Report On Equity Vaulution

Kotak Securities Ltd, Hubl i
Executive Summary:
Valuation is the first step towards the intelligent investing. An analysts evaluates the stocks based on different parameter like fundamentals of the company i.e earnings of the company, P/E dividend yield etc. and also by finding the future value of the stock by applying the models of equity valuation. Equity valuation is the most needed so as to know whether the stock is good to hold or to sell. This report starts with a brief introduction of stock market and a profile of Kotak Mahindra Group and Kotak Securities Ltd. a subsidiary company of that group. Then follows Industry Analysis of Infrastructure: Construction Industry Analysis. Here the evaluation of the performances of the Infrastructure industry and particularly Construction Sector is done. Its contribution towards the economy and its recent developments are chalked out. The next part is introduction to Equity Valuation where the different approaches are briefly explained with their equations. The fundamental ratios needed to valuate the performance of the company over past years and with competitors are discussed. The last part of the report includes deriving the fundamental ratios and application of the models for the three stocks of Infrastructure Company. This is done to find its intrinsic value and the future prices of the stock using the Dividend Discount Model and Two Stage Growth Rate. In the comparison and analysis part of the report analyzes the prices and the dividend growth for the next year and the real value of the three stocks. The findings parts shows the interpretation on the performance and real value of the stock and finds the best dtock to invest into or which stock to sell or to buy.
Kotak Securities Ltd, Hubl i Objectives and Methodology: Objectives:

The main objective of the study are : To study about the Stock Market and its functions. To study the infrastructure: Construction Industry, its contribution to economy and its performances in past years. To identify and evaluate the equity shares of infrastructure: construction companies. To compare the market performance with that of stock selected. To know whether the equities are under-priced or over-priced and to suggest which to buy or to sell.
Methodology:
The project is on equity valuation where the equity share prices of the companies are analyzed. The study is based on the past prices of the three years. The nature of data collection is highly based on the information available through Secondary Data.
Secondary Data:
The main source of information is taken from annual reports of the companies and through related websites which has enabled in analyzing the equities. Internet sources Annual Reports Text Books
Primary Data:
The primary sources of information collection were through discussion with the faculties and the advisors in the company.
Need for the study:

Valuation of the stocks is the first step towards intelligent investing. The knowledge of securities market, particularly of the equity markets, is essential to come to grips with the industry analysis and performance of the company through fundamental ratios. An investor attempts to determine the worth of their shares based on the fundamentals, real value of stock and some news from the media. Equity valuation is the most important and needed so as to know the competitiveness of company other companies and with industry benchmark. Its also needed to predict the future prices of the company to know where the company stands which would help the investor to make better investing decisions either for long-term period or for shotterm period.
Scope of the study:

The concept of return and risk and dividends paid, as the determinants of the the value are as fundamentals and valid to validation of the securities. At the outset its not easy to predict the rates and prices of stocks. Investor can design his/her investment and financing activities in a manner which exploits the relevant variables to maximize the market value of shares.
INTRODUCTION TO STOCK MARKET

Stock is a share in the ownership of a company. Stock represents a claim on the companys assets and earnings as you acquire more stock, your ownership stake in the company becomes greater, whether you say shares, equity or stock, and it all means the same thing. Holding a companys stock means that you are one of the many owners (shareholders) of a company, and, as such, you have a claim to everything the company owns. As an owner, you are entitled to your share of the companys earnings as well as any voting rights attached to the stock. A stock is represented by a stock certificate. This is a piece of paper that is proof of your ownership. In todays computer age, stock records are kept electronically, which is also know as holding shares. This is done to make the shares easier to trade. In the past when a person wanted to sell his or her shares, that person physically took the certificates down to brokerage. Now, trading takes place with a click of the mouse or a phone call. The management of the company is supposed to increase the value of the firm for shareholders. The importance of being a shareholder is that you are entitled to a portion of the companys profits and have a claim on assets. Profits are sometimes paid out in the form of dividends. The more shares you own, the larger the portion of the profits you get. Your claim on assets is only relevant if a company goes bankrupt. In case of liquidation, youll receive whats left after all the creditors have been paid. Another extremely important feature of stock is its limited liability, which means that, as an owner of a stock, you are not personally liable if the company is not able to pay its debts. Owning stock means that, no matter what, the maximum value you can lose is the value of your investment. It must be emphasized that there are no guarantees when it comes to individual stocks. Some companies pay out dividends, but many others do not. And there is no obligation to pay out dividends even for those firms that have traditionally given them. Without dividends, an investor can make money on a stock only through its appreciation in the open market i. e., through speculating stock price changes everyday by market forces.

Stock prices change every day as a result of market forces. By this we mean that share prices change because of supply and demand. If more people want to buy a stock (demand) than sell it (supply), then the price moves up. Conversely, if more people wanted to sell a stock than buy it, there would be greater supply than demand, and the price would fall. Understanding supply and demand is easy. What is difficult to comprehend is what makes people like a particular stock and dislike another stock. This comes down to figuring out what news is positive for a company and what news is negative. The price movement of a stock indicates what investors feel a company is worth. The value of a company is its market capitalization, which is the stock price multiplied by the number of shares outstanding. The most important factor that affects the value of a company is its earnings. Earnings are the profit a company makes, and in the long run no company can survive without them. It makes sense when you think about it. If a company never makes money, it isn't going to stay in business. Public companies are required to report their earnings four times a year (once each quarter). Stock Exchange watches with rabid attention at these times, which are referred to as earnings seasons. The reason behind this is that analysts base their future value of a company on their earnings projection. If a company's results surprise (are better than expected), the price jumps up. If a companys results disappoint (are worse than expected), then the price will fall. Some believe that it isnt possible to predict how stocks will change in price while others think that by drawing charts and looking at past price movements, you can determine when to buy and sell. The only thing we do know, as a certainty is that stocks are volatile and can change in price extremely rapidly. The important things to consider about stocks are the following: 1. At the most fundamental level, supply and demand in the market determines stock price. 2. Price times the number of shares outstanding (market capitalization) is the value of a company.

3. Theoretically, earnings are what affect investors' valuation of a company, but there are other indicators that investors use to predict stock price. Remember, it is investors' sentiments, attitudes and expectations that ultimately affect stock prices. 4. There are many theories that try to explain the way stock prices move the way they do. Unfortunately, there is no one theory that can explain everything.
Introduction to National Stock Exchange: The National Stock Exchange of India Limited (NSE) is a Mumbai-based stock exchange. It is the largest stock exchange in India and the third largest in the world in terms of volume of transactions. NSE is mutually-owned by a set of leading financial institutions, banks, insurance companies and other financial intermediaries in India but its ownership and management operate as separate entities.In March 2006, the NSE had a total market capitalization of 4,380,774 crore INR making it the second-largest stock market in South Asia in terms of market-capitalization. NSE has remained in the forefront of modernization of India's capital and financial markets, and its pioneering efforts include:
Being the first national, anonymous, electronic limit order book (LOB) exchange to trade securities in india. Since the success of the NSE, existent market and new market structures have followed the "NSE" model.
Setting up the first clearing corporation "National Securities Clearing Corporation Ltd." in india. NSCCL was a landmark in providing innovation on all spot equity market (and later, derivatives market) trades in India.
Co-promoting and setting up of National Securities Depository Limited, first depository in india. NSE pioneered commencement of Internet Trading in February 2000, which led to the wide popularization of the NSE in the broker community. Being the first exchange that, in 1996, proposed exchange traded derivatives, particularly on an equity index, in india. After four years of policy and regulatory debate and formulation, the NSE was permitted to start trading equity derivatives three days after the BSE.
Being the first exchange to trade ETFs (exchange traded funds) in india.
Company Profile
Of
Kotak Securities Ltd.
THE KOTAK MAHINDRA GROUP:

Kotak Mahindra is one of India's leading financial conglomerates, offering complete financial solutions that encompass every sphere of life. From commercial banking, to stock broking, to mutual funds, to life insurance, to investment banking, the group caters to the financial needs of individuals and corporates. The group has a net worth of over Rs. 5,609 crore, employs around 17,100 people in its various businesses and has a distribution network of branches, franchisees, representative offices and satellite offices across 344 cities and towns in India and offices in New York, London, Dubai, Mauritius and Singapore. The Group services around 3.6 million customer accounts.
Kotak Group Products & Services:

