Summer Internship Project In Depth Fundamental Analysis of Pharmaceutical Industry Submitted in partial fulfillment of PGDM program 2009-11 [pic] Submitted by Vikas Khandelwal 17/058 Company Guide Faculty Guide Name: Mr. Ritesh PurohitName: Ms. Ruchi Paliwal Assistant Vice President Globe Capital Market Ltd. Apeejay School of Management New Delhi July 2010 ACKNOWLEDGEMENT This project would have been difficult to complete without the invaluable contributions from some important persons. Let me take this opportunity to thank them. First of all, I would like to thank Globe Capital Market Ltd. or giving me such challenging projects to work upon. I would also thank Mr. Sunil Taparia, Business Head, Globe Capital Market Ltd. for giving this opportunity to work with the organization. I hope this challenge has brought the best out of me. I am indebted to my project guide Mr. Ritesh Purohit, Assistant Vice President (Business Development), and I would like to take this opportunity to thank you sir for the patience you showed in solving my problems and for the direction and support you gave to this project through your invaluable insights, which constantly inspired me to think beyond the obvious.
Your encouragement and co-operation helped me instill a great degree of self-confidence to deliver a good work. I am also thankful to Mr. Yuvraj Malhotra, Advisor (Finance) who gave his valuable inputs in the project and helped me in learning about the in this short period of two months. I am also thankful to Ms. Ruchi Paliwal (Faculty mentor) for taking constructive interest in my project and providing me valuable support at many point of time. And last but not the least; I would thank all the employees of Globe Capital Market Ltd. who provided me with an environment conducive for learning during the Eight weeks.
I hope I can build upon the experience and knowledge that I have gained here and make an important contribution towards this industry in the coming future. CONTENT 1. Executive Summery…………………………………………………………… 4 2. Introduction to topic…………………………………………………………… 6 3. Company Profile……………………………………………………………….. 10 i. About the company……………………………………………………… 10 ii. Promoters……………………………………………………………….. 10 iii. Vision and mission………………………………………………………11 iv. Core values………………………………………………………………11 v. Organization Structure…………………………………………………. 13 vi. Services………………………………………………………………… 14 ii. Porter’s five forces analysis……………………………………………. 18 viii. Competitive analysis…………………………………………………… 21 ix. Marketing Strategies…………………………………………………… 24 x. SWOT analysis………………………………………………………… 27 4. Project undertaken in organization……………………………………………. 32 5. Report on business unit……………………………………………………….. 35 6. Understanding of functional process………………………………………….. 39 i. Introduction…………………………………………………………… 39 ii. Fundamental analysis………………………………………………….. 39 iii. Procedure……………………………………………………………… 41 iv. In depth fundamental analysis of pharmaceutical industry…………… 49
A. Global pharmaceutical industry…………………………………… 49 B. Economic analysis…………………………………………………. 52 C. Industry analysis…………………………………………………… 55 D. Company analysis………………………………………………… 59 v. Comparative financial statement analysis……………………………. 63 A. Current ratio……………………………………………………… 64 B. Quick ratio………………………………………………………… 66 C. Debt equity ratio…………………………………………………… 68 D. Gross profit margin……………………………………………….. 70 E. Operating profit margin…………………………………………… 72 F. Net profit margin………………………………………………….. 74 G. Return on equity…………………………………………………… 76 H.
Dividend per share…………………………………………………. 78 I. Earning per share……………………………………………………80 J. Dividend pay out ratio………………………………………………82 K. Interest coverage ratio………………………………………………. 84 L. Inventory turn over ratio…… ………………………………………86 M. Receivable turnover ratio…………………………………………… 88 vi. Conclusion……………………………………………………………… 89 7. Key learnings…………………………………………………………………… 91 8. Bibiliography…………………………………………………………………. 92 PART-A CHPTER-1 EXECUTIVE SUMMERY FUNDAMENTAL ANALYSIS involves analyzing the characteristics of a company in order to estimate its market value.
As an investor it is always difficult to decide which company to choose for investment and how to find out the company that is strongest and has good future prospects. Fundamental equity analysis helps in analyzing the strength and assets of the company. Main purpose of investment is returns and liquidity. As assigned by my Corporate mentor Mr. RITESH PUROHIT, I started studying various reports on PHARMACEUTICAL INDUSTRY and the companies that are the major player in this industry. The major players are RANBAXY, CIPLA, SUN PHARMACY, DR. REDDY’S, BIOCON, LUPIN, MANKIND etc.
India is a reputed name the world generic market. The country’s pharmaceutical sector has become a prominent provider of healthcare product, meeting almost 95% of the country’s pharmaceuticals needs. The industry has gained strength from the strong Indian economy and strong sectors like health care, insurance, biotechnology and IT. Analyzing the Indian Pharmaceutical Industry focuses and analyses each and every aspect of the industry using SWOT, PEST and PORTER analysis. To realize the potential of the Indian Pharmaceutical Industry the pharmacy companies have to realize the potential of having strategic alliances.
All fundamental analysis starts from economic analysis of the country and further goes with industry and company analysis. Company analysis starts from company’s Financial Statement and compare the companies within the industry and their relative assets, liquidity ratios and other measures. So that in a relatively short time frame have an idea of how a company is traveling. At the very least we will have to look at a company’s Income Statement (Profit and Loss Statement) and Balance Sheet. CHAPTER II INTRODUTION TO TOPIC The methods used to analyze securities and make investment decisions fall into two very broad categories . Fundamental analysis 2. Technical analysis. Fundamental analysis involves analyzing the characteristics of a company in order to estimate its value. Technical analysis takes a completely different approach; it doesn’t care one bit about the “value” of a company or a commodity. Technicians (sometimes called chartists) are only interested in the price movements in the market. Despite all the fancy and exotic tools it employs, technical analysis really just studies supply and demand in a market in an attempt to determine what direction, or trend, will continue in the future.
In other words, technical analysis attempts to understand the emotions in the market by studying the market itself, as opposed to its components. If you understand the benefits and limitations of technical analysis, it can give you a new set of tools or skills that will enable you to be a better trader or investor. What is Fundamental Analysis? When talking about stocks, fundamental analysis is a technique that attempts to determine a security’s value by focusing on underlying factors that affect a company’s actual business and its future prospects.
