the issuers who list their securities have to satisfy the corporate governance requirement
framed by regulators. The prices at which the securities are traded in the stock exchange are
published in the newspapers. Investors are able to know these price trends from such
publications. Compared to listed securities the trading of unlisted securities is difficult. The
price trends in respect of unlisted securities are seldom known to the investors and the
contract between the seller and buyer takes places mostly on one to one basis.

LISTING PROCEDURE

The listing procedure involves making a simple application by the company and payment of
listing fees as prescribed by the respective stock exchange. It is to be completed before the
offer of securities to the public and registration of prospectus with the Registrar of
Companies. The recognized stock exchange has to give approval and then make an
agreement stating the terms and conditions. Registration and recording is done for the
purpose of trading by the registered members of the stock exchange and for the official
quotation of the security price for the benefit of the public and the investors. The company
has to continue listing by paying renewal fees from time to time. Listing is mandatory for a
public company, which intends to offer its securities to the public by issue of prospectus and
which wishes to provide facilities to the securities being offered to the public. Any allotment
of securities made in the absence of listing or refusal of listing is held to be void i.e. illegal.
Again, any failure to comply with the Section 21 of the Securities Contracts (Regulation) Act
attracts penalty to the parties.

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DELISTING
The securities listed can be de-listed from the Exchange as per the SEBI (Delisting of
Securities) Guidelines, 2003 in the following manner:

VOLUNTARY DE-LISTING OF COMPANIES

Any promoter or acquirer desirous of delisting securities of the company under the
provisions of these guidelines shall obtain:
 The prior approval of shareholders of the company by a special resolution passed at
its general meeting,
 Make a public announcement in the manner provided in these guidelines,
 Make an application to the delisting exchange in the form specified by the exchange,
and
 Comply with such other additional conditions as may be specified by the concerned
stock exchanges from where securities are to be de-listed.

Any promoter of a company which desires to de-list from the stock exchange shall also
determine an exit price for delisting of securities in accordance with the book building
process.

COMPULSORY DE-LISTING OF COMPANIES

The stock exchanges may de-list companies which have been suspended for a minimum
period of six months for non-compliance with the listing agreement. The stock exchanges
have to give adequate and wide public notice through newspapers & also give a show cause
notice to a company. The exchange shall provide a time period of 15 days within which any
person who may be aggrieved by the proposed delisting may make representation to the
exchange.

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TRADING
The act of buying and selling of securities on a stock exchange is known as Stock Exchange
Trading. Jobbers and brokers are the two categories of dealers in the stock exchange. A
jobber is a dealer in securities while a broker is an agent or seller of securities. Every year a
member has to decide and declare in advance whether he proposes to act as a jobber or a
broker. A jobber gives two quotations as a dealer in securities, lower quotation for buying
and higher one for selling. The difference between the two quotations is his remuneration.
This system enables specialization in the dealings and each jobber specializes in a certain
group of securities. It also ensures smooth and prompt execution of transactions. The double
quotation of a jobber assures fair-trading in the market. A broker is merely an agent to buy or
sell on behalf of his clients. He is a generalist. Broker has to negotiate terms and conditions
of sale or purchase and safeguard his client's interest. He gets commission from his clients’,
which is fixed by the stock exchange.

DEMAT

Demat is “dematerialization” on shares. Dematerialization is a process by which the shares,

debentures etc in the physical form get converted into the electronic form and are stored in
the computers by the depository. Earlier there used to be the hectic procedure of physical
delivery of shares. Dematerialization is a unique process of trading the shares in the
electronic form rather then the vulnerability of the physical delivery of the shares.

The introduction of NEAT and BOLT has increased the reach of capital market manifolds.
The increase in number of investors participating in the capital market has increased the
probability of being hit by a bad delivery. The cost and time spent by the brokers for
rectification of these bad deliveries tends to be higher. In this technological world things are
needed to move at a faster pace, and with the introduction of dematerialization process the
stock exchange has expanded its business at a tremendous speed.

