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    1 M P Birla Institute of Management

    A

    STUDY ON

    RELATIONSHIP BETWEEN BOOK VALUE AND MARKET VALUE OF

    SHARES IN BANKING AND CEMENT SECTOR

    A dissertation submitted in partial fulfillment of the requirements for the

    award of MBA Degree of Bangalore University

    BY

    VARUN ARUR

    Registration No. 06XQCM6083

    UNDER THE GUIDANCE OF

    Prof. Praveen Baghwan

    M.P.BIRLA INSTITUTE OF MANAGEMENT

    Associate Bharatiya Vidya Bhavan

    Race course road, BANGALORE 560001

    2006 - 2008

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    DECLARATION

    I here by declare that the report titled

    A STUDY ON RELATIONSHIP BETWEEN BOOK VALUE AND

    MARKET VALUE OF SHARES IN BANKING AND CEMENT SECTOR

    Submitted in partial fulfillment of requirements for the award of degree in MBA

    course of Bangalore University is a record of independent work carried out by me

    at M.P.Birla Institute of Management. The report has not been submitted in part

    or full towards any other degree or diploma.

    Place: Bangalore Varun Arur

    Date: Reg No: 06XQCM6083

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    PRINCIPALS CERTIFICATE

    This is to certify that the report titled

    A STUDY ON RELATIONSHIP BETWEEN BOOK VALUE AND

    MARKET VALUE OF SHARES IN BANKING AND CEMENT SECTOR

    Submitted in partial fulfillment of requirements for the award of degree in MBA

    course of Bangalore University is a record of bonafide work carried out by Mr.

    Varun Arur bearing the registration no. 06XQCM6083 under the guidance and

    supervision of Mr. Praveen Baghwan, professor, MPBIM, Bangalore.

    PLACE: Bangalore Dr. N S Malavalli

    DATE: (Principal)

    GUIDES CERTIFICATE

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    This is to cer ti fy th at th e report titled

    A STUDY ON RELATIONSHIP BETWEEN BOOK VALUE AND

    MARKET VALUE OF SHARES IN BANKING AND CEMENT SECTOR

    has been prepared by Mr. Varun Arur bearing the registration no.

    06XQCM6083 is a bonafide work done, carried under my guidance and

    supervision during the academic year 2007-08 in partial requirement for the award

    of MBA degree by Bangalore University. To the best of my knowledge

    this report has not formed the basis for the award of any other degree or diploma.

    PLACE: Bangalore

    DATE: Prof. Praveen Baghwan

    ACKNOWLEDGEMENT

    I am thankful to Dr.N.S.Malavalli, Principal, M.P.Birla institute of management,

    Bangalore, for his valuable support and guidance.

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    I am extremely thankful to Prof. Praveen Baghwan, M.P.Birla institute of Management,

    Bangalore, who has guided me to do this project by giving his valuable suggestions and advice.

    Finally, I express my sincere gratitude to all my friends, family and well wishers who

    helped me in doing this report.

    Thank You.

    VARUN ARUR

    CONTENTS

    Chapter No Contents Page No

    Chapter 1 RESEARCH EXTRACT 1

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    Chapter 2

    INTRODUCTION

    2.1 Back ground of the study

    2.2 Statement of the problem

    2.3 Need for study

    2.4 Objectives of study

    2.5 Operational definitions of concepts

    3

    Chapter 3 LITERATURE REVIEW 19

    Chapter 4

    METHODOLOGY

    4.1 Type of Research

    4.2 Sampling Technique

    4.3 Sample Size

    4.4 Sample Description

    4.5 Collection of data

    4.6 Hypothesis

    4.7 Tools for testing hypothesis4.8 Other software used for data analysis

    4.9 Limitations of the study

    22

    Chapter 5SECTOR ANALYSIS

    5.1 Banking Sector

    5.2 Cement Sector

    25

    Chapter 6ANALYSIS AND INTERPRETATION

    6.1 Banking Sector

    6.2 Cement Sector

    29

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    Chapter 7FINDINGS, CONCLUSIONS AND

    SUGGESTIONS

    69

    LIST OF TABLES

    Table Particulars Page No.

