equity reasearch report on educomp solutions

EQUITY RESEARCH ON EDUCOMP SOLUTIONS LTD.

OBJECTIVES OF THE STUDY

PRIMARY OBJECTIVE:

To do equity analysis of Educomp Solutions ltd.

SUB-OBJECTIVES:

• To justify the current investment in the chosen securities.

• To understand the movement and performance of stocks.

• To recommend increase/decrease of investment in a particular security.

• To do Fundamental analysis.

• To do the technical analysis.

• To do the swot analysis.

• To study the IT & Education sector and find its future prospects.

• To analyse the balance sheet and income statement in order to know the position of

the company.

• To apply theoretical knowledge into practical.


CHAPTER 1

INTRODUCTION TO BROKERAGE HOUSES

AND COMPANY


STOCK BROKERAGE HOUSES

Stock brokerage firms have been an established feature in the financial industry for nearly

one thousand years. Dealing in debt securities, brokers employ a variety of systems to aid

investors with the purchase and sales of stocks and bonds in a variety of markets. The firms

have changed over the years, growing to massive organizations that can affect the entire

financial sector positively or negatively with their performance. Changing with the times, the

early twenty-first century saw a rise of online trading that enabled the average investor to

take part in the stock market for the first time.

HISTORY

During the 11th century, the French began regulating and trading agricultural debts on behalf

of the banking community, creating the first brokerage system. In the 1300s, houses began to

be set up in major cities like Flanders and Amsterdam in which commodity traders would

hold meetings. Soon, Venetian brokers began to trade in government securities, expanding

the importance of the firms.

In 1602, the Dutch East India Company became the first publicly traded company in which

shareholders could own a portion of the business. The stocks improved the size of companies

and became the standard bearer for the modern financial system.

The earliest brokerage firms were established in London coffee houses, enabling individuals

to purchase stocks from a variety of organizations. They formally founded the London Stock

Exchange in 1801 and created regulations and memberships. The system was copied by

brokerage firms across the world, most notably on Chestnut Street in Philadelphia. Soon, the

US exchange was moved to New York City and various firms like Morgan Stanley and

Merrill Lynch were created to assist in the brokering of stocks and securities. The firms

limited themselves to researching and trading stocks for investment groups and individuals.

During the 1900s, stock brokerage firms began to move in a direction of market makers.

They adopted the policy of quoting both the buying and selling price of a security. This

allows a firm to make a profit from establishing the immediate sale and purchase price to an

investor. The conflict with brokerage firms setting prices creates the concern that insider

trading can result from the sharing of information. Regulators have enforced a system called

Chinese Walls to prevent communication between different departments within the brokerage


company. This has resulted in increased profits and greater interconnection within the

financial industry.

EFFECTS

The creation of high valued brokerage firms like Goldman Sachs and Bear Sterns created a

system of consolidation. Working with hundreds of billions of dollars, the larger firms began

to merge and take over smaller firms in the last half of the 20th century. Firms like Smith

Barney were acquired by Citigroup and other investment banks, creating massive financial

institutions that valued, held, sold, insured and invested in securities. This conglomeration of

the financial sector created an environment of volatility that caused a chain reaction when

other firms like Bear Sterns and Lehman Brothers filed for bankruptcy. Trillions of dollars of

assets were tied together in different companies and resulted in a large economic collapse in

late 2008.

FEATURES

A large share of the brokerage firms have moved to an online format. The added convenience

and personal attention paid to the small investor has resulted in a large influx of activity. In

addition, the fact that the online resources offer up-to-the-minute pricing and immediate

trades makes their format appealing to the modern user. Discounted commissions have

lessened the price of trades, giving access to a wider swath of people and adding liquidity to

the market. The role of the stock brokerage firm is ever-changing and proves to be a boon for

the future of the financial industry.

BROKERAGE HOUSES IN INDIA

Indian stock market is semi-efficient by nature and, is considered as one of the most

respected stock markets, where information is quickly and widely disseminated, thereby

allowing each security’s price to adjust rapidly in an unbiased manner to new information so

that, it reflects the nearest investment value. And mainly after the introduction of electronic

trading system, the information flow has become much faster. But sometimes, in developing

countries like India, sentiments play major role in price movements, or say, fluctuations,

where investors find it difficult to predict the future with certainty. Some of the events affect

economy as a whole, while some events are sector specific. Even in one particular sector,


some companies or major market player are more sensitive to the event. So, the new investors

taking exposure in the market should be well aware about the maximum potential loss, i.e.

Value at risk.

INDIABULLS

Indiabulls Group is one of the top business houses in the country with business interests in

Real Estate, Infrastructure, Financial Services, Retail, Multiplex and Power sectors.

Indiabulls Group companies are listed in Indian and overseas financial markets. The

Networth of the Group exceeds USD 2 billion. Indiabulls has been conferred the status of a

“Business Superbrand” by The Brand Council, Superbrands India.

Indiabulls Financial Services is an integrated financial services powerhouse providing

Consumer Finance, Housing Finance, Commercial Loans, Life Insurance, Asset Management

and Advisory services. Indiabulls Financial Services Ltd is amongst 68 companies

constituting MSCI - Morgan Stanley India Index. Indiabulls Financial is also part of CLSA’s

model portfolio of 30 Best Companies in Asia. Indiabulls Financial Services signed a joint

venture agreement with Sogecap, the insurance arm of Societé Generale (SocGen) for its

upcoming life insurance venture. Indiabulls Financial Services in partnership with MMTC

Limited, the largest commodity trading company in India, is setting up India’s 4th Multi-

Commodities Exchange.

Indiabulls Securities Limited is India’s leading capital markets company with All-India

Presence and an extensive client base. Indiabulls Securities possesses state of the art trading

platform, best broking practices and is the pioneer in trading product innovations. Power

Indiabulls, in-house trading platform, is one of the fastest and most efficient trading platforms

in the country. Indiabulls Securities Limited is the first and only brokerage house to be

assigned the highest rating BQ – 1 by CRISIL.

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, Portfolio Management Services, International Advisory Fund Management


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.

RSL is a member of the National Stock Exchange of India, Bombay Stock Exchange of India,

Depository Participant with National Securities Depository Limited and Central Depository

Services (I) Limited, and is a SEBI approved Portfolio Manager.

Religare has been constantly innovating in terms of product and services and to offer such

incisive services to specific user segments it has also started the NRI, FII, HNI and Corporate

Servicing groups. These groups take all the portfolio investment decisions depending upon a

client’s risk / return parameter.

Religare has a very credible Research and Analysis division, which not only caters to the

need of our Institutional clientele, but also gives their valuable inputs to investment dealers.

INDIA INFOLINE GROUP

The India Infoline group, comprising the holding company, India Infoline Limited and its

wholly-owned subsidiaries, straddle the entire financial services space with offerings ranging

from Equity research, Equities and derivatives trading, Commodities trading, Portfolio

Management Services, Mutual Funds, Life Insurance, Fixed deposits, GoI bonds and other

small savings instruments to loan products and Investment banking. India Infoline also owns

and manages the websites www.indiainfoline.com and www.5paisa.com.

The company has a network of 976 business locations (branches and sub-brokers) spread

across 365 cities and towns. It has more than 800,000 customers.


INTRODUCTION TO COMPANY

SMC LTD.

SMC Group, a leading Financial services provider in India is a vertically integrated

investment solutions company, with a pan-india presence. Over the Years, SMC has

expanded its domestic & international operations. Existing network includes regional offices

at Mumbai, Kolkata, Chennai, Bangalore, Cochin, Ahmedabad, Jaipur, Hyderabad and 1350+

offices across over 350 cities in India. SMC has plans to grow its network to 2,000 offices

across 500+ cities in the next 3 years. The company has expanded Internationally, and has

established office in Dubai Gold and Commodities Exchange(DGCX).Its products and

Services include Institutional and retail brokerage of equity, commodity,

currency,derivatives,online trading , investment banking, depository services, clearing

services, IPOs and mutual funds distribution, Protfolio management, wealth

advisory,insurance broking,equity and commodity research.

SMC is one of the most active trading organization in India, averaging over 3,50,000 trades

per day. Currently, SMC has a highly efficient workforce of over 3,000 employees & one of

the largest retail network in India currently serving the financial needs of more than 5,50,000

satisfied investors.SMC clocked a turnover of over US $ 250 Billion in 3rd quarter of FY 08-

09.

Sanlam Group,One of the largest listed financial services group in South Africa has entered

into 50:50 joint venture with SMC for setting up wealth Management and Asset Management

business in India,managing over US $ 60 Billion of client assets and operating in over US $

60 Billion of client assets and operating in over 30 countries globally including UK, USA,

Switzerland, Luxembourg, Dublin, Australia etc.

Vision

To be a global major in providing complete investment solutions, with relentless focus on

investor care, through superior efficiency and complete transparency.


CORE VALUES


COMPANY’S APPROACH:-

VALUE FOR INVESTOR’S TRUST: SMC values the trust reposed in by the clients and is

committed to uphold it at all cost.

INTEGRITY AND HONESTY: Integrity, honesty and transparency are the underlying

principles in all our dealings.

PERSONALISZED ATTENTION:The most valued asset is our relationship with the clients,

which has been built over years by giving personalized attention.

NETWORK WHICH WORKS:SMC has a vast network extending to 350+ cities/towns

ensuring easy accessibility, convenience and hassle free trading experience.

RESEARCH BASED ADVISORY SERVICES: SMC offers proactive and timely world class

research based advice and guidance to its clients to enable them to take informed decisions.

COMPANY’S SERVICES

BROKING

Equities, Derivatives, Currency, Commodities, Online Trading, Commodities trading in

international market through DGCX.

INVESTMENT BANKING

IPOs, Follow on offers, M&A, Private equity, Debt syndication, ESOP, valuation,etc.

DISTRIBUTION OF FINANCIAL PRODUCTS

Insurance broking for life and Non-Life products, Distribution of IPOs and Mutual Funds

(with web based capabilities) Mobilization of company fixed deposits and non convertible

debentures, Distribution of bond products- Capital gain/tax saving bonds, Govt. of India 8%

taxable bonds,etc.

DEPOSITORY AND CLEARING SERVICES


Depository Services for shares and commodities, Clearing Services in NSE (F&O, Currency),

BSE (F&O, Currency) MCX (Commodities, Currency) and DGCX.

WEALTH MANAGEMENT

Wealth Advisory & Arbitrage Management for HNIs and Corporate.

NRI AND INSTITUTIONAL DESK

Dedicated team for NRI and Institutional desk.

RESEARCH:-

SMC is having a high tech in-house research wing equipped with highly experienced

personnel & latest technical tools to give right advice at the right time to its clients.

The research based advisory support is forwarded to the clients in the following reports.

• Research Magazine- Wise Money (Weekly) & Wise Fund Focus (Monthly)

distributed to clients.

• Research Based SMS support to clients for both equities and commodities.

• Live interactive chat rooms with the market experts during trading hours.

• Fundamental Research reports sent to clients.

• Daily market update reports sent through E-mails twice daily (morning mantra and

evening buzzer).

• Investor awareness seminars conducted across the country on a regular basis.


THE GROWTH STORY


CHAPTER 2:

REVIEW OF LITERATURE


LITERATURE REVIEW

Similar work that is related to Equity Research and Stock Analysis has been undertaken by

several authors. Some of the thoughts I am briefing out here :

In this article author reports the results of a questionnaire survey conducted in February 1995

on the use by foreign exchange dealers in Hong Kong of fundamental and technical analyses

to form their forecasts of exchange rate movements. Our findings reveal that>85% of

respondents rely on both fundamental and technical analyses for predicting future rate

movements at different time horizons. At shorter horizons, there exists a skew towards

reliance on technical analysis as opposed to fundamental analysis, but the skew becomes

steadily reversed as the length of horizon considered is extended. Technical analysis is

considered slightly more useful in forecasting trends than fundamental analysis, but

significantly more useful in predicting turning points. Interest rate-related news is found to be

a relatively important fundamental factor in exchange rate forecasting, while moving average

and/or other trend-following systems are the most useful technical technique.

(Yu-Hon Lui and David Mole)

In this another study the author documents the behaviour of earnings, abnormal stock returns,

analysts' earnings forecasts, and accounting accruals following years in which companies

report negative annual earnings. Changes in accounting accruals (earnings minus operating

cash flows) frequently are used as proxies for managerial manipulation of earnings numbers.

Our evidence indicates that earnings typically increase sharply in the year following a loss.

The earnings increases are due to improved operating cash flows, not to accounting “window

dressing.” However, financial analysts expect even better earnings performance than the

rebounding firms are able to provide. Investors also appear not to understand the post-loss

behaviour of annual earnings. Therefore, the market commonly is disappointed by the

earnings increases, and the result, on average, is negative excess stock returns. The excess

returns are correlated with analysts' earnings forecast errors, which proxy for the market's

failure to understand post-loss earnings behaviour.

(Michael Ettredge Richard Toolson Steve Hall Chongkil Na, Oct 2002)


Organizational theorists have advanced models of individuals' determination of equitable

payment for work. Current demands by minority and women's groups stress equitable

treatment by formal organizations. This article reviews primary areas in which the concept of

equitable treatment has centered, notes findings, and discusses significant

theoretical/methodological issues. The relationship of the equity concept and behavioral

models is discussed, and frameworks for future research are presented. (Equity Theory: The

Recent Literature, Methodological Considerations, and New Directions, by Michael R.

Carrell and John E. Dittrich)

Equity theory proposes that individuals who perceive themselves as either underrewarded or

overrewarded will experience distress, and that this distress leads to efforts to restore equity.

This paper describes a new construct, equity sensitivity, and proposes that reactions to

equity/inequity are a function of an individual's preferences for different outcome/input

ratios. The construct is delineated through a series of propositions, and implications for

equity research in organizations are discussed. (A New Perspective on Equity Theory: The

Equity Sensitivity Construct, by Richard C. Huseman, John D. Hatfield and Edward W.

Miles )

This paper reviews the existing literature on venture capital and private equity. The paper

emphasises the importance of examining venture capital in the light of recent developments

in corporate finance and its distinctiveness from other forms of finance. In order to

understand current developments, the paper adopts a framework which combines

industry/market and firm levels of analysis. Existing literature is reviewed using this

framework. Industry level issues relate to rivalry between firms, the power of suppliers and

customers, and the threats from new entrants and substitutes. Firm level issues concern deal

generation, initial and second screening, valuation and due diligence, deal approval and

structuring, post-contractual monitoring, investment realisation, and entrepreneurs' exit and

recontracting with venture capitalists. This is followed by a review of the evidence on the

performance of venture capital firms. The paper suggests potentially fruitful areas for further

research including the extension of analysis to cover all stages of venture capital investment,

examination of the inter-linkages between industry and firm level issues and between stages

in the venture capital process, as well as further analysis of deal structuring issues and

investment realisation and recontracting. (Mike Wright, Centre for Management Buy-out

Research, University of Nottingham, Nottingham, UK.)


Equity theory was applied to retail exchange situations to test hypotheses about subjects'

perceptions of inequity and behaviors they would perform. Subjects in Group 1 made

evaluative ratings of 16 hypothetical situations in which two sources of inequity, high price

and poor service, were introduced, along with varying levels of shopping frequency and item

cost. Subjects perceived high price inequity situations as less fair than low ones, and high

service inequity situations as less fair than low ones when price inequity was low. When price

inequity was high, subjects perceived high shopping frequency situations less fair than low

ones. Subjects in Group 2 chose the behavior they would be most likely to perform in each

situation. When inequity was present, most subjects chose leaving the store, although several

chose complaining about price or service when shopping frequency was also high.( An

Application of Equity Theory to Buyer-Seller Exchange Situations, by John W.

Huppertz, Sidney J. Arenson and Richard H. Evans )

The rapid growth of research on organizational citizenship behaviors (OCBs) has resulted in

some conceptual confusion about the nature of the construct, and made it difficult for all but

the most avid readers to keep up with developments in this domain. This paper critically

examines the literature on organizational citizenship behavior and other, related constructs.

More specifically, it: (a) explores the conceptual similarities and differences between the

various forms of "citizenship" behavior constructs identified in the literature; (b) summarizes

the empirical findings of both the antecedents and consequences of OCBs; and (c) identifies

several interesting directions for future research. (Journal of Management, Vol. 26, No. 3,

513-563 (2000))

This literature review examines equity status in vocational education and the impact of

federal legislation. The theory base for gender equity research is analyzed, including females

in nontraditional occupations, preparation for family-work interaction, access to

opportunities, and assessment of equity intervention programs.( Vocational Education

Gender-Equity Research Priorities for the 1990s.Authors: Burge, Penny L.)


CHAPTER 3:

RESEARCH METHODOLOGY


RESEARCH METHODOLOGY & DESIGN

TYPE OF STUDY

The research has been based on secondary data analysis. The study has been exploratory as it

aims at examining the secondary data for analyzing the previous researches that have been

done in the area of technical and fundamental analysis of stocks. The knowledge thus gained

from this preliminary study forms the basis for the further detailed Descriptive research. In

the exploratory study, the various technical indicators that are important for analyzing stock

were actually identified and important ones short listed.

SECURITIES ANALYSIS

An analysis of securities and the organization and operation of their markets. The

determination of the risk reward structure of equity and debt securities and their valuation.

Special emphasis on common stocks. Other topics include options, mutual fluids and

technical analysis.

Technical analysis is a method of predicting price movements and future market trends by

studying charts of past market action which take into account price of instruments, volume of

trading and, where applicable, open interest in the instruments.

Fundamental analysis is a method of forecasting the future price movements of a financial

instrument based on economic, political, environmental and other relevant factors and

statistics that will affect the basic supply and demand of whatever underlies the financial

instrument.


Main differences between the two types of analysis:

Fundamental analysis Technical analysis

Focuses on what ought to happen in a

market

Focuses on what actually happens in a

market

Factors involved in price analysis:

1. Supply and demand

2.Seasonal cycles

3.Weather

4. Government policy

Charts are based on market action

involving:

1.Price

2.Volume

3. Open interest (futures only)


TECHNICAL ANALYSIS

Technical analysis can be conditionally divided into some main parts such as:

• Types of charts

• Graphical methods

• Analytical methods

Technical analysis is concerned with predicting future price trends from historical price and

volume data. The underlying axiom of technical analysis is that all fundamentals (including

expectations) are factored into the market and are reflected in exchange rates.

A technical analysis is based on three axioms:

• Movement of the market considers everything

• Movement of prices is purposeful

• History repeats itself

SUPPORT AND RESISTANCE

Support is a level at which bulls (i.e., buyers) take control over the prices and prevent them

from falling lower.

Resistance, on the other hand, is the point at which sellers (bears) take control of prices and

prevent them from rising higher. The price at which a trade takes place is the price at which a

bull and bear agree to do business. It represents the consensus of their expectations.


Support levels indicate the price where the most of investors believe that prices will move

higher. Resistance levels indicate the price at which the most of investors feel prices will

move lower.

Role Reversal

When a resistance level is successfully broken through, that level becomes a support level.

Similarly, when a support level is successfully broken through, that level becomes a

resistance level.

Three Movements

Markets fluctuate in more than one time frame at the same time:

Nothing is more certain than that the market has three well defined movements which fit into

each other.

• The first is the daily variation due to local causes and the balance of buying and

selling at that particular time.


• The secondary movement covers a period ranging from ten days to sixty days,

averaging probably between thirty and forty days.

• The third move is the great swing covering from four to six years.

• Bull markets are broad upward movements of the market that may last several years,

interrupted by secondary reactions. Bear markets are long declines interrupted by

secondary rallies. These movements are referred to as the primary trend.

• Secondary movements normally retrace from one third to two thirds of the primary

trend since the previous secondary movement.

• Daily fluctuations are important for short-term trading, but are unimportant in analysis

of broad market movements.

Various cycles have subsequently been identified within these broad categories.

Primary Movements have Three Phases

The general conditions in the market:

Bull markets

• Bull markets commence with reviving confidence as business conditions improve.

• Prices rise as the market responds to improved earnings

• Rampant speculation dominates the market and price advances are based on hopes

and expectations rather than actual results.

Bear markets

• Bear markets start with abandonment of the hopes and expectations that sustained

inflated prices.

• Prices decline in response to disappointing earnings.


• Distress selling follows as speculators attempt to close out their positions and

securities are sold without regard to their true value.

Trends

Bull Trends

A bull trend is identified by a series of rallies where each rally exceeds the highest point of

the previous rally. The decline, between rallies, ends above the lowest point of the previous

decline.

Successive higher highs and higher lows.

The start of an up trend is signaled when price makes a higher low (trough), followed by a

rally above the previous high (peak):

Start = higher Low + break above previous High.

The end is signaled by a lower high (peak), followed by a decline below the previous low

(trough):

End = lower High + break below previous Low.

A bear trend starts at the end of a bull trend: when a rally ends with a lower peak and then

retreats below the previous low. The end of a bear trend is identical to the start of a bull trend.


MOVING AVERAGES

Moving averages are one of the oldest and most popular technical analysis tools. A moving

average is the average price of a financial instrument over a given time.

The moving average represents the consensus of investor’s expectations over the indicated

period of time.

The classic interpretation of a moving average is to use it in observing changes in prices.

Investors typically buy when the price of an instrument rises above its moving average and

sell when the it falls below its moving average.


FUNDAMENTAL ANALYSIS

Fundamental analysis refers to the study of the core underlying elements that influence the

economy of a particular entity. It is a method of study that attempts to predict price action and

market trends by analyzing economic indicators, government policy and societal factors (to

name just a few elements) within a business cycle framework.

I. ECONOMIC ANALYSIS:

POLITICO-ECONOMIC ANALYSIS:

No industry or company can exist in isolation. It may have splendid managers and a

tremendous product. However, its sales and its costs are affected by factors, some of which

are beyond its control - the world economy, price inflation, taxes and a host of others. It is

important, therefore, to have an appreciation of the politico-economic factors that affect an

industry and a company.

II. INDUSTRY ANALYSIS

The importance of industry analysis is now dawning on the Indian investor as never before.

1. BARRIER TO ENTRY

New entrants increase the capacity in an industry and the inflow of funds. The question that

arises is how easy is it to enter an industry?