On a broader scope, we can perform fundamental analysis on industries or the economy as a whole. The term simply refers to the analysis of the economic well-being of a financial entity as opposed to only its price movements. Fundamental analysis serves to answer questions, such as: Is the company’s revenue growing? Is it actually making a profit? Is it in a strong-enough position to beat out its competitors in the future? Is it able to repay its debts? These are very simple and involved questions, and there are literally hundreds of others we might have about a company.
It all really boils down to one question: Is the company’s stock a good investment? Think of fundamental analysis as a toolbox to help you answer this question. The term fundamental analysis is used most often in the context of stocks, but we can perform fundamental analysis on any security, from a bond to a derivative. Fundamentals: Quantitative and Qualitative We could define fundamental analysis as “researching the fundamentals”, but that doesn’t tell us a whole lot unless we know what fundamentals are. The big problem with defining fundamentals is that it can include anything related to the economic well-being of a company.
Obvious items include things like revenue and profit, but fundamentals also include everything from a company’s market share to the quality of its management. The various fundamental factors can be grouped into two categories: quantitative and qualitative. Quantitative – capable of being measured or expressed in numerical terms. Qualitative – related to or based on the quality or character of something, often as opposed to its size or quantity. In our context, quantitative fundamentals are numeric, measurable characteristics about a business.
The biggest source of quantitative data is the financial statements. We can measure revenue, profit, assets and more with great precision. Turning to qualitative fundamentals, these are the less tangible factors surrounding a business – things such as the quality of a company’s board members and key executives, its brand-name recognition, patents or proprietary technology. Quantitative factor Vs Qualitative factor: Neither qualitative nor quantitative analysis is inherently better than the other. Instead, many analysts consider qualitative factors in conjunction with the hard, quantitative factors.
Take the Coca-Cola Company, for example. When examining its stock, an analyst might look at the stock’s annual dividend payout, earnings per share, P/E ratio and many other quantitative factors. However, no analysis of Coca-Cola would be complete without taking into account its brand recognition. Anybody can start a company that sells sugar and water, but few companies on earth are recognized by billions of people. It’s tough to put your finger on exactly what the Coke brand is worth, but you can be sure that it’s an essential ingredient contributing to the company’s ongoing success.
The Concept of Intrinsic Value: Before we get any further, we have to address the subject of intrinsic value. One of the primary assumptions of fundamental analysis is that the price on the stock market does not fully reflect a stock’s “real” value. After all, why would we be doing price analysis if the stock market were always correct? In financial jargon, this true value is known as the intrinsic value. For example, let’s say that a company’s stock was trading at $20. After doing extensive homework on the company, you determine that it really is worth $25.
In other words, you determine the intrinsic value of the firm to be $25. This is clearly relevant because an investor wants to buy stocks that are trading at prices significantly below their estimated intrinsic value. This leads us to one of the second major assumptions of fundamental analysis: in the long run, the stock market will reflect the fundamentals. There is no point in buying a stock based on intrinsic value if the price never reflected that value. Nobody knows how long “the long run” really is. It could be days or years. This is what fundamental analysis is all about.
By focusing on a particular business, an investor can estimate the intrinsic value of a firm and thus find opportunities where he or she can buy at a discount. If all goes well, the investment will pay off over time as the market catches up to the fundamentals. The big unknowns are: 1) You don’t know if your estimate of intrinsic value is correct 2) You don’t know how long it will take for the intrinsic value to be reflected in the marketplace. Criticism of Fundamental Analysis: The biggest criticism of fundamental analysis is technical analysis. Technical analysis is the other major form of security analysis.
Technical analysts solely based on the price and volume movements of securities. Using charts and a number of other tools, they trade on momentum, not caring about the fundamentals. While it is possible to use both techniques in combination, one of the basic tenets of technical analysis is that the market discounts everything. Accordingly, all news about a company already is priced into a stock, and therefore a stock’s price movements give more insight than the underlying fundamental factors of the business itself. Followers of the efficient market hypothesis, however, are usually in disagreement with both fundamental and technical analysts.
The efficient market hypothesis contends that it is essentially impossible to produce market-beating returns in the long run, through either fundamental or technical analysis. The rationale for this argument is that, since the market efficiently prices all stocks on an ongoing basis, any opportunities for excess returns derived from fundamental (or technical) analysis would be almost immediately whittled away by the market’s many participants, making it impossible for anyone to meaningfully outperform the market over the long term. CHAPTER III COMPANY PROFILE ABOUT GLOBE CAPITAL MARKET LIMITED
Globe Capital is one of the largest growing investment solutions companies that provide a wide range of services to its vast and diversified client base. The company has its corporate office in New Delhi with regional offices in Mumbai, Kolkata & Jaipur and growing network of more than 200+ offices across 150+ locations in India with overseas office in London and Dubai. Globe Capital accounts for more than 10% of NSE clearing volumes in its F segment. In 2008, Globe Capital Market Ltd. attracted US$ 42 million of equity capital in Foreign Direct Investment (FDI) from Citi Group and its representative is also on the Board of the Company.
Promoted by a group of professionals, Globe Capital has grown consistently since inception. PROMOTERS 1. Mr. Ashok Agarwal: Mr. Agarwal is the founder and CEO of globe capital group in India. He is also a co-founder of Icon capital ltd. Professionally he is a charted accountant with a rich experience of more than 20 years in global capital market. He has been the president of the Delhi stock exchange in 1993, 1994 and 1999 2. Mr. Yashpal Mendiratta: Mr. Mendiratta is the founder and executive director of globe capital group in India. He is also a co-founder of Icon capital ltd. rofessionally he is a charted accountant and has a rich experience of more than 20 years in global capital market VISION AND MISSION Vision: To become the leading and most respected financial solution company Mission: No matter what the size of our client is; no matter what the market condition is; no matter what the asset nature is; we will always be driven by the sole mission for our clients that their money must grow. CORE VALUES Always Be Client Centric: Clients’ interests always come first. lf we serve our clients well, our own success will follow.
