Fundamental Analysis

Fundamental analysis involves examining the economic, financial and other

qualitative and quantitative factors related to a security in order to determine its intrinsic
value. While typically this method is used to evaluate the value of a company’s stock, its use
can be extended for any kind of security, such as bonds or currency.

Fundamental analysis, which is also known as quantitative analysis, involves delving

into a company’s financial statements (such as profit and loss account and balance sheet) in
order to study various financial indicators (such as revenues, earnings, liabilities, expenses
and assets). Such analysis is usually carried out by analysts, brokers and savvy investors.

The intrinsic value of share depends on a multitude of factors. The earnings of the
company, the growth rate and the risk exposure of the company have a direct bearing on the
price of the share. These factors in turn rely on the host of other factors like economic
environment in which they function, the industry they belong to, and finally companies own
performance. The fundamental school of thought appraised the intrinsic value of shares
through:

1. Economic Analysis

2. Industry Analysis

3. 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 hold the share
and if it is less than the market price sell the shares.

Economic Analysis
 The economy of India is the eleventh largest economy in the world by nominal GDP
and the fourth largest by purchasing power parity (PPP). Following strong economic reforms
from the socialist inspired economy of a post-independence Indian nation, the country began
to develop a fast-paced economic growth, as free market principles were initiated in 1990 for
international competition and foreign investment. India is an emerging economic power with
a very large pool of human and natural resources, and a growing large pool of skilled
professionals. Economists predict that by 2020, India will be among the leading economies of
the world.

The Gross Domestic Product (GDP) in India expanded at an annual rate of 8.80 percent in
the last reported quarter. From 2004 until 2010, India's average quarterly GDP Growth was
8.37 percent reaching an historical high of 10.10 percent in September of 2006 and a record
low of 5.50 percent in December of 2004. India's diverse economy encompasses traditional
village farming, modern agriculture, handicrafts, a wide range of modern industries, and a
multitude of services. Services are the major source of economic growth, accounting for more
than half of India's output with less than one third of its labor force. The economy has posted
an average growth rate of more than 7% in the decade since 1997, reducing poverty by about
10 percentage points.

Through this chart we can see that after the effects of recession Indian economy is
coming out and again it’s on growth and its result is India's economy expanded 8.8% in the
second quarter from a year earlier, compared to an 8.6% on-year expansion in the first, and
lifted by robust activity in manufacturing.

Inflation in Indian Economy

 The inflation rate in India was last reported at 11.25 percent in July of 2010. From
1969 until 2010, the average inflation rate in India was 7.99 percent reaching an historical
high of 34.68 percent in September of 1974 and a record low of -11.31 percent in May of
1976. Inflation rate refers to a general rise in prices measured against a standard level of
purchasing power. The most well-known measures of Inflation are the CPI which measures
consumer prices, and the GDP deflator, which measures inflation in the whole of the
domestic economy.

Along with the growth of GDP, if the inflation rate also increases, then the real rate of
growth would be very little. The demand in the consumer product industry is significantly
affected. The industries which come under government price control policy may lose the
market. If there is mild level of inflation, it is good to the stock market but high rate of
inflation is harmful to the stock market. But we can see as the government tried hard to
decrease the inflation.

Interest rate in India

The benchmark interest rate (reverse repo) in India was last reported at 6.00 percent. In India,
interest rate decisions are taken by the Reserve Bank of India's Central Board of Directors.
The official interest rate is the benchmark repurchase rate. , From 2000 until 2010, India's
average interest rate was 5.82 percent reaching an historical high of 14.50 percent in August
of 2000 and a record low of 3.25 percent in April of 2009. This page includes: India Interest
Rate chart, historical data and news.

The interest rate affects the cost of financing to the firms. A decrease in interest rate
implies lower cost of finance for firms and more profitability. More money is available at a
lower interest rate for the brokers who are doing business with borrowed money. Available of
cheap fund, encourage speculation and rise in the price if shares. The interest rate India is
having is neither too low nor too high so we can say that it is the ideal scenario for the
investor to borrow the money from the market.

Electrical equipment industry

 India’s manufacturing sector is in full swing. While revival of automation projects —
typically one of the first indicators for any growth in the economy — is already under way,
an 11.3% rise in the electrical equipment industry has underscored the overall growth story in
the world’s second fastest growing economy. The Rs 52,000-crore industry, which sells
cables, switchgears, transformers and other large electrical products, saw a major part of its
growth come in the second half of 2009-10, after liquidity improved and companies resumed
expansion plans.

According to the Indian Electrical and Electronics Manufacturers Association

(IEEMA), an apex body representing the Indian electrical equipment industry, the sector
grew about 20% in the second quarter, compared with 1.7% in the first half. “This demand
growth could likely see a two-fold increase in the next 2-3 years,” said the association’s
director-general Sunil More, adding that this was due to a pick-up in housing and
construction.

Some of the companies in this sector are Siemens, L&T, ABB, Crompton Greaves,
Schneider Electric and WS Industries. Coming after a lull of two years, the growth in
electricals will strengthen policy measures as the government is working to restrict Chinese
power equipment makers. “Since spends on automation and electricals in any project are
equal, it was expected that growth in automation would also give a boost to the electricals
sector,” said SR Venkatapathy, head of research at global advisory, ARC. “Also as prices of
electrical equipment are typically stable unlike that of the automation sector, higher
electricals sales imply that projects have been revived.”

The industry has posted a 30% growth in the fourth quarter in sales of rotating
machines, switchgear and cables as a recovery in real estate and infrastructure pushed up the
demand for such products. The growth in demand mainly came from industries such as
power, textile, steel and cement. Analysts and industry experts said the growth will be
sustained as most of the transmission and distribution projects are likely to begin in the next
fiscal year, mainly by the Power Grid Corporation.

“Demand for power equipment is expected to rise as India is targeting at least 9%

GDP growth for the year ahead,” said Kuljit Singh, partner and head of transactions advisory
at Ernst & Young. “India has historically faced a demand-supply gap and this will feed the
electrical industry. However, most of the orders would be through EPC route with more new
players entering the business and sub-contracting the same to existing contractors. It is
expected that competition would be intense. The government plans to add about 12,000 mw
of capacity by the end of this fiscal, including from renewable sources. The Central
Electricity Authority has set a target to add more than 21,000 mw capacity by the end of
2012.

