SECURITIES VALUATION of The Indian Hotel Company Limited

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Security Analysis & portfolio management project done on the Indian hotels company limited or the TAJ group of Hotels.
Prediction of share price of the company and managing the portfolio of IHCL,SBI and SAIL

Published in: Economy & Finance, Travel
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  • Hello Mr Das, Kindly send me a copy of your presentation.
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  • Hello Mr.Das, its really very good presentation. Good work done. I would like to have a copy of same, if you can send it . Thank you
    Regards - Umesh Pithadiya - ujp03@ganpatuniversity.ac.in
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  • Great Work ,Mr.Das.I appreciate if you can mail me a copy to s9guru@gmail.com .Thank you, Keep up the great work - regards.K.A.Kumar
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SECURITIES VALUATION of The Indian Hotel Company Limited

  1. 1. 08/MBA/17 SAPM
  2. 2. 08/MBA/17 SAPM
  3. 3. The Hotel Industry comprises a major part of the Tourism industry. Historically viewed as an industry providing a luxury service valuable to the economy only as a foreign exchange earner, the industry today contributes directly to employment (directly employing around 0.15 million people), and indirectly facilitates tourism and commerce. Prior to the 1980s, the Indian hotel industry was a slow-growing industry, consisting primarily of relatively static, single-hotel companies. However, the Asiad, held in New Delhi in 1982, and the subsequent partial liberalization of the Indian economy generated tourism interest in India, with significant benefits accruing to the hotel and tourism sector, in terms of improved demand patterns. Growth in demand for hotels was particularly high during the early 1990s following the initiatives taken to liberalize the Indian economy in FY1991, as per the recommendations of the International Monetary Fund (IMF). The euphoria of the early 1990s prompted major chains, new entrants and international chains to chalk out ambitious capacity additions, especially in the metropolitan cities. However, most of these efforts were directed towards the business travelers and foreign clientele. In recent years, the hotels sector has grown at a faster rate than GDP. As a result, the share of hotels & restaurants in GDP at current prices has increased from 1.2per cent in FY2000 to 1.5per cent in FY2005. In constant (1999-2000) prices, the GDP from hotels and restaurants has increased from Rs. 222.65 billion in FY2000 to Rs. 335.49 billion in FY2005. As a result, the share of hotels and restaurants in total GDP at constant prices has increased from 1.24per cent in FY2000 to 1.40per cent in FY2005. 08/MBA/17 SAPM
  4. 4. Hotels in India are broadly classified into 7 categories (five star deluxe, five-star, four star, three star, two star, one-star and heritage hotels) by the Ministry of Tourism, Government of India, based on the general features and facilities offered. The ratings are reviewed every five years. As of December 2005 (latest available figure) there are following number and category of hotels. Star Category No. of Hotels No. of Rooms 5-Star Deluxe 82 18764 This table excludes 5 star 92 11332 hotels in the unorganized sector 4 star 132 9401 that have a significant 3 star 704 31039 presence across the 2 star 587 19031 country and cater 1 star 212 695 primarily to economy Heritage 83 2216 tourists. To be classified 50 5127 TOTAL 1934 103973 Source: Ministry of Tourism 08/MBA/17 SAPM
  5. 5. Premium and Luxury Segment This segment comprises the high-end 5-star deluxe and 5-star hotels, which mainly cater to the business and upmarket foreign leisure travellers and offer a high quality and range of services. The segment accounted for 29% of the total hotel rooms in the country in December 2005. Mid-Market Segment This segment comprises 3 and 4 star hotels, which cater to the average foreign and domestic leisure traveller. This segment also caters to the middle level business travellers since it offers most of the essential services of luxury hotels without the high costs since the tax component of this segment is lower compared with the premium segment. Budget Segment These comprise 1 and 2 star hotels referred to as ‘Budget Hotels’. These categories do not offer as many facilities as the other segments but provide inexpensive accommodation to the highly price-conscious segment of the domestic and foreign leisure travellers. 08/MBA/17 SAPM
  6. 6. Heritage Hotels In the past four decades, certain architecturally distinctive properties such as palaces and forts, built prior to 1950, have been converted into hotels. The Ministry of Tourism has classified these hotels as heritage hotels. Others At any point in time, applications for classification are usually pending with the Ministry of Tourism because of which such properties remain unclassified. The number of hotel rooms pending classification has declined from historical 15-20per cent to 5per cent of the total rooms available in the recent past. 08/MBA/17 SAPM