Always Be Transparent: Integrity and honesty are at the heart of our business. We maintain highest ethical standards and demonstrate sound judgment in executing the responsibility. Always Be Prudent: We apply wise financial and business strategies. Our clients rely on our experience, judgment and analysis for their hard earned wealth to grow. Always Be Foresighted: Long term relationship with our clients is more important than short term gains. Always anticipate change and be prepared. ORGANIZATIONAL STRUCTURE SERVICES: 1. Equity & Derivative Trading:
Globe capital Trading platform offers online equity & derivative trading facilities for investors who are looking for the ease and convenience and hassle free trading experience. We provide ODIN DIET application, which is a high-end, integrated trading application for fast, efficient and reliable execution of trades. You can now trade in NSE and BSE simultaneously from any destination at your convenience. You can access a multitude of resources like live quotes, charts, research, advice, and online assistance help you to take informed decisions. You can also trade through our branch network bt registering with us as our client.
You can also trade through us on phone by calling our designated representatives in the branches where you are registered as a client. 2. Commodities: Globe capital is a member of 3 major national level commodity exchanges, i. e. National Commodity and Derivative Exchange (NCDEX), Multi Commodity Exchange (MCX) and National Commodity Exchange of India (NMCE) offers you trading platform of NCDEX, MCX and NMCE. You can get real-time streaming quotes, place orders and watch the confirmation, all on a single screen. We use ODIN DIET application to provide you with live trading terminals.
In this segment, Globe Capital have spread our wings globally by acquiring Membership of Dubai Gold and Commodities Exchange. We provide trading platform to trade in DGCX and also clear trades of trading members being a clearing member. 3. Currency Trading: At Globe Capital Market we offer currency trading on both NSE FX and MCX SX and is supported by valued research. We offer expert advice on Currency Arbitrage and Hedging strategies to our individual and corporate customers 4. Portfolio Management: To address varying investment preferences Globe offers Portfolio Management services (PMS).
As a focused service, PMS pays attention to details, and portfolios are customized to suit the unique requirements of investors. Equities as an asset class outperform almost any other investment vehicle over a longer time period. PMS aims at providing the same by investing on behalf of clients on the basis of well-conducted research, experience and expertise of our Fund Manager, well supported by our research team. 5. Mutual Funds & IPOs Distribution: Globe Capital offers distribution and collection services of various schemes of all Major Fund houses and IPOs through its mammoth network of branches across India.
Globe is registered with AMFI as an approved distributer of mutual funds. We assure you a hassle free and pleasant transaction experience when you invest in mutual funds and IPOs through us. We are registered with all major Fund Houses. 6. Clearing Services: We also offer Clearing Services to the Trading Member in the F&O segment and are responsible for a significant chunk of the total clearing activities as high as 10% of the total clearing process. Globe Capital Market is the # 1 clearing member for both NSE FX and MCX SX in currency trading. 7. Depository Participant With NSDL And CDSL:
Globe also holds membership of two major Depositories in the country i. e. NSDL and CDSL and is catering to over 65000 accounts. 8. Globe Research Based Advisory Services: Our massive R&D facility caters to need of investors, who are continuously in need of opportunities for striking rich rewards on their investment. We have the best people, process and technology resources providing complete research solutions on equity, commodities, IPOs and Mutual funds. We offer proactive and timely world class research based advice and guidance to our clients so that they can take informed decisions.
MEMBERSHIPS AND REGISTRATIONS 1. National Stock Exchange (NSE) 2. Bombay Stock Exchange (BSE) 3. Multi Commodity Exchange (MCX) 4. National Commodities & Derivatives Exchange (NCDEX) 5. National Multi-Commodities Exchange of India Limited (NMCE) 6. National Securities Depository Limited (NSDL) 7. Central Depository Services Limited (CDSL) 8. Dubai Gold & Commodity Exchange (DGCX) 9. London Stock Exchange (FSA Registered Broking entity, London) 10. Portfolio Manager (Registered with SEBI) IMPORTANT MILESTONE: 1994 Globe became the member of National Stock Exchange. 999 Globe became the depository participant of NSDL. 2000 Globe acquired Trading as well as Clearing membership of NSE F&O. 2000 Globe became the depository participant of CDSL. 2003 Globe group acquired the membership of NCDEX, MCX and NMCE. 2006 Globe group expanded globally and acquired the Trading & Clearing Membership of Dubai Gold and Commodity Exchange (DGCX) and London Stock Exchange in 2007 2007 Globe became the clearing member of Bombay Stock Exchange in its F&O Segment. 2008 Globe became clearing and trading member of Currency Derivatives in NSE, BSE and MCX.
PORTER’S FIVE FORCES: Porter’s five forces analysis is a framework for the industry analysis and business strategy development developed by Michael E. Porter of Harvard Business School in 1979. It uses concepts developed in Industrial Organization (IO) economics to derive five forces which determine the competitive intensity and therefore attractiveness of a market. Attractiveness in this context refers to the overall industry profitability. An “unattractive” industry is one where the combination of forces acts to drive down overall profitability. A very unattractive industry would be one approaching “pure competition”.
