1. 1 | P a g e
Market Feedback and Valuation of Arvind Remedies Limited
SIP project report submitted in partial fulfillment of the requirements for the
PGDM Programme
By: Raghav Bhatter
Roll No: 2013216
Supervisor 1: Mr. Rajesh Bajaj
(Managing Director, Lohia Securities Limited)
Supervisor 2: Prof. Anil Kshatriya
(Faculty, IMT Nagpur)
Institute of Management Technology, Nagpur.
2013-2015
2. 2 | P a g e
ACKNOWLEDGEMENT
The Satisfaction and Euphoria that accompany the successful completion of the
project without the mention of the people who made it possible.
I would like to take this opportunity to express my sincerest thanks and gratitude to
Lohia Securities Limited.
I would like to extend my gratitude to my mentors, Mr. Rajesh Bajaj (Managing
Director, Lohia Securities Limited) who gave me the opportunity to work as a
summer intern at Lohia Securities Limited and for giving me a lot of
encouragement through his words of wisdom and sharing of rich experiences. I am
also indebted to my supervisor Professor Anil Kshatriya(Institute of Management
Technology, Nagpur) whose consistent guidance, suggestions and encouragement
helped me in completing this project.
This project has provided me with valuable insights into the practical aspects of
Investment Banking and Financial Modelling.
I hope that Lohia Securities Limited and IMT Nagpur are benefited from the
inferences, conclusions and recommendations made by me in this report.
4. 4 | P a g e
TABLE OF CONTENTS
Serial Number Particulars Page Number
1 Introduction and Objectives
of Study
5
2 Company Analysis 7
3 Tabulations and Findings 9
4 Interpretations and
Conclusions
19
5 Recommendations 20
6 Limitation of Study 22
7 Scope for Future
Improvements
22
8 Appendices 23
9 Sources 25
5. 5 | P a g e
Introduction & Objectives of Study
As the Credit Crisis unfolded, many individuals had one common question on their mind, "What
is an Investment Bank and how is it different from a regular commercial bank?" In Brief,
Investment is different from the corner institutions that the individuals are used to dealing with to
get a loan or deposit money. Investment Bank is a special type of financial institution that works
primarily in higher finance by providing different business entities and organizations access to
capital market to raise capital. It also engages in activities such as Mergers and Acquisitions and
other ancillary service such as Market Making.
As a Summer Intern at Lohia Securities Limited, my task in hand was to prepare an investor
presentation for Arvind Remedies Limited, to prepare a Market Feedback report for Lohia
Securities Limited and to create a list of 2000 companies in Kolkata which were looking to raise
funds.
Objective of preparing an Investor Presentation for Arvind Remedies Limited
Arvind Remedies Limited were planning to raise Rs. 150 Crores for Business Expansion via
qualified institutional placement and had hired Lohia Securities Limited as an investment bank
for the same. The task in hand was to prepare a financial model for Arvind Remedies limited so
as to estimate the value of the firm. The task also involved doing ground work on investors in
India and creating a list of suitable investors
Objective of preparing a list of 2000 Companies in Kolkata
Being Relatively new in the field of Investment Banking, Lohia Securities Limited were
primarily aiming to tap small companies to start with. The list included companies from different
sectors and after the initial list was formed, Lohia Securities Limited bifurcated the list on the
basis of twelve different sectors namely:
1. Spices
2. Poultry
3. irrigation
4. Processed Food
6. 6 | P a g e
5. Irrigation
6. Cold Storage
7. Agro Chemical
8. Food Restaurant
9. Bakery
10. Plywood
11. Paper
12. Vegetable Oils
Motivation of Research for Market Feedback
1. The entire world and the success of life are governed by equity investments and stake
holdings. These two measures are heavily dependent on hardcore research.
2. The reason behind why getting a long term view of Investment Trend, Corporate
Thoughts and Global Changes is so important. It is also useful to note that
communicating and understanding is our duty.
The Research will help us generate consciousness, enlightenment and deep conviction within
ourselves.
The purpose for working on Market Feedback was to develop the basis for infrastructure and
logistic for Market Operation Organizations such as Broking Houses, Investment Banks,
Treasury Desks and Financial Institutions.