  7. 7. The market for the hotel industry can be divided into the following key consumer segments based on purpose of visit. The Business Traveller: The Business Traveller is a businessman or a corporate executive travelling for business purposes. This segment includes corporates, both domestic and foreign, who open offices in the hotel premises during start-ups, corporate executives who make extended stay either for long duration projects or while waiting for permanent accommodation (primarily expatriates) and convention arrivals. While the senior executives usually stay in 5 star hotels, the middle level executives, who are much larger in number, stay in the budget hotels. This segment offers better realizations, as they demand relatively smaller discounts on room rents (about 10per cent-15per cent), use more of facilities such as PCs, fax multi-media, conference halls. Also, the Food & Beverage (F&B) revenues are better as they usually eat in the hotel itself due to their busy schedules. 08/MBA/17 SAPM
  8. 8. The Leisure Traveller: The Leisure Traveller could either be a foreigner or a domestic traveller whose primary purpose of visit is holiday and site seeing. Among non-business foreign tourists the primary motivation for visiting India is largely cultural attraction followed by conferences and conventions, tourist attractions like beaches, wild life, hill resorts etc. Usually, leisure travellers are part of a package run by a tour operator. The margins offered by leisure travellers tend to be lower because of two reasons. Firstly, they seek higher discounts and also provide less F&B revenues as they usually eat out. And secondly the business offered by this segment is highly seasonal and tends to peak in the September to March period. Airline Cabin Crew: Airline Cabin Crew forms another important segment because of the repetitive and guaranteed nature of the business that they provide. Usually, these are a part of an annual contract whereby, in return for a fixed rate, a certain number of rooms are provided on demand for cabin crews. With discount rates in the range of 40% and 50&, this represents a low-yield segment for hotels in general. 08/MBA/17 SAPM
  9. 9. International Tourist Traffic The foreign tourist arrivals in India increased at CAGR of 5.5per cent from 2.29 million in 1996 to 3.92 million in 2005. Significantly, the bulk of international arrivals into India, both in 2004 and 2005, have been business travellers. Main reason for this increase has been following fundamental factors: India’s strong GDP growth. Opening of sectors of the economy to private sector/ foreign investment. Strengthening of ties with the developed world. Reforms in aviation sector which led to better connectivity with many countries (such as ASEAN) and created additional capacity on existing routes (for e.g. USA, Middle East). Also, introduction of low cost airlines also contributed to the demand. The increase in international flights, seat capacity and frequency into the country and the decision to allow private airlines like Jet Airways and Air Sahara to fly overseas has had a positive impact on tourist and business arrivals into India, by way of providing additional seats to key destinations. Development of infrastructure by the Government India’s emergence as an outsourcing hub. Success of “Incredible India” campaign and other tourism promotion measures. 08/MBA/17 SAPM
  10. 10. YEAR 2008 2007 2006 2005 2004 FTA 5.37 5.08 4.45 3.92 3.48 MILLION 2009 Foreign tourist arrivals dropped by 7% (till JULY 09, according to the tourism ministry)and at the end by assuming further increase in FTA the final FTA at the end of 2009 will be assumed to be dropped by 6%. The drop in FTA is primarily due to WORLD WIDE economic recession. Mumbai Terrorist attacks. From 2009 its assumed FTA will grow by 9% and 10% in the coming years visually 2010 and 2011. Year 2011 INDIA will host COMMONWEALTH games and ICC CRICKET world cup. Taking the HOTEL industry SECTORIAL GDP contribution as one of the known existing x-values, The FTA known values are existing y-values, and the new FTA value is predicted by using linear regression. So we get, YEAR 2011 2010 2009 FTA 5.22 4.66 5.05 MILLION Please refer the excel sheet for more details 08/MBA/17 SAPM
  11. 11. According to estimates by HVS International, around 10,856 hotel rooms in Delhi, 9,318 rooms in Mumbai, 7,794 rooms in Bangalore and 7,408 rooms in Hyderabad are expected to be added by 2011. PLANNED PROMOTER PLAN EXPENDITURE Sahara To set-up 102 hotels in 3 & 4 star category, to USD 7.34-36.72 million per Group be hotel depending on the size located within the 217 Sahara cities planned and category across A, B & C grade cities Viceroy To set up hotels in Chennai, Bangalore, Vizag USD 200 million Hotels and add one more hotel in Hyderabad known as MARRIOTT HYD with a management tie up with the later. UAE-based Tied up with Europe’s easy Hotel to set up a Initial investment of Istithmar chain of USD 100 million hotels budget-class hotels in India. 08/MBA/17 SAPM
  12. 12. PLANNED PROMOTER PLAN EXPENDITURE To set up its Golden Tulip brand of hotels in India. Golden Netherland- Tulip Southern Asia (GTSA), a Joint Venture between based Golden Golden Tulip Hospitality Group and US-based Leyland Group, Tulip Not known plans to set up 50 hotels across 40 cities in the country on Hospitality both management contracts or franchisee system with the group owners of existing properties. To float tenders for 13 sites for budget hotels on a Build- IRCTC Not known Operate-Transfer arrangement for 30 year periods. Leela Palace & To open a hotel each in the next three years in Delhi, Estimated cost – Resorts Hyderabad, Chennai, Pune and Udaipur. USD 340 million To make large investments in the hospitality sector and has already acquired 24 sites across the country with plans to acquire 15 more sites. DLF Universal DLF acquires the 5.54-acre Calcutta Metropolitan Corporation USD 2 billion plot in Kolkata. It plans to build a 16- storey five-star deluxe hotel on the plot in partnership with Hilton International. It tied up with Hilton to develop 100 hotels in the country. 08/MBA/17 SAPM
