“Study of Equity Research on Hotel Sector and Auto-ancillary”.
1 Page
1. Executive Summary
 RATIONALE OF TAKING THE PROJE...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
2 Page
 LIMITATIONS:-
 TIME CONSTRAINTS: - We had to lear...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
3 Page
2.1 INTRODUCTION
 COMPANY PROFILE:-
Birla Sun Life ...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
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 GOALS
Achieving superior and consistent investment...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
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2.2 PRODUCTS OF BIRLA SUN LIFE
WEALTH MANAGEMENT
Ins...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
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2.3 COMPETITORS OF BIRLA SUN LIFE WEALTH MANAGEMENT
...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
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2.4 SWOT ANALYSIS
 Strength
Has Network of 600 bran...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
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3.1 MUTUAL FUND
A mutual fund is a type of professio...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
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 Unit investment trusts
Unit investment trusts or U...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
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4.1 RESEARCH TECHNIQUE
The project is on equity res...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
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4.2 FUNDAMENTAL ANALYSIS:
Fundamental analysis of a...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
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4.3 Sector Analysis
Sector Analysis was done on the...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
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2. PEG ratio:
The PEG ratio that indicates an over ...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
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4.4 TECHNICAL ANALYSIS:
Technical analysis is a fin...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
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4.5 Chart Types:
There are three main types of char...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
16 Page
Bar Charts
The bar chart expands on the line chart ...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
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Candlestick Charts:
The candlestick chart is simila...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
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4.6 Chart Patterns:
Head and Shoulders
This is one ...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
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Triple Tops and Bottoms
Triple tops and triple bott...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
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Hotels Sector Analysis Report
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
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5.1 Hotels Sector Analysis Report
 India occupies ...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
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5.2 KEY POINT
Supply We have a shortage of 100,000 ...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
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5.3 Current Scenario of Sector.
 The performance o...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
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5.4 Prospects
 In the long term, the demand-supply...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
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5.5 Identifying a hotel stock: Do's and don'ts
How ...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
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5.6 Occupancy rates
Consider the chart below. The h...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
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5.7 Average room rates (ARRs)
Without getting into ...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
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How to put a value to a hotel chain? Net Asset Valu...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
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While growth prospects continue to remain heartenin...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
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3. AFTER SECTOR P/E TO SEE UNDER VALUED AND OVER VA...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
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TECHNICAL ANALYSES OF HOTEL INDUSTRY
BAR CHART OF I...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
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BAR CHART OF ASIAN HOTEL
Hotel sector is the slow g...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
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BAR CHART OF MAHENDRA & MAHENDRA RESORT AND
HOLIDAY...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
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BAR CHART OF EIH
Hotel sector is the slow grow movi...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
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Auto-ancillary Analysis Report
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
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6.1 Auto-ancillary Analysis Report
 The fortunes o...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
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6.2 KEY POINT
Supply Low for high technology produc...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
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6.3 Current Scenario of Sector.
 After a strong FY...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
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6.4 Prospects
 There has been a conscious effort b...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
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6.5 Identifying an auto ancillary stock: Do's and d...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
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Since auto ancillary companies mainly act as vendor...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
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sub-assemblies required by the Tier I players are s...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
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Thus, after looking into the major aspects of the r...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
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6.8Valuations:
The fortunes of auto ancillary compa...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
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"Hotels" Company Results for June 2013 Quarter
1. H...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
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39 Menon Pistons 48.00 -0.80 -1.64 5.06
40 Enkei Wh...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
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TECHNICAL ANALYSES OF AUTO-ANCILLARY INDUSTRY
BAR C...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
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BAR CHART OF BOSCH
In this chart, duration of 2008 ...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
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BAR CHART OF AMTEK AUTO
In this chart, duration of ...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
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BAR CHART OF BHARAT GEARS
In this chart, duration o...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
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BAR CHART OF BHARAT GEARS
In this chart we saw afte...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
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7. Creating a Portfolio and updating NAV
We Created...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
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8. Findings
 Having knowledge of different aspects...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
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9. Suggestions
Birla Sun life Wealth Management is ...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
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10. Conclusions
 Having knowledge of different asp...
“Study of Equity Research on Hotel Sector and Auto-ancillary”.
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11. Bibliography
 Economic Times
 Times of India
...
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EQUITY RESEACH ON HOTEL AND AUTO-ANCILLARY

  1. 1. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 1 Page 1. Executive Summary  RATIONALE OF TAKING THE PROJECT: - The basic need of taking up this project was to get the basic knowledge of Wealth Management. A wealth management company combines Insurance as well as mutual fund whose procedure in steps are as follows:-  Equity  Debt  Mutual Fund  Life insurance  General Insurance  Commodities  Real Estate  Fundamental Analysis  Technical Analysis  Derivatives.  COVERAGE:- Basically the coverage included the Birla Sun Life Insurance Branch of Ghatkopar, Mumbai. And the policies were tried to sell in Mumbai as well as the home towns of the students.  SAMPLE SELECTION:- The sample selected was mostly Primary and somewhat secondary as whatever knowledge we have is provided by the Company Guide himself as well as the employee. These are explained as follows:- Primary Data were collected by the students themselves. For collecting primary data, we had discussions with the Senior Business Mentor of the Branch and the employees. Whereas the secondary data, i.e. have been collected by some other person for their purpose and published. This was made from the Company’s websites, brochures and other documents like yearly diaries, calendars etc.
  2. 2. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 2 Page  LIMITATIONS:-  TIME CONSTRAINTS: - We had to learn a lot in very less time which was a great challenge if there was some more time it could be practically practiced to enhance our knowledge.  INVESTMENT TARGET:- The main target to find an investor for ULIP was a challenging task because people either had already invested in some or the other insurance scheme or do not want to invest due to their own reasons.  TECHNICAL CONSTRAINTS: - Due to the lack of hardware like the projector etc., the scheduled task of learning Technical Analysis needed to be postponed.  Unavailability of some documents which were confidential.  Employees were busy in their work so they could not give more information.  There may be errors due to the bias of the respondents.  The study is limited to my experience and knowledge.  Scope of the project:- The research and report can be used by the company to improve as well as remove the limitations. We worked as an intern and can judge the Company from an outsider’s perspective which is valuable certainly.
  3. 3. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 3 Page 2.1 INTRODUCTION  COMPANY PROFILE:- Birla Sun Life Insurance Company Limited (BSLI) is a joint venture between the Aditya Birla Group and Sun Life Financial Inc., a leading international financial services organization. The local knowledge of the Aditya Birla Group combined with the expertise of Sun Life Financial Inc., offers a formidable value proposition to customers. It pioneered the launch of Unit Linked Life Insurance plans amongst the private players in India. It was the first player in the industry to sell its policies through the Bank assurance route and through the internet. It was also the first private sector player to introduce a pure term plan in the Indian market. This was supported by sales practices, which brought a degree of transparency that was entirely new to the market. The process of getting sales illustrations signed by customers, offering a free look period on all policies, which are now industry standards were introduced by BSLI. Birla Sun Life Insurance is a value-driven brand which has a national brand recall of 70 per cent Birla Sun Life Asset Management Company Ltd. (BSLAMC), the investment managers of Birla Sun Life Mutual Fund, is a joint venture between the Aditya Birla Group and the Sun Life Financial Services Inc. of Canada. BSLAMC follows a long-term, fundamental research based approach to investment. The approach is to identify companies, which have excellent growth prospects and strong fundamentals. The fundamentals include the quality of the company’s management, sustainability of its business model and its competitive position, amongst other factors. Birla Sun Life Asset Management Company has one of the largest team of research analysts in the industry, dedicated to tracking down the best companies to invest in Birla Sun Life AMC strives to provide transparent, ethical and research based investments and wealth management services.  VISION To be the most trusted name in investment and wealth management, to be the preferred employer in the industry and to be a catalyst for growth and excellence of the asset management business in India  MISSION To be the first preference of our customers by providing innovative, need based life insurance and retirement solutions to individuals as well as corporate. These solutions will be made available by well-trained Professionals through a multi channel distribution network and superior Technology. Our endeavor will be to provide constant value addition to customers throughout their relationship with us, within the regulatory framework. We will provide career development opportunities to our employees and the highest possible returns to our shareholders
  4. 4. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 4 Page  GOALS Achieving superior and consistent investment results. Creating a conductive environment to hone and retain talent. Providing customer delight. Institutionalizing system-approach in all aspects of functioning. Upholding highest standards of ethical values at all times.
