ONGC Ke – cost of equity |Rm – expected returns on emerging markets |13 | |Rf – risk free return |8. 5 % | |Beta |0.
2835 | |Ke = Rf + beta( Rm-Rf) |12. 8 % | Market value of equity |Issued, subscribed and paid up equity shares (i) Rs 5 Face value |8554000000 | |Current Market Price |281. 6 | |Market Value of Equity |(i)*(ii) = Rs. 240880. 4 crores | Being debt structure absent in Nalco the cost of debt is zero, Therefore WACC ( Weighted Average Cost of Capital) |WACC |KePe + KdPd + KpPp | |WACC by (ONGC) |12.
18 % | Peer comparison JSW Steel ltd Ke – cost of equity Rm – expected returns on emerging markets |13% | |Rf – risk free return |8. 5 % | |Beta |0. 5525 | |Ke = Rf + beta( Rm-Rf) |15. 68 % |Market value of equity |Issued, subscribed and paid up equity shares (i) Re 1 Face value |563180000 | |Current Market Price |710.
25 | |Market Value of Equity |(i)*(ii) = Rs. 39999. 8545 crores | Book Value of Debt – Kd – cost of Debt – a) Corporate tax calculations (in crores) PBT (i) |2441 | |Tax expenses (ii) |384 | |Tax rate (t) |15. 73 % | b) Pre tax cost of Debt (in crores) |Interest expense |1056 |Avg loan |7675 | |Interest rate |13. 76 % | c) Cost of Debt – |Kd |Interest rate * (1-t) | |Kd |11.
9 % | Notes = 1. Market value of the debt is taken as the book value of debt. 2. Debt includes Long term Debt only.
3. Rf is taken as 8. 5 % for a one year bill and Rm = 13 percent for emerging markets. Observations : Beta value analysis – Beta of ONGC - 0. 5525 (capitaline database) Beta of Shree Cement ltd - 0.
2835 Beta of JSW - 1. 5585 The Beta Value of JSW is more than Double of that of ONGC and Shree Cements ltd, Meaning the Risk is twice as higher as for ONGC and more than 5 times that of Shree cements.Investors Demand High returns on the High risk or High beta stocks. ONGC, Market price as on 6/3/2012 – Rs.
281. 6 | Equity Dividend % |175 |330 |320 |320 |310 |450 |400 |240 |300 |140 | | Earnings Per Share-Unit Curr |20. 7 |72. 96 |69.
96 |72. 65 |68. 4 |94. 9 |85. 61 |57. 69 |72.
18 |43. 47 | SHREE cements ltd , Market price as on 7/3/2012 – Rs. 2800. 00 | Equity Dividend % |140 |130 |100 |80 |60 | | Earnings Per Share-Unit Curr |57.
9 |191. 88 |164. 19 |73. 38 |49. 96 | JSW cements ltd , Market price as on 7/3/2012 – Rs.
10. 25 [pic] LEVERAGE and Cost of Capital - ONGC has no debt in its capital structure which calls for no leverage in capital structure. As it is observed there is an increased Cost of Capital as calculated above - 12. 18 % Where as JSW and Shree cements ltd have leverage in their capital structure Sources – Money Conrol website - http://www. moneycontrol.
com/financials/nationalaluminiumcompany/balance-sheet /NAC#NAC Bse India - http://www. bseindia. com/ Rbi - http://www. rbi.
org. in/
