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JAIPURIA INSTITUTE OF MANAGEMENT, LUCKNOW Analysis of Risk and Return (Assignment) Sector: Food Industry Submitted To: Sushma Vishnani Submitted By: Abhinav kumar (JIML-12-PGDM-003) Abhijeet shukla (JIML-12-PGDM- 001) Aishwarya Singh (JIML-12-PGDM- 009)
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Page 1: risk and return analysis

JAIPURIA INSTITUTE OF MANAGEMENT, LUCKNOW

Analysis of Risk and Return

(Assignment)

Sector: Food Industry

Submitted To:

Sushma Vishnani

Submitted By:

Abhinav kumar (JIML-12-PGDM-003)

Abhijeet shukla (JIML-12-PGDM-001)

Aishwarya Singh (JIML-12-PGDM-009)

Akansha pathak (JIML-12-PGDM-013)

Ajitesh kumar Soni(JIML-12-PGDM-011)

DATE: December 26, 2012

Page 2: risk and return analysis

ACKNOWLEDGEMENT

We are grateful to our respected instructor Sushma Vishnani for giving us an

opportunity to understand the financial analysis of Food Industry. Through this

project we came to learn that how to look at the problem from a Manager’s

perspective.

We would like to present our gratitude to Sushma Mam for the successful

completion of the project which would not have been possible without her

continuous help and guidance.

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Page 4: risk and return analysis

Risk and Return

Introduction

The project assigned to us is the analysis of Risk and Return of FOOD

companies. Both risk and return go side by side, it becomes very important for

an investor to consider both risk and return. The decision of an investor whether

to invest or not is greatly influenced by the return given by that particular

company and the risk associated.

We took five different FOOD companies’ return as a component of FOOD

sector. Market return has also been considered as benchmark. Excel has been

used for the calculations. We have used functions like descriptive statistics,

regression and charts.

Risk and return has been calculated, analyzed and interpreted on the basis of last

60 months return (From April 2008 to March 2012). Firstly mean return of the

companies has been calculated then with the help of descriptive statistics

standard deviation “risk” has been calculated. It shows the amount of deviation

of actual return from thee mean return. The sensitivity (BETA) has been

calculated with the help of regression.

The following companies have been taken:

Neslet India ltd.Ruchi Soya ltd.Kwality Dairy ltd.Tata Global Beverages ltd.Venkey’s India ltd.

Nestle India Ltd.

Page 5: risk and return analysis

Introduction Nestlé is the world's leading Nutrition, Health and Wellness company. Our mission of "Good Food, Good Life" is to provide consumers with the best tasting, most nutritious choices in a wide range of food and beverage categories and eating occasions, from morning to night.

The Company was founded in 1866 by Henri Nestlé in Vevey, Switzerland, where our headquarters are still located today. After India's independence in 1947, the economic policies of the Indian Government emphasised the need for local production. Nestlé responded to India's aspirations by forming a company in India and set up its first factory in 1961 at Moga, Punjab, where the Government wanted Nestlé to develop the milk economy. Progress in Moga required the introduction of Nestlé's Agricultural Services to educate, advise and help the farmer in a variety of aspects. From increasing the milk yield of their cows through improved dairy farming methods, to irrigation, scientific crop management practices and helping with the procurement of bank loans.The Company continuously focuses its efforts to better understand the changing lifestyles of India and anticipate consumer needs in order to provide Taste, Nutrition, Health and Wellness through its product offerings. Nestlé India manufactures products of truly international quality under internationally famous brand names such as NESCAFÉ, MAGGI, MILKYBAR, KIT KAT, BAR-ONE, MILKMAID and NESTEA and in recent years the Company has also introduced products of daily consumption and use such as NESTLÉ Milk, NESTLÉ SLIM Milk, NESTLÉ Dahi and NESTLÉ Jeera Raita.Now it employs around 2, 80,000 people and have factories or operations in almost every country in the world. Nestlé sales for 2011 were Rs.6382.78 crore.

DATA ANALYSISAns-1

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-4 -2 0 2 4 6 8

-10

-5

0

5

10

15

20

f(x) = 0.118126440129532 x + 1.3217123946116R² = 0.0042809481394912

Nestle India Ltd.

Nestle India Ltd.Linear (Nestle India Ltd.)