  5. 5. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 5 Page 2.2 PRODUCTS OF BIRLA SUN LIFE WEALTH MANAGEMENT Insurance Mutual Fund Protection Savings Plan Solutions Health and Wealth Wellness Creation Children’s Regular Income Future Solution Retirement Tax Savings Solutions Wealth with Protection
  6. 6. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 6 Page 2.3 COMPETITORS OF BIRLA SUN LIFE WEALTH MANAGEMENT The top asset management companies in India have been performing fairly well of late in spite of the condition of the mutual fund investors in the present economic scenario. During the 2011-12 fiscal the leading companies in this segment have, in fact, been profitable in their business operations.  HDFC Mutual Fund has been the biggest performer in 2011-12 fiscal, replacing Reliance Mutual Fund. In 2012, Reliance has earned an approximate net profit of INR 276 Cr., while in 2011 the same figure had stood at INR 261 Cr. This represents a growth of 5.6 percent on a year-on-year basis. In the same period HDFC Mutual Fund, which is the biggest of its kind in India, has gone up from INR 242 Cr. to INR269 Cr.  ICICI Asset Management Company, which is the third biggest fund based organization in the country, saw a profit of 22.5 percent earning INR 88 Cr. in 2012 as opposed to INR 72 Cr. in 2011. However, Birla Sun Life AMC (Asset Management Company) saw a 30 percent dip in its profits in 2012.  UTI Asset Management The major shareowners of UTI Asset Management are State Bank of India, bank of Baroda, Punjab National Bank, and Life Insurance Corporation. It is the oldest provider of mutual fund services in India. At the end of 2011-12 UTI's assets were valued at INR 11,387.9 million as opposed to INR 10,653.9 million. In the same year its aggregate revenue was INR 4,475.1 million and its profits were INR 1,340.9 million. The company has also performed well in terms of achievements like winning 8 prizes at the ICRA Mutual Fund Awards 2012 and the Star Fund House of the Year - DEBT Award in the same year.  Tata Asset Management company enjoys the support of Tata Group, which is one of the premier brands in the country and presently caters to several lakh investors. It manages assets that are worth approximately INR 20,247 Cr. In 2011-12 the total worth of the equities and liabilities of Tata Asset Management Company was INR 1,88,54,02,125 while in 2010-11 the figure read INR 1,67,43,12,573.
  7. 7. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 7 Page 2.4 SWOT ANALYSIS  Strength Has Network of 600 branches and advisors spread over 1500 towns in India having over 130,000 advisors Backed By Aditya Birla Brand and Sun Life financial services Emphasis on Customer Satisfaction through Transparent Functioning Strong Capital Base  Weakness Low Presence in Rural Market Lesser advertising as compared to competitors There are some operational issues, confusions related to policies among customers.  Opportunity Growing potential in the Rural Market Alignment with Government Schemes Better awareness amongst people for getting insurance  Threats Economic crisis and economic instability Entry of new NBFCs in the sector
  8. 8. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 8 Page 3.1 MUTUAL FUND A mutual fund is a type of professionally managed collective investment vehicle that pools money from many investors to purchase securities. Most mutual funds are "open-ended," meaning investors can buy or sell shares of the fund at any time. Mutual funds have advantages compared to direct investing in individual securities. These include: Increased diversification Daily liquidity Professional investment management Ability to participate in investments that may be available only to larger investors Service and convenience Government oversight Ease of comparison Mutual funds have disadvantages as well, which include: Fees Less control over timing of recognition of gains Less predictable income No opportunity to customize. 3.2 Types There are 3 principal types of mutual funds: open-end funds, unit investment trusts (UITs); and closed-end funds  Open-end funds Open-end mutual funds must be willing to buy back their shares from their investors at the end of every business day at the net asset value computed that day. Most open-end funds also sell shares to the public every business day; these shares are also priced at net asset value. A professional investment manager oversees the portfolio, buying and selling securities as appropriate. The total investment in the fund will vary based on share purchases, share redemptions and fluctuation in market valuation. There is no legal limit on the number of shares that can be issued.  Closed-end funds Closed-end funds generally issue shares to the public only once, when they are created through an initial public offering. Their shares are then listed for trading on a stock exchange. Investors who no longer wish to invest in the fund cannot sell their shares back to the fund (as they can with an open end fund). Instead, they must sell their shares to another investor in the market; the price they receive may be significantly different from net asset value. It may be at a "premium" to net asset value (meaning that it is higher than net asset value) or, more commonly, at a "discount" to net asset value (meaning that it is lower than net asset value). A professional investment manager oversees the portfolio, buying and selling securities as appropriate.
  9. 9. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 9 Page  Unit investment trusts Unit investment trusts or UITs issue shares to the public only once, when they are created. UITs generally have a limited life span, established at creation. Investors can redeem shares directly with the fund at any time (as with an open-end fund) or wait to redeem upon termination of the trust. Less commonly, they can sell their shares in the open market. Unit investment trusts do not have a professional investment manager. Their portfolio of securities is established at the creation of the UIT and does not change.  Exchange-traded funds A relatively recent innovation, the exchange-traded fund or ETF is often structured as an open-end investment company, though ETFs may also be structured as unit investment trusts, partnerships, investments trust, grantor trusts or bonds (as an exchange-traded note). ETFs combine characteristics of both closed-end funds and open- end funds. Like closed end funds, ETFs are traded throughout the day on a stock exchange at a price determined by the market. However, as with open-end funds, investors normally receive a price that is close to net asset value. To keep the market price close to net asset value, ETFs issue and redeem large blocks of their shares with institutional investors.
  10. 10. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 10 Page 4.1 RESEARCH TECHNIQUE The project is on equity research analysis of the sectors. Hence study has to be done on the basis of information and news available about the sectors i.e. secondary data by various modes. This research had to be completed by doing Fundamental analysis and Technical analysis of the companies. Secondary data was collected from the internet, company websites, magazines and various articles. However the main source of information is Annual Report issued by the companies and also quarterly reports of the current year showing their performances in current market scenario. Firstly data was analyzed on the basis of the industry. The industry i.e. Oil and Gas industry is focused on and its performance and relation with the Indian economy was monitored and then specific stocks were chosen to be invested in depending upon the fundamentals of the company stocks. These stocks were individually analyzed and then measured whether it would give maximum returns if invested in. The research on the sectors and companies in those sectors is explained in the later part of the report.
  11. 11. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 11 Page 4.2 FUNDAMENTAL ANALYSIS: Fundamental analysis of a business involves analyzing its financial statements and health, its management and competitive advantages, and its competitors and markets. When analyzing a stock, futures contract, or currency using fundamental analysis there are two basic approaches one can use; bottom up analysis and top down analysis. The term is used to distinguish such analysis from other types of investment analysis, such as quantitative analysis and technical analysis. Fundamental analysis is performed on historical and present data, but with the goal of making financial forecasts. There are several possible objectives:  To conduct a company stock valuation and predict its probable price evolution,  To make a projection on its business performance,  To evaluate its management and make projected decisions, Fundamental analysis includes: Economic analysis Industry analysis Company analysis On the basis of these three analyses the intrinsic value of the shares are determined. This is considered as the true value of the share. If the intrinsic value is higher than the market price it is recommended to buy the share. If it is equal to market price then hold the share and if it is less than the market price then sell the shares.