Porter referred to these forces as the micro environment, to contrast it with the more general term macro environment. They consist of those forces close to a company that affect its ability to serve its customers and make a profit. A change in any of the forces normally requires a company to re-assess the marketplace. The overall industry attractiveness does not imply that every firm in the industry will return the same profitability. Firms are able to apply their core competences, business model or network to achieve a profit above the industry average. [pic] THE FIVE FORCES MODEL RELEVANT TO THE INDIAN BROKRAGE INDUSTRY . The Bargaining Power Of Customers • Lack of Expertise Curtails Bargaining Power: Retail investors often lack the knowledge and expertise in the financial sector that calls them to approach the broking houses. • Low Product Differentiation Proves Beneficial: The retail broking services provided by the various companies are homogeneous with very low product differentiation. This allows customers to enjoy a greater bargaining power. 2. The Bargaining Power Of Suppliers • Increased Dependence On Ipos: There is a growing dependence of corporate on broking houses with the rising number of IPO’s coming to the market. . The Intensity Of Competitive Rivalry • Move towards Consolidation: Lots of brokerage companies are moving towards consolidation with the smaller ones. The small firms are becoming either franchisees for the larger brokers or closing operations. • Increased Focus of Banks In Retail Broking: Various foreign banks like ABN Amro and others are planning to enter the Indian retail Brokerage industry. • Online Trading Competes with Traditional Brokerage: There is an increasing demand for online trading due to consumer’s growing preference for internet as compared to approaching the brokers. 4. Threat Of New Entrants Entry of Foreign Players: New forms of trading including T+2 settlement system, dematerialization etc are Strengthening the retail brokerage market and attracting foreign companies to enter the Indian industry. 5. The Threat Of Substitute Products • Alternative Investment Options: Various alternative forms of investment including fixed deposits with banks and post offices etc act as substitutes to retail broking products and services. Now even various banks provide similar type of services. They also give the same service of portfolio management and wealth management. COMPETITIVE ANALYSIS Major players in industry: 1. India Bulls
India bulls is India’s leading retail financial services company with 77 locations spread across 64 cities. Its size and strong balance sheet allows providing varied products and services at very attractive prices, our over 750 Client Relationship Managers are India bulls is lead by a highly regarded management team that has invested Crores of rupees into a world class Infrastructure that provides real-time service& 24/7 access to all information and products. The India bulls Professional Network offers real-time prices, detailed data and news, intelligent analytics, and electronic trading capabilities, right at your fingertips.
This powerful technology is complemented by our knowledgeable and customer focused Relationship Managers. India bulls offer a full range of financial services and products ranging from Equities, Derivatives, Demat services and Insurance to enhance wealth and to achieve the financial goals. 2. Motilal Oswal Securities One of the top-3 stock-broking houses in India, with a dominant position in both institutional and retail broking, MOSt is amongst the best-capitalized firms in the broking industry in terms of net worth. MOSt was founded in 1987 as a small sub- broking unit, with just two people running the show.
Focus on customer-first-attitude, ethical and transparent business practices, respect for professionalism, research-based value investing and implementation of cutting-edge technology have enabled it to blossom into a thousand-member team. The institutional business unit has relationships with several leading foreign institutional investors (FIIs) in the US, UK, Hong Kong and Singapore. In a recent media report MOSt was rated as one of the top-10 brokers in terms of business transacted for FIIs. The retail business unit provides equity investment solutions to more than 50, 000 investors through 270 outlets spanning 150 cities and 22 states.
MOSt provides Advice- Based Broking, Portfolio Management Services (PMS), E-Broking Services, Depository Services, Commodities Trading, and IPO and Mutual Fund Investment Advisory Services. Its Value PMS Scheme gave a 160% post-tax return for the year ended March 2004. In Asia Money Brokers Poll 2003 MOSt has been rated as the Best Domestic Research House- Mega Funds, while in 2000 and 2002 it has been rated as the Best Domestic Equity Research House and Second best amongst Indian Brokerage firms respectively 3. HDFC Securities
HDFC securities is a brand brought to you by HDFC Securities Ltd, which has been promoted by the HDFC Bank& HDFC with the objective of providing the diverse customer base of the HDFC Group and other investors a capability to transact in the Stock Exchanges& other financial market transactions. The services comprise online buying and selling of equity shares on the National Stock Exchange (NSE). Buying and selling of select corporate debt and government securities on the NSE would be introduced in a subsequent phase.
In a few months, they will also start offering the following online trading services on the BSE and NSE: •Buying and selling of shares on the BSE •Arbitrage between NSE& BSE •Trading in Derivatives on the NSE •Margin trading products. They are also planning to include buying and selling of Mutual Funds, IPQ subscriptions, Right issues, purchase of Insurance policies and asset financing. 4. Religare Securities Limited Religare Securities Limited (RSL), a 100% subsidiary of Religare Enterprises Limited is a leading equity and securities firm in India.
The company currently handles sizeable volumes traded on NSE and in the realm of online trading and investments; it currently holds a reasonable share of the market. The major activities and offerings of the company today are Equity Broking, Depository Participant Services, Institutional Broking and Research Services. To broaden the gamut of services offered to its investors, the company offers an online investment portal armed with a host of revolutionary features. 5. Angle Broking Angel Broking’s tryst with excellence in customer relations began in 1987.
Today, Angel has emerged as one of the most respected Stock-Broking and Wealth Management Companies in India. With its unique retail-focused stock trading business model, Angel is committed to providing ‘Real Value for Money’ to all its clients. The Angel Group is a member of the Bombay Stock Exchange (BSE), National Stock Exchange (NSE) and the two leading Commodity Exchanges in the country: NCDEX & MCX. Angel is also registered as a Depository Participant with CDSL MARKETING STRATEGIES: The environment for marketing has become dynamic and turbulent.
Without adequate preparation it difficult for organization to survive in such an environment. Companies need to collect information about customers like and dislike and the reason once the information is collected they need to analyze it and devise new strategies to outperform their competitor some basic marketing strategies adopt by Globe Capital Market Ltd. Are 1. Online Trading: Globe capital provides online trading to its all clients for all three segments i. e. Equity, Commodity and Currency. For online trading Globe capital provide a software to its clients that is called ODIN DIET.