Company analysis ABB (Sandeep Singh A-

19)
 General Information

Name ABB Ltd.

Sector ELECTRICAL EQUIPMENT

Current Price 908.05

Price Change 27.70 / 3.15%

880.35
Previous Close

Average Volume 154289

Nse Code ABB

Bse Code 500002

Part of Index BSE BSE 100

Part of Index NSE Nifty 50

Futures and options Yes More F&O Shares

Company Profile

ABB Ltd is one of the world's leading engineering companies, which helps customers to
use electrical power effectively and to increase industrial productivity in a sustainable
way. The company is a leader in power and automation technologies that enable utility
and industry customers to improve performance while lowering environmental impact.
They have served utility and industry customers for over 50 years with the complete
range of engineering, products, solutions and services in areas in Automation and Power
technology. They are having their operations in 14 manufacturing facilities in India and
serving their customers through an extensive countrywide presence with more than 18
marketing offices, 8 service centers, 3 logistics warehouses and a network of over 800
channel partners.

The company segments includes: power systems, which offers turnkey systems
and services for transmission and distributions for power grid and power plants,
instrumentation, control and balance of power plants; power products, which
manufactures, engineers, supplies key components to transmit and distribute electricity,
and also produces transformers, high and medium voltage switchgears, circuit breakers,
capacitors, distribution relays; process automation, which provides integrated solutions
and served oil and gas, power, chemicals and pharmaceuticals, pulps and paper, metals
and minerals, marine and turbo charging industries; automation products, which provides
motors, variable speed drives, low voltage products, instrumentation and power
electronics; Others consists of robotics systems. ABB Ltd was incorporated on December
24, 1949 as Hindustan Electric Company Ltd. In September 24, 1965, the name of the
company was changed to Hindustan Brown Boveri Ltd. In the year 1989, Asea Ltd was
amalgamated with the company with effect from January 1, 1989 and the company
changed their name to Asea Brown Boveri Ltd with effect from October 13, 1989.

In the year 1995, Flakt India Ltd was amalgamated with the company with
effect from October 5, 1995. During the year 1994-95, ABB Zurich and Daimler-Benz
AG, Germany established a joint venture company, namely 'ABB Daimler-Benz
Transportation AG' (Adtranz) in Germany. Also, a subsidiary of Adtranz was
incorporated in India namely, 'ABB Daimler-Benz Transportation Ltd' which took over
the Transportation Business of the company with effect from January 1, 1996. In the year
1999, the power generation business was de-merged and transferred to ABB Alstom
Power India Ltd with effect from April 1, 1999. The name of the company was changed
to ABB Ltd with effect from April 16, 2003.

In the year 2004, the company introduced new range of wiring accessories
including switches, regulators and sockets in the Indian market. They made major
expansions in their installed capacity of Motors and Other Machines, Switchgear of all
types, Turbochargers, Transformers, Electronic Control and Supply Units for Variable
Speed Drives and Other applications Power Capacitors of all types. In July 12, 2004, the
company divested their Control Valves Business to Kent Introl Pvt Ltd. They added
several new products under Power Technologies and Automation Technologies divisions.
In the year 2005, the company won the first major equipment order for 765 KV extra-
high voltage (EHV) transformers and shunt reactors from the National Thermal Power
Corporation (NTPC) and Power Grid Corporation of India Ltd.

They established a technology center in Nasik for medium voltage power

technologies cater to the fast developing power distribution sector. In the year 2006, they
entered into an MoU with IIT Delhi In 2007, the company received an order worth Rs
186 crore for integrated power distribution management system. In September 2007, the
company won an order Rs 933 million from KHD Humboldt Wedag GmbH, Germany,
for providing a turnkey electrics and automation solution for a 5000 TPD capacity green-
field cement plant at Katrana in Jordan. Also, the company was awarded a turnkey
contract worth Rs 186 crores by Karnataka Power Transmission Corporation Ltd for
implementing an integrated Network Manager SCADA/ EMS/DMS (Supervisory Control
and Data Acquisition, Energy Management System, Distribution Management System)
solution. In October 2007, the company received orders worth Rs 512 crore from JSW
and their associated companies.

In February 2008, the company was awarded orders worth Rs 330 crore for
providing turnkey substation solutions and a range of power products to Powergrid
Corporation of India Ltd (PGCIL) as part of their efforts to strengthen the transmission
grid across the country. In June 2008, the company won orders worth Rs 295 crore for
providing power solution for JSW Energy for their upcoming thermal power plant in
Ratnagiri. In July 2008, the company won an order of Rs 312 crore for design, supply,
installation, testing and commissioning of electrical products and systems for a new
terminal T3 at Indira Gandhi International Airport in Delhi, India. Also, they won orders
worth Rs 455 crore from Vedanta Aluminium Ltd for providing automation and power
products, systems and solutions for expansion of their aluminium smelter plant at
Jharsuguda in Orissa. In December 2009, the company won an order worth Rs 506 crore
from Bangalore Metro Rail Corporation Ltd for providing power solutions for a planned
metro network in Bangalore. In March 2010, the company won orders worth $22 from
Haryana Vidyut Prasaran Nigam Limited (HVPNL), a state-owned power utility in
northern India for providing four turnkey substations for the regional grid. The company
is setting up a Greenfield manufacturing plant at Nelamangala near Bangalore for
manufacturing automation products. The company has invested $50 million for setting up
the new factory.

Presence of ABB in India

In the company analysis the investor assimilates the several bits of information related
to the company and evaluates the present and future values of the stock. The risk and return
associated with the purchase of the stock is analyzed to take better investment decisions. The
valuation process depends upon the investor’s ability to elicit information from the
relationship and inter-relationship among the company related variables.