  12. 12. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 12 Page 4.3 Sector Analysis Sector Analysis was done on the basis of research and understanding various companies of the sectors which had strong Fundamentals over other companies of the same sector. Companies’ growth and past performance was taken into account along with its top-line (Revenue) and Bottom-line (Profits) for that period. Companies with strong fundamentals were preferred. The Ratios that were taken into consideration were: 1. P/E ratio- In general, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. However, the P/E ratio doesn't tell us the whole story by itself. It's usually more useful to compare the P/E ratios of one company to other companies in the same industry, to the market in general or against the company's own historical P/E. It would not be useful for investors using the P/E ratio as a basis for their investment to compare the P/E of a technology company (high P/E) to a utility company (low P/E) as each industry has much different growth prospects. The P/E is sometimes referred to as the "multiple", because it shows how much investors are willing to pay per rupee of earnings. If a company were currently trading at a multiple (P/E) of 20, the interpretation is that an investor is willing to pay Rs.20 for Re.1 of current earnings. It is important that investors note an important problem that arises with the P/E measure, and to avoid basing a decision on this measure alone. The denominator (earnings) is based on an accounting measure of earnings that is susceptible to forms of manipulation, making the quality of the P/E only as good as the quality of the underlying earnings number.  Generally a high P/E ratio means that investors are anticipating higher growth in the future.  The average market P/E ratio is 20-25 times earnings.  The P/E ratio can use estimated earnings to get the forward looking P/E ratio.  Companies that are making losses do not have a P/E ratio.  FORMULA:-
  13. 13. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 13 Page 2. PEG ratio: The PEG ratio that indicates an over or underpriced stock varies by industry and by company type; though a broad rule of thumb is that a PEG ratio below one is desirable. Also, the accuracy of the PEG ratio depends on the inputs used. Using historical growth rates, for example, may provide an inaccurate PEG ratio if future growth rates are expected to deviate from historical growth rates. To distinguish between calculation methods using future growth and historical growth, the terms "forward PEG" and "trailing PEG" are sometimes used.  FORMULA
  14. 14. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 14 Page 4.4 TECHNICAL ANALYSIS: Technical analysis is a financial term used to denote a security analysis discipline for forecasting the direction of prices through the study of past market data, primarily price and volume. Behavioral economics and quantitative analysis incorporate technical analysis, which being an aspect of active management stands in contradiction to much of modern portfolio theory. Technical analysis employs models and trading rules based on price and volume transformations, such as the relative strength index, moving averages, regressions, inter-market and intra-market price correlations, business cycles, stock market cycles or, classically, through recognition of chart patterns. Technical analysis stands in contrast to the fundamental analysis approach to security and stock analysis. Technical analysis analyzes price, volume and other market information, whereas fundamental analysis looks at the actual facts of the company, market, currency or commodity. Most large brokerage, trading group, or financial institutions will typically have both a technical analysis and fundamental analysis team. Concepts  Resistance — a price level that may prompt a net increase of selling activity  Support — a price level that may prompt a net increase of buying activity  Trending — the phenomenon by which price movement tends to persist in one direction for an extended period of time  Chart patterns— distinctive pattern created by the movement of security prices on a chart
  15. 15. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 15 Page 4.5 Chart Types: There are three main types of charts that are used by investors and traders depending on the information that they are seeking and their individual skill levels. The chart types are: the line chart, the bar chart, the candlestick chart. Line Chart: The most basic of the three charts is the line charts because it represents only the closing prices over a set period of time. The line is formed by connecting the closing prices over the time frame. Line charts do not provide visual information of the trading range for the individual points such as the high, low and opening prices. However, the closing price is often considered to be the most important price in stock data compared to the high and low for the day and this is why it is the only value used in line charts.
  16. 16. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 16 Page Bar Charts The bar chart expands on the line chart by adding several more key pieces of information to each data point. The chart is made up of a series of vertical lines that represent each data point. This vertical line represents the high and low for the trading period, along with the closing price. The close and open are represented on the vertical line by a horizontal dash. The opening price on a bar chart is illustrated by the dash that is located on the left side of the vertical bar. Conversely, the close is represented by the dash on the right. Generally, if the left dash (open) is lower than the right dash (close) then the bar will be shaded black, representing an up period for the stock, which means it has gained value. A bar that is colored red signals that the stock has gone down in value over that period. When this is the case, the dash on the right (close) is lower than the dash on the left (open).
  17. 17. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 17 Page Candlestick Charts: The candlestick chart is similar to a bar chart, but it differs in the way that it is visually constructed. Similar to the bar chart, the candlestick also has a thin vertical line showing the period's trading range. The difference comes in the formation of a wide bar on the vertical line, which illustrates the difference between the open and close. And, like bar charts, candlesticks also rely heavily on the use of colors to explain what has happened during the trading period. There are two color constructs for days up and one for days that the price falls. When the price of the stock is up and closes above the opening trade, the candlestick will usually be white or clear. If the stock has traded down for the period, then the candlestick will usually be red or black, depending on the site. If the stock's price has closed above the previous day’s close but below the day's open, the candlestick will be black or filled with the color that is used to indicate an up day. Figure 3: A candlestick chart
  18. 18. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 18 Page 4.6 Chart Patterns: Head and Shoulders This is one of the most popular and reliable chart patterns in technical analysis. Head and shoulders is a reversal chart pattern that when formed, signals that the security is likely to move against the previous trend Head and shoulders top is a chart pattern that is formed at the high of an upward movement and signals that the upward trend is about to end. Head and shoulders bottom, also known as inverse head and shoulders is the lesser known of the two, but is used to signal a reversal in a downtrend. Cup and Handle A cup with handle chart is a bullish continuation pattern in which the upward trend has paused but will continue in an upward direction once the pattern is confirmed. This price pattern forms what looks like a cup, which is preceded by an upward trend. The handle follows the cup formation and is formed by a generally downward/sideways movement in the security's price. Once the price movement pushes above the resistance lines formed in the handle, the upward trend can continue. There is a wide ranging time frame for this type of pattern, with the span ranging from several months to more than a year. Double Tops and Bottoms This chart pattern is another well-known pattern that signals a trend reversal - it is considered to be one of the most reliable and is commonly used. These patterns are formed after a sustained trend and signal to chartists that the trend is about to reverse. The pattern is created when a price movement tests support or resistance levels twice and is unable to break through. This pattern is often used to signal intermediate and long-term trend reversals.
  19. 19. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 19 Page Triple Tops and Bottoms Triple tops and triple bottoms are another type of reversal chart pattern in chart analysis. These are not as prevalent in charts as head and shoulders and double tops and bottoms, but they act in a similar fashion. These two chart patterns are formed when the price movement tests a level of support or resistance three times and is unable to break through; this signals a reversal of the prior trend. Rounding Bottom A rounding bottom, also referred to as a saucer bottom, is a long-term reversal pattern that signals a shift from a downward trend to an upward trend. This pattern is traditionally thought to last anywhere from several months to several years.