There are some barriers to entry:

a) Economies of scale

b) Product differentiation

c) Capital requirement

d) Government policy

2. THE THREAT OF SUBSTITUTION

New inventions are always taking place and new and better products replace existing ones.

An industry that can be replaced by substitutes or is threatened by substitutes is normally an

industry one must be careful of investing in. An industry where this occurs constantly is the


packaging industry -bottles replaced by cans, cans replaced by plastic bottles, and the like. To

ward off the threat of substitution, companies often have to spend large sums of money in

advertising and promotion.

3. BARGAINING POWER OF THE BUYERS

In an industry where buyers have control, i.e. in a buyer's market, buyers are constantly

forcing prices down, demanding better services or higher quality and this often erodes

profitability.

4. BARGAINING POWER FOR THE SUPPLIERS

An industry unduly controlled by its suppliers is also under threat.

5. RIVALRY AMONG COMPETITORS

Rivalry among competitors can cause an industry great harm. This occurs mainly by price

cuts, heavy advertising, additional high cost services or offers, and the like.

III. COMPANY ANALYSIS:

At the final stage of fundamental analysis, the investor analyzes the company. This analysis

has two thrusts:

How has the company performed vis-à-vis other similar companies and How has the

company performed in comparison to earlier years

It is imperative that one completes the politico economic analysis and the industry analysis

before a company is analyzed because the company's performance at a period of time is to an

extent a reflection of the economy, the political situation and the industry. What does one

look at when analyzing a company?

The different issues regarding a company that should be examined are:

• The Management

• The Company

• The Annual Report


RATIOS

1. Earnings per Share – EPS

2. Price to Earnings Ratio – P/E

3. Projected Earning Growth – PEG

4. Price to Sales – P/S

5. Price to Book – P/B

6. Dividend Payout Ratio

7. Dividend Yield

8. Book Value

9. Return on Equity

No single number from this list is a magic bullet that will give a buy or sell recommendation

by itself, however as one begin developing a picture of what he want in a stock, these

numbers will become benchmarks to measure the worth of potential investments.

Earnings per Share

One of the challenges of evaluating stocks is establishing an “apples to apples” comparison.

What I mean by this is setting up a comparison that is meaningful so that the results help you

make an investment decision.

Comparing the price of two stocks is meaningless as I point out in this analysis “Why Per-

Share Price is Not Important.”

Similarly, comparing the earnings of one company to another really doesn’t make any sense,

if think about it. Using the raw numbers ignores the fact that the two companies undoubtedly

have a different number of outstanding shares.

For example, companies A and B both earn $100, but company A has 10 shares outstanding,

while company B has 50 shares outstanding. Which company’s stock do you want to own?

It makes more sense to look at earnings per share (EPS) for use as a comparison tool. You

calculate earnings per share by taking the net earnings and divide by the outstanding shares.

EPS = Net Earnings / Outstanding Shares


Using example above, Company A had earnings of $100 and 10 shares outstanding, which

equals an EPS of 10 ($100 / 10 = 10). Company B had earnings of $100 and 50 shares

outstanding, which equals an EPS of 2 ($100 / 50 = 2).

So, one should go buy Company A with an EPS of 10, right? Maybe, but not just on the basis

of its EPS. The EPS is helpful in comparing one company to another, assuming they are in

the same industry, but it doesn’t tell whether it’s a good stock to buy or what the market

thinks of it. For that information, we need to look at some ratios.

Before move on, it should note that there are three types of EPS numbers:

• Trailing EPS – last year’s numbers and the only actual EPS

• Current EPS – this year’s numbers, which are still projections

• Forward EPS – future numbers, which are obviously projections

Price to Earnings Ratio

If there is one number that people look at than more any other it is the Price to Earnings Ratio

(P/E). The P/E is one of those numbers that investors throw around with great authority as if

it told the whole story. Of course, it doesn’t tell the whole story (if it did, we wouldn’t need

all the other numbers.)

The P/E looks at the relationship between the stock price and the company’s earnings. The

P/E is the most popular metric of stock analysis, although it is far from the only one should

consider.

P/E by taking the share price and dividing it by the company’s EPS.

P/E = Stock Price / EPS

For example, a company with a share price of $40 and an EPS of 8 would have a P/E of 5

($40 / 8 = 5).

The P/E gives an idea of what the market is willing to pay for the company’s earnings. The

higher the P/E the more the market is willing to pay for the company’s earnings. Some


investors read a high P/E as an overpriced stock and that may be the case, however it can also

indicate the market has high hopes for this stock’s future and has bid up the price.

Conversely, a low P/E may indicate a “vote of no confidence” by the market or it could mean

this is a sleeper that the market has overlooked. Known as value stocks, many investors made

their fortunes spotting these “diamonds in the rough” before the rest of the market discovered

their true worth.

What is the “right” P/E? There is no correct answer to this question, because part of the

answer depends on willingness to pay for earnings. The more are willing to pay, which

means you believe the company has good long term prospects over and above its current

position, the higher the “right” P/E is for that particular stock in decision-making process.

Another investor may not see the same value and think your “right” P/E is all wrong.

PEG Ratio

In my analysis on Price to Earnings Ratio or P/E , I noted that this number gave you an idea

of what value the market place on a company’s earnings.

The P/E is the most popular way to compare the relative value of stocks based on earnings

because you calculate it by taking the current price of the stock and divide it by the Earnings

per Share (EPS). This tells you whether a stock’s price is high or low relative to its earnings.

Some investors may consider a company with a high P/E overpriced and they may be correct.

A high P/E may be a signal that traders have pushed a stock’s price beyond the point where

any reasonable near term growth is probable.

However, a high P/E may also be a strong vote of confidence that the company still has

strong growth prospects in the future, which should mean an even higher stock price.

Because the market is usually more concerned about the future than the present, it is always

looking for some way to project out. Another ratio you can use will help you look at future

earnings growth is called the PEG ratio. The PEG factors in projected earnings growth rates

to the P/E for another number to remember.

calculate the PEG by taking the P/E and dividing it by the projected growth in earnings.


PEG = P/E / (projected growth in earnings)

For example, a stock with a P/E of 30 and projected earning growth next year of 15% would

have a PEG of 2 (30 / 15 = 2).

What does the “2” mean? Like all ratios, it simply shows you a relationship. In this case, the

lower the number the less you pay for each unit of future earnings growth. So even a stock

with a high P/E, but high projected earning growth may be a good value.

Looking at the opposite situation; a low P/E stock with low or no projected earnings growth,

see that what looks like a value may not work out that way. For example, a stock with a P/E

of 8 and flat earnings growth equals a PEG of 8. This could prove to be an expensive

investment.

A few important things to remember about PEG:

• It is about year-to-year earnings growth

• It relies on projections, which may not always be accurate

Price to Sales Ratio

One have a number of tools available to you when it comes to evaluating companies with

earnings. The first three articles listed at the bottom of this article, in particular deal with

earnings directly. You can add the two others on dividends and the one on return on equity to

the list as specific to companies that are or have made money in the past.

Does that mean companies that don’t have any earnings are bad investments? Not

necessarily, but you should approach companies with no history of actually making money

with caution.

The Internet boom of the late 1990s was a classic example of hundreds of companies coming

to the market with no history of earning – some of them didn’t even have products yet.

Fortunately, that’s behind us.

However, we still have the problem of needing some measure of young companies with no

earnings, yet worthy of consideration. After all, Microsoft had no earnings at one point in its

corporate life.


One ratio you can use is Price to Sales or P/S ratio. This metric looks at the current stock

price relative to the total sales per share. You calculate the P/S by dividing the market cap of

the stock by the total revenues of the company.

calculate the P/S by dividing the current stock price by the sales per share.

P/S = Market Cap / Revenues

Or

P/S = Stock Price / Sales Price per Share

Much like P/E, the P/S number reflects the value placed on sales by the market. The lower

the P/S, the better the value, at least that’s the conventional wisdom. However, this is

definitely not a number you want to use in isolation. When dealing with a young company,

there are many questions to answer and the P/S supplies just one answer.

Price to Book Ratio

Investors looking for hot stocks aren’t the only ones trolling the markets. A quiet group of

folks called value investors go about their business looking for companies that the market has

passed by.

Some of these investors become quite wealthy finding sleepers, holding on to them for the

long term as the companies go about their business without much attention from the market,

until one day they pop up on the screen, and some analyst “discovers” them and bids up the

stock. Meanwhile, the value investor pockets a hefty profit.

Value investors look for some other indicators besides earnings growth and so on. One of the

metrics they look for is the Price to Book ratio or P/B. This measurement looks at the value

the market places on the book value of the company.

calculate the P/B by taking the current price per share and dividing by the book value per

share.

P/B = Share Price / Book Value per Share

Like the P/E, the lower the P/B, the better the value. Value investors would use a low P/B is

stock screens, for instance, to identify potential candidates.


Dividend Payout Ratio

There are some metrics used in fundamental analysis that fall into what I call the “ho-hum”

category.

The Dividend Payout Ratio (DPR) is one of those numbers. It almost seems like a

measurement invented because it looked like it was important, but nobody can really agree on

why.

The DPR (it usually doesn’t even warrant a capitalized abbreviation) measures what a

company’s pays out to investors in the form of dividends.

Calculate the DPR by dividing the annual dividends per share by the Earnings Per Share.

DPR = Dividends Per Share / EPS

For example, if a company paid out $1 per share in annual dividends and had $3 in EPS, the

DPR would be 33%. ($1 / $3 = 33%)

The real question is whether 33% is good or bad and that is subject to interpretation. Growing

companies will typically retain more profits to fund growth and pay lower or no dividends.

Companies that pay higher dividends may be in mature industries where there is little room

for growth and paying higher dividends is the best use of profits (utilities used to fall into this

group, although in recent years many of them have been diversifying).

Either way, you must view the whole DPR issue in the context of the company and its

industry. By itself, it tells you very little.

Dividend Yield

Not all of the tools of fundamental analysis work for every investor on every stock. If you are

looking for high growth technology stocks, they are unlikely to turn up in any stock screens

you run looking for dividend paying characteristics.

However, if you are a value investor or looking for dividend income then there are a couple

of measurements that are specific to you. For dividend investors, one of the telling metrics is

Dividend Yield.


This measurement tells you what percentage return a company pays out to shareholders in the

form of dividends. Older, well-established companies tend to payout a higher percentage then

do younger companies and their dividend history can be more consistent.

You calculate the Dividend Yield by taking the annual dividend per share and divide by the

stock’s price.

Dividend Yield = annual dividend per share / stock's price per share

For example, if a company’s annual dividend is $1.50 and the stock trades at $25, the

Dividend Yield is 6%. ($1.50 / $25 = 0.06)

Book Value

How much is a company worth and is that value reflected in the stock price?

There are several ways to define a company’s worth or value. One of the ways you define

value is market cap or how much money would you need to buy every single share of stock at

the current price.

Another way to determine a company’s value is to go to the balance statement and look at the

Book Value. The Book Value is simply the company’s assets minus its liabilities.

Book Value = Assets - Liabilities

In other words, if you wanted to close the doors, how much would be left after you settled all

the outstanding obligations and sold off all the assets.

A company that is a viable growing business will always be worth more than its book value

for its ability to generate earnings and growth.

Book value appeals more to value investors who look at the relationship to the stock's price

by using the Price to Book ratio.

To compare companies, you should convert to book value per share, which is simply the

book value divided by outstanding shares.


Return on Equity

If you give some management teams a couple of boards, some glue, and a ball of string, they

can build a profitable growing business, while other teams can’t make a profit with several

billion dollars worth of assets.

Return on Equity (ROE) is one measure of how efficiently a company uses its assets to

produce earnings. You calculate ROE by dividing Net Income by Book Value. A healthy

company may produce an ROE in the 13% to 15% range. Like all metrics, compare

companies in the same industry to get a better picture.

While ROE is a useful measure, it does have some flaws that can give you a false picture, so

never rely on it alone. For example, if a company carries a large debt and raises funds

through borrowing rather than issuing stock it will reduce its book value. A lower book value

means you’re dividing by a smaller number so the ROE is artificially higher. There are other

situations such as taking write-downs, stock buy backs, or any other accounting slight of hand

that reduces book value, which will produce a higher ROE without improving profits.

It may also be more meaningful to look at the ROE over a period of the past five years, rather

than one year to average out any abnormal numbers.

Given that you must look at the total picture, ROE is a useful tool in identifying companies

with a competitive advantage. All other things roughly equal, the company that can

consistently squeeze out more profits with their assets, will be a better investment in the long

run.

The common mistake many people tend to make is to associate this with only buying

low price-to-earnings ratio stocks. While this approach has certainly generated above-average

returns over long-periods of time, it is not the ideal situation.

Understanding Intrinsic Value and Why Different Businesses Deserve Different Valuations

At its core, the basic definition for the intrinsic value of every asset in the world is simple: It

is all of the cash flows that will be generated by that asset discounted back to the present

moment at an appropriate rate those factors in opportunity cost (typically measured against

the risk-free U.S. Treasury) and inflation. Figuring out how to apply that to individual stocks


can be extremely difficult depending upon the nature and economics of the particular

business. As Benjamin Graham, the father of the security analysis industry, entreated his

disciples, however, one need not know the exact weight of a man to know that he is fat or the

exact age of a woman to know she is old. By focusing only on those opportunities that are

clearly and squarely in your circle of competence and you know to be better than average,

you have a much higher likelihood of experiences good, if not great, results over long periods

of time.

All businesses are not created equal. An advertising firm that requires nothing more than

pencils and desks is inherently a better business than a steel mill that, just to begin operating,

requires tens of millions of dollar or more in startup capital investment. All else being equal,

an advertising firm rightfully deserves a higher price to earnings multiple because in an

inflationary environment, the owners (shareholders) aren’t going to have to keep shelling out

cash for capital expenditures to maintain the property, plant, and equipment. This is also why

intelligent investors must distinguish between the reported net income figure and true,

“economic” profit, or “owner” earnings as Warren Buffett has called it. These figures

represent the amount of cash that the owner could take out of the business and reinvest

elsewhere or spend on diamonds, houses, planes, charitable donations, or gold-plated fine

china.

In other words, it doesn’t matter what the reported net income is, but rather, how many

hamburgers the owner can buy relative to his investment in the business. That’s why capital-

intensive enterprises are typically anathema to long-term investors as they realize very little

of their reported income will translate into tangible, liquid wealth because of a very, very

important basic truth: Over the long-term, the rise in an investor’s net worth is limited to

the return on equity generated by the underlying company. Anything else, such as relying on

a bull market or that the next person in line will pay more for the company than you (the

appropriately dubbed “greater fool” theory) is inherently speculative. I don’t know about you,

but I don’t want to be in doubt about my ability to retire comfortably.

The result of this fundamental viewpoint is that two businesses might have identical earnings

of $10 million, yet Company ABC may generate only $5 million and the other, Company

XYZ, $20 million in “owner earnings”. Therefore, Company XYZ could have a price-to-

earnings ratio four times higher than its competitor ABC yet still be trading at the same value.


CHAPTER 4:

ANALYSIS OF EDUCOMP SOLUTIONS LTD.


ECONOMIC ANALYSIS

India's economy is booming after China and as of 30th May 2008, the Indian economy is now

worth $1 thrillion. Examining some of India's economic indicators will provide a glimpse of

what's in store for foreign exchange investors.

The Reserve Bank of India, the Securities and Exchange Board of India (SEBI), the Center

for Monitoring the Indian Economy (CMIE) and other key organizations publish statistics on

different aspects of the Indian economy on a monthly, quarterly, and yearly basis. Indian

economy statistics paint a telling and accurate picture of the ins and outs of a large and

dynamic economy on the move. Thanks to a steady trend of growth observed in recent years,

supported by a flourishing real estate and service sector, the Indian economy continues to

grow at an incredible rate.

Originally, the catalyst for this recent growth was a boom in the IT industry, which has had

sustained growth for a number of years. Industrial production has also increased at a

considerable rate. With exports growing in both the manufacturing and services sectors,

foreign exchange reserves have grown year-on-year.

Some of the primary economic indicators for India are as follows:

Economic Indicators

03-07 avg. 2008

2009

GDP (% growth, real) 8.9 7.4

4.9

Inflation (%, year-end) 4.9 8.2

5.4

Fiscal Balance (% of

GDP)

-3.8 -6.0

7.0

Exports (% growth) 24.3 20.1

-8.0


Imports (% growth) 30.7 33.1

-8.5

Current Account (% of

GDP)

-0.3 -3.6

-4.0

Reserves (month of

imports)

9.9 7.6

7.7

External Debt (% of

GDP)

16.0 14.0

14.6

Debt Service ratio 10.5 6.2 7.1

Source: EIU, EDC Economics


INFLATION:

INTRODUCTION:-

Inflation is a concept that comes into account at the times of boom period. Inflation is related

to boom phase and deflation is related to depression phase. Every countries and economies of

the world tries to reduce down the inflation to a level where it will better for the development

of the economy.

DEFINITION:-

There are various types of definition on the term inflation. Some of the definitions are given

below.

In economics it is defined as “Inflation is a rise in the general level of prices of goods and

services in an economy over a period of time.”

In other words “Inflation is an increase in the prices of basket of goods and services that is

presentative of the economy as a whole.”

In other way inflation is basically the surplus money chasing the available goods and

services. It is also a fact that the rate of change in inflation is also affected by the continuing

increase in population.

REASON FOR THE INFLATION:-

1-increase in demand and fall in supply

2-lack of competition and advanced technology

3-defective monetary policy

4-hoarding and black marketing

5-weak public distribution system


TYPES OF INFLATION:-

There are basically two types of inflation. They are---

� Demand pull inflation

� Cost push inflation

� About demand pull inflation:---

Demand pull inflation takes place when the total demand for goods and services surpasses

that of the total supply. It is also characterized by an increase in the GDP and reduction in

the unemployment problem.

� About cost push inflation:----

Cost push inflation happens when there is a decrease in the aggregate supply. The reason

for the decrease in aggregate supply is due to---

1-Increase in wage rate.

2-Increase in the prices of raw materials.

VARIOUS METHODS OF MEASURING INFLATION:-

There are various methods of measuring inflation. Some of the important methods which are

used all over the world are----

� Consumer Price Index

� Wholesale Price Index

� Commodity Price Index

� Core price index

� Cost of Living Index


� Producer Price Index

� Capital Goods Price Index

� Corporate goods price index

SOME IMPORTANT CONCEPTS REGARDING INFLATION:-

There are some of the important concepts regarding the term inflation which are very

important for any economy. So we must focus on some of those terms. They are-----

I-STAGFLATION: -

It is a concept that is related to inflation which can be a problem for any economy. Stagflation

is a concept which is a combination of both inflation and unemployment. If situations like

this arise for any country in the world this will be considered as the phase for that country.

Like we can give the present example of the country Zimbabwe where there is this problem

of stagflation arise and due to which the entire country is in problem.

II-DISINFLATION: -

It is just a phase which shows the declining in the rate of inflation. But disinflation is the

slowing down in the rate of inflation but it must be above the 0% level. It must not be

negative; otherwise it will be considered as deflation which is related to the depression

phase.


DATAS OF INFLATION IN VARIOUS REGIONS AROUND THE WORLD:-

REGIONS 1975 1985 1995 2000 2005

EAST ASIA AND

PACIFIC

---- 3 8 3 6

EUROPEAND

CENTRAL ASIA

---- ---- 56 13 7

LATINAMERICA

ANDCARIBBEAN

15 16 12 7 6

MIDDLEEAST

ANDNORTH

AFRICA

5 4 8 7 6

SOUTH ASIA 24 7 9 4 6

SUBSAHARAN

AFRICA

11 10 10 6 8

(NOTE: - 9% IN ALL DEVELOPING REGIONS)

ANALYSIS: - The data’s of the inflation region wise from 1975 to 2005 with a gap of 5

years. In all developed region the inflation rate revolves around 7%-8% in all through this

years. So this can be related to growth process and growth aspects in all these regions

because moderate inflation is always beneficial for the economy and it also denominates the

continuance of boom phase.


ASIAN COUNTRIES' INFLATION RATE (% PER YEAR)

Country

2002 2003 2004 2005

2006 2007 2008

Cambodia 3.3 1.2 3.9 5.8 4.7 4.2 3.5

China -0.8 1.2 3.9 1.8 1.5 1.8 2.2

Hong Kong -3.0 -2.6 -0.4 1.0 2.0 1.6 2.3

India 3.4 5.4 6.4 4.4 5.5 5.0 5.0

Indonesia 11.9 6.8 6.1 10.5 13.1 6.2 6.1

Korea 2.8 3.4 3.6 2.8 2.2 2.4 2.6

Laos 10.7 15.5 10.5 7.2 6.8 5.0 5.2

Malaysia 1.8 1.1 1.4 3.0 3.6 2.7 2.7

Philippines 3.0 3.5 6.0 7.6 6.2 4.8 5.0

Singapore -0.4 0.5 1.7 0.5 1.0 1.6 1.0

Thailand 0.6 1.8 2.8 4.5 4.6 2.5 2.5

Vietnam 3.8 3.1 7.8 8.3 7.5 6.8 6.3

Source : RBI

Analysis: - The above figures in table are showing the inflation rate prevailing in the various

Asian countries from the year 2002 to 2008. It can very clearly stated that from the year

2007 up to 2008 the inflation rate in the Asian countries are between 1% to 8% which is a

little bit stable I comparison to the previous years. The highest inflation is achieved by the

Asian country LAOS in the year 2003.Where as the highest deflation was shown by china in

the year 2002. But by comparison among the inflation in different countries form 2002-2008,

it can be observed that the rate was under control after 2005.


Graphical presentation of the inflation rate in the Asian country’s (% per year)

ASIAN COUNTRIES' INFLATION RATE (% PER YEAR)

-5

0

5

10

15

20

Cou

ntry

Cam

bodia

China

Hon

g Kon

g

India

Indo

nesia

Kor

ea

Laos

Malay

sia

Philip

pine

s

Singa

pore

Tha

iland

Vietnam

Countries

Inflation rate

s

Years

ANALYSIS: - From the above graph that is showing the inflation rate of different Asian

countries from the year 2002 to 2008. It is easy to pick this fact that inflation rate is under

control with a moderate rate in the year 2007. The rate was below 5% through out the year.