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    6.1 Table Showing Market Value, Book Value, F and P Value of Allahabad Bank29

    6.2 Table Showing Regression statistics of Allahabad Bank29

    6.3 Table Showing Market Value, Book Value, F and P Value of Andhra Bank31

    6.4 Table Showing Regression statistics of Andhra Bank 31

    6.5 Table Showing Market Value, Book Value, F and P Value of Bank of Baroda33

    6.6 Table Showing Regression statistics of Bank of Baroda33

    6.7 Table Showing Market Value, Book Value, F and P Value of Bank of India35

    6.8 Table Showing Regression statistics of Bank of India35

    6.9 Table Showing Market Value, Book Value, F and P Value of Bank of Maharashtra37

    6.10 Table Showing Regression statistics of Bank of Maharashtra37

    6.11 Table Showing Market Value, Book Value, F and P Value of Canara Bank39

    6.12 Table Showing Regression statistics of Canara Bank39

    6.13 Table Showing Market Value, Book Value, F and P Value of Dena Bank41

    6.14 Table Showing Regression statistics of Dena Bank41

    6.15 Table Showing Market Value, Book Value, F and P Value of HDFC Bank

    43

    6.16 Table Showing Regression statistics of HDFC Bank43

    6.17 Table Showing Market Value, Book Value, F and P Value of ICICI Bank45

    6.18 Table Showing Regression statistics of ICICI Bank45

    6.19 Table Showing Market Value, Book Value, F and P Value of ING Vysya Bank47

    6.20 Table Showing Regression statistics of ING Vysya Bank47

    Tables Particulars Page No.

    6.21 Table Showing Market Value, Book Value, F and P Value of Ambuja Cement49

    6.22 Table Showing Regression statistics of Ambuja Cement49

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    6.23 Table Showing Market Value, Book Value, F and P Value of ACC Cement51

    6.24 Table Showing Regression statistics of ACC Cement51

    6.25 Table Showing Market Value, Book Value, F and P Value of JK Cement53

    6.26 Table Showing Regression statistics of JK Cement53

    6.27 Table Showing Market Value, Book Value, F and P Value of Mangalam Cement55

    6.28 Table Showing Regression statistics of Mangalam Cement55

    6.29 Table Showing Market Value, Book Value, F and P Value of Mysore Cement57

    6.30 Table Showing Regression statistics of Mysore Cement57

    6.31 Table Showing Share Price, EVA,MVA,& ROCE of Ultratech Cement59

    6.32 Table Showing Regression statistics of Ultratech Cement59

    6.33 Table Showing Share Price, EVA,MVA,& ROCE of Shree Cement61

    6.34 Table Showing Regression statistics of Shree Cement61

    6.35 Table Showing Share Price, EVA,MVA,& ROCE of Prism Cement63

    6.36 Table Showing Regression statistics ofPrism Cement63

    6.37 Table Showing Share Price, EVA,MVA,& ROCE of JK Lakshmi Cement 65

    6.38 Table Showing Regression statistics of JK Lakshmi Cement65

    6.39 Table Showing Share Price, EVA,MVA,& ROCE of Birla Corporation67

    6.40 Table Showing Regression statistics of Birla Corporation67

    LIST OF CHARTS

    Chart Particulars Page No.

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    6.1 Chart Showing Market Value and Book Value of Allahabad Bank30

    6.2 Chart Showing Market Value and Book Value of Andhra Bank32

    6.3 Chart Showing Market Value and Book Value of Bank of Baroda34

    6.4 Chart Showing Market Value and Book Value of Bank of India 36

    6.5 Chart Showing Market Value and Book Value of Bank of Maharashtra38

    6.6 Chart Showing Market Value and Book of Canara Bank40

    6.7 Chart Showing Market Value and Book Value of Dena Bank42

    6.8 Chart Showing Market Value and Book Value of HDFC Bank44

    6.9 Chart Showing Market Value and Book Value of ICICI Bank46

    6.10 Chart Showing Market Value and Book Value of ING Vysya Bank48

    6.11 Chart Showing Market Value and Book Value of Ambuja Cement50

    6.12Chart Showing Market Value and Book Value of ACC Cement 52

    6.13 Chart Showing Market Value and Book Value of JK Cement54

    6.14 Chart Showing Market Value and Book Value of Mangalam Cement56

    6.15 Chart Showing Market Value and Book Value of Mysore Cement

    58

    6.16 Chart Showing Market Value and Book Value of Ultratech Cement60

    6.17 Chart Showing Market Value and Book Value of Shree Cement62

    6.18 Chart Showing Market Value and Book Value of Prism Cement64

    6.19 Chart Showing Market Value and Book Value of JK Lakshmi Cement66

    6.20 Chart Showing Market Value and Book Value of Birla Corporation68

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    CHAPTER 1Research Extract

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    CHAPTER 2Introduction

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    CHAPTER 3Literature Review

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    CHAPTER 4Methodology

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    CHAPTER 5Sector Analysis

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    CHAPTER 6Analysis and Interpretation

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    CHAPTER 7

    Findings, Conclusions and Suggestions

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    BIBLIOGRAPHY

    1. ABSTRACT

    The literature on fundamental analysis on valuing stocks is perhaps one of the earliest

    developments in the literature on security analysis. It perhaps sought to find an answer to the age

    old adage - What explains stock prices? However, various limitations of the models used in

    fundamental analysis led to the development of various alternative valuation models.