  20. 20. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 20 Page Hotels Sector Analysis Report
  21. 21. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 21 Page 5.1 Hotels Sector Analysis Report  India occupies the sixty-eighth position among the top tourist destinations in the world for 2011. To encourage the tourism sector, the government in recent times, has taken some measures which will benefit the sector. The Centre and States are also working out a PPP (Public-Private-Partnership) model to increase hotel capacity.  Government of India increased spend on advertising campaigns (including for the campaigns 'Incredible India' and 'Athithi Devo Bhava' - Visitors are like God) to reinforce the rich variety of tourism in India. The ministry promoted India as a sate tourist destination and undertook various measures, such as stepping up vigilance in key cities and at historically important tourist sites.  According to the latest Tourism Satellite Accounting (TSA) research, released by the World Travel and Tourism Council (WTTC), the demand for travel and tourism in India is expected to grow by 8.2 % between 2010 and 2019. This will place India at the third position in the world. India's travel and tourism sector is expected to be the second largest employer in the world. Capital investment in India's travel and tourism sector is expected to grow at 8.8 % between 2010 and 2019. The report forecasts India to get more capital investment in the travel and tourism sector and is projected to become the fifth fastest growing business travel destination from 2010 through 2020.  India's rapid economic growth has already set the stage for fundamental changes in the country's population. With more disposable income, the demand for travel and tourism has also grown. Although, currently domestic tourists constitute a very small chuck of the total tourist pie, the segment is growing
  22. 22. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 22 Page 5.2 KEY POINT Supply We have a shortage of 100,000 guest rooms short in the country. This is expected to keep ARRs high for the next few years. Demand Largely depends on business travelers but tourist traffic is also on the rise. Demand normally spurts in the peak season between November and March. Barriers to entry High capital costs, poor infrastructure facilities and scarcity of land especially in the metros. Bargaining power of suppliers Limited due to higher competition, especially in the metros. Bargaining power of customers Higher in metro cities due to increasing room supply. Competition Intense in metro cities, slowly picking up in secondary cities. Competition has picked up due to the entry of foreign hotel chains.
  23. 23. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 23 Page 5.3 Current Scenario of Sector.  The performance of the hotel industry is directly connected with global and local economic growth and investor confidence. A strong underlying economy is a pre- requisite for sustained recovery. Unfortunately, the year 2011 has not been a year of economic recovery either in India or globally. After two exceptionally bad years, the global hospitality industry was expected to recover in 2011. Despite encouraging signs in the first half of 2011, there was growing uncertainty during the latter part of the year. As a result, recovery has been fragile during 2011. The situation in India mirrors this overall global trend.  As per statistics by the Indian Ministry of Tourism, the foreign tourist arrivals in India for 2011, has been 6.29 million which is an 8.9% increase over 5.8 million tourists of 2010, the growth being higher than the global scenario but less than the overall Asia-Pacific region. Foreign Exchange Earnings from tourism increased to Rs 775 bn in 2011, from Rs 648 bn in 2010, with a growth rate in earnings of 19.6% over 2010. Extension of Visa on Arrival scheme to six more countries (Cambodia, Indonesia, Vietnam, Philippines, Laos and Myanmar) has led to growth in foreign tourist arrivals.  In terms of hospitality industry performance in India, the overall rates, occupancies and RevPAR (average daily room rate) have been stagnant owing to the impact of increased supply in the market and the general recessionary environment.  Supply overhang in certain cities, increase in food and fuel costs and rising interest rates eroded the margins for the Indian hotel industry. The balance sheets of hotel companies remained under stress on account of acquisitions of land banks at unrealistically high prices in the past and the resultant rise in debt levels.  Supply overhang in certain cities, increase in food and fuel costs and rising interest rates eroded the margins for the Indian hotel industry. The balance sheets of hotel companies remained under stress on account of acquisitions of land banks at unrealistically high prices in the past and the resultant rise in debt levels.  RevPAR= Rooms Revenue/ Rooms Available RevPAR is revenue per available room, Rooms Revenue is the revenue generated by room sales Rooms Available is the number of rooms available for sale in the time period
  24. 24. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 24 Page 5.4 Prospects  In the long term, the demand-supply gap in India is very real and that there is need for more hotels in most cities. The shortage is especially true within the budget and the mid market segment. There is an urgent need for budget and mid market hotels in the country as travellers look for safe and affordable accommodation. Various domestic and international brands have made significant inroads into this space and more are expected to follow as the potential for this segment of hotels becomes more obvious.  The United Nations World Tourism Organisation (UNWTO) expects growth to continue for the tourism sector in 2012, although at a slower rate. It forecasts international tourist arrivals to grow in the range of 3% to 4% in 2012. WTTC indicates that this growth will be moderate as the bounce-back for tourism destinations that faced specific challenges last year, will be offset by a weaker performance in other countries. Travel & tourism in China, India, Japan (bounce-back), Latin America and Africa is expected to perform well in 2012. UNWTO predicts that India will receive 25 million foreign tourists by the year 2015.  Despite the economic and political scenarios worldwide, demand for business travel has remained relatively robust. Companies are likely to increase spends and the multiplier effect of healthy salary increases will drive discretionary spending, especially on leisure travel. The affluent segments plan to spend more on travel in 2012, creating opportunities for the hospitality sector in the luxury space.  India's room supply pipeline represents 17% of the Asia-Pacific pipeline. It was moving at a CAGR of 10.8% for last 10 years and is now poised to grow at a CAGR of 6% in next 5 years. The intense supply pipeline would be backed by addition of room capacity by all the hotels both in India and Internationally. The supply pipeline would beef up also on account of improved foreign tourist arrivals, corporate travels, etc. International hotels like Carlson, Strawood, Marriot, etc are the ones which have chalked out plans to acquire the sufficient market share, thus, giving a thrust to the Indian supply pipeline.
  25. 25. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 25 Page 5.5 Identifying a hotel stock: Do's and don'ts How to analyse a company? This is the first question a retail investor has in mind before taking investment decisions. In continuation to the article last week on ways and means to identify an FMCG stock, consider key factors to be borne in mind when it comes to identifying a Hotel stock. Unlike FMCG, auto or even banking, hotel industry is more global in nature. As a result, geo- political events, say September 11 attack, play a vital role in influencing tourist arrivals into and outside India. The ability of a player in the sector to attract the bulk of tourists coming into India and travel within the Indian border depends on select factors. These include the strength of the property portfolio (whether near a heritage site, near airport, commercial capital and so on) and brand awareness. For example, Taj (Indian Hotels) and Oberoi (EIH) are generic names in India when it comes to premium hotel chains. Normally, hotels are capital intensive in nature having long gestation periods, which not only has a bearing on the free cash flows of hotels but also affects the return on capital employed (ROCE) for a period of time. Revenues for a hotel chain are a factor of occupancy rate (number of rooms occupied) and average room rates (popularly termed as ARRs). Revenues are also derived from food and beverages, management services and so on. Consider key factors that influence occupancy rate and ARRs.
  26. 26. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 26 Page 5.6 Occupancy rates Consider the chart below. The hotel sector benefits from both holiday and business travel. Holiday travel in India is generally seasonal in nature. Historically, over 60% of total tourist arrivals into the country is during the period between September-May. On the other hand, business travel is a factor of various factors. This includes government's effort to promote India as a tourist destination, long-term economic growth prospects and higher foreign participation arising by hike in FDI and FII holding limits in Indian companies and joint ventures. For the last few years inbound (coming into the country) tourists have been around 2.5 m while out bound (going out of the country) tourists have been around 30 m. Out of the inbound, a large part of the travelers to the country are of the business class, while the rest are leisure segment. Connectivity between cities in the form of better road infrastructure, airports and seaports also play a vital role in increasing the share of India in the global tourist pie. India is a country of various cultures and has some of the world-class heritage sites, which when promoted in the global arena, can attract the global tourist. On the domestic leisure travel front (i.e. people traveling within India for both commercial and leisure reasons), there is lot of seasonality involved. Besides, as income increases, aspiration level of the population also gains ground and consequently, spills over into better occupancy rates for hotel chains. While it may not be true for luxury hotels, players in the budget hotel sector and time-share segment benefit in a large way.