27
Advantages Of Demat
One of the main advantages of a demat account is easy liquidity. Trading in demat segment
benefits elimination of bad deliveries and all risks associated with physical certificate such as
loss, theft, mutilation, forgery, etc. You can also expect a lower interest charge for loans
taken against demat shares as compared to the interest for loan against physical shares. This
could result in a saving of about 0.25% to 1.5%. In case of transfer of electronic shares, you
save 0.5% in stamp duty. You also avoid the cost of courier/ notarization/ the need for further
follow-up with your broker for shares returned for company objection

TRADING PROCEDURE

The following are the steps involved in the trading of securities at a stock exchange:

PLACING ORDER
An order is to be placed by an investor with the broker either to buy or sale of certain number
of securities at a certain specified price. An order can be placed by telegram, telephone, telex/
fax, and letter or in person. There are different types of orders. When in the order the client
places a limit on the price of the security it is called limit order. Where the order is to be
executed by the broker at the best price, such an order is called 'Best Rate Order'. When the
client does not fix any price limit or time limit on the execution of the order and relies on the
judgement of the broker is called 'Open Order'.

TRADE EXECUTION
The broker has to execute the order placed by his client during the trading hours. The order is
executed as per requirements of the client. The broker may negotiate with other parties in
order to execute the orders.

28
CONTRACT NOTE
When the order is executed, the broker prepares a contract note. It is the basis of the
transaction. Particulars such as price, quantity of securities, date of transaction, names of the
parties, brokerage etc. are entered in the contract note.

DELIVERY AND CLEARING

Delivery of shares takes place through the instrument known as transfer deed. The transfer
deed is signed by the transferor (seller) and is authenticated by a witness. It contains the
details of the transferee, stamp of the selling broker, etc. Delivery and payment may be
completed after 14 days as specified at the time of negotiation. Delivery and clearing of
security takes place through a clearance house.

SETTLEMENT
The procedure adopted for the settlement of transactions varies depending upon the kind of
securities. On the date of settlement cheques/ drafts and securities are exchanged as per the
delivery order. The clearinghouse makes the payment and delivers the security certificates to
the members on the payout day. Each broker settles the account with every client by taking
delivery or giving delivery of securities certificates and receipts or payment of cheques.

The clearing and settlement mechanism in Indian securities market has witnessed significant
changes and several innovations during the last decade. These include use of the state-of-art
information technology, emergence of clearing corporations to assume counterparty risk,
shorter settlement cycle, dematerialization and electronic transfer of securities, fine-tuned
risk management system, etc., though many of these are yet to permeate the whole market.

In order to bring settlement efficiency and reduce settlement risk, in 1989, the group of 30
had recommended that all secondary markets across the globe should adopt a rolling
settlement cycle on T+3 basis by 1992, ie., the trades should be settled by delivery of
securities and payment of monies within three business days after the trade day. But in India,
due to multiple problems faced by the secondary market like the open out cry system, wide
geographical coverage, settlement of securities in physical form, inadequate banking and

29
depository infrastructure, India could not implement the G30 recommendations within the
stipulated time frame. In 1999, rolling settlements were introduced in select scripts on a T+5
basis, which had got an effect from December 2001.

After successful implementation of rolling settlement on T+5 basis, SEBI moved the
settlement to T+3 basis with effect from April 2002. To carry the reforms further in this area,
the Indian equity market has reduced the settlement cycle to T+2 basis w.e.f. 1 st April, 2003.
The main advantage of this T+1 settlement cycle is that as the trades spread across all trading
days, this reduces undue concentration of payment of monies and delivery of securities on a
single day. As the settlement is spread across evenly, it results in efficiency utilization of
infrastructure and system capacity. In addition, trades are guaranteed by the National
Clearing Corporation India Ltd. (NSCCL), and Bank of India Shareholding Ltd. (BOISL),
Clearing Corporation Houses of NSE and BSE respectively. The main functions of Clearing
Corporation are to work out:
1. What counterparties owe and
2. Why counterparties are due to receive on the settlement date.

Furthermore, each exchange has a Settlement Guarantee Fund to meet with any unpredictable
situation. The Clearing Corporation of the exchanges assumes the counterparty risk of each
member and guarantees settlement through a fine-tuned risk management system and an
innovative method of online position monitoring. It also ensures the financial settlement of
trades on the appointed day and time irrespective of default by members to deliver the
required funds and/or securities with the help of a settlement guarantee fund.