    Share price is the most important factor readily available to the investors for their

    decision to invest or not in a particular share. Theories suggest that share price changes are

    associated with changes in fundamental variables with changes in valuation like payout ratio,

    dividend yield, capital structure, earnings, size of the firm and its growth. Investigations of share

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    price changes appear to yield evidence that change in fundamentals variable(s) should jointly

    bring about changes in share prices both in developed and emerging markets.

    However the actual fundamental factors found to be relevant may vary from market to

    market. The changes in asset growth of firms are significant in case of Japanese shares while

    earnings appear to be universally a relevant factor. However, it is widely agreed that a set of

    fundamental variables as, suggested by individual theories is no doubt relevant as possible

    factors affecting share prices changes in the short and the long run. Knowledge of relative

    influence of fundamental factors on equity share prices is helpful to corporate, management,

    government and investors.

    To the corporate management an understanding of the valuation mechanism in stock

    market is essential for the sound financial management of the company. An understanding of

    determinants of share prices is useful to dividend payment, bonus declaration, right issues, etc.

    Investors can also form better judgments and make intelligent and rational investment decisions.

    Investors in shares usually make constant use of these various variables for gauging the relative

    merit of a script. These calculations are in no sense, final determinants of equality and value but

    they are convenient indicators about the performance of equity shares.

    The topic, A study on relationship between Book Value and Market value of shares in

    Banking and Cement sector is chosen to understand the role played by book value towards the

    market value and to study the relation between the same. The initial assumption that was made to

    compare market value with book value of various companies is grouped into sectors.

    The study was made for Ten companies, which are grouped into Two sectors. These

    sectors are Banking sector and Cement sector.

    Basically the topic was primarily chosen because, it would help me to comprehend in

    depth one of my most fascinating investment concept-market price to book value which I feel is

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    a very complex human decision making phenomenon, and with some judicious blend of quality

    and dedicated hard work will help unlock some of the investment strategies.

    The study conducted on the market price to book value is analyzed by comparing the

    market value and book value dependency. In the suggestion part the suggestions are made in

    which companies to invest and where not to invest.

    2. INTRODUCTION

    The relationship between price and book value has always attracted the attention of

    investors. Stocks selling for well below the book value of equity have generally been considered

    good candidates for undervalued portfolios, while those selling for more than book value have

    been targets for overvalued portfolios. This study aims at examining the relation between book

    value and market value as an investment tool to identify the undervalued stocks.

    2.1 Background of the study

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    Investors are currently demanding Shareholder value more strongly than ever. So the

    value created by the company is more linked to the market price of the shares. This study is

    undertaken to show the relationship that exists between the book value and the share prices as the

    performance of the company is reflected in the share prices in the market.

    2.1.1 Price to Book Equity

    The market value of the equity of a firm reflects the markets expectation of the firms

    earning power and cash flows. The book value of equity is the difference between the book value

    of assets and the book value of liabilities, a number that is largely determined by accounting

    conventions. The book value of assets is the original price paid for the assets reduced by any

    allowable depreciation on the assets. Consequently, the book value of an asset decreases as it

    ages. The book value of liabilities similarly reflects the "at-issue" values of the liabilities. Since

    the book value of an asset reflects its original cost, it might deviate significantly from market

    value if the earning power of the asset has increased or declined significantly since its

    acquisition.

    There are several reasons why investors find the price-book value ratio useful in

    investment analysis. The first is that the book value provides a relatively stable, intuitive measure

    of value that can be compared to the market price. For investors who instinctively mistrust

    discounted cash flow estimates of value, the book value is a much simpler benchmark for

    comparison. The second is that, given reasonably consistent accounting standards across firms,

    price-book value ratios can be compared across similar firms for signs of under or over

    valuation. Finally, even firms with negative earnings, which cannot be valued, using price-

    earnings ratios, can be evaluated using price-book value ratios; there are far fewer firms with

    negative book value than there are firms with negative earnings.

    There are several disadvantages associated with measuring and using price-book value

    ratios. First, book values, like earnings, are affected by accounting decisions on depreciation and

    other variables. Second, book value may not carry much meaning for service and technology

    firms which do not have significant tangible assets.