  27. 27. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 27 Page 5.7 Average room rates (ARRs) Without getting into complexities, there are three classes of rooms in a hotel i.e. business, leisure and luxury. It is important to understand that room rates are less elastic to a fall in price at the higher end of the segment (luxury) than at the lower end of the spectrum (business/leisure). Therefore, even in a downturn, players like Indian Hotels are relatively able to maintain higher operating margins than EIH. Established players in India have an edge over MNCs and the unorganized segment, due to properties near heritage sites. Competition also plays a vital role in determining the sector's ARRs. Currently, the big hotels have average occupancies of 60%. This points to excess supply. That itself is sometimes a dampener on ARRs. The global scene International hotels are derive a big chunk of revenues from casinos and betting arenas. Margins in this segment are also higher. But for Indian hotel majors, setting up casinos and betting arenas is not allowed according to Indian laws. However, when domestic hotels are compared to international hotels then they are fairly competitive in terms of average room revenues.
  28. 28. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 28 Page How to put a value to a hotel chain? Net Asset Value (NAV) is the answer. For arriving at a Net Asset Value Setting up a 5 star hotel = Rs 30-35 m* Add = Cash + investments Deduct = Debt Net Asset Value (NAV) Total Divide No. of Shares NAV per share = Rs x Compare with current market price * depending upon the area of setup Coming to the NAV of domestic hotels, on the basis of replacement cost method let us see the value of the hotels at current prices. By NAV we can arrive at the actual value of the properties of the hotels. Based on that, NAV per share can be calculated, which gives the actual value the shareholder should be paying for being a part of the company. However, for hotels, which have been in the industry for a period of time their NAV would be on the higher side, as the property bought would be at a much lower rate than the present times. Like for instance the NAV of Taj and Oberoi Hotels would be higher than that of ITC Hotels and other hotels. Key things to look at before investing in a hotel stock 1. What are the strategy and the capex plans of the company over the next 5-10 years? As mentioned earlier, hotels are capital intensive in nature having long gestation periods, which not only has a bearing on the free cash flows of hotels but also affects the return on capital employed (ROCE) for a period of time. So the bigger the capex plan, the more caution one should exercise. This criteria is favorable for established hotel chains. 2. Economic cycles also determine earnings prospects (during a downturn, properties are cheaper and hotel chain generally tend to increase capacity). Moreover, in tough times like September 11, hotel stocks take a beating. It is at this time that the established players should be looked at, for when the concerns fade away; these will be the first ones to benefit from an economic upturn. 3. A hotel chain should not be leveraged on any specific segment i.e. luxury or leisure. Though elasticity is lower at the premium end, when tourist flow is affected, this player could be the worst hit. Diversification reduces volatility in earnings, to an extent.
  29. 29. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 29 Page While growth prospects continue to remain heartening, the sector is typically a high-risk-high- return game due to the vulnerability to external factors. Buyers beware! 5.8 PROCESS OF FUNDAMENTAL ANALYSIS: - We followed the following steps under fundamental analysis to choose stocks under the given sectors: - A.] SELECTING COMPANIES SHOWING POSITIVE RATIO. B.] DIVERSIFICATION DECISION. C.] PREPARATION OF MUTUAL FUND. D.] UPDATING NAV OF THE FUND. "Hotels" Company Results for June 2013 Quarter 1. HOTEL SECTOR ARE 24 COMPANIES IN BSE IN LISTED. THERE ARE FOLLOW 2.SECTOR P/E= 29.07 Sr Company Last Price Change % Chg EPS 1 Asian Hotel 125.00 0.00 0.00 28.27 2 Mahindra Holida 214.40 -3.85 -1.76 12.28 3 Mac Charles 88.00 -2.80 -3.08 10.01 4 Guj Hotels 199.55 -3.45 -1.70 8.78 5 EIH Assoc Hotel 109.30 -3.70 -3.27 7.41 6 UP Hotels 342.00 0.00 0.00 6.08 7 Speciality Rest 121.45 -1.50 -1.22 4.66 8 CHL 81.00 3.00 3.85 4.12 9 Indian hotel 44.95 -0.15 -0.33 10 Jindal Hotels 21.00 -0.30 -1.41 3.37 11 Savera Ind 37.15 -0.85 -2.24 3.01 12 India Tourism D 524.95 -10.70 -2.00 1.98 13 Royale Manor 5.89 0.19 3.33 1.08 14 EIH 49.95 0.90 1.83 0.91 15 TGB Banquets 43.50 0.35 0.81 0.75 16 Oriental Hotels 16.55 -0.10 -0.60 0.73 17 Country Club (India) 5.76 -0.11 -1.87 0.67 18 Cindrella Hotel 46.00 2.00 4.55 0.66 19 Taj GVK Hotels 55.85 1.10 2.01 0.59 20 Advani Hotels 29.00 0.00 0.00 0.40 21 Graviss Hosp 16.00 -0.50 -3.03 0.37 22 Howard Hotels 10.00 0.06 0.60 0.22 23 Radford Global 28.55 -0.55 -1.89 0.05 24 Dhanada Corp 5.94 -0.11 -1.82 0.02
  30. 30. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 30 Page 3. AFTER SECTOR P/E TO SEE UNDER VALUED AND OVER VALUED COMPANIES UNDER VALUED COMPANIES=12 COMPANIES OVER VALUED COMPANIES=12 COMPANIES 4. BUY THE UNDER VALUES COMPANIES AND RANK THE COMPANIES SHARE OF COMPANY QTY PRICE AMT EPS P/E RATIO PEG RATIO IND HOTEL 1000 46.9 46900 12.28 3.82 0.31 ASIAN HOTEL (E) 1000 113.7 113700 28.27 4.02 0.14 ASIAN HOTEL (E) 100000 111.5 11150000 28.27 3.94 1.41 Mahindra Holidays and Resorts India 1000 238.6 238600 10.01 23.84 2.38 Mahindra Holidays and Resorts India 2000 236.9 473800 10.01 23.67 2.36 Mahindra Holidays and Resorts India 100000 245 24500000 10.01 24.48 2.45 EIH 10000 53.15 531500 0.91 58.8 64.62
  31. 31. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 31 Page TECHNICAL ANALYSES OF HOTEL INDUSTRY BAR CHART OF INDIAN HOTEL Hotel sector is the slow grow moving sector. This sector is works in seasonal period like summer holidays, diwali vacations’, charismas vacations’ and so on. In this chart, duration of 2008 to till 2009 we saw Indian hotel made rounding bottom pattern. After recession the Indian hotel shock moved in upward direction. In a chart there made bump and run reversal pattern. The most important chart, i.e. a trend line is made straight by joining 2 or 3 lower points in the uptrend and as soon as the stock cuts this line there is a sell indication
  32. 32. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 32 Page BAR CHART OF ASIAN HOTEL Hotel sector is the slow grow moving sector. This sector is works in seasonal period like summer holidays, diwali vacations’, charismas vacations’ and so on. In this chart, duration of 2010 we saw Asian hotel are created best selling point. After the Asian hotel shock moved in downward direction for specified period.
  33. 33. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 33 Page BAR CHART OF MAHENDRA & MAHENDRA RESORT AND HOLIDAYS Hotel sector is the slow grow moving sector. This sector is works in seasonal period like summer holidays, diwali vacations’, charismas vacations’ and so on. In this chart, duration of 2008 to till 2009 we saw Mahindra & Mahindra resort and holidays cup with handle pattern. After recession the M&M resort and holidays shock moved in upward direction for specified period. After middle of 2010 the line slop downward.
