Report On Fundamental Analysis of Equity

A Summer Internship Project Report on
“Fundamental Analysis of equity”
For
“Reliance Industries Ltd”
By
“Kanchan Arjun Jadhav”
Under the guidance of
“Dr Rajendra Chaudhari”
Submitted to
“Savitribai Phule Pune University”
In partial fulfillment of the requirement for the award of the degree of
Master of Business Administration
Through
JSPM NTC Rajshri Shahu School of Business Studies
Pune-41
2019-2021
1
Fundamental analysis of equity
ACKNOWLEDGEMENT
It’s my great pleasure to present project report entitled “Fundamental Analysis of equity
For Reliance industries ltd” This project is an outcome of various efforts by us in college
and identifying the sources of information and knowledge.
I use this occasion to thank my guide with whose guidance this effort would not have
borne fruits. I find no words to express my gratitude to “Dr Rajendra Chaudhari “ who
not only advised and guided me during the report writing but also answered all my queries
concerning collection of data, proper structuring of the report, and its improvement.
I would also thankful of my friends which gave me a proper guide line about my subject.
I am virtually indebted to the head of the Department Dr. Archana singh from jspm
technical narhe campus who has bestowed all their blessings in the form of guidance which
was the leading to complete this project report.
I would also like to thank our principal Dr. Lad sir who provided me valuable support in
completion of project by providing me different facilities in college and arranging guest
lecture.
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ABBREVIATION
CAGR Compounded annual growth rate

CAPM Capital asset pricing model
CFO Cash flow from operation
CoS Cost of sales
DCF Discounted cash flow
D&A Depreciation and amortization
EBIT Earnings before interest and tax
EBITDA Earnings before interest, tax, depreciation, and amortization
FCFF Free cash flow to firm
FCF Free cash flow to equity
Int Interest expense
WACC Weighted average cost of capital
CV Continuing value
EV Enterprise value
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LIST OF TABLE
SR.NO. TABLE NAME PAGE NO.

1. Table no 6.1.1: Summary Historical Income 27
Statements
2. Table no 6.1.2: Summary of Historical 28
Balance Sheets
3. Table no 6.1.3: Summary of forecasted 30
Income Statements
4. Table no 6.1.4: Summary of forecasted 31
Balance Sheets
5. Table no 6.1.5: Summary free cash flow 33
Statements
6. Table no 6.1.6: Cost of capital 34
7. Table no 6.1.7: Value calculation 35
8. Table no 6.1.8: Sensitivity analysis 36
9. Table no 6.1.9: DCF calculation 37
10. Table no 6.1.10: Comparison of PE ratio 39
with competitor
4
LIST OF FIGURES
SR.NO. FIGURE NAME PAGE NO.

1. Fig2.1: business model 5
LIST OF CHART
SR.NO. CHART NAME PAGE NO.

1. Chart no 6.1.1: Summary Historical Income 27
Statements
2. Chart no 6.1.2: Summary of Historical 29
Balance Sheets
3. Chart no 6.1.3: Forecasting operating 30
expenses
4. Chart no 6.1.4: capex 32
5. Chart no 6.1.5: Forecasting balance sheet 32
6. Chart no 6.1.6: Forecasting balance sheet 33
7. Chart no 6.1.7: Estimated Value 35
8. Chart no 6.1.8: DCF calculation 38
9. Chart no 6.1.9: Comparison of PE ratio with 39
competitor
10. Chart no 6.1.10: Comparison of 5 years PE 40
ratio of reliance industries ltd
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INDEX
Page No.
1. CHAPTER - 1
1.0 Executive summary 1
2. CHAPTER- 2
2.1company profile 2
3. CHAPTER -3
3.1Introduction 15
3.2 objective of project 16
4. CHAPTER - 4
4.1 LITERATURE REVIEW 17
5. CHAPTER - 5
5.0 RESEARCH METHODOLOGY 21
5.1 Data collection source 22
5.2 Statistical tools 22
5.3 Scope of project 24
5.4 Limitation of project 25
6
6. CHAPTER - 6
6.1 Data valuation with absolute valuation 26-38
6.2 Data valuation with relative valuation 39-40
7. CHAPTER - 7
7.1 Finding 41
7.2conclusion 42
8. CHAPTER - 8
8.0 Suggestion 43
9. Chapter 9
9.0 Personal Learning beyond project 44
10 Biography 45
11 Appendix 46
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Chapter 1
Executive summary
The value of an asset is the future cash flow it can generate discounted at an opportunity rate
that reflects the risks of the asset. Thus, the discounted cash flow (DCF) method is widely
used to estimate the true value of an asset. On the stock market, the price of equity or a stock
determined by the market may differ from its true value to the extent that it is overvalued or
undervalued. In that belief, the investment theory suggests to buy or hold a stock if it is
undervalued and not to buy or sell it if it is overvalued. The purpose of this study is to
evaluate the fair value of stocks from Viking Line Ltd by conducting fundamental analysis on
the financial performance of the company period 2016 to 2020. The aim is to find out if
reliance industries ltd is a good investment by comparing its fair value with the current stock
price. The valuation was limited to applying only to public equity, employing only DCF
method using FCFF model with historical data, and investment potential is determined solely
on estimated value per share. Within the limitations, the author found the estimated value per
share was Rs1629, which was higher than the market price of Rs1410 on March 31st, 2020 ad
right issue price Rs1257 which is released on 20th May 2020.when the valuation was started.
Hence, the conclusion was that reliance industries ltd was undervalued and investing in the
company would be profitable. The study aims to provide a reference in valuating reliance
industries ltd stock price and a benchmark to compare with results from other researches to
assist investors in making investment decisions. Furthermore, the research can be considered
as a guide line of stock valuation, more specifically, using DCF method for readers who take
an interest in equity investment.
1
Chapter 2
Organization profile
2
2.1 Industry Overview