    2.1.2 Book Value:

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    Book value reflects a companys worth. It can be defined as the companys assets minus

    its liabilities .If the company pulled its shutters, this number suggests how much would be left

    after all the outstanding obligations are settled and assets sole off. A company that is performing

    very well will always be worth more than its Book value for its ability to generate earnings and

    growth. In essence, book value is what would be left over for shareholders if a company closes

    its operations, pay off its creditors, collects from its debtors and liquidates it.

    Neither the actual book value of any company vis--vis its market value does not take

    into account the going-concern value, nor the value of its goodwill and all that it entails.

    Nevertheless, the chart below shows what has happened to market values, when Market to Book

    rose to an unrealistic ratio.

    2.1.3 Uses:

    1. Book value is used in the financial ratio price/book. It is a valuation metric that sets the

    floor for stock prices under a worst-case scenario. When a business is liquidated, the book value

    is what may be left over for the owners after all the debts are paid. Paying only a price/book = 1

    means the investor will get all his investment back. Share of capital intensive industries trade at

    lower price/book ratios because they generate lower earnings per dollar of assets. Business

    depending on human capital will generate higher earnings per dollar of assets, so will trade at

    higher price/book ratios.

    2. Book value per share can be used to generate a measure of comprehensive earnings,

    when the opening and closing values are reconciled.

    2.1.4 Factors Influencing Book Value

    1. The sale of shares per units by the business increases the total book value.a. Book value per share will increase if the additional shares are issuedb. At a price higher than the pre-existing book value per share.

    2. The purchase of its own shares by the business will decrease total book value.3. Book value per share will decrease if more is paid for them than was received when

    originally issued (pre-existing book value per share).

    4. Dividends paid out will decrease book value and book value per share.

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    5. Comprehensive earnings/losses will increase/decrease book value and book value pershare. Comprehensive earnings, in this case, includes net income from the income

    Statement, foreign exchange translation changes to Balance Sheet items, accounting

    changes applied retroactively, and the opportunity cost of options exercised.

    2.1.5 Market Value:

    A securitys last reported sale price (if on an exchange) or its current bid and ask price (if

    over-the counter): i.e., the price as (determined dynamically by buyers and sellers in an open

    market. It is also called as Market price.

    There are three main areas of influence that move a stocks price up or down. If you

    understand these influences, it will help you decide whether the price movement is a buy, sit or

    sit tight signal.

    2.1.6 Factors influencing share price:

    2.1.6.1 Fundamentals

    Clearly, the most direct influence on a stocks price is a change in the economic

    fundamentals of the business.

    If revenues and profits are on a steep upward trend with no indication of leveling off, you can

    expect to see the stock price rise as investors bid up this attractive company.

    On the other hand, if the profit picture is flat or, worse, declining with no change in sight,

    look for investors to abandon the stock and the price to fall.

    These are simple examples of changes in fundamentals. Other, more complex and subtle

    changes can occur that may not dramatically affect the stock price immediately (increased debt, a

    poor acquisition and so on can trigger price changes).

    The point is that changes in the underlying business have a direct impact on the stocks price.

    2.1.6.2Sector ChangesChanges in the stocks sector can have positive or negative affects on price too. Some

    sectors or industries are cyclical in nature and you should know that would affect price.

    However, when whole sectors catch of fire (think dot.com stocks) or burn up (think

    dot.com stocks, again), even these companies that have solid fundamentals are pulled along with

    the rest of the sector. You may hold a stock that is a victim of guilt by association when an

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    industry falls out of favour. Likewise, stocks can see prices artificially inflated if they find

    themselves in the right industry at the right time.

    2.1.6.3 Market Swings

    The market goes up and the market goes down. Thats about all you can say with

    certainty concerning the stock market.

    As the market moves up and down, your stock may move with or against it. Most large-

    cap stocks will follow the market to some degree, but smaller companies may not get the same

    push every time.

    In general, a strong market move either up or down will carry more stocks with it than

    not, so your stock may be up or down for no other reason than the market was up or down.

    2.1.7 Can market value be more than the book value?

    Yes, the market value can be more than the book value. Market value is determined by

    the combination of all players in the market. This includes financial institutions, mutual funds,

    foreign institutional investors, securities operators and the common investor. Since the market

    price is the culmination of the demand and supply position in the market, one can conclude that

    the expectations of the various players will get reflected in it. So much so, the market t value is

    the net result of the perception regarding current earnings, future earnings, industrial growth,competitive advantage, and so on. The book value of the shares would also be a factor that is

    taken into account by the market in arriving at the price, but it is just another factor.