SWOT analysis of ABB

• Strengths
 ○ Large Installed Customer Base
○ Well Positioned Geographically

• Weaknesses
○ History of Overpaying for Acquisitions

• Opportunities
○ Strong Balance Sheet
○ Environment Regulation
○ Infrastructure Spending
○ Smart grid infrastructure could increase

• Threats
○ Budgets under Pressure

Dividends:-

ABB paid dividend almost every year to its shareholders. They profits earn by them is
distributed among the shareholders as well as invested in the further projects. At ABB's
annual general meeting on April 26, 2010, ABB shareholders approved the Board of
Directors' proposal to pay a dividend for 2009 of 0.51 Swiss francs per share in the form of a
reduction in the nominal value of the shares from 1.54 Swiss francs to 1.03 Swiss francs.

The ex-dividend, record and payment dates have been approved and are as follows:
Latest trade date Ex-date Record date Payment date
in order to
receive payment

SIX Swiss Fri., July 9, 2010 Mon., July 12, Wed., July 14, Thurs., July 15,
Exchange 2010 2010 2010
New York Stock Fri., July 9, 2010 Mon., July 12, Wed., July 14, Thurs., July 22,
Exchange 2010 2010 2010
NASDAQ OMX Fri., July 9, 2010 Mon., July 12, Wed., July 14, Mon., July 19,
Stockholm 2010 2010 2010

Historical information for ABB AB

Year Payment date Dividend per share (SEK) A and B
share
1988 April 27 1.00
1989 May 23 1.20
1990 May 10 1.30
1991 May 14 0.70**
1992 May 11 1.80
1993 April 30 1.80
1994 April 26 1.00
1995 May 11 1.15
1996 May 2 1.60
1997 April 22 1.75
1998 April 21 2.10
1999 April 12 2.18

Important ratios of ABB

Dec ' Dec ' Dec ' Dec ' Dec '
09 08 07 06 05
Per share ratios
Adjusted EPS (Rs) 19.06 23.26 25.8 78.95 49.98
Adjusted cash EPS (Rs) 21.35 25 27.33 85.19 55.44
Reported EPS (Rs) 16.74 25.83 23.2 80.3 51.6
Reported cash EPS (Rs) 19.02 27.56 24.73 86.54 57.06
Dividend per share 2 2.2 2.2 10 8
Operating profit per share
29.41 38.68 38.13 118.78 79.81
(Rs)
Book value (excl rev res) 113.7
99.32 76.06 278.67 209.77
per share (Rs) 2
Book value (incl rev res) per 114.3
99.99 76.75 282.16 213.33
share (Rs.) 8
Net operating income per 295.3 324.0 280.7 1,012.5
702.26
share (Rs) 1 9 1 5
111.3
Free reserves per share (Rs) 96.9 73.63 266.46 197.45
1
Profitability ratios
Operating margin (%) 9.96 11.93 13.58 11.73 11.36
Gross profit margin (%) 9.18 11.4 13.03 11.11 10.58
Net profit margin (%) 5.62 7.91 8.19 7.83 7.27
Adjusted cash margin (%) 7.16 7.66 9.65 8.31 7.81
Adjusted return on net
16.76 23.42 33.92 28.33 23.82
worth (%)
Reported return on net
14.71 26 30.5 28.81 24.59
worth (%)
Return on long term funds
26 39.34 51.38 44.61 38.79
(%)
Leverage ratios
Long term debt / Equity - - - - -
Total debt/equity - - - - -
Owners fund as % of total
100 99.99 99.96 99.86 99.69
source
Fixed assets turnover ratio 7.19 9.08 10.63 8.59 7.42
Liquidity ratios
Current ratio 1.51 1.41 1.36 1.39 1.38
Current ratio (inc. st loans) 1.51 1.41 1.36 1.39 1.38
Quick ratio 1.26 1.2 1.19 1.21 1.23
Inventory turnover ratio 8.94 11.47 13.11 13.05 15.99
Payout ratios
Dividend payout ratio (net
13.98 9.96 11.34 14.2 17.67
profit)
Dividend payout ratio (cash
12.29 9.33 10.64 13.17 15.98
profit)
Earning retention ratio 87.73 88.94 89.8 85.56 81.75
Cash earnings retention
89.04 89.71 90.37 86.62 83.55
ratio
Operating Results of the Company
The year 2010 saw the Company securing orders worth Rs 80,541 million, a modest
growth of 5% higher than the previous year's orders of Rs 76,682 million. The Company had
good inflow of orders particularly in the first half of the year, however due to the global
slowdown which also impacted the Indian economy, and liquidity crunch emanating from
sub-prime crisis in USA, investment decisions by our customers, particularly industrial
customers, were either deferred or postponed indefinitely. Sectorally, Power Products and
Automation Products saw a significantly higher growth in orders received. Process
Automation saw a modest growth of 7% while Power Systems saw a negative growth of 15%
largely due to management's decision to come out of Rural Electrification projects owing to
safety challenges as well as credit and technical risk perceptions. Company's order backlog at
the end of the year increased by 23% to Rs 61,618 million as compared to Rs 50,260 million
at the beginning of the year.

Revenues during the year were at Rs 69,675 million, a growth of 16% over the
previous year revenues of Rs 60,014 million. Reduced order inflow, increased credit risk and
request from certain customers to defer supplies in second half of the year, affected overall
rate of revenue growth. Due to execution of international projects undertaken in Process
Automation division, there was significant growth in export orders and revenues. Profit
before tax was Rs 8,332 million, 10% higher than Rs 7,565 million in the previous year.
Planned addition of new as well as revamped manufacturing capacities together with
matching addition in human resources and expanded sales organisation aimed at higher
expected scale of operations, increase in interest expenses and significant provision for bad
and doubtful debts affected the profitability. In the last quarter of the year, management
initiated several cost optimisation measures, which partially helped in improving the
profitability. Net profit after tax at Rs 5,474 million for the year was 11 % higher than the
previous year. Earnings per equity share (face value Rs 2) was higher at Rs 25.83 compared
to Rs 23.20 in the previous year.

