CASE STUDY EQUITY RESEARCH Mr. Prashant Gupta is interested in investing in equity shares of…

CASE STUDY

EQUITY RESEARCH

Mr. Prashant Gupta is interested in investing in equity shares of Infosys and Hamdard. Infosys Technologies Ltd. (NASDAQ: INFY) which was started in 1981 by seven people with US$ 250. Today, it is a global leader in the "next generation" of IT and consulting with revenues of over US$ 4 billion. It offers span business and technology consulting, application services, systems integration, product engineering, custom software development, maintenance, re-engineering, independent testing and validation services, IT infrastructure services and business process outsourcing. Hamdard (Wakf) Laboratories, India is a famous pharmaceutical company in India known for its Unani and Ayurvedic products. It is the world's largest manufacturer of Unani medicinesSome of its more famous products include Safi, Sharbat Rooh Afza, Cinkara, Roghan Badam Shirin and Pachnol. It is associated with Hamdard Foundation, India.
Being conservative in nature, he wants to determine the risk associated with investments. In specific terms, he wants to seek data related to both levered and unlevered beta of these companies. He approaches Nitin Shah, a financial consultant to do the needful. Nitin has collected the relevant information detailed below:
Number
(MONTHS)
INFOSYS*
HAMDARD*
S&P CNX NIFTY**
1
0.1455
0.0432
0.0654
2
0.1291
0.307
0.1536
3
-0.1036
-0.0498
-0.0749
4
-0.0643
-0.0369
0.0473
5
-0.0673
-0.0272
-0.0178
6
0.1361
0.0286
-0.0291
7
-0.0111
-0.1088
-0.1465
8
0.0452
-0.1338
0.0194
9
0.0277
0.0913
0.0663
10
0.0581
0.011
-0.0022
11
0.0313
0.0581
0.0854
12
0.1021
0.1043
0.0127
13
0.1652
0.0876
0.0914
14
-0.0237
0.0617
0.0604
15
-0.0581
0.0877
-0.0099
16
-0.0077
0.14
0.0119
17
-0.0401
–0.0369
-0.008
18
-0.0589
0.0473
-0.0605
19
0.1335
0.1054
0.0746
20
0.0693
0.0249
0.0596
21
-0.0391
0.1082
0.048
22
-0.0086
0.048
0.0378
23
0.0196
0.068
0.0813

(i) Monthly returns on equity shares of Infosys and Hamdard for a period of 2 years (w.e.f. October 2006 to September 2008) along with portfolio of S&P CNX NIFTY.
(ii) Return on 364-days treasury bills issued by Government of India for the period 2007-08 is 5.15 per cent per annum and 0.419 per month. This rate is to be used as a proxy for risk-free rate of return.
(iii) Debt-equity ratio (based on the average of 2004 to 2008) is 1.6 per cent for Wipro and 31.4 per cent for Dabur.
(iv) Corporate tax is 35 per cent.

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