The year 2005 and 2006 also showing the moderate amount of inflation which was under

control for all the Asian countries. This is the reason for which the growth rate for the Asian

countries was good in the years 2005, 2006 and 2007. In the year 2003 there is the largest

variation in the rate inflation which is shown in the graph. The highest inflation was achieved

by the country Laos in the year 2003 which stood over 15%. The lowest rate was achieved by

the country Hong Kong i.e. the deflation. The deflation rate of the country stood at -0.25% in

the year 2002.


ANALYSIS ABOUT INFLATION IN INDIA:-

In case of in inflation in India I have taken data in weekly basis for the year 2007 and

2008.The inflation rate in these two periods for India is given below in tabular form as well

as in graphical form. The analysis part of these graphs is also given for each of the year.

INFLATION RATE FOR THE YEAR 2007(WEEKLY)

DATE INFLATION RATE

6/1/2007 6.371049949

13/01/2007 6.154628688

20/01/2007 6.31043257

27/01/2007 6.687085248

3/2/2007 6.581632653

10/2/2007 6.523955148

17/02/2007 6.049822064

24/02/2007 6.199186992

3/3/2007 6.513994911

10/3/2007 6.510681587

17/03/2007 6.558210473

24/03/2007 6.54158215

31/03/2007 5.941591138

7/4/2007 6.441872169


14/04/2007 6.338028169

21/04/2007 6.068204614

28/04/2007 6.012024048

5/5/2007 5.735660848

12/5/2007 5.619094978

19/05/2007 5.30490828

26/05/2007 5.151064884

2/6/2007 5.09396637

9/6/2007 4.283604136

16/06/2007 4.127764128

23/06/2007 4.322200393

30/06/2007 4.41609421

7/7/2007 4.610102992

14/07/2007 4.757233938

21/07/2007 4.652301665

28/07/2007 4.6989721

4/8/2007 4.39453125

11/8/2007 4.243902439

18/08/2007 3.99026764

25/08/2007 3.935860058

1/9/2007 3.718010623

8/9/2007 3.464870067


15/09/2007 3.514684641

22/09/2007 3.511303511

29/09/2007 3.360537686

6/10/2007 3.216514642

13/10/2007 3.068072867

20/10/2007 3.11302682

27/10/2007 3.11153662

3/11/2007 3.347680536

10/11/2007 3.204208513

17/11/2007 3.349282297

24/11/2007 3.108560497

1/12/2007 3.890489914

8/12/2007 3.840614498

15/12/2007 3.838771593

22/12/2007 3.739213806

Source : self generated on the basis of WPI given on RBI site


WEEKLY INFLATION RATE OF INDIA

IN 2007(WEEKLY)

0

1

2

3

4

5

6

7

10/2

/2007

17/0

3/200

7

21/0

4/200

7

26/0

5/200

7

30/0

6/200

7

4/8/2

007

8/9/2

007

13/1

0/200

7

17/1

1/200

7

22/1

2/200

7

DATE

INF

LA

TIO

N R

AT

E

Series1

ANALYSIS: - In the year 2007 the inflation rate is almost stable. The rate varies between

3%-6% which is very stable for the economy. Due to this type of control inflation in the year

2007 India has achieved a GDP growth rate of around 8%. A moderate inflation is good for

the economy. In this year the country is able to maintain a low inflation rate which is the

important reason for the growth achieved by the country in this period.


INFLATION RATE FOR THE YEAR 2008(WEEKLY)

DATE INFLATION RATE

5/1/2008 4.26449449

12/1/2008 4.360325827

19/01/2008 4.451890857

26/01/2008 4.784688995

2/2/2008 4.739109622

9/2/2008 4.976076555

16/02/2008 5.656759348

23/02/2008 5.693779904

1/3/2008 6.211180124

8/3/2008 7.784145177

15/03/2008 8.015267176

22/03/2008 7.853403141

29/03/2008 7.747148289

5/4/2008 7.706855792

12/4/2008 7.947019868

19/04/2008 8.226950355

26/04/2008 8.270321361

3/5/2008 8.726415094

10/5/2008 8.56873823


17/05/2008 8.662900188

24/05/2008 8.902496467

31/05/2008 9.317647059

7/6/2008 11.66194523

14/06/2008 11.79801793

21/06/2008 11.91148776

28/06/2008 12.03007519

5/7/2008 12.18940459

12/7/2008 12.12546816

S19/07/2008 12.54094525

26/07/2008 12.52921926

2/8/2008 12.90926099

9/8/2008 12.82171268

16/08/2008 12.82171268

23/08/2008 12.76297335

30/08/2008 12.38361266

6/9/2008 12.41860465

13/09/2008 12.41860465

20/09/2008 12.12825279

27/09/2008 12.07617278

4/10/2008 11.48837209

11/10/2008 11.30232558


18/10/2008 10.82210869

25/10/2008 10.72423398

1/11/2008 8.699676076

8/11/2008 8.711770158

15/11/2008 8.657407407

22/11/2008 8.256029685

29/11/2008 7.859454461

6/12/2008 6.56495608

13/12/2008 6.23844732

20/12/2008 5.914972274

Source : self generated on basis of WPI Given on rbi web site


INFLATION RATE IN 2008 FOR INDIA(WEEKLY)

0

2

4

6

8

10

12

14

5/1/

2008

9/2/

2008

15/0

3/20

08

19/0

4/20

08

24/0

5/20

08

28/0

6/20

08

2/8/

2008

6/9/

2008

11/1

0/20

08

15/1

1/20

08

20/1

2/20

08

DATE

INF

LA

TIO

N R

AT

E

INFLATION RATE

ANALYSIS: - Here in the year 2008 the inflation rate varies greatly in weekly basis. The

rate of inflation varies from a lower rate of 4% to as high as 12%. This is definitely not good

for any economy because the variation in the inflation rate is very large. This is also one of

the reasons for the lower in the growth rate of India in 2008 in comparison to the year 2007.

The inflation rate is definitely little bit volatile through out this year which is not a good sign

for the economy. In most of the cases the inflation rate for our country in the year remains

above the 8.5% which is a figure above the ideal and moderate inflation which is considered

as good for the economy and country. The inflation rate was under control till the end of the

first quarter of the year. After that the rate has increased in the next coming quarters all

through the years. The reason behind this is the global financial crisis.


QUATERLY GRAPHICAL PRESENATATION OF INFLATION RATE OF

INDIA FOR THE YEAR 2008

(1)

IST QUARTER OF 2008(WEEKLY)

0

1

2

3

4

5

6

7

8

9

5/1/

2008

12/1

/200

8

19/0

1/20

08

26/01/

2008

2/2/

2008

9/2/

2008

16/0

2/20

08

23/02/

2008

1/3/

2008

8/3/

2008

15/0

3/20

08

22/03/

2008

29/0

3/20

08

DATE

INF

LA

TIO

N R

AT

E

Series1

Source : self generated

(2)

2ND QUARTER OF 2008(WEEKLY)

0

2

4

6

8

10

12

14

5/4

/2008

12/4

/2008

19/0

4/2

008

26/0

4/2

008

3/5

/2008

10/5

/2008

17/0

5/2

008

24/0

5/2

008

31/0

5/2

008

7/6

/2008

14/0

6/2

008

21/0

6/2

008

28/0

6/2

008

DATE

INF

LA

TIO

N R

ATE

Series1

(3)


3RD QUARTER 2008 (WEEKLY)

11.6

11.8

12

12.2

12.4

12.6

12.8

13

5/7/2

008

19/07

/2008

2/8/2

008

16/08

/2008

30/08

/2008

13/09

/2008

27/09

/2008

DATE

INF

AL

TIO

N R

AT

E

Series1

4TH QUARTER OF 2008(WEEKLY)

0

2

4

6

8

10

12

14

4/10

/2008

11/10/2

008

18/10/2

008

25/10/2

008

1/11

/2008

8/11

/2008

15/11/2

008

22/11/2

008

29/11/2

008

6/12

/2008

13/12/2

008

20/12/2

008

DATE

INF

LA

TIO

N R

AT

E

Series1


(4)



ANALYSIS OF THE GRAPHS (QUARTERLY RESULTS FOR 2008) GIVEN

ABOVE: -

If compare all the graphs of each quarter of 2008 then we will find that the there is a less

volatility in the rate of inflation in the first and second quarter. But in the last two quarter the

volatility in the interest is a little bit volatile in comparison to the first and second quarter. In

the 1st quarter in most of the time the inflation rate was just below the 8% level which is a

moderate inflation rate for a developing country like India which is just above the normal

level where as in the 2nd quarter the inflation rate mostly revolves around the 9% level which

is a bit more inflation rate for a developing country like India. But in the last phase of the 2nd

quarter the inflation rate gone above the 10% level which is not a good sign for the economy.

It almost crosses the 12% level in the last phase of 2nd quarter. 3rd quarter is the one which is

showing the maximum volatility in the change of inflation level. In the last quarter (4th) the

inflation rate is showing a declining rate. It decreases from a level of 12% to below 8%

towards the last phase of the last quarter. If compare the result of all this quarter then we will

find that the highest inflation was achieved in the 3rd quarter which was around 12.9%. The

lowest inflation rate was achieved in the initial phase of the 1st quarter which is around 4.5%

level. So on an average the inflation rate was around the 8% level thorough out the year 2008

which is regarded as a moderate inflation for the development for any country or any

economy. For a developing country like India a moderate inflation of around 8% is always

good to achieve a good growth rate.


INFLATION RATE IN INDIA FOR THE YEAR 2009(WEEKLY)

DATE INFLATION RATE

3/1/2009 5.33088

10/1/2009 5.46373

17/01/2009 4.94959

24/01/2009 4.7032

31/01/2009 4.38757

7/2/2009 3.91978

14/02/2009 3.35753

21/02/2009 3.03305

28/02/2009 2.42915

7/3/2009 0.44307

14/03/2009 0.26502

21/03/2009 0.30891

Source : self generated on the basis of WPI given on RBI site


FIRST QUARTER INFLATION RATE(2009)

0

1

2

3

4

5

6

3/1/20

09

17/01/20

09

31/01/20

09

14/02/20

09

28/02/20

09

14/03/20

09

DATE

INFLA

TIO

N R

ATE

INFLATION RATE


ANALYSIS: - From the above graph which is showing the inflation rate for the first quarter

of 2009 it can be very easily mark that the inflation rate is on a declining stage. The rate of

inflation is continuously decreasing over the first quarter. At the end of last quarter means

towards the end of the month March the rate is at 0.35%. On an average the rate of inflation

varies mainly between 0% to 1% in the month of February and March for the year 2009. The

main cause behind the continuous decline in the inflation rate not only India but also all over

the world is due to the fact of global economic slowdown and the global financial crisis. It

can be said that the inflation rate is much below the fundamental level which known as the

moderate inflation which is beneficial for the developing countries like India. In the present

situation the inflation has gone below the 1% level. So if it falls below 0% level then the

economy can go into the phase of deflation which is associated with the depression phase for

any economy.

CONCLUSION: - Inflation rate is one of the economic indicators for any of the economy of

the world. It shows the economic soundness of any country. The lower the inflation rate the

better it is for the countries but a moderate level of inflation is always good for any economy

and for any country. It can be concluded from the above analysis made in the report that the

reason behind the stable growth rate of India in the recent years is the fact that it is able to

keep a very a good moderate inflation rate.


Inflation And Stock Market

Inflation is a state in the economy of a country, when there is a price rise of goods as

well as services. To meet the required price rise, individuals have to shell out more than is

presumed. With increase in inflation, every sector of the economy is affected. Ranging from

unemployment, interest rates, exchange rates, investment, stock markets, there is an aftermath

of inflation in every sector. Inflation is bound to impact all sectors, either directly or

indirectly. Inflation and stock market have a very close association. If there is inflation, stock

markets are the worst affected.

Prices of stocks are determined by the net earnings of a company. It depends on how

much profit, the company is likely to make in the long run or the near future. If it is reckoned

that a company is likely to do well in the years to come, the stock prices of the company will

escalate. On the other hand, if it is observed from trends that the company may not do well in

the long run, the stock prices will not be high. In other words, the price of stocks are directly

proportional to the performance of the company. In the event when inflation increases, the

company earnings (worth) will also subside. This will adversely affect the stock prices and

eventually the returns.

Effect of inflation on stock market is also evident from the fact that it increases the

rates if interest. If the inflation rate is high, the interest rate is also high. In the wake of both

(inflation and interest rates) being high, the creditor will have a tendency to compensate for

the rise in interest rates. Therefore, the debtor has to avail of a loan at a higher rate. This

plays a significant role in prohibiting funds from being invested in stock markets.

When the government has enough fund to circulate in the market, the cost of goods,

services usually go up. This leads to the decrease in the purchasing power of individuals. The

value of money also decreases. In a nut shell, for the economy to flourish, inflation and stock

market ought to be more conforming and predictable.


UNEMPLOYMENT RATE:

2003 8.80%

2004 9.50%

2005 9.20%

2006 8.90%

2007 7.80%

2008 7.20%

India is doing a good job at keeping unemployment rate down. The actual unemployment rate

is lower because its labor force is outgrowing its employment rate (2.5% compared to 2.3%

per annum).


FOREIGN INSTITUTIONAL INVESTORS ACTIVITY IN INDIA

With the economic outlook improving globally, global majors are finding a way to buck the

downtrend by investing in India. In 2009 alone, India has received about US$ 5.5 billion of

foreign institutional investors (FII) money out of a total of US$ 23 billion that has flowed into

emerging markets. India has received close to 25 per cent of the portfolio funds coming into

markets in Asia, Africa and Latin America. Until 2007, India received less than 15 per cent of

the funds flowing into these markets. India has become the most attractive destination for

retail investment for the fourth time in five years. India has been ranked as the most attractive

nation for retail investment among 30 emerging markets by US-based global management

consulting firm A T Kearney. According to the entity's Global Retail Development Index

(GRDI), India was placed at the second spot last year.

As per data released by the Securities Exchange Board of India (SEBI), during the first

quarter of the current fiscal, FIIs bought shares worth US$ 37.66 billion, while they sold

equities valued at US$ 31.36 billion, resulting in a net inflow of US$ 6.32 billion. In the

month of May alone, the market saw an inflow of US$ 4.17 billion, accounting for 66 per

cent of the total investment in the June quarter.

In April 2009, foreign institution investors (FIIs) poured US$ 1.3 billion into Indian equities.

They poured another US$ 1.87 billion in the first half of May 2009. Foreign institutional

investors (FIIs) pumped in almost US$ 4.17 billion into the equity market in the month of

May 2009—the highest in 19 months.

Total FII investments in domestic equities have crossed the US$ 60-billion mark—the first

time since June 2008. The net investment position of FIIs has increased from US$ 53.3

billion on March 9, 2009 to over US$ 60.3 billion till June 10. This data pertains to all FII

activities in India, including trade in secondary and primary (IPO) markets and in right/bonus

issues, private placement and M&As. The number of registered FIIs is 1,660 and that of

registered sub-accounts is above the 5,000 mark. Besides buying equities from the market,

FIIs have participated in Qualified Institutional Placements (QIPs), directly from the

promoters requiring huge capital.

FII inflows of US$ 7 billion since March 2009 have helped the rupee climb about 10.5 per

cent to 47.24/25 per dollar from its low of 52.2 recorded therein.


In the January-March 2009 quarter, FII interest in major cement manufacturers has also

increased over the previous quarter even as they removed some of their holdings in smaller

players.

Government Initiatives

India’s foreign investment policies allow foreign direct investment up to 26 per cent and

foreign institutional investments of (an additional) 23 per cent in stock exchanges. Under the

regulation, FIIs have been allowed to acquire shares of unlisted stock exchanges through

transactions outside a recognised stock exchange provided it is not an initial allotment of

shares.

The Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI)

have jointly unveiled norms enabling exchange-traded interest rate futures (IRF). Foreign

portfolio investors have been allowed to trade in IRFs, but limits have been put in place to

keep their influence under check.

In order to reduce the additional regulatory and cost burden to the issuer of Indian Depository

Receipts (IDR), the market regulator Securities and Exchange Board of India (SEBI) has

drafted a simplified listing agreement for the IDR.

Investment Scenario

• Canadian investment firm Urbana Corporation is likely to buy a 5 per cent stake in the

National Stock Exchange, India’s largest bourse.

• Overseas fund Norwest Venture Partners has signed an agreement to acquire 2.11 per

cent state in NSE for US$ 52.6 million, valuing the exchange at over US$ 2.53 billion.

• The US-based private equity fund major, Fire Capital has earmarked US$ 500 million

equity investment to be spent over a period of five years on various realty projects,

particularly on integrated townships, across the country.

• Shinsei Mutual Fund, an arm of Japan-based Shinsei Bank, will launch three fund

offers in India by July-end this year, marking its foray into the country's asset management

space.


• Investors, such as ATE Enterprises, Denmark-based Best Seller, Sequoia Capital, the

Netherlands-based Cordaid etc., from the US and European countries are keen to invest

around US$ 420.84 million to promote and equip small and medium enterprises engaged in

green business, according to New Ventures India (NVI).

The Road Ahead

Venture capitalists are expected to increase their investments in India over the next three

years, according to Deloitte's 2009 Global Venture Capital survey released recently. About

43 per cent of the 725 respondents to the survey said they expect to increase their investments

in India over the next three years.

India is well placed to attract FII flows over the long term. According to Sandip Sabharwal,

CEO, Prabhudas Lilladher Markets, “As economic growth accelerates and tax compliance

improves over the next few years, fiscal deficit will come under control. FII flows into India

will continue to be strong.” India may also get its fair share of inflows by way of increased

allocations made to BRIC (Brazil, Russia, India and China) countries as “the group will

continue to hold the interest of long-term investors”, says Andrew Holland, CEO-Equities,

Ambit Capital. Corroborating this, the dedicated BRICs Equity Funds, as tracked by EPFR

Global, are improving investment inflows.


TABLE : NET INVESTMENTS BY FIIs IN THE INDIAN CAPITAL MARKET

(Rupees crore)

Year /

Month

Apr. May Jun Jul. Aug. Sep. Oct. Nov. Dec. Jan. Feb. Mar. Total

1 2 3 4 5 6 7 8 9 10 11 12 13 14

1992-

93

- - - - - - - - - 0.56 0.29 3.42 4.27

1993-

94

4.71 41.39 95.95 148.54 298.67 166.76 195.27 1087.27 565.30 1233.60 787.13 820.01 5444.60

1994-

95

525.39 882.00 816.37 328.23 424.65 442.94 544.30 61.88 26.16 232.32 293.10 199.26 4776.60

1995-

96

186.58 203.03 360.58 647.88 548.19 409.87 320.87 191.05 412.30 737.98 1613.39 1089.18 6720.90

1996-

97

1472.59 1036.27 1041.7

9

874.45 148.38 364.66 365.81 402.64 422.23 339.74 424.08 493.56 7386.20

1997-

98

624.74 889.14 1403.8

8

1002.80 493.66 598.59 641.59 -289.87 -182.38 -374.97 629.05 472.22 5908.45

1998-

99

169.17 -557.45 -896.30 104.68 -390.82 111.09 -552.46 47.37 307.46 370.38 354.11 203.67 -729.11

1999-

00

814.61 1523.52 504.27 1508.49 -11.70 -877.84 -734.90 1196.83 1571.33 184.31 2726.58 1359.63 9765.13

2000-

01

2438.06 172.17 -985.51 -1569.19 1626.01 -454.20 76.32 1090.11 -461.78 3971.58 1574.14 2204.80 9682.52

2001-

02

1694.76 1030.83 808.64 773.45 270.00 -228.91 604.98 161.64 278.54 370.47 2024.04 484.23 8272.90


2002-

03

-82.11 -153.89 -182.90 305.19 192.29 421.67 -443.53 342.34 457.12 1087.63 432.55 292.54 2668.90

2003-

04

572.38 1232.95 2592.9

5

2495.89 2058.07 4047.69 6939.72 3282.39 6290.59 2492.86 3182.74 8811.80 44000.03

2004-

05

4207.86 -3151.29 511.00 1292.83 2850.25 2815.61 3952.04 6344.57 5890.00 1324.24 7493.76 7885.58 41416.45

2005-

06

-946.29 -586.82 5699.4

0

7390.55 4084.87 3258.00 -3808.31 4559.07 9615.32 5177.18 7859.26 6347.74 48650.04

2006-

07

722.07 -8930.32 1781.8

7

1073.16 3998.05 4624.13 5805.01 7028.59 -

1869.49

3184.86 4279.07 2057.05 23754.05

2007-

08

4752.88 3242.17 7210.0

2

19515.29 -

6476.32

19823.40 16375.64 -

3052.11

5054.92 -13000.98 7784.26 1354.39 62583.56

2008-

09 P

1475.95 -3382.91 -

10429.

39

-1653.81

P : Provisional.

Note : FIIs were allowed to invest in the Indian capital market securities from September 1992. However, investments by them were first made in January 1993. The

data relate to investment in equities only.

Source : Reserve Bank of India.


FORIEGN DIRECT INVESTMENT:

Foreign direct investment (FDI) in India has played an important role in the development of

the Indian economy. FDI in India has – in a lot of ways – enabled India to achieve a certain

degree of financial stability, growth and development. This money has allowed India to focus

on the areas that may have needed economic attention, and address the various problems that

continue to challenge the country.

India has continually sought to attract FDI from the world’s major investors. In 1998 and

1999, the Indian national government announced a number of reforms designed to encourage

FDI and present a favorable scenario for investors.

FDI investments are permitted through financial collaborations, through private equity or

preferential allotments, by way of capital markets through Euro issues, and in joint ventures.

FDI is not permitted in the arms, nuclear, railway, coal & lignite or mining industries.

A number of projects have been announced in areas such as electricity generation,

distribution and transmission, as well as the development of roads and highways, with

opportunities for foreign investors.

The Indian national government also provided permission to FDIs to provide up to 100% of

the financing required for the construction of bridges and tunnels, but with a limit on foreign

equity of INR 1,500 crores, approximately $352.5m.

Currently, FDI is allowed in financial services, including the growing credit card business.

These services include the non-banking financial services sector. Foreign investors can buy

up to 40% of the equity in private banks, although there is condition that stipulates that these

banks must be multilateral financial organizations. Up to 45% of the shares of companies in

the global mobile personal communication by satellite services (GMPCSS) sector can also be

purchased.