In view of attractive long-term returns, the Company carried out and also have
currently been executing significant manufacturing capacities expansion projects aimed at
expanded range of offering and introduced several new products. Investment in fixed assets
during the year was higher at Rs 2,660 million.
Performance Review
Orders received during the year at Rs 80,541 million were 5% higher compared to Rs
76,682 million in the previous year. Order backlog at the end of 2008 was healthy at Rs
61,618 million compared to Rs 50,260 million at the end of the previous year. Sales and other
income for the year were higher by 16% at Rs 69,675 million compared to Rs 60,014 million
in the previous year. Profit before tax was higher at Rs 8,332 million compared to Rs 7,565
million in the previous year. Growth in profit was mainly attributable to volume growth and
operational efficiencies.

Profit after tax at Rs 5,474 million for the year has improved by 11 % compared to Rs
4,917 million in the previous year. Earning per equity share of face value of Rs 2/-
correspondingly improved to Rs 25.83 compared to Rs 23.20 in the previous year. Operating
performance of all the segments was better than previous year except of Power Systems
segment where revenues were at the same level of last year with lower operating margin due
to higher provision for doubtful debts. For detailed analysis of the performance, please refer
to the management's discussion and analysis section of the annual report.

Technical Development
New Products Developed:
• 750/200 kW, 4/6 pole, water cooled wind generator
• Flameproof motors (Frame size 71 and 80)
• Crane duty motors for both DOL and VFD supply
• 12 kV configurable breakers for retrofitting
• Unigear panels with 44 kA short circuit rating
• Outdoor vacuum circuit breaker for 40.5 kV nominal system voltages
• 36 kV compact substation
• Standalone remote telephone subscriber
• Oracle based historian development for ABB SCADA vantage system
• Interface component between ABB SCADA vantage and third party SCADA
• 420 kV SF6 circuit breaker with pre insertion resistance
• Spring drive operated 420 kV SF6 circuit breaker with pre insertion resistance
• Micro-controller based universal time relay - NT10
• Numeric under / over voltage relay
• SPA to RS-485 converter, BCM10 for SPACOM relays
• Surge capacitors
• Comprehensive program for unbalance protection
• Dynaswitch for thyristor switched capacitor and dynacomp
Technology adaptation and innovation
• Unigear panel localization, range developments and customization
• Localization of VD4, Vmax circuit breakers
• Localization of EL mechanism for circuit breaker
• MCD-80 - A9BS/A9BT version to meet the global requirement
• Oracle 10g RAC planning and configuration on UNIX and Windows based systems for
implementation of historians and terminal automation systems respectively
• ABB SCADA vantage integration with ERP System (SAP ECC 6)
• Type testing of relays as per IEC 60255 standards
• Absorption of new products NI40/ 41, REJ603 & REF601 (IEC)
• Manufacturing execution system implementation for REJ603 & REF601 products
• Adoption of automated test system for REJ603 & REF601 products
• Development of indigenous components for relays substitution of obsolete components of
static relays

Major news about Company

Sep 14, 2010

13:02 Domestic acquisition lifts ABB

12:32 ABB India acquires Metsys

12:15 ABB acquires Metsys Engineering

Aug 20, 2010
14:56 ABB inaugurates global wind power generator factory in India

14:43 ABB inaugurates fourth global power factory in Vadodara

Aug 19, 2010
17:56 ABB, Idea, Unitech out of Nifty from Oct 1
Aug 02, 2010
13:00 IIFL on ABB: No improvement in business momentum

11:59 ABB
Jul 30, 2010
14:33 ABB net profit declines 54.17% in the June 2010 quarter

14:22 ABB drops after poor Q2 results

Jul 19, 2010
14:20 Investors exit ABB as parent will not hike open offer price
Jul 08, 2010
10:05 ABB to announce Q2 results
Jun 21, 2010
14:43 Students win scholarships from the ABB Jurgen Dormann Foundation
May 17, 2010
16:06 ABB leads gainers in 'A' group

09:54 Parent's open offer at premium sends ABB soaring

Technical Analysis of ABB

The methods used to analyze securities and make investment decisions fall into two
very broad categories: fundamental analysis and 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.
 In simple words it is a process of identifying trend reversals at an earlier stage to
formulate the buying and selling strategy. With the help of several indicators they analyze the
relationship between price & volume and supply & demand for the overall market and the
individual stock. Volume is favorable in the upswing i.e. the number of shares traded is
greater than before and on the downside the number of shares traded dwindles. If it is other
way round, trend reversals can be expected.

Performance of ABB Ltd. in terms of appreciation

One Three
One Two Six One
Period Mont Mont
Week Week Month Year
h h
760.3 873.3 827.6
Period Old Price 864.2 783.3 780.3
5 5 5
124.7 127.7
Price Gain 43.85 147.7 34.7 80.4
5 5
Gain in % 5.07 15.93 19.43 3.97 9.71 16.37

Stock price of ABB over a period of one

year

Moving Price Percent Average

Period
Average Change Change Volume
 5-Day 869.64 34.85 4.12% 151,130
20-Day 808.997 108.2 14.01% 140,382
50-Day 805.469 10.15 1.17% 244,539
100-Day 820.811 184.7 26.55% 262,719
200-Day 813.015 145 19.72% 288,001
Year to
818.389 113.25 14.76% 289,962
Date

Raw Stochastic Stochastic Average

Period
Stochastic %K %D True Range

9-Day 98.01% 91.78% 85.97% 18.458

14-Day 98.06% 93.02% 89.10% 18.378
20-Day 98.40% 93.99% 89.64% 18.546

Relative Historic MACD

Period Percent R
Strength Volatility Oscillator

9-Day 85.92% 1.99% 16.44% 31.3

14-Day 78.33% 1.94% 17.49% 52.935
20-Day 71.21% 1.60% 18.77% 66.719
50-Day 58.10% 3.09% 23.50% 70.248
100-Day 54.32% 8.51% 38.05% 54.906

Simple Moving Average

Simple moving average for the stock ABB for 5 days, 10 days and 50 days
Exponential Moving Average – EMA

A type of moving average that is similar to a simple moving average, except that more
weight is given to the latest data. The exponential moving average is also known as
"exponentially weighted moving average"

This is the Exponential moving average of ABB for 10 days, 20 days and 30 days.