30
31
32
33
34
35
36
NON CONVERTIBLE DEBENTURE

Investors are forever on the lookout for improved and more sustainable
schemes. The market volatility sometimes makes some plans overnight stars
while at other times even traditional and trusted investments lose their sheen.
Non Convertible Debenture or NCD is a scheme that proved to be a dark horse
as they started delivering smaller but steady returns over time.

Features of NCDs

Issuance
Companies provide NCDs through open issues, which the potential investors
can buy within specific periods. There are options to buy NCDs from stock
markets.

Credit rating
Only companies with good credit rating can have the authorization to issue
NCDs. Credit rating agencies also rate NCDs itself. Ratings are subject to
revisions regularly.

Interest
The higher credit rating an NCD has, the lesser interest it offers. Almost every
NCD promises dual earning potential – growth-based and interest-based or
cumulative opportunities.

Return rates
Usually, NCDs give you higher returns (10%-11%), compared to corporate
FDs, bank FDs and Government bonds (max 8%).

37
Introduction to cash market and derivative market-

Cash market-

A cash market is a marketplace for the immediate settlement of transactions involving

commodities and securities. In a cash market, the exchange of goods and money between the
seller and the buyer takes place in the present, as opposed to the futures market where such
an exchange takes place on a specified future date. This type of market is also known as the
spot market, since transactions are settled on the spot.

Cash market transactions can take place on either a regulated exchange or over the counter
(OTC). In contrast, transactions involving futures are conducted exclusively on exchanges,
while forward transactions, such as currency forwards, are generally executed on the OTC
market. For a specific commodity, the price in the cash market is usually less than its price in
the futures market. This is because there are carrying costs, such as storage and insurance,
involved in holding a commodity until it can be delivered at some point in the future.

The New York Stock Exchange (NYSE), using a real-world example, is a regulated cash
market in the United States. The NASDAQ would also be considered a cash market.
Therefore, there can be more than one cash market within an economic region.

However, the NYSE is the largest stock exchange in the United States and is therefore the
largest cash market available to domestic investors. The NYSE is responsible for setting
stock trading policies, supervising investors and other member activities, and listing
securities registered with the NYSE. This stock exchange has listings for stocks, bonds,
mutual funds, exchange traded funds (ETFs) and derivatives.

It's important to note that derivatives include futures and forward contracts, as well as call
and put options. This means that the NYSE acts as a futures market as well as a cash market.
So, if an investor invests in a derivate listed on the NYSE, he is not conducting a transaction

38
online equity trade. This means that each time an investor purchases and sells a block of
stock on a cash market, he is charged a commission fee.

Derivative Market-

Derivatives are financial contracts that derive their value from an underlying asset. These
could be stocks, indices, commodities, currencies, exchange rates, or the rate of interest.
These financial instruments help you make profits by betting on the future value of the
underlying asset. So, their value is derived from that of the underlying asset. This is why they
are called ‘Derivatives’.

What is the use of derivatives:

Earn money on shares that are lying idle:

So you don’t want to sell the shares that you bought for long term, but want to take
advantage of price fluctuations in the short term. You can use derivative instruments to do so.
Derivatives market allows you to conduct transactions without actually selling your shares –
also called as physical settlement.

Benefit from arbitrage:

When you buy low in one market and sell high in the other market, it called arbitrage trading.
Simply put, you are taking advantage of differences in prices in the two markets.

Protect your securities against

The derivative market offers products that allow you to hedge yourself against a fall in the
price of shares that you possess. It also offers products that protect you from a rise in the
price of shares that you plan to purchase. This is called hedging.

Transfer of risk:

By far, the most important use of these derivatives is the transfer of market risk from risk-
averse investors to those with an appetite for risk. Risk-averse investors use derivatives to

39
enhance safety, while risk-loving investors like speculators conduct risky, contrarian trades
to improve profits. This way, the risk is transferred. There are a wide variety of products
available and strategies that can be constructed, which allow you to pass on your risk.

