PGPEM- CORPORATE FINANCE, 2019-21
INSTRUCTIONS ON BLOOMBERG/Capital line GROUP ASSIGNMENT
(Marks: 5 on Total of 100)
Due by 11:59 pm, Sunday 22/12/2019
The objective of this assignment is (i) familiarize you with the estimation of asset betas using actual data from a company’s financial statements and from the stock market, and (ii) to get you acquainted with Capital Line data base
You can access Capital Line data base through Venus IIMB intranet, Library services Under Electronic Databases A to Z, look Capital Line and clink on that
Left corner you see company and an empty box against it (Screen-1) type name of the company say Tata Motors, you will get screen of Company (Screen-2)
On Left hand side Menu click on Company (Screen -3)
Go to Share Price under that Beta analysis (Screen-4), you will see beta calculator
Select NSE, period: 1st April 2017 to 31st March 2019, Nifty, and press apply you will get beta value (screen-5)
Record this beta value in your working sheet of the project
Go to Finance tab (Screen-3), click on Company at a Glance, select Market Capitalisation Rs in Crore (Extreme right box on Market data, latest data)
Go to Finance tab (Screen-3), click on Balance sheet and take the figure of Total Debt for the latest year ending March 2018
Calculate Debt Equity ratio, it is debt to Market capitalization
With the levered equity beta, you obtained (β_(E )). Based on the relationship
β_E=β_A [1+(1-τ_c ) D/E]
Calculate Unlevered beta from the levered equity beta (β_(E)), to obtain the (unlevered) asset beta of the company assigned to you. (The relationship above assumes that the beta of the company’s debt is zero). Here the tax rate to be considered is 35%.
What do you observe the unlevered beta (or asset beta) of the companies of the specific industry? Are they same or different?
Write three important observations on unlevered betas
2. Introduction:
Our group has chosen below companies from Refinery Industry for the purpose of Corporate Finance
Bloomberg/Capital-line Beta Project.
1. MRPL
2. HPCL
3. BPCL
4. IOCL
5. Reliance Petro
Below data has been gathered from Capital Line Data base:
Industry: Refinery Data from Capital Line Database
Company Name Levered Equity Beta
Market Capitalization
(Rs in Crore)
Total Debt
(Rs in Crore)
MRPL 1.2896 7,483.60 7,950.16
HPCL 1.3888 40,358.44 20,990.88
BPCL 1.3031 1,07,594.90 23,350.67
IOCL 1.1418 1,18,383.10 58,030.38
Reliance Inds. 1.3279 9,90,278.70 1,16,881.00
Total Market Cap of refinery Industries = 13,41,603.61
Steps to Calculate AssetBeta (A):
1. Debt to Equity Ratio can be calculated using Total Debt to Market Capitalization ratio.
2. Levered Equity Beta can be used from Capital Line Database to calculate Unlevered Asset Beta using
below relationship.
E = A ( 1 + (1-c ) D/E )
Where;
E = Levered Beta Equity
A = Unlevered Asset Beta
D = Total Debt
E = Market Capitalization
3. Tax Rate has been assumed to be 35%.
Company from Refinery Industry
Debt/Equity
(D/E)
Unlevered Beta
(Asset Beta)
% Total Market
Cap
MRPL 1.0623 0.7628 0.6%
HPCL 0.5201 1.0379 3.0%
BPCL 0.2170 1.1420 8.0%
IOCL 0.4902 0.8659 8.8%
Reliance Inds. 0.1180 1.2333 73.8%
Total 94.2%
Total Market Cap covered by these companies = 94.2%
Industry Unlevered Asset Beta can be calculated using top 5 major companies as below:
3. Industry Unlevered Asset Beta using weighted average:
These companies from the refinery industry represent 94.2% of Market Cap. Hence the weighted average
Unlevered Asset Beta represents Industry Unlevered Asset Beta.
Industry Unlevered Asset Beta = 0.6% x 0.7628 + 3.0% x 1.0379 + 8.0% x 1.1420 + 8.8% x 0.8659 + 73.8% x
1.2333
= 1.1138
Key Observations:
1. Unlevered Beta (Asset Beta) of companies varies between 0.7628 to 1.2333.This could be due to their
business model.
2. RelianceIndustries has highestunlevered assetbeta of 1.2333. Itis public listed privatesector
company and it is proneto higher risk than the industry average.
3. Unlevered Asset Beta of Refinery Industry is 1.1138.
4. Companies which have Government of India as major shareholdinghave higher Debt-to-Equity ratio
and have lower unlevered Asset Beta.
Working Sheet
Corporate Finance
Worksheet.xlsx