The purpose is to generate market sensitive information at an earliest so that the information is
received by the firm before it reaches the Market.
The other key issues to be looked upon was whether the brokerage income to firms employing
the services of wire agencies were high enough to cover the cost of wire agencies or not and also
if these wire agencies really brought trade penetration to the firms employing them or not.
7. 7 | P a g e
COMPANY ANALYSIS
Lohia Securities Limited is a Kolkata Based Stock Broking and Investment Banking Outfit. The
has a noteworthy presence in the Indian Capital Market. Lohia Securities Limited is a member of
National Stock Exchange of India(Capital Market Segment, Derivative Market Segment),
Bombay Stock Exchange(Capital Market Segment, Derivative Market Segment), Calcutta Stock
Exchange Association Limited(Capital Market Segment) and OTC Exchange of India. Lohia
Securities Limited is also a depository participant of National Securities Depository Limited and
Central Depository Services(India) Limited.
Lohia Securities Limited came into existence as a corporate entity in 1995. The vision was to
make Lohia Securities Limited a professionally run Broking House. The Company opened its
first branch office is 1998 in Mumbai. 1999 saw Lohia Securities Limited start its Institutional
Dealing Business and in 2000, Lohia Securities Limited became the first organization to provide
Bloomberg Online Service to its clients. The year 2000 also saw Lohia Securities Limited start
its NSE future Segment and NSE option Segment Business. In 2001, the firm became a
depository participant of NSDL and CDSL. In 2005, Lohia Securities Limited acquired a
membership to BSE Capital Market and followed it up with a membership to BSE Future and
Option Market in 2006. Today, On the basis of turnover, Lohia Securities Limited is the largest
dealer in F&O Segment in eastern India.
The Services Provided by Lohia Securities Limited are:
1. Equity Trading
- National Stock Exchange
- Bombay Stock Exchange
2. Derivative Trading
- National Stock Exchange
8. 8 | P a g e
- Bombay Stock Exchange
3. Commodities Trading
- National Commodity and Derivatives Exchange
- Multi Commodity Exchange
4. Currency Trading
5. Depository
- NSDL
- CDSL
6. Mutual Funds
7. IPOs
8. Institutions
9. Strategy Trading
Lohia Securities Limited follows a strict code of conduct which is applicable for Board Members
and Senior Management. The code of conduct ensures that the company is maintaining highest degree
of corporate governance and is acting in utmost good faith and is exercising due care, diligence and
integrity in day to day work.
The code of conduct adopted by Lohia Securities also ensures that full compliance is met as per SEBI
Regulations 1992 and also other regulations that may be applicable to them from time to time. This
prohibits Insider Trading.
9. 9 | P a g e
TABULATIONS AND FINDINGS
Market Feedback
The Purpose of Market Feedback infrastructure is to generate market sensitive information at an
earliest so that the information is received by the firm before it is received by the market.
It was observed that the infrastructure is supposed to make the trading system confident that they
have the information of best level and that the information is at par with that of any trading floor
of world. The infrastructure system needs to work at zero breakdown module to get any earnings
out of the system.
As Lohia Securities Limited Expands its Business into the other parts of the country, the focus
on Information generation has been gaining utmost importance. The Board of Directors of the
company concluded that two different idea generation concepts would be used by the company.
These Concepts are:
By Way of Intellectuals
- Theme Based Trade Generation Idea.
By Way of Information
- Daily Morning Information
- Evening Information
- Information Storage and Dissemination
- Seating Space Reallocation on centralized and decentralized module in various
constituents of dealing room at multiple trading offices.
- Designation of Wire agency analysts and online feedback analysts.
- Full Product Knowledge Group.
- Information provided as and when demanded.
- Communication Team
- Placement Team
- Interaction Team which communicates with different groups on a daily basis.