    Therefore, it is possible for the market price to be more than the book value if the net

    perception in the market is that the company has growth potential and that it is likely to perform

    better than it is doing at present.

    Can book value exceed the market value? Why not? Sometimes, a company may be

    performing steadily and having a fair book value. However, because of the stagnation of growth

    possibilities or the imminent force of competition or other factors affecting its future chances, the

    market might have viewed the share in poor light. If so, we can have instances where the market

    value is less than the book value.

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    Investors often compare book value with market price. Usually, there is a disparity

    between the two. For unfancied companies in a bear market, the book value generally tends to be

    higher than the market price. What works against the ratio is that historically, it has been at great

    variance with current values. While book value is calculated on the basis of the information

    available in the last balance sheet, the market price of a share could be recorded as late as the last

    minute (when trading is on)

    2.1.8 Market Price to Book Value:

    We can also compare a company's market value to its book value on a per-share basis.

    Divide book value by the number of shares outstanding to get book value per share and compare

    the result to the current stock price to help determine if the company's stock is fairly valued.

    Most stocks trade above book value because investors believe that the company will grow andthe value of its shares will, too. When book value per share is higher than the current share price,

    a company's stock may be undervalued and a bargain to investors.

    The market to book ratio compares the book value of the shares of a company to its

    market value. If a shares market price is treble or quadruples its book value, it signifies that

    investors have tremendous confidence in the growth prospects of the company. If, on the other

    hand, the book value is more than the market value, the company may not be making profit.

    Price to book (P/B) ratio is used to compare a stocks Market value with its book value. It is

    calculated by dividing the current closing price i.e., market price of the stock by the Book value

    P/B is equal to share price divided by Book value per share.

    P/B ratio = Market price of share

    Book value per share

    The Price-to-book ratio, or P/B ratio, is a financial ratio used to compare a company's book

    value to its current market price. Book value is an accounting term denoting the portion of the

    company held by the shareholders; in other words, the company's total assets less its total

    liabilities. The calculation can be performed in two ways, but the result should be the same each

    way. In the first way, the company's market capitalization can be divided by the company's total

    book value from its balance sheet. The second way, using per-share values, is to divide the

    company's current share price by the book value per share (i.e. its book value divided by the

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    number of outstanding shares). How we interpret the results? The lower the P/B is, the better the

    value. This means that value investors look for companies, which have low P/B indicators.

    This ratio also gives some idea of whether an investor is paying too much for

    what would be left if the company went bankrupt immediately. For companies in distress, the

    book value is usually calculated without the intangible assets that would have no resale value. In

    such cases, P/B should also be calculated on a 'diluted' basis, because stock options may well

    vest on sale of the company or change of control or firing of management.

    Value investors search for companies that have been overlooked by the market. This

    means that they are not in the general attention of the other investors, but still provide

    opportunities for high returns. The key to the success of value investors is that they manage to

    find companies that are in their beginning of development and nobody else has yet noticed them.

    Value investors make a long-term investment in the company and patiently wait until the

    company develops to its full potential. This is the time when the other analysts also notice the

    potential of the company and the big bidding begins. As a result of his/her perspicacity the value

    investor collects his/her fat profits.

    When deciding on a particular company, value investors look at such indicators as

    earnings growth, price to book ratio (P/B) and several others.

    2.1.9 What we can deduce from a low P/B

    In absolute terms, a P/B ratio under 1.0 is considered low. Generally speaking, a low P/B can

    indicate:

    That the assets are overstated on the balance sheet. In this case, we should avoid thecompany because it may be destroying shareholder value. Ford (NYSE: F) is a good

    example of this. According to MSN Money Central, Ford's P/B was 0.72 in 1997, and its

    book value per share was $25.54. Today, Ford's P/B is 1.30, and its book value per share

    is down to $7.66. During that time, the share price has fallen from nearly $50 to less than

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    $10. Clearly, Ford had other problems, but the low P/B certainly did not indicate value.

    At Inside Value, we generally look for companies that have been increasing book-value-

    per-share over a number of years because -- as Ford's plight shows -- the share price often

    follows the book value per share.

    That the company will generally have a poor return on equity (ROE) and poorreturn on assets (ROA). If earnings are negative, there will be a negative ROE and

    ROA. Of course, if there is a solid management team that is turning around the

    company's fortunes, then we may have an interesting value proposition.