Who are the participants in derivatives markets:

Hedgers: Traders, who wish to protect themselves from the risk involved in price
movements, participate in the derivatives market. They are called hedgers. This is because
they try to hedge the price of their assets by undertaking an exact opposite trade in the
derivatives market. Thus, they pass on this risk to those who are willing to bear it. They are
so keen to rid themselves of the uncertainty associated with price movements that they may
even be ready to do so at a predetermined cost.

Speculators: As a hedger, you passed on your risk to someone who will willingly take on
risks from you. But why someone do that? There are all kinds of participants in the market.

Some might be averse to risk, while some people embrace them. This is because, the basic
market idea is that risk and return always go hand in hand. Higher the risk, greater is the
chance of high returns. Then again, while you believe that the market will go up, there will
be people who feel that it will fall. These differences in risk profile and market views
distinguish hedgers from speculators. Speculators, unlike hedgers, look for opportunities to
take on risk in the hope of making returns.

Arbitrageurs: Derivative instruments are valued on the basis of the underlying asset’s value
in the spot market. However, there are times when the price of a stock in the cash market is
lower or higher than it should be, in comparison to its price in the derivatives market.

40
What are the different types of derivative contracts:
Type 1: Forward Contracts

Forward contracts are the simplest form of derivatives that are available today. Also, they are
the oldest form of derivatives. A forward contract is nothing but an agreement to sell
something at a future date. The price at which this transaction will take place is decided in
the present.

However, a forward contract takes place between two counterparties. This means that the
exchange is not an intermediary to these transactions. Hence, there is an increase chance of
counterparty credit risk. Also, before the internet age, finding an interested counterparty was
a difficult proposition.

Type 2: Futures Contracts

A futures contract is very similar to a forwards contract. The similarity lies in the fact that
futures contracts also mandate the sale of commodity at a future data but at a price which is
decided in the present.

However, futures contracts are listed on the exchange. This means that the exchange is an
intermediary. Hence, these contracts are of standard nature and the agreement cannot be
modified in any way. Exchange contracts come in a pre-decided format, pre-decided sizes
and have pre-decided expirations. Also, since these contracts are traded on the exchange they
have to follow a daily settlement procedure meaning that any gains or losses realized on this
contract on a given day have to be settled on that very day. This is done to negate the
counterparty credit risk.

An important point that needs to be mentioned is that in case of a futures contract, they buyer
and seller do not enter into an agreement with one another. Rather both of them enter into an
agreement with the exchange.

41
Type 3: Option Contracts

The third type of derivative i.e. option is markedly different from the first two types. In the
first two types both the parties were bound by the contract to discharge a certain duty (buy or
sell) at a certain date. The options contract, on the other hand is asymmetrical. An options
contract, binds one party whereas it lets the other party decide at a later date i.e. at the
expiration of the option. So, one party has the obligation to buy or sell at a later date whereas
the other party can make a choice. Obviously the party that makes a choice has to pay a
premium for the privilege.

There are two types of options i.e. call option and put option. Call option allows you the right
but not the obligation to buy something at a later date at a given price whereas put option
gives you the right but not the obligation to sell something at a later date at a given pre
decided price. Any individual therefore has 4 options when they buy an options contract.
They can be on the long side or the short side of either the put or call option. Like futures,
options are also traded on the exchange.

Type 4: Swaps

Swaps are probably the most complicated derivatives in the market. Swaps enable the
participants to exchange their streams of cash flows. For instance, at a later date, one party
may switch an uncertain cash flow for a certain one. The most common example is swapping
a fixed interest rate for a floating one. Participants may decide to swap the interest rates or
the underlying currency as well.

Swaps enable companies to avoid foreign exchange risks amongst other risks. Swap contracts
are usually not traded on the exchange. These are private contracts which are negotiated
between two parties. Usually investment bankers act as middlemen to these contracts. Hence,
they too carry a large amount of exchange rate risks.

So, these are the 4 basic types of derivatives. Modern derivative contracts include countless
combinations of these 4 basic types and result in the creation of extremely complex contracts.

42
Fundamental analysis of Maruti Suzuki and Mahindra & Mahindra LTD

Maruti Suzuki-

About the Company

Maruti Suzuki India Limited (“Maruti” or the “Company”) has been the leader of the Indian
passenger car market. The Company has two manufacturing facilities located at Gurgaon and
Manesar. The Company’s portfolio includes Maruti 800, Alto, Alto K10, A-star, Estilo,
WagonR, Ritz, Swift, Swift DZire, SX4, and Ertiga.