BSE 500

com

pany

retu

rn

The above graph has been derived by plotting monthly returns of Nestle ltd. with respect to the monthly returns of BSE 500, for a span of five year starting from April 2007 to March 2012. Here, the total no. of observations is 60.The characteristics line has also been drawn. The Beta of Nestle ltd is the slope of this characteristics line.

Company Name

Standard Beta

Company's Beta

Expected Return

Reqd. Return

Company's Alpha Status

Neslet Ltd. 1

0.11812644 16.682 8.986 1.32171

underpriced

The returns are not proportional to the beta. The company has grater expected rate of return (16.682) than the required rate of return (8.986) that shows the undervaluation of the stock of the company. This means that the stock is being sold in the market at a value less than that of its intrinsic value. It’s a profitable venture to invest. In such a case the investor would want to buy the more stock of this company.

Ans-2

Beta

Page 7: risk and return analysis

Beta is a measure of the relationship between a particular security's return and the overall return of the market. It is a measure of the non-diversifiable risk of a security.

Here the beta is 0.11812644 suggests that one should expect the return of the stock to change by a positive 0.11812644 percent for each 1 percent change in the market. And it also showing the less volatility because of it is less than 1.

The Nestle Beta (0.11812644) is 0.3815 less than Sector beta (0.499711635), it means the company stock is 38.15% less volatile than market.

As sector beta is more than the company’s beta. Sector is more risky than the company that means the company is defensive in his approach and the sector is aggressive in its approach. This also shows that company is not in fast growth phase.

Since Debt equity ratio of Nestle is 0.13666667 which is good for the company since it is giving less financial leverage and hence, it is becoming less risky. And the Debt equity ratio of sector is 1.31 that showing the more riskiness than the company.

Considering current ratio of a company it is 0.528333333 that is less than 1, means the company would be unable to pay off its obligations if they came due at that point. While this shows the company is not in good financial health and it is not a good sign for the company.

Alpha (beta coefficient)

The intercept of Nestle is 1.32171 which is the return of Nestle when the market return is zero. Here the alpha is positive that shows the stock is being traded at underpriced, which is a good option for investors to invest in the stock to get better return in future.

Coefficient of correlation (Multiple R)Nestle has coefficient of correlation of 0.0654 The positive correlation indicates that when market returns goes up Nestle returns also go up. Because correlation is the tendency of two variables to move together. A correlation coefficient (ρ) of +1.0 means that the two variables move up and down in

Page 8: risk and return analysis

perfect synchronization, while a coefficient of -1.0 means the variables always move in opposite directions.

Coefficient of determination(R Square)This is the most important number of the output. R Square tells how well the regression line approximates the real data. This number tells you how much of the output variable’s variance is explained by the input variables’ variance. Nestle has coefficient of determination of 0.004 (or 0.4%).

This shows that 0.4% of Nestle risk (variance in returns) is explained by the market returns. The 99.6% unexplained variance is the firm specific variance.

Systematic risk = R2 * variance

= 0.004280948* 6.611083023 = 0.028301704

Unsystematic risk = (1-.R2)*variance = (1-0.004280948)* 6.611083023 =6.582781319

P-value

The P-Values of each of these provide the likelihood that they are real results and did not occur by chance. The lower the P-Value, the higher the likelihood that coefficient is valid. Nestle P-Value is 0.0005 for it’s regression coefficient indicates that there is only a0 .05% chance that the result occurred only as a result of chance.

Ruchi Soya Inds. Ltd.

Introduction

In early 1960s Mr. Mahadeo Shahra created awareness on the potential of soya crop amongst the farmers in the state of Madhya Pradesh in India. He was instrumental in bringing up a small green revolution in

Page 9: risk and return analysis

the state, by introducing and encouraging soyabean cultivation on a commercial scale. Shahra family was in the business of commodities trading and subsequently entered the business of ginning and oil milling. The family's efforts, along with that of the others, resulted in soya revolution in Madhya Pradesh. Today Madhya Pradesh is considered as Soya bowl of the country, and contributes to approximately 60% of its production.