Reliance Industries Limited (RIL) is an Indian multinational conglomerate company.
The Conglomerates Sector refers to the sector of the stock market that
comprises large corporations hold. A conglomerate is a multi-industry company – i.e., a
combination of multiple business entities operating in entirely different industries under
one corporate group, usually involving a parent company and many subsidiaries.
Conglomerates are often large and multination a variety of diverse and sometimes
unrelated subsidiary companies.
In simple terms, conglomerate is a combination of two or more corporations in a single

corporate structure. This forms a group of companies that usually involves a single parent
company and different subsidiaries. However, in a conglomerate, diversification of the
business in the companies is normal practice, and usually these companies depict a multi-
industry corporate structure. These corporate structures are often multinational.
Advantages:
 Due to diversification, conglomerates can reduce their investment risk
 These structures can create a capital market within the group to allow growth of the
conglomerate
 A conglomerate can grow by acquiring companies, whose shares are more discounted,
thereby showing growth in earnings.
Disadvantages:
 Management costs increases due to size of the group
 Conglomerates have to face many accounting-related problems, for example, consolidation
and group disclosures, etc.
 Taxation of group structure reduces the taxation benefits
 There is no development of the innovation due to inertia
 Focus is lost, and it is difficult to manage unrelated and well-diversified business
effectively
 Due to multinational business, conglomerates often contact cultural difference due to
which values are destroyed
3
2.2 Company Profile

The company was co-founded by Dhirubhai Ambani in 1960's as Reliance Commercial
Corporation. In 1965, the partnership ended and Dhirubhai continued
the polyester business of the firm. In 1966, Reliance Textiles Engineers Pvt. Ltd. was
incorporated in Maharashtra. It established a synthetic fabrics mill in the same year
at Naroda in Gujarat.
On 8 May 1973, it became Reliance Industries Limited. After Dhirubhai Ambani the daily
operations of the company handed over to his sons Mukesh Ambani and Anil Ambani. In
October 2005, the split of Reliance Group was formalized. Mukesh Ambani got Reliance
Industries and IPCL. Younger brother Anil Ambani received telecom, power,
entertainment, and financial services business of the group.
Reliance is India’s largest and most profitable private sector company. Reliance continues
to be a significant global player in the integrated energy value chain while establishing
leadership positions in the retail and digital services business in India.
Reliance industries ltd is a very prominent multi-industry company who engages in many
industries such as petrochemical, textile, retail and telecommunication. Reliance industries
ltd is the largest company of India by market capitalization and revenue.
It is also the most profitable company in India. Reliance is the biggest exporter of India
who contributes 8% of the total export value of India. Government of India also earns 5%
of their total income of custom and exercise from Reliance industries ltd .
Reliance industries ltd exports its goods to 108 countries. Reliance industries ltd
ranks 106 in the fortune 500 lists and 8th in the Top 250 Global Energy company. It is also
the highest income tax payer in India. Reliance Industries is the first Indian company who
has exceeded the market capitalization of $100 Billion.
It is also the first Indian company to exceed the market capitalization of Rs 12 lakh crore.
Reliance has many subsidiaries that operate in different industries such as Reliance Retail,
Reliance Life Sciences, Reliance Logistics, Reliance Solar, LYF, Network and Jio
Platforms Limited.
Reliance Industries is a diversified business conglomerate and ranks 106 in Fortune global
500 and 71 on Forbes Global 2000 companies as in 2019. The company is involved in
manufacturing of polymers, chemicals, polyesters, petroleum and textiles. They have
further ventured into Retail, Digital services, payments and telecom. Its Jio platform has
gained 300+ Million subscribers in 2.5 years. The company also has the world’s largest
Crude oil refinery in Jamnagar and its retail business arm has crossed $ 10 billion in
revenue.
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The company’s shares have a 52 weeks price band of INR 1618-867 and a total market
capitalization of INR 10.82 Trillion which makes it a Large-Cap company. The shares have
a P/E multiple of 25.4 and a dividend yield of 0.41%.
Business Model
Fig2.1: business model
The business model is such that around 49.3% of the revenue comes from refining and
petroleum business, around 20.3% comes from petrochemicals, 18.7% comes from Retail,
7% comes from digital services, 4.7% from Media, Entertainment and others. The
company is diversifying rapidly into digital platforms but the revenue driver is still the
petroleum business. On the profitability side, 68.26% of EBIT is contributed by energy
business and 31.74% is from the retail and consumer-facing business.
Reliance Jio has built a world-class all-IP data network with the 4G LTE technology. It is
the only Greenfield all-IP network supporting Voice over LTE (VoLTE) technology. Jio’s
4G coverage has allowed it to serve the under-penetrated areas and is approaching its target
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of 99% population coverage. It will soon become a major revenue driver for the company
as Jio Mart expands the retail business into E-commerce.
2.1.1 Head office
Reliance Industries Limited (RIL) is an Indian multinational conglomerate company

headquartered in Mumbai, Maharashtra.
2.1.2Company vision
Through sustainable measures, create value for the nation, enhance quality of life across
the entire socio-economic spectrum and help spearhead India as a global leader in the
domains where we operate.
2.1.3 Company Mission

 Create value for all stakeholders
 Grow through innovation
 Lead in good governance practices
 Use sustainability to drive product development and enhance operational efficiencies
 Ensure energy security of the nation
 Foster rural prosperity, create value.
2.1.4 Shareholding pattern:-

The Shareholding Pattern page of Reliance Industries Ltd. presents the Promoter's holding,
FII's holding, DII's Holding, and Share holding by general public etc.
Mr. Mukesh Dhirubhai Ambani is the Chairman and Managing Director of the company
and represents the 49.15% promoter’s stake in the company. Reliance is well known in the
market for multiplying shareholder’s wealth and the management has been able to deliver a
32% CAGR returns since the IPO in 1977.
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2.1.5 Branches
Mumbai (HQ)India Ahmedabad India

O
Maker Chamber 4 Jamnalal Bajaj Rd 103/106, GIDC Narod
r
Ahmedabad
g
BarabankiIndia BharuchIndia
a
Dewa Rd, P.O. Somaiya Nagar Tal. Vagra Dahej
n
i
ChohalIndia DahaliIndia
c
Hoshiarpur Manufacturing Division Mouda, Ramtek Road, Tehsil Mouda
2.1.6 GhaziabadIndia
O Jamnagar India, Jamnagar SEZ Unit
A/10-A/27,
r UPSIDC Industrial Area Village Meghpar/Padana, Taluka
g Lalpur
a
KadsureIndia NaroliIndia
n
Nagothane Pezari Rd 342, Kharadpada
i
z
Navi MumbaiIndia SuratIndia
a
Industrial Area, Kalamboli, Panvel Hazira Manufacturing Division,
t Village : Mora, Surat Dumas Rd
i
TallarevuIndia Vadodara India
o
Village Gadimoga, East Godavari Plot No. 13, New IPCL Rd, PCC
n
District Gadimoga Area
H
i
7
2.1.6 Organization hierarchy