  13. 13. Hotel Chains They comprise major players including Indian Hotels Company Limited (the Taj Group) and associate companies, EIH Limited (the Oberoi Group), ITC Hotels Limited (the ITC Welcome Group), Indian Tourism Development Corporation (ITDC) and Hotel Corporation of India (HCI) (the latter two being under the Public Sector). Most of these chains had an established presence in one or more metro cities prior to the tourism boom of the 1980s. Subsequent to the tourism boom, these chains aggressively expanded their presence in other locations. The private players among the hotel chains are industry leaders and have well-established brand identities across the different industry segments. Small Chains They are companies that have come up after the tourism boom of the 1980s and 1990s. Due to lack of prior experience in the hotel industry, these players have preferred to opt for operating/management arrangements with international players of repute. Some of the companies in this category are Hotel Leela Venture (with Kempinski), Asian Hotels (Hyatt International Corporation), Bharat Hotels (formerly with Holiday Inn and Hilton and now with Intercontinental). As late entrants, most of these hotel companies have fewer properties, compared with the big chains. However most of these players have initiated expansion plans during the late 1990s. 08/MBA/17 SAPM
  14. 14. Public Sector Chains ITDC and HCI, boast of some of the best locations in major cities but are relative under- performers, as compared with their private sector counterparts. International Hotel Chains They are also looking at India as a major growth destination. These chains are establishing themselves in the Indian market by entering into joint ventures with Indian partners or by entering into management contracts or franchisee arrangements. Some of the players who have already entered or plan to enter the Indian market include Marriott, Starwood, Berggruen Hotels, Emaar MGF. Most of these chains have ambitious expansion plans especially with a strong focus on the budget segment and tier II cities. Localized Hotel Companies They are mainly comprise early entrants who have an established localized presence and who preferred not to expand during the tourism boom but focus on building and catering to a loyal customer base. 08/MBA/17 SAPM
  15. 15. The Indian Hotels Company and its subsidiaries are collectively known as Taj Hotels Resorts and Palaces, recognised as one of Asia's largest and finest hotel company. Incorporated by the founder of the Tata Group, Jamsetji N Tata, the company opened its first property, The Taj Mahal Palace Hotel, Bombay, in 1903. The Taj, a symbol of Indian hospitality, completed its centenary year in 2003. Taj Hotels Resorts and Palaces comprises 59 hotels at 40 locations across India with an additional 17 international hotels in the Maldives, Mauritius, Malaysia, United Kingdom, United States of America, Bhutan, Sri Lanka, Africa, the Middle East and Australia. The company has had a long-standing commitment to the continued development of the Indian tourism and hospitality industry. From the 1970s through the 1990s, the Taj played an important role in launching several of India's key tourist destinations. Working in tandem with the Indian government, the Taj developed resorts and retreats while the government developed roads and railways to India's hidden treasures. 08/MBA/17 SAPM
  16. 16. Taj Hotels, Resorts and Palaces is an international hospitality group with strong roots in India. For over 100 years, it has built reputation on legendary properties, unparalleled facilities and impeccable service. It operates in the luxury, premium, mid-market and value segments of the market through the following brands: Taj (luxury full-service hotels, resorts and palaces) is the flagship brand for the world’s most discerning travellers seeking authentic experiences given that luxury is a way of life to which they are accustomed. Spanning world-renowned landmarks, modern business hotels, idyllic beach resorts, authentic Rajput palaces and rustic safari lodges, each Taj hotel reinterprets the tradition of hospitality in a refreshingly modern way to create unique experiences and lifelong memories. Taj also encompasses a unique set of iconic properties rooted in history and tradition that deliver truly unforgettable experiences. A collection of outstanding properties with strong heritage as hotels or palaces which offer something more than great physical product and exceptional service. This group is defined by the emotional and unique equity of its iconic properties that are authentic, non- replicable with great potential to create memories and stories. Taj Exotica is resort and spa brand found in the most exotic and relaxing locales of the world. The properties are defined by the privacy and intimacy they provide. The hotels are clearly differentiated by their product philosophy and service design. They are cantered around high end accommodation, intimacy and an environment that allows its guest unrivalled comfort and privacy. They are defined by a a sensibility of intimate design and by their varied and eclectic culinary experiences, impeccable service and authentic Indian Spa sanctuaries. 08/MBA/17 SAPM