Featuring among the top five FMCG players in India, with a turnover crossing Rs. 13,000 crores, Ruchi Soya Industries Limited is the flagship company of Ruchi Group of Industries. Besides being a leading manufacturer of high quality edible oils, vanaspati, bakery fats and soya foods, Ruchi is also the highest exporter of soya meal and lecithin from India. Nutrela (soya chunks, granules and soya flour) is the largest selling soya foods brand in the country.

Ruchi is a leading branded edible oil supplier. Nutrela Soyumm (Soyabean Oil), Ruchi Gold (Palmolein Oil), Mahakosh, Sunrich (Sunflower Oil) and Mandap (Mustard Oil) and new healthy oil variants like Nutrela Vitamin Sunflower oil and Nutrela Groundnut oil make Nutrela a trusted option in edible oils.

Superior procurement and trading skills, continuous innovation, an endeavor to meet consumer needs and stringent quality control standards have enabled Ruchi to emerge as a highly-respected and admired Indian company.

DATA ANALYSISAns-1

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-4 -2 0 2 4 6 8

-10

-8

-6

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0

2

4

6

8

f(x) = 0.606263180187068 x − 0.193996179585073R² = 0.118958670863721

Ruchi Soya Inds. Ltd.

Ruchi Soya Inds. Ltd.Linear (Ruchi Soya Inds. Ltd.)

BSE 500

com

pany

retu

rn

The above graph has been derived by plotting monthly returns of Ruchi Soya Ltd. with respect to the monthly returns of BSE 500, for a span of five year starting from April 2007 to March 2012. Here, the total no. of observations is 60.The characteristics line has also been drawn. The Beta of Ruchi Soya Ltd. is the slope of this characteristics line.

Company Name

Standard Beta

Company's Beta

Expected Return

Reqd. Return

Company's Alpha Status

Ruchi Soya Ltd. 1 0.60626318 1.888 12.525 -0.19399618 overpriced

The returns are not proportional to the beta. The company has grater required rate of return (12.525) than the expected rate of return (1.888) that shows the overvaluation of the stock of the company. This means that the stock is being sold in the market at a value more than that of its intrinsic value. It’s not a profitable venture to invest. In such a case the investor would avoid to buy the more stock of this company.

Ans-2

Beta

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It is a measure of the non-diversifiable risk of a security.

The beta is 0.60626318 suggests that one should expect the return of the stock to change by a positive 0.60626318 percent for each 1 percent change in the market.And it also showing the less volatility because of it is less than 1.

The Ruchi Soya Beta is 0.60626318 and Sector beta 0.499711635, which 0.106551546 more than sector it means the company stock is 10.66% more volatile than market.

As company’s beta is more than the sector beta. Company is more riskier than the sector that means the company is aggressive in his approach then sector approach. This also shows that company is in fast growth phase.

Since Debt equity ratio of Ruchi Soya is 1.655 which means that a company has been aggressive in financing its growth with debt. This can result in volatile earnings as a result of the additional interest expense, since it is giving more financial leverage and hence, it is becoming more risky than sector because off sector has Debt equity ratio of 1.31 that showing the less riskiness than the company.

Considering current ratio of a company it is 0.791666667 that is less than 1, means the company would be unable to pay off its obligations if they came due at that point. While this shows the company is not in good financial health and it is not a good sign for the company.

Alpha (beta coefficient)

The intercept of Ruchi Soya is -0.19399618 which is the return of Ruchi when the market return is zero. Here the alpha is negative that shows the stock is being traded at overpriced, which is not a good option for investors to invest in the stock.

Coefficient of correlation (Multiple R)

Ruchi Soya has coefficient of correlation of 0.344903857.

The positive correlation indicates that when market returns goes up Ruchi Soya returns also go up. Because correlation is the tendency of two variables to move

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together. A correlation coefficient (ρ) of +1.0 means that the two variables move up and down in perfect synchronization, while a coefficient of -1.0 means the variables always move in opposite directions.

Coefficient of determination(R Square)

Ruchi Soya has coefficient of determination of 0.11895 (or 11.89%). This shows that 11.89% of Ruchi Soya risk (variance in returns) is explained by the market returns. The 88.11% unexplained variance is the firm specific variance.

P-value

The P-Values of each of these provide the likelihood that they are real results and did not occur by chance. The lower the P-Value, the higher the likelihood that that coefficient is valid. But here Ruchi Soya P-Value is high i.e. 0.55974 for its regression coefficient indicates that the statistically not very true.