Board of Director
The company top management includes combined Non-executive and Executive directors,
the board is composed of 17 directors including 7 independent directors.
Name Designation
Mr.Mukesh D Ambani Chairman and Managing Director
Mrs. Nita M. Ambani Non-Executive, Non Independent Director
Mr. Hital R. Meswan Executive Director
Mr. Nikhil R. Meswani Executive Director
Mr. P.M.S. Prasad Executive Director
Mr.P.K. Kapil Executive Director
Dr. R.A. Mashelkar Independent Director
Mr.Adil Zainulbhai Independent Director
Prof. Dipak C. Jain Independent Director

Mr Yogendra P. Trivedi Independent Director
Mr. Raminder S. Gujral Independent Director
Dr. Shumeet Banerji Independent Director
Mrs. Arundhati Bhattacharya Independent Director

Mr. K. V. Chowdary Non-Executive Director
Mr.Alok Agarwal Chief Financial Officer
Mr.K Sethuraman Group Co. Secretary & Compliance Officer

Mr.Srikanth Venkatachari Jt. Chief Financial Officer
2.1.7 Organization Structure:
Organizational structure of the company is multi-divisional structure whereby every
project undertaken by the company is managed by different groups having their own
management team for each project such that within multi-divisional structure there is sub-
hierarchical organizational structure for each project.
8
2.1.8 Company Products & Brands
From petroleum, polyester to fabric and digital, owns 155 brands and products, Ril has 110
brands and products. There is a partnership with 45 companies.Ril's chemical company is
named Rey lab, which works on Leinier Alkyl Benzene.
Many companies in the country and around the world have come to the back foot due to
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corona virus. Reliance Jio, the country's richest businessman Mukesh Ambani's company,
has shocked everyone by partnering with Facebook. Facebook will invest Rs 43,574 crore
in Mukesh Ambani's Geo. After this investment, Facebook's share in Jio will be 9.99%.
Jio's valuation will be Rs 4.62 lakh crore after the deal. Reliance Industries Limited (RIL)
was launched by Dhirubhai Ambani. Now it’s CEO is Mukesh Ambani. This company has
110 brands and products. There is a partnership with 45 companies. It is working on
petroleum products, polyester products, polyester intermediates, plastics, polymer
intermediates, chemicals, synthetic textiles and fabric products.
Reliance Industries Limited has 11 polymer companies. These companies work on
polypropylene, polyethylene, polyvinyl chloride, high dencity polyethylene, polypropylene
random pipes, poly butadiene rubber, stylish butadiene rubber, butyl and halogenated butyl
rubber and advanced material composites.
The name of the chemical company of Reliance Industries Limited is Relab. It works on
linear alkyl benzene (LAB).
Reliance Industries Limited has 23 polyester companies. Companies such as Rikkorn,
Rikhorn IDY, Rikkorn HHT, Rikcorn Fancy, Rikhorn Superblack, Rikern Super Micro,
Rikhorn Fiberfill, Rikhorn 3s, Rikhorn Feelfresh are involved. These companies work on
frebric, sleep products.
Reliance Industries Limited has 9 petroleum retail companies. These include Reliance Gas,
Reliance Petroleum Retail, Reliance Aviation, Auto LPG, Reliance Trans Connect, Avon
Plaza, Quick Mart, Refresh and Reliance star. These companies are in the power of LPG,
transportation fuel, jet/jet fuel. Works on aviation fuel, auto LPG, highway hospitality
services, food, lubricants.
Reliance Industries Limited has 8 textiles brands. These include companies like Only
Bimal, Nice, H Lewis, Dio 2, Vimil Gifting. These companies work to make products like
fabric, shooting, shirting, garments.
Reliance Industries Limited has 14 retail brands. These include Reliance Fresh, Reliance
Smart, Reliance Market, Reliance Digital, Geo Digital Life, Reliance Rescue, Reliance
Jewels, trends, trends, and others. They work to sail products such as supermarkets,
electronic stores, mobility and communication, jewellery stores.
10
Reliance Industries Limited has 14 in-store brands. These include housing, DNX, John
Player, Net play, Parfomax, Point Cove, LYF, Reconnect, healthy life and others. They
work on denim, fashion, casual, sports, 4g mobile handsets, grocery brands.
Reliance Industries Limited also has 24 digital services. These include Geo connected
intelligence, my geo manager, Geo TV Live, Geo Cinema, Geo Sawan, Geo News, Geo
Chat, Geo Quad, Geo Call, Geo Money and Geo Payments Bank, Geo Browser, Geo
Games, Geo Store, Hello Geo, OTT apps, Geo AIDS, Geo Security, Geo Switch, Geo Net,
Geo Health Hub, GEO GST, Geo Smart Security, Geo Motive, and Geo Home Internet of
Things.
Reliance Industries Limited also has a partnership with Reliance Retail. The partnership
comprises of 45 companies. Most of these companies are brands like fabric, premium
luxury brands, bags and accessories, jewellery, furniture.
2.1.9 Awards and Recognitions of company
 International Refiner of the year in 2017 at Global Refining and Petrochemicals Congress
2017
 International Refiner of the Year in 2013 at the HART Energy's 27th World Refining &
Fuel Conference. This is the second time that RIL has received this Award for its Jamnagar
Refinery, the first being in 2005.
 According to survey conducted by Brand Finance in 2013, Reliance is the second most
valuable brand in India.
 The Brand Trust Report ranked Reliance Industries as the 7th most trusted brand in India in
2013 and 9th in 2014.
 RIL was certified as 'Responsible Care Company' by the American Chemistry Council in
March, 2012.
 RIL was ranked at 25th position across the world, on the basis of sales, in the ICIS Top
100 Chemicals Companies list in 2012.
 RIL was awarded the National Golden Peacock Award 2011 for its contribution in the field
of corporate sustainability.
 In 2009, Boston Consulting Group (BCG) named Reliance Industries as the world's fifth
biggest 'sustainable value creator' in a list of 25 top companies globally in terms of investor
returns over a decade.
 The company was selected as one of the world's 100 best managed companies for the year
2000 by Industry Week magazine.
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 From 1994 to 1997, the company won National Energy Conservation Award in the
petrochemical sector.
2.1.10 Future plan of company:
Reliance Industries Limited aims to become zero net debt company in next 18 months.
Reliance Industries Limited plan to sell a 20% stake in its oil and petrochemicals
business to Saudi Aramco.
Reliance group's pivot towards data and digital services for future growth, as it builds an
online platform to take on the likes of Amazon and Flipkart in India.
On future plans Reliance Industries Limited will take education, health and Agri-
knowledge to the doorsteps of rural India riding on Jio platform.
In the coming months, Jio will extend fiber connectivity to homes, small businesses,
traders and small businesses. Leveraging on its advanced fiber bandwidth network, Jio will
be offering this service in over 1,100 cities and towns across India.
Reliance Industries Limited has attracted significant recent investments from leading
global strategic and financial investors and tech led growth to drive next phase of value
New India.
Reliance Industries Ltd (RIL) is close to buying Future Group’s retail assets for ₹24,000-
27,000 crore to bolster its position in India’s retail segment.
12
(SWOT) analysis:
Strengths Weaknesses
 Promoters increasing shareholding  Inefficient use of shareholder
 Reliance Industries is one of the funds - ROE declining in the
biggest players in India last 2 years
 The company has business spread  Inefficient use of assets to generate
across petrol, energy, retail, telecom profits - ROA declining in the last
etc 2 years
 Expand their presence online; by
 Company reducing Debt
using the internet to interact with
 Strong brand name of Reliance its customers.
Industries
 Excellent financial position and
strong profitability
Opportunity Threats
 Brokers upgraded recommendation  High Competition can reduce
or target price in the past three Reliance Industries' market share
months
 Reliance Industries as it can lose
 Highest Recovery from 52 Week its customers to these new entrants.
Low
 Tie-ups with global oil companies
can boost business for Reliance
Industries
13
Chapter 3
Project introduction:
14
3.1 Introduction
The purpose of this study is to evaluate the fair value of stocks from reliance industries ltd
Ltd by conducting fundamental analysis on the financial performance of the company
period 2015-2019. The aim is to find out if reliance industries ltd is a good investment by
comparing its fair value with the current stock price.
The research is significant since an intrinsic value of a company is one of the key factor in
determining its potential as an investment. It can be served as a reference in valuating
reliance industries ltd stocks and a benchmark to compare with results from other
researches. An industry analysis of petrochemical, textile, retail and telecommunication
conducted in this paper will provide an overview and expected outlook of the industry.
Together they help assisting the investors in making decision regarding investing in the
industry, in general or the company, in specific. Furthermore, the research can be
considered as a guide line of stock valuation, more specifically, using DCF method for
readers who take an interest in equity investment.
The research question involved in this study is:

