7/30/2019 Value Stock vs Growth Stock

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Value Stock

vsGrowth Stock

Investment Management

Group Assignment

Group 6Bishal Sarraf Omkar PandeySuresh Kandel

7/30/2019 Value Stock vs Growth Stock

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Identification of Value and/or Growth Stock

In our investment simulation project, we have invested Rs. 1 million in different Nepalese (80%)

and Indian (20%) stocks. For identifying if these stocks are value or growth stock, we have taken

Price to Earning (P/E) ratio, Price to Book (P/B) ratio, and Return on Equity (ROE). P/E ratioand ROE of a company is compared with its related industry average.

Closing price for all the stocks is taken as of 20 th November, 2012. Most of the data for Nepalese

stocks of commercial bank has been extracted from unaudited financial report of fourth quarter

as on 31/03/2069 of the fiscal year 2068/69. Similarly, the data for the stocks of hydropower has

been taken from unaudited financial report of first quarter of the fiscal year 2069/70. However,

recent information of Chilime Hydropower was not available. So, the data from unaudited

financial report of fourth quarter of the fiscal year 2068/69 is considered. In the case of Indian

stocks, all the data are taken from websites of Reuters.

The industry average P/E ratio and ROE for commercial banks are taken as average of 23 and 29

commercial banks respectively. For hydropower, the industry average has been taken from three

major players of the market namely, Arun Valley Hydropower, Butwal Power, and Chilime

Hydropower.

Nepalese Stocks

1. Arun Valley Hydropower Dev. Co. Ltd.

Closing Price = Rs. 348 per share

Net Worth per Share = Rs 148.59

Price to Earning (P/E) Ratio = 17.49 times

Industry Average P/E Ratio = 24.33 times

Price to Book (P/B) Ratio = Market price/Net worth = 348/148.59 = 2.34 times

P/B ratio is greater than 1, but P/Eratio is less than industry average.We consider this as a growth stock because, it is undertaking projectlike Kabeli which has huge growthprospect.

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2. Bank of Kathmandu

Closing Price = Rs. 657 per share

P/E Ratio = 16.58 times

Industry Average P/E Ratio = 18.66 times

Net Worth per Share = 189.68

P/B Ratio = 3.31 times

Return on Equity (ROE) = 19.97%

Industry Average ROE = 11.54%

3. Butwal Power Co. Ltd.

Closing Price = Rs. 835 per share

P/E Ratio = 42.43 times

Industry Average P/E Ratio = 24.33

Net Worth per Share = Rs. 300

P/B Ratio = 2.7833 times

4. Chilime Hydropower Co.

Closing Price = Rs. 1172 per share

EPS = Rs. 69.39

P/E Ratio = 13.11 times

Industry Average P/E Ratio = 24.33 times

Net Worth per Share = 393.59

Since P/B ratio is greaterthan 1 and ROE is higherthan industry average, itis growth stock.

Since P/E ratio is higherthan industry averageand P/B ratio is greaterthan 1, it is growth stock.

Since P/B ratio is greater than 1 andcompany has been retaining significantamount of money for the future expenseof project, we can consider this as agrowth investment. In addition, it isundertaking some good hydro project inupcoming days.

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P/B Ratio = 2.98 times

5. Himalayan Bank Ltd.

Closing Price = Rs. 900 per share

P/E Ratio = 14.89 times

Industry Average P/E Ratio = 18.66 times

Net Worth per Share = Rs. 210.33

P/B Ratio = 4.29 times

Return on Equity (ROE) = 20.85%

Industry Average ROE = 11.54%

6. Nabil Bank Ltd.

Closing Price = Rs. 1,550 per share

P/E Ratio = 15.97 times

Industry Average P/E Ratio = 18.66 times

Net Worth per Share = Rs. 310.09

P/B Ratio = 4.37 times

Return on Equity (ROE) = 27.36%

Industry Average ROE = 11.54%

7. Prime Commercial Bank Ltd.

Closing Price = Rs. 286 per share

P/E Ratio = 15.72 times

Since P/B ratio is greaterthan 1 and ROE is higherthan industry average, itis growth stock.

Since P/B ratio is greaterthan 1 and ROE is higherthan industry average, itis growth stock.

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Industry Average P/E Ratio = 18.66 times

Net Worth per Share = Rs. 125.86

P/B Ratio = 2.27 times

Return on Equity (ROE) = 11.98%

Industry Average ROE = 11.54%

8. Prime Life Insurance Company Ltd.

Closing Price = Rs. 300 per share

Net Worth per Share = Rs. 162.18

P/B Ratio = 1.85 times

9. Sanima Bank Ltd.

Closing Price = Rs. 231 per share

P/E Ratio = 37.49 times

Industry Average P/E Ratio = 18.66 times

Net Worth per Share = Rs. 111.10

P/B Ratio = 2.08 times

Return on Equity (ROE) = 5.40%

Industry Average ROE = 11.54%

10. Standard Chartered Bank Ltd.

Closing Price = Rs. 2,040 per share

P/E Ratio = 24.78 times

Since P/B ratio is greaterthan 1 and ROE is higherthan industry average, itis growth stock.

Since P/B ratio is greater

than 1, it is growth stock.

Since P/B ratio is greaterthan 1 and P/E ratio ishigher than industryaverage, it is growth stock.

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Industry Average P/E Ratio = 18.66 times

Net Worth per Share = Rs. 301.01

P/B Ratio = 5.98 times

Return on Equity (ROE) = 24.12%

Industry Average ROE = 11.54%

Indian Stocks

1. Reliance Industries Ltd.

Closing Price = Rs. 766.5 per share (INR)

Dividend per share = Rs. 8.50

Growth rate of dividend = 9.10%

Required rate of return (Industry average of return on investment) = 10.52%

Intrinsic Value of Stock (assuming same growth will be maintained till perpetuity)

= D1/ (Ke - g) (D1 = dividend of next year, Ke = required rate of return, and G = growth rate

of Dividend)

= 8.50* 1.0910 / (0.1052 - 0. 0910)

= 653.063 INR

P/E Ratio = 18.43 times

P/E Ration (Industry Average) = 18.80 times

Since P/B ratio is greater than 1and ROE is higher than industryaverage, it is growth stock.

Moreover, P/E ratio is also higherthan industry average.

Although P/E ratio is lower thanindustry average, its market valueis higher than its intrinsic value.Therefore, it is growth stock.

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2. State Bank of India

Closing Price = Rs. 2,071 (INR)

P/E ratio industry average = 26.77 time

P/E Ratio = 7.19 times

P/B Ratio = Market Capitalization/ Net Worth = 1386,715 /839512 = 1.65 times

3. Tata Steel Ltd.

Closing Price = Rs. 362.7 (INR)

P/B ratio = 350,171.41/ 522,164.6 = 0.67 times

Although P/E ratio is lower thanindustry average, its P/B ratio isgreater than 1.Therefore, it isgrowth stock.

Since P/B ratio islesser than 1, it isvalue stock.