Kwality Dairy( India) Ltd

Introduction

Kwality Dairy (India) Ltd. is instrumental in providing dairy products at par with international standards at a very low input cost. Kwality Dairy Limited, India's Premier Dairy Foods Company

Page 13: risk and return analysis

focuses on building leadership positions in branded and value added markets across the dairy sector. We at KDIL follow a very simple philosophy: Serve the needs of the customer by providing them “Kwality”.

The company is ISO 22000:2005 Certified Company and the skimmed milk powder is certified with ISI by Bureau of Indian Standards. Also Pure Ghee is certified by Agmark by Directorate of Marketing and Inspection, Ministry of Agriculture, Government of India.

Incorporated in the year 1992, the company is growing at a fast pace with a turnover of 1054 crores in 2009-10 and a growth of 81 percent in the current financial year. Kwality Dairy has introduced Pure Ghee under the brand name- Dairy Best. Another Pure Ghee variant exclusively made from cow’s fresh milk is also available. The product has made a commendable impact in the Indian market and made its presence felt in Delhi, Punjab, Rajasthan, and Haryana etc.

Kwality Dairy (India) Limited is poised to revolutionize the Dairy Industry with a new range of innovative products. With quality, integrity and technology being the hallmark of its growth, the Company is today perfectly poised to strive for greater success in the years to come. Ensuring that the dairy processes result in the best quality products that also meet with the functional and nutritional needs of the customer, KDIL has obtained the design and key equipment from Alfa Laval India Ltd (Tetra Pack Group) with design back up from APV Anhydro Pasilac AS Denmark. 

The milk is procured through milk collection centres situated at Fatehabad and Rania. The quantity of milk procured from each centre on an average is 25,000 litres per day. Each centre covers about 100 villages spread over 8-10 procurement routes. Every village level milk collection point has 80-90 farmers pouring milk which generates avenues for earning livelihood for about 8000 farmers, thus bringing economic upsurge in the area.

DATA ANALYSIS

Ans-1

Page 14: risk and return analysis

-4 -2 0 2 4 6 8

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25

f(x) = 1.29349584470127 x + 1.05791915799561R² = 0.16765917349978

Kwality Dairy (India) Ltd.

Kwality Dairy (India) Ltd.Linear (Kwality Dairy (India) Ltd.)

BSE 500

com

pany

retu

rn

The above graph has been derived by plotting monthly returns of Kwality Dairy Ltd. with respect to the monthly returns of BSE 500, for a span of five year starting from April 2007 to March 2012. Here, the total no. of observations is 60.The characteristics line has also been drawn. The Beta of Kwality Dairy Ltd. is the slope of this characteristics line.

Company Name

Standard Beta

Company's Beta

Expected

ReturnReqd. Return

Company's Alpha Status

Kwality dairy Ltd. 1 1.29349545 21.69 17.508 -1.0579191

underpriced

The returns are not proportional to the beta. The company has grater expected rate of return(21.69) than the required rate of return(17.508) that shows the undervaluation of the stock of the company. This means that the stock is being sold in the market at a value less than that of its intrinsic value. It’s a profitable venture to invest. In such a case the investor would like to buy the more stock of this company.

Ans-2

Beta

Page 15: risk and return analysis

The beta is 1.293495845 suggests that one should expect the return of the stock to change by a positive 1.293495845 percent for each 1 percent change in the market.

And it also showing the more volatility and risk because of it is more than 1.

The Kwality Dairy Beta is 1.293495845 and Sector beta 0.499711635, which -0.79378421 more than sector it means the company stock is 79.38% more volatile than market.

As company’s beta is more than the sector beta. company’s is more riskier than the sector that means the company is aggressive in his approach then sector approach. This also shows that company is in fast growth phase.

Since Debt equity ratio of Kwality Dairy is 2.846 which means that a company has been aggressive in financing its growth with debt. This can result in volatile earnings as a result of the additional interest expense.

since it is giving more financial leverage and hence, it is becoming more risky than sector because off sector has Debt equity ratio of 1.31 that showing the less riskiness than the company.

Considering current ratio of a company it is 1.196, means the company is able to pay off its obligations if they came due at that point in short term . 

According to the degree of operating leverage the company is also showing the riskiness because of it is also high that is continuously more than 1 , it means this company is using the more fixed cost and this causes the high risk.

