I NDIAN I NSTITUTE OF F OREIGN T RADE F INANCIAL M ANAGEMENT EPGDIB 2011-13

Beta Analysis of SRF Limited

A multi-business entity
SUBMITTED BY: G ROUP 10 AJAY GUPTA (ROLL NO 05), HARSH GOEL (ROLL NO 30) KUNAL VERMA (ROLL NO 37), SURESH MEHRA (ROLL NO 69)

Introduction SRF Limited is a multi-business entity engaged in the manufacture of Chemical based industrial intermediates. The Company operates in three business segments: technical textiles business (TTB), chemicals and polymers business (CPB) and packaging films business (PFB). TTB includes nylon tire cord fabric, belting fabric, coated fabric, laminated fabric, polyester tire cord fabric and industrial yarns and its research and development. CPB includes refrigerant gases, chloromethanes, pharmaceuticals, Certified Emissions Reductions & Allied products, Engineering Plastics business and its research and development. PFB includes Polyester Films. The Companys product nylon tyrecord fabric (NTCF) is used in bias tyres of all categories from tyres for buses and trucks to tyres for cycles. The Companys portfolio of refrigerants includes hydrochlorofluorocarbon-22 (HCFC 22), the new-generation refrigerant hydrofluorocarbon-134a (HFC-134a), and the refrigerant blend R404a. The companys recent forays into international business include acquisitions in South Africa & Thailand.

Beta Beta is a measure of a stock's volatility in relation to the market. By definition, the market has a beta of 1.0, and individual stocks are ranked according to how much they deviate from the market. A stock that swings more than the market over time has a beta above 1.0. If a stock moves less than the market, the stock's beta is less than 1.0. Highbeta stocks are supposed to be riskier but provide a potential for higher returns; low-beta stocks pose less risk but also lower returns.

Beta measures systematic risk which is the risk inherent in the whole financial system. Beta coefficient is an important input in capital asset pricing model to calculate required rate of return on a stock.

Beta coefficient is covariance of a stock's return with market returns divided by variance of market return. A slight modification helps in building another key relationship which tells that beta coefficient equals correlation coefficient multiplied by standard deviation of stock returns divided by standard deviation of market returns. Beta coefficient is given by the following formulas:

Extreme and interesting cases Beta has no upper or lower bound, and betas as large as 3 or 4 will occur with highly volatile stocks. Beta can be zero. Some zero-beta assets are risk-free, such as treasury bonds and cash. However, simply because a beta is zero does not mean that it is risk-free. A beta can be zero simply because the correlation between that item's returns and the market's returns is zero. An example would be betting on horse racing. The correlation with the market will be zero, but it is certainly not a risk-free endeavor. A negative beta simply means that the stock is inversely correlated with the market.

Stock Evaluation The stock price movement of the company on NSE was analyzed over the years.

The movement of the same stock was also analysed vis--vis the benchmark NSE index to look at the Beta trend.

Data Example
Date Stock Benchmark (NSE) % change- % change- Bnchmrk Beta Stk 9/7/2012 216 5342.1 0.93% 1.98% 0.27 7/31/2012 204.95 5229 1.21% 2.53% 0.49 6/29/2012 207.65 5278.9 0.85% 2.52% 0.07 5/31/2012 209.1 4924.25 -1.83% -0.54% 0.50 4/30/2012 231.9 5248.15 -2.97% 1.11% 0.27 3/30/2012 251.9 5295.55 1.86% 2.25% 0.44 2/29/2012 267 5385.2 0.28% 0.18% 0.57 2/1/2012 262.09 5235.7 0.19% 0.70% 0.49 12/30/2011 249.4 4624.3 6.91% -0.47% 0.49 12/2/2011 287.32 5050.15 -0.22% 2.29% 0.24 11/1/2011 294.73 5257.95 1.08% -1.29% 0.21 10/3/2011 284.06 4849.5 -0.47% -1.90% 0.18 9/2/2011 287.78 5040 0.67% 0.78% 0.10 8/3/2011 298.45 5404.8 0.39% -0.95% 0.00 7/5/2011 294.68 5632.1 0.08% -0.33% 0.84 6/8/2011 291.02 5526.85 -0.84% -0.53% 0.01 5/10/2011 305.88 5541.25 -0.63% -0.18% 0.15 4/8/2011 329.32 5842 0.46% -0.74% 0.40 3/10/2011 289.68 5494.4 -2.28% -0.66% 0.20 2/10/2011 270.46 5225.8 1.75% -0.53% 0.35 1/11/2011 314.29 5754.1 1.58% -0.15% 0.78 12/14/2010 303.1 5944.1 -4.53% 0.62% 0.52 11/12/2010 361.07 6071.65 -0.73% -1.98% 0.82 10/18/2010 338.44 6075.95 5.51% 0.22% 0.27 9/17/2010 260.44 5884.95 1.34% 0.97% 0.46 8/20/2010 245.77 5530.65 -3.60% -0.17% 0.55 7/22/2010 220.18 5441.95 -3.81% 0.79% 0.85 6/25/2010 223.39 5269.05 1.94% -0.97% 0.01 5/27/2010 206.06 5003.1 1.88% 1.74% 0.05 4/30/2010 208.9 5278 5.29% 0.45% 0.42 3/30/2010 175.36 5262.45 1.65% -0.76% 0.32

Conclusion What is clear is that since its overseas acquisitions in 2008, the Beta of the company has come down. The investor risk perception has improved because of diversified markets of the company. The difference in pre-2005 and post-2008 scenario is that of low and high expected returns, respectively. The company is an Indian entity operating in Chemicals industry, with customers in Pharmaceuticals and Food industry. Both Pharmaceuticals and Chemicals have an established industry scenario in India. This fact and the Beta trend indicate a steady increase in the returns and with diversified risk portfolio, the stock can be hailed a good investment.