Bank Life Insurance Mutual Fund Car Finance Securities Institutional Equities Investment Banking Kotak Mahindra International Kotak Private Equity Kotak Realty Fund
KOTAK SECURITIES:
Kotak Securities Ltd. 100 % subsidiary of Kotak Mahindra Bank is one of the oldest and largest broking firms in the Industry with a market share of 8.5 % (as on 30th September). Kotak Securities offerings include stock broking through the branch and Internet, Investments in IPO, Mutual funds and Portfolio management service. Its Accolades include: Best Performing Equity Broker in India CNBC Financial Advisor Awards 2008. Avaya Customer Responsiveness Awards (2007) in Financial Services Sector. Best Brokerage Firm in India by Asiamoney in 2007. The Leading Equity House in India in Thomson Extel Surveys Awards for the year 2007. Euromoney Award (2006 and 2007) - Best Provider of Portfolio Management: Equities. Avaya Customer Responsiveness Awards (2006) in Financial Institution Sector. Asiamoney Award (2006) - Best Broker in India. Euromoney Award (2005) - Best Equities House in India. Finance Asia Award (2005) - Best Broker in India. Finance Asia Award (2004) - India's best Equity House. Prime Ranking Award (2003-04) - Largest Distributor of IPO's.
Kotak Securities is the first in providing many products and services which have now become industry standards. Some of them are: Facility of Margin Finance to the customers. Investing in IPOs and Mutual Funds on the phone. SMS alerts before execution of depository transactions. Mobile application to track portfolios. Auto Invest - A systematic investing plan in Equities and Mutual funds. Provision of margin against securities automatically against shares in your Demat account. Kotak Securities has a full-fledged research division involved in Macro Economic studies, Sectoral research and Company Specific Equity Research combined with a strong and well networked sales force which helps deliver current and up to date market information and news. Kotak Securities is also a depository participant with National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL), providing dual benefit services wherein the investors can avail brokerage services for executing the transactions and the depository services for settling them. It process more than 600000 trades a day which is much higher even than some of the renowned international brokers. Kotak Securities network spans over 310 cities with 867 outlets. Kotak Securities Limited has over Rs. 4000 crore of Assets Under Management (AUM) as of 31st December, 2007. The portfolio Management Service provides top class service, catering to the high end of the market. Portfolio Management from Kotak Securities comes as an answer to those who would like to grow exponentially on the crest of the stock market, with the backing of an expert.
WHY KOTAK SECURITIES?

Kotak Securities sees investing from customers perspective, and make recommendations based on their needs. The important goals of Kotak Securities is to simplify investing for customers, along with that they also provide long term values to their customers. Kotak Securities has a million reasons for customers to choose it. Listed below are a few: STABILITY: They are a 100% subsidiary of Kotak Mahindra Bank and one of the oldest and largest broking firms in the Industry. We have been the first and only NBFC to receive the license to be converted into a bank. INNOVATORS IN THE INDUSTRY: Kotak Securities has been the first in providing many products and services which have now become industry standards. First to provide Margin Financing to the customers. First to enable investing in IPOs and Mutual Funds on the phone. Providing SMS alerts before execution of depository transactions. Launching of Mobile application to track portfolio. Auto Invest - A systematic investing plan in Equities and Mutual fund. Provision of margin against securities automatically against shares in your Demat account.
RELIABILITY: Kotak Securities accolades are a testimony to our services and high standards. Kotak Securities has been awarded as: Best Performing Equity Broker in India CNBC Financial Advisor Awards 2008 Avaya Customer Responsiveness Awards (2007) in Financial Services Sector Best Brokerage Firm in India" by Asiamoney in 2007 The Leading Equity House in India' in Thomson Extel Surveys Awards for the year 2007. Euro money Award (2006 & 2007) - Best Provider of Portfolio Management: Equities. VALUE: Whether you are a customer with a small or large wallet size, customers can expect Kotak Securities to bring value to customers in every form. Quality Research Quick trade execution Low brokerages Accounts that suit your investment profile Risk Profiler Superior Customer Service
SERVICE: Kotak Securities believe in high standards of service and that's precisely what they offer. It's an honor to be awarded the most customer responsive company award in the Financial Institution sector by AVAYA Global Connect Award both in 2006 and 2007. ROBUST TECHNOLOGY: Kotak securities developed proprietary trading platform which is robust and among the best in the industry. It has more than 150 technology professionals constantly working on upgrading and speeding up all systems.
CENTRALISED RISK MANAGEMENT SYSTEM: Unlike many other players Kotak Securities has a centralized risk management system. This allows them to offer the same levels of service to customers across all locations. EXCEPTIONAL RESEARCH: Unlike most other competitors Kotak Securities has their own in house research team. Their in house research team is among the best in the industry and they have years of experience in the financial markets. They scan through the plethora of stocks and find the scrips that have a high potential of providing you good returns. Our investors get research Technical, Fundamental, Derivatives, Macro-economic and mutual fund research. LARGE PRESENCE: Kotak Securities is present in 309 cities with 867 offices all over the country. Its employee strength extends beyond 5000.
OFFERINGS OF KOTAK SECURITIES:

Once customers invest with Kotak Securities, they can enjoy access to a wide range of products and services to help them make the most of their investments. Easy Equity Easy Derivatives Easy IPO. Easy Mutual Fund Easy Insurance Kotak Portfolio Management.
EASY EQUITIES: Investing in equities was never so easy. As the Best broker in India Kotak Securities products and services are focused at making investments in equities as simple as writing a cheque. Research: "What do I Buy?" Isn't this a common question we all have while investing in equities? Kotak Securities in house research team is among the best in the industry and they have years of experience in the financial markets. They scan through the plethora of stocks and find the scrips that have a high potential of providing good returns. SMS Alerts: Customers can get expert tips and recommendations as SMS on their mobile phone so that customers know what to invest in at all times. Trinity Account: A 3 in 1 account that integrates Trading, Bank and Demat account. With Trinity Account transactions will be seamless and very convenient. Competitive Brokerages: Kotak Securities brokerage rates are among the most competitive in the industry. Low brokerage rates let customers concentrate on investing their savings without worrying about the cost of investment. Call and Trade: Customers can capitalize on market opportunities even when their computer is inaccessible. Call & Trade essentially provides the convenience of trading in equities by making a simple phone call. KEAT: This superior trading platform to monitor market movements, view your gains and losses and order placements instantaneously. Know more M-Trade: It is exclusively designed to give instant access to the stock market through mobile phone, thereby allowing to catch every little market movement when customers are on the move. Kotak Securities News: It provides access to all news related to a stock, right from its results, earnings, bonus, share holding patterns etc. Also helps in knowing about market developments, latest happenings, stock movements and lots more.