STRENGTHS

Market Leader in Passenger Vehicle Segment

Maruti Suzuki commands 45% in the passenger vehicle (cars, sports utility vehicles (SUV)
and vans) segment with Alto, Swift, Dzire and WagonR as the top 4 most selling passenger
vehicle brand. The Company holds leadership position in passenger vehicle segment due to
its continuous effort to build on its competitive value proposition by constantly upgrading
models with latest technologies without a major increase in cost and penetrating deeper into
the country to find new buyers.

New Product Launches

The Company is always focused on launching new vehicles to tap more number of buyers in
the passenger vehicles segment. Maruti has been at the forefront of upgradation and new
vehicle launches for over 2 decades.

Strong distribution network

The Company continues to hold dominant market share on the back of its vast distribution
network (~1200dealerships in ~800 cities) and strong service network (~3000 workshops in
~1400 cities). The Company is also establishing a chain of retail outlets branded Nexa to
exclusively cater to the sale of premium products starting with upcoming cross-over utility
vehicle S-Cross.

CHALLENGES

Intense Competition

The automobile industry is highly competitive and competition is likely to further intensify in
view of the continuing globalization and consolidation in the worldwide automotive industry.
On the domestic front, Maruti Suzuki competes against Tata Motors, Mahindra & Mahindra,
Hyundai Motors, and Honda. The competition within the industry is increasing further with
new players entering the market and some smaller players catching up.

43
Production Capacity Constraint

The Company’s manufacturing capacity in Gurgaon and Manesar will be fully utilised till FY
2017. Delays in getting approvals for a new manufacturing plant in Gujarat could seriously
affect the production target of Maruti Suzuki.

Key Financial Figures

Consolidated (Rs. Cr)
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Total Income from Operations 44,304.25 44,450.58 50,801.31 58,612.00 77,316.40
Expenses 39,976.44 39,246.72 43,957.3249,493.20 66,958.30
Earnings Before Other Income,
Interest, Tax and Depreciation 4,327.81 5,203.86 6,843.99 9,118.80 10,358.10
(Operating Profit)
Depreciation 1,889.77 2,115.98 2,515.26 2,867.00 2,603.90
Finance Costs 197.84 184.56 217.81 93.70 89.40
Other income 830.11 830.53 865.04 471.50 2,289.60
PBT 3,070.31 3,733.85 4,975.96 6,629.60 9,954.40
Tax 621.54 902.26 1,185.39 1,998.70 2,616.20
PAT (before Minority Interest and
2,448.77 2,831.59 3,790.57 4,630.90 7,338.20
share of Associates)
Profit/ (loss) attributable to Minority
1.34 1.60 1.15 1.00 –
Interest
Share of profit / (loss) of Associates (21.86) (22.93) (18.02) (68.90) (172.80)
Consolidated Profit / (Loss) for the
2,469.29 2,852.92 3,807.44 4,698.80 7,511.00
year

Profitability Analysis
Consolidated (%)
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Operating Profit Margin Ratio 9.77 11.71 13.47 15.56 13.40
Net Profit Margin Ratio 5.53 6.37 7.46 7.90 9.49

Operating profit margin is a measurement of the proportion of a company’s revenue that is

left over after paying for production costs such as raw materials, salaries and administrative
costs. Net profit margin is arrived at by deducting non operating expenses such as
depreciation, finance costs and taxes out of operating profit and shows what is left for the
shareholders as a percentage of net sales. Together these ratios help in understanding the cost
and profit structure of the firm and analysing business inefficiencies.