    That the industry at large has a low P/B. Certain industries have low P/B ratios,generally because they are cyclical or because the companies generate relatively low

    ROE. Hurricane Katrina reminds us that insurance companies typically have low P/B

    ratios because of the cyclicality of that industry. "Hard insurance markets" (i.e., those

    with higher premiums) form after a major disaster. This attracts new capital in the short

    term, when investment returns can be very good. After a while, however, competition

    increases and the market softens. It's important to find insurance companies that maintain

    discipline in a soft market. Otherwise, they'll take on risks that are not adequately

    covered in the premiums. Eventually, claims will roll in, along with underwriting losses,

    and the book value will be reduced.

    2.1.10 Best use of P/B

    P/B ratio is the most important, most after and most prevalent valuation ratio. Its is pre-

    eminently published in the media and talked about in the financial markets. An investor wantingto invest in the equity shares of a company will first find out what are the P/b of the share. This

    ratio plays the most crucial role in the valuation of shares in the initial public offerings,

    secondary capital markets. The ratio reflects the investors perception of the company. Even the

    lenders, who do not have a direct interest in this ratio, evaluate it before taking financing

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    exposures in a listed company. P/B is best used for asset-heavy companies, such as financial

    institutions, manufacturing companies, and other capital-intensive industries.

    So what makes the P/B ratio so wonderful? For starters, it's easy to calculate. The price-

    to-book ratio is simply a stock's market capitalization (stock price times shares outstanding)

    divided by the book value of equity on its balance sheet. This provides investors with an easy

    means of comparing the value the market has assigned to a stock with the accounting value of

    the firm's equity. Stocks that trade at a P/B ratio of less than 1 are considered undervalued.

    Proponents of the P/B ratio would argue that this conservative accounting approach to

    assessing value (book value) is a better measuring stick than the market price (market

    capitalization), which can often be irrational and volatile. Along these lines, it's commonly

    believed that a stock's book value equals its liquidation value. If a private equity firm or wealthy

    investor were to swoop in and buy out a company, they could then turn around and liquidate it by

    paying off the debt and selling all the assets.

    Price to book ratios is a popular method for gauging a stocks relative value. Just like

    price to earnings ratios, P/B multiples that are relatively high usually signify that the stock is

    overvalued. Investing in low P/B companies has forever been a staple strategy among value

    investors. Yet, stocks trading at higher P/B ratios can still be good investments and actually beundervalued.

    Understanding the drivers of the P/B ratio helps determine whether the stock deserves a

    high multiple. Often, the P/B multiples published are not forward looking. The share price is

    forward looking, yet the book value (denominator) is a historical figure taken from the balance

    sheet.

    2.1.11 Price/book Ratio Disadvantages:

    On the other hand, price/book value fails to reflect intangible assets such as intellectual

    assets, which represent the basis of the functions of high-tech companies (e.g. Microsoft). As a

    result, the balance sheets of such companies fail to reflect the intellectual assets of such

    companies. In turn, this leads to low book values and artificially high price/book ratios.

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    Book value registers items at the price at which they were purchased. As a result book

    value doesn't reflect the current market value, which leads to a lack of precision in measurement.

    2.1.12 Company Market Capitalization:

    You probably think that you have never heard of the term market capitalization before.

    You have! When you are talking about mid-cap, small-cap and large-cap stocks, you are

    talking about market capitalization!

    Market cap or market capitalization is simply the worth of a company in terms of its

    shares! To put it in a simple way, if you were to buy all the shares of a particular company, what

    is the amount you would have to pay? That amount is called the market capitalization. When

    you decide on the investment in a particular stock you should consider the size of the companythat issues it. Additionally, you should decide on the amount of the money you would allocate.

    This is required since companies of different sizes react in a different way to market conditions

    and changes.

    Company size can be classified in one of the two ways:

    1. by revenue

    2. by market capitalization (also known as market cap)

    The first classification, namely by revenue, is rarely used. This is so since the differences

    observed from one industry to another usually distort the size of the company.

    On the other hand, the most commonly used measure is the second one - market

    capitalization.

    2.1.13Market Capitalization Calculation:

    The following formula to estimate market cap:

    Market cap = (number of outstanding shares) x (current stock price)

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    Example: Company X possesses 200,000,000 shares of common stock outstanding. The current

    market price for one share is $40. So, company X's market cap is $8.0 billion (200,000,000 x $40

    = $8.0 billion).

    By applying this formula to any other real company you will be able to measure its

    market cap to other companies' market cap.

    Market capitalization can be easily found in the online resources by simply entering the

    symbol. The market cap should appear somewhere among the reported data.

    Companies can be included in one of the following categories depending on their market

    capitalization:

    $300 million and below.Micro Cap

    $1 billion and below..................Small Cap

    $1 billion to $8 billion...............Mid Cap

    $8 billion to $100 billion...........Large Cap

    Above $100 billion....................Mega Cap

    The categories listed above don't represent an obligatory classification. Many sources

    prefer the usage of just three categories: small, medium and large.