Overall technical Analysis Chart

 When we analyze all the charts we can see that the prices of the stock are moving up
in the long run there is a good amount of increase in the prices of ABB’s share. It’s simple
moving average as well as the Exponential moving averages is showing a positive trend. If
we look at the stochastic also it is showing the stocks strength. From the technical analysis as
well as from the fundamental analysis this stock is strong. One can invest in this stock as per
both the analysis. All major analysts are also giving the same view point that ABB’s stock is
having a potential to grow in future.

EFFICIENT MARKET HYPOTHESIS (EMH)

The efficient-market hypothesis (EMH) asserts that financial markets are

"informationally efficient". That is, one cannot consistently achieve returns in excess of
average market returns on a risk-adjusted basis, given the information publicly available at
the time the investment is made.

There are three major versions of the hypothesis: "weak", "semi-strong", and "strong".
Weak EMH claims that prices on traded assets (e.g., stocks, bonds, or property) already
reflect all past publicly available information. Semi-strong EMH claims both that prices
reflect all publicly available information and that prices instantly change to reflect new public
information. Strong EMH additionally claims that prices instantly reflect even hidden or
"insider" information. There is evidence for and against the weak and semi-strong EMHs,
while there is powerful evidence against strong EMH.

The Efficient Market Hypothesis (EMH) has been around for over 50 years. The
EMH logic is, given an efficient market, where participants have equal access to information
and equal ease in trading, stock prices amend randomly. Any price-sensitive information is
received instantly by many traders, who promptly act upon it. Their interactions tend to
quickly push prices close to fair value. So it is very hard in such an efficient market for any
given player to consistently log returns higher than the average.

Company Analysis Crompton Greaves

(Satwant A 17)
 As one of the world`s leading engineering corporations, CG provides end-to-end
solutions, helping its customers use electrical power effectively and increase industrial
productivity with sustainability. CG was established in 1937 in India; and, since then the
Company has been a pioneer and has retained its leadership position in the management and
application of electrical energy.

Our unique and diverse portfolio ranges from transformers, switchgear, circuit
breakers, network protection & control gear, project engineering, HT and LT motors, drives,
lighting, fans, pumps and consumer appliances and turnkey solutions in all these areas;
thus enhancing the many aspects of industrial and personal life. This portfolio has
been structured into 3 SBUs - Power Systems, Industrial Systems and Consumer Products.
For details please refer to the panel on the right.

Since 2005, CG has embarked upon an ambitious globalization strategy, growing both
organically and inorganically, drawing into its fold leading international companies such as
Pauwels, Ganz, Microsol, Sonomatra, MSE and PTS. Consequent to this globalisation, CG
now enjoys manufacturing bases in Belgium, Canada, Hungary, Indonesia, Ireland, France,
UK and US, in addition to more than twenty manufacturing locations in India, employing
more than 8000 employees worldwide with diverse nationalities and cultures. A worldwide
marketing network of more than 150 representatives spans the globe, offering the entire range
of CG’s products, solutions and services.
 CG has been aggressively investing in R&D, product certifications, product quality,
productivity enhancement and operational excellence. CG`s Global R&D centre, located in
India, has been recognised for its innovation and received the prestigious "National Award
for the Best R&D Efforts" for its outstanding achievements in the Electrical Engineering
Sector in 2008. CG`s R&D strategy aligns with the Company`s Global Vision, and focuses on
creating platform technologies, shrinking product development cycle time and enhancing
CG’s Intellectual Property capital.

To unify our global focus, all CG facilities across the world have taken actions to
ensure that customers receive consistent "One World Quality", for all CG products and
solutions in all parts of the world.

Thanks to its well structured and validated business model, CG is well positioned to
provide its customers with technology-driven, value-added solutions, leveraging a broad
product portfolio on the one hand, and enhancing the entire value-chain quality, delivery, and
services on the other hand.

Crompton Greaves, an Avantha Group company, is a leading player engaged in designing,

manufacturing and marketing high-technology electrical products and services related to
power generation, transmission & distribution and execution of turnkey projects. It has the
largest market share in 765 kv. Transformers and is among the top 10 transformer
manufacturers in the world. Crompton Greaves also manufactures consumer durable products
like fans, lighting, domestic appliances etc. The company’s operations have been structured
into 3 SBU’s (Strategic Business Units) viz. Power Systems, Industrial Systems and
Consumer Products.
The Company has 22 manufacturing divisions spread across the Country. It is a leading
supplier to the Indian market. It also exports its products to more than 60 countries
worldwide, which include USA, UK, EU, Australia and New Zealand etc. More than 10 % of
the company’s consolidated revenues come from exports.

Good growth rates in all parameters:

The company has clocked a good CAGR of 21.2% in Net Sales over the last 6 years mainly
due to 19% volume growth; it has shown consistent demand for its products and services. A
strong re-investment has helped the company clock a 6 year EPS CAGR of 39.2%. Its BVPS
has registered a robust CAGR of 34.8% over the same period.

Higher profitability fuelled by operating profit margin improvement and reduction in interest
cost: The Company’s Earnings Per Share (EPS) growth (39.2%) is higher as compared to the
Sales growth (21.2%).

Continuous improvement in the operating profit margins:

This is a result of high growth in Other Income (34.4% CAGR) and fluctuating Stock
Adjustments. This along with a comparatively lower growth of only 19.75% in total
expenditure has helped the company register higher operating profit growth of 38.6% and
consequently led to growth in EPS.

Though the tax and extra-ordinary income have increased significantly in the last 6 years
(93% & 56% respectively), the reduction in debt from Rs. 314.5 Cr. in FY05 to Rs. 26.8 Cr.
in FY10. As a result, the interest cost has decreased significantly and has helped the company
increase its Net Profit after extra-ordinary item by 39%.

ROE & ROIC:

The company has maintained good ROE and ROIC averages of 36.4% and 32.1%
respectively. This has been enhanced due to the good growth in profits and lower debt levels.
Crompton Greaves had debt of only Rs. 27 Cr. on its books, hence leading to an almost nil
Debt-to- Net profit ratio.