10. 10 | P a g e
Reference and Suggested Reading
Search Sites: Wire Agencies
- Google - Bloomberg
- Yahoo - Reuters
- Investing - Capital line
- CMIE
Exchange site - Prowess
- www.xe.com - Money line
- www.bseindia.com
- www.nseindia.com
- www.moneycontrol.com
11. 11 | P a g e
Valuation of Arvind Remedies Limited
Arvind Remedies Limited was Valued at Rs. 1378.71 Crores. The Market Value of
Equity was Rs. 1084.71 Crores. The Cost of Equity was calculated using Capital Asset
Pricing Model. The Weighted Average Cost of Capital has been calculated using Cost of
Debt, Cost of Equity and Cost of Reserve and Surplus and the respective weights of each
of them.
The Price to Earnings Ratio of Arvind Remedies Limited is 5.10 as on May 1, 2014. This
is amongst the lowest in the Industry and it shows that the share is highly undervalued.
Tax Shield = 59 crores * 0.35 = 20.65 Crores
Net Profit Margin of Arvind Remedies Limited is amongst the lowest in profit making
firms in pharmaceutical industry and it can be improved.
12. 12 | P a g e
Table 1(Data as on 31st March 2014)
ARVIND REMEDIES LTD
DIVISION WISE PROJECTED SALES ABSTRACT & EBITDA FOR THE YEAR 2013-14 TO 2015-16
(Data as on 31st March 2014)
DESCRIPTION
2013-14 2014-15 2015-16
Sales Sales Sales
Hospital 230 253 296
Retails 280 446 580
EXPORTS 10 26 42
Brands 520 725 918
Generics 335 403 422
CRAMS 95 152 200
TOTAL 950 1280 1540
Brands 55% 57% 60%
Generics 35% 31% 27%
CRAMS 10% 12% 13%
13. 13 | P a g e
As on 31 March 2011-12 2012-13 2013-14 2014-15 2015-16
Gross Sales 456 704 950 1280 1540
Less: Excise Duty 19 40 58 78 94
Net Sales 437 664 892 1202 1446
Other Income 0.39 0.59 0.66 0.73 0.76
Total Income 437 665 893 1203 1447
Cost of Raw Materials & Packing 347 497 670 905 1084
Employee Related Expenses 9 13 16 18 22
Other Expenses 13 20 23 29 36
Total Operating Expenses 369 531 709 952 1142
EBITDA 68 134 184 251 305
EBITDA margin 15% 19% 19% 20% 20%
Depreciation 3 13 18 20 22
Finance charges 28 59 79 85 91
PBT 37 63 87 146 192
PBT Margin 8% 9% 9% 11% 12%
Income Tax 8 13 13 24 34
Deferred Tax 10 9 8 8 6
Net Profit (PAT) 19 41 66 114 152
PAT Margin 4% 6% 7% 9% 10%
Dividend 3.31 4.82 7.04 7.04 7.04
Dividend tax 0.54 0.78 1.14 1.14 1.14
Retained Profit 15.18 35.00 57.45 105.81 143.32
Projected Profit & Loss
(Amount in Crores)
14. 14 | P a g e
Table 2(Data as on 31st March 2014)
As on 31 March 2011-12 2012-13 2013-14 2014-15 2015-16
Liabilities
SHARE CAPITAL & RESERVES
Share Capital 48 48 70 70 70
Reserves & Surplus 95 130 221 327 470
Equity warrants (Pending allotment) - 16 - - -
Deferred Tax Reserve 22 31 40 47 53
Loan Funds
Term Loan 208 303 284 241 194
Bank Loan for Working Capital 147 217 292 367 442
0.31 0.31 0.30 0.29
Current Liabilities & Provisions
Sundry Creditors & Provisions 53 76 92 126 139
Other Liabilities 30 20 36 56 62
Total 603 842 1,036 1,235 1,431
Assets
Gross Block 258 278 469 478 484
Less: Accumulated Depreciation 16 27 44 64 86
Net Block 242 251 425 413 398
Intangible Assets 0.03 0.05 0.05 0.05 0.05
Capital Work in Progress 0.07 0.06 - - -
Investments
Investments in New Projects 49 37
Current Assets, Advances & Loans
Sundry Debtors 170 242 298 415 449
Stock on Hand 88 121 179 227 385
Loans and Advances 5 117 55 84 98
Short term Loans & Advances 24 47 51 73 87
Non-Current Investments 3 3 3 3 3
Other Current Assets 0.3 1 3 2 2