Is reliance industries ltd undervalued, overvalued or true to value at the current stock price
(March 31st, 2019)?
The sub-research questions are subject to be answered through the study:

• What is the future outlook of reliance industries ltd ?
• How will the company perform in the next 5 years?
• How much is the cost of capital (WACC) of the company?
• What is the fair value of reliance industries ltd Ltd?
15
3.2 Objective of project
1. To study the equity and obtain the knowledge of equity market.
2. To study fundamental analysis of equity using historical financial statement and predict the
future outlook of the company perform in the next 5 years.
3. To study weighted average cost of capital of the company and terminal growth.
4. To study discounted cash flow method and find out fair value of reliance industries ltd
Ltd.
5. To study right issue of reliance industries ltd (what why for whom) and suggest whether to
buy right issue or not. Benefits of right issues to shareholder and company.
16
CHAPTER 4
LITERATURE REVIEW
17
1. John Wiley “Financial Modeling and Valuation” Wiley Finance series contains
books, United States
This book sets out to give any investor the fundamental tools to help determine if a
stock investment is a rational one; if a stock price is undervalued, overvalued, or
appropriately valued. These fundamental tools are used by investment banks, private
equity firms, and Wall Street analysts.
2 .Eric Lilford, Bryan Maybee, Dan Packey “Cost of capital and discount rates in
cash flow valuations for resources projects” Minerals and Energy Economics,
WASM: Minerals, Energy and Chemical Engineering, Curtin University, 78
Murray Street, Perth, WA, 6000, Australia|12 july 2018
The aim of this study is use of discounted cash flow valuation methodology calculating
the net present value, and derivatives of this methodology, rely on the use of discount
rates to arrive at a value. Generally, a single discount rate is used over the life of the
resources project. Where discounting factors using more than one discount rate are
used, these factors seldom incorporate the impacts of changing debt to equity ratios,
increasing capitalization of projects, equity returns trending towards the risk free rate
and finally a defendable premium incorporated to reflect technical risk.
This paper provides a discussion and solutions to these issues and gives the reader
simple yet defendable tools to reconsider what, why and how discount rates should be
used.
3 .Dr.Madhavi Dhole “Review paper on Fundamental and Technical Analysis”

Associate Professor, SIES College of Management Studies Navi Mumbai,
Maharashtra, India (Elixir International Journal).|publish 2 February 2017
The objective of this paper is used Fundamental analysis in stock selection for equity
portfolio management. To find out the intrinsic value on the basis of fundamentals and
compares value with the current market price to determine if the security is underpriced
or overpriced fundamental analysis is done.
Fundamental analysis is the test of the crucial forces that affect the welfare of the
economy, corporates and different sectors. To forecast future stock prices, fundamental
analysis combines economic, industry, and company analysis to obtain a stock‘s fair
18
value called intrinsic value.

An investor who would like to be balanced and scientific in his investment decision has
to evaluate a lot of data about the past performance and the expected future
performance of companies, industries and the economy as a whole before taking
investment decision.
4. Ivanovska, Nadica & Ivanovski, Zoran & Narasanov, Zoran. (2014).