Crompton Greaves has performed well in all its parameters, especially over the last 6 years..
This forms a strong base for its future. Hence, the 10 YEAR X-RAY of Crompton Greaves is
Green (Very Good).

Good performance on the back of robust growth in

consumer products, improvement in power systems and
overseas subsidiaries:
Slowdown in the global economy has shifted focus of many players including
multinational companies such as ABB, Siemens and Areva T&D to the domestic T&D
market leading to price competition. Also, active participation by Korean and Chinese players
for orders placed by Power Grid Corporation (PGCIL) (one of the largest transmission
utilities in the world) has resulted in severe pricing pressure.
 On the back of strong domestic market the consolidated segment revenue of consumer
products was higher by 24%. The power systems business of the company which was
affected by delivery related issues in the first quarter ended June 2010 is back on track with
both standalone as well as overseas entities registering steady single digit growth. Also, the
company’s overseas subsidiaries which were posing a problem till some time back have
started registering positive growth. The company has faced pricing pressure in the last year
(Realization for transformers fell by 11%). This pressure due to competition may affect
margins but the company has maintained stable margins and expects the same to continue in
the coming quarters

Thus, Crompton Greaves has registered a decent performance at a time when

competitors like ABB have performed dismally

Expansions by Crompton Greaves

Amalgamation with Brook Crompton Greaves:

Crompton Greaves has recently approved the scheme of amalgamation with its wholly owned
subsidiary – Brook Crompton Greaves. This has been done with the aim to reduce overall
cost of the company

Company to spend Rs. 400 Cr. on capex:

The company will be spending about Rs 400 Cr. mostly on technology and quality up-
gradation. The company has decided not to go for capacity expansion as it already has
sufficient capacity and it also witnessed a 7% fall in its overseas operation in FY 2010.

Recent Acquisitions and JVs aimed at becoming a full solutions provider

These acquisitions and JVs are expected to enhance the company’s technological
abilities and drive its growth in the short-term.
Yes, the company is facing competition from companies like ABB, Areva T & D etc.
Though active participation by China and Korea players is a threat, the company managed to
bag 1/3 of Power Grid’s orders. It is further expecting the orders from Power Grid orders to
drive revenue growth in the short-term.
The company is expecting to register a 15% growth in revenues for FY11 on the back
of these orders and, strong growth in consumer durables. Thus, it is seems that the company
is well-placed to tackle competition in the future.

Future Opportunities in Power, Industrial and Consumer

Durables segment:
All these 3 segments are poised for growth in future:

a) Power: With the increasing focus of the Government on power and the increased spending
(over 8 Lakh Cr. by FY12) the demand for transformers, switchgears is bound to increase in
future. According to industry reports, globally the demand for power is expected to grow by
8-10%.

b) Industrial segment: Growing demand for capital goods will serve well for the company’s
future growth in this segment.

c) Consumer Durables: Rise in consumption expenditure, growing % of working women,

and a shift from non-branded to branded products coupled with a shift from joint to nuclear
households is expected to drive the demand for its consumer durables and appliances
segment.

Thus, CG has successfully established a strong position in all the 3 segments and is expected
to take advantage of future opportunities available.

a) In the consumer durables segment, Crompton Greaves faces competition from the
unorganized segment (~50%) of the appliances segment.

Where competition with international majors ABB and Areva are a concern for the long-term
too, Crompton Greaves seems to be in a position to tackle this competition due to its strong
acquisitions aimed at becoming a full solutions provider in the global market, its revenue mix
and good growth expected in the power, industrial and consumer durables segment.

Crompton Greaves is a leading player in the electrical engineering space. Though the
company’s major concern right now is the growing competition, it is well-armed to tackle
competition due to its strong fundamental past, strategic acquisitions and business mix

Technical Analysis

We have seen that from the fundamental point of view the company is very strong and
it is completely visible in the trend of the share prices of Crompton Greaves. I have taken the
price movement of two years that is from November 2008 to November 2010 and we can see
that the price of the stock is continuously rising.
 If we compare the prices of Crompton Greaves with Sensex we can see
that the movement in Crompton greaves in much better than the movement in
Sensex. The performance of Crompton greaves share is far away than the
Sensex. So we can say that the stock is performing really well.

Company Analysis of L&T (Keshav Gupta)

Fundamental analysis is the study of economic factors that influence foreign exchange rates
in the hope of trying to forecast future rates.

Economic Analysis:

Countries with higher interest rates tend to draw more money from the rest of the world,
when investors seek to gain a higher return by investing in the country. One such example is
the so-called carry trade, which involves borrowing currency from a country with low interest
rates to invest it in a country with higher rates. A good current example is the Japanese yen-
New Zealand dollar carry trade. Japan has a very low interest rate of 0.50% and New Zealand
presently has the highest interest rate among developed countries—8%

Inflation is the result of an increase in the supply of a currency, which thereby reduces
demand, but, as with the other factors, it must be compared to other currencies. It is the rate
of growth of supply of 1 currency over the rate of growth of the supply of another that will
determine the exchange rate between the 2 currencies.

Another factor that will affect supply and demand for a currency, especially for developing
countries, is the country's political stability. There will be little demand for the currency of an
unstable country, since few people will want to invest where there is a great deal of risk,
which reduces the demand for the currency, and, therefore, its rate.

L & T has performed robustly in all its parameters over the last 10 years. Its impressive
fundamentals in the past form a strong base for its future.

L&T has clocked an impressive CAGR of 67% in its EPS which has been possible due to the
strong investment back into the business which is evident from its high BVPS CAGR of
almost 50%. Also, it has improved its margins over the years from a stagnant average of 10-
11% from FY 03 to FY 06 to 15% in the last 4 years. In fact in 2010 the company’s operating
margin has increased to 19%.

It’s Sales have registered a CAGR of 19.6% over the last 10 years, indicating a good order
inflow over the years. Over the past 5 years the CAGR of order inflows has been 33%. This
has helped the company register an impressive 67.2% CAGR over the last 10 years.