Through this software clients can easily trade in stock market by themselves. 2. Call And Trade: Research analysts of company facilitate their premium customer to invest in high return yielding stocks on the basis of their own expertise. 3. SMS and Messenger Services: Investment tips are sent by company to its client on regularly basis. Company also has its own messenger “Globe IM” through which clients can directly chat with company’s analyst online. 4. 3 In 1 A/C: Globe capital provides trading for all segments i. e. Equity, Currency and commodity through one demat account on the basis of client choice. . Annual Maintenance Charges: Globe capital Charge only Rs. 350 per year for maintenance of demat account which is easily affordable for any client. 6. Attractive Demat A/C Schemes: Globe capital provide various attractive schemes for opening of a demat account i. e. a client can open a demat account for life time in Rs 999/- only (no maintenance charges) 7. Attractive Brokerage Slab: the brokerage amount is basically depend on trading capacity of client or sub-broker of company i. e. the company charges between 0. 1to 0. 3 % in delivery and 0. 01 to 0. 3% in intraday for its sub-broker and 0. 3 and 0. 03% for delivery and intraday to its retail client. 8. Personal Selling: Globe capital has a strong sales workforce. Sales person make client through cold calling, public relation and sales promotion. They directly contact with people and tell them about the products and services and convert them into a client of company. 9. Demo Classes: On the launch of a new products or services company Conduct demo classes to introduce it to its institutional client, sub-broker and employee at company’s head quarter. 10. Booklets:
Time to time company distributes some booklets regarding its products and services, brokerage and other charges, investment tips and other stock market news to its sub-brokers, institutional clients and other premium clients. SWOT ANALYSIS: A scan of the internal and external environment is an important of the strategic planning process. The SWOT analysis provides information that is helpful in the matching the firm’s resources and capabilities to the competitive environment in which it operates. As such, it is an instrument in strategy formulation and selection.
Environment factors which are internal to the firm usually can be classified as strengths (S) or weaknesses (W), and those which are external to the firm can be classified as opportunities (O) or threats (T). Such an analysis of the strategic environment is referred to as a SWOT analysis. Strengths: 1. Largest clearing member: Globe offer clearing services to the trading member in the F segment and are responsible for a significant chunk of the clearing activities as high as 10% of the total clearing process.
Globe capital market is the No. 1 clearing member for both NSE FX and MCX SX in currency trading. 2. Robust financial health: Globe capital market ltd. Has a net worth of approx Rs 4000 Crore. In year 2008 Globe capital market ltd. Attracted US$ 42 million of equity capital in foreign direct investment (FDI) from city group and its representative is also on the board of the company. Company has deposited Rs. 1600 Crore in HDFC bank as security which is called margin money for its clearing services. 3.
Product and services: Company has a vast range of services which include trading in equity, derivatives and commodities (including international markets through DGCX and LSE), depository services for shares & commodities (ISO 9001: 2000) and web –based accounting. The group, in addition to expanding its existing network, also plans to augment the existing product portfolio by entering into the growing businesses viz. Margin financing, mutual funds and IPO distribution. 4. Strong information system: IT plays a major role for in success of any broking firm.
Company has a well-equipped IT system with state-of-the-art network capabilities and hi-tech statistical software tools, is supported by a team of over 130 professionals from diverse backgrounds. All these system converge to provide customers easy accessibility, convenience and hassle-free trading under online sophisticated risk monitoring surveillance system. 5. Portfolio management services: To address varying investment preferences Globe offers Portfolio Management services (PMS). As a focused service, PMS pays attention to details, and portfolios are customized to suit the unique requirements of investors.
Equities as an asset class outperform almost any other investment vehicle over a longer time period. PMS aims at providing the same by investing on behalf of clients on the basis of well-conducted research, experience and expertise of our Fund Manager, well supported by our research team. Weaknesses: 1. Weak brand recognition: In comparison of other broking house Globe Capital has a less brand recognition which is a major weakness for this firm. Firm is mainly working on institutional broking. Firm has entered in retail broking just 2 years ago so, to compete with the giant in this segment i. e.
India bulls, HDFC securities etc. still the brand recognition has to made. 2. Weak promotional strategies: The promotion and advertisement strategies of Globe capital are not as strong as its competitors. The advertisement through print and electronic media should be done to increase recall rate in customer’s mind. 3. Visibility and presence : As the firm basically work for institutional broking so still a vast area is untouched this include rural area ad tier II and tier III cities, where the firm need to open its branches or franchises. Opportunities: 1. Developing Indian economy: Indian economy seems to be out of recession.
This is the right time for inventers to Re-enter the market. The company should adopt some strategies to increase the Business through existing clients. 2. Availability of qualified workforce: The increasing number of management graduates helps to get sales force at trainee levels at less salary. It reduces the salaries expenses of the company. The company can tie up with reputed B school for trainee. 3. Opportunities for market expansion: Market Huge untapped market in rural areas, tier2 and tier3 cities and towns of India can be concentrated to increase the business.
In these area company can built some franchises or make sub-broker who are currently working as a small firm. 4. Many a banks are offering fund transfer services. The company can tie-ups for fund transfers to attracts customers of different banks. 5. New financial products: Company can enter in its own mutual fund, insurance like other competitor i. e. HDFC, kotak mahindra, ICICI, SBI etc. 6. Scope in retail Broking: The capital market in the last few years has turned out to be one of the favorable avenues for the retail investor.
As company has taken entry in retail spectrum of share broking so some kind of marketing strategies should be adopted to become a well known brand in retail broking services 7. Other financial services: As Indian financial market is a robust market so some kind of services like Global depositary receipt (GDR), letter of credit (LC), foreign currency convertible bonds (FCCB), merger demerger and acquisition can be provided to large scale entities likewise its Subsidiary Icon global market ltd. . Threats: 1. High degree competition: The increasing no. of broking firm is becoming a major threat for the company.
The sub-broker and clients can switch to these firms as they are charging less brokerage. 2. Fluctuation in government policies: Changes in regulatory framework of broking industry can be a big threat. Government and regulatory bodies’ i. e. SEBI can charge more money or the regulation regarding broking can be tightened which can reduce the no. of clients any time. 3. Other threats: Companies must develop and implement physical, administration and technical safeguards to achieve the following goals: • Ensure the security and confidentiality of customer records and information Secure against any anticipated threats or hazards to the security or integrity of such information • Secure against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer. Chapter IV PROJECT UNDERTAKEN IN ORGANIZATION In my summer internship programme I was working in research department where during eight weeks of time period several tasks were assigned to me like industry analysis, fundamental analysis, technical analysis as well as I was also assigned a job to gain knowledge about strategies of different broking firms and their sub-brokers.
From first day of my internship I was told to go through some industry reports so I could gain valuable insights about these industries. These published reports were from major research companies’ i. e. FICCI, KPMG, IBEF, SSKI etc. these reports gave me a valuable overview of these industries i. e. Pharmaceutical, health care, power, construction, steel, oil and gas and many more, which was beneficial for me as well as for organization also. These reports helped me to choose an industry for Fundamental Analysis.