“Fundamental Analysis and Discounted Free Cash Flow Valuation of Stocks at
Macedonian Stock Exchange”. UTMS Journal of Economics. Volume 5.| publish
June 2014
The aim of this paper is the valuation performance of Discounted Free Cash Flow
Model (DFCF) at the Macedonian Stock Exchange (MSE) in order to determine if this
model offer significant level of accuracy and relevancy for stock values determination.
We find that stock values calculated with DCF model are very a close to average
market price which suggests that market prices oscillate near their fundamental values.
We can conclude that DFCF models are useful tools for the companies’ enterprise
values calculation on long term.
The analysis of our results derived from stock valuation with DFCF model as well as
comparison with average market stock prices suggest that discounted cash flow model
is relatively reliable valuation tool that have to be used for stocks analyses.
5.Snel, amay Bllattacharyya Associate Professor, “Intrinsic Value of Share: A

Conceptual Discussion” Department of Commerce University of Calcutta, Kolkata
|publish 2013
The objective of paper is fundamental analysis by its users (investors/analysts).
Whether a security is riced or not depends on the relative position of market price and
intrinsic value. Whereas the market price 1s dependent on the forces of demand and
supply operating in the securities market, intrinsic value is dependent on the
infonnation available to its user concerned. Success of fundamental analysis is thus
dependent on the reliability of the intrinsic value. The present article is an exempt to
provide an insight into the intrinsic value-its meaning, need, origin, drivers,
components and models for computations followed by a critical analysis of the same.
19
6. Tero J. Haahtela Sixth International Conference on Sensitivity Analysis of

Model Output Regression “sensitivity analysis for cash flow simulation based real
option valuation” BIT Research Centre, Aalto University, Otaniementie 17, 02150
Espoo, Finland |publish 17 may 2010
This paper attempts to carry out study of Sensitivity analysis on financial options
considers how the solution changes because of a change in one of the key parameters
(underlying asset value, volatility, exercise price, interest rate, time to maturity,
dividends). In case of real option valuation with cash flow simulation, however, these
are mostly indirect variables which are computed based on the uncertain direct
variables – e.g. demand, unit selling price, and unit costs - in the cash flow calculation.
The method presented detects the most significant primary variables, and based on this
analysis, shows how changes in the direct uncertainties can be used to estimate with the
response surface method the simultaneous changes in the indirect parameters defining
the underlying asset process and thus the real option value.
7. L. Peter Jennergren “Continuing value in firm valuation by the discounted cash

flow model” Stockholm School of Economics, Box 6501, SE-11383 Stockholm,
Sweden European Journal of Operational Research| 4 October 2006
The purpose of this paper is to examine the finer structure of the continuing value
formula in the discounted cash flow model. It is clear from the definition of annual free
cash flow from operations that several components are included. Two of those
components, capital expenditures and tax savings due to depreciation of property, plant
and equipment (PPE), are emphasized, since they are somewhat complex. One reason
for this complexity is that capital expenditures may be lumpy, so one needs to be clear
about the meaning of steady-state development of free cash flow in the post-horizon
period. Another reason is a need for precision in relating steady-state capital
expenditures and associated tax effects to more basic parameters such as assumed real
growth of the firm, inflation, and equipment economic life. The emphasis on capital
expenditures and tax savings from depreciation appears to be novel. For instance, this
paper is rather different from the discussion of continuing value in the discounted cash
flow model by Copeland et al.
20
CHAPTER-5
RESEARCH METHODOLOGY
21
5.1 Data collection source

During my project, I collected data through secondary sources. Secondary source
includes:-
1) Annual reports of the company
2) Books related to financial modeling
3) The internet, company websites were used as the vital information source.
4) Financial websites such as screener, money control
5.2 Statistical tools

The focus of this study is to estimate the company’s weighted cost of capital (WACC) and
estimate the fair value of reliance industries ltd. therefore the method for stock valuation is
the discounted cash flow (DCF) method and to estimate the company’s WACC, we use the
capital asset pricing model (CAPM).
5.2.1 Discounted cash flow (DCF) method

Discounted cash flow (DCF) is a valuation method used to estimate the value of an
investment based on its future cash flows. DCF analysis attempts to figure out the value of
an investment today, based on projections of how much money it will generate in
the future. This applies to both financial investments for investors and for business owners
looking to make changes to their businesses, such as purchasing new equipment.
The purpose of DCF analysis is to estimate the money an investor would receive from an
investment, adjusted for the time value of money.
Formula to calculate company absolute value using dcf method is:
‘FCF1’ stands for free cash flow in year ‘n’

‘r’ stands for the discount rate at which this cash flow are discounted to arrive at present
value
‘n’ is the number of years for which a company is expected to be operational
22
Step by step method to arrive at dcf valuation

Step1: Reorganizing the company historical financial statement
Step2: Building forecasts
Step3: Calculating weighted average cost of capital
Step4: Estimating continuing value (terminal value) and calculating the dcf value
Step5: Sensitivity analysis
Step6: Adjusting to dcf value to arrive at equity value
DCF valuation is that it allows the free cash flows that occur in all future years to be
valued giving the 'true' or 'intrinsic' value of the business.
5.2.2 Financial model

For the FCFF valuation, a financial model is built based on data from financial statements
of the company. The models can be divided into three main parts: Input, Breakdown, and
Forecast
The input section is primarily a replication of the financial statements in the chosen
period.
The breakdown section picks the vital elements from the financial statements: Sales
revenue, Working Capital, Depreciation schedule, and Interest-bearing Liabilities; and
investigates even further to forecast their changes in the future.
Forecast section represents the company’s financial statements in the coming periods, in
this case, from 2016to 2020 and from 2021 forward.
A financial model is simply a tool that’s built in Excel to forecast a business’ financial
performance into the future. The forecast is typically based on the company’s historical
performance, assumptions about the future, and requires preparing an income statement,
balance sheet, cash flow statement and supporting schedules (known as a 3 statement
model).
Microsoft Excel is used to build the financial model.
23
5.2.3 Capital asset pricing model (CAPM)