  17. 17. Taj Safaris are wildlife lodges that allow travellers to experience the unparalleled beauty of the Indian jungle amidst luxurious surroundings. They offer India’s first and only wildlife luxury lodge circuit. Taj Safaris provide guests with the ultimate, interpretive, wild life experience based on a proven sustainable ecotourism model. Premium Hotels (premium full-service hotels and resorts) provide a new generation of travellers a contemporary and creative hospitality experience that matches their work-hard play-hard lifestyles. Stylish interiors, innovative cuisine, hip bars, and a focus on technology set these properties apart. The Gateway Hotel (upscale/mid-market full service hotels and resorts) is a pan-India network of hotels and resorts that offers business and leisure travellers a hotel designed, keeping the modern nomad in mind. At the Gateway Hotel, we believe in keeping things simple. This is why, our hotels are divided into 7 simple zones- Stay, Hangout, Meet, Work, Workout, Unwind and Explore. As travel often means more hassle than harmony, more stress than satisfaction, modern travellers are looking for smarter choices. Driven by the passion for perfection, the customers are welcomed to a refreshingly enjoyable and hassle-free experience, anytime, everywhere. Offering the highest consistency in quality, service and style we set new standards and take the unwanted surprises out of travelling. Ginger (economy hotels) is IHCL’s revolutionary concept in hospitality for the value segment. Intelligently designed facilities, consistency and affordability are hallmarks of this brand targeted at travellers who value simplicity and self-service. 08/MBA/17 SAPM
  18. 18. Considering India’s size and unparalleled diversity - natural, geographic, cultural and artistic, there is vast room for growth in tourism industry. As travellers surge into India, the demand for rooms, across segments, has skyrocketed. Hotels in the luxury and business traveller segment are recording nearly 100 per cent occupancy, spiralling tariffs, and a strain on capacity and manpower. Anticipating this demand, around 10,856 hotel rooms in Delhi, 9,318 rooms in Mumbai, 7,794 rooms in Bangalore and 7,408 rooms in Hyderabad are expected to be added by 2011, according to estimates by HVS International. The expected growth of the industry in future has provided its players with an opportunity to invest in new technologies such as CRM tools and latest security systems, and to venture into niche tourism segments like Medical, Religious, Cruise, Casinos, MICE etc. India can also develop infrastructure to host international conferences and trade shows, thus increasing its share of tourist traffic from such activities HEALTH TOURISM India is gradually gathering popularity as a health tourist destination. At its current pace of growth, healthcare tourism alone can rake over USD 1.7 billion additional revenues by 2012. Medical tourism is now a USD 299 million industry, as about 100,000 patients come each year. The country needs to exploit the cost advantage it can offer to a health tourist, the study said. The biggest driver for healthcare tourism is the disparity in costs. 08/MBA/17 SAPM
  19. 19. India’s poor domestic tourism infrastructure is leading to a threat of loosing foreign tourists to other competing countries. India is highly prone to prevailing socio-economic and political conditions. Like terrorist strikes, riots, epidemics, political uncertainty, slowdown in reforms etc. The growth in the Indian tourism sector is accompanied by the imminent destruction of local ecology and an increase in pollution, which, in the long run, is going to negatively impact the tourism industry of India. The biggest challenge in the Indian tourism sector is that of entry of new players, the country’s growing economy has attracted a host of new players, the number of which is expected to increase further. Aman Resorts, Shangri-la Hotels, Four Seasons Hotels and The Hilton group are some of the international players that are at various stages of establishing presence in India. As the number of player increases, the competitive intensity in the sector is likely to increase. Remarkably, unlike earlier, many new entrants are reportedly considering entry into the mid-market segment, which is currently dominated by non-chain properties. 08/MBA/17 SAPM
  20. 20. The Indian Hospitality sector is expected to show a healthy growth in the medium term. Strong economic growth, increased FDI, greater emphasis on tourism development, favorable Government policies, impending 2010 Commonwealth games, 2011 Cricket World Cup and other international events, will be the major drivers for the growth. There exists a lot of scope for growth in tourism sector. By 2020, the Government of India expects travel and tourism to contribute Rs 8,500 billion to GDP, almost four times the value in 2005. With successive Governments committed to reform, a strong manufacturing sector and a private sector that already has a critical mass that is needed to drive growth, it is unlikely that the strong growth in GDP is likely to be reversed. The rising middle class is also becoming increasingly affluent towards lifestyle change. Major impediments to the growth are sensitivity to business cycles and adverse political and social events (including terrorist attacks), high rate of tax, high land price, bureaucracy, and poor infrastructure. For instance, the effective rate of taxation on tourism in India is 21 per cent as compared to 7 per cent in Thailand, 4 per cent in Malaysia and 1 per cent in Hong Kong. Furthermore, owing to high land prices, there are more five star hotels than budget hotels, making India a high cost deluxe destination. Additionally, India still does not have facility of modernised e-visa. The existing visa process is cumbersome and comparatively more expensive than other destinations. Yields are expected to be low in coming years on account of continuing price-cutting and discounts. 