By 2004, India received $5.3 billion in FDI, big growth compared to previous years, but less

than 10% of the $60.6 billion that flowed into China. Why does India, with a stable

democracy and a smoother approval process, lag so far behind China in FDI amounts?

Although the Chinese approval process is complex, it includes both national and regional

approval in the same process.


Federal democracy is perversely an impediment for India. Local authorities are not part of the

approvals process and have their own rights, and this often leads to projects getting bogged

down in red tape and bureaucracy. India actually receives less than half the FDI that the

federal government approves.

SHARE OF TOP INVESTING COUNTRIES FDI EQUITY INFLOWS

(Financial year-wise):


CURRENCY EXCHANGE RATE :

Rupee weakened against the dollar in Oct 2008 along with it's stock market crash while bond

yield dropped to seven month lows, despite RBI's intervention. However, India is not alone in

this as there is an apparent sign of the world economy slowing down, led by the U.S.

India's substantial forex reserve does not seem to be working its charm this time around

although the RBI's intervention in its managed float currency policy is common practice. In

2003, the Indian government with its $73 billion forex reserve was praised by the IMF citing

that India does not need IMF's assistance.

Date Doller Sensex

08-12-2008 49.44 9,162.62

09-12-2008 49.28

10-12-2008 48.7 9,654.90

11-12-2008 48.19 9,645.46

12-12-2008 48.2 9,690.07

15-12-2008 47.62 9,832.39

16-12-2008 47.81 9,976.98

17-12-2008 47.5 9,715.29

18-12-2008 46.74 10,076.43

19-12-2008 47.05 10,099.91

22-12-2008 47.71 9,928.35

23-12-2008 48.66 9,686.75

24-12-2008 47.76 9,568.72

25-12-2008 47.76

26-12-2008 48.42 9,328.92

29-12-2008 48.25 9,533.52

30-12-2008 48.05 9,716.16

31-12-2008 48.58 9,647.31

02-01-2009 48.4098 9,958.22

05-01-2009 48.5149 10,275.60

06-01-2009 48.6251 10,335.93

07-01-2009 48.815 9,586.88

08-01-2009 48.4152

09-01-2009 48.1847 9,406.47


12-01-2009 48.845 9,110.05

13-01-2009 48.9247 9,071.36

14-01-2009 48.6047 9,370.49

15-01-2009 48.7803 9,046.74

16-01-2009 48.5298 9,323.59

19-01-2009 48.6201 9,329.57

20-01-2009 49.14 9,100.55

21-01-2009 49.2099 8,779.17

22-01-2009 48.9248 8,813.84

23-01-2009 49.1598 8,674.35

26-01-2009 48.5697

27-01-2009 48.7749 9,004.08

28-01-2009 48.9253 9,257.47

29-01-2009 48.7202 9,236.28

30-01-2009 48.6899 9,424.24

02-02-2009 48.6403 9,066.70

03-02-2009 48.3999 9,149.30

04-02-2009 48.57 9,201.85

05-02-2009 48.6601 9,090.88

06-02-2009 48.5253 9,300.86

09-02-2009 48.6001 9,583.89

10-02-2009 48.6651 9,647.47

11-02-2009 48.6598 9,618.54

12-02-2009 48.5904 9,465.83

13-02-2009 48.4247 9,634.74

16-02-2009 48.6197 9,305.45

17-02-2009 49.4349 9,035.00

18-02-2009 49.6801 9,015.18

19-02-2009 49.685 9,042.63

20-02-2009 49.6251 8,843.21

23-02-2009 49.825 8,822.06

24-02-2009 49.9177 8,902.56

25-02-2009 49.8398 8,954.86

26-02-2009 50.3951 8,891.61

27-02-2009 51.0701 8,607.08


02-03-2009 51.8847 8,427.29

03-03-2009 51.9699 8,446.49

04-03-2009 51.5348 8,197.92

05-03-2009 51.7698 8,325.82

06-03-2009 51.6954 8,160.40

09-03-2009 51.8703 8,343.75

10-03-2009 51.56

11-03-2009 51.1599

12-03-2009 51.8902 8,756.61

13-03-2009 51.4948 8,943.54

16-03-2009 51.4001 8,863.82

17-03-2009 51.4101 8,976.68

18-03-2009 51.2902 9,001.75

19-03-2009 50.3101 8,966.68

20-03-2009 50.5698 9,424.02

23-03-2009 50.3791 9,471.04

24-03-2009 50.7204 9,667.90

25-03-2009 50.6699 10,003.10

26-03-2009 50.1551 10,048.49

27-03-2009 50.6454 9,568.14

30-03-2009 51.5152 9,708.50

31-03-2009 50.6402 9,901.99

01-04-2009 50.57 10,348.83

02-04-2009 50.3502 10,348.83

03-04-2009 50.0797 10,534.87

06-04-2009 50 10,534.87

07-04-2009 50.0204 10,742.34

08-04-2009 50.1897 10,803.86

09-04-2009 49.9849 10,803.86

13-04-2009 49.7839 10,967.22

14-04-2009 49.5752 11,284.73

15-04-2009 49.6751 10,947.40

16-04-2009 49.7575 11,023.09

17-04-2009 49.8599 10,979.50

20-04-2009 50.1797 10,898.11


21-04-2009 50.4725 10,817.54

22-04-2009 50.3298 11,134.99

23-04-2009 49.9349 11,329.05

24-04-2009 49.7748 11,371.85

27-04-2009 50.2476 11,001.75

28-04-2009 50.5172 11,403.25

29-04-2009 50.0347 11,403.25

30-04-2009 49.9149 11,403.25

01-05-2009 49.6736 12,134.75

04-05-2009 49.91 12,131.08

05-05-2009 49.3002 11,952.75

06-05-2009 49.5902 12,116.94

07-05-2009 49.0998 11,876.43

08-05-2009 49.2827 11,682.99

11-05-2009 49.5101 12,158.03

12-05-2009 49.3174 12,019.65

13-05-2009 49.71 11,872.91

14-05-2009 49.7102 12,173.42

15-05-2009 49.3927 14,284.21

18-05-2009 47.8902 14,302.03

19-05-2009 47.785 14,060.66

20-05-2009 47.42 13,736.54

21-05-2009 47.28 13,887.15

22-05-2009 47.1099 13,913.22

25-05-2009 47.3048 13,589.23

26-05-2009 47.8602 14,109.00

Source : RBI Site


INDEX OF INDUSTRIAL PRODUCTION

India's index of Industrial Production (IIP), publishes monthly composite of the value

of industrial production in various sectors of industrial sectors of the economy. Currently, the

IIP includes the mining, manufacturing and electricity industry. The mining and utility

industries in India are especially worth noting.

Although only a fragment of India's economic indicators are highlighted here, it is

enough to see that its economy hold a lot of promise and will continue to prosper under good

policies. While developed countries will be likely to experience recession, India will be better

off by seeing less growth in the coming quarters.

The Quick Estimates of Index of Industrial Production (IIP) with base 1993-94 for the month

of March 2009 have been released by the Central Statistical Organisation of the Ministry of

Statistics and Programme Implementation. The General Index stands at 297.9, which is 2.3%

lower as compared to the level in the month of March 2008. The cumulative growth for the

period April-March 2008-09 stands at 2.4% over the corresponding period of the pervious

year.

The Indices of Industrial Production for the Mining, Manufacturing and Electricity sectors for

the month of March 2009 stand at 206.7, 317.2, and 241.3 respectively, with the

corresponding growth rates of 0.4%, (-)3.3% and 6.3% as compared to March 2008. The

cumulative growth during April-March, 2008-09 over the corresponding period of 2007-08 in

the three sectors have been 2.3%, 2.3% and 2.8% respectively, which moved the overall

growth in the General Index to 2.4%.

In terms of industries, as many as five (5) out of the seventeen (17) industry groups (as per 2-

digit NIC-1987) have shown positive growth during the month of March 2009 as compared to

the corresponding month of the previous year. The industry group ‘Beverages, Tobacco and

Related Products’ have shown the highest growth of 15.1%, followed by 8.3% in ‘Basic

Chemicals & Chemical Products (except products of Petroleum & Coal)’ and 7.0% in

‘Transport Equipment and Parts’. On the other hand, the industry group ‘Food Products’

have shown a negative growth of 35.8% followed by 25.1% in ‘Wood and Wood Products;

Furniture and Fixtures‘ and 19.7% in ‘Other Manufacturing Industries’.


As per Use-based classification, the Sectoral growth rates in March 2009 over March 2008

are 1.4% in Basic goods, (-)8.2% in Capital goods and (-)4.4% in Intermediate goods. The

Consumer durables and Consumer non-durables have recorded growth of 8.3% and (-) 3.6%

respectively, with the overall growth in Consumer goods being (-)0.8%.

Alongwith the Quick Estimates of IIP for March 2009, the indices for February 2009 have

undergone the first revision and those for December 2008 have undergone the second (final)

revision in the light of the updated data received from the source agencies. (It may be noted

that revised indices (first revision) in respect of January 2009 have already been released in

April 2009 and these indices shall undergo final (second) revision in June 2009).

Statements giving Quick Estimates of the Index of Industrial Production at Sectoral, 2-digit

level of National Industrial Classification (NIC)-1987 and by Use-based classification for the

month of March 2009, along with the growth rates over the corresponding month of previous

year, including the cumulative indices and growth rates, are enclosed.

SOURCE: BLOOMBERG


INDEX OF INDUSTRIAL PRODUCTION – SECTORAL (Base : 1993-94=100)

Source: RBI press releases and http://www.rbi.org.in/scripts/publications.aspx?publication

Month General

2007-2008 2008-2009

Apr 250.7 266.3

May 263.1 274.6

Jun 255.3 269.2

Jul 255 271.3

Aug 260.3 264.7

Sep 260.5 276.2

Oct 262.6 262.9

Nov 261 267.6

Dec 284.7 284

Jan 281.9 283

Feb 276.2 274.2

Mar* 304.9 297.9

INDEX OF INDUSTRIAL PRODUCTION - ANNUAL AVERAGES (Base: 1993-94=100)

Industr

y

Weigh

t

1999

-00

2000

-01

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

Genera

l Index

1000 154.

9

162.

6

167 176.

6

189 204.

8

221.

5

247.

1

268 274.

3


GROSS DOMESTIC PRODUCT (GDP)

The Indian Gross Domestic Product (GDP) has come a long way since its balance of payment

downturn in the 80's. This can be largely attributed to its open policies under prime minister

Atal Bihari Vajpayee in 2003, attracting high influx of foreign investors.

India's BPO sector and service industry has also benefited from its rapid growth of

information technology, further strengthening its impressive growth and thus providing

promising outlook for future growth. The most recent GDP records are as follows:

• GDP growth in 2002 - 3.8%






• GDP growth in 2008 - 8.5% (Projected)

• GDP growth in 2009 - 8.81% (Projected)

According to the CIA, India's GDP composition by sector can be broken down into 17.8% for

agriculture, 29.4% for industries and a massive 52.8% for services as of 2007.

The growth rate of Gross Domestic Product (GDP) was 9% in 2006, whereas the

corresponding figure was 7.4% in 2007. The rate of GDP growth for 2008 is projected to be

8.7 %.

The growth rate of the Indian IT and ITES sector was around 20% in 2007.

Real GDP growth in Q1-09 surprised on the upside growing 5.8%, while Q4-08 growth was

also revised up to 5.8% from 5.3%. Growth had slowed to 7.4% for 2008 and is expected to

remain below trend over the next few quarters. First quarter expansion came on the back of

high government pre-election spending and a stronger performance in the agricultural sector.

Industrial production climbed 1.4% in April on the back of resilient domestic demand

following two months of contraction of 2.38% y/y in March and February’s 0.65% y/y slump.


Yet this remains a far cry from the double-digit growth rates seen in the second half of 2006

and first half of 2007.

TABLE: MACROECONOMIC AGGRREGATES (At Current Prices) (Rupees crore)

New Series (Base : 1999-2000)

Year Population

@(million)

GDP at

Factor

Cost

NDP at

Factor

Cost

GDP at

Market

Prices

NDP at

Market

Prices

Net

Factor

Income

from

Abroad

Personal

Disposable

Income #

1950-51 359 9719 9193 10085 9559 -41 8858

1951-52 365 10262 9670 10721 10130 -35 9298

1952-53 372 10120 9486 10522 9888 -25 9237

1953-54 379 11019 10372 11452 10805 -19 10125

1954-55 386 10351 9674 10834 10157 -29 9392

1955-56 393 10518 10037 11030 10548 -10 9794

1956-57 401 12556 12011 13140 12594 -17 11692

1957-58 409 12837 12215 13536 12914 -20 11933

1958-59 418 14360 13674 15086 14401 -35 13362

1959-60 426 15083 14318 15895 15130 -57 13971

1960-61 434 16512 15665 17407 16560 -72 14983

1961-62 444 17424 16479 18445 17501 -98 15719

1962-63 454 18631 17585 19826 18780 -108 16698

1963-64 464 21293 20244 22774 21725 -112 19077


1964-65 474 24876 23670 26563 25358 -145 22515

1965-66 485 26047 24643 28016 26612 -164 23569

1966-67 495 29647 27995 31711 30058 -230 26957

1967-68 506 34840 32944 37133 35237 -258 31931

1968-69 518 36741 34807 39324 37390 -255 33692

1969-70 529 40405 38188 43298 41081 -271 36797

1970-71 541 42981 40419 46249 43687 -284 38898

1971-72 554 45731 42811 49523 46603 -291 41151

1972-73 567 50304 46956 54591 51243 -302 45523

1973-74 580 61649 57591 66428 62370 -325 55923

1974-75 593 72566 67289 78426 73149 -291 64968

1975-76 607 77071 70991 84221 78141 -255 69233

1976-77 620 82845 76291 90751 84196 -233 73824

1977-78 634 94552 87321 102796 95565 -233 85267

1978-79 648 101619 93419 111371 103171 -156 91507

1979-80 664 110887 100874 122155 112142 153 99632

1980-81 679 132520 120784 145370 133634 345 123067

1981-82 692 155158 141073 170805 156720 40 142181

1982-83 708 173337 157032 191059 174754 -634 157291

1983-84 723 202750 184217 222485 203952 -944 185749

1984-85 739 227694 206297 249268 227870 -1424 207491

1985-86 755 254427 229132 281330 256035 -1429 229527


1986-87 771 283681 254746 314816 285881 -1805 256413

1987-88 788 321589 288611 357861 324883 -2619 291585

1988-89 805 383790 345156 424531 385897 -4496 345011

1989-90 822 442134 396568 487684 442117 -5731 395239

1990-91 839 515032 463954 569624 518546 -7545 465097

1991-92 856 594168 532197 654729 592759 -10077 531515

1992-93 872 681517 609389 752591 680462 -11645 618587

1993-94 892 792150 711268 865805 784923 -12080 716964

1994-95 910 925239 831417 1015764 921942 -13083 842261

1995-96 928 1083289 972163 1191813 1080686 -13484 959733

1996-97 946 1260710 1132320 1378617 1250226 -13082 1145206

1997-98 964 1401934 1258185 1527158 1383409 -13205 1263982

1998-99 983 1616082 1453881 1751199 1588997 -14968 1474404

1999-00 1001 1786525 1605103 1952035 1770613 -15431 1617964

2000-01 1019 1925017 1723200 2102314 1900497 -22733 1773251

2001-02 1040 2097726 1869428 2278952 2050654 -20068 1954838

2002-03 1056 2261415 2010938 2454561 2204084 -16690 2069144

2003-04 1072 2538171 2258189 2754621 2474639 -18250 2296323

2004-05 1089 2877706 2548783 3149412 2820489 -22375 2500193

2005-06 P 1106 3275670 2896866 3580344 3201540 -26116 2805199

2006-07 QE 1122 3790063 3355595 4145810 3711342 -29778 3217237

2007-08 RE 1138 4303654 3811341 4713148 4220835 -21859 .


TABLE : MACROECONOMIC AGGRREGATES (At Current Prices) (Contd.)

(Rupees crore)

Year GNP at

Factor

Cost

NNP at

Factor

Cost

GNP at

Market

Prices

NNP at

Market

Prices

GDP

of

Public

Sector

NDP

of

Public

Sector

Per Capita

GNP at

Factor

Cost(Rupees)

1950-51 9678 9152 10044 9518 . . 270

1951-52 10227 9635 10686 10095 . . 280

1952-53 10095 9461 10497 9863 . . 271

1953-54 11000 10353 11433 10786 . . 290

1954-55 10322 9645 10805 10128 . . 267

1955-56 10508 10027 11020 10538 . . 267

1956-57 12539 11994 13123 12577 . . 313

1957-58 12817 12195 13516 12894 . . 313

1958-59 14325 13639 15051 14366 . . 343

1959-60 15026 14261 15838 15073 . . 353

1960-61 16440 15593 17335 16488 1638 1352 379

1961-62 17326 16381 18347 17403 1846 1520 390

1962-63 18523 17477 19718 18672 2128 1758 408

1963-64 21181 20132 22662 21613 2458 2038 456

1964-65 24731 23525 26418 25213 2768 2271 522

1965-66 25883 24479 27852 26448 3175 2586 534


1966-67 29417 27765 31481 29828 3583 2882 594

1967-68 34582 32686 36875 34979 4068 3268 683

1968-69 36486 34552 39069 37135 4610 3859 704

1969-70 40134 37917 43027 40810 5252 4397 759

1970-71 42697 40135 45965 43403 5907 4909 789

1971-72 45440 42520 49232 46312 6599 5458 820

1972-73 50002 46654 54289 50941 7300 5979 882

1973-74 61324 57266 66103 62045 8613 6995 1057

1974-75 72275 66998 78135 72858 11105 9027 1219

1975-76 76816 70736 83966 77886 13170 10735 1265

1976-77 82612 76058 90518 83963 15363 12661 1332

1977-78 94319 87088 102563 95332 16975 13930 1488

1978-79 101463 93263 111215 103015 18869 15408 1566

1979-80 111040 101027 122308 112295 21730 17491 1672

1980-81 132865 121129 145715 133979 25409 20472 1957

1981-82 155198 141113 170845 156760 31413 25436 2243

1982-83 172703 156398 190425 174120 38412 31315 2439

1983-84 201806 183273 221541 203008 45173 36976 2791

1984-85 226270 204873 247844 226446 51719 42119 3062

1985-86 252998 227703 279901 254606 60561 49013 3351

1986-87 281876 252941 313011 284076 71469 58154 3656

1987-88 318970 285992 355242 322264 82773 67571 4048


1988-89 379294 340660 420035 381401 98454 80550 4712

1989-90 436403 390837 481953 436386 114637 93380 5309

1990-91 507487 456409 562079 511001 130202 105835 6049

1991-92 584091 522120 644652 582682 155420 125983 6823

1992-93 669872 597744 740946 668817 177302 143386 7682

1993-94 780070 699188 853725 772843 201758 164453 8745

1994-95 912156 818334 1002681 908859 234913 191718 10024

1995-96 1069805 958679 1178329 1067202 276342 226628 11528

1996-97 1247628 1119238 1365535 1237144 302074 245414 13188

1997-98 1388729 1244980 1513953 1370204 354856 292533 14406

1998-99 1601114 1438913 1736231 1574029 405955 337584 16288

1999-00 1771094 1589672 1936604 1755182 457006 383305 17693

2000-01 1902284 1700467 2079581 1877764 480952 403526 18668

2001-02 2077658 1849360 2258884 2030586 523781 439414 19977

2002-03 2244725 1994248 2437871 2187394 576210 486584 21257

2003-04 2519921 2239939 2736371 2456389 613897 517139 23507

2004-05 2855331 2526408 3127037 2798114 669335 560533 26220

2005-06 P 3249554 2870750 3554228 3175424 712447 592346 29381

2006-07 QE 3760285 3325817 4116032 3681564 812315 681371 33514

2007-08 RE 4281795 3789482 4691289 4198976 . . 37457

Source: RBI press releases and http://www.rbi.org.in/scripts/publications.aspx?publication


Fiscal Situation

Both tax and non-tax collections for the current year are below the Budget estimates (BE) as

compared to last years BE. On the other hand, the expenditure have overshot their BE.

The fiscal deficit is expected to rise to 5.9% of GDP, as against the target of 2.5% of GDP

due to additional budget expenditure and lower revenues. However, as per the PMs economic

advisory committee, the consolidated fiscal deficit (including supplementary demand for

grants, oil and fertilizer bonds) is expected to be at 8% of GDP for FY09.

Monetary policy:

The current mid-term monetary and credit policy review maintains a status-quo on the policy

rates. RBI has demonstrated its intentions by taking policy action as and when required. The

outlook continues to remain uncertain and the lead indicators are not pointing to any

meaningful recovery in the near term. RBI has reiterated the fact that a period of painful

adjustment is definitely ahead of us. Recent policy language hints at further rate and CRR

cuts to happen only if the money market rates are significantly above the policy LAF

corridor. Since the last policy, RBI has cut repo rate by 250bps,

CRR by 150bps and reverse repo rate by 200bps, along with a slew of other

measures to improve liquidity. RBIs policy stance is firm on providing comfortable

liquidity conditions for meeting economic growth and responding swiftly and

decisively with all available policy actions as the external or domestic conditions

warrant. With well anchored inflation expectation, price stability and orderly financial

markets. Overall we believe that the policy review announcements had more to do with e-

iterating its stance and actions already taken. Neutral for the banking sector.

Impact on markets: neutral

Bankex and Sensex declined by 2.2% and 1.3%, respectively post RBI’s announcement.

However, both the indices closed higher by 3.8% and 2.9% respectively led by the rally in

global markets. Bond yield (10-year) moved up to 4.9% up 5bps post the announcement.

Rupee declined by 8paise post-policy and closed the day at 48.93 depreciating by 33paise.


General Political Environment:

The Indian National Congress (Congress) and its allies in the United Progressive Alliance

(UPA) have ruled since 2004 and recently was re-elected to a second five-year term in May

2009. The UPA coalition’s victory wasn’t overly surprising; however, the margin of its

victory was astonishing. The UPA secured 261 of the 543 seats available in the lower house

of parliament. The opposition coalition led by the Bharatiya Janata Party (BJP) finished a

distant second with 158 seats.