To estimate the company’s WACC, the capital asset pricing model (CAPM) is employee.
Relevant information from past researches will be gathered together to draw the consensus
view. Based on the industry analysis as well as the data obtained from company annual
reports, then make assumptions and forecasts of the future performance of the company.
In addition, there will be calculations using statistical and financial mathematics to

estimate the fair value of the company. The value per share is then derived from the
company’s value and is put into comparison with the market value on March 31st, 2019,
when the valuation is started.
The result will be interpreted as one of three following scenarios:
(1) The company is undervalued if its fair value is higher than its market value.
(2) The company is overvalued if its fair value is lower than its market value.
(3) The company is fairly valued if it’s fair value equals to its market value.
5.3 Scope of Study

 The goal of valuation of reliance industries using DCF model is to give owners, potential
buyers and other interested stakeholders an approximate value of what a company is worth.
 By helping to understand whether company is overvalued or undervalued.
 The company valuation using discounted cash flows is a valid method to assess the
company’s value if special precaution is put on the validity of the underlying assumptions.
 As with all other financial models, the validity of the DCF method almost completely
depends on the quality and validity of the data that is used as input.
 If used wisely, the discounted cash flow valuation is a powerful tool to evaluate the
values of a variety of assets and also to analyze the effects that different economic
scenarios have on a company’s value.
24
5.3 Limitations of the study:

 This study has been conducted purely to understand equity analysis for investors.
 The study is restricted to only one companies based on Fundamental Analysis.
 Detailed study of the topic was not possible due to limited size of the project.
 Suggestions and conclusions are based on the data of five years.
 The method for stock valuation in this research is restricted to Discounted Cash Flow
(DCF) only, which is most common and widely used among analyst society.
25
CHAPTER 6
DATA ANALYSIS
26
6.1 Data analysis with absolute valuation

6.1.1 Reorganizing the company historical financial statement
A summary of the historic Income Statements and Balance Sheet for reliance industries ltd
is presented in the following section.
Table no 6.1.1: Summary Historical Income Statements
Chart no 6.1.1: Summary Historical Income Statements

Interpretation:
 From the above data we can say that the Revenue of company decreased last year
(FY2020) by almost 35%. And consistent growth in EBIT and EBITDA-margins and PAT
growth.
27
 Summary of Historical Balance Sheets
Table no 6.1.2: Summary of Historical Balance Sheets

28
Chart no 6.1.2: Summary of Historical Balance Sheets
Interpretation
From above chart we can say that the value of shareholder’s total equity is growing yoy
than total debt (long term and short term debt)
29
6.1.2 Step 2: building forecasts financial statement

A summary of the forecasted financial statement that is Income Statements, Balance Sheet,
and Cash Flows for reliance industries ltd is presented in the following section.
 Summary of forecasted Income Statements
Table no 6.1.3: Summary of forecasted Income Statements
Chart no 6.1.3: Forecasting operating expenses
30
Interpretation
Above graph we can see that our revenue grew by average growth around 5% so we have
assumed 5% growth. Similarly Employees benefit expenses grew by the average
percentage is 2%. Other expenses grew by average percentage is 12%.depreciation and
amortization grew by average percentage is 4%. So here we have assumed average growth
rate for FY 2021 to 2025.
Above table we can see that in historical year Excise duty on sales of goods is used that but
after implementation of GST. This excise duty is not there anymore that why it is not
modeling here. Similarly we are not modeling tax here because it will be the marginal tax
rate in India and it’s around 25% that’s why we have assumed 25% tax rate for FY 2021 to
2025.
 Summary of forecasted Balance Sheets
Table no 6.1.4: Summary of forecasted Balance Sheets
31
Chart no 6.1.4: capex
Chart no 6.1.5: Forecasting balance sheet
Interpretation
In above graph we can see the CCC of the company from which we can conclude that
company rarely needs money In term of working capital to management however at the
historical records they require is declined drastically moving to highest (47.1) to (8.9) In
last year its indicate that bad health. In other way its consider to be good however given
that this company have negative working capital this indicates that probably the distributor
paying them In advance before that money gets inverted In inventory.
32
In above graph number 1is capex it can clearly see that reliance industries ltd spend 1,
59,505 cr to buy property and equipment in the financial year 2020.this is the investment of
the company and by our analysis capex is decreased.
 Summary free cash flow Statements/ net free cash flow Statements:
Table no 6.1.5: Summary free cash flow Statements
Chart no 6.1.6: Forecasting balance sheet
Interpretation
FCF trends that are very different compared sales trends indicate a higher likelihood of
negative price performance in the future. Based on these trends, an investor would be on
alert that something may not be going well with the company
33
6.1.3 Calculating weighted average cost of capital as discount rate
The following tables provide a summary of reliance cost of capital
Table no 6.1.6: Cost of capital
Interpretation
Above table we can see reliance industries weighted average cost of capital is 9.1% and
Equity beta value is 0.86< 1 which indicates the company Asset is less volatile (relative to
the market).
34
6.1.4 Estimating Continuing Value (Terminal Value) and DCF Value
The following tables provide a summary of reliance industries ltd estimating continuing
value (terminal value)
Table no 6.1.7: Value calculation
Chart no 6.1.7: Estimated Value
Interpretation
From above chart clearly shows that continuing value of the company is 12, 77,536 and
enterprise value is 9, 62,498 and the terminal market growth is assuming around 5.9%. So
the market accepts 5.9% growth from the company.
35
6.1.5 Sensitivity Analysis

The following tables provide a summary of reliance industries ltd sensitivity analysis
between growth rate and WACC
Table no 6.1.8: Sensitivity analysis
Interpretation
Above data table shows the sensitivity of the number of the company for example here
assume 5.9% growth rate and 9.1 WACC is around 9,92,043 is the value of company .
Assume 4% growth rate and 9.1 WACC is around 6, 47,038 is goal there .this indicate
how the sensitivity of number are to the assumption of WACC and growth.
36
6.1.6: Adjusting To Dcf Value to Arrive At Equity Value