08/MBA/17 SAPM
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  22. 22. 1.TREND INDICATORS. TREND MACD, Parabolic SAR and the various moving averages are a few examples of trend indicators and they can all be used to identify a trend. It's widely argued that you should only trade with the trend so all of these indicators will help you to take the decision out of your hands, and therefore dictate which way you should be trading. 2.MOMENTUM INDICATORS MOMENTUM INDICATORS. These types of indicators are essentially oscillating indicators and are most useful for determining overbought and oversold positions and can be very useful in signalling the start of a new trend. Examples include RSI, Stochastic and CCI. 3.VOLUME INDICATORS. VOLUME As the name suggests, these types of indicators show the volume of trades behind a particular price movement which can be extremely beneficial because a price movement backed up by high volume is a much stronger signal than a price movement based on low volume. Examples here include Chaikin Money Flow, Force Index, Money Flow Index and Ease Of Movement. 4.VOLATILITY INDICATORS. VOLATILITY Volatility indicators generally use ranges to show the behaviour of the price and the volume behind any movements. This is useful because any dramatic change in behaviour can provide a good entry signal. Common examples include Bollinger Bands, Average True Range and Envelopes. 08/MBA/17 SAPM
  23. 23. Candlestick charts are said to have been developed in the 18th century by legendary Japanese rice trader HOMMA MUNEHISA. Candlesticks provide unique visual cues that make reading price action easier. Trading with Japanese Candle Charts allow speculators to better comprehend market sentiment. Offering a greater depth of information than traditional bar charts - where the high and low are emphasized - candlesticks give emphasis to the relationship between close price and open price. Traders who use candlesticks may more quickly identify different types of price action that tend to predict reversals or continuations in trends - one of the most difficult aspects of trading. Furthermore, combined with other technical analysis tools, candlestick pattern analysis can be a very useful way to select entry and exit points. The body of a candlestick illustrates the difference between the open and closing price. Its colour (in this case, RED FOR DOWN &BLUE FOR UP) shows whether the day's (or week's or year's) market closed up or down. The wicks (or shadows) point out the extreme low and the extreme high price for the currency that day. 08/MBA/17 SAPM
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  26. 26. 110 130 150 30 50 70 90 Sep-05 Oct-05 Nov-05 Dec-05 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Ha Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Inverted Dec-07 Hammer Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 DJ Jan-09 Feb-09 08/MBA/17 Mar-09 THE INDIAN HOTEL COMPANY LIMITED (MONTHLY DATA YEAR 05-09) Apr-09 May-09 Jun-09 Jul-09 SAPM Aug-09 Sep-09
  27. 27. Developed by GERALD APPEL, MACD is one of the simplest and most reliable indicators available. MACD uses moving averages, which are lagging indicators, to include some trend-following characteristics. These lagging indicators are turned into a momentum oscillator by subtracting the longer moving average from the shorter moving average. The resulting plot forms a line that oscillates above and below zero, without any upper or lower limits. MACD Formula The most popular formula for the MACD is the difference between a security's 26-day and 12-day Exponential Moving Averages(EMAs). Of the two moving averages that make up MACD, the 12-day EMA is the faster and the 26-day EMA is the slower. Closing prices are used to form the moving averages. Usually, a 9-day EMA of MACD is plotted along side to act as a trigger line. A BULLISH CROSSOVER occurs when MACD moves above its 9-day EMA, and A BEARISH CROSSOVER occurs when MACD moves below its 9-day EMA. 08/MBA/17 SAPM
  28. 28. INTERPRETATION MACD is a trend following indicator, and is designed to identify trend changes. It's generally not recommended for use in ranging market conditions. Three types of trading signals are generated, * MACD line crossing the signal line. * MACD line crossing zero * Divergence between price and MACD levels The signal line crossing is the usual trading rule. This is to buy when the MACD crosses up through the signal line, or sell when it crosses down through the signal line. When the MACD line crosses through zero on the histogram it is said that the MACD line has crossed the signal line. The histogram can also help visualizing when the two lines are coming together. A crossing of the MACD line up through zero is interpreted as bullish, or down through zero as bearish. Positive divergence between MACD and price arises when price makes a new selloff low, but the MACD doesn't make a new low(i.e. it remains above where it fell to on that previous price low). This is bullish, suggesting the downtrend may be nearly over. Negative divergence is when price makes a new rally high, but MACD doesn't rise as high as before, this is bearish. 08/MBA/17 SAPM