    Stocks from companies with micro and small market capitalization are most volatile.

    They are also most susceptible to failure.

    On the other hand, the high risk goes hand in hand with high potential reward. Finally,

    the size of the company doesn't determine its potential for success. Small companies bring both

    high risks and high returns. On the other hand, being a large company has its advantages in the

    huge stock market.

    2.1.14 Per-Share Price vs. Market Cap

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    Many beginning investors consider the per-share price of a stock as an indicator of its

    value. However, this is not the case.

    If you are to apply a fundamental analysis in evaluating a stock you consider purchasing,

    per-share price is almost of no use.

    The uselessness of a per-share price in fundamental analysis stems from the fact that

    stock prices are very dynamic in their nature. Additionally, every company holds a different

    number of shares outstanding. As a result our ability to gain an understanding of the real value of

    a company is much hampered.

    In order to determine the value of a company, we should identify its market capitalization

    (also known as market cap).

    Market cap = per-share price x outstanding shares

    The market cap represents the money you will need in order to buy the whole company

    on the open market.

    Many times a stock that costs $40 is stated to be cheaper than a stock priced $15.

    Consider the following example to see why this is so.

    Stock A Stock B

    Stock Price $40 $15

    Outstanding Shares Number 30 million 400 million

    Market Capitalization $1.2 billion $6 billion

    As you can see, even though the price of stock B is lower than the price of stock A, its

    market cap is higher. Therefore, the stock price alone doesn't tell you anything about the value of

    the company in itself.

    However, the market capitalization does convey a meaning. When deciding on the

    investment in a particular stock it should not be evaluated out of the context. You should also

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    compare the stocks of companies of the same size and industry. Generally, stocks are divided

    according to their size into small cap, mid cap and large cap. Different numbers are assigned to

    the different categories by the analysts.

    When you attempt to put in balance your investment portfolio, market cap is applied in

    the stock screens.Market Capitalization represents a better choice when evaluating a stock. Per-

    share price many times is useless because it may be misleading in assessing the real value of a

    company.

    2.1.15 Incorporation earnings and book value:

    Using clean surplus accounting, one can replace the dividends in the Dividend Discount

    model with earnings and book values. Price is restated in terms of earnings and book value, and

    the valuation problem focuses on the fundamental process of creating wealth, rather than on the

    distribution of wealth. Prices can then be interpreted in terms of the markets expectations of

    future earnings without severing the valuation link between price and future dividends.

    The model incorporates distinct valuation roles for the two summary accounting

    numbers, earnings and book value. In setting price, one starts with book value-the stock of (net)

    assets-and adjusts it upward if one expects those assets to exceed average profitability levels and

    downward if one expects them to fall short of average profitability. To estimate future

    profitability, one starts with current profitability, or earnings divided by book value (ROE).

    Earnings and book values are complementary, not competing, indicators of value. It

    follows that Price/Earnings ratios (P/E) and Price/Book (P/B) should provide complementary

    information about expected future profitability, and P/B is a function of the expected level of

    future profitability. The P/E-P/B combination jointly reveals the markets expectations regarding

    future profitability relative to current profitability.

    The empirical evidence supports the validity of the valuation model. The results alsoindicate, paradoxically, that eliminating dividends from the empirical tests can actually validate

    the role of dividends in valuation. Most importantly, the evidence confirms the primary role of

    earnings prediction in determining firm value.

    2.1.16 The underlying valuation model:

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    A valuation model developed in Ohison relies on the following two key assumptions.

    First; market price equals the present value of future dividends.

    Where,

    Pt =price at time t,

    K = the discount rate,

    dt = dividends paid at time t, and

    T = the date the liquidating dividend is paid.

    Second, the clean surplus relation in accounting holds; that is ,end-of-period book value

    equals beginning of-period book value plus earnings minus dividends (capital contributions are

    incorporated as negative dividends):

    Yt = yt-1 + xt dt

    Where,

    Yt = book value at time t,

    Xt = earnings for period t and

    dt = dividends for period t.

    The model requires one additional concept abnormal earnings, defined as Earnings

    adjusted for normal (risk adjusted) rate of return on book value. Formally:

    Xat = xt kyt-1

    The evolution of abnormal earnings is restricted in the following way:

    Xat = wx

    at-1 + et

    Where, 0 less than 1, and et is the surprise in abnormal earnings in period t. whatever the

    firms current earnings, competitive forces are assumed to reduce the firms abnormal earnings

    over time. At some point, the firm will have only zero net present value opportunities and zero

    abnormal earnings. Because of this convergence property, abnormal earnings play a central role

    in the valuation function.