  34. 34. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 34 Page BAR CHART OF EIH Hotel sector is the slow grow moving sector. This sector is works in seasonal period like summer holidays, diwali vacations’, charismas vacations’ and so on. In this chart, duration of 2008 to till 2009 we saw EIH made rounding bottom pattern. After recession the EIH shock moved in downward direction. In middle part it created triple bottom pattern.
  35. 35. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 35 Page Auto-ancillary Analysis Report
  36. 36. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 36 Page 6.1 Auto-ancillary Analysis Report  The fortunes of the auto ancillary sector are closely linked to those of the auto sector. Demand swings in any of the segments (cars, two-wheelers, commercial vehicles) have an impact on auto ancillary demand. Demand is derived from original equipment manufacturers (OEM) as well as the replacement market.  Margins in the replacement market are higher than the OEM market. The OEM market is very competitive and component manufacturers have to 4 compromise on margins to bag bulk orders. Moreover, delivery schedules and quality standards have to be adhered to very strictly.  Indian auto ancillary sector has traditionally suffered from poor quality. While this still holds true for the unorganized sector, the organized sector has been resorting to increased automation to reduce the defect levels.  Lower labour costs give Indian auto ancillary companies an absolute cost advantage. To put things in perspective, ACMA numbers suggest that wage cost accounts for 3% to 15% of revenues for Indian manufacturers as compared to 20% to 40% for US players. India's strength in exports lies in forgings, castings and plastics historically. But this is changing with more component manufactures investing in up gradation of technology in recent years.
  37. 37. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 37 Page 6.2 KEY POINT Supply Low for high technology products. Unorganized sector dominates the domestic component market due to excise benefits. Generally, excess supply persists. Demand Linked to automobile demand. Export demand is linked to the increasing acceptance towards outsourcing. Barriers to entry Capital, technology, OEM relationships, customer service, distribution network to meet replacement demand. Bargaining power of suppliers Low with OEMs. Relatively high in the replacement market Bargaining power of customers Companies operating in the export market face competition at a global level. At the domestic level, market structure is fragmented for a large number of ancillary products. Most companies adopt low cost and differentiation strategies. In some products (like batteries), only two or three companies control over 80% of the market. Competition Will intensify, as global players will enter the market leading to consolidation. Dereservation of SSI will result in access to capital and technology
  38. 38. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 38 Page 6.3 Current Scenario of Sector.  After a strong FY10 and FY11, the Indian automobile industry faced a slowdown in FY12 mirroring the broader economic trend. Consequently, the passenger vehicles and CV segment witnessed a tepid growth of 5% and 18% respectively for the full year.  Despite this, auto component industry managed to do reasonably well during the year as Bharat Forge and Exide reported 25% YoY and 12% YoY growth in sales respectively. Despite subdued economic conditions in the developed world, some players were able to put up a strong show in exports as well. For instance, Bharat Forge saw its exports grow by an impressive 42% YoY on account of new customer additions and product development.  Just like the auto industry, the auto ancillary industry witnesses a rise in input costs during the year. As a consequence, rising input costs exerted pressure on margins and those who were able to keep other cost heads under control were able to maintain margins if not expand them.
  39. 39. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 39 Page 6.4 Prospects  There has been a conscious effort by manufacturers to improve productivity of the suppliers in the past few years. Though the number of active vendors has declined significantly for auto manufacturers, technology transfer and fresh fund infusions have resulted in improved productivity in the remaining ones. Relaxation of FDI norms for the small-scale sector could emerge as one of the key growth drivers in the long run. The Indian automotive components industry has lined up sizeable investment schedules for the next few years.  The automobile sector is cyclical and dependent on the growth of the economy and improvement in infrastructure. Factors like increased public spending, favorable interest rates and general improvement in per capita income point towards higher demand for automobiles in the future. Also, government's initiatives in the infrastructure sector such as the Golden Quadrilateral project and NHDP (National Highway Development Programme) are likely to give boost to four-wheeler sales especially CVs. Just to put things in perspective, we expect CV segment to grow by 7% to 8%, 2-wheeler demand to increase by around 12% to 15% and passenger car sales growth at 10% to 12% over the medium to long term. This is a positive for auto ancillary manufacturers.  In the long term, the growth of this sector will depend partly on pace of indigenization levels across all segments. The prospects look bright as most companies are increasing the indigenous components, in an effort to reduce their currency losses and remain competitive. Also, the fact that auto manufacturers like Ford, Hyundai and Maruti are exporting cars, make the prospects look encouraging.  Margins are likely to come under pressure in the long term because as competition increases, manufacturers will find it difficult to increase prices and will try to cut costs. The burden will eventually fall on auto ancillary players. In the near future though, companies will need to have manufacturing lines that can be adapted for new models, have strong technology backing, an ability to export to developed markets, market dominance in specific products and a growth plan driven by volumes and product innovations. Companies will have to focus on quality and abide by delivery schedules if they want to survive. As manufacturers sourcing components are keen to get components from fewer sources in future, this will lead to consolidation in the sector.  The growing number of Free and Preferential trade agreements being signed by India with countries like Thailand, Singapore and other ASEAN countries will hurt the cost competitiveness of Indian companies as Indian players play significantly higher duties than their Asian counterparts. Therefore, Indian companies might lose out on big orders if the duty structure is not rationalized.
  40. 40. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 40 Page 6.5 Identifying an auto ancillary stock: Do's and don'ts In the outsourcing space, the prospects for auto ancillary manufacturers are bright from the long- term perspective. But identifying the right stock from this sector becomes difficult on account of technical complexities involved and higher nature of fragmentation of the industry. In this article, we have made an attempt to simplify this process and help investors identify a good auto ancillary stock. The Indian auto component industry is highly fragmented in nature and has 416 players, employing 250,000 people. The output of the Indian auto component segment, as per ACMA, was estimated at around US$ 5.1 bn (Rs 245 bn) in FY03. Since an auto assembly involves large number of parts, ACMA has classified sector companies on the basis of components that they supply to auto manufacturers. The following table lists the industry segmentation on the basis of components, their contribution to the overall industry revenues and some of the leading players in those segments. Sub-groups Products % to total products Leading companies Engine Parts Pistons, piston rings, fuel injection pumps 24.0% Ucal Fuel, MICO, Lucas Transmission & Steering parts Transmission gears, axles and wheels 16.0% Sona Kaya, ZF Steering Suspension & Braking parts Leaf springs, shock absorbers 12.0% Gabriel, Munjal Showa Electrical Spark plugs, batteries, starter motors 8.0% Exide, MICO, Equipment Dashboard instruments 7.0% Motherson Sumi, Lumax Others Fan belts, sheet metal parts 33.0% Rico Auto, Sundram
  41. 41. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 41 Page Since auto ancillary companies mainly act as vendors, it is extremely important for them to remain competitive, both in terms of cost as well as quality. As a consequence, the profitability of the company at the operating level assumes great significance. Therefore, we consider operating profits as a good starting point in separating a good auto ancillary company from the rest. Let us throw some light on the various operating parameters presented in the flow chart below: 6.6 Operating profits: The operating profit of an auto ancillary company is the difference between the revenues earned and the expenses incurred. We shall now focus on the revenue side first. An auto ancillary company can generate revenues from two major sources, the first is from supplies to OEM (original equipment manufacturers) and the second is through after market sales. With the advent of the best manufacturing practices in the domestic auto industry, auto players have significantly cut the number of auto ancillary manufacturers they source their components from and in line with the global trend, this has led to the tierisation. Naturally, the auto ancillary manufacturer, which directly supplies to the OEMs and offers more value added products, is the one that is known as a Tier I player. Further, the components and
  42. 42. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 42 Page sub-assemblies required by the Tier I players are sourced from Tier II and Tier III suppliers. Thus, an auto ancillary company can generate its revenues from any one of the above-mentioned three ways. In this sector, Tier I players on account of their direct interface with OEMs have a better bargaining power and consequently enjoy higher margins. On the flip side, these players have to be very particular about their quality and have to keep high levels of inventory, thus increasing working capital needs. Apart from direct supplies, an auto ancillary player can also generate revenues from after market sales i.e. it can have a presence in the replacement market. Here, the margins are not only higher on account of superior realisations, but it also provides a cushion against slowdown in the auto industry when the demand from OEMs decline. Thus, while selecting an auto ancillary stock, it becomes necessary to delve into the position of the company on the supply value chain and at the same time, check whether the company derives some of its revenues from after market sales. The higher the company on the value chain and larger the percentage of revenues derived from the after market, the better it is. Since companies in the industry are suppliers to the auto industry, the performance of the auto industry has the single largest impact on the fortunes of the auto ancillary industry. Therefore, it becomes imperative for an investor to track the performance of the auto industry (both domestic as well as international), in order to determine the growth prospects of an auto ancillary company. What would happen if an auto ancillary company generates majority of its revenues by supplying to just a single auto company and the latter shuts down? Not surprisingly, even the auto ancillary company might have to shut down or scout for other clients, which would be hard to come by. Therefore, in order to avoid such a scenario, an investor should look for companies that have adequate client diversification, both in the domestic as well as international markets. The larger and stronger the number of clients, the lesser the risk for the auto ancillary company. Apart from client diversification, geographical diversification, where the company derives a good part of its revenues from exports or supplies to overseas players is also an important criterion for identifying a good auto ancillary company. Since auto ancillary companies usually supply to leading automakers, quality issue becomes extremely important. This assumes even more serious dimensions while supplying to foreign auto majors. Even a small defect in quality could lead to heavy penalties. Therefore, if a company has some sort of recognition such as the Deming quality awards or best supplier award from respected auto companies, it always adds to its credibility and ability to win lucrative contracts.