  29. 29. 12DAY EMA For 12 day EMA, We have to calculate 11-day Simple moving average (SMA). EMA formula = price today * k + EMA yesterday's * (1-k) where N is number of days in EMA X = Current EMA, C = Current Price, P = Previous period's EMA*, K = Smoothing constant (*A SMA is used for first period's calculation),K = 2/(1+N),N = Number of periods for EMA K = 2/(1+N) 12day=2/(12+1)=0.15 26day=2/(26+1)=0.074 26DAY EMA we have to calculate 25-day Simple moving average (SMA) MACD[FAST LINE]= Subtract 26-day EMA from 12-day EMA. 9-day EMA [Slow Line]) = first we have to calculate 9-Day EMA of MACD(trigger/signal line) calculate 8-day Simple moving average (SMA). then, EMA equals K = 2/(1+N), so 2/(9+1)=0.2 08/MBA/17 SAPM
  30. 30. 20.0000 MACD FAST LINE SELL SELL SIGNAL SLOW LINE 15.0000 Or 9DAY EMA 10.0000 5.0000 SELL 0.0000 SELL -5.0000 BUY BUY -10.0000 BUY -15.0000 -20.0000 BUY YEAR 2004 (BULLISH & BEARISH CROSS OVERS) BUY -25.0000 SENSEX 2004 DAILY 08/MBA/17 SAPM
  31. 31. Developed by J. WELLES WILDER, Relative Strength Index (RSI) is an extremely useful and popular momentum oscillator. The RSI compares the magnitude of a stock's recent gains to the magnitude of its recent losses and turns that information into a number that ranges from 0 to 100. It takes a single parameter, the number of time periods to use in the calculation. In his book, Wilder recommends using 14 periods. RSI = 100 –[100/( 1 + RS )] RS(Relative Strength) = Average Gain / Average Loss Wilder recommended using 70 and 30 and overbought and oversold levels respectively. Generally, if the RSI rises above 30 it is considered bullish for the underlying stock. Conversely, if the RSI falls below 70, it is a bearish signal. Some traders identify the long-term trend and then use extreme readings for entry points. If the long-term trend is bullish, then oversold readings could mark potential entry points 08/MBA/17 SAPM
  32. 32. For calculation of RSI , a condition is put ahead of the normal average gain or average loss calculation Because if average loss then RS cannot be calculated as division by zero is not possible. In case of calculation of RSI, when average loss is 0 then RSI is supposed to be 100 When average loss is zero then value of RS becomes 100000 This value of 100000 is not unique, it can be any number large enough for the data such that RSI becomes 100 when average loss is 0. Thus 100000 is a sort of replacement instead of writing infinite which actually should have been the case 08/MBA/17 SAPM
  33. 33. RSI 100.00 90.00 OVER VALUED 80.00 70.00 60.00 50.00 40.00 30.00 UNDER 20.00 VALUED 10.00 0.00 SENSEX 2005 DAILY 08/MBA/17 SAPM
  34. 34. Analysts consider that a buying signal occurs when the %K line crosses and rises above the %D line. Conversely, a cross-over where the %K line drops below the %D is believed to be a sell sign. If either the %K or %D fall below 20 and then starts to rise again above 20, this may be considered a buy sign. Similarly, a selling signal is thought to occur if the indicator rises above 80 and then begins to fall below 80. Divergences are also considered to be a buy signal, although may be more difficult to identify. If the price is making a lower low, but the stochastic is making a higher low, some may consider this to be a buy signal, and vice-versa. %K = [( Today's Close - LL ) / ( HH - LL )] * 100 where: LL = Lowest Low price in Period K HH = Highest High price in Period K %D is calculated as a Moving Average of %K for Period D. %D smoothens the %K line 08/MBA/17 SAPM
  35. 35. %K %D 100% 90% 80% 70% PERCENTAGE 60% 50% 40% 30% 20% 10% 0% SENSEX TRADING DATE (JAN 2009-SEP 2009) 08/MBA/17 SAPM
  36. 36. TECHNICAL ANALYSIS FOCUSES ON PRICE MOVEMENT. The primary focus of technical analysis is on the movement of prices. Charts show how prices are moving (or not moving), when prices are trending, and the strength of those trends. Volume, oscillators and momentum give a clearer picture of market action. And this information can be obtained at a glance. TRENDS ARE EASILY FOUND. Trends are critical to technicians because a currency is likely to continue moving in the direction of the trend. Charts show them clearly and quickly. PATTERNS ARE EASILY IDENTIFIED IDENTIFIED. Head-and-shoulders patterns, rounding tops and bottoms, ascending and descending triangles, and double and triple tops are proven patterns that many currency prices will follow. Hence, they have strong predictive powers. They can be impossible to detect without using a chart. CHARTING IS QUICK AND INEXPENSIVE. Technical analysis is less time consuming and less costly than fundamental analysis. It can be performed at no time. CHARTS PROVIDE A WEALTH OF INFORMATION. Charts can provide only the most basic information on a trend or support and resistance. However, they go much deeper to provide information on the strength of a trend. 08/MBA/17 SAPM
  37. 37. 08/MBA/17 SAPM