Cash and Bank Balances 22 24 21 16 9
Total 603 842 1,036 1,235 1,431
PROJECTED BALANCE SHEET
(Amount in Crores)
15. 15 | P a g e
Table 3(Data as on 31st March 2014)
Arvind Remedies Costof Equity
Average Market Return 0.003047645 Average Stock Return 0.012932119
BetaUsing the slope Function
0.402187789
Nifty Yearly Closing Price
Date Close Index Returns Risk Free Return Market Risk Premium
31-Mar-03 978.2
31-Mar-04 1771.9 0.811388264 0.0708 0.740588264
31-Mar-05 2035.65 0.148851515 0.078 0.070851515
31-Mar-06 3402.55 0.671480854 0.0809 0.590580854
31-Mar-07 3821.55 0.123142937 0.082 0.041142937
31-Mar-08 4734.5 0.238895213 0.071 0.167895213
31-Mar-09 3020.95 -0.361928398 0.08 -0.441928398
31-Mar-10 5249.1 0.737565997 0.0845 0.653065997
31-Mar-11 5833.75 0.111380999 0.0839 0.027480999
31-Mar-12 5295.55 -0.092256267 0.0798 -0.172056267
30-Mar-13 5682.55 0.073080228 0.0904 -0.017319772
0.166030134
β (Rm - Rf) 0.066775293
Risk Free Rate 9.102
CAPM/Required Rate of Return 9.168775293 In terms of %
16. 16 | P a g e
Table 4(Data as on 31st March 2014)
Calculation of Cost of Debt and WACC
Particulars Amount
Finance Cost 5918.82
Total Debt 28597.15
Before Tax Cost of Debt 0.206972373
PBT 6255.08
Tax Expense 2193.39
Tax Rate 0.350657386
After Tax Cost of Debt 0.134395982
Weight of Debt 0.666502976
Weight of Equity 0.112419027
Weight of reserve and Surplus0.22107823
Cost of Debt 0.134395982
Cost of Equity 0.090352
Cost of Reserve and Surplus 0.090352
WACC 0.119707466
18. 18 | P a g e
Table 6(Data as on 31st March 2014)
ValuationofArvindRemedies
Particulars 2013-14 2014-15 2015-16
NetProfit(PAT) 65.63 113.99 151.5
(+)Depreciation 18 20 22
(-)InvestmentinWorkingCapital 75 75 75
(+/-)ChangeinprincipalAmount -17 -43 -47
Free CashFlowtoFirm -8.87 15.74 51.5
TerminalValue 1346
PVofFutre CashFlows -7.92 12.55 36.69
Assumed ConstantGrowthRate 9%
MarketValue ofArvindRemedies Limited 1387.71
MarketValue ofDebt 303
MarketValue ofEquity 1084.71
19. 19 | P a g e
Interpretations and Findings
Operating Leverage of 1.51 indicates that Arvind Remedies Limited can earn More
Profits from each additional sale as existing fixed assets can do more without any
additional cost.
Arvind Remedies Limited has a current Ratio of 0.94 and there are chances that it may
default on its payments. This increases the risk and investors are likely to demand for
higher returns. Also, high debt equity ratio implies that the required rate of return by
investors is to remain high.
Degree of Operating Leverage of 1.51 signifies that Arvind Remedies Limited may
expand its operation without incurring any significant additional cost as increase in
profits will be greater than increase in revenue. However, during an economic Downturn,
Arvind Remedies Limited can see a plummet in earnings.
Current Ratio of 0.94 Should concern the Management. The Current Liabilities of the
firm exceeds its Current Assets. Though it may not be critical at this point of time, proper
attention needs to be paid.
The Debt to Equity Ratio of Arvind Remedies Limited stands at 2.78. However, a high
interest cover ratio(2.06) means that the firm is able to fulfil its interest obligations.
Also, high debt provides Arvind Remedies Limited with a high level of tax shield. This
increases the value of the leveraged firm. However, Arvind Remedies Limited needs to
improve its Cash Flow times.