Alpha (beta coefficient)

The intercept of Kwality Dairy is 1.057919158 which is the return of Kwality Dairy when the market return is zero. Here the alpha is positive that shows the stock is being traded at underpriced, which is a good option for investors to invest in the stock.

Coefficient of correlation (Multiple R)

Kwality Dairy has coefficient of correlation of 0.409462054.

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The positive correlation indicates that when market returns goes up Kwality Dairy returns also go up. Because Correlation is the tendency of two variables to move together.

Coefficient of determination(R Square)

Kwality Dairy has coefficient of determination of 0.16765 (or 16.76%). This shows that 16.76% of Kwality Dairy risk (variance in returns) is explained by the market returns. The 83.24% unexplained variance is the firm specific variance.

P-value

Kwality Dairy P-Value is less i.e. 0.072191064 for it’s regression coefficient indicates that there is only 7.2% chance that the result occurred only as a result of chance. Means regression coefficient that the statistically almost true.

Tata Globel Beverage

Introduction

Tata Global Beverages is an incredible story, with almost 200 years of history behind us and a heritage of consistent innovation and development.

Page 17: risk and return analysis

It all started when Tata Finlay was set up as a joint venture between Tata Sons and the UK-based tea plantation company, James Finlay and Company in 1962. In 1983 Tata Tea was born after James Finlay sold his shareholding to Tata, heralding the beginning of a new journey. The company set out on a path with global ambitions, evidenced by the acquisition of Tetley in 2000. This was followed by a string of strategic acquisitions including Good Earth, Jemca, Vitax, Eight O’ Clock Coffee and Himalayan Water.

Today we are an integrated beverage business that has set out on a journey to become a global leader in branded good-for-you beverages through innovation, strategic acquisition and organic growth.

Tata Global Beverages unites the beverage interests of Tata under one umbrella. It signals our global ambition, as well as marking the next logical step in our evolution from a history in plantations to becoming a marketing and brand focused organisation with a portfolio of engaging and exciting strong consumer brands.

DATA ANALYSIS

Ans-1

Page 18: risk and return analysis

-4 -2 0 2 4 6 8

-6-4-202468

1012

f(x) = 0.321002431060448 x + 0.65197909120047R² = 0.0386738602077564

Tata Global Beverages Ltd.

Tata Global Beverages Ltd.Linear (Tata Global Bev-erages Ltd.)

BSE 500

com

pany

retu

rn

The above graph has been derived by plotting monthly returns of Tata Global Beverage Ltd. with respect to the monthly returns of BSE 500, for a span of five year starting from April 2007 to March 2012. Here, the total no. of observations is 60.The characteristics line has also been drawn. The Beta of Tata Global Beverage Ltd. is the slope of this characteristics line.

Company Name

Standard Beta

Company's Beta

Expected Return

Reqd. Return

Company's Alpha Status

Tata bev. Ltd. 1

0.321002431 10.056 10.457

0.651979091

underpriced

The returns are almost proportional to the beta. Because of the company has expected rate of return (10.056) and the required rate of return (10.457) is almost same This means that the stock is being sold in the market at a value of its intrinsic value. So it’s a profitable venture to invest.

Ans-2

Beta

The beta is 0.321002431 suggests that one should expect the return of the stock to change by a positive 0.321002431 percent for each 1 percent change in the market.

And it also showing the less volatility and risk because of it is less than 1.

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Tata Globel Beverage Beta is 0.321002431 and Sector beta 0.499711635, which 0.178709204 less than sector it means the company stock is 17.87% less volatile than market.

As company’s beta is less than the sector beta. company’s is less riskier than the sector that means the company is defensive in his approach then sector approach.

Since Debt equity ratio of Tata Globel Beverage is 0.34 which is good for the company since it is giving less financial leverage and hence, it is becoming less risky. And the Debt equity ratio of sector is 1.31 that showing the more riskiness than the company.

Considering current ratio of a company it is 0.36, means the company is unable to pay off its obligations if they came due at that point in short term. 

According to the degree of operating leverage the company is also showing the less riskiness because of it is -9.06588, it means this company is using the less fixed cost .