Twin Advantage : Customers can not only get exposure against the cash margin in their trading account but can also automatically provide with exposure against the shares lying idle in their DP account.
EASY DERIVATIVES: If customers are not averse of taking risks, derivatives can prove to be a good investment option especially with Kotak Securities research. Kotak Securities has strived to make investing in derivatives simpler. It provides derivatives seminars educate new entrants in the derivatives market to be more equipped with knowledge and techniques. Once the customer has the knowledge of investing in derivative instruments Kotak Securities daily derivative reports will provide customers with strategies that may yield good returns. Customers can also refer to the Kotak Securities Academy to learn more about derivatives. EASY IPOS: Investing in IPOs is not complex anymore; Kotak Securities has made investing in IPOs very simple. Customers have to do is one phone call, and that's all. No paperwork no queues, simply pick the phone or log on to www.kotaksecurities.com and place their order within seconds. Kotak Securities also provide with you with information on IPO News, Forthcoming IPOs and a lots more. EASY MUTUAL FUNDS: No more paperwork, no more queues.Kotak securities have made investing in mutual funds as simple as dialing a pizza. Customers can now invest in over 1000 different mutual fund schemes through us. And to make this choice of choosing between which mutual funds scheme to invest in, it offers customers an exclusive research. Investment in mutual fund can be made simply by logging on to www.kotaksecurities.com or just making a phone call. No paperwork no queues.
EASY INSURANCE: Kotak Securities brings customers a sure and secure insurance option without the hassles and worries of a conventional insurance plan. With minimal paperwork and procedures, customers get the dual benefit of a risk cover and savings. What's more, at the end of the term, a minimum of premiums paid by customers will be returned depending on the option they choose.
FINANCIAL PLANNING GROUP AND PORTFOLIO MANAGEMENT :

A structured portfolio is essential for reducing the risk of capital erosion as a result of short-term volatility. With Kotak Financial Planning Group, these portfolios are more than just structured-they're tailor-made, too. In today's complex financial environment no one asset class tends to consistently outperform another. Kotak Securities Financial Planning Group aims to help clients grow exponentially on the crest of the stock markets. And since the market is unpredictable by nature, the only way to beat it is constant monitoring. That's where the integration with Kotak Securities proves invaluable. Clients benefit from the in-depth research, the wide network of experts, the international presence, and from the constant tab on the Indian and global financial scenario of Kotak Securities. About Financial Planning Group: The financial planning and distribution arm of Kotak Securities is involved in defining financial goals, identifying investment vehicles and achieving them. The group commenced its operations in the year 2003. Present over 30 locations with a large team of relationship managers, has always endeavored in servicing clients; closely understanding their needs, financial goals and advising ethically.
Products: This is done through quality service and access to a wide range of products; products that are customizable. The financial planners thoroughly discuss and understand the desires of each client. Their financial goals. Their risk appetite. Their time constraints. Products offered range from those promising aggressive returns (MFs and PMS) to those that aid diversification (Commodities, Gold, Equities etc.) to those that aim for capital protection like insurance and capital guarantee products. Portfolio Management Service: Kotak Securities brings with it years of experience, expertise, research and the backing of India's leading stock broking house. The portfolio managers have over 10 years of understanding diverse investment instruments and needs. Kotak Securities is one of India's oldest portfolio management companies. It is also one of the largest with an AUM worth Rs.2500 crore. And for those who wish to grow their wealth exponentially-it is also one of the best. The Portfolio Management Service combines competent fund management, dedicated research and technology to ensure a rewarding experience for its clients. Every investment portfolio is carefully engineered for clients in a phased manner. Relationship managers help clients monitor, assess and tweak their portfolio at every level. Relationship Managers dispense personalized advice and ensure clients receive quarterly research reports, account performance statements and MIS at their doorstep. A dedicated website and a customer service desk allow clients to keep a constant tab on their portfolio's performance. All in all, it translates into zero paperwork.
Other companies under the umbrella of Kotak Mahindra Group:

KOTAK MAHINDRA BANK LTD KOTAK MAHINDRA CAPITAL COMPANY LTD INTERNATIONAL SUBSIDIARIES KOTAK MAHINDRA PRIME LTD KOTAK MAHINDRA ASSET MANAGEMENT COMPANY
KOTAK MAHINDRA BANK LTD

The Kotak Mahindra Group's flagship company, Kotak Mahindra Finance Ltd which was established in 1985, was converted into a bank - Kotak Mahindra Bank Ltd in March 2003 becoming the first Indian company to convert into a Bank. KOTAK MAHINDRA CAPITAL COMPANY LTD Kotak Investment Banking* (KIB) is India's premier Investment Bank. Kotak Investment Banking (KIB) and Kotak Institutional Equities represent the securities business of the Kotak Mahindra Group **(KI), Kotak Investment Bank is a full service Investment Bank bringing to its clients the global reach and the local knowledge and skills of Kotak Mahindra. As a full service Investment Bank, Kotak Investment Banking's core business areas include Equity Issuances, Mergers & Acquisitions, Advisory Services and Fixed Income Securities and Principal Business. Its strength lies in understanding the clients' businesses backed by a strong research team and an extensive distribution network, which spans a wide variety of investors across the country. It is also the first Indian Investment Bank to be registered with the Securities & Futures Authority in the UK (through our wholly owned subsidiary) and the National Association of Securities and Dealers in the USA.
KOTAK MAHINDRA ASSET MANAGEMENT COMPANY Kotak Mahindra Mutual Fund (KMMF) is managed by Kotak Mahindra Asset Management Company Ltd. a wholly owned subsidiary of Kotak Mahindra Bank Ltd. Kotak Mahindra Mutual Fund launched its Schemes in December 1998 and today manages over Rs.13,635.83 crores of assets from close to 4,34,622 investors in various schemes. INTERNATIONAL SUBSIDIARIES Kotak Mahindra International Limited (KMIL) is the international arm of the Kotak Mahindra Group and was incorporated in 1994 in Mauritius, with a branch in Dubai. Today the international operations also cover the United Kingdom, through Kotak Mahindra U.K. Limited and in the USA through Kotak Mahindra Inc. USA. These companies are subsidiaries of Kotak Mahindra Capital Company (KMCC) the Investment Banking Division of the Group. Services offered include GDR and ADR trading and broking, debt syndication, placement of Indian securities and advisory services. KOTAK MAHINDRA PRIME LTD Kotak Mahindra Prime Limited (KMPL) is a 100% subsidiary of Kotak Mahindra Group (Kotak Group) formed to finance all passenger vehicles. The company is dedicated to financing and supporting automotive and automotive related manufacturers, dealers and retail customers. The Company offers car financing in the form of loans for the entire range of passenger cars and multi utility vehicles. The Company also offers Inventory funding to car dealers and has entered into strategic arrangement with various car manufacturers in India for being their preferred financier.
Introduction to Equity Valuation
Equity Valuation:
The investor takes a number of decisions in the process of investment. The investor has to decide about his risk tolerance level and the nature of assets to be brought weather they are stocks or bonds or real estates. Once he decides the nature of the assets, he has to select it from different alternatives. For example, if the common stock is chosen by the investor he has to decide which company stocks he has to buy. It may be Reliance industry stock or the BHEL or Infosys or any other companys stock. Stocks are selected on the basis of their return and risk. The investor analyses the risk and returns of holding a particular stock for say five years or ten years. The risk and return analyses of the security are known as security analysis. Return: The return from the stock includes both current income and capital gain caused by the appreciation of the price. The income and capital gain are expressed as percentage of money invested in the beginning. The historical returns or expost returns are derived from the cash flow received as well as the price changes that occur during the period of holding the stock or any asset. The income flow is the dividend he receives during the holding period. In simple terms r = Price Change + Cash dividend Purchase Price x100
Assumption: While ascertaining the value of equity shares, different assumptions are made regarding the companys future profits, the amount and the timing of the dividends, the required rate of return etc. Therefore, different approaches have been developed for the valuation of equity shares. These different approaches however, make the following assumptions regarding the basic characteristics of equity shares: 1. Equity shares do not have any redemption date. 2. Equity shares do not have any given redemption or liquidating value. In case of liquidation of the company, their claim is residual in nature and arising in the last (after paying all external liabilities and the preference share holders). 3. Dividends on equity shares are neither guaranteed nor compulsory. Further, neither the rate nor the timing of dividend is specified. So, the dividend can vary in any directions. Different approaches for the valuation of the equity shares can be analyzed as follows: a) Valuation based on dividends. b) Valuation based on earnings.
Valuation of Equity Shares based on Dividends

An investor buys or acquires an equity share in expectation of (i) a stream of future dividends from the company and (ii) resale price of the equity share after some time when he is no longer interested in holding the share. The owner of the share receives dividends as a compensation for investing in the firm. So, as long as, the firm is operating profitable and the investor holds the share, he would be expecting to receive a dividend from the company. So, the dividends play a crucial and important role in determining the value of equity shares. Though there is no legal compulsion to pay dividend on equity shares, still most companies prefer to pay dividends in order to satisfy the expectation of their shareholders.
Assumptions: Valuation of the equity shares based on dividends requires the following assumptions: 1 2 3 The dividends are payable annually. The dividend is received after one year from the date of acquisition/purchase. Sale of equity share if any, occurs only at the end of a year and at the exdividend terms.
Dividend Discount Model