For industry analysis purpose I was also given some contacts of research analysts of different firms with whom I discussed about current scenario and future prospects of these industries. Some of these analysts are Mr. Sameer Relia, Managing Director, Atherstone Global Securities Limited and Mr. Jagannadham Thunuguntla, Equity Head, SMC Capital Ltd. From the discussion with these people I got to know the major factors which contribute in growth of an industry. I also got to know, what are the key points one should keep in mind while doing industry analysis i. . Major cost components, government policies, business model etc. After getting through these reports and discussions, I gave a presentation on an industry of my choice to my mentor and other office staff. The presentation was on the basis of some key points, i. Economy of the country or size of economy. ii. Contribution of particular industry in this economy. iii. Government planning and budgeting for this particular sector. iv. Regulatory bodies and their policies. v. Business model of industry. vi. Growth opportunities in the industry vii.
Market share of major players. viii. Operating profit margin of top ten companies of industry. I gave presentation on Pharmaceutical industry as I have chosen this industry for my topic, fundamental analysis. The presentation was helpful for me as well as for company staff because it is not possible for a person to have a thorough knowledge about all the industries and it is very necessary for any research team to be well up to date about every industry. So this presentation helped me and other staff members a lot to gain a better insight about Pharmaceutical industry.
After this presentation I was told to choose any three companies of this industry and to do comparative company analysis, which was basically a financial statement analysis of all the companies and to suggest which one can be a better option for a long term investment. For this analysis I chose three companies from NIFTY 50 index, which were Sun pharmacy, Cipla, Ranbxy. Apart from the industry analysis and comparative financial statement analysis I also got an opportunity to get a brief knowledge about technical analysis. In which I learnt about price-volume chart, RSI and moving average convergence divergence (MACD) etc.
I have also calculated them during my internship but due to short period of time, could not get a detailed knowledge about their implementation in equity market. For three companies, Infosys, SBI and Bharti Airtel, I calculated these technical indicators During these days I was also told to collect some useful data from sub-brokers of company’s competitors i. e. brokerage, demat charges, marketing strategies etc. through this information I got to know how a broking firm performs business. This was also very important for the company to know their competitor’s strategies.
These all tasks were assigned to me in my summer internship, which I performed successfully with my total efficiency. That gave me valuable learning, how a research team of any financial services provider works and how the research done by this team is beneficial for companies, their investors and an individual customer. CHAPTER V REPORT ON BUSINESS UNIT: The different business units in the organization: [pic] Globe Capital Market ltd. basically has several departments i. e. marketing, Operations, research and information technology. Among these all departments I got an opportunity to do work in the Research Department.
Research can be defined as the search for knowledge or any systematic investigation to establish facts. The Research Department plays a major role in a broking firm or any other research based investing organization, which analyzes securities and markets using both fundamental analysis and technical analysis and some other techniques. ROLE OF RESEARCH DEPARTMENT: This Department Discovers new knowledge about products, processes, and services, and then applying that knowledge to create new and improved products, processes and services that fulfill market needs.
In a full-service brokerage firm an analyst of research department analyzes and studies the markets and securities and issue recommendations. So this dept. is very important in advisory services where as an analyst or advisor, you need to give suggestions and recommendations to your clients. This is possible only if we have done a detailed study and research on that industry or company and a competitive analysis that, why a company is more successful and prospering, how to invest in this company will yield profit and what are the various strategies that a company uses to be successful in this competitive world.
Research department plays an important role in improving current and developing new trading algorithms. We do this in close cooperation with the trading department. Suggestions may come from the traders, but the department also generates new ideas itself. We analyze these ideas and develop solutions or prototypes which are tested in close cooperation with the traders. We should also keep in mind that all the recommendations should be reliable and based on true facts and figures.
Research plays an important role in maintaining and improving the leading status of a proprietary trading firm worldwide. Basically Research and development expenditures are an investment in a company’s future – companies which do not spend sufficiently in R&D are often said to be ‘eating the seed corn’; that is, when their current product lines become outdated and overtaken by their competitors, they will not have viable successors in the pipeline. So how much is reasonable to spend on research? That is highly dependent both on the technology area and how fast the market is moving. % of company revenue, not profit, might be enough in a fairly sedate market, but to keep up in rapidly changing markets, companies should expect to spend 15% or more in research and development just to keep up with the rest of the pack. Older standards hold that research looked at least five to ten years into the future, and development one to five years, but those timeframes have shortened as the speed of technology has increased. It is always difficult in times of tight money justify spending significant sums on something that may not yield returns for another ten to fifteen years, if ever.
But spending on research and development is vital to continued growth and prosperity, both for a company and for a country or world. RELATION WITH OTHER DEPARTMENT Research and IT: – In the present scenario it is very difficult to imagine work without computers and internet where it has become a medium of communication and social networking. Research department depends on greatly on IT dept. for its information needs. To do research the first and the foremost requirement is information about any industry, company, its functioning, working, strategies etc.
Research and Marketing: – To do marketing for any product or service we should have a complete knowledge of that area. This is possible only when you have researched about which product is better in what ways and why should one go for it and for whom that is good? For example investment in which stock is good varies from person to person depending on his needs whether he wants to invest for long term or short term. Research and HR: – Research is a tedious task which requires a lot of patience and it cannot be computerized because it requires human skills and knowledge.
So Human resource is a very important part of research and advisory services. CHAPTER VI UNDERSTANDING OF FUNCTIONAL PROCESS INTRODUCTION The time one talks about stock market, another word also clicks and that is risk, people have lost their millions in this stock market. Stocks are just like gamble for those who don’t know how to invest. Investors can surely take out profit from market very easily with the help of equity research which includes both technical and fundamental analysis. It helps one to take out this money with sufficient if not unlimited profits.