The following tables provide a reliance industries ltd equity fair value
Table no 6.1.9: DCF calculation
37
Chart no 6.1.8: DCF calculation
Interpretation
In Above graph we can see the market value is RS 1410 and the right issue share price of
company which is released o 20/05/2020 is RS 1257.according to intrinsic valuation
stock should be actually be valued at RS 1629.
38
6.2 Data analysis with relative valuation

The following tables provide a reliance industries ltd equity fair value
Table no 6.1.10: Comparison of PE ratio with competitor
Chart no 6.1.9: Comparison of PE ratio with competitor

39
Chart no 6.1.10: Comparison of 5 years PE ratio of reliance industries ltd
Interpretation
In Above chart 6.1.9 if we compare company PE ratio with competitor we can see that
reliance industries ltd PE ratio is expensive
In Above chart 6.1.10 we can see that price to earnings ratio of reliance industries ltd has
been increasing which basically indicate that market is to continuous turning more
conscious about its future growth.
40
Chapter-7
Findings & Conclusions
41
7.1 Finding
 By fundamental analysis of using historical financial statement we found that revenue

grew by average growth around 5%.and profit after tax grew by 7%.
 The Cash conversion cycle of the company is (8.9) days. Means company will be taking
(8.9) days to covert inventory into cash.
 Weighted average cost of capital of the reliance industries ltd is 9.1%.it is the cost of
capital that a company uses to its finance for operating its business and Equity beta value
is 0.86.
 Number of the shares (Shares outstanding) of reliance industries ltd currently held by
all its shareholders is 6,76,20,37,609. And share price of the company on valuation date
20/05/2020 is RS 1410. Market capitalization of the company is RS 9, 53,442.
 Total amount of a company's liabilities (debt) of the reliance industries ltd is
Rs29, 51,417.
 The terminal value (also “continuing value” or “horizon value”) of a security is
the present value at a future point in time of all future cash flows is 12, 77,536 and
enterprise value is 9, 62,498 by expect stable growth rate 5.9%.
 Reliance industries ltd market value is 1410 and the right issue share price of company
which is released o 20/05/2020 is 1257.according to intrinsic valuation stock should be
actually be valued at 1629.

42
7.2 Conclusion
 With the research I conclude that Reliance Industries is looking strong by fundamentally in
future it is entering in to new business, merger with other company so this is also good
option for the investors to invest their money for long term as well as can get the good
returns.
 The valuation was limited to applying only to public equity, employing only DCF method
using FCFF model with historical data obtained from reliance industries ltd annual reports
from 2015 to 2020, and investment potential is determined solely on estimated value per
share.
 Within the limitations, the author found the estimated value per share was RS1629,
which was higher than the market price of RS 1410 on March 31st, 2020. And the right
issue price of Rs1257 on may20th 2020.when the right issues released Price to earnings
ratio of reliance industries ltd has been increasing which basically indicate that market is
to continuous turning more conscious about its future growth.
 Hence, the conclusion was that reliance industries ltd was undervalued and investing in
the company would be profitable.
43
Chapter8
Suggestions
 The estimated value of reliance industries ltd share indicated that it was undervalued at the
market price of Rs 1410. In other words, according to the valuation conducted above, the
author expected that reliance industries ltd share worth approximately Rs 1629 and that in the
near future, probably in one year; its price would increase to its fair value. Therefore, if
considering only the fundamental valuation, it is suggested that investing in the company, at
market share price of RS 1410, will be profitable.
 And the estimated value of reliance industries ltd share indicated that it was undervalued at
the right issue of Rs 1257. It is suggested that investing in the company by right issue, at
market share price of RS 1410, also it will be profitable
 The investment theory suggests to buy or hold a stock if it is undervalued and not to buy or
sell it if it is overvalued. As per our valuation the stock price is undervalued it suggests that
buy or hold the stock and buy the right issue.
44
Chapter 9
Personal Learning beyond project
 With the help of project I concluded that fundamental analysis are playing very important
role in the share market. I came to know that in the process of equity analysis of reliance
industries ltd two weapons are playing a vital role i.e. Fundamental Analysis and Technical
Analysis
 The concept of Fundamental Analysis studies the performance of reliance industries ltd.
With the help of Fundamental Analysis can know the past performance of the companies.
Fundamental Analysis considers the long-term performance of companies and this helps the
investors to invest their money for long term as well as can get the good returns. Lot of
investors is investing their money in the companies. And this is the reason that the volume
of reliance industries ltd companies is high.
 The study of technical as well as fundamental analysis can give detail information about the
well running companies in the market. Before investing in any company one should study
these two concepts.
 During my desk research I learned about DCF valuation process is a fundamental approach
to support making investment decision. By comparing the estimated value of an investment
to its market value or market price, one can determine to invest or not. The interpretation of
estimated intrinsic value of an investment for making investment decision.
45
Bibliography
Books
 John Wiley “Financial Modeling and Valuation” Wiley Finance series contains books,
United States, pp386 to 393.
Journals /Magazines
 Dr.Madhavi Dhole “Review paper on Fundamental and Technical Analysis” Associate