  38. 38. Indian Hotels Company Ltd. (IHCL) succumbed to the pressures emanating from the declining tourist inflows and the consequent plunge in occupancy rates and average room rates (ARRs) in Q1’10. As a result, its standalone revenue declined 30.4% during the period. At the same time, the EBITDA margin also plunged to 4.6%. While it’s expected a weakness in ARRs to continue, the improvement in the occupancy levels in the coming quarters coupled with the new capacity addition will help the Company to maintain its top-line growth. Accordingly, we have revised our target price to Rs. 90 and upgraded our rating to Buy from Sell. Likely improvement in occupancies: Tourist arrivals in June 2009 and July 2009 witnessed a marginal growth of 0.2% and 0.7%, respectively. This trend is likely to continue in the rest of the financial year on the back of the festive season and an expected increase in business tourists due to the improving macroeconomic outlook. Occupancies is expected to improve to 70% in FY10; however, ARRs are likely to be under pressure in FY10 owing to the addition of new capacity coupled with lower demand. EBITDA margin expected to increase slightly: The hotel business is a high fixed-cost business. Thus, industry down-cycles have been seen to result in sharp declines in the operating margins. 08/MBA/17 SAPM
  39. 39. IHCL has continued to move forward with its expansion plans, although with some deferments in a few projects. The Company has added 468 new rooms (including management contracts) in the current financial year, and another 1326 new rooms will be added to the inventory by the end of this financial year. HOTEL ROOMS EXPECTED SHARE HOLDING PATTERN COMPLETION (%) 60 Hyderabad Dec 2009 IHCL Promoters 30 Taj Falaknuma Palace 331 Yeshwantpur Feb 2010 TAJ GROUP FIIs 15 Taj Palace (Taj International SA) 172-Cape Town Dec 2009 Institutions 25 (Oriental Hotels Ltd) 64-Chennai Oct 2009 (Roots Corporation Ltd.) 468-Ginger hotels – 5 cities Ongoing Public & 30 Others MANAGEMENT CONTRACT Gateway, OMR 159 Chennai Jan 2010 i Vivanta by Taj 72 Bekal March 2010 08/MBA/17 SAPM
  40. 40. 100 75 50 25 0 Sept 08 to Sept 09 monthly data IHCL BSE 08/MBA/17 SAPM
  41. 41. INTEREST DEPRICIATION OTHER EXP 6% 38% 6% TAX PROV 9% STAFF COST 26% RAW MATERIAL CONSUMP 8% FUEL,POWER & LIGHT 7% 08/MBA/17 SAPM
  42. 42. 08/MBA/17 SAPM
  43. 43. 08/MBA/17 SAPM
  44. 44. * SECTOR consists of Trade, Hotels , Transport Storage, etc. EX 2011 EX 2010 2009 2008 2007 2006 2005 2004 GDP - real growth rate (%) 8.00 7.15 7.40% 9.00% 9.20% 8.40% 6.20% 8.30% SECTORIAL * GDP CONTRIBUTION 27% 27% 27% 29% 28% 27% 26% 26% wrt TOTAL GDP FORIGN TOURIST ARRIVALS (million) 5.21 4.62 5.05 5.37 5.08 4.45 3.92 3.48 TOTAL INCOME (Rs Crore) 1761.64 1405.80 1738.29 1830.18 1643.5 1178.64 913.49 743.46 TOTAL EXPENDITURE (Rs Crore) 1139.41 894.56 1160.32 1063.83 980.24 797.61 666.54 571.4 OPERATING PROFIT 613.53 481.69 577.97 766.35 663.26 381.03 246.95 172.06 (Rs Crore) INTEREST 175.294 137.62 122.21 101.3 98.08 43.73 49.1 08/MBA/17 43.68 SAPM (Rs Crore)
  45. 45. EX 2011 EX 2010 2009 2008 2007 2006 2005 2004 Profit before Depreciation 438.236 344.06 455.76 665.05 565.18 337.3 197.85 128.38 & Tax Depreciation 71.353 78.169 94.46 85.48 91.44 65.9 56.77 48.58 (Rs Crore) Profit Before Tax 366.883 265.89 361.3 579.57 473.74 271.4 141.08 79.8 (Rs Crore) Tax 128.409 93.063 112.69 195.1 63.68 84.68 22.13 13.6 (Rs Crore) REPORTED NET PROFIT 238.474 172.83 234.03 377.46 322.39 183.78 105.86 60.65 (Rs Crore) No of shares (Lakhs) 10000 10000 10000 10000 10000 1000 1000 1000 EPS 2.77 1.73 3.03 5.94 5.22 30.5 21.29 12.42 08/MBA/17 SAPM
  46. 46. According to the economic survey the GDP (real growth rate) for the year 2010 and 2011 are expected to be 7.15% and 8% respectively The SECTOR (Trade, hotel, transport & storage) contribution ratio wrt the total GDP is predicted for the years by using liner regression. Income is predicted for year 2010 and 2011 taking the past INCOME as the known existing x- values, The FTA (Foreign tourist arrivals) known values are existing y-values, and the new INCOME value is predicted by using linear regression. This is because FTA is directly related with INCOME of IHCL Variable cost with INCOME (Sales) ratio is 14% (average) from 2004 to 2009 This is used to predict the Variable cost of the year 2010 and 2011 Fixed cost according to the trend from the year 2004 to 2009 is 50% (average) of INCOME. This proves the fact that HOTEL industries primarily involves high FIXED costs. ASSUMPTIONS 2009 2010 2011 Depreciation 9% 9% 9% Interest 10% 10% 10% Tax Charges 35% 35% 35% 08/MBA/17 SAPM
  47. 47. 08/MBA/17 SAPM
  48. 48. Monthly data are taken of three stock prices of IHCL SBI & SAIL from October 2004 till October 2009. PORTFOLIO RETURN It is summation of Weight age Return of the stocks (W1*R1+W2*R2+W3*R3) PORTFOLIO VARIENCE It is Variance or Standard deviation of portfolio. Variance -Covariance Matrix PORTFOLIO VARIANCE =(W12 V1 )+(W22 V2 )+(W32 V3 )+2(W1W2Cov12)+2(W2W3Cov23)+2(W1W3Cov13 ) W1 W2 W3 IHCL SBI SAIL W1 V1 Cov12 Cov13 IHCL W2 Cov12 V2 Cov23 SBI W3 Some tables Cov13displayed23 this document partially, for details please view the SAIL are Cov in V3 excel sheet. sheet. 08/MBA/17 SAPM