20. 20 | P a g e
Recommendations
Market Feedback
The Current Scenario at Lohia Securities Limited is that all its focus is towards its Main Trading
office or better described as single trading floor. The Company needs to shift its focus from the
Main trading floor to other trading floors of the company to ensure trade penetration.
Lohia Securities Currently has a centralized online Market Feedback Infrastructure and System.
The Company needs to shift the focus towards individual offices where high frequency trades are
occuring.
Concentrated to
Main Trading office
or Single Table
Space
Trade Penetration
possibility is to be
revived very
seriously
A Centralized
Online Market
Feedback.
From This
Concept to
Where
high
frequency
trades are
occuring.
21. 21 | P a g e
Arvind Remedies Limited
Arvind Remedies already has a high Debt to Equity Ratio and it may not be advisable for Arvind
Remedies Limited to take on more debt.
The P/E Ratio is amongst the lowest in the industry and the stock is highly undervalued. The
forecast for Arvind Remedies Limited shows a steep increase in Income and the valuation of the
company. As a Result, it may be advisable for Arvind Remedies Limited to raise funds via
Equity. This will ensure that Interest's do not add any more pressure on the earnings of the
company and at the same time, the share holders receive full value for their investment.
22. 22 | P a g e
Limitations of the Study
The Fund Raising Process of Arvind Remedies Limited was not completed during my time as an
intern at Lohia Securities Limited and hence it was not possible to compare the estimates with
the actuals.
Also, the valuation for Arvind Remedies Limited was done before the actual results for 2013-14
came out and hence estimate figures had to be used for valuation purpose and some discrepancy
may arise due to this. Moreover, headquarter visit was not possible and hence, customer and
vendor perception could not be achieved.
Since i was a summer intern at Lohia Securities Limited, I was not given a full insight into what
exactly was the company planning and what the future plan was. My job was restricted to
calculations only.
Scope for Future Study
I am still in touch with all the parties involved in raising funds for Arvind Remedies Limited.
The calculation work is not being done on actual results for 2013-2014 and a Management and
Headquarter visit is being arranged shortly.
23. 23 | P a g e
Appendices
A: Asset
AS: Accounting Standard
BS: Balance Sheet
B: Bond
CF: Cash Flow
CA: Current Assets
CL: Current Liabilities
C: Consolidated
CR: Current Ratio
COGS: Cost of Goods Sold
CU: Currency
CO: Commodity
CPI: Consumer Price Index
DFI: Development Financial Institution
DE: Derivatives
ES: Equity Shares
E: Energy
EPS: Earning Per Share
FII: Foreign Institutional Investors
FOREX: Foreign Exchange
FF: Fund Flow
FS: Financial System
FH: Financial Health
FED: Federal Reserve System
24. 24 | P a g e
FA: Fixed Assets
FR: Financial Ratios
GDP: Gross Domestic Product
GP: Gross Profit
HF: Hedge Funds
I: Investment
IN: Index
L: Liabilities
MF: Mutual Funds
MSI: Market Sensitive Information
M&A: Mergers and Acquisition
NP: Net Profit
OP: Operating Profit
P/L: Profit and Loss
PS: Preference Shares
PP: Private Placements
PRO: Public Relations Officer
P/E: Price Earning
PAT: Profit after Tax
Q: Quarter
QR: Quick Ratio
ROC: Registrar of Companies
RBI: Reserve Bank of India
25. 25 | P a g e
Sources
References
Mr. Rajesh Bajaj, Managing Director, Lohia Securities Limited
Mr. Kamal Kothari, Managing Director, Guiness Group
Mr. Gaurav Kapoor, Manager, Guiness Securities Limited
Mrs. Vandana Bhatter Sharma, Director, Citibank
Mr. Purav Shah, Student, FMB, S.P. Jain Institute of Management and Research
Ms. Sushmita Baheti, Student, FMB, S.P. Jain Institute of Management and Research
Mr. Parikshit Goel, Student, P.G.D.M, Indian Business School, Hyderabad
Mr. Sharad Mohta, Owner, Sharad Mohta and Company
Mr. Mohit Barasia, Institutional Head, Lohia Securities Limited
Bibliography
www.investopedia.com
www.wikipedia.com
www.arvindremedies.com