The biggest surprise of the election was not the success of Congress, but more the stumbling

of several of the more prominent regional parties that contested the polls. In the lead-up to the

elections, there were plenty of predictions that the virtually uncontested reign of the national

parties (i.e. Congress and BJP) had come to an end and that the country’s political future lay

with the plethora of regional parties, if not as kings then at least as king-makers. While

certain of these did succeed in increasing their parliamentary seat-count, the majority of seats

that changed hands went to Congress, a party which has experienced increased success in

each of the last three parliamentary elections.

The rise in prominence of regional parties (i.e. parties with a political presence in fewer than

four states) in Indian national politics has been one of the most significant political

developments to occur in contemporary India, with over 30 political parties represented in

Parliament. While this phenomenon will continue in India, thereby requiring coalitions of

parties to form governments, the 2009 election results reflect the continued prominence of

national parties, namely Congress, on the political scene.

Investment Environment:

Despite India’s foreign investment policy allowing 100% FDI in most sectors, India has thus

far failed to reach its full potential as a destination for FDI. The government’s attempts at

increasing FDI inflows have been hampered by the several impediments including pervasive

corruption, an unwieldy bureaucracy, and a significant deficit in critical infrastructure. India

is known for diverse operating environments with regulations varying from state to state.

Significant reform in investment-related matters, particularly regarding foreign investment,

was delayed over the past few years largely due to the UPA’s reliance on India’s communist

parties for support in parliament. The ending of this support in 2008 enabled limited reforms


to be passed. For example, in February, the government initiated changes that further opened-

up certain sectors such as insurance, telecom and retail, to FDI. The government’s move

didn’t alter the FDI caps in place in these sectors but instead permitted foreign equity

investments beyond the limit to occur indirectly.

One expectation is that the re-elected UPA government, that no longer relies on India’s main

leftist parties for support, will now be in a position to push through further economic and

investment reforms, many of which will provide opportunities for foreign investors. The

reform agenda is likely to be moved forward but probably at a gradual pace, particularly

given the present state of the global economy as well as the diversity of views on these issues,

even within the Congress party itself.

Political Violence: Several terrorist attacks in 2007-2008, including bombings in Delhi,

Ahmedabad, Bangalore, Jaipur and Hyderabad have highlighted the threat posed by Islamist

terror groups within India. The latest and most devastating of these attacks occurred in

Mumbai in November. Over a period of three days, a dozen gunmen struck several targets,

including two luxury hotels and a rail terminus, killing over 180 people. Although the

majority of the known victims were Indian nationals, the attackers singled out foreigners

during the hotel sieges, particularly UK and US nationals.

Tensions with Pakistan have threatened regional stability since 1947. Several years of peace

talks on the Kashmir issue have resulted in little progress and the area witnessed

considerable unrest in mid- 2008 as anti-government demonstrations were met with force by

security forces. The Mumbai attacks led to deterioration in Indo-Pakistani relations as many

of the attackers were Pakistani with the Indian government claiming that Pakistani

government agencies may have also been involved.

Elections held in April/May 2009 provided the Congress-led UPA coalition with a

strengthened mandate, which should ensure its interrupted rule over the next five years. Its

situation is much stronger than its previous term when it required significant support from

outside the coalition. Although political violence is a fairly common occurrence in India, the

Mumbai attacks of November 2008 were shocking due to the level of sophistication and the

selection of targets, including the focus on foreigners. The Mumbai attacks underscore the

ongoing risk of terrorist attacks throughout the country, and also set Indo-Pakistani relations

back several years. Although outright war is unlikely, bilateral relations will be tense for the

foreseeable future.


INDUSTRY ANALYSIS

INTRODUCTION TO IT SECTOR

Information Technology in India accounts for a substantial part of the country's GDP and

export earnings while providing employment to a significant number of its tertiary sector

workforce. Technically proficient immigrants from India sought jobs in the western world

from the 1950s onwards as India's education system produced more engineers than its

industry could absorb. India's growing stature in the information age enabled it to form close

ties with both the United States of America and the European Union.

Out of 400, 000 engineers produced per year in the country, 100, 000 possessed both

technical competency and English language skills. India developed a number of outsourcing

companies specializing in customer support via Internet or telephone connections. By 2008,

India also has a total of 49,750,000 telephone lines in use, a total of 233,620,000 mobile

phone connections, a total of 60,000,000 Internet users—comprising 6.0% of the country's

population, and 4,010,000 people in the country have access to broadband Internet— making

it the 18th largest country in the world in terms of broadband Internet users. Total fixed-line

and wireless subscribers reached 325.78 million as of June, 2008.

(till 1991)

The Indian Government acquired the EVS EM computers from the Soviet Union, which were

used in large companies and research laboratories.Tata Consultancy Services—established in

1968 by the Tata Group—were the country's largest software producers during the 1960s. As

an outcome of the various policies of Jawaharlal Nehru (office: 15 August 1947 – 27 May

1964) the economically beleaguered country was able to build a large scientific workforce,

second in numbers only to that of the United States of America and the Soviet Union. On 18

August 1951 the minister of education Maulana Abul Kalam Azad, inaugurated the Indian

Institute of Technology at Kharagpur in West Bengal. Possibly modeled after the

Massachusetts Institute of Technology these institutions were conceived by a 22 member

committee of scholars and entrepreneurs under the chairmanship of N. R. Sarkar.

Relaxed immigration laws in the United States of America (1965) attracted a number of

skilled Indian professionals aiming for research. By 1960 as many as 10,000 Indians were

estimated to have settled in the US. The reason for this immigration was rooted in India


producing more engineers through its education system—expanded during the 1950s—than

its industry was able to absorb. By the 1980s a number of engineers from India were seeking

employment in other countries. In response, the Indian companies realigned wages to retain

their experienced staff. In the Encyclopedia of India, Kamdar (2006) reports on the role of

Indian immigrants (1980 - early 1990s) in promoting technology-driven growth:

The United States’ technological lead was driven in no small part by the brain power of

brilliant immigrants, many of whom came from India. The inestimable contributions of

thousands of highly trained Indian migrants in every area of American scientific and

technological achievement culminated with the information technology revolution most

associated with California’s Silicon Valley in the 1980s and 1990s.

The National Informatics Centre was established in March 1975. The inception of The

Computer Maintenance Company (CMC) followed in October 1976. Between 1977-1980 the

country's Information Technology companies Tata Infotech, Patni Computer Systems, and

Wipro, had become visible. The 'microchip revolution' of the 1980s had convinced both

Indira Gandhi and her successor Rajiv Gandhi that electronics and telecommunications were

vital to India's growth and development.MTNL underwent technological improvements.

Between 1986-1987, the Indian government embarked upon the creation of three wide-area

computer networking schemes: INDONET (intended to serve the IBM mainframes in India),

NICNET (the network for India's National Informatics Centre), and the academic research

oriented Education and Research Network (ERNET).

1991–2001

The policies of N. Chandrababu Naidu—the chief minister of Andhra Pradesh (1995 -

2004)—helped transform Hyderabad into one of the Information Technology hubs of India.

Regulated VSAT links became visible in 1985. Desai (2006) describes the steps taken to

relax regulations on linking in 1991.

In 1991 the Department of Electronics broke this impasse, creating a corporation called

Software Technology Parks of India (STPI) that, being owned by the government, could

provide VSAT communications without breaching its monopoly. STPI set up software

technology parks in different cities, each of which provided satellite links to be used by firms;


the local link was a wireless radio link. In 1993 the government began to allow individual

companies their own dedicated links, which allowed work done in India to be transmitted

abroad directly. Indian firms soon convinced their American customers that a satellite link

was as reliable as a team of programmers working in the clients’ office.

Videsh Sanchar Nigam Limited (VSNL) introduced Gateway Electronic Mail Service in

1991, the 64 kbit/s leased line service in 1992, and commercial Internet access on a visible

scale in 1992. Election results were displayed via National Informatics Centre's NICNET.

The Indian economy underwent economic reforms in 1991, leading to a new era of

globalization and international economic integration. Economic growth of over 6% annually

was seen between 1993-2002. The economic reforms were driven in part by significant the

internet usage in the country. The new administration under Atal Bihari Vajpayee—which

placed the development of Information Technology among its top five priorities— formed the

Indian National Task Force on Information Technology and Software Development.

Wolcott & Goodman (2003) report on the role of the Indian National Task Force on

Information Technology and Software Development.

Within 90 days of its establishment, the Task Force produced an extensive background report

on the state of technology in India and an IT Action Plan with 108 recommendations. The

Task Force could act quickly because it built upon the experience and frustrations of state

governments, central government agencies, universities, and the software industry. Much of

what it proposed was also consistent with the thinking and recommendations of international

bodies like the World Trade Organization (WTO), International Telecommunications Union

(ITU), and World Bank. In addition, the Task Force incorporated the experiences of

Singapore and other nations, which implemented similar programs. It was less a task of

invention than of sparking action on a consensus that had already evolved within the

networking community and government.

The New Telecommunications Policy, 1999 (NTP 1999) helped further liberalize India's

telecommunications sector. The Information Technology Act 2000 created legal procedures

for electronic transactions and e-commerce.

Throughout the 1990s, another wave of Indian professionals entered the United States. The

number of Indian Americans reached 1.7 million by 2000. This immigration consisted largely

of highly educated technologically proficient workers. Within the United States, Indians fared


well in science, engineering, and management. Graduates from the Indian Institutes of

Technology (IIT) became known for their technical skills. The success of Information

Technology in India not only had economic repercussions but also had far-reaching political

consequences. India's reputation both as a source and a destination for skilled workforce

helped it improve its relations with a number of world economies. The relationship between

economy and technology—valued in the western world—facilitated the growth of an

entrepreneurial class of immigrant Indians, which further helped aid in promoting

technology-driven growth.

2001–2007 IT Park in Hyderabad.

Infosys Media Centre in Bangalore.

Tidel Park—one of the largest software parks in Asia—was set up on the July 4, 2000 to aid

the growth of Information Technology in Tamil Nadu.

The economic effect of the technologically inclined services sector in India—accounting for

40% of the country's GDP and 30% of export earnings as of 2006, while employing only 25%

of its workforce—is summarized by Sharma (2006).

The share of IT (mainly software) in total exports increased from 1 percent in 1990 to 18

percent in 2001. IT-enabled services such as backoffice operations, remote maintenance,

accounting, public call centers, medical transcription, insurance claims, and other bulk

processing are rapidly expanding. The city of Hyderabad is now known as Cyberabad, and

Indian companies such as TCS, Wipro, and Infosys may yet become household names around

the world.

INFORMATION TECHNOLOGY: CURRENT SCENARIO

The Indian information technology industry has played a key role in putting India on the

global map. Thanks to the success of the IT industry, India is now a power to reckon with.

According to the National Association of Software and Service Companies (NASSCOM), the

apex body for software services in India, the revenue of the information technology sector

has risen from 1.2 per cent of the gross domestic product (GDP) in FY 1997-98 to an

estimated 5.8 per cent in FY 2008-09.

India's IT growth in the world is primarily dominated by IT software and services such as

Custom Application Development and Maintenance (CADM), System Integration, IT


Consulting, Application Management, Infrastructure Management Services, Software testing,

Service-oriented architecture and Web services.

The government expects the exports turnover to touch US$ 80 billion by 2011, growing at an

annual rate of 30 per cent per annum, from the earlier few million dollars worth exports in

early 1990s.

As per NASSCOM's latest findings:

• Indian IT-BPO sector grew by 12 per cent in FY 2009 to reach US$ 71.7 billion in

aggregate revenue (including hardware). Of this, the software and services segment

accounted for US$ 59.6 billion.

• IT-BPO exports (including hardware exports) grew by 16 per cent from US$ 40.9

billion in FY 2007-08 to US$ 47.3 billion in FY 2008-09.

Moreover, according to a study by Springboard Research, the Indian IT services market is

estimated to remain the fastest growing in the Asia-Pacific region with a CAGR of 18.6 per

cent.

Despite the uncertainty in the global economy, the top three IT majors— Infosys, TCS and

Wipro—have seen revenue growth from all important sources of income: from the North

American and European regions, in the financial services vertical and from application

maintenance and development (ADM) offerings between fiscal years 2008 and 2009.

Outsourcing

A research by Gartner forecasts India as the undisputed leader in the outsourcing space in the

year 2008. India's most prized resource is its readily available technical work force. India has

the second largest English-speaking scientific professionals in the world, second only to the

US. It is estimated that India has over 4 million technical workers, over 1,832 educational

institutions and polytechnics, which train more than 67,785 computer software professionals

every year. The enormous base of skilled manpower is a major draw for global customers.

According to NASSCOM software and services exports (including exports of IT services,

BPO, engineering services and R&D and software products) reached US$ 47 billion in FY

2008-09, contributing nearly 78 per cent to the total software and services revenue of US$

59.6 billion.


Domestic Markets

India's domestic market has also become a force to reckon with, as the existing IT

infrastructure evolves both in terms of technology and depth of penetration.

According to NASSCOM, domestic IT market (including hardware) reached US$ 24.3 billion

in FY 2008-09 as against US$ 23.1 billion in FY 2007-08, a growth of 5.3 per cent.

India Inc's demand for IT services and products has bolstered growth in the domestic sector

with deal sizes going up remarkably and contracts worth US$ 50 million-US$ 100 million up

for grabs.

Such growth in the software and services sector has been achieved because of spectacular

growths in some segments. According to research firm Gartner, India's personal computer

(PC) market is likely to grow by 13.7 per cent to 11.1 million units in 2009, aided by a surge

in demand for laptops. The laptop market is expected to grow by 37 per cent in 2009 to 3.69

million units and constitute a third of the total PC market.

Rural Penetration

According to a report of the Internet and Mobile Association of India (IAMAI) rural India

has 3.3 million active internet users. Since rural India was mapped for the first time, the year-

on-year growth of internet users in rural India could not be estimated.

The research also notes there are 5.5 million people who claim to have used Internet at some

point in time.

GOVERNMENT INITIATIVES

• The government set up the National Taskforce on Information Technology and

Software Development with the objective of framing a long term National IT Policy for the

country.

• Enactment of the Information Technology Act, which provides a legal framework to

facilitate electronic commerce and electronic transactions.


• The government-led National e-Governance Programme, has played an important role

in increasing internet penetration in rural India.

Road Ahead

The Indian information technology sector continues to be one of the sunshine sectors of the

Indian economy showing rapid growth and promise.

According to a report prepared by McKinsey for NASSCOM, the exports component of the

Indian industry is expected to reach US$ 175 billion in revenue by 2020. The domestic

component will contribute US$ 50 billion in revenue by 2020. Together, the export and

domestic markets are likely to bring in US$ 225 billion in revenue, as new opportunities

emerge in areas such as public sector and healthcare, and as geographies including BRIC and

Japan opt for greater outsourcing


SWOT ANALYSIS OF IT SECTOR

Strengths

• Highly skilled human resource

• Low wage structure

• Quality of work

• Initiatives taken by the Government (setting up Hi-Tech Parks and implementation of

e-governance projects)

• Many global players have set-up operations in India like Microsoft, Oracle, Adobe,

etc.

• Following Quality Standards such as ISO 9000, SEI CMM etc.

• English-speaking professionals

• Cost competitiveness

• Quality telecommunications infrastructure

• Indian time zone (24 x 7 services to the global customers). Time difference between

India and America is approximately 12 hours, which is beneficial for outsourcing of work.

Weaknesses

• Absence of practical knowledge

• Dearth of suitable candidates

• Less Research and Development

• Contribution of IT sector to India 's GDP is still rather small.

• Employee salaries in IT sector are increasing tremendously. Low wages benefit will soon

come to an end.


Opportunities

• High quality IT education market

• Increasing number of working age people

• India 's well developed soft infrastructure

• Upcoming International Players in the market

Threats

• Lack of data security systems

• Countries like China and Philippines with qualified workforce making efforts to

overcome the English language barrier

• IT development concentrated in a few cities only


INTRODUCTION TO EDUCATION SECTOR

The Indian economy has been growing at an accelerated rate over the past few years. During

FY08, real gross domestic product (GDP) witnessed a growth of 8.7%. The Govt has targeted

to achieve a sustainable high growth of 10% by the end of the Eleventh Five Year Plan (i.e.

2007-12) and is taking steps in this direction.

Realizing the failure of public initiatives to achieve universal educational coverage, as around

142mn children continue to remain deprived of school education, the Govt of India has been

stepping up its expenditure on education, focusing on building more schools, hiring more

Teachers and training existing teachers. This year, the Union Budget's allocation for School

education went up 20% to Rs 344bn ($8.6) and the allocation for Sarva Shiksha Abhiyan

(SSA) increased by 30.5% from Rs 100.41bn ($2.5bn) to Rs 131.0bn ($3.3bn).

The Govt. has allocated Rs 5bn for ICT and state governments across the country are

increasingly looking at upgrading existing infrastructure in schools. Education cess has

remained stable at 3% and is expected to contribute Rs 129.98bn per annum to the education

budget. In view of the urgent need for greater clarity of regulation, which would reduce the

need for current complicated structures of ownership and encourage greater public-private

participation (PPP) in the education sector, the Govt has shown favour towards greater

private participation and more Foreign Direct Investment (FDI) in the education sector.

The private sector has also spotted this opportunity and several new schools are being built

across the country. An increasing number of these schools are deploying new teaching

methodologies. Also, the huge shortage of teachers in the country has triggered these private

entrepreneurs into imparting training to teachers and thereby adding to their revenue streams.

Implementation of technological tools of learning the increasing accessibility of the Internet,

advent of high performance technologies and widespread acknowledgment that technology

should play an important role in education has made schools implement the latest

technological methods of teaching and learning. Private schools are now differentiating

themselves from each other in order to attract maximum number of students by adopting

state-of-the-art technological learning tools to impart education.


Defining the opportunity Your Company addresses the key markets of Private Schools,

Government Schools and Teacher Training and avails of the opportunities arising in these

markets.

Domestic Market - Huge potential with Govt. Support K-12 market, the country's core

education market is estimated to be worth around $20bn, comprising $15bn of unaided

schools and $5bn of aided schools. In India, out of 361mn children, only 219mn have been

enrolled for education, while the remaining 142mn are deprived of school education. Further

analysis reveals that the out of these 142mn children, 78mn, 39mn, 25mn are deprived of

higher secondary (Grade 9-12), middle (Grade 5-8) and primary education (Grade 1-4),

respectively. Budget allocation for the education sector has been increasing over the last three

years, which in turn has also given a boost to technology deployment in schools. The

government has created a flagship program called the Sarva Shiksha Abhiyan (SSA) to

ensure primary education for all, for which it is mobilising more resources through the

education cess.

Government Schools: There are over 950,000 public schools in the country with 129mn

students, translating into an average of 136 students per school. Out of the total public

schools, around 84% are in villages. In the latest Budget 2008-09, apart from increasing the

allocation for the education sector by 20% to Rs 344 bn, the Govt. Also announced a model

school program, which would aim to establish 6,000 high quality model schools. This has

created another opportunity for your Company.

Teacher Training: There are about 5mn teachers in the country with around 90%- 95%

of them in need of re-skilling. Recognising this imperative, the government has increased its

emphasis on a budget for teacher training.

Private Schools: There are over 75,000 private schools in the country with around 90mn

students, indicating an average of 1,200 students per school and a market size of approx. $20

bn. Out of the total private schools, 30,660 schools are aided private schools and the

remaining 44,400 unaided (15,000 unaided premium and 29,400 unaided standard) by Govt

of India. This market could be sliced in many ways. Your Company's market share in this

business is around 1% leaving a lot of headroom for growth.


Indian Education Opportunity

India, with 361mn children that should be enrolled for education, is one of the largest

Kindergarten-to-Grade 12 (K-12) markets in the world. There are currently 75,000 private

schools and 950,000 government schools. According to estimates by the Central Board of

Secondary Education (CBSE), India is short of 200,000 schools.

The Supplemental Education Services market: The highly competitive nature of exams in the

country and high expectations from parents require students to put in long hours of study

after school, creating another big opportunity in the after-school help market. It is estimated

that atleast

20mn students are taking some form of tuition outside the classroom compared with 90mn

students enrolled in private schools. Though it is largely an urban phenomenon, the estimated

size of the market is about Rs 5.3bn. This is a price inelastic, highly fragmented market,

which presents a great opportunity.

The Pre-School Segment: This market is highly fragmented, with the largest chain

comprising just 550 schools, less than 4% of the total market consisting of 15,000 pre-schools

in India. We believe this to be yet another untapped opportunity and estimate it to be a market

worth Rs 98bn.

Online Tutoring: There are currently 2.6mn broadband connections in India. The Govt's

Broadband and Wireless Policy has called for 20mn and 25mn broadband subscribers by

2010 and 2012, respectively. With the rolling out of these connections, the online tutoring

market in India will open up, creating opportunities for your Company.

Global Opportunities

The latest edition of the Electronic Publishing Services (EPS), in its Education and Training

Market Monitor research predicts that the Global Education and Training Content Market is

expected to reach over $50bn by 2010. Research further reveals that revenues for content

providers to North America and European will grow at a CAGR of 6% during the period

2005 to 2010. Research has shown that the demand for comprehensive solutions will

ultimately drive new rounds of formal and/or informal consolidation within the marketplace.


“Over-regulated and under-governed” best describes the largest sector in India – Education

(IES). In a failed public education system, aspirations are meeting affluence and taking

private IES through a phase of Price Discovery. Ironically, the gargantuan potential

(estimated private spend of US$50bn; $80bn by 2012) is trapped! The ‘not-forprofit’ nature

of the $40bn formal IES has deterred for-profit private participation while inability to

transform education into a ‘process-driven’ model curtails scalability in nonformal IES

($10bn). Our investment thesis in IES rests on 4Cs – players with Credibility (management

intent & ability), Capital (built to last), Creativity (to ‘manage’ the overregulated

environment) and Content (to differentiate and build annuity). We see limited value creation

potential in the space, mainly due to scale issues. However, Educomp Solutions and Manipal

Universal Learning (unlisted) exhibit the 4KSFs with strong pricing power as indeed ability

to create an annuity pool and are our bets in the sector. IES – the ‘Largest’…inefficiencies

the ‘Highest’: IES is by far the largest capitalized space in India with $30bn of government

spend (3.7% of GDP; at global average), and a large network of ~1m schools and 18,000

higher education institutes. Yet, the public education system is ‘insufficient’ and ‘inefficient’,

leading education-hungry and affluent Indians to spend $50bn on private education (14%

CAGR over FY08-12E). Investability Quotient – the ‘Lowest’: The ‘not-for-profit’ diktat, a

poor regulatory framework and low risk-appetite have discouraged for-profit participation in

the lucrative private formal IES.