  49. 49. DATE CLOSE OF IHCL CLOSE OF SBI CLOSE OF SAIL RETURN WRT CLOSE PRICE IHCL % RETURN WRT CLOSE PRICE SBI % RETURN WRT TO SAIL % 01-10-2009 75.75 2269.45 169 -1.650165017 3.249686047 -0.887573964 01-09-2009 77 2195.7 170.5 15.25974026 20.61529353 4.692082111 03-08-2009 65.25 1743.05 162.5 -4.444444444 -4.070451221 -7.384615385 01-07-2009 68.15 1814 174.5 3.154805576 3.966372657 12.23495702 01-06-2009 66 1742.05 153.15 -0.909090909 -7.293131655 -11.81847862 04-05-2009 66.6 1869.1 171.25 25.67567568 31.64089669 36.35036496 01-04-2009 49.5 1277.7 109 20.70707071 16.52578853 11.05504587 02-03-2009 39.25 1066.55 96.95 7.898089172 3.698842061 22.1248066 02-02-2009 36.15 1027.1 75.5 -12.86307054 -12.17992406 -9.668874172 01-01-2009 40.8 1152.2 82.8 -10.29411765 -11.80784586 6.582125604 01-12-2008 45 1288.25 77.35 10 15.63361149 14.54427925 03-11-2008 40.5 1086.85 66.1 -14.44444444 -2.084004232 -31.92133132 01-10-2008 46.35 1109.5 87.2 -44.55231931 -32.10004507 -44.78211009 01-09-2008 67 1465.65 126.25 -15.2238806 4.233616484 -23.32673267 01-08-2008 77.2 1403.6 155.7 -11.46373057 -0.794385865 10.0834939 01-07-2008 86.05 1414.75 140 11.09819872 21.43841668 0.714285714 02-06-2008 76.5 1111.45 139 -46.40522876 -29.86189212 -18.52517986 02-05-2008 112 1443.35 164.75 -3.258928571 -23.07132712 -11.38088012 01-04-2008 115.65 1776.35 183.5 3.501945525 9.992400146 0.272479564 03-03-2008 111.6 1598.85 183 -12.32078853 -31.95108985 -36.61202186 01-02-2008 125.35 2109.7 250 -6.102911847 -2.49087548 14 01-01-2008 133 2162.25 215 -19.96240602 -9.654295294 -31.39534884 03-12-2007 159.55 2371 282.5 15.23033532 2.981864192 8.495575221 08/MBA/17 SAPM 01-11-2007 135.25 2300.3 258.5 -9.426987061 10.09216189 -0.502901354
  50. 50. IHCL SBI SAIL Monthly return -14.59916707 1.660244805 0.887107687 Yearly return % return -175.1900048 19.92293766 10.64529224 COVARIANCE IHCL Variance (n) (n 193335.0306 SBI 243436.917 SAIL 3580.424708 -128522.4695 -14636.93181 27321.33318 VARIANCE -COVARIANCE MATRIX IHCL (W1=0) SBI (W2=1) SAIL (W3=0) IHCL (W1=0) 193335.03 -128522.47 -14636.93 VARIANCE -COVARIANCE MATRIX SBI (W2=1) -128522.47 243436.92 27321.33 IHCL (W1=1) SBI (W2=0) SAIL (W3=0) SAIL (W1=1) IHCL (W3=0) -14636.93 8019.16 27321.33 41376.53 3580.42 15509.85 SBI (W2=0) 41376.53 243436.92 88179.24 08/MBA/17 SAPM
  51. 51. From the matrix we can see that with assigning various weights we are getting the MAXIMUM PORT FOLIO RETURN of 20% when we give weight 1 to SBI, weight 0 to IHCL, weight 0 to SAIL with PORTFOLIO VARIANCE 243436.917 From the matrix we can see that with assigning various weights we are getting the PORTFOLIO RETURN of 11 % with MINIMUM PORTFOLIO VARIANCE of 8019.15 by assigning weight 1 to IHCL, weight 0 to SBI and 0 to SAIL. SAIL. Tables are displayed in this document partially, for details please view the excel sheet. sheet. 08/MBA/17 SAPM
  52. 52. ACCORDING TO WEIGHTS ASSIGNED VARIOUS PORTFOLIO RETURNS AND PORTFOLIO RISKS(VAR & SD) WEIGTHS WEIGHTS WEIGHTS AVERAGE YEARLY AVERAGE YEARLY AVERAGE YEARLY PORTFOLIO PORTFOLIO PORTFOLIO RISK IHCL SBI SAIL RETURN IHCL RETURN SBI RETURN SAIL RETURN % RISK(VAR) (STDV) 0 0 1 -1.75 0.20 0.11 10.65 0.02 0.15 0 0.1 0.9 -1.75 0.20 0.11 11.57 0.02 0.15 0 0.2 0.8 -1.75 0.20 0.11 12.50 0.02 0.14 0 0.3 0.7 -1.75 0.20 0.11 13.43 0.02 0.13 0 0.4 0.6 -1.75 0.20 0.11 14.36 0.02 0.13 0 0.5 0.5 -1.75 0.20 0.11 15.28 0.02 0.13 0 0.6 0.4 -1.75 0.20 0.11 16.21 0.02 0.13 0 0.7 0.3 -1.75 0.20 0.11 17.14 0.02 0.13 0 0.8 0.2 -1.75 0.20 0.11 18.07 0.02 0.13 0 0.9 0.1 -1.75 0.20 0.11 19.00 0.02 0.13 0 1 0 -1.75 0.20 0.11 19.92 0.02 0.14 0.1 0 0.9 -1.75 0.20 0.11 -7.94 0.02 0.14 0.1 0.1 0.8 -1.75 0.20 0.11 -7.01 0.02 0.14 0.1 0.2 0.7 -1.75 0.20 0.11 -6.08 0.02 0.13 0.1 0.3 0.6 -1.75 0.20 0.11 -5.15 0.02 0.13 0.1 0.4 0.5 -1.75 0.20 0.11 -4.23 0.02 0.13 0.1 0.5 0.4 -1.75 0.20 0.11 -3.30 0.02 0.12 0.1 0.6 0.3 -1.75 0.20 0.11 -2.37 0.02 0.12 0.1 0.7 0.2 -1.75 0.20 0.11 -1.44 0.02 0.12 0.1 0.8 0.1 -1.75 0.20 0.11 -0.52 0.02 0.13 0.1 0.9 0 -1.75 0.20 0.11 0.41 0.02 0.13 0.2 0 0.8 -1.75 0.20 0.11 -26.52 0.02 0.14 0.2 0.1 0.7 -1.75 0.20 0.11 -25.59 0.02 0.13 0.2 0.2 0.6 -1.75 0.20 0.11 -24.67 0.02 0.13 0.2 0.3 0.5 -1.75 0.20 0.11 -23.74 0.02 0.12 0.2 0.4 0.4 -1.75 0.20 0.11 -22.81 0.01 0.12 0.2 0.5 0.3 -1.75 0.20 0.11 -21.88 0.01 0.12 0.2 0.6 0.2 -1.75 0.20 0.11 -20.96 0.01 0.12 0.2 0.7 0.1 -1.75 0.20 0.11 -20.03 0.02 0.12 0.2 0.8 0 -1.75 0.20 0.11 -19.10 0.02 0.13 0.3 0 0.7 -1.75 0.20 0.11 -45.11 0.02 0.13 0.3 0.1 0.6 -1.75 0.20 0.11 -44.18 0.02 0.13 0.3 0.2 0.5 -1.75 0.20 0.11 -43.25 0.02 0.13 0.3 0.3 0.4 -1.75 0.20 0.11 -42.32 0.01 0.11 0.3 0.4 0.3 -1.75 0.20 0.11 -41.39 0.01 0.12
  53. 53. 30 20 10 0 -10 -20 -30 -40 -50 -60 -70 Series1 -80 -90 -100 -110 -120 RETURN % -130 -140 -150 -160 -170 -180 -190 -200 -210 -220 -230 -240 -250 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 08/MBA/17 SAPM
  54. 54. WEIGTHS WEIGHTS WEIGHTS AVERAGE YEARLY AVERAGE YEARLY AVERAGE YEARLY PORTFOLIO PORTFOLIO PORTFOLIO RISK(VAR) IHCL SBI SAIL RETURN IHCL RETURN SBI RETURN SAIL RETURN % RISK (STDV) 0 0 1 -1.75 0.20 0.11 10.65 0.02 0.15 0 1 0 -1.75 0.20 0.11 19.92 0.02 0.14 INTERPRETITION from GRAPH & TABLE Combination with minimum and maximum risk the weight age of three different companies. We can see that the weight age of IHCL is taken as ZERO because of its negative returns . The portfolio returns ranges from 11% to 20% approx with high RISK associated with high RETURN. The point of effective portfolio return is the point where the RISK free return rate (9%) is tangent to the CURVE. Where a return of 15% is achieved. 08/MBA/17 SAPM

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