L&T’S SHORT TERM OUTLOOK:

Healthy Order-Book :
The company has been witnessing an increase in order inflows since the past few months.
Order inflow for the quarter ended June 2010 was Rs. 15626 Cr., up 63% on y-o-y basis. The
company expects increased bidding activities in the next few months and expect this
momentum to continue. As of June’10 the company has a healthy order book of Rs. 100239
Cr. to be completed over the next 2-3 years. Recently (24th Aug), the company bagged 2
projects worth Rs. 1200 Cr. from ONGC to set up additional processing units at its plants
Hence, this is expected to ensure good revenue growth in the coming quarters.
 Capacity Expansion Plans:
The company is planning capacity expansions for the year FY11 in order to take advantage of
the demand in future.
Few of these are:
○ Improvement at their Hazira & Coimbatore manufacturing facilities to improve on execution
time
○ A new manufacturing facility at Baroda for catering to electrical products market.
○ New Shipyard at Tamil Nadu for large defense ships
The company has indicated an approx cost of Rs.2000 Cr. for these plans. Where all of these
are expected to cater to future demand and facilitate growth, it also means increased costs.

Why I have chosen Larson & Tourbo

Growing Sales
Companies are judged by their sales and earnings growth rates than on the absolute value
of their sales and earnings.
Year 2010/03 2009/03 2008/03 2007/03 2006/03
Sales 37,101.32 33,856.54 24,946.11 17,645.29 14,776.95
Var % 9.58 35.72 41.38 19.41
Profit After Tax 4,375.52 3,481.66 2,173.42 1,403.02 1,012.14
Var % 25.67 60.19 54.91 38.62

Profitability

Investors prefer companies that increase profit margins -- the percentage of sales that
they keep -- every year. This is accomplished either by lowering expenses or raising
prices.
Year 2010/03 2009/03 2008/03 2007/03 2006/03
Profit After Tax 4,375.52 3,481.66 2,173.42 1,403.02 1,012.14
Var % 25.67 60.19 54.91 38.62
`

Year 2010/03 2009/03 2008/03 2007/03 2006/03

OPM (%) 13.00 11.24 11.17 9.76 6.43
Var % 15.66 0.63 14.45 51.79

• There is incessant growth in sales of company.

• Profits have increased by 25.67% as compared to previous year. Means in slowdown
also company is growing.

Now by comparing the performance of L&T with its peers we can analyze that fundamentals
of L&T are strong.

Future Projects of company

Larsen & Toubro (L&T) has announced that its construction division has secured two
major projects besides add on orders worth Rs 1017 crore. L&T Buildings and Factories
Operating Company will be building IT campus, residential towers and factory buildings
under the new orders from clients such as Cognizant Technology Solutions India Pvt and
IREO Private Limited.
Cognizant has handed over a Rs 566 crore worth Design & Build order to L&T for
construction of their IT campus development at Siruseri,Chennai. For IREO Private Limited,
L&T will be constructing the 'The Grand Arch', which is a multistoried residential apartments
at Gurgaon, Haryana, in the Rs 280 crore project.
It has further secured orders worth Rs 171 Crore for the construction of factory
building and other add on works from existing jobs from various esteemed clients, L&T said
in a release on Wednesday, Mar 31.These orders further enhance the order book of the
company which has already secured major design & build contracts in Airports, IT Parks and
commercial space, it added.
L&T Power Development Company, a subsidiary of Larsen & Toubro (L&T), plans
to set up coal-based power projects worth 5,000 MW by 2015.
The plan is to commission 5,000 MW of coal-based power projects by 2015. “By then we
will have achieved financial closure for another 5,000 MW,'' he said adding that the company
had planned its investments in the sector on that basis. “Our intention now is to focus on coal-
based projects but we will consider gas and LNG based projects in future.''

Key Financial Ratios

2010/03 2009/03 2008/03 2007/03 2006/03
Per Share
EPS 72.66 59.45 74.35 49.53 73.67
CEPS 79.54 64.67 81.59 55.18 81.47
Book Value 303.66 212.32 325.98 202.65 335.61
Dividend/Share 12.50 10.50 17.00 13.00 22.00
Operating Profit / Share 79.34 70.72 110.81 71.77 92.92
Net Operating Income / Share 616.10 578.06 853.36 622.91 1,075.58
Free Reserves / Share 0.00 205.21 319.09 197.15 324.46

Profitability Ratios
OPM 12.87 12.23 12.98 11.52 8.63
GPM 11.84 11.39 12.19 10.61 7.91
NPM 11.18 10.06 8.54 7.74 6.69
RONW 23.18 21.21 21.21 24.39 17.90

Liquidity ratios
Debt/Equity 0.37 0.52 0.37 0.36 0.31
Current Ratio 1.23 1.30 1.18 1.26 1.36
Quick Ratio 1.15 0.96 0.86 0.93 1.03
Interest Cover 13.46 6.35 7.41 7.52 5.03

Turn Over Ratios

Sales/Total Assets 7.36 6.09 9.71 7.04 5.80
Sales/Fixed Assets 5.83 6.55 6.89 8.03 9.38
Sales/Current Assets 1.39 1.42 1.51 1.46 1.53

If we analyze the ratios of L&T then we find that:

➢ Current ratio of the company is satisfactory company is able to meet its liabilities.
➢ Quick has also increased in 2010 Which shows the good financial health of company.
➢ There is rapid change in interest coverage ratio. Though debt equity ratio has
decreased means company has to pay less interest. And also in 2010 company is able
to cover the interest from profits 2times as compared to the previous year.