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    There is also an increased awareness about the need for investment analysis and many

    financial analysts are looking at various parameters for assessing the performance of corporate in

    the stock market.

    The Book value per share can be considered as an indicator of the value of the assets in

    place, particularly in mature and capital intensive industries the asset values provide an indicator

    to the amount of investment that a new entrant has to make to gain entry. To that extent, it is an

    indicator of the inherent value of the firm.

    To examine whether there is a relationship between Book Value and Market Value which

    can be used to base the investment decisions.

    2.3 Need For the Study:

    The present scope of the study is to determine whether the relationship between book

    value and the market value can be used as an investment tool to identify undervalued stocks in

    the banking sector and cement sector also to determine the relevant relation to do the same.

    This study will focus more into accounting concepts and values, thereby making it a

    useful material for fundamental analysis.

    2.4 Objectives of the study:

    To identify stocks whose market value mainly depends on book value. To determine the variance between Market value and Book value of stocks. To determine the variance between the Market value and Book value of a sector as

    whole.

    2.5 Operational definition of concepts:

    Market price: The prevailing price at which merchandise, securities, or commodities aresold.

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    Net Worth: The amount by which a company or individuals assets exceed theirliabilities.

    Book value: The monetary amount by which an asset is valued in business records, afigure not necessarily identical to the amount the asset could bring on the open market.

    Price-To-Book Ratio-P/B Ratio: A ratio used to compare a stocks market value to itsbook value. It is calculated by dividing the current closing price of the stock by the latest

    quarters book value per share.

    Price to Tangible Book Value PTBV: A valuation ratio expressing the price of asecurity compared to its hard, or tangible, book value as reported in the companys

    balance sheet. The tangible book value number is equal to the companys total book

    value less the value of any intangible assets. Intangible assets can be such items as

    patents, intellectual property, goodwill etc.

    Book Value per Common Share: A measure used by owners of common shares in afirm to determine the level of safety associated with each individual share after all debts

    are paid accordingly.

    Present Value PV: The amount that a future sum of money is worth today given aspecified rate of return.

    Future Value- FV: The value of an asset or cash at a specified date in the future that isequivalent in value to a specified sum today.

    3. LITERATURE REVIEW

    Traditionally, the Price to Earning ratio has been more popular as a valuation tool than

    price to book value ratio, and is widely used in making investment decisions by both laymen and

    analysts. Basu (1977) showed how the price-earnings ratio that is computed from reported

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    of Equity Capital(Ke), the companys stock price will trade above book value that is, its market

    to book ratio will exceed 1. Conversely, whenever a company consistently earns an ROE less

    than Ke its M/B will equal 1.

    (Quoted in George Foster Financial statement Analysis second edition, Prentice Hall, New

    Jersey 1986).

    Wilcox (1984) showed that the P/B model appears to be a better valuation model than the

    P/E model. A study by Rosenberg (1985) examined this aspect and found that stocks with low

    P/B ratios experienced significantly higher risk adjusted returns than the average stocks.

    A study by Fama & French (1992) provided even greater support for this ratio as a useful

    measure of relative value. The purpose of the study was to examine alternative variables that

    would explain the cross section rate of return on common stocks .One of the explanatory

    variables was the well-known beta coefficient. Their results did not provide much support for

    Beta as an explanatory variable but their results did reveal that both the size of firms and the ratio

    of book value to market value of equity were significant explanatory variables .They also

    contended that the Book value to Market value ratio was the single best variable.

    Fairfield (1994) establishes that the Price/Earnings ratio is a function of expected changes

    in future profitability, while the Price/Book value ratio is a function of expected levels of future

    profitability.

    Penman (1996) in his study explains that the P/E ratio indicates future growth in

    earnings, which is positively related to expected future return on equity and negatively related

    current return on equity. The P/B ratio indicates expected future return on equity. So, the two are

    reconciled by a comparison of current and expected future return on equity. Empirical evidence

    indicates that return on equity indicates differential P/B ratios but not P/E ratios except in the

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    extremes. This is because return on equity is strongly serially correlated and predicts future

    profitability on which the P/B is based. Current return on equity is not a good indicator of P/E

    since a given level of P/E can be associated with alternative combinations of current and

    expected future return on equity. Cole et al(1996) examine the predictive power of traditional

    market indicators like dividend yield and market to book ratio and addresses the claim that these

    are no longer valid indicators. They find that share repurchase