44
Key Balance Sheet Figures
Sources of Funds / Liabilities (Rs. Cr)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Share Capital 144.50 151.00 151.00 151.00 151.00
Reserves & Surplus 15,530.00 18,876.80 21,345.40 24,167.40 27,597.70
Net worth (shareholders funds) 15,674.50 19,027.80 21,496.40 24,318.40 27,748.70
Minority Interest – 10.60 12.20 13.40 14.40
Long term borrowings 169.80 704.90 627.40 278.30 147.10
Current liabilities 6,677.00 6,971.90 8,230.90 8,982.40 11,460.10
Other long term liabilities and
271.10 338.00 448.30 401.70 424.50
provisions
Deferred Tax Liabilities 306.90 417.60 596.20 484.40 475.10
Total Liabilities 23,099.30 27,470.80 31,411.40 34,478.60 40,269.90

Application of Funds / Assets (Rs. Cr)

Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Fixed Assets 8,357.70 11,989.60 13,673.20 14,379.60 13,989.30
Noncurrent Investments 1,790.90 2,146.00 1,521.20 9,991.80 17,511.70
Current assets 11,242.00 11,154.10 14,553.60 8,696.40 7,404.30
Long term advances and other
1,708.70 2,181.10 1,663.40 1,410.80 1,364.60
noncurrent assets
Total assets 23,099.30 27,470.80 31,411.40 34,478.60 40,269.90

Efficiency Analysis
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
ROCE 15.94 21.92 23.51 27.81 32.67
ROE / RONW 10.72 12.98 13.27 15.66 16.69

Return on Capital Employed (ROCE) measures a company’s profitability from its overall
operations by calculating the return generated on the total capital invested in the business (i.e.
equity + debt). Return on Equity (ROE) or Return on Net Worth (RONW) measures the
amount of profit which the company generates on money invested by the equity shareholders.
In short, ROE draws attention to the return generated by the shareholders on their investment
in the business. Together these ratios can be used in comparing the profitability of the
company with other companies in the same industry.

45
Valuation Analysis
Consolidated
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Total Income from Operations (Rs.
44,304.25 44,450.58 50,801.31 58,612.00 77,316.40
Cr.)
Growth (%) 22.76 % 0.33 % 14.29 % 15.37 % 31.91 %
PAT (Rs. Cr.) 2,448.77 2,831.59 3,790.57 4,630.90 7,338.20
Growth (%) 49.90 % 15.63 % 33.87 % 22.17 % 58.46 %
Earnings Per Share – Basic (Rs. ) 81.74 94.44 126.04 155.55 248.64
Earning Per Share – Diluted (Rs. ) 81.74 94.44 126.04 155.55 248.64
Price to Earnings 15.66 20.67 30.27 23.91 29.62

Dividend History
The Company has maintained an average dividend yield of 0.61 % 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. Maruti’s average current ratio over the last 5 financial years has been
1.70 times which indicates that that the Company is comfortably placed to pay for its short
term obligations.

Long Term Debt to Equity Ratio

Companies operating with high 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.

Maruti’s average long term debt to equity ratio over the last 5 financial years has been 0.03
times which indicates that the Company operates with a low level of debt and is well placed
to pay for its obligations.

46
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. In our view, 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.

Maruti’s average interest coverage ratio over the last 5 financial years has been 77.99 times
which indicates that the Company has been generating enough for the shareholders after
servicing its debt obligations.

47
Mahindra and Mahindra-

About the Company

Mahindra & Mahindra Limited (“Mahindra & Mahindra” or the “Company”) is a major
automobile manufacturer of utility vehicles, passenger cars, pickup trucks, commercial
vehicles, and two wheelers.

STRENGTHS

Leadership Position in Indian Tractor Industry

The tractor industry in India is dominated by 3 players viz. M&M, TAFE and Escorts who
together control 70% of the overall tractor market. M&M is the market leader with ~42%
market share. M&M has maintained its market share in domestic tractor industry since
acquisition of Swaraj Tractors in FY 2009. The company plans to launch six new tractors in
the next three years, three each under its Mahindra and Swaraj brands.

New Product Launches

The company is planning to regain its share in the sports utility vehicle (SUV) segment. The
management is planning to aggressively launch new products in this segment, which it has
begun with the launch of new XUV500 in Q1FY2016.

CHALLENGES

Increasing Competition

There is moderate to high competition in the automobile sector in domestic market. The
company faces stiff competition in the SUV market and has lost its share to Renault (Duster)
and Ford Motor Company (EcoSport). The competition is going to increase in future as
Maruti Suzuki and Hyundai Motor are planning to launch their vehicles in this segment.