With no structural change in sight (rampant corruption and low political will), IES has

attracted limited capital. Meanwhile, non-formal IES – while non-regulated and faster-

growing – fails the scalability test (barring a few pockets). Betting on mavericks: Though a

few smaller players have attracted some capital, we see limited value creation potential in

IES due to regulatory and scalability issues. Armed with creativity, certain for-profit players

are using innovative two-tier structures to unlock the ‘surplus’ generated and, more

importantly, plough it into scalable (as also transparent) business models. Exhibiting the 4Cs,

we like Educomp Solutions and Manipal Universal Learning (unlisted) -- players with scaled-

up and annuity businesses as also strong pricing power.


INTRODUCTION TO COMPANY

INTRODUCTION TO EDUCOMP SOLUTION

Educomp Solutions Limited (Educomp) is a provider of technology-based education

products and services for kindergarten to twelfth grade (K-12) education. The Company’s

principal business areas include Business-to-Business (B2B) initiatives and Direct Initiatives.

Educomp provides technology enabled products and services to both public and private

schools, including Smart_Class, instructional and computing technology solutions (ICT

solutions) and teacher training programmes (Professional Development). The Company sells

educational aid, compact disk-read only memory (CD-ROM) and learning content through its

online initiatives (including Mathguru and Learning Hour) and its offering initiatives

(including establishing pre-schools, K-12 schools and higher education institutions). In May

2008, the Company acquired a 51% stake in Learning.com. In October 2008, the Company

acquired a 51% stake in Takshila Management Services Pvt. Ltd.

Educomp Solutions Limited, founded in 1994 is a globally diversified education solutions

provider and the largest education company in India. Educomp Group reaches out to over

21,000 schools and 10.99 million learners and educators across the world.

Educomp Solutions Limited have 27 offices worldwide including an office in Canada, 20 in

India, two in Singapore, one in Sri Lanka, and three in the United States. In addition, the

Company operates through its various subsidiaries including authorGEN, Threebrix

eServices, Learning.com, USA, AsknLearn Pte Ltd, Singapore and via its associates such as

Savvica in Canada.

Educomp Solutions Limited is now India’s number one K-12 education company. For many

years, Educomp Solutions Limited has been at the forefront of various pioneering initiatives

in the e-education space.

Educomp Solutions Limited’s mission is to reach 10 million learners through their products,

services and solutions and be amongst the top five K-12 companies worldwide by the year

2010.


Educomp Solutions Limited’s Partners

Educomp has built strong partner relationships with major companies in India and abroad,

each bringing in their special expertise and contribution. Educomp Solutions Limited utilizes

these partnerships to keep their processes and knowledge at the highest level across all

paradigms. Educomp Solutions Limited work with leading companies and trusts, such as

Intel, Microsoft, Raffles.

Gaja Capital Partners

Gaja Capital Partners is an India focused mid-market private equity firm. Gaja invests in

emerging sector leaders that leverage domestic demand in India.

Learning Leadership Foundation (LLF)

The Learning Leadership Foundation (LLF), a non profit organisation with a mission to

provide access to quality education and also to re-skill/train teachers to be better and more

effective.

Microsoft-XBOX

The Entertainment and Devices Division of Microsoft® has entered into a partnership with

Educomp to encourage interactive learning amongst students on the Xbox 360 platformTM.

Xbox 360TM delivers the most powerful console, the next generation of Xbox Live®, and an

amazing digital entertainment experience.

Intel Classmate PC Pilots - One on one computing

The World Ahead Program from Intel Corporation aims to enhance lives by accelerating

access to uncompromised technology for everyone, anywhere in the world. Intel-powered

classmate PCs are designed to improve education and provide economic opportunities. They

are cheap and rugged, and can bring one-on-one computing to the average classroom.

Raffles Exchange Programs

The Raffles Institution is one of the top schools in Singapore. Established in 1823, it is an

independent secondary school for boys.

Siboney


Siboney Corporation was incorporated in the State of Maryland in 1955. Its principal

business is the publishing of educational software products in core academic areas, primarily

for schools. Since the mid-1950s, Siboney has developed educational materials for teachers

and schools through its Gamco subsidiary.

Greycells18 Media Pvt Ltd.

Greycells18 Media Pvt Ltd. has been set up in association with Network18 and Educomp.

Greycells18 is a pioneer in the world of education, and has created comprehensive interactive

learning services that will help students understand subjects better, and enable them to excel

in their exams. These curriculum-based educational systems will use modern technological

innovations in the ICT space, such as Interactive TV, e-learning and mobile learning, to

create an interactive ecosystem where students can thrive. Interactive video content of the

Topper Learning System is available on Channel 570 on Tata Sky and Channel 097 on Dish

TV.

FTK Partnership

FTK is based out of Shoham, Israel and develops Software products and online solutions

particularly tailored to the Indian market unique needs.

Important Agreements Made by the Educomp Solution Pvt.Ltd.

• The first seven “Millennium Schools” (as defined below) are launched, with Edu

Manage (as defined below) acting as vendor of the Company’s products and services.

• The Company, via Edu Infra (as defined below) enters collaborative agreements to

ensure sufficient land is available for development of new schools in accordance with

its K-12 initiative.

• Edumatics signs a joint development agreement with U.S. based company,

Learning.com, to provide educators with innovative, web-delivered curriculum

solutions that support student learning.

• The Company enters into a partnership with Microsoft to make its multimedia content

curriculum available for use on the Xbox 360 platform, which currently has over

50,000 users worldwide. The official launch of the product is expected during FY

2009.


• Edumatics enters into a strategic alliance and joint development agreement with

Siboney Learning Group, Inc. to create a new online test preparation programme,

leveraging IP, a software development programme, manpower and the expertise of

both parties.

In May, the Company acquires a 51% strategic stake (on a fully diluted basis) in

Learning.com. Source: annual Report Educomp

SHARE DATA

Market Cap Rs.3647.25 Crs

Price Rs.1898.00

BSE Sensex 9459.34

BSE Code 532696

NSE Code INE216H01019

Face Value Rs.10

52-Week High/Low Rs.4219/1331

Index BSE 100 ,BSE Mid Cap

Group A

Listed on BSE/NSE 13th January 2006

COMPANY MANAGEMENT

BOARD OF DIRECTORS

(As on 2nd June, 2008)

Shantanu Prakash Chairman & Managing Director


Jagdish Prakash Whole-Time Director

Gopal Jain Director

Sankalp Srivastava Director

Shonu Chandra Director

COMMITTEES OF THE BOARD

AUDIT COMMITTEE

Sankalp Srivastava Chairman, Independent & Non-Executive

Shonu Chandra Member, Independent & Non-Executive

Gopal Jain Member, Independent & Non-Executive

Shantanu Prakash Member, Promoter & Executive Director

SHAREHOLDERS’ INVESTOR

GRIEVANCE COMMITTEE




Jagdish Prakash Member, Non Independent & Executive

Director

REMUNERATION COMMITTEE




REGISTERED OFFICE CORPORATE OFFICE

1211, Padma Tower I, 5, Rajendra Place,

New Delhi -110 008.

Educomp Towers, 514, Udyog Vihar Phase

III,Gurgaon - 122 001.

BRANCH OFFICES AT :

Bangalore : 16, 80 Feet Road, 4th Block, Koramanagala Bangalore-560 034.

Mumbai : 2nd Floor, Valech Chambers, Plot No, B-6, New Link Road, Andheri

(W), Mumbai-400 053.

Noida : Plot No 85, Special Economic Zone, Phase II, Sector 82, Noida.


Kolkata : Suite no 6C, 2nd Floor, 36B Shakespeare Sarani, Kolkata-700 017.

Kolkata : 5, Satyen Dutta Road, Kolkata-700 029.

Chennai : New No. 98, 7th Avenue, Ashok Nagar, Chennai – 600 083.

Lucknow : C-26, Sector –C, Chetan Vihar, Aliganj Scheme, Lucknow- 226 024.

Guwahati : Krishna Market, SRCB Road, Fancy Bazaar, Guwahati- 781 001.

Chhattisgarh : Flat No. 14, 3rd Floor, Modern Complex, Behind Mantralaya, Moti

Bagh Chowk, Raipur, Chattisgarh.

Orissa : D/206, Baishnav Vihar Apartment,Near Durga Puja Mandap,

Bomikhlal, Bhubaneshwar – 751006, Orissa.

Gandhi Nagar : Plot No. 1662/1, 1st floor, Sector 5C, Gandhinagar, Gujarat-382 005.

Secunderabad : Plot No. 28 & 30, Jupiter Colony, Road No. 3, Near Sikh Village,

Bowenpalli, Secunderabad-500 009.

Tripura : Above MK Azad Computer Institute, Joynagar Middle Road,

Agartala-799 001.

Chandigarh : SCF No. 63, Phase XI, Sector 65, S.A.S. Nagar, Mohali,

Punjab-160059.

OVERSEAS OFFICE :

Educomp Solutions Limited, 88/6, 1/1 Somadevi Place, Colombo-05, Sri Lanka

AUDITORS :

Anupam Bansal & Co, Chartered Accountants

BANKERS :

State Bank of Patiala, Commercial Branch, Chandralok Building, New Delhi-1

State Bank of Bikaner & Jaipur,Industrial Finance Branch,27 Barakhamba Road,New Delhi-1

ICICI Bank Ltd, Kailash Building, K.G.Marg, New Delhi-1.

Standard Chartered Bank, Connaught Place, New Delhi-1.

SUBSIDIARIES

Direct Subsidiaries

Educomp Learning Private Limited

Wheitstone Productions Private Limited

Educomp Infrastructure Private Limited

Educomp School Management Limited


Educomp Professional Education Limited

Educomp Software Limited

Threebrix E-Services Private Limited

Authorgen Technologies Private Limited

Edumatics Corporation Inc.

Educomp Asia Pacific Pte. Limited

Indirect Subsidiaries

Ask N Learn Pte ltd, Singapore (Subsidiary of Educomp Asia Pacific Pte. Ltd)

Singapore Learning.com Pte. Ltd, Singapore (Subsidiary of Ask n Learn Pte. Ltd)

Pave Education Pte Ltd, Singapore (Subsidiary of Ask n Learn Pte. Ltd)

Wiz Learn Pte Ltd, Singapore (Subsidiary of Ask n Learn Pte. Ltd)

Learning.com, U.S.A (Subsidiary of Educomp Asia Pacific Pte. Ltd)

Shikhya Solutions Inc.,U.S.A (Subsidiary of Authorgen Technologies Private Limited)

Educomp Infrastructure Services Private Limited (Subsidiary of Educomp Infrastructure

Private Limited)

SHARE TRANSFER AGENT : Intime Spectrum Registry Limited, A-40,

2nd Floor, Naraina Industrial Area,

Phase-II, New Delhi-28

LISTED AT : National Stock Exchange of India

Limited, Bombay Stock Exchange

Limited

COMPANY SECRETARY : Mohit Maheshwari

Source: annual Report Educomp

Name of Company Ownership Interest

Edumatics Inc. -U.S.A. 1655 100%

Educomp Learning Private Limited –India 51%


Educomp Professional Private Limited –India 100%

Sikhya Solutions LLC-U.S.A. 100%

Learning.com, U.S.A. 51%

The Company has seventeen subsidiaries, one associate and two planned joint ventures. The

subsidiaries focus mainly on providing services and products directly to the individual

consumer as part of the Company’s Direct initiatives. In Fiscal 2008, Direct Initiatives

contributes 14.09% of the total consolidated revenues of Educomp.

Shareholding pattern(%)

Promoters 55.03%

FII's 6.97%

Public and Others 38.00%

Source : educomp annual report 2008

Source: self generated

HIGHLIGHTS(2007-08)

Particulars Figure INR(Millions)


Revenue - Operational Rs. 2,620.95 millions

Year-on-Year Revenue Increase 145.93%

EBITDA Rs. 1,246.92 millions

Year-on-Year EBITDA Increase 149.15%

PBT Rs. 1,029.96 millions

Year-on-Year PBT Increase 129.37%

Net Profit Rs. 700.61 millions

Year-on-Year PAT Increase 145.11%

EPS –Basic* Rs. 41.38

EPS –Diluted** Rs. 35.13

NPR 26.73%

Total Assets Rs. 7,332.78 millions

Note: US $/ INR Conversion rate considered at Rs. 39.97 as on 31st March, 2008.

* Basic EPS calculated on a capital base of 16,931,280 No. of Equity Shares as per AS-20.

** Diluted EPS calculated on a capital base of 18,511,016 No. of Equity Shares as per AS-20



FUNDAMENTAL ANALYSIS

ANALYSIS OF RATIOS:

Company’s Debt Equity Ratio has increased significantly from 0.11 in 2006 to 1.22 in 2008.

Company has already made financial closure of secured debt for capital expenditure

requirement for K-12 business up to the year 2011. Company’ Interest coverage ratio remains

comfortable as most of the debt of the company is in the form of FCCB maturing in 2012.

Company had high inventory turnover ratio as company has built up inventory of installing

computers for its SmartClass and ICT business.

RATIO ANALYSIS 3 YEARS COMPARATIVE

Particulars Financial Year

2007-08 2006-07 2005-06

a) Leverage

Debt/Equity 1.22 1.02 0.03

Total Asset/Net worth (AV) 3.65 2.62 2.06

Debt service coverage ** 18.58 13.29 14.81

Debt service coverage (3 Years Average)**

Note:- The above ratios are calculated in time

term

16.58 11.66 10.02

b) Profitability

EBDITA/Net Sales 47.58 46.96 49.39

Net Profit Ratio 26.73 26.82 26.58

Return on net worth(Profit available for

distribution/ Average Net Worth)

32.39 24.13 19.67

PAT/ Average Net worth 34.91 27.9 24.47

Fixed Assets/Turnover (operational)

Note:- The above all ratios are calculated in %

term

80.64 67.37 32

c) Liquidity


Net working capital to total Current assets 0.48 0.48 0.59

Average collection period (in days) 159 169 176

Current Ratio 5.64 5.23 4.05

d) Growth

Growth in total revenue in (%) 146.86 108.6 67.46

* Debt includes FCCB raised during the year.

** Calculated on Long-term debt basis.

Interpretation:

� debt equity ratio shows that interest expenses is increasing , thus , the profitability of

the company may decrease.

� The Net worth ratio shows that the financing of Assets is being done by debt . this

might be due to the fact that the company has cheaper source of finance from debt

than equity.

� The debt service ratio and debt service ratio (Three Year Average) shows that

company is at a very good position to pay out its cost of debt.

� The company Net profit Ratio shows that it is consistent in generating profit. This is a

sign of sound management policies.

� Return on net worth is one of the most important ratio from owners point of view. The

higher the ratio the better it is. Because it exhibit the return which has been generated

on the owners capital and the reserve and surpluses of the company.

� Fixed Assets of the company has been optimally utilised to generate maximum sales.

� Net Working Capital to total Current Assets shows that the company is maintaining a

good level of its Net Working Capital so that it does not face short term liquidity is

maintain.

� Decreasing Average collection Period shows that the debtor is converting into cash at

much higher rate than before.


� The current ratio shows that the company is not maintaing the ideal ratio i.e 2:1 , this

might be due to the fact that since it is a service base company much current assets

would be blocked in the form of cash and /or debtors.

FINANCIAL PERFORMANCE - 3 YEARS SNAPSHOT

Sl.

No.

Particulars Financial Year

2007-08 2006-07 2005-06

1 REVENUE

Income from Operations 2,620.95 1,065.74 523.05

Other Income 148.08 55.98 14.68

Total 2,769.03 1,121.72 537.73

EBDITA 1,246.92 500.47 258.34

EBDITA % 47.58 46.96 49.39

Interest Expenses 41.89 13.29 5.04

Depreciation 322.95 93.93 53.05

PAT 700.61 285.84 139.03

PAT % 26.73 26.82 26.58

Taxes 167.56* 116.93* 75.97*

Equity Dividend % 25% 20% 15%

Dividend payout ** 50.54 38.71 27.3

Equity Share Capital 172.47 159.85 159.6

Reserve & Surplus 2,613.01 987.12 743.5

Average Net worth 2,007.10 1,024.36 568.14

Gross Fixed Assets 2,645.27 936.19 350.81

Net Fixed Assets 2,113.52 717.95 167.39

Market Capitalization *** 65,830.13 15,255.06 6,137.33

2 Other Information:

No. of Employees 3955 1422 1190

No. of Shareholders **** 15584 5979 5374

** Dividend pay-out is inclusive of dividend tax.


*** Calculated on the basis of closing share price as on 31st March, 2008 at BSE.

**** As per NSDL, CSDL and Registrars records dated 31st March, 2008.


Analysis of Financial Statements :

Company Debtor days are high, as both ICTan d Smart class segment revenue collection

starts post 90 days. It is around 120 days for Smart Class and more than 150 days for ICT.

These will take time to reduce as K-12 and retail business are just beginning to pick up. Post

FY15, we expect debtor days to come to around 100 days from 150 days presently. For Q4

FY09 Debtor days are at 175 – 180 days up from 170 days in the sequential quarter.

Company’s debt equity ratio for FY09 stands at around 1.7, higher than 1.3 last year. Going

forward Debt Equity ratio will decrease to around 1.2 as debt of USD 80 will get converted in

to Equity which will also help company in raising cheaper debt in future.

On consolidated basis, Cash & Cash Equivalents at the end of the quarter of Rs 186.5 Crore

and debt of Rs 907.4 Crore. Debtor days are at 175 – 180 days up from 170 days in the

sequential quarter. The Company plans to sell both content and hardware together. The

Company plans to approach financial institutions for securitization of receivables and finally

outsource resource coordinators and logistics. The model would reduce the cash burden on

the Company and lighten its working capital needs.

Growth Outlook

Company is likely to post very high growth rate for a long time. Revenue figures are

expected to show a CAGR of 70% for the period 2009-2011, 35% for the period 2011- 2014

and 20% for the period 2014-2016. It forecast strong 50% CAGR in Net Profits over FY09-

FY11E and see limited risks to the estimates given. Company has forward P/E of for FY-

2011 on constant prices while growth rate is expected to be upwards of 30% for year FY11-

FY14. Company will continue to shine even in downturn as spending on Education and price

levels are highly resilient to economic downturns.


Another positive for this company is its short payback period on its investment as significant

business comes from long term contracts of 5 years. Company understands its strengths and

challenges ahead to deal with these challenges. Company has recognized four areas of

opportunities/ strengths as under:

1. Large market opportunity(scale)

2. Create barriers of entry for other players through strong IP and product differentiation.

3. High operating margins (50%+)

4. Experience and ability to execute

3 – YEARS COMPARATIVE SNAPSHOT AS A STANDALONE BASIS

Source: self created

Note: Total revenue depicts income from operation and other income.

Interpretation: as it is clear from above chart company,s revenue is increasing year on year.

In financial year 2006 company’s revenue was 537.73 and it increased to 2769.03 million in

financial year 2008. So it can be concluded that company is performing well.



Interpretation: company’s earning before tax are also going increasing per year. Company’s

PBT has increased by 500% from 2006 to 2008. It is a good signal for future growth of

company.


Interpretation: it is good signal for company as well as investor, as the PAT has increased

over the year on an increasing rate. So it can be concluded that company’s performance is

going good.



Interpretation: with the increase in earning of company, the wealth of the shareholder is

also increasing. This shows that is concerned for giving out returns to its shareholders.


Interpretation: the numerator side i.e. price is incresing so book value is also at

incresing level. It is a good signal for buyer.



Note: Debt depicts long term debts secured/ unsecured.

Equity depicts Equity share capital + Reserve & surplus – Misc. expenditure.

Debt Equity Ratio = Debt/Equity

Interpretation: Debt equity ratio shows that interest expenses is increasing , thus , the

profitability of the company may decrease. That means company is having more debt or

assets are financing from debt.


Note: Return on Capital Employed = Profit before interest but after tax/ Average Capital

Employed. Average Capital Employed depicts (opening capitalemployed + closing capital

employed)/2.

Interpretation: company’s debt has increased over the year but the revenue has not

increased with respect to debt so that denominator side has increased more than numerator

side. It results in less return on capital employed.


Note: Total Assets depicts Net fixed assets + Investments + Current assets loans & advances

+ Misc. assets. Average Net worth depicts (opening net worth + closing net worth)/2.

Total Assets to Net worth = Total Assets / Average Net worth.

Interpretation: it indicates that total assets are more increased with respect to net worth.

Company’s fixed assets are more increased than current assets. It is good indicator because

company is expanding its current existing assets.


3 – YEARS COMPARATIVE SNAPSHOT

a) Revenue breakup


Interpretation: above chart is showing that the company’s main source of revenue is

smart class programme and instructional & computing technology, which are showing

incresing in revenue. And other programme that is professional development and retail &

consulting programme has shown little bit decrasing trend in revenues.



Interpretation: Educomp solution is US based company, and from its total revenue

revenue from outside is around 90%. From India it earns only 10% of revenue but as we

can consider it as a huge percentage. And in India company is growing well as its revenue

has increased over the year.

b) Profitability


Note: Net Profit considered Profit after tax and prior period items. Net Sales depicts Sales

& Service Income. Net Profit % to Net Sales = NP / Net Sales* 100

Interpretation: this ratio shows the efficiency of the company to generate constant

profit throughout the three years. It shows that the investors are sure about the

profitability of company as its management is good enough to maintain a good return on

sales, which finally goes in interest of investors.

c) Expenditure



INTERPRETATION: Here COGS of company is increasing that shows the cost of service

being provided by company is increasing relatively to profit. That cause into decrement of

Cost of Good sol d of company.

