Fundamental analysis
Download as PPTX, PDF3 likes2,090 views
This document provides an overview of fundamental analysis tools and processes for equity research and analysis of the steel industry. It discusses fundamental analysis, the fundamental analysis process of gathering data, building models, analyzing data, determining business outlook and value, and developing recommendations. It then provides a case study analysis of Bhushan Steel Ltd, including details of the company, financials, valuation, and conclusion that the analyst would hold the stock.
Fundamental analysis
- 1. “IMPORTANT TOOLS FOR EQUITY RESEARCH AND EQUITY RESEARCH ON STEEL INDUSTRY” Presented By : Dhaval Dedhia (08)
- 2. INTRODUCTION OF THE PROJECT What is Fundamental Analysis? Fundamental Analysis Process Fundamental analysis of Bhushan Industries Ltd. Future valuation of the stock and interpretation of financial statements.
- 3. Fundamental Analysis Fundamental Analysis seeks to determine a company’s outlook based on factors related to the company itself Fundamental analysis includes: Company Analysis Evaluation of the business model Financial Statement Analysis Ratio Analysis Cash Flow Analysis Management Analysis Economic Analysis Economic Forecasts and Trends Industry Analysis
- 4. Fundamental Analysis Process Prior to making an investment recommendation, an Equity Analyst conducts fundamental research on a particular company This process includes Gathering Data Building Models and Analyzing Data Determining the Business Outlook and Value Developing a Recommendation
- 5. Data Gathering The first step in fundamental analysis is data gathering. Data sources include: Company specific publications Company press releases Company website Media Industry specific publications General Media Economic times CNBC TV 18
- 6. Data Gathering Additional Data Sources include: Quarterly Analyst Calls Company Presentations Personal Meetings / Conference Calls Company officers, competitors, industry experts, suppliers, customers, etc. Financial Databases Balance sheet Cash Flow
- 7. Building Models Equity Research Analysts build economic, industry, and company models that will project a company’s stock price. These models include: Model Inputs Impacts of Product Releases Seasonality and Trends Growth and Profitability Foreseen events (e.g. New plant, acquisitions, etc.) Model Outputs Financial Projections (including dividend projections) Ratio Analysis
- 8. Building Models The models will reflect the economic, industry, and company information gathered through the various sources identified earlier. The models will be updated periodically or when new, significant information is released to the public.
- 9. Analysis Now the Equity Analyst is ready to analyze the data Economic Forecast and Analysis Economic Growth Models Industry Analysis Trends in Investment Cycles Trends in Technology Advancement Competitiveness of the Industry Company Forecast and Analysis Financial Projections Peer Comparison Management Analysis
- 10. Determining the Business Outlook and Value The business outlook is based on factors related to the current and expected strength of the economy, industry, and company. The value of the company can be determined by a number of valuation methods: Discounted Cash Flows Dividend Discount Model Asset Valuation Relative Valuation
- 11. Buy / Sell Recommendations Based on the investment style, objectives, and research conclusions, the Equity Research Analyst provides an investment recommendation: Buy, Sell, or Hold Investment Style Matters Value Investor A value investor looks to invest in a security that is trading at a discount to its fair value and looks to sell when it is trading above that value Growth Investor A growth investor looks to invest in companies with above average prospects for growth in the future
- 12. Case Study of Bhushan steel ltd.
- 13. INTRODUCTION Bhushan Steel Ltd formerly known as Bhushan Steel & Strips Ltd incorporated in the year 1983. Bhushan Steel is now India’s 3rd largest Secondary Steel Producer company with an existing steel production capacity of 2 million tones per annum’s. The company has three manufacturing units in the state of Uttar Pradesh (Sahibabad Unit), Maharashtra (Khopoli unit), and Orissa Plant (Meramandali unit) in India. The company is a source for vivid variety of products such as Cold Rolled Closed Annealed, Galvanized Coil and Sheet, High Tensile Steel Strapping, Colour Coated Coils , Galume Sheets and Coils, Hardened & Tempered Steel Strips , Billets, Sponge Iron, Precision Tubes and Wire Rod.
