Institute of Chartered Financial Analysts of India (ICFAI) University 2006 Certification Finance Security Analysis - II - Question Paper

ques. Paper
Security Analysis - II (212): April 2006

part D : Case Study (50 Marks)

· This part consists of ques. with serial number one - 5.

· ans all ques..

· Marks are indicated against every ques..

· Do not spend more than 80 - 90 minutes on part D.

Case Study

learn the case carefully and ans the subsequent questions:

1. Perform Michael Porter Analysis of the Indian Optical Fiber Industry.

(10 marks) < ans >

2. a. Perform SWOT analysis of the SOTL.

b. Based on the financial statements given in Annexure I, perform ratio analysis for SOTL for the past three years and comment on the identical.

(6 + six = 12 marks) < ans >

3. SOTL’S EPS is expected to grow at 10% for the 1st 3 years, 5% for the next 2 years and 2% thereafter forever. The capital expenditure for the firm is expected to grow at 10% annually for 1st 3 years and beyond that there will not be any capital expenditure requirement. Depreciation expenses for the firm is expected to grow at 10% annually for the 1st 3 years and then it is expected to reduce at 5% forever. There will be an increase in the working capital requirement at 20% for the 1st 3 years and there would not be any additional requirement for working capital thereafter. Risk free rate is 5.5%. Market return is 16%. Beta of the stock is 0.77. You are needed to compute the value per share if the price to free cash flow to equity ratio for the company is 3.

(12 marks) < ans >

4. Asset based evaluation estimates the value of a company’s assets and liabilities listed in the balance sheet at the current market values. It also identifies omitted assets and assigns a market value to them. But there are a few issues attached with this kind of evaluation model. explain these issues.

(10 marks) < ans >

5. discuss with suitable reasoning, whether an investor should buy or sell at the points A, B and C in the charts provided in Annexure II.

(6 marks) < ans >

Optical Fiber Industry

In latest years it has become apparent that fiber optics are steadily replacing copper wire as an improper means of communication signal transmission. They span the long distances ranging from local phone systems as well as providing the backbone for many network systems. Other system users include cable television services, university campuses, office buildings, industrial plants, and electric utility companies. A fiber-optic system is similar to the copper wire system that fiber optics is replacing. The difference is that fiber-optics use light pulses to transmit info down fiber lines instead of using electronic pulses to transmit info down copper lines.

Global Scenario

In the year-end summary of the telecommunications market, CRU International - a research agency in the United Kingdom, confirmed that 2004 was the year of growth in demand for the Optical Fiber Industry, after a lull for over three years. The global demand for Optical Fiber Products increased to 60.8 million-km in 2004; a 3% increase over that in 2003. Over the past 2 years, there has been consolidation and rationalization of supply capacity for manufacture of Optical Fiber and Fiber Optic Cables by global majors like Corning, Pirelli, Alcatel, Draka, OFS and Furukawa. However, a large number of these plants that are still in operation are located in regions that have traditionally higher overheads than encountered in plants located in India and other South East Asian countries. In addition, 2004-05 has seen the merger of 2 global majors: Alcatel and Draka, and additionally Pirelli sold its telecommunication cables business to Goldman Sachs and exited the business.

Earning:   Approval pending.