  43. 43. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 43 Page Thus, after looking into the major aspects of the revenues side, it becomes clear that companies with more value added products and sufficient client and geographical diversification will prove to be a safer bet than its peers, which do not have the same characteristics. Having gone through the revenues part of the flow chart, let us now glance through the major expenses that are incurred by an auto ancillary company. 6.7 Expenses: The auto industry has evolved to a stage where auto companies have substantially increased the number of components they outsource. Apart from design and development work and manufacturing of some key components, almost all the other components are outsourced. In such a scenario, auto ancillary players have been increasingly burdened with higher raw material expenses, notably steel. Since auto ancillary companies have a weaker bargaining power, majority of the input cost rises are absorbed internally (either through cost restructuring or lowering margins). This increases the risk profile of the sector. Here also, Tier I players have been less affected as opposed to Tier II and III players on account of the formers’ higher bargaining power. Even for those manufacturers, where steel does not form a major part of input, raw materials prices account for 50%-60% of the total sales (tyres, for instance). So, investors have to monitor prices of steel, rubber and petrochemicals, which are key inputs. Apart from raw material prices, salaries and wages is the other important expense head for an auto ancillary company. These typically tend to be on the higher side (10%-12% of sales) if the operations of the company are more labor intensive, whereas for companies with a high degree of automation, the same stands at 5%-6% of the total sales of the company. For a company, where exports form a significant part of total revenues or where most of the inputs are imported, exchange rate prevailing in the markets also tend to affect the operating margins of an auto ancillary player. Apart from these, asset turnover ratio, return on assets and working capital to sales are other factors that a investors should compare for investment purposes. Thus, having broadly looked at the parameters that determine the profitability of an auto ancillary company, we now have a look at what kind of valuations should an auto ancillary company command.
  44. 44. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 44 Page 6.8Valuations: The fortunes of auto ancillary companies are linked to the fortunes of the auto industry and as a result the bargaining power stands considerably reduced. Thus, these companies have little leeway in improving their topline performance by raising prices. The onus of improving profitability therefore falls on cost reduction measures and effective deployment of funds. Hence we feel that P/E multiple is an important metric in evaluating the performance of a company from this sector. Companies that cater to domestic market deserve a lower P/E multiple as compared to a company that derives a significant share from export markets. 6.9 PROCESS OF FUNDAMENTAL ANALYSIS: - We followed the following steps under fundamental analysis to choose stocks under the given sectors: - A.] SELECTING COMPANIES SHOWING POSITIVE RATIO. B.] DIVERSIFICATION DECISION. C.] PREPARATION OF MUTUAL FUND. D.] UPDATING NAV OF THE FUND.
  45. 45. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 45 Page "Hotels" Company Results for June 2013 Quarter 1. HOTEL SECTOR IS 56 COMPANIES IN BSE IN LISTED. THERE ARE FOLLOW 2. SECTOR P/E= 8.76 Sr Company Last Price Change % Chg EPS 1 Bosch 8,217.50 -12.95 -0.16 282.28 2 Guj Auto Gears 1,030.00 15.80 1.56 177.35 3 WABCO India 1,589.50 8.00 0.51 65.55 4 Sharda Motor 288.30 15.30 5.60 49.14 5 Munjal Showa 55.25 -0.05 -0.09 33.41 6 ZF Steering Gea 230.00 0.10 0.04 32.79 7 Shivam Auto 92.35 4.35 4.94 30.17 8 Wheels 649.15 -14.45 -2.18 30.12 9 Hind Composites 283.00 -0.40 -0.14 26.91 10 India Nippon 151.85 6.60 4.54 24.00 11 FIEM Ind 182.45 -2.05 -1.11 23.69 12 Triton Valves 294.00 6.00 2.08 23.29 13 Auto Corp Goa 179.60 8.50 4.97 23.28 14 Sundaram-Clayto 275.75 -6.25 -2.22 21.46 15 Amtek Auto 64.35 0.75 1.18 18.22 16 Amara Raja Batt 256.40 -2.35 -0.91 18.06 17 Rane Madras 115.30 5.30 4.82 17.62 18 Steel Strips Wh 112.60 -1.00 -0.88 16.13 19 Minda Ind 130.85 4.30 3.40 14.81 20 Rane Holdings 145.00 0.00 0.00 14.68 21 Lumax Inds 330.60 8.85 2.75 13.51 22 Lumax Auto Tech 90.00 -2.45 -2.65 12.90 23 Fairfield Atlas 238.75 0.30 0.13 12.26 24 Jamna Auto 60.00 0.00 0.00 9.79 25 Jay Bharat Marut 35.90 2.85 8.62 9.22 26 Talbros Auto 38.65 0.25 0.65 8.56 27 Motherson Sumi 194.75 -1.35 -0.69 8.23 28 Automotive Axle 202.00 4.45 2.25 8.18 29 Samkrg Pistons 37.70 -1.10 -2.84 8.13 30 Hi-Tech Gears 59.35 -1.95 -3.18 7.91 31 Munjal Auto Ind 26.75 -0.45 -1.65 7.89 32 Denso India 108.45 0.05 0.05 7.53 33 JMT Auto 129.00 -0.45 -0.35 7.13 34 Banco Products 38.90 0.50 1.30 6.61 35 Exide Industrie 125.45 0.35 0.28 6.23 36 Halonix 47.45 0.20 0.42 6.11 37 Pricol 15.70 0.30 1.95 5.98 38 Amtek India 72.30 -2.75 -3.66 5.59
  46. 46. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 46 Page 39 Menon Pistons 48.00 -0.80 -1.64 5.06 40 Enkei Wheels 46.95 1.00 2.18 4.59 41 Omax Autos 28.00 0.30 1.08 4.39 42 UCAL Fuel 40.75 0.55 1.37 4.00 43 Sibar Auto 4.76 -0.24 -4.80 3.58 44 Suprajit Eng 32.30 -0.20 -0.62 3.56 45 Subros 19.50 0.70 3.72 3.47 46 Gabriel India 16.55 -0.15 -0.90 2.85 47 Bharat Gears 28.00 4.65 19.91 2.05 48 Raunaq Auto 11.15 -0.50 -4.29 1.98 49 Bharat Seats 11.00 -0.25 -2.22 1.88 50 Lumax Auto Sys 13.50 0.10 0.75 1.56 51 Sona Koyo Stee 9.16 0.00 0.00 0.99 52 Standard Batter 14.10 0.00 0.00 0.71 53 Autolite India 11.88 -0.62 -4.96 0.65 54 Porwal Auto 3.78 0.18 5.00 0.42 55 Rico Auto 5.17 0.17 3.40 0.22 56 KEW Industries 1.69 -0.02 -1.17 0.11 3. AFTER SECTOR P/E TO SEE UNDER VALUED AND OVER VALUED COMPANIES UNDER VALUED COMPANIES=26 COMPANIES OVER VALUED COMPANIES=30 COMPANIES 4. BUY THE UNDER VALUES COMPANIES AND RANK THE COMPANIES SHARE OF COMPANY QTY PRICE AMT EPS P/E RATIO PEG RATIO IND NIPPION 1000 160.95 160950 24 6.71 0.28 AMTEK AUTO 1000 77.25 77250 5.59 13.82 2.47 BHARAT GEARS 1000 34.7 34700 2.05 37.68 18.38 BOSCH 1000 9069 9069000 248.82 36.45 0.15 BOSCH 2500 9055 22637500 248.82 36.39 0.15 AMAR RAJA BATTERIES 10000 250.1 2501000 18.06 13.85 0.77 AMAR RAJA BATTERIES 15000 250.15 3752250 18.06 13.85 0.77 MOTHERSON SUMI SYSTEM 10000 201.15 2011500 8.23 24.44 2.97 MOTHERSON SUMI SYSTEM 10000 200.15 2001500 8.23 24.32 2.95
  47. 47. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 47 Page TECHNICAL ANALYSES OF AUTO-ANCILLARY INDUSTRY BAR CHART OF MOTHER SUMI SYSTEM In this chart, duration of 2008 to till 2009 we saw Mother sumi system made rounding bottom pattern. After recession the mother sumi system shock moved in upward direction. In middle part it created rounding bottom pattern. In a chart there made bump and run reversal pattern. The most important chart, i.e. a trend line is made straight by joining 2 or 3 lower points in the uptrend and as soon as the stock cuts this line there is a sell indication and vice versa,