- 14. Promoters of the company Shri Brij Bhushan Singal Chairman Shri Neeraj Singal Vice-Chairman & Managing Director Shri Mohan Lal Director Shri B.B. Tondon Director Shri V.K. Mehrotra Director
- 15. Milestones Most brilliant milestone in BSL’s journey of excellence is setting up of Steel and Power Plant in Orissa. On completion of the Plant BSL will be one of the largest integrated Hot Rolled Steel and Power complexes of the nation. Bhushan Steel has transformed to 3rd largest producer of Cold Rolled Steel with an installed capacity of one million tons and sales of more than USD 1 Billion. Invested in latest technology/equipment without compromising over cost. BSL has a good debt-servicing track record.
- 16. Recognition BSL has received ISO 14001:2004 certification for Environmental Management System. BSL has received ISO/TS 16949:2002 certification for Quality Systems. It has also received OHSAS 18001:1999 certification for health and safety management system.
- 17. Share holding pattern (%) 67.80% 29.70% 1.80% Promoters Fiis others
- 18. Raw Matreial Integration Coal mine (Patrapada, Orissa): The company is gradually progressing with land acquisition towards which it has already paid INR1bn. It is confident of completing the balance acquisition in FY13. Over all, it will take 1.5‐2.0 years before coal mining starts. Iron ore (Marsuan‐Tiriba, Orissa): The company has already obtained forest approval. The process of prospecting is in progress, post which mining lease will have to be obtained. Land acquisition is not necessary since the land belongs to the government.
- 19. Equity issuance of ~USD300‐500mn in FY13 Post the INR7bn rights issue in January 2012, the company plans to raise another ~USD300‐500mn via QIP in the current fiscal depending upon capital market scenario.
- 20. Miscellaneous Current gross debt excluding working capital (INR20bn) is INR190bn. Current D:E is 2.6x with 9.25% average cost of debt. Debt repayment schedule is spread over 10 years with annual repayments ranging between INR12bn and INR14bn. BSL is in the process of obtaining approvals from consumers like GAIL and ONGC and has obtained API certification. It is targeting to sell 150kt in FY13.
- 21. Key Financials and Market Data of BSL Year to March FY11 FY12 FY13E FY14E Revenues (INR mn) 70,005 99,410 96,754 140,969 Rev. growth (%) 24.1 42.0 (2.7) 45.7 EBITDA (INR mn) 20,304 30,037 29,360 43,331 Net profit (INR mn) 10,051 10,244 9,406 11,039 Share outstanding (mn) 212 212 227 227 EPS (INR) 47.3 48.2 41.5 48.7 EPS growth (%) 18.8 1.9 (13.9) 17.4 Diluted P/E (x) 9.3 10.35 10.5 9.0 EV/EBITDA (x) 12.6 9.3 10.2 6.7 ROE (%) 20.5 16.3 12.6 12.7
- 22. Valuation Parameters Year to March FY10 FY11 FY12 FY13E FY14E Diluted PE (x) 10.9 9.3 10.35 10.5 9.0 Price/BV (x) 2.3 1.6 1.4 1.2 1.1 EV/Sales (x) 3.6 3.6 2.8 3.1 2.1 EV/EBITDA (x) 13.9 12.6 9.3 10.2 6.7 Dividend yield 0.1 0.1 0.2 0.2 0.2 (%)
- 23. Conclusion Current market price = 497.15 P/E = 10.35 EPS = 48.05 INDUSTRY P/E = 9.98 PRICE TARGET = 9.98*48.05 = 479.54 PEG is 1.90 which is good for the company. As a growth investor I would suggest to HOLD on this script. There is huge growth in future in this script.
Editor's Notes
- #22: 5