Single Period Valuation Model
The return occurs at the end of the period. If it is to be expressed at the beginning of the holding period, it has to be given in terms of the present value. Po = D1 + 1+r P1 1+r
Po= Current selling price P1= Selling price at the end of one year period D1= The dividend received during the one year holding period r = Investors required rate of return With the help of above mentioned formula, investor can find out weather the price he has to offer is suitable to his required rate of return.
CONSTANT GROWTH MODEL
In this model, the basic assumption is that dividends will grow at the same rate (g) into an indefinite future. Po = D(1+g) + D(1+g)2 + D(1+g)3 +..+ D(1+g)N 1+r Po = D1 r-g Po= Present value of the stock r = Required rate of the return g = The growth rate D1=The next year dividend This model is based on the assumption: a) b) The firms dividend policy will be stable. The firm will earn the stable return over the time. (1+r) 2 (1+r) 3 (1+r) n When the period approaches to infinity the equation takes the form
This model is applicable when the analyst is able to predict all the three variable in the equation namely (1) next years dividend, (2) the firm long term growth rate and, (3) the required rate of return of the investor. Once the three values are known to the analyst, the theoretical value or the present value of the stock can be computed and compared with the driveling price, if Theoretical value > Actual price - >buy Theoretical value < Actual price - >sell Another advantage of this is that with the present selling price, next years dividend and the growth rate, rate of return of the stock can be estimated. Present rate of return > Required rate of return - > buy

Present rate of return < Required rate of return - < sell
TWO STAGE GROWTH MODEL

The constant growth model is extended to two stage growth model. Here the growth stages are divided into two, namely, a period of extraordinary growth and a constant growth period of infinite nature. The extra ordinary growth period will continue for some period followed by the constant growth rate. The information technology industry is at present experiencing an extraordinary growth rate, it may continue for sometime and afterwards it may maintain constant growth rate.
Po = D1
1-[1+g1 1+r]n r - g1
D1 (1+g1)n-1(1 + g2) r g2
1 (1 + r)n
Po = Current selling price D1 = Required rate of the return g1 = Extraordinary growth rate applicable for n years g2 = Normal growth rate applicable after n years
Fundamental Analysis
The key questions to be addressed in applying the models are: What is the expected EPS for the forthcoming year? What is the P/E ratio given the growth prospectus, risk exposure and the other characteristics of the company? Thus to start with this the equity analyst should with a historical analysis of earnings, dividends, growth, risk and valuation and use of this as a foundation for developing the forecast required for estimating the intrinsic value. The key ratios considered are: Return on Equity: This is the most important indicator of financial performance, this can be defined as: ROE = Equity Earnings X 100 Earnings Book Value per share: the book value per share is equal to: = Paid-up equity capital + Reserves and Surplus No. of outstanding shares Earning per Share: The earning per share is equal to:
Equity Earnings EPS = No. of outstanding shares

Dividend Payout Ratio: The dividend payout ratio represents the proportion of the equity which is paid out as dividends. Its is defined as:
Equity Dividends =
Equity Earnings
Dividend Per Share: The dividend per share is simply the dividend declared per share. The dividend is stated as a percentage of the paid up value per share.
Price Earning ratio: the Price Earning Ratio reflects the price investor are willing to pay for every rupee of earnings per share. The PE ratio can be calculated in a retrospective or prospective manner. The retrospective PE ratio is defined as:
PE ratio = price per share at the end of the year earning per share for the year
Growth Performance: To measure the historical growth of the firm, Compound Annual Growth Rate (CAGR) in variables like sales, net profit, earnings per share and dividend per share should be calculated o CAGR of Sales: ( Sales for 2007 Sales for 2005) 1/5 - 1. o CAGR of Earnings Per Share: ( EPS for 2007 EPS for 2003) 1/5 - 1. o CAGR of Dividend per Share: ( DPS for 2007 DPS for 2003) 1/5 - 1. o Sustainable Growth Rate: The sustainable growth rate is defined as:

Sustainable growth rate = Retention ratio Return on equity. Risk Exposure: some of the measure used to getting handle over risk : o Beta: The risk of the stock is denoted by its Beta which measures how sensitive is the return on the stock to variations in the market return. o Volatility of return on equity: The volatility on return on equity may be defined as : = Range of return on equity over year 2003 to 2007 Average return on equity over n years
Required Rate of return: The investors required rate of return is calculated by applying Constant Dividend Growth Model of Gordan
INDUSTRY PROFILE
INFRASTRUCTURE INDUSTRY: CONSTRUCTION INDUSTRY PROFILE

Infrastructure Industry in India have been experiencing a rapid growth in its different sectors with the development of urbanization and increasing involvement of foreign investments in this field. The Indian government has taken initiatives to develop the infrastructure sector, with major emphasis on construction, engineering, IT, entertainment, textiles, food, and utility to name some. Reports on Construction industry in Infrastructure Industry: The section of the construction industry of Infrastructure Industry in India reported an estimated growth of 6.78% year-on-year in 2006. The industry in India is highly fragmented and has about 300,000 construction companies operating nationwide. The government has allowed 100% foreign equity in the construction industry. The share of construction sector in gross domestic product (GDP), which was 5.4 per cent in 1970-71, came down to 4.4 per cent in 1990-91. Subsequently it picked up and stood at 5.1 per cent in 1999-2000. In the next 10 years we must invest at least $150 Billion to modernize and to expand India's infrastructure....we need a new experimentation with public-private participation because the public sector may have a role, but by itself it cannot meet all the requirements. I see an expanding and very profitable role of foreign direct

investment in meeting the challenge of modernizing India's infrastructure..." -from speech of Prime Minister of India at NYSE (September 2004)
Future Investments in Construction Industry: India is on verge of witnessing a sustained investment in infrastructure build up. With construction component accounting for 42% of the total investment in infrastructure, the construction industry has been witness to a strong growth wave powered by large spends in housing, road, ports, water supply and airports development. The construction sector has grown at a CAGR of 12.7% during the last four years and now accounts for 6.9% of Indias GDP compared to 5.9% in FY03. The Central Governments proposed infrastructure spends increased from US$ 88 bn in the Ninth Plan to US$ 140 bn in the tenth five year plan (2002-07). Since government spending on infrastructure is the most important growth driver for construction companies, the proposed increase in allocation will translate into awarding of more projects. It is estimated that the government spend on infrastructure in the Eleventh Five-Year plan will increase to US$ 229 bn, as compared to US$ 140 in the previous plan From a policy perspective, there has been a growing consensus that a
private-public partnership is required to remove difficulties concerning the development of infrastructure in the country. A substantial chunk of the above mentioned investment target is likely to come from the private sector.
FDI in Infrastructure Investments into India is permitted upto 100% in
various sectors viz. Roads and Highways, Ports and Harbours, Electricity Generation, Transmission and Distribution, Mass Rapid Transport System, Industrial Parks/SEZs, Integrated Townships over 100 Acres, Hotels & Tourism, LNG Projects, Greenfield Airport Ventures etc
The real estate industry comprising of construction and development of
properties has grown from family based entities with focus on single products and having one market presence into corporate entities with multi-city presence having differentiated products. The industry has witnessed considerable shift from traditional financing methods and limited debt support to an era of structured finance, private equity and public offering. Future demand for the Construction Projects: Real estate investments account for about 60% of the total construction investments. Demand-supply gap for residential housing, favorable demographics, rising affordability levels, availability of financing options as well as fiscal benefits available on availing of home loan are the key drivers supporting the demand for residential construction. In addition to this, demand for office space from IT/BPO segment is expected to continue due to emergence of India as a preferred outsourcing destination. Also, boom in organized retail is expected to result in huge demand for real estate construction. According to industry estimates, the Indian real estate industry is expected to grow at a compounded rate of 33% between FY05 to FY10, mainly driven by the residential segment. Demand for residential properties tends to be highly price-sensitive. Though the underlying demand for housing is huge, increasing property prices and higher interest rates lead to postponement of purchasing decisions and thereby result in slower off-take. Furthermore, most of the real estate companies have lined-up huge development plans going forward. The total area to be developed over the next few