Alpha (beta coefficient)The intercept of Tata Globel Beverage is 0.651979091 which is the return of Tata Globel Beverage when the market return is zero. Here the alpha is positive that shows the stock is being traded at underpriced, which is a good option for investors to invest in the stock .

Coefficient of correlation (Multiple R)Tata Globel Beverage has coefficient of correlation of 0.196656706. The positive correlation indicates that when market returns goes up Tata Globel Beverage returns also go up. Because Correlation is the tendency of two variables to move together.

Coefficient of determination(R Square)Tata Globel Beverage has coefficient of determination of 0.03867 (or 3.86%). This shows that 3.86% of Tata Globel Beverage risk (variance in returns) is explained by the market returns. The 96.14% unexplained variance is the firm specific variance.

P-value

Tata Globel Beverage P-Value is less i.e. 0.046699621 for it’s regression coefficient indicates that there is only 4.6% chance that the result occurred only

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as a result of chance. Means regression coefficient that the statistically almost true.

Venkys (India) Limited

Introduction

The VH group was established in 1971, when motivated by his wife Late Smt. Uttaradevi Rao, our founder Chairman Late Padmashree Dr. B.V.Rao, fondly referred to as “The Father of the Indian Poultry

Industry”, established Venkateshwara Hatcheries Pvt. Ltd. in Pune (India). Today the group is popularly known the world over as “Venky’s”. With a unique combination of expertise and experience and supported by strategic collaborations, the company diversified its activities to include SPF eggs, chicken and eggs processing, broiler and layer breeding, genetic research

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and Poultry diseases diagnostic, Poultry vaccines and feed supplements, vaccine production, bio-security products, Poultry feed & equipments, nutritional health products, soya bean extract and many more. Today the group is the largest fully integrated poultry group in Asia. The VH group today plays proud parent to a number of reputed organizations under its wide umbrella and successfully caters to poultry and its allied sectors.The pioneering efforts of the VH Group have been well rewarded with several national and international awards. By keeping Quality and Technology as their guiding stars,VENKY’S has consistently fulfilled its commitment to QUALITY THROUGH TECHNOLOGY by ensuring that it not only manufactures products using high-end technology but also delivers actual value to its customers through its products and services.

Over the years, Venky’s (India) Limited embarked upon new ventures in regular succession, adding tremendous value to the company, giving it an edge in technology and high returns on investment. The company has steadily grown to over 30 units spread across India. Diversifying from mainstream poultry products, Venkys (India) Limited has added to its credit, manufacturing facilities for nutritional health products for humans, and pet food and health care products. The company has steadily grown to over 30 units spread across India.

The Forbes business magazine of USA ranked Venky’s (India) Limited as 67th among the 100 best global small companies in the year 1999-2000.

DATA ANALYSIS

Ans-1

Page 22: risk and return analysis

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f(x) = 0.404383922786348 x + 0.290992850078645R² = 0.0357984140874045

Venky'S (India) Ltd.

Venky'S (India) Ltd.Linear (Venky'S (India) Ltd.)

BSE 500

com

pany

retu

rn

The above graph has been derived by plotting monthly returns of Venky’s Ltd. with respect to the monthly returns of BSE 500, for a span of five year starting from April 2007 to March 2012. Here, the total no. of observations is 60.The characteristics line has also been drawn. The Beta of Venky’s Ltd. is the slope of this characteristics line.

Company Name

Standard Beta

Company's Beta

Expected

ReturnReqd. Return

Company's Alpha Status

Venke’y Ltd. 1

0.404383923 6.304 11.062

0.29099285

underpriced

The returns are not proportional to the beta. The company has grater required rate of return (11.062) than the expected rate of return (6.304) that shows the overvaluation of the stock of the company. This means that the stock is being sold in the market at a value more than that of its intrinsic value. It’s not a profitable venture to invest. In such a case the investor would avoid to buy the more stock of this company.

Ans-2

Beta

It is a measure of the non-diversifiable risk of a security.

Page 23: risk and return analysis

the beta is 0.404383923 suggests that one should expect the return of the stock to change by a positive 0.404383923 percent for each 1 percent change in the market.

And it also showing the less volatility because of it is less than 1.

Venky’s Ltd. Beta is 0.404383923 and Sector beta 0.499711635, which 0.095327712 less than sector it means the company stock is 9.53% less volatile than market.