Equity research also includes detailed study of some companies that would help one to compare those companies and decide which is better to invest in. The future prospects of a company can also seen using this analysis. Basically equity research includes two techniques: 1. Fundamental analysis 2. Technical analysis FUNDAMENTAL ANALYSIS Fundamental analysis of the business involves analyzing its financial statements and health, its management and competitive advantages, its competitor and markets. When analyzing a stock using fundamental analysis there are two basic approaches one can use; bottom up analysis and top down 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 internal business decisions. • To calculate its credit risk. Fundamental analysis includes: 1. Economic analysis 2. Industry analysis 3. Company analysis On the basis of these three analyses the intrinsic value of the share 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 hold the share and if it is less than the market price sell the shares. Top-Down and Bottom-Up Approach: Investor can use either a top-down or bottom-up approach. • The top-down investor starts his analysis with global economics, including both international and national economic indicators, such as GDP growth rates, inflation, interest rates, exchange rates, productivity and energy prices.
He narrows his search down to regional/industry analysis of total sales, price levels, the effects of competing products, foreign competition, and entry and exit from the industry. Only then he narrows his search to the best business in that area. • The bottom-up investor starts with specific business, regardless of their industry/region. PROCEDURE: The major part of fundamental analysis is to analyze a company’s financial statements which are disclosed by every listed company in the last of its financial year. Financial statements are the medium by which a company discloses information concerning its financial performance.
Followers of fundamental analysis use the quantitative information gleaned from financial statements to make investment decisions. The three most important financial statements – income statements, balance sheets and cash flow statements. On the basis of these statements Ratio analysis is done which helps to investor in his investing decisions in a particular stock. Let’s examine the analysis of thee statements in detail: 1. The Income Statement: The income statement is basically the first financial statement we will come across in an annual report.
Basically, the income statement shows how much money the company generated (revenue), how much it spent (expenses) and the difference between the two (profit) over a certain time period. Generally speaking, companies ought to be able to bring in more money than they spend or they don’t stay in business for long. Those companies with low expenses relative to revenue – or high profits relative to revenue – signal strong fundamentals to investors. Revenue as an Investor Signal: Revenue, also commonly known as sales, is generally the most straightforward part of the income statement.
Often, there is just a single number that represents all the money a company brought in during a specific time period. The best way for a company to improve profitability is by increasing sales revenue. The Expenses: There are many kinds of expenses, but the two most common are the cost of goods sold (COGS) and selling, general and administrative expenses (SG&A). Cost of goods sold is the expense most directly involved in creating revenue. It represents the costs of producing or purchasing the goods or services sold by the company. Next, costs involved in operating the business are SG&A.
This category includes marketing, salaries, utility bills, technology expenses and other general costs associated with running a business. PROFITS = REVENUE – EXPENSES Profit, most simply put, is equal to total revenue minus total expenses. However, there are several commonly used profit subcategories that tell investors how the company is performing. Gross profit is calculated as revenue minus cost of goods sold. Companies with high gross margins will have a lot of money left over to spend on other business operations, such as R&D or marketing.
Operating profit is equal to revenues minus the cost of sales and SG&A. This number represents the profit a company made from its actual operations. High operating margins can mean the company has effective control of costs, or that sales are increasing faster than operating costs. Net income generally represents the company’s profit after all expenses, including financial expenses, have been paid. This number is often called the “bottom line” and is generally the figure people refer to when they use the word “profit” or “earnings”.
When a company has a high profit margin, it usually means that it also has one or more advantages over its competition. Companies with high net profit margins have a bigger cushion to protect themselves during the hard times. An investor can gain valuable insights about a company by examining its income statement. Increasing sales offers the first sign of strong fundamentals. Rising margins indicate increasing efficiency and profitability. 2. Balance Sheet: The balance sheet, also known as the statement of financial condition, offers a snapshot of a company’s health.
It tells you how much a company owns (its assets), and how much it owes (its liabilities). The difference between what it owns and what it owes is its equity, also commonly called “net assets” or “shareholders equity”. The balance sheet tells investors a lot about a company’s fundamentals i. e. how much debt the company has, how much it needs to collect from customers (and how fast it does so), how much cash and equivalents it possesses and what kinds of funds the company has generated over time. Assets, liability and equity are the three main components of the balance sheet.
Carefully analyzed, they can tell investors a lot about a company’s fundamentals. Assets: There are two main types of assets: current assets and non-current assets. Current assets are likely to be used up or converted into cash within one business cycle – usually treated as twelve months. Three very important current asset items found on the balance sheet are: cash, inventories and accounts receivables. Non-current assets are defined as anything not classified as a current asset. This includes items that are fixed assets, such as property, plant and equipment (PP&E).
Unless the company is in financial distress and is liquidating assets, investors need not pay too much attention to fixed assets. Liabilities: There are current liabilities and non-current liabilities. Current liabilities are obligations the firm must pay within a year, such as payments owing to suppliers. Non-current liabilities, meanwhile, represent what the company owes in a year or more time. Typically, non-current liabilities represent bank and bondholder debt. 3. The Cash Flow Statement: The cash flow statement shows how much cash comes in and goes out of the company over the quarter or the year.
Companies produce and consume cash in different ways, so the cash flow statement is divided into three sections: cash flows from operations, financing and investing. Cash Flows from Operating Activities: It shows how much cash comes from sales of the company’s goods and services, less the amount of cash needed to make and sell those goods and services. Investors tend to prefer companies that produce a net positive cash flow from operating activities. Cash Flows from Investing Activities: It shows the amount of cash the company has spent on capital expenditures, such as new equipment or anything else that needed to keep the business going.
It also includes acquisitions of other businesses and monetary investments such as money market funds. Investor should see a company re-invest capital in its business by at least the rate of depreciation expenses each year. If it doesn’t re-invest, it might show artificially high cash inflows in the current year which may not be sustainable. Cash Flow from Financing Activities: This section describes the goings-on of cash associated with outside financing activities. Typical sources of cash inflow would be cash raised by selling stock and bonds or by bank borrowings.
Likewise, paying back a bank loan would show up as a use of cash flow, as would dividend payments and common stock Cash Flow Statement Considerations: Investors should invest in companies that produce plenty of free cash flow (FCF). Free cash flow signals a company’s ability to pay debt, pay dividends, buy back stock and facilitate the growth of business. Free cash flow, which is essentially the excess cash produced by the company, can be returned to shareholders or invested in new growth opportunities without hurting the existing operations.