years by them is nearly 20 to 30 times the size of projects executed so far and hence, there are likely to delays.
Employment generation by Construction Industry: The construction sector is one of the largest employers in the country. In 19992000, it employed 17.62 million workers, a rise of 6 million over 1993-94. The sector also recorded the highest growth rate in generation of jobs in the last two decades, doubling its share in total employment. Indias construction industry employs a work force of nearly 32 million and its market size is worth about Rs. 2,48,000 crores. It is the second largest contributor to the GDP after the agricultural sector. Construction sector is viewed as a service industry. It generates substantial employment and provides growth impetus to other manufacturing sectors like cement, bitumen, iron and steel, chemicals, bricks, paints, tiles etc. whose combined value is Rs.1, 92,000 crores annually. The construction equipment market is valued at Rs.1, 05,000 crores. The main advantage of the construction sector in employment generation lies in the fact that it (i) absorbs rural labour and unskilled workers (in addition to semi-skilled and some skilled); (ii) provides opportunity for seasonal employment thereby supplementing workers income from farming; and (iii) permits large-scale participation of women workers.

Where will it be five years from now? What are the growth drivers? The construction industry has been consistently clocking a double digit annual growth over the last three to four years. Since the benefit of investments in infrastructure creation has been well established at the political, social and economic level, it is unlikely that there will be a slacking of investment in this sector in near future. Five years from now the size of the industry is likely to be almost double its present size. The growth drivers for the industry are the overall high growth of the economy which is fuelling an already pent-up demand for infrastructure created by low infrastructure growth over the last few decades. Today, inadequacy of transportation and logistics systems and short supply of power are holding back an industrial growth which has not reached its full potential. Growth in the leisure, entertainment and hospitality industry is driving growth in other sectors of infrastructure as well The challenges before the construction industry: The challenges before the construction industry is to ramp up its ability to meet the ever-increasing demand for creation of world-class infrastructure at a fast pace. The biggest constraints in capacity buildings are seen to be shortage of skilled manpower at all/most levels and with all players of the industry. We also need to improve the process of procuring construction contracts, provide for a more equitable distribution of risk in construction contracts, and have a more effective and speedy mechanism for dispute resolution.
The technological advances in the Indian infrastructure sector: Over the years a number of new technologies have been introduced in the Indian infrastructure industry. The technological developments differ from sector to sector, to name a few, use of drill jumbo, tunnel boring machine, and road headers for tunneling works; use of high-speed slip form pavers for construction of road pavement (both rigid and flexible pavement); advances in concrete technology, that is, use of better quality of cement and latest fourth generation admixtures and additives like micro silica, flyash, GGBS; use of total stations and GPS for carrying out surveys; and use of custom formwork , and precast concrete technology. The list could go on and on. In all sectors the Indian construction industry has shown ability to absorb/implement latest technology.
Infrastructure: Construction Companies selected for valuation: The companies chosen from the NSE listed Infrastructure companies are:
Unitech Ltd. Jaiprakash Associates Ltd. IVRCL Infrastructure and Projects Ltd.
Unitech Ltd: Company History:

Unitech entered civil engineering in 1974 with its sights firmly set on the future. And that's where our vision is fixed today. Building upon experience and expertise Unitech is constantly looking for ways to improve all our lives. From power transmission lines and highways to theme parks, from steel plants to residential developments, from indoor stadiums to hotels our work is often pioneering and always challenging. Their enviable track record proves our ability to deliver. Engaged in civil engineering construction and housing development projects, Unitech has undertaken the construction of thermal power, steel and petrochemical plants and public utility buildings for a number of reputed public and private sector companies. It went public in Sep.'92 to part-finance two housing projects. Behind its present solid status is its strategic planning which deserves mention. The decision to enter Libya during the oil boom in the mid-seventies and strengthen its base in a country where competition was less than other Arab nations, helped it forge ahead, untroubled by the Iran-Iraq war. Moreover, a diversified project-mix, which includes projects in a wide variety of industries, helps reduce risks arising from dependence on a few industries. The decision to enter into real estate and housing development in 1986 helped it sustain its growth, in spite of drastic cuts in government expenditure in the early nineties. It has signed a MoU with a Singapore consortium and Haryana Urban Development Authority (HUDA), to set up a technology park at Gurgaon. Whether you are looking for a home or a place to conduct business we all need the very best environment to thrive in. Unitech's developments occupy some of the most prime locations in India, whether in the heart of a city or in the green fields surrounding. Unitech understand that you want beautifully landscaped, spacious and secure surroundings to raise your family in. They also appreciate that your

retail outlets must be surrounded by bustling crowds and your offices provided with the most modern facilities. Unitech is developing properties to match all your expectations. When it comes to buying a home, no one gives you better service than Unitech. Not only do offer you a range of home purchase options to choose from, they'll also help you in getting widest range of home loans from financial institutions. These loans range from 5 to 20 years with different repayment options.
Projects On-hand:
The company is also setting up a ready-mix concrete and concrete blocks plant at Taloja. During 1995-96, the company launched its prestigious mini-township-SouthCity-II-on Sohna-Gurgaon Road. The company successfully completed several projects including hydrocracker project of UP petro-chemical complex at Etawah, educational media facilities at IGNOU, New Delhi, 100 mtr chimney for captive power plant at Panipat, construction of 1048 flats & infrastructure for CIDCO, Bombay, modernization of air control services at Bombay airport, construction of August Kranti Bhavan, New Delhi, casting shop in SMS-2 of RSP, modernization at Rourkela and indoor sports stadium at Madras.
Unitech maintained steady progress at different project sites including the 220 mtr chimney at Kothagudam, AP and 190 mtr chimney at Kutch, Gujarat, hydrocracker lab at Faridabad, corporate office and exchange building of MTNL at New Delhi and spinning unit at Baroda.
During 1995-96, Hyundai Unitech Electrical Transmission became a subsidiary of Unitech. The company signed a joint venture agreement with Haryana Urban Developement Authority (HUDA) and First Capital Property Ventures Pte Ltd, Singapore, to develop a technology park at Gurgaon which will house the high technology industries proposed to be set up by domestic and international companies of repute.
It is implementing large scale real estate and housing development projects on the DelhiGurgoan road and at Lucknow, multi-storeyed apartments at Connaught Place, New Delhi, a housing complex at Virar, Bombay and at various prime locations in Bangalore, Lucknow, Shimla, Indore, Goa, etc. The company plans to set up amusement parks and urban entertainment centres and also plans to commence a B.Sc.(Honours) Degree Course in Information Technology duly validated by Oxford Brookes University, UK in 2001.
UNITECH:- Director Panel List

Name Ramesh Chandra Sanjay Chandra Ajay Chandra A S Johar Minoti Bahri G R Ambwani P K Mohanty Anil Harish Sanjay Bahadur Ravinder Singhania S Ravi Aiyar Tarun V Kotak Designation Chairman Managing Director Managing Director Whole-time Director Director Director Director Director Director Director Vice President & CS Company Secretary
Jaiprakash Associates Ltd.