Increment in personnel expenses shows that the company is spending more money in hiring

more human resources and other expenses of personnel’s are relatively high.

Admin.& other expenses are relatively less than the previous year so it is showing good

efficiency of management in carrying the services.


SWOT ANALYSIS OF EDUCOMP

Strengths:

• Global R&D facility.

• Retention of the man-power is the best in the industry.

• Impressive list of clientele.

• Relatively lower receivable compared to the industry average.

Weaknesses:

• Low operating margin of the other group companies.

• Free floating stock is very less.

Opportunities:

• In the branded product category.

• In the consultancy area.

• In the emerging technology areas like Blue Tooth, WAP etc.

Threats:

• Increasing cost of human capital.

• Slowdown in the US economy.

• Appreciation of Indian Currency

• Will face fierce competition in the areas of e-business and ASP services.


TECHNICAL ANALYSIS

SHARE PRICES FOR EDUCOMP SOLUTION SINCE LISTED ON BSE

Date

Educomp Sensex

High Low Close close price

13-Jan-06 314.9 185.3 285.35 9,374.19

20-Jan-06 337.9 272.4 307.1 9,520.96

27-Jan-06 311 290 293 9,870.79

03-Feb-06 296.8 254.05 262.15 9,742.58

10-Feb-06 292 255.55 281.1 10,110.97

17-Feb-06 311.9 275 289.8 9,981.11

24-Feb-06 299.75 276.75 279.35 10,200.76

03-Mar-06 408.8 271 384.8 10,595.43

10-Mar-06 442 375 425.15 10,765.16

17-Mar-06 466.9 398.1 401.5 10,860.04

24-Mar-06 426.9 390.25 392.25 10,950.30

31-Mar-06 413.5 382 384.55 11,279.96

07-Apr-06 411 370.05 377.45 11,589.44

13-Apr-06 390.4 345.1 348.35 11,237.23

21-Apr-06 381.5 348 358.75 12,030.30

28-Apr-06 393.8 329 381.4 11,851.93

05-May-06 417 369 400.25 12,359.70

12-May-06 419.2 401.5 407 12,285.11


19-May-06 409.9 326 384 10,938.61

26-May-06 380 325 365 10,809.35

02-Jun-06 424 355 379.5 10,451.33

09-Jun-06 387 291 326.6 9,810.46

16-Jun-06 377.9 300.3 360.2 9,884.51

23-Jun-06 407.5 351 382.1 10,401.30

30-Jun-06 395.1 361 386.5 10,609.25

07-Jul-06 414.3 382.1 393.05 10,509.53

14-Jul-06 432 390 404.8 10,678.22

21-Jul-06 408 342 356 10,085.91

28-Jul-06 390 328.5 370.1 10,680.23

04-Aug-06 390.9 365.5 370.2 10,866.51

11-Aug-06 388.95 370 377.75 11,192.46

18-Aug-06 475 380 463.1 11,465.72

25-Aug-06 613 464 540.55 11,572.20

01-Sep-06 543.8 503.2 514.4 11,778.02

08-Sep-06 532.9 510 516.85 11,918.65

15-Sep-06 532.8 476 524 12,009.59

22-Sep-06 686.9 526.1 686.9 12,236.78

29-Sep-06 828.15 692.1 751.25 12,454.42

06-Oct-06 737.7 672.75 675.4 12,372.81

13-Oct-06 673 625.3 643.3 12,736.42


20-Oct-06 686.8 645.2 645.2 12,709.40

27-Oct-06 660 625 626 12,906.81

03-Nov-06 687 621 644.35 13,130.79

10-Nov-06 678.75 633.1 635.85 13,282.91

17-Nov-06 682 628 640.7 13,429.48

24-Nov-06 674.9 612 637.8 13,703.33

01-Dec-06 664.75 628 648.25 13,844.78

08-Dec-06 663 625.1 625.1 13,799.49

15-Dec-06 730.55 561 725.45 13,614.52

22-Dec-06 939.5 736.7 921.35 13,471.74

29-Dec-06 956 836 956 13,786.91

05-Jan-07 1,079.70 975 1,032.45 13,860.52

12-Jan-07 1,059.00 942.3 1,013.65 14,056.53

19-Jan-07 1,018.80 943.5 955.55 14,182.71

25-Jan-07 1,015.00 945 967.65 14,282.72

02-Feb-07 1,019.95 924.7 967.05 14,403.77

09-Feb-07 986 892 917.35 14,538.90

15-Feb-07 950 873 925.75 14,355.55

23-Feb-07 954 891.2 912.25 13,632.53

02-Mar-07 980 833 945.3 12,886.13

09-Mar-07 952 850.8 921.75 12,884.99

16-Mar-07 938 890 920 12,430.40


23-Mar-07 1,022.20 920 1,003.00 13,285.93

30-Mar-07 1,015.00 938 950 13,072.10

05-Apr-07 1,089.85 930 1,089.85 12,856.08

13-Apr-07 1,340.10 1,125.20 1,340.10 13,384.08

20-Apr-07 1,454.45 1,306.50 1,399.65 13,897.41

27-Apr-07 1,420.00 1,251.35 1,317.05 13,908.58

04-May-07 1,380.00 1,285.00 1,306.75 13,934.27

11-May-07 1,511.30 1,281.00 1,511.30 13,796.16

18-May-07 1,885.00 1,521.00 1,586.70 14,303.41

25-May-07 1,999.00 1,550.00 1,898.55 14,338.45

01-Jun-07 1,958.00 1,758.00 1,875.80 14,570.75

08-Jun-07 1,893.00 1,765.00 1,815.30 14,063.81

15-Jun-07 1,919.00 1,706.00 1,896.65 14,162.71

22-Jun-07 2,375.00 1,861.30 2,312.60 14,467.36

29-Jun-07 2,389.65 2,180.00 2,213.25 14,650.51

06-Jul-07 2,304.90 2,124.00 2,140.35 14,964.12

13-Jul-07 2,325.00 2,141.00 2,240.95 15,272.72

20-Jul-07 2,279.00 2,131.00 2,154.70 15,565.55

27-Jul-07 2,489.50 2,121.00 2,321.10 15,234.57

03-Aug-07 2,630.00 2,300.00 2,406.15 15,138.40

10-Aug-07 2,650.00 2,265.10 2,617.40 14,868.25

17-Aug-07 2,726.80 2,310.00 2,361.20 14,141.52


24-Aug-07 2,599.00 2,260.00 2,554.25 14,424.87

31-Aug-07 2,989.00 2,510.00 2,856.80 15,318.60

07-Sep-07 2,954.00 2,810.00 2,872.00 15,590.42

14-Sep-07 2,975.00 2,835.00 2,873.85 15,603.80

21-Sep-07 3,079.00 2,843.10 3,002.55 16,564.23

28-Sep-07 3,040.00 2,225.00 2,800.85 17,291.10

05-Oct-07 3,000.00 2,790.00 2,899.80 17,773.36

12-Oct-07 3,074.00 2,665.00 2,981.00 18,419.04

19-Oct-07 3,715.00 2,967.00 3,045.75 17,559.98

26-Oct-07 3,600.00 2,850.00 3,413.25 19,243.17

02-Nov-07 3,600.00 3,200.00 3,290.35 19,976.23

08-Nov-07 3,350.00 3,099.00 3,190.00 18,907.60

16-Nov-07 3,400.00 3,060.00 3,275.95 19,698.36

23-Nov-07 3,450.00 2,880.00 3,292.70 18,852.87

30-Nov-07 3,598.00 3,200.00 3,559.15 19,363.19

07-Dec-07 4,300.00 3,565.00 4,013.05 19,966.00

14-Dec-07 4,200.00 3,885.80 4,159.15 20,030.83

20-Dec-07 4,200.00 3,750.00 3,830.75 19,162.57

28-Dec-07 4,820.00 3,875.00 4,688.05 20,206.95

04-Jan-08 4,942.00 4,440.20 4,465.75 20,686.89

11-Jan-08 4,638.00 4,325.00 4,529.80 20,827.45

18-Jan-08 5,650.00 4,501.00 4,810.00 19,013.70


25-Jan-08 4,799.70 3,200.00 4,149.80 18,361.66

01-Feb-08 4,274.40 3,350.00 3,757.75 18,242.58

08-Feb-08 4,484.40 3,765.00 3,870.15 17,464.89

15-Feb-08 4,198.00 3,525.20 4,163.95 18,115.25

22-Feb-08 4,400.00 3,951.00 4,043.10 17,349.07

29-Feb-08 4,562.00 4,020.00 4,250.85 17,578.72

07-Mar-08 4,309.00 3,300.00 3,383.70 15,975.52

14-Mar-08 3,769.00 2,901.00 3,627.85 15,760.52

19-Mar-08 3,650.00 3,232.00 3,309.70 14,994.83

28-Mar-08 3,980.00 3,121.00 3,937.10 16,371.29

04-Apr-08 3,960.00 3,380.00 3,579.15 15,343.12

11-Apr-08 3,930.00 3,546.00 3,871.30 15,807.64

17-Apr-08 3,979.00 3,720.00 3,861.60 16,481.20

25-Apr-08 4,210.00 3,900.00 4,120.10 17,125.98

02-May-08 4,219.00 3,987.00 4,006.45 17,600.12

09-May-08 4,140.00 3,825.05 3,842.90 16,737.07

16-May-08 4,139.90 3,651.00 4,085.00 17,434.94

23-May-08 4,185.00 3,999.00 4,014.30 16,649.64

30-May-08 4,180.00 3,920.55 3,960.90 16,415.57

06-Jun-08 4,065.00 3,445.10 3,497.10 15,572.18

13-Jun-08 3,525.90 3,275.00 3,450.90 15,189.62

20-Jun-08 3,750.00 3,300.05 3,311.90 14,571.29


27-Jun-08 3,390.00 2,401.00 2,840.95 13,802.22

04-Jul-08 2,869.00 2,320.00 2,784.60 13,454.00

11-Jul-08 2,889.00 2,575.00 2,738.40 13,469.85

18-Jul-08 2,875.10 2,576.00 2,851.55 13,635.40

25-Jul-08 3,589.00 2,756.00 2,992.85 14,274.94

01-Aug-08 3,279.00 2,840.10 3,213.05 14,656.69

08-Aug-08 3,445.00 3,160.00 3,423.15 15,167.82

14-Aug-08 3,619.70 3,290.00 3,423.10 14,724.18

22-Aug-08 3,450.00 3,130.00 3,195.25 14,401.49

29-Aug-08 3,841.00 3,228.00 3,773.55 14,564.53

05-Sep-08 4,020.00 3,683.00 3,700.25 14,483.83

12-Sep-08 3,848.00 3,500.00 3,604.85 14,000.81

19-Sep-08 3,880.00 2,985.00 3,628.10 14,042.32

26-Sep-08 3,810.00 3,240.00 3,313.30 13,102.18

03-Oct-08 3,449.00 3,100.00 3,131.95 12,526.32

10-Oct-08 3,080.00 2,000.00 2,052.35 10,527.85

17-Oct-08 2,489.00 1,600.00 1,628.50 9,975.35

24-Oct-08 2,160.00 1,525.10 1,778.55 8,701.07

31-Oct-08 2,400.10 1,515.00 2,225.70 9,788.06

07-Nov-08 2,825.00 2,280.00 2,556.60 9,964.29

14-Nov-08 2,749.00 2,390.00 2,428.70 9,385.42

21-Nov-08 2,469.00 1,627.00 1,785.40 8,915.21


28-Nov-08 2,370.00 1,685.00 2,261.45 9,092.72

05-Dec-08 2,361.00 1,982.10 2,104.80 8,965.20

12-Dec-08 2,294.00 2,050.00 2,088.15 9,690.07

19-Dec-08 2,774.00 2,099.90 2,732.40 10,099.91

26-Dec-08 2,865.00 2,383.00 2,409.35 9,328.92

02-Jan-09 2,609.90 2,360.00 2,546.75 9,958.22

09-Jan-09 2,722.00 1,980.00 2,127.90 9,406.47

16-Jan-09 2,140.00 1,755.00 2,088.20 9,323.59

23-Jan-09 2,170.00 1,375.00 1,747.35 8,674.35

30-Jan-09 1,825.00 1,652.55 1,792.55 9,424.24

06-Feb-09 1,825.00 1,331.00 1,401.40 9,300.86

13-Feb-09 2,145.00 1,402.00 2,097.20 9,634.74

20-Feb-09 2,177.00 1,711.10 1,771.85 8,843.21

27-Feb-09 1,725.00 1,480.00 1,643.95 8,891.61

06-Mar-09 1,643.00 1,473.60 1,560.25 8,325.82

13-Mar-09 1,793.00 1,495.15 1,762.90 8,756.61

20-Mar-09 2,039.90 1,780.00 1,898.00 8,966.68

27-Mar-09 2,255.00 1,940.00 2,199.35 10,048.49

02-Apr-09 2,385.00 2,031.00 2,341.40 10,348.83

09-Apr-09 2,444.00 2,085.00 2,178.95 10,803.86

17-Apr-09 2,349.00 1,970.00 2,184.75 11,023.09

24-Apr-09 2,692.20 2,192.00 2,557.85 11,329.05


30-Apr-09 2,625.00 2,341.10 2,474.25 11,403.25

08-May-09 2,640.00 2,238.00 2,310.70 11,876.43

15-May-09 2,520.00 2,330.00 2,377.50 12,173.42

22-May-09 2,950.00 2,500.00 2,723.85 13,887.15

Source: http://www.google.com/finance/historical


Interpretation: The share prices of Educomp solution is very fluctuating over the time. As it

can be observe from the above chart, Educomp solution since listing showing a highly

volatility in market prices. This share was listed on BSE index on 13th jan 2006. At that point

of time this company launched its shares at face value of rs. 10. It is listed under the IT sector

in BSE. The Educomp solution closed at 285.35 on 13 jan 2006. Afterward it has shown

increasing trend over the years. And now it is fluctuating 3500 to 4200. Beta of this share is

around 1.2 that means with the little bit movement in sensex it shows a high fluctuation.

That’s why it is a highly risky share.



Interpretation:

As the company was listed on BSE in 2006, it was the most important year for the company

in the sense of market prices. Share performed very well on that year, as we can see the

incremental growth in the share prices over the year. The linear trend is showing upward

trend. The Company raises U.S.$25 million through the issue of foreign currency convertible

bonds.



Interpretation:

In this year due to following Information Company’s share performed well throughout the

year.

Acquires a 76% equity interest in ThreeBrix for a consideration of around U.S.$0.51 million,

stake of 70.05% (on a fully diluted basis) in Savicca, 51% (on a fully diluted basis) in

AuthorGen and a 100% equity interest in ASKnLearn™ for a consideration of S$1.05

million.

– The Company raises U.S.$80 million through the issue of foreign currency convertible

bonds.

– The Company enters the pre-school market, opening three pre-schools under its Roots

to Wings™ initiative.


Interpretation:

The year 2008 was not so good for the company as the global turmoil results in the

downward trend in share prices. But still the share performed the good results and keep their

investors faith in the market. In this year company make following decisions:

The first seven “Millennium Schools” (as defined below) are launched, with Edu Manage (as

defined below) acting as vendor of the Company’s products and services.


– The Company, via Edu Infra (as defined below) enters collaborative agreements to ensure

sufficient land is available for development of new schools in accordance with its K-12

initiative.

– Edumatics signs a joint development agreement with U.S. based company, Learning.com,

to provide educators with innovative, web-delivered curriculum solutions that support student

learning.

– The Company enters into a partnership with Microsoft to make its multimedia content

curriculum available for use on the Xbox 360 platform, which currently has over 50,000 users

worldwide. The official launch of the product is expected during FY 2009.

– Edumatics enters into a strategic alliance and joint development agreement with Siboney

Learning Group, Inc. to create a new online test preparation programme, leveraging IP, a

software development programme, manpower and the expertise of both parties.

– In May, the Company acquires a 51% strategic stake (on a fully diluted basis) in

Learning.com.

– On 27 May, the Company announces the plan to form two 50:50 joint ventures with Raffles

Education Corp, the largest education group in the APAC region, the first in India in respect

of higher and professional education programs and courses, the second in China to expand

the geographical scope of the Company’s K-12 online initiatives.

From the above years figure it can be easily determine that share price is in the continuous

increase and the recommendation for the share is to buy.

This requirement is necessary to be evolved as in the stock market there is a requirement of

those shares which are healthy in nature.

Due to the boom in the market during year 2007-008, there was an increase of around 5000

in the share price of educomp solution and touch all time high in March 2008.

But when there was economic crisis in 2008, it has not shown any kind of decrease but as

such it has made an increase of around 570- 750.


In year 2009, share prices shows a good response after the elections results was cameout. In

early january share moved to downside and it recovered in month of march and after march it

has shown a positive sentiments in investors.


Interpretation: the year 2009 is very important for educomp solutions as this year bring a

lots of opportunity to invest in this share. The share is showing upward trend. This year

educomp bags lots of new projects and orders from Gujrat govt on 18th May. And budget is

more reliable to this company as budget brings lots of relaxation for this sector.


0.00

500.00

1,000.00

1,500.00

2,000.00

2,500.00

3,000.00

3,500.00

4,000.00

4,500.00

JUNE TO AUGUST

high low close


Interpretation:

For the duration of June 2008 to August 2008 reported less volatility in this script. Support

level was 2500 and resistant level was 3500 and each time this share had broken the upside or

downside level immediately it was moved by another 40-50 points.

0.00

500.00

1,000.00

1,500.00

2,000.00

2,500.00

3,000.00

3,500.00

4,000.00

4,500.00

01-Sep-08 01-Oct-08 01-Nov-08 01-Dec-08

SEPTEMBER TO DECEMBER 08

high

low

close

Linear (close)


Interpretation:


For the duration of September 2008 to December 2008 high volatility has observed in this

script because of international market instability in international market. Support level was

1800 points and resistance level was 2650, and each time it had broken any of these level

another 30-40 points of changes was reported.

0.00

500.00

1,000.00

1,500.00

2,000.00

2,500.00

3,000.00JAN.09 TO MARCH 09

HIGH

LOW

CLOSE

Linear (CLOSE)


Interpretation:

Uncertainty in the share market continues and this share made another support and resistance

level for this particular duration. New support level is 1600 points and resistance level is

2050.

0.00

500.00

1,000.00

1,500.00

2,000.00

2,500.00

3,000.00

3,500.00APRIL TO MAY 09

HIGH

LOW

CLOSE

Linear (CLOSE)



Interpretation: because of some good news for Educomp solution, stock shows a good

response to them.

Educomp bags Rs. 83.82 cr contract from Guj govt Business Standard (14-May-2009)

Educomp to establish second design training centre in Bengaluru (30-Apr-2009)

0.00

500.00

1,000.00

1,500.00

2,000.00

2,500.00

3,000.00JANUARY 09

HIGH

LOW

CLOSE

Linear (CLOSE)


Interpretation:

The stock has been a downtrend for past few months, I have taken Share High Low and

closing price into consideration in order to determine the difference between Day high and

day low which is significantly.

During January the resistance level was 1750, and the support level was 2105, and each time

it has broken the resistance or support we have reported a move of 30-40 point downside or

upside.


0.00

500.00

1,000.00

1,500.00

2,000.00

2,500.00

Feb

-09

Feb

-09

Feb

-09

Feb

-09

Feb

-09

Feb

-09

Feb

-09

Feb

-09

Feb

-09

Feb

-09

Feb

-09

Feb

-09

Feb

-09

FEB. 09

HIGH

LOW

CLOSE

Linear (LOW)


Interpretation:

For the month of February, the stock declined due to some of the rumours in the market about

the company accounting fudging case, but was resolved very well by the Management . It has

been able to break the previous month support level. So it has attained new its 52 week low

price level. Support level was 1456 and the resistance level was 2050. Even the market

sentiments are not going with the stock.

0.00

500.00

1,000.00

1,500.00

2,000.00

2,500.00MARCH 09

HIGH

LOW

CLOSE

Linear (LOW)


Interpretation:


March month remained positive for the market as a result this script continues to achieve new

high in this time frame. The gap between Low and High was significantly low and closing

price was closer to the highest price on all the trading day. Support level was 1680 points and

resistant level was 1900 points. Looking at this data we have come to the conclusion that

Educomp Solution followed market trend and investors were optimistic and Profit booking

was reasonably low.

0.00

500.00

1,000.00

1,500.00

2,000.00

2,500.00

3,000.00APRIL 09

HIGH

LOW

CLOSE

Linear (CLOSE)


Interpretation:

In this month company has announced its results which are:

The results for the Quarter ended March 31, 2009

The Company has posted a net profit of Rs 545.171 million for the quarter ended March 31,

2009 as compared to Rs 314.677 million for the quarter ended March 31, 2008. Total

Revenue has increased from Rs 1195.322 million for the quarter ended March 31, 2008 to Rs

1843.860 million for the quarter ended March 31, 2009.

The results for the Year ended March 31, 2009

The Company has posted a net profit of Rs 1282.268 million for the year ended March 31,

2009 as compared to Rs 700.613 million for the year ended March 31, 2008. Total Revenue

has increased from Rs 2745.757 million for the year ended March 31, 2008 to Rs 5070.929

million for the year ended March 31, 2009.


Company has announced these results on 30 th April so effect of it can be seen on 29th and

30th of april and after in may.

0.00

500.00

1,000.00

1,500.00

2,000.00

2,500.00

3,000.00

3,500.00MAY 09

HIGH

LOW

CLOSE

Linear (CLOSE)


Interpretation:

As the results has came out, it showed the good speculation among the investors to buy the

stock. The following announcements were made in this month such as:

Educomp Solutions Ltd has informed BSE that Remuneration Committee of the Company on

April 30, 2009 has allotted 3,190 Equity Shares of the Company to the respective employees

who have exercised their conversion option under ESOP Scheme 2006 & ESOP Scheme

2007.

The most important news for Educomp is got the order of gujrat govt.

Educomp Solutions Ltd has informed BSE regarding a Press Release titled "Educomp bags

Rs 83.82 crores contract from Gujarat Government; Expands reach to over 5000 Government

schools in Gujarat and close to 14000 schools across India.".

These news shows upward movement in share prices.