The most common method of calculating free cash flow is: [pic] Ideally, investors should see that can company pay for the investing figure out of operations without having to rely on outside financing to do so? If a company is able to pay for its own operations and growth than it is a signal to investors that it has very strong fundamentals. Ratio analysis: Ratio analysis isn’t just comparing different numbers from the balance sheet, income statement, and cash flow statement. It’s comparing the number against previous years, other companies, the industry, or even the economy in general.
Ratios look at the relationships between individual values and relate them to how a company has performed in the past, and might perform in the future. Ratio analysis is an attempt to derive quantitative measure or guides concerning the financial health and profitability of business enterprises. Ratio analysis can be used both in trend and static analysis. There are several ratios at the disposal of an analyst but their group of ratio he would prefer depends on the purpose and the objective of analysis. Objective of Ratios:
Ratio is work out to analyze the following aspects of business organization- A) Solvency- 1) Long term 2) Short term 3) Immediate B) Stability C) Profitability D) Operational efficiency E) Credit standing F) Structural analysis G) Effective utilization of resources H) Leverage or external financing Types of Comparisons: The ratio can be compared in three different ways – 1. Cross Section Analysis: One of the way of comparing the ratio or ratios of the firm is to compare them with the ratio or ratios of some other selected firm in the same industry at the same point of time.
So it involves the comparison of two or more firm’s financial ratio at the same point of time. The cross section analysis helps the analyst to find out as to how a particular firm has performed in relation to its competitors. 2. Time Series Analysis: The analysis is called Time series analysis when the performance of a firm is evaluated over a period of time. By comparing the present performance of a firm with the performance of the same firm over the last few years, an assessment can be made about the trend in progress of the firm. 3.
Combined Analysis: If the cross section & time analysis, both are combined together to study the behavior & pattern of ratio, then meaningful & comprehensive evaluation of the performance of the firm can definitely be made. A trend of ratio of a firm compared with the trend of the ratio of the standard firm can give good results. For example the ratio of operating expenses to net sales for firm may be higher than the industry average however, over the years it has been declining for the firm, whereas the industry average has not shown any significant changes.
IN DEPTH FUNDAMENTAL ANALYSIS OF PHARMACEUTICAL INDUSTRY In my summer internship programme, to get in depth knowledge about fundamental analysis, firstly I chose the pharmaceutical industry. For the analysis purpose I was provided some reports on the pharmaceutical industry but as the fundamental analysis starts with the economy analysis and it was also essential to get some knowledge about the Global scenario of the industry I have chosen, which proceeds as follows: I. GLOBAL PHARMACEUTICAL INDUSTRY Globally, pharmaceutical industry grew at a compounded annual growth rate of 9. per cent in the last 23 years to $491 billion. Mergers and acquisitions reshaped multinationals. With a slew of brand name drugs losing patent protection in the next few years and the pressure building for pharmaceuticals to cut price, these giants find themselves under immense strain to find new drugs and reduce price. Bringing a new drug into the market costs a company an average of about $800 to $900 million. Some estimates show that patient recruitment and medical personnel account for nearly 70 per cent of the clinical costs that are required to bring a drug to market.
The less expensive means to raise research productivity is outsourcing research to low cost having such as India and China. The global pharmaceutical outsourcing market stands at $10 billion. Some of the major trends that are expected in the future include mergers and acquisitions in the industry; new product launches by MNCs and Indian companies; in-licensing of patented products by Indian companies to launch them in the Indian market and increase in the number of contract research organizations. Barriers to entry in the Global Pharmaceutical Industry: Like many industries, any new entrant into the pharmaceutical sector will be aced with various hurdles that have been previously erected by already established businesses and by national and international standards and regulations. These include: • Economies of scale – manufacturing, R, marketing, sales • Distribution product differentiation – established products, brands and relationships • Capital requirements and financial resources • Access to distribution channels: preferred arrangements • Regulatory policy: patents, regulatory standards • Switching costs – employee retraining, new equipment, technical assistance
The barriers to entry are extremely high in the pharmaceutical industry. Many of the top firms have significant manufacturing capabilities that are hard to replicate. Also, they have extensive patents that guarantee the protection of their products while they defend their brands with large marketing budgets. Since any emerging pharmaceutical company can expect a sharp retaliation from the established competitors in the pharmaceutical industry, the overall threat of entry into the global marketplace is relatively low in comparison to other international industries.
The largest factors that influence the success of many pharmaceutical companies are capital requirements and financial resources, regulatory policies, and research and development. All three of these factors can influence one another and a lapse in one area can be disastrous for the future of the company. Factors affecting the pharmaceutical industry: 1. Government regulations – drug prices, FDA regulations, sales & marketing practices 2. Loss of patent protection – patent expiration, biogenerics, legal attack of patent validity, patent law reform, health crises.
Patent expiration is no longer the only threat to patent protection. 3. Industry player environment – outsourcing, M, spin-outs, future industry. A churning of pharmacy industry players will continue as both large and small companies fight for survival. 4. New product development – R, poor quality drug candidates, slow production of novel drug discovery technology. 5. Socio-economic Trends — greater end-user involvement, threat of bioterrorism, epidemiology, DTC advertising & customer confidence, employment, stock market performance, worldwide market . Social And Demographic Factors: As the population ages and the diseases increase, new medical needs emerge and the demand for effective medicines rises accordingly. In Russia, around 15% of the population and 40% in China are above the age of 60. II. ECONOMIC ANALYSIS India, an emerging economy is the 12th largest economy in the world which is growing with an average GDP rate of 7% which is 2nd fastest in the world. In which service sector contributes maximum 54% following by manufacturing sector 29% and agriculture 17%.
While doing analysis of Indian economy I found: • India has a huge talent pool of managerial and technical manpower and this provides it with a competitive edge in the global market. • The democracy promotes a transparent environment that includes a free press and a proper legal and accounting system. • It has a competitive and dynamic private sector that accounts for more than