Jaiprakash Associates (JAIPRA), earlier known as Jaiprakash Industries (JIL) merged with Jaypee Cement (JCL) and got its current name. JAIPRA is an acknowledged leader in the construction of river valley and hydro power projects on turnkey basis and has been in business for more than three decades. It is the flagship company of the Jaypee group, which is a well diversified infrastructural industrial group of India with a turnover of over Rs 30,000 million (USD 650 million) that commenced its operations in 1972 as a partnership firm, then known as Jaiprakash Associates. Three decades later, the group has diversified itself into many sectors. The company has executed simultaneously 13 hydro power projects spread over six states and the neighboring country of Bhutan for the generation of 10,290 MW of power. It has set up a 300 MW power station in Baspa, Himachal Pradesh, which is already in operation producing more than 1,200 million units of clean & green energy annually. It has also set up the 400 MW Vishnuprayag power project in Uttaranchal. The cement division of the company produces ordinary Portland cement and Pozzolana Portland cement under the brand names Buland and Buniyad. It has three modern cement plants; namely Jaypee Rewa Cement Plant, Jaypee Bela with an aggregate capacity of 7 MTPA. Some of the other subsidiaries are Jaiprakash Hydropower, Jaiprakash Ventures and Jaiprakash Hotels.
Financials:
Jaiprakash Associates registered a 52.17% growth in net profit to Rs 1,400 million for the quarter ended June 2007 from a profit of Rs 920 million for the quarter ended June 2006. Net sales for the quarter rose 3.58% to Rs 9,270 million for the quarter ended June 2007 from Rs 8,950 million for the quarter ended June 2006. Total income rose 9.24% to Rs 10,050 million for the quarter ended June 2007 from Rs 9,200 million for the quarter ended June 2006. The earnings per share (EPS) of the company stood at Rs 6.38 for the quarter ended June 2007.
Future Plans:
The company has undertaken the 1,000 MW Karcham hydro power project in Himachal Pradesh which will be completed by 2010. It will produce 4,560 million units of energy. It has decided to set up a 500-megawatt power plant in Uttar Pradesh. The company is planning to add more capacities in different regions of the country and is poised to be a 20 MTPA cement producer by the year 2009. In the near future, the group plans to expand its cement capacities through acquisition and greenfield additions to maximize economies of scale. The cement division of the company is planning to set up a factory in Kutch, Gujarat. Jaiprakash Associates is the only engineering company in India to be assigned CR1 grade by ICRA indicating very strong contract execution capacity for hydro power

(EPC) contracts with average values of upto Rs 20,000 million. The company has now made its foray into highway construction.
IVRCL Infrastructure and Projects Ltd

IVRCL headed by Mr.E.Sudhir Reddy, Chairman and Managing Director is strongly entrenched with proven domain knowledge, experience and credentials, IVRCL operates in the following infrastructure sectors. Water and Environment Transportation Buildings and Industrial Structures Power
Milestones in the making of a giant Commercial operations since 1990 Established itself as a premier EPC & LSTK Service Provider with front-end engineering capabilities in 1990 With the Initial Public Offering in 1995, became a Listed Company and has been maintaining a consistent dividend payment record Foray into BOT/BOOT/DBOOT projects since 2001 Achieved a Turnover of around Rs. 24000million/USD 600million and a Net worth of Rs.14000million / USD350million within just a decade and a half of our operations. Mission & Objectives... Core values At IVRCL, we have dedicated ourselves to affecting continual improvement in all fields of our business. Quality forms an integral part of all our deliverables and is the primary driving force. Mission To become a leader in infrastructure business by providing total solutions

Quality practices at IVRCL effectively blend people's skills with process tools at every stage of the project life cycle to provide state-of-the-art solutions. Objectives To build a better world by: Meeting ever growing challenging requirements in todays competitive world through strong quality systems Creating a dedicated and confident work force through continual development process Adding value to the investors
Health, Safety & Environmental Management... Quality Policy Commitment to customer satisfaction, quality awareness, desire for excellence and continual improvement is our motto. Committed to build a safe and sustainable world Since inception, IVRCL has put in place stringent policies to create a safe and healthy environment at the project sites. The Company's policy in the area of Health, Safety & Environment has been consistent towards achieving a ZERO Lost Time Injury. Landmarks in Quality ISO : 9001 - 2000 - Quality Management System Recertification ISO : 14001 - 2004 - EMS for Water, Buildings, Transportation Divisions ISO : 18001 - 1999 - OHSAS for Water, Buildings, Transportation Divisions
Engineering & Design Capabilities... Engineering and design capabilities are IVRCL's time tested strengths in executing turnkey projects. The Companys competence and extensive experience in all the sectors of infrastructure industry are exemplary. Strong in-house Design capabilities Up-to-the-minute Technologies In-house Design center Design Software STAAD, STRUD, Surge Analysis Program Smart Plant P& ID Softeck Estimate LOOPS AUTOCAD MS Projects
Design services... Front-end Engineering and Design Aerial Surveys, Satellite Imagery Geological, Geophysical Surveys Soil, Hydrological Surveys Topographical, Climatological Surveys Architectural, Engineering, Industrial Design Soil Mechanics & Foundation Engineering Quantity Surveying, Costing Estimation, Preparation of Contract Structural Engineering Process Engineering Civil Works Rehabilitation Project Monitoring & Evaluation

Institutional Strengthening/Restructuring
RECENT DEVELOPMENTS
IVRCL Infrastructures & Projects secured a contract worth Rs 788.5 million to construct a research complex in Andhra Pradesh. IVRCL Infrastructures bagged irrigation works of the value of Rs 4.78 billion from Narmada Valley Development Authority, Bhopal. IVRCL Infrastructures & Projects bagged orders of the value of Rs 5.18 billion. The orders are received by water, irrigation and power divisions of the company. IVRCL Infrastructure and Projects, a Rs 23.79 billion infrastructure company, is planning to acquire companies present in oil-field infrastructure services and has set aside USD 1 billion (Rs 39.40 billion) for acquisition. IVRCL Infrastructures & Projects received new orders worth of Rs 3,293.2 million for various projects. The orders include Rs 252.4 million worth project from Tamil Nadu Water Supply and Drainage Board for construction of sewerage scheme at Thiruvarur. IVRCL Infrastructures & Projects plans to undertake mining operations viz., reconnaissance, prospecting, exploration, development and exploitation and all other related activities. The related activities include transshipment of minerals by roads, pipelines etc., of various minerals and fossil fuels including iron ore, coal, petroleum and gas. IVRCL Infrastructures & Projects has received orders for water transmission works worth Rs 2,235.2 million as well as power transmission works worth of Rs 1,232.8 million, aggregating to Rs 3,468 million in the states of Rajasthan and Maharashtra.The company has been awarded the execution of balance work of transmission main part of Chambal-Dholpur-Bharatpur water supply project on single responsibility basis.

IVRCL Infrastructures & Projects secured lift irrigation works worth Rs 7,612.4 million from Government of Andhra Pradesh, Irrigation & CAD Department.
Equity Valuation using

Fundamentals of companies and models

Equity Valuation based on Fundamental ratios and on Dividend of the companies: Unitech Ltd: Fundamentals ratios of Unitech Ltd.
Ratios Current Ratio Debt To Equity Return on Equity 2006-07 0.94 3.11 84.59 2005-06 0.47 3.06 31.01 2004-05 0.42 1.86 17.20 2003-04 0.43 0.87 9.33 2002-03 0.41 0.95 7.67
Book Value per Share Earning Per Share (EPS) Dividend Per Share Dividend pay out ratio Retention Ratio Price Earning Ratio (P/E ratio) Price to Book Value
14.30 Rs.11.00 Rs. 0.50* 4.53% 95.47% 30.7 23.64
179.77 Rs. 55.7 Rs. 1.00* 23.32% 76.68% 41.08 12.5
139.23 Rs. 23.59 Rs. 4.00 16.96% 83.04% 14.22 2.41
120.64 Rs. 11.26 Rs. 3.00 23.46% 76.54%
8.50 Rs. 4.88 Rs. 2.00 23.49% 76.51%
*note: the dividends are for the face value of Rs.2

CAGR of Sales : = (sales of 2007 sales of 2003) 1/5 - 1 = (2503.97 253.63)1/5 - 1 = 0.58 OR .58% CAGR of EPS : = (EPS of 2007 EPS of 2003) - 1 = ( 11.01 4.86) = 0.176 OR 17.6% CAGR of DPS = ( DPS of year 2007 DPS of year 2003) - 1 -1
DPS for year 2007 is Rs.0.5 for a face value of Rs.2. Convert it for the face Value of Rs.10. Rs.05 * 5 = Rs.2.5/share = (2 .50 2) - 1 = 0.25 or 25% Average Retention Ratio = (0.9547+0.7668+0.8304) / 3 = 0.8506 OR 85.06% Average Payout Ratio = (1 0.8506) = 0.1493 OR 14.93% Average Return on equity = ( 0.8459+0.3101+0.1720) / 3 = 0.4426 Expected Growth Rate (g) = Average Retention Ratio X Average Return on Equity. = 0.8506 X 0.4426 = 0.37 OR 37 %
EPS and DPS