Profit Estimates

Year1 Year1
31 Mar 2011 31 Mar 2012
Number of Analysts 34 33
Consensus (Rs. Cr.) 3,934.42 5,105.30
Low Estimate (Rs. Cr.) 3,353.00 4,146.80
High Estimate (Rs. Cr.) 4,775.00 6,331.00
EPS Growth % -7.20 29.76
History of Profit Estimates

Last 2 Year 31 Mar 2009 31 Mar 2010

Estimate (Rs. Cr.) 2,078.96 3,361.79
Actual (Rs. Cr.) 2,709.20 4,239.80
Difference (Rs. Cr.) 630.25 878.01
Consensus Trend of Profit Estimates

31 Mar 2011 31 Mar 2012

Current (Rs. Cr.) 3,934.42 5,105.30
7 days ago (Rs. Cr.) 3,934.42 5,105.30
30 days ago (Rs. Cr.) 3,995.45 5,091.40
60 days ago (Rs. Cr.) 5,105.30 5,084.95
90 days ago (Rs. Cr.) 4,037.81 5,094.66
1 year ago (Rs. Cr.) 3,856.13 5,366.44

Sector / Country Comparison of Profit Estimates

If we see the single day movement of stock priceOn 23

sep,2010 there was a news that

L&T and Befula Investments (South Africa) to Collaborate on Power Transmission &
Distribution Opportunities in South Africa

Because of this news there was positive change in stock of rs. 3.40.
1998.10

Change:3.40(0.17%)Volume:205,562
Open:1,999.90Prv. Close:1,994.70

Sep 23,2010 10:53 Price 1987.00 Volume 62934

Impact of news on stock price:

14th September, 10(1920.20)Add Larsen and Toubro: IIFL

14th September, 10(1920.20)Buy Larsen and Toubro; target of Rs 1965: IIFL
7th September, 10(1876.25)Buy Larsen and Toubro on dips: Gujral
20th August, 10(1868.80)Sensex lacklustre; Ranbaxy, BPCL, Cipla, DLF, Larsen shine
29th July, 10(1817.95)Motilal Oswal neutral on Larsen and Toubro
15th July, 10(1873.85)Angel Broking: neutral on Larsen and Toubro
30th June, 10(1808.95)Hold Larsen and Toubro: Gorakshakar
17th June, 10(1777.00)Larsen and Toubro hits 52week high

Competitor comparision - Larsen & Toubro Ltd.

 Change TODAY 52 WEEK
Company Current Price Volume EPS
(%Chg) Low / High Low / High
1,96 1,37
Larsen
3.40 8.00 1.00
& 1,99 205 27.5 72.5
(0.1 / /
Toubro 8.10 102 4 4
7%) 2,01 2,07
Ltd.
3.85 4.60
- 3,55 1,60
3M 12.6 1.00 5.00
3,60 43.6 82.4
India 0 (-/ / 568
0.00 8 1
Ltd. 0.35 3,60 3,99
%) 5.00 5.00
-
219. 103.
3.60
Alchemi 220. 00 /00 /984 15.8 13.8
(-
st Ltd. 00 224. 239. 31 5 8
1.61
30 90
%)
-
128. 105.
Andhra 2.45
129. 50 /60 /581 24.6
Sugars (- 5.27
90 132. 145. 4 3
Ltd. 1.85
10 00
%)
Andrew 39.5 31.5
0.55
Yule &40.3 0 /0 /658 15.8
(1.3 2.54
Compan 0 41.6 99.7 622 4
8%)
y Ltd. 5 0
-
6.50
Apex 0.00 0.00
(- -
Intertec 0.00 / / 0 0.00
100. 0.57
h Ltd. 0.00 0.00
00%
)
14.5 12.6
JIK 0.35
14.9 0 /0 /239 14.8
Industri (2.4 1.01
5 15.1 25.8 01 1
es Ltd. 0%)
0 5
From the above table we can see that there is positive change or increase in price of Larsen
and turbo ltd. The stock prices of other competitor companies are showing on a decreasing
trend.

STOCHASTIC:

A technical momentum indicator that compares a security's closing price to its price range
over a given time period. The oscillator's sensitivity to market movements can be reduced by
adjusting the time period or by taking a moving average of the result. The theory behind this
indicator is that in an upward-trending market, prices tend to close near their high, and during
a downward-trending market, prices tend to close near their low. Transaction signals occur
when the %K crosses through a three-period moving average called the "%D".
This graph is based on monthly stock price of last 3 years. Price pattern is showing rising
and falling trend. In first year there is falling wedge . The boundary lines are sloping down
and in next year there is rising wedge. There is runway gap because of a rapid uptrend and
downtrend. By analyzing the graph we can say that stock is at his maturity stage now either it
will take flat position or start declining.

Right-angled Broadning Triangle formation is clearly visible in the daily charts, marked with
yellow dotted lines. Volumes are also expanding along the way, supporting the pattern. But
past one month volumes are declining, which indicates some weakness in the up move.

Now, Cup and Handle Pattern has formed exactly below the resistance line of the Righ-
angled Broadning Triangle, marked as thick Red line. It is wise to wait until this resistance
line is broken convincingly to take up the long trades even for Cup and Handle. Once the
resistance line is broken convincingly, the stock could be bought and held for longer term as
it has the potential to reach upto Rs.2200.
Markets tend to move in both the directions based on the relative compatibility between the
bears and bulls. After moving in certain trend, it starts moving in sideways direction to catch
a breath, for example, consolidations etc. When markets are in the consolidation mode,
trading ranges are formed.

Initially a trading range is formed as the supply and demand are in certain equilibrium. Where
high of the range is treated as supply line and the low of the range is defined as demand line.
Now the trading opportunities are formed in certain criteria specifically like price tries to
move above the supply line or below the demand line and unable to sustain. They can provide
a good trading opportunity as there is a strong probability of returning into the opposite side
of the Accumulation/Distributionranges.

In Up-Thrust, prices break above the resistance line, and failed to move further up. One can
go short in the next confirmation bar, by keeping the high as the stop loss. Price target would
be the retest of the lower or support line of the trading range. This kind of false breakout
above resistance range is called up-trust, and the bearish candlestick indicator is an invoking
opportunity to enter the trade. Opposite of this up-trust is spring where prices give false
breakdown from the support trend line and bullish candlestick indicator like hammer or few
times a bullish engulfing may also confirm the trading opportunity.
References
➢ www.topstockresearch.com
➢ http://stocks.about.com/od/evaluatingstocks/a/Fundanatools1.htm
➢ http://www.economywatch.com/
➢ http://www.tradingeconomics.com
➢ http://www.investopedia.com/university
➢ http://www.moneycontrol.com/stocks/company_info/tech_charting.php?sc_did=CG
➢