High dependence on Monsoon & Government policies

Tractors sales are highly correlated with monsoons. Weak monsoons can adversely affect
tractor demand, thereby affecting the future prospects of the company.

48
Key Financial Figures
Consolidated (Rs. Cr)
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Total Income from Operations 68,735.66 74,000.93 71,948.59 78,015.60 88,983.03
Expenses 59,619.87 63,880.77 63,155.30 68,368.21 78,251.81
Earnings Before Other Income,
Interest, Tax and Depreciation 9,115.79 10,120.16 8,793.29 9,647.39 10,731.22
(Operating Profit)
Depreciation 2,079.86 2,169.57 2,123.83 2,581.64 2,809.11
Finance Costs 2,297.00 2,953.93 3,156.69 3,372.94 3,648.46
Other income 388.94 505.09 525.03 541.00 730.10
Exceptional items (452.50) (317.85) (274.90) (5.03) (447.11)
PBT 5,580.37 5,819.60 4,312.70 4,238.84 5,450.86
Tax 1,934.63 1,496.22 1,720.02 1,863.65 2,299.73
Extraordinary items – – – – –
PAT (before Minority Interest and
3,645.74 4,323.38 2,592.68 2,375.19 3,151.13
share of Associates)
Profit/ (loss) attributable to Minority
29.95 486.87 243.91 139.86 –
Interest
Share of profit / (loss) of Associates (483.41) (830.42) (788.70) (975.93) (899.40)
Consolidated Profit / (Loss) for the
4,099.20 4,666.93 3,137.47 3,211.26 4,050.53
year

Profitability Analysis
Consolidated (%)
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Operating Profit Margin Ratio 13.26 13.68 12.22 12.37 12.06
Net Profit Margin Ratio 5.30 5.84 3.60 3.04 3.54

Operating profit margin is a measurement of the proportion of a company’s revenue that is

left over after paying for production costs such as raw materials, salaries and administrative
costs. Net profit margin is arrived at by deducting non operating expenses such as
depreciation, finance costs and taxes out of operating profit and shows what is left for the
shareholders as a percentage of net sales. Together these ratios help in understanding the cost
and profit structure of the firm and analysing business inefficiencies.

49
Key Balance Sheet Figures
Sources of Funds / Liabilities (Rs. Cr)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Share Capital 294.52 295.16 295.16 295.70 296.32
Reserves & Surplus 16,475.69 19,665.54 23,011.70 25,560.68 28,323.32
Employee Stock Option Outstanding – – – – –
Net worth (shareholders funds) 16,770.21 19,960.70 23,306.86 25,856.30 28,619.64
Minority Interest 4,525.16 5,296.97 5,733.10 5,892.23 6,327.03
Long term borrowings 16,039.86 19,860.26 25,491.75 22,327.03 25,096.30
Current liabilities 21,908.65 26,103.33 27,558.36 33,732.80 40,057.12
Other long term liabilities and
3,902.68 4,355.03 4,978.22 5,748.71 6,570.77
provisions
Deferred Tax Liabilities 722.62 893.50 1,201.97 1,286.83 1,552.03
Total Liabilities 63,869.18 76,469.79 88,270.26 94,843.981,08,222.89

Application of Funds / Assets (Rs. Cr)

Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Fixed Assets 18,692.38 17,941.20 19,228.02 21,314.61 24,185.94
Noncurrent Investments 3,426.64 4,626.20 5,852.37 7,898.99 8,744.17
Current assets 29,010.64 34,020.10 39,594.43 39,750.11 46,544.99
Long term advances and other
12,401.36 17,546.59 21,869.78 24,648.23 27,259.19
noncurrent assets
Deferred Tax Assets 338.16 338.36 381.67 467.77 709.14
Goodwill on consolidation (net) – 1,997.34 1,343.99 764.27 779.46
Total assets 63,869.18 76,469.79 88,270.26 94,843.981,08,222.89

Efficiency Analysis
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
ROCE 19.81 20.20 18.56 16.26 16.07
ROE / RONW 14.68 20.54 20.02 12.13 8.30

Return on Capital Employed (ROCE) measures a company’s profitability from its overall
operations by calculating the return generated on the total capital invested in the business (i.e.
equity + debt). Return on Equity (ROE) or Return on Net Worth (RONW) measures the
amount of profit which the company generates on money invested by the equity shareholders.
In short, ROE draws attention to the return generated by the shareholders on their investment
in the business. Together these ratios can be used in comparing the profitability of the
company with other companies in the same industry.