60 50 40 30 20 10 0 Fy2007 FY2006 FY2005 Rs. FY2004 FY2003 *Note: FY 2006 and FY 2007 Dividend is at Rs.2 Face Value Earning per Share Dividend per shar
Interpretation:
Index prices and Unitech Ltd prices

7000 6000 5000 prices 4000 3000 2000 1000 0 5/2/2007 7/2/2007 10/2/2007 11/2/2007 12/2/2007 4/2/2007 6/2/2007 8/2/2007 9/2/2007 1/2/2008 2/2/2008 3/2/2008
date
Index Prices Unitech Ltd prices

Equity Valuation of Unitech Ltd using : Constant Growth Model: Using this model Required rate of return is found. Po = D1 r-g r = Required rate of the return =? Po= Present value of the stock g = the growth rate = 37% or 0.37 D1=The next year dividend = Do(1+g) = 0.5 (1 + 0.37) = 0.658ps/share
r = D1 + g Po
r = 37.24 The investors required rate of return would be r =37.24 Single Period Valuation Model: Applying the single period valuation model and finding out share prices for neat year.
Po =
Where, Po= Present selling price = Rs. 276
D1 + 1+r
P1 1+r
P1= Selling price at the end of one year period D1= the dividend received during the one year holding period, D1= Do (1+g) Do = Current year dividend r = Investors Required rate of return = 37.24 D1= Do (1+g) = 0.5 (1 + 0.37) = 0.658ps/share

P1 = 378.09/share Two Stage Growth Model: 1-[1+g 1+r]n r-g Po = D1 + D1 (1+g1)n-1(1 + g2) r g2
1 (1 + g)n
Po = Current selling price. r = Required rate of the return = 0.3724 g1 = Extraordinary growth rate applicable for n years = 0.37 g2 = Normal growth rate applicable after n years = 0.365 n = 5 years By substituting the above stated values the calculated current stock price is: Po = Rs.93.70/share
Jaiprakash Associates Ltd:

Fundamental Ratios of Jaiprakash Associates Ltd. Ratios Current Ratio Debt to Equity Return on Equity 2006-07 1.48(times) 1.96(times) 16.18% 2005-06 1.84 1.71 29.82% 2004-05 1.46 2.61 16.94% 2003-04 1.01 1.61 15.89% 2002-03 1.10 1.48 12.10%
116.97 Rs.18.92* Rs.3.60 19% 81% 28.71(times) 4.61
99.75 Rs.29.51 Rs.2.70 9.06% 90.94% 15.86 4.73
69.53 Rs.11.78 Rs.2.40 20.3% 79.7% 17.80 3.00
60.49 Rs.9.61 Rs.1.50 15.60% 84.4%
52.61 Rs.6.63 Rs.1.50
*note: the dividend is for the face value of Rs.2
CAGR of Sales : = (Sales of 2007 Sales of 2003) 1/5 - 1 = (3719.22 2679.70)1/5 - 1 = 0.067 OR 6.7 %
CAGR of EPS :
= (EPS of 2007 EPS of 2003) ) 1/5 - 1 = ( 18.92 6.36 ) )1/5 -1 = 0.2436 OR 24.36 %
CAGR of DPS
= ( DPS of year 2007 DPS of year 2003) )1/5 - 1 = ( 3.60 1.50) 1/5 1 = 0.190 OR 19 %
Average Retention Ratio = (0.797+0.9094+0.81) / 3 = 0.8388 OR 83.88 % Average Payout Ratio = ( 1 - Average Retention ratio) = (1 0.8388) = 0.1612 OR 16.12% Average Return on equity = ( 0.1618+0.2982+0.1694) / 3 = 0.2098 Expected Growth Rate (g) = Average Retention Ratio X Average Return on Equity. = 0.8388 X 0.2098 = 0.1759 OR 17.59 %
Earning Per Share and Dividend Per share

30 25 20 Rs. 15 10 5 0 FY2007 FY2006 FY2005 Year EPS DPS FY2004 FY2003
*Note: FY 2006 and FY 2007 Dividend is at Rs.2 Face Value
The earnings and the dividends the company has been of JP Associates Ltd has an increasing trend and has increased shareholders value.
Index prices n JP Associates Ltd prices

7000 6000 5000 4000 3000 2000 1000 0 4/2/2007 5/2/2007 6/2/2007 7/2/2007 8/2/2007 9/2/2007 10/2/2007 11/2/2007 12/2/2007 1/2/2008 2/2/2008 3/2/2008
prices
Date Index Prices JP Associates Ltd
The prices of the JP Associates Ltd. have been having an impact of the fluctuations in the market movements. The prices have suddenly decreased with a fall in market prices.
Equity Valuation of Jaiprakash Associates Ltd using : Constant Growth Model: Using this model Required rate of return is found. Po = D1 r-g r = Required rate of the return = ? Po= Present value of the stock = Rs. 226 g = The growth rate D1=The next year dividend = 17.59% = Do(1+g) = Rs.4.23/share
r = D1 + g Po
r = 19.46% The investors required rate of return would be r = 19.46% Single Period Valuation Model: Applying the single period valuation model and finding out share prices for neat year.
Po =
Po= Present selling price = Rs. 226
D1 + 1+r
P1 1+r
P1= Selling price at the end of one year period = ? D1= The dividend received during the one year holding period, D1= Do (1+g) Do = Current year dividend r = Investors Required rate of return = 19.46% D1 = 3.60 (1 + 0.1759) = Rs. 4.23/share P1 = 265.75
Two Stage Growth Model:
Po = D1
1-[1+g 1+r]n r-g
D1 (1+g1)n-1(1 + g2) r g2
1 (1 + g)n
Po = Current selling price. r = Required rate of the return = 19.46% g1 = Extraordinary growth rate applicable for n years = 17.59% g2 = Normal growth rate applicable after n years = 15.8% n = 5 years By substituting the above stated values the calculated current stock price is: Po = Rs 122.23/sahre
IVRCL Infrastructure and Projects Ltd Fundamental Ratios of IVRCL Infrastructure and Projects Ltd
Ratios Current Ratio Debt to Equity Ratio Return on Equity 10.72% 19.60% 22.25% 29.56% 15.66% 2006-07 2.02 0.42 2005-06 2.31 1.43 2004-05 1.48 0.97 2003-04 2.22 1.42 2002-03 1.89 1.30
101.68 Rs.10.91 Rs.1.00 9.16 % 90.84% 27.87 2.79
44.35 Rs.8.69 Rs.1.00 11.83 % 88.17% 31.9 6.26
149.87 Rs.33.35 Rs.3.70 11.10% 88.9% 13.73 3.05
125.03 Rs.36.96 Rs.3.00 14.29% 85.71%
94.29 Rs.14.77 Rs.3.00 20.3% 79.7%
*note: the dividend are for the face value of Rs.2
CAGR of Sales : = (Sales of 2007 Sales of 2003) 1/5 - 1 = (2346.46 440.35)1/5 - 1 = 0.39 OR 39 % CAGR of EPS : = (EPS of 2007 EPS of 2003) ) 1/5 - 1 = ( 10.91 14.47 ) )1/5 -1 = -0.058 OR -5.8% CAGR of DPS = ( DPS of year 2007 DPS of year 2003) )1/5 - 1 = ( 3.60 1.50) 1/5 1 = 0.190 OR 19 % Average Retention Ratio = (0.9084+08817+0.889) / 3 = 0.8930 OR 89.3 % Average Payout Ratio = ( 1 - Average Retention ratio) = (1 0.8930) = 0.107 OR 10.7% Average Return on equity = ( 0.1072+0.1960+0.2225) / 3 = 0.1752 OR 17.52% Expected Growth Rate (g) = Average Retention Ratio X Average Return on Equity. = 0.8930 X 0.1752 = 0.15.64 %
Earning Per Share and Dividend Per Share