As company’s beta is less than the sector beta. company’s is less riskier than the sector that means the company is defensive in his approach then sector approach.

Debt equity ratio of Venky’s Ltd. is 0.621666667. Since it is giving more financial leverage and hence, it is becoming less risky than sector because off sector has Debt equity ratio of 1.31 that showing the more riskiness than the company.

Considering current ratio of a company it is 0.948333333 that is less than 1, means the company would be unable to pay off its obligations if they came due at that point. While this shows the company is not in good financial health and it is not a good sign for the company.

Alpha (beta coefficient)The intercept of Venky’s Ltd. is 0.29099285 which is the return of Venky’s Ltd. when the market return is zero. Here the alpha is positive that shows the stock is being traded at underpriced, which is a good option for investors to invest in the stock.

Coefficient of correlation (Multiple R)Venky’s Ltd. has coefficient of correlation of 0.189204.The positive correlation indicates that when market returns goes up Venky’s Ltd. returns also go up.

Coefficient of determination(R Square)Venky’s Ltd. has coefficient of determination of 0.035798414 (or 3.57%). This shows that 3.57% of Venky’s Ltd. risk (variance in returns) is explained by the market returns. The 96.43% unexplained variance is the firm specific variance.

P-value

The P-Values of each of these provide the likelihood that they are real results and did not occur by chance. The lower the P-Value, the higher the likelihood

Page 24: risk and return analysis

that that coefficient is valid. But here Venky’s Ltd. P-Value is high i.e. 0.491854439 for it’s regression coefficient indicates that the statistically not very true.

Ans-3Risk & Return AnalysisAnalysis on the basis of standard deviation which is a measure of volatility of the company and sector. As compared to the sector all these companies have higher standard deviation as a result they are more volatile make it risky for investors to invest. As they are more risky they offer more returns to the investors to attract them.

Return Standard deviation

Food Sector 1.017850996Kwality DairyLtd. 4.498943614

Nestle India Ltd. 2.571202641

Tata GBeverages 2.324656198

Page 25: risk and return analysis

 

Food products 8.254Kwality DairyLtd. 21.69

Nestle India Ltd. 16.682

Tata Beverages 10.056

Analysis on the basis of mean return which is a measure of return

As compared to average sector return (8.254) the following companies have higher average return & hence they offer more returns-

Kwality Dairy (India) Ltd. Nestle India Ltd Tata Beverages Ltd.

The rest of the companies i.e Ruchi Soya Inds. Ltd.and Venky'S Ltd. are offering less return as compared to other companies. Means these two companies are taking more risk for fewer return because of they may be in growth phase and taking risk for their growth.

Interpretation on the basis of beta

The sectoe beta is 0.499711635

The value of beta indicates the risk of investing in the company or in the sector.If value of beta is greater than 1, then the company is “AGGRESSIVE” in nature and if it is less than 1 then the company is “DEFENSIVE” in nature.

Kwality Dairy have beta greater than 1 & hence it is aggressive in nature.

Standard deviation

Food Sector 1.017850996Ruchi Soya Ltd. 2.50335427Venky'S Ltd. 3.043835374

  average return

Food products 8.254Ruchi Soya Ltd. 1.888Venky'S Ltd. 6.304

Page 26: risk and return analysis

And the rest are defensive in nature since their beta is less than 1, these are:-

Nestle India Ltd..

Tata Global Beverage

Ruchi Soya Ltd.

Venky’s Ltd.

Kwality Dairy has highest beta among the all companies and sector so it is giving the

highest return where it is more risky due to highest beta so they are offering the more return.

Ruchi Soya and has beta greater than sector and still returns are very less so they are in growth phase and taking higher risk for fewer return.

Tata Globel Beverage limited has a beta less than the sector still providing greater return that shows that its growth rate is high.

Nestle limited has lowest beta among all the company and it is giving more return means its going through supernormal growth rate less risk but huge returns

Venky’s has less beta than the sector so they are less risky than the sector but if we will see the standard deviation then it shows that , they are taking risk by providing the more return to attract the investor for their company growth.

Beta’s Company Sector

kwality 1.293495845 0.499711635venky's 0.404383923 0.499711635tata 0.321002431 0.499711635ruchi soya 0.60626318 0.499711635nestle 0.11812644 0.499711635