1,350.00

1,400.00

1,450.00

1,500.00

1,550.00

1,600.00

1,650.00

1,700.00

Mar

-09

Mar

-09

Mar

-09

Mar

-09

Mar

-09

Mar

-09

Mar

-09

Mar

-09

Mar

-09

Mar

-09

Mar

-09

first week of march 09

high

low

close

Linear (close)


Interpretation: This week is relatively constant.

• HIGH 1605 2-MAR-2009

• LOW 1513 9-MAR-2009

• Fall of Rs. 92 within a week

• Resistance Level: Rs.1600

• Support Level: Rs.1550

0.00

500.00

1,000.00

1,500.00

2,000.00

2,500.00

13-M

ar-0

9

14-M

ar-0

9

15-M

ar-0

9

16-M

ar-0

9

17-M

ar-0

9

18-M

ar-0

9

19-M

ar-0

9

20-M

ar-0

9

21-M

ar-0

9

22-M

ar-0

9

23-M

ar-0

9

second week of march 09

high

low

close

Linear (close)



Interpretation:

• HIGH 2015 23-MAR-2009

• LOW 1762 09-MAR-2009

• Rise of Rs.253 within a week



1,800.00

1,850.00

1,900.00

1,950.00

2,000.00

2,050.00

2,100.00

2,150.00

2,200.00

2,250.00

2,300.00third week of march 09

high

low

close


Interpretation:

• HIGH 2199 27-MAR-2009

• LOW 2044 25-MAR-2009





1,800.00

1,900.00

2,000.00

2,100.00

2,200.00

2,300.00

2,400.00

2,500.00first week of april 09

high

low

close

Linear (close)


Interpretation:

• HIGH 2393 06-APR-2009

• LOW 2207 01-APR-2009




0.00

500.00

1,000.00

1,500.00

2,000.00

2,500.00

3,000.00

10-A

pr-

09

11-A

pr-

09

12-A

pr-

09

13-A

pr-

09

14-A

pr-

09

15-A

pr-

09

16-A

pr-

09

17-A

pr-

09

18-A

pr-

09

19-A

pr-

09

20-A

pr-

09

second week of april 09

high

low

close

Linear (close)



Interpretation:

• HIGH 2374 20-APR-2009

• LOW 2043 13-MAR-2009




2,000.00

2,100.00

2,200.00

2,300.00

2,400.00

2,500.00

2,600.00

2,700.00

2,800.00

21-A

pr-

09

22-A

pr-

09

23-A

pr-

09

24-A

pr-

09

25-A

pr-

09

26-A

pr-

09

27-A

pr-

09

28-A

pr-

09

29-A

pr-

09

30-A

pr-

09

last week of april 09

high

low

close

Linear (close)


Interpretation:

• HIGH 2594 23-APR-2009

• LOW 2388 28-APR-2009





2,000.00

2,100.00

2,200.00

2,300.00

2,400.00

2,500.00

2,600.00

2,700.00

01-M

ay-0

9

02-M

ay-0

9

03-M

ay-0

9

04-M

ay-0

9

05-M

ay-0

9

06-M

ay-0

9

07-M

ay-0

9

08-M

ay-0

9

09-M

ay-0

9

10-M

ay-0

9

11-M

ay-0

9

first week of may 09

high

low

close

Linear (close)


Interpretation:

• HIGH 2402 11 -MAY-2009

• LOW 2261 07-MAY-2009




0.00

500.00

1,000.00

1,500.00

2,000.00

2,500.00

3,000.00

3,500.00second week of may 09

high

low

close

Linear (close)


Interpretation:

• HIGH 2671 19-MAY-2009

• LOW 2377 15-MAY-2009




2,300.00

2,400.00

2,500.00

2,600.00

2,700.00

2,800.00

2,900.00

3,000.00last week of may 09

high

low

close

Linear (close)


Interpretation:

• HIGH 2881 25-MAY-2009

• LOW 2638 21-MAY-2009





Bollinger Bands

Overview

Bollinger Bands are similar to moving average envelopes. The difference between Bollinger

Bands and envelopes is envelopes are plotted at a fixed percentage above and below a

moving average, whereas Bollinger Bands are plotted at standard deviation levels above and

below a moving average. Since standard deviation is a measure of volatility, the bands are

self-adjusting: widening during volatile markets and contracting during calmer periods.

Bollinger Bands were created by John Bollinger.

Interpretation

Bollinger Bands are usually displayed on top of security prices, but they can be displayed on

an indicator. These comments refer to bands displayed on prices.

As with moving average envelopes, the basic interpretation of Bollinger Bands is that prices

tend to stay within the upper- and lower-band. The distinctive characteristic of Bollinger

Bands is that the spacing between the bands varies based on the volatility of the prices.

During periods of extreme price changes (i.e., high volatility), the bands widen to become

more forgiving. During periods of stagnant pricing (i.e., low volatility), the bands narrow to

contain prices.

Mr. Bollinger notes the following characteristics of Bollinger Bands.

* Sharp price changes tend to occur after the bands tighten, as volatility lessens.

* When prices move outside the bands, a continuation of the current trend is implied.

* Bottoms and tops made outside the bands followed by bottoms and tops made inside the

bands call for reversals in the trend.

A move that originates at one band tends to go all the way to the other band. This

observation is useful when projecting price targets.


Source : www.icharts.in

Analysis:

In my analysis Educomp share is very volatile in nature. Bollinger band shows volatility in

stock, where the upper band and lower band get tighten, and share price shows a sharper

movement either upward or downward. As it can be clearly understand by prices in sep. 08,

where I have written buy option. On that point investor should buy that share. And where I

have written short sell one should short sell it and cover it on the price where lower band of

Bollinger band touch this price, one should cover it.

Moving Average

Overview

A Moving Average is an indicator that shows the average value of a security's price over a

period of time. When calculating a moving average, a mathematical analysis of the security's

average value over a predetermined time period is made. As the security's price changes, its

average price moves up or down.

Buy

Short sell

Buy


There are several popular ways to calcuate a moving average. MetaStock for Java calculates

a "simple" moving average--meaning that equal weight is given to each price over the

calculation period.

Interpretation

The most popular method of interpreting a moving average is to compare the relationship

between a moving averages of the security's price with the security's price itself. A buy

signal is generated when the security's price rises above its moving average and a sell signal

is generated when the security's price falls below its moving average.

This type of moving average trading system is not intended to get you in at the exact bottom

nor out at the exact top. Rather, it is designed to keep you in line with the security's price

trend by buying shortly after the security's price bottoms and selling shortly after it tops.

The critical element in a moving average is the number of time periods used in calculating the

average. When using hindsight, you can always find a moving average that would have been

profitable. The key is to find a moving average that will be consistently profitable. The most

popular moving average is the 39-week (or 200-day) moving average. This moving average

has an excellent track record in timing the major (long-term) market cycles.


Buy

sell

buy


Analysis:

Moving average is very commonly used indicator for analysis. According to it, a buy signal is

generated when the security's price rises above its moving average and a sell signal is

generated when the security's price falls below its moving average. In above chart share

shows a buy signal as well as sell signal frequently. (shown in figure)

MACD

Overview

The MACD ("Moving Average Convergence/Divergence") is a trend following momentum

indicator that shows the relationship between two moving averages of prices. The MACD

was developed by Gerald Appel, publisher of Systems and Forecasts.

The MACD is the difference between a 26-day and 12-day exponential moving average. A

9-day exponential moving average, called the "signal" (or "trigger") line is plotted on top of

the MACD to show buy/sell opportunities. (Appel specifies exponential moving averages as

percentages as explained on page 170. Thus, he refers to these three moving averages as

7.5%, 15%, and 20% respectively.)

Interpretation

The MACD proves most effective in wide-swinging trading markets. There are three popular

ways to use the MACD: crossovers, overbought/oversold, and divergences.

Crossovers.

The basic MACD trading rule is to sell when the MACD falls below its signal line.

Similarly, a buy signal occurs when the MACD rises above its signal line. It is also popular

to buy/sell when the MACD goes above/below zero.


Overbought/Oversold Conditions.

The MACD is also useful as an overbought/oversold indicator. When the shorter moving

average pulls away dramatically from the longer moving average (i.e., the MACD rises), it is

likely that the security price is overextending and will soon return to more realistic levels.

MACD overbought and oversold conditions exist vary from security to security.

Divergences.

A indication that an end to the current trend may be near occurs when the MACD diverges

from the security (page 32). A bearish divergence occurs when the MACD is making new

lows while prices fail to reach new lows. A bullish divergence occurs when the MACD is

making new highs while prices fail to reach new highs. Both of these divergences are most

significant when they occur at relatively overbought/oversold levels.


= Buy

= sell


Analysis:

Through MACD it can be concluded that the Educomp share shows a better opportunity to

get a high return with a high risk because this share is highly volatile. As in future it may

better to buy, as it can be observe from past trend that after more selling pressure there will

be increment in no. of buyers, so price will go higher.

RSI (RELATIVE STRENGTH INDEX):

Overview

The Relative Strength Index ("RSI") is a popular oscillator. It was first introduced by Welles

Wilder in an article in Commodities (now known as Futures) Magazine in June, 1978.

The name "Relative Strength Index" is slightly misleading as the Relative Strength Index

does not compare the relative strength of two securities, but rather the internal strength of a

single security. A more appropriate name might be "Internal Strength Index."

Interpretation

When Wilder introduced the Relative Strength Index, he recommended using a 14-day

Relative Strength Index. Since then, the 9-day and 25-day Relative Strength Indexs have also

gained popularity. The fewer days used to calculate the Relative Strength Index, the more

volatile the indicator.

The Relative Strength Index is a price-following oscillator that ranges between 0 and 100. A

popular method of analyzing the Relative Strength Index is to look for a divergence in which

the security is making a new high, but the Relative Strength Index is failing to surpass its

previous high. This divergence is an indication of an impending reversal. When the Relative

Strength Index then turns down and falls below its most recent trough, it is said to have

completed a "failure swing." The failure swing is considered a confirmation of the

impending reversal.

In Mr. Wilder's book, he discusses five uses of the Relative Strength Index:

Tops and Bottoms. The Relative Strength Index usually tops above 70 and bottoms below

30. It usually forms these tops and bottoms before the underlying price chart.


Chart Formations. The Relative Strength Index often forms chart patterns such as head and

shoulders or triangles that may or may not be visible on the price chart.

Failure Swings (also known as support or resistance penetrations or breakouts). This is

where the Relative Strength Index surpasses a previous high (peak) or falls below a recent

low (trough).

Support and Resistance. The Relative Strength Index shows, sometimes more clearly than

price themselves, levels of support and resistance.

Divergences. As discussed above, divergences occur when the price makes a new high (or

low) that is not confirmed by a new high (or low) in the Relative Strength Index. Prices

usually correct and move in the direction of the Relative Strength Index.


Interpretation: Educomp share prices for last 5 month did not show any where overbought

and oversold condition, as it can be observe from above chart. In months of April and May it

touches the points of overbought conditions. So investor should sell the share that point of


time and should purchase when prices come down. And this graph is also showing the

movement of RSI towards 30 mark so investors should ready to buy it.

CCI (COMMODITY CHANNEL INDEX) :

Overview

The Commodity Channel Index (CCI) is calculated by first determining the difference

between the mean price of a commodity and the average of the means over the time period

chosen. This difference is then compared to the average difference over the time period (this

factors in the commodity's own inherent volatility). The result is then multiplied by a constant

that is designed to adjust the CCI so that it fits into a "normal" trading range of +/-100.

Interpretation

While the CCI was originally designed for commodities, the indicator also works very well

with stocks and mutual funds.

There are two methods of interpreting the CCI:

Looking for divergences

A popular method of analyzing the CCI is to look for divergences in which the underlying

security is making new highs (lows) while the CCI is failing to surpass its previous highs

(lows). This classic divergence is usually followed by a correction in the security's price.

As an overbought/oversold indicator

The CCI usually oscillates between +/-100. Readings above +100 imply an overbought

condition and the liklihood of a downward move has increased. Readings below -100 imply

an oversold condition and the liklihood of an upward move has increased.



Interpretation: the CCI chart is also showing the buying pressure in months of April and

May 2009. So investors should sell their stock and as it going towards the the -100 points so

investors should wait for fewer days to buy the stock again because share prices may be go

higher in upcoming days as Educomp has bag a big project from Gujrat govt.

RED Points showing overbought conditions

BLUE Points showing oversold conditions


TECHNICAL OUTLOOK EDUCOMP

Source:IRIS

Educomp is in a long term bullish trend .However the stock is in a short term correction &

may touch 2800-2600 levels .this price should be used as a buying opportunity in the stock

for a price Target of 3800-4000 in next 5-6 months.


CHAPTER 5

CONCLUSION


CONCLUSION & FINDINGS

The growing influence of global developments on the Indian economy was manifest in the

surge in capital inflows in 2007-08, a phenomenon observed earlier in other emerging market

economies. This is a natural concomitant of the robust macroeconomic fundamentals like

high growth, relative stability in prices, healthy financial sector and high returns on

investment. Sometimes, it also reflects the rigidities in the economy, particularly the interest

differentials.

The strength, resilience and stability of the country’s external sector are reflected by various

indicators. These include a steady accretion to reserves, moderate levels of current account

deficit, changing composition of capital inflows, flexibility in exchange rates, sustainable

external debt levels with elongated maturity profile and an increase in capital inflows.

Educomp solution ltd has shown a very positive response to market since it is listed on BSE

exchange. Company’s policies and agendas are good enough to attract investors to invest in

this security. Company has shown continuous growth throughout 3 years on market.

Although company take long to time to get listed on BSE exchange, as it started in 1994 but

it shows a highly good return to investors.

In my view Educomp solution share is highly volatile as it shows a average fluctuation of 150

points up and down in intraday trading. So it might be risky to invest in short term but in long

term perspective it is good sign for investor. The beta of company is 1.2 which shows that it

is highly sensitive to sensex. As sensex goes up or down, this share will show more

fluctuations than sensex.

For the Educomp solutions Company is likely to post very high growth rate for a long time.

Revenue figures are expected to show a CAGR of 70% for the period 2009-2011, 35% for the

period 2011-2014 and 20% for the period 2014-2016.

It is forecast strong 65% CAGR in Net Profits over FY09-FY11E and see limited risks to

estimates given. EBITDA margins are likely to improve as revenue share of high margin

retail and online business is likely to improve considerably. ROE is expected to double and

settle in the range between 30-35%.

I suggest investor to buy the stock now because it is trading at around 2700 at this time and it

may go to 3500 to 4000 point in the future 3-4 months as I clear it from my analysis part.


So with this it is found that market sentiments and the announcements effects the share prices

of the companies. And equity research helps to find out the support and resistance level of the

share prices and help us to predict the future prices of the stocks. As well it helps to

understand the mindset of the investor.


SUGGESTION

As I have done my project in SMC Global Ltd. I have observed lots of things which are

learning for me. It was a great experience to be associate with SMC global ltd. Every where

there is scope of improvement, so I would like to suggest some important points which can

improve the efficiency of company to analyse the stocks.

� Management Control System is very important for every organisation. So SMC

should improve their MCS. As they should put cameras in trading room and in calling

room. Because sometimes employee feel themselves free to do anything, rather than

doing calling they prefer to do gossiping.

� Equity managers and research team should have proper communication.

� Educomp solution stock is highly volatile so it should be trade very carefully. This

stock can give a high return as well as high loss.

� Our stock market is correlated with Asian and other markets such as Dow Jones,

Hang sang, NASDAQ etc. so the effect of these markets should be keep in

consideration, when analysing a security.

� The technical analysis which include charts like Bollinger Band, Relative Strength

Index etc are not so perfect predictor for such kind of share. So, I suggest the

company to not making interpretation on the basis of only a few indicators.

� The company should start an awareness programme to encourage investors to invest

more in security market. As only 3% people invest in stock market and a major part of

investment comes from FIIs. So exchange need to be independent from the effect of

volatility of other markets.

� Questionnaire programme should be implemented to know the requirements and likes

of the investors and according to response company should make their policies to

grow with the taste of investors.

� As lots of competitors are there in brokerage business, to keep company in

Competition Company should try and launch innovative products and services to its

customers.


LIMITATIONS

Like everyone, I also faced some limitations and restrictions during my project. Some of

them are as follows:

� One major limitation was the data collection. Some data which should be kept in

consideration, while doing analysis part, is not available. So assumptions have to be

made.

� Time was the another constraint. Analysis takes long time to come at any decision, as

it includes the lots of historical data and valuation of security, which can not be

performed in a limited time period.

� Due to human error their might be some misinterpretation in analysis part.

� Response from mentor was good but he was more focused on business, like he gave

me a target to sell policies. And due to their own business targets, other staff could not

gave much time to help me in doing the objectives.


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The books referred for the project work are:

Books:

• Agarwal J.D., “securities analysis & portfolio management”

• Agarwal J.D., “Advance Financials risk analysis”

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Financial Reports of Educomp Solution:

• Financial Year: 2003-04.





Research Report Presented by

• Midcap

• India Bulls

• HSBC


• Karvy

• Motilal Oswal

Company Website:

• www.educompsolution.com

Search Engine:

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ANNEXURE


BALANCE SHEET

Balance Sheet as at 31st March, 2008

(Rupees in millions)

Sources of funds Schedule

31st March,

2008 31st March, 2007

Shareholders' funds

Share capital 1 172.47 159.85

Employee stock option outstanding 82.72 -

(refer note 1 (x) & 2(iv) schedule 18)

Reserves and surplus 2 2,613.01 987.12

Loan funds

Secured loans 3 523.01 175.47

Unsecured loans 4 3,149.42 1,071.39

Deferred tax liability (Net) 212.69 56.99

(refer note 1(xiii) & 2 (x), schedule 18)

6,753.32 2,450.82

Application of funds

Fixed assets 5

Gross Block 2,645.27 936.19

Less: Accumulated depreciation 531.75 218.24

Net block 2,113.52 717.95

Capital work in progress 200.76 75.91


2,314.28 793.86

Investments 6 709.75 281.1

Current assets, loans and advances 7

Inventories 14.1 32.54

Sundry debtors 1,144.55 493.52

Cash and bank balances 2,790.31 949.59

Loans and advances 301.15 111.35

Other current assets 58.25 16.49

4,308.36 1,603.49

Less : Current liabilities and provisions 8

Liabilities 483.43 176.69

Provisions 96.03 51.52

579.46 228.21

Net current assets 3,728.90 1,375.28

Miscellaneous Expenditure 9 0.39 0.58

6,753.32 2,450.82


PROFIT AND LOSS ACCOUNT

Profit and Loss Account for the year ended 31st March, 2008

(Rupees in millions)

Schedule

31st March,

2008

31st March,

2007

Income

Sales & Service income 10 2,620.95 1,065.74

Other income 11 148.08 55.98

2,769.03 1,121.72

Expenditure

Cost of goods sold 12 797.29 304.21

Personnel expenses 13 338.54 105.13

Administration and other expenses 14 238.23 155.26

Finance charges 15 41.89 13.29

Depreciation 322.95 93.93

Miscellaneous Expenditure written off 0.2 0.2

1,739.10 672.02

Profit before tax 1,029.93 449.7

Provision for income tax

(refer note 2 (v), schedule 18)

- Current tax 167.56 116.93

- Deferred tax 156 43.15


- Fringe benefit tax 5.79 3.11

Profit after tax and before prior period items 700.58 286.51

Prior period Items 16 -0.03 0.67

Profit after tax & prior period items 700.61 285.84

Add: Balance brought forward from

previous year 454.57 228.87

Amount available for appropriations 1,155.18 514.71

Appropriations

Proposed dividend 43.2 33.08

Tax on proposed dividend 7.34 5.62

General Reserve 70.06 21.44

Balance carried to Reserve & surplus 1,034.58 454.57

Earning per share (Rs.) 17

Basic 41.38 17.9

Diluted 35.13 15.87


CASH FLOW

Cash Flows Statement for the year ended 31st March, 2008 (Rupees in millions)

Particulars

31st March,

2008

31st March,

2007

Cash flows from operating activities

Net profit before taxation and after prior period as per Profit

and Loss Account 1,029.96 449.03

Adjusted for:

Misc Expenses written off 0.2 0.2

Net prior period adjustments -0.03 0.67

Provision for doubtful debts/ advances - 0.11

Depreciation 322.95 93.93

Unrealised Foreign exchange effects 13.47 35.88

Dividend income -35 -1.79

Interest / other income -79.94 -33.14

Interest expense 41.89 13.21

ESOP Amortisation cost 82.72 -

Loss / (Profit) on Sale of Fixed Assets 0.07 0.02

Operating profit before working capital changes 1,376.29 558.12

Adjusted for:

Trade & other receivables -648.26 -244.25

Inventory 18.44 -15.16

Loans & Advances -231.56 -75.94


Trade & Other Payables 313.11 127.7

Cash generated from operations 828.02 350.47

Net prior period adjustments 0.03 -0.67

Taxes Paid -147.07 -169.38

Net cash from operating activities 680.98 180.42

Cash flows from investing activities

Purchase of fixed assets (including capital work-in-progress) -1,848.54 -654.04

Proceeds from Sale of fixed assets 5.08 0.15

Investment in subsidiaries -429.28 -272.21

Redemption of 5% cumulative preference shares - 6.25

Purchase of Investments (Un-quoted, Non trade) - -250.03

Sale of Investments (Un-quoted, Non trade) 0.64 250.37

Dividend income 35 1.79

Interest income 79.94 33.14

Net cash used in investing activities -2,157.16 -884.58

Cash flows from financing activities

Proceeds from issue of Foreign Currency Convertible Bonds

(FCCB) 3,109.45 1,094.18

FCCB issue expenses -68.26 -39.25

Proceeds/ (Repayment) of long-term borrowings 241.64 73.16

Financing against stocks/book debts ( working capital) - -

Temporary Overdraft facility against fixed deposits 105.91 3.14


Payment of dividend (including dividend tax ) -40.28 -27.27

Interest on borrowings -41.89 -13.21

Net cash from financing activities 3,306.57 1,090.75

Net increase in cash and cash equivalents 1,830.39 386.59

Opening cash and cash equivalents 949.59 596.59

Exchange difference on translation of foreign currency cash

and cash equivalents 10.33 -33.59

Closing cash and cash equivalents 2,790.31 949.59

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