40 35 30 25 20 15 10 5 0 FY2007 FY2006 FY2005 Year EPS DPS
*Note: FY 2006 and FY 2007 Dividend is at Rs.2 Face Value
Rupees
FY2004
FY2003
The earnings for the2005-06 and 2006-07 have decreased with having the same impact on the dividends paid.
Index prices and IVRCL Infra Ltd. prices 7000 6000 5000 Prices 4000 3000 2000 1000 0 4/2/2007 5/2/2007 6/2/2007 7/2/2007 8/2/2007 9/2/2007 11/2/2007 12/2/2007 1/2/2008 2/2/2008 10/2/2007 3/2/2008
Date Index Prices IVRCL Infra Ltd Prices
The prices of IVRCL have not fluctuated a lot with the fluctuation in the market prices or movements.
Equity Valuation of IVRCL Infrastructure and Projects Ltd using :

1. Constant Growth Model: Using this model Required rate of return by the investor on prices of IVRCL is found:
Po =
r = Required rate of the return = ?
D1 r-g
Po= Present value of the stock = Rs. 405 g = The growth rate D1=The next year dividend = 15.64% = Do(1+g) = Rs.1.1564/share
r = D1 + g Po
r = 16.02% The investors required rate of return would be r = 16.02%
2. Single Period Valuation Model: Applying the single period valuation model and finding out share prices for neat year.
Po =
Where,
D1 + 1+r
P1 1+r
P1= Selling price at the end of one year period = ? Po= Present selling price = Rs. 405 D1= The dividend received during the one year holding period, D1= Do (1+g) Do = Current year dividend r = Investors Required rate of return = 16.02% D1= Do (1+g) = 1.00 (1 + 0.1564) = Rs.1.1564 /Share P1 = Rs.468.72
Two Stage Growth Model:
Po = D1
1-[1+g 1+r]n r-g
D1 (1+g1)n-1(1 + g2) r g2
1 (1 + g)n
Po = Current selling price. D1 = Current year dividend = Rs.1.1564 /share r = Required rate of the return = 16.02% g1 = Extraordinary growth rate applicable for n years = 15.64% g2 = Normal growth rate applicable after n years = 15.02% n = 5 years By substituting the above stated values the calculated current stock price is: Po = Rs.162.25/ share.
Comparisons and Analysis
Comparisons and Analysis:

Comparison of Calculated prices and Actual prices:
Unitech Ltd JP Associates Required Rate of Return ( r) using constant growth model Do: Current Year Dividend. Expected Growth Rate ( g ) D1: using [ Do (1 + g)] P1: using Single Period Valuation (2008-2009 Po(Calculated Price of stock or Intrinsic value): using Two Stage Growth Model Actual price of stock Rs.276.00 Rs.226.00 Rs.405.00 37.24% 0.5* 37.00% 0.685 Rs.378.09 Rs.93.70 19.64% 3.6* 17.59% 4.23 Rs.265.75 Rs.122.33 IVRCL Ltd. 16.02% 1.00* 15.64 % 1.156 Rs.468.72 Rs.162.25
*Note: The dividends are for the face value of Rs.2
Interpretation based on the Intrinsic Value of the Stock

If the actual price of the share in the market is more than the Intrinsic value (calculated price using models) of the stock then Sell the share. From the above table it can be seen that the intrinsic value of all three companies is less than the prevailing market price. All the above stocks are over-valued or say over-priced as theres a huge difference between real and actual prices in the market. Thus it can be interpreted that comparatively IVRCL Infra Ltd & JP Associates Ltd stocks are better to hold on for some time. The dividend paid by JP Associates Ltd (JAIPRA) is higher than the other two companies. The investors can expect a moderate rate of return (19.06%) on JAIPRA stocks, with better growth rate of dividend (17.59%). An investor with a high risk and high expected earnings can invest into JP Associates Ltd. and one with moderate risk taking ability can take up IVRCL Infrastructure and Projects Ltd. stocks.
Beta, Standard Deviation and Covariance of the Stocks with market:

BETA Unitech JP Associates IVRCL Infra Ltd 1.5075 1.8237 1.0999 STD DEV 5.5084 6.7518 3.477 COVAR 5.9902 7.2464 4.3704
Std Deviation and CoVariance

COVAR STD DEV STD DEV COVAR COVAR STD DEV
8 7 6 5 4 3 2 1 0
Unitech
JP Associates
IVRCL Infra Ltd
STD DEV
COVAR
Interpretation:
With less Beta and Standard Deviation value IVRCL Infrastructure and Projects Ltd is a best stock to invest into for those who are risk averse investor. The above graph shows that Jaiprakash Associates Ltd has a high Beta and Standard Deviation. Any investor with High Risk appetite would invest to make high capital gains in short period.
Findings:
Valuation of the stocks mainly has an impact of the dividend payout on it. The intrinsic value of the stock at times will be lower than the actual prices of the share due to the present value factor attached with it. The intrinsic value of the stock also depends on the dividend declared to shareholders, if the dividend paid is high then the intrinsic value will be higher, compared to the one with low dividend. If the actual prevailing price of the stock is less than that of Intrinsic then, its suggested that investor can buy the share and can sell it back when prices reach its true value. Thus the investor is assured to make a better profit out of the difference.
Kotak Securities Ltd, Hubl i Conclusion:

Through the analysis we can see that: Unitech Ltd even having both high expected growth rate and high required rate of return has a very low intrinsic value. This impact is because of the current dividends and the expected future dividends. JP Associates Ltd having less rate of return than that of the Unitech Ltd has a higher intrinsic value. IVRCL Ltd. has a higher Intrinsic Value but estimated price for next year is Rs.468.72 which is comparatively less. Thus it can be concluded that the valuation of equity (or stock) can be influenced by three factors : Required rate of return, Expected growth rate and the Dividend Payout policy of the company Through this study it can be concluded that the valuation of stock has different approaches. Application of all the approaches in practical is difficult and thus their results are different.
Limitations for the study:

The study has certain limitations like The study was conducted only on three companies of Infrastructure: Construction Industry because many companies are listed in the year 2006-07. Thus the financial data for five years and their market prices were not available. The methods of valuation differ a lot in practical from that what Analysts adopt. The values taken by financial analysts somehow differ from is taken or calculated. Stock market and the prices of stock are driven by the sentiments of investors, any news from Govt and information from insider of the company. I have compared only three companies in Infrastructure: Construction Industry which may not give accurate result of whole industry. Information on average normal growth rate of industry was not available.
Kotak Securities Ltd, Hubl i Bibliography: Books

Investment Analysis and Portfolio Management, By Prasanna Chandra Security Analysis and Protfolio Management, By P. Pandey Financial Management By I.M.Pandey
Websites:

www.nseindia.com www.unitechgroup.com www.ivrcl.com www.jaypeegroup.com www.rediffmoneywiz.com www.moneypore.com www.icicidirect.com www.specialinvestor.com
Reports:
Annual reports of the company.
Annexure

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Kotak Securities Ltd, Hubl i Objectives and Methodology: Objectives:

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Need for the study:

Scope of the study:

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INTRODUCTION TO STOCK MARKET

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THE KOTAK MAHINDRA GROUP:

Kotak Group Products & Services:

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WHY KOTAK SECURITIES?

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OFFERINGS OF KOTAK SECURITIES:

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FINANCIAL PLANNING GROUP AND PORTFOLIO MANAGEMENT :

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Other companies under the umbrella of Kotak Mahindra Group:

KOTAK MAHINDRA BANK LTD

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Introduction to Equity Valuation

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Valuation of Equity Shares based on Dividends

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Dividend Discount Model

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CONSTANT GROWTH MODEL

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TWO STAGE GROWTH MODEL

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Equity Earnings EPS = No. of outstanding shares

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INFRASTRUCTURE INDUSTRY: CONSTRUCTION INDUSTRY PROFILE

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FDI in Infrastructure Investments into India is permitted upto 100% in

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The real estate industry comprising of construction and development of

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Unitech Ltd: Company History:

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