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Valuation Analysis
Consolidated
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Total Income from Operations (Rs.
68,735.66 74,000.93 71,948.59 78,015.60 88,983.03
Cr.)
Growth (%) 15.68 % 7.66 % (2.77 %) 8.43 % 14.06 %
PAT (Rs. Cr.) 3,645.74 4,323.38 2,592.68 2,375.19 3,151.13
Growth (%) 31.33 % 18.59 % (40.03 %) (8.39 %) 32.67 %
Earnings Per Share – Basic (Rs. ) 69.51 79.06 53.12 54.25 68.33
Earning Per Share – Diluted (Rs. ) 66.76 75.83 50.69 51.70 67.95
Price to Earnings 12.90 16.23 24.86 23.40 20.86

Dividend History
The Company has maintained an average dividend yield of 1.39 % 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. MNM’s average current ratio over the last 5 financial years has been
1.31 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.

MNM’s average long term debt to equity ratio over the last 5 financial years has been 0.75
times which indicates that the Company operates with manageable level of debt and will be

51
able to ride out bad economic cycles even if the Company’s profitability margins declines
temporarily.

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. In our view, 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.

Since MNM operates with very low levels of debt, its average interest coverage ratio over the
last 5 financial years has been 4.10 times which indicates that the Company will be able to
meet its debt obligations in the regular course of business.

Findings of the Analysis

 From the overall studies of fundamental analysis of Maruti Suzuki ltd and Mahindra
& Mahindra, both the companies performance is satisfactorily good as far as the
shareholders are concern.
 Current ratio of the Maruti Suzuki ltd is 1.70 times higher than the Mahindra and
Mahindra which is 1.31 times. It shows the Mahindra and Mahindra is more efficient
to pay its short term liabilities.
 Long Term debt to equity ratio of Maruti Suzuki ltd is 0.03 times which is lower than
the Mahindra and Mahindra i.e 0.75times. It clears that Mahindra and Mahindra
taking more debt than Maruti Suzuki Lld.
 Interest coverage ration of Maruti Suzuki ltd is 77.99 times and Mahindra and
Mahindra is 4.10. Minimum acceptable ratio should be 1.5. In this case both the
companies meet the obligation but the Maruti Suzuki Ltd performance better than
Mahindra and Mahindra.

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 FINDINGS

 Based on the above analysis it was interpreted that market volatility was observed in
the market due to the Fluctuation.
 But in the product like smart basket, appropriate research in stock will get desired
return.
 investors have regular income apart from the investment in the capital market, as they
are either permanent employees or professionals.
 Investors have experienced bad delivery of order of which were rectified.

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 RECOMMENDATION

 Proper product training in the core products like Medi claim, Insurance and smart
basket.
 Conduct the time to time awareness about the products and services which is
provided by firm.
 More focusing on the mutual fund market as purchasing power of client in the
particular area is suitable for the same.

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 CONCLUSION

 According to the overall overview of equity and debt market due to the market
volatility customer tends to hold their investment in equity.
 In mutual fund segment average rate of return sustain the client in Mutual fund
market.
 Many of the customer prefer the NCD for safe investment and fixed return.
 Client of the firm is focussing on the more debt to equity in proportion.
 Prices change according to supply and demand. Many people have different opinions
on why stock prices move the way they do.

55
 Bibliography

Websites:
 http://www.bseindia.com/
 http://www.sebi.gov.in/
 http://www.theequitydesk.com/
 http://www.ibef.org/home.aspx
 /www.sanasecurities.com
 https://www.rathi.com
 https://www.rathi.com/advisory/recommended-stock-baskets.
 https://www.nseindia.com.
 https://timesofindia.indiatimes.com/business/personal-finance/Features-of-a-mutual-
fund/articleshow/17551768cms.

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