Professor, SIES College of Management Studies Navi Mumbai, Maharashtra, India
(Elixir International Journal).
 Ivanovska, Nadica & Ivanovski, Zoran & Narasanov, Zoran. (2014). “Fundamental
Analysis and Discounted Free Cash Flow Valuation of Stocks at Macedonian Stock
Exchange”. UTMS Journal of Economics.
 L. Peter Jennergren “Continuing value in firm valuation by the discounted cash flow
model” Stockholm School of Economics, Box 6501, SE-11383 Stockholm, Sweden
European Journal of Operational Research.
Internet sites
 https://www.screener.in/company/RELIANCE/consolidated/
 https://www.moneycontrol.com/india/stockpricequote/refineries/relianceindustries/RI
 https://www.valueresearchonline.com/stocks/3252/reliance-industries-
ltd?utm_source=directclick&utm_medium=stocks&utm_term=&utm_content=Reliance
+Industries&utm_campaign=vro-search#ownership
46
APPENDICES
Appendix 1. Finnish 10-year bond monthly yield & monthly closing price of reliance
industries ltd All-share from 01/08/2015 to 01/07/2020.
Reliance Reliance
Share monthly
Date price NSE500 return NSE500
01-08-2015 832.31 6,669.35
01-09-2015 412.87 6,646.10 -50% 0%
01-10-2015 453.76 6,750.95 10% 2%
01-11-2015 463.05 6,686.10 2% -1%
01-12-2015 485.80 6,724.75 5% 1%
01-01-2016 495.76 6,339.45 2% -6%
01-02-2016 462.84 5,829.95 -7% -8%
01-03-2016 500.45 6,452.15 8% 11%
01-04-2016 480.40 6,588.55 -4% 2%
01-05-2016 468.25 6,804.00 -3% 3%
01-06-2016 473.77 6,980.80 1% 3%
01-07-2016 496.14 7,330.00 5% 5%
01-08-2016 518.18 7,490.65 4% 2%
01-09-2016 529.77 7,394.85 2% -1%
01-10-2016 515.72 7,501.45 -3% 1%
01-11-2016 483.99 7,079.40 -6% -6%
01-12-2016 1004.30 6,982.80 108% -1%
01-01-2017 510.95 7,379.30 -49% 6%
01-02-2017 605.22 7,709.10 18% 4%
01-03-2017 645.73 7,995.05 7% 4%
01-04-2017 682.05 8,214.30 6% 3%
01-05-2017 655.41 8,350.95 -4% 2%
01-06-2017 674.62 8,331.60 3% 0%
01-07-2017 789.60 8,793.30 17% 6%
47
01-08-2017 785.14 8,694.95 -1% -1%

01-09-2017 769.04 8,600.00 -2% -1%
01-10-2017 926.56 9,153.60 20% 6%
01-11-2017 907.55 9,154.50 -2% 0%
01-12-2017 907.06 9,490.65 0% 4%
01-01-2018 946.70 9,697.90 4% 2%
01-02-2018 940.05 9,261.90 -1% -4%
01-03-2018 869.29 8,912.10 -8% -4%
01-04-2018 948.67 9,496.50 9% 7%
01-05-2018 907.35 9,315.35 -4% -2%
01-06-2018 957.68 9,162.45 6% -2%
01-07-2018 1175.12 9,650.60 23% 5%
01-08-2018 1230.26 9,992.00 5% 4%
01-09-2018 1246.41 9,116.00 1% -9%
01-10-2018 1051.51 8,753.45 -16% -4%
01-11-2018 1156.84 9,109.15 10% 4%
01-12-2018 1110.96 9,170.00 -4% 1%
01-01-2019 1215.89 9,003.85 9% -2%
01-02-2019 1219.75 8,955.95 0% -1%
01-03-2019 1350.74 9,663.70 11% 8%
01-04-2019 1380.02 9,664.30 2% 0%
01-05-2019 1317.94 9,805.05 -4% 1%
01-06-2019 1241.60 9,657.95 -6% -2%
01-07-2019 1155.55 9,044.95 -7% -6%
01-08-2019 1237.09 8,977.55 7% -1%
01-09-2019 1327.27 9,340.90 7% 4%
01-10-2019 1458.87 9,689.65 10% 4%
01-11-2019 1545.35 9,813.65 6% 1%
01-12-2019 1508.39 9,872.55 -2% 1%
01-01-2020 1406.37 9,861.45 -7% 0%
01-02-2020 1323.68 9,236.05 -6% -6%
01-03-2020 1109.58 6,749.20 -16% -27%
01-04-2020 1446.80 7,395.85 30% 10%
01-05-2020 1570.90 7,822.40 9% 6%
01-06-2020 1697.73 8,474.80 8% 8%
01-07-2020 2148.13 9,035.75 27% 7%
Equity beta 0.86
48
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A Summer Internship Project Report on

“Fundamental Analysis of equity”

“Reliance Industries Ltd”

“Kanchan Arjun Jadhav”

Under the guidance of

“Dr Rajendra Chaudhari”

“Savitribai Phule Pune University”

In partial fulfillment of the requirement for the award of the degree of

Master of Business Administration

JSPM NTC Rajshri Shahu School of Business Studies

CAGR Compounded annual growth rate

SR.NO. TABLE NAME PAGE NO.

SR.NO. FIGURE NAME PAGE NO.

SR.NO. CHART NAME PAGE NO.

1.0 Executive summary 1

3.2 objective of project 16

4.1 LITERATURE REVIEW 17

5.0 RESEARCH METHODOLOGY 21

5.1 Data collection source 22

5.2 Statistical tools 22

5.3 Scope of project 24

5.4 Limitation of project 25

6.1 Data valuation with absolute valuation 26-38

6.2 Data valuation with relative valuation 39-40

9.0 Personal Learning beyond project 44

2.1 Industry Overview

In simple terms, conglomerate is a combination of two or more corporations in a single

2.2 Company Profile

Fig2.1: business model

2.1.1 Head office

Reliance Industries Limited (RIL) is an Indian multinational conglomerate company

2.1.3 Company Mission

2.1.4 Shareholding pattern:-

Mumbai (HQ)India Ahmedabad India

2.1.6 Organization hierarchy

Prof. Dipak C. Jain Independent Director

Mrs. Arundhati Bhattacharya Independent Director

Mr.Alok Agarwal Chief Financial Officer

Mr.K Sethuraman Group Co. Secretary & Compliance Officer

2.1.8 Company Products & Brands

2.1.9 Awards and Recognitions of company

2.1.10 Future plan of company:

The research question involved in this study is:

The sub-research questions are subject to be answered through the study:

3.2 Objective of project

1. To study the equity and obtain the knowledge of equity market.

3 .Dr.Madhavi Dhole “Review paper on Fundamental and Technical Analysis”

value called intrinsic value.

4. Ivanovska, Nadica & Ivanovski, Zoran & Narasanov, Zoran. (2014).

5.Snel, amay Bllattacharyya Associate Professor, “Intrinsic Value of Share: A

6. Tero J. Haahtela Sixth International Conference on Sensitivity Analysis of

7. L. Peter Jennergren “Continuing value in firm valuation by the discounted cash

5.1 Data collection source

5.2 Statistical tools

5.2.1 Discounted cash flow (DCF) method

Formula to calculate company absolute value using dcf method is:

‘FCF1’ stands for free cash flow in year ‘n’

Step by step method to arrive at dcf valuation

5.2.2 Financial model