  48. 48. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 48 Page BAR CHART OF BOSCH In this chart, duration of 2008 to till 2009 we saw Bosch made rounding bottom pattern. After recession the bosch shock moved in upward direction till middle of 2011-12. After middle part it created small rounding bottom pattern. After that a chart there made bump and run reversal pattern. The most important chart, i.e. a trend line is made straight by joining 2 or 3 lower points in the uptrend and as soon as the stock cuts this line there is a sell indication and vice versa.
  49. 49. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 49 Page BAR CHART OF AMTEK AUTO In this chart, duration of 2008 to till 2009 we saw Amtek auto made rounding bottom pattern. After recession the Amtek auto shock moved in upward direction till end of 2010. That time it created bump and run reversal. The most important chart, i.e. a trend line is made straight by joining 2 or 3 lower points in the uptrend and as soon as the stock cuts this line there is a sell indication and vice versa.
  50. 50. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 50 Page BAR CHART OF BHARAT GEARS In this chart, duration of 2008 to till 2009 we saw Bharat gear made rounding bottom pattern. After recession the Bharat gear shock moved in upward direction. In middle part it created triple bottom pattern. In a chart there made bump and run reversal pattern. The most important chart, i.e. a trend line is made straight by joining 2 or 3 lower points in the uptrend and as soon as the stock cuts this line there is a sell indication
  51. 51. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 51 Page BAR CHART OF BHARAT GEARS In this chart we saw after the 2009 Amara Raja Battery made upward trend arises bump and run. The most important chart, i.e. a trend line is made straight by joining 2 or 3 lower points in the uptrend and as soon as the stock cuts this line there is a sell indication. thereafter made the double bottom reversal. Double bottom appears in a downtrend trend.
  52. 52. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 52 Page 7. Creating a Portfolio and updating NAV We Created a Portfolio on the basis of above analysis and research and started updating the NAV (Net Asset Value) of the portfolio on a daily basis. NAV: In the context of mutual funds, NAV per share is computed once a day based on the closing market prices of the securities in the fund's portfolio. All mutual funds' buy and sell orders are processed at the NAV of the trade date. However, investors must wait until the following day to get the trade price. Mutual funds pay out virtually all of their income and capital gains. As a result, changes in NAV are not the best gauge of mutual fund performance, which is best measured by annual total return.
  53. 53. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 53 Page 8. Findings  Having knowledge of different aspects of wealth management is very important before entering in the stock market.  Fundamental analysis is most important to select companies. Macro-economic indicators have high impact on some sector but less on others. Detailed sector analysis can help predict the future with respect to sales and profit margins of the firm.  Technical analysis of stocks is a promising methods, which helps in forecasting the direction of prices through the study of past market data, primarily price and volume.  Every sector has some fundamental ratios that have high impact than others. Such ratios can be found out for each sector and investment can be made based on them.  With extensive research on various companies of stock market, one can find some companies with average return and then invest accordingly.  Tracking NAV of the portfolio let us know where our investment decision stands in market.  Reading newspaper daily helps in gaining knowledge about the market and if possible where we can make some changes to avoid much loss by using wealth management services.
  54. 54. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 54 Page 9. Suggestions Birla Sun life Wealth Management is renowned name in the field of investment and it is moving in peace to come as a top name in the field of Asset Management i.e Equity, Debt, Gold and Real estate. In the final report it is concluded that overall the internship give practical training to the student and it is very good opportunity for every finance student. It not only guides us the basic theoretical knowledge but helps us to face practical challenges of every aspects related to wealth management. Since nothing is perfect in the world and every work needs to be altered for its betterment as well as development. In this project we basically worked on creating a fund on Fundamental basis and used technical analysis for its daily evaluation. So my recommendation would be as follows  Technical errors should have been taken care of: some problem related to the projectors which become hurdles every time in our learning process.  Complete knowledge of market as well as the sectors  Target completion: student must be given choice to sell policies whichever convenient to customer.
  55. 55. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 55 Page 10. Conclusions  Having knowledge of different aspects of wealth management is very important before entering in the stock market.  Fundamental Analysis is most important to select companies. Macro-economic indicators have high impact on some sectors but less on others. Detailed sector analysis can help predict the future with respect to sales and profit margins of the firm.  Technical analysis of stocks is a promising method, which helps in forecasting the direction of prices through the study of past market data, primarily price and volume. Concluding, the historical performance of stocks and markets are indications of future performance.  Every sector has some fundamental ratios that have high impact than others. Such ratios can be found out for each sector and investment can be made based on them.  With extensive research on various companies of stock market, one can find some companies with above average return and then invest accordingly.  Tracking NAV of the portfolio let us know where our investment decision stands in the market.  Reading newspaper daily helps in gaining knowledge about the market and if possible where we can make some changes to avoid much loss by using wealth management services.
  56. 56. “Study of Equity Research on Hotel Sector and Auto-ancillary”. 56 Page 11. Bibliography  Economic Times  Times of India  www.birlasunlife.com  www.info.shine.com  www.moneycontrol.com  www.equitymaster.com  www.indiainfoline.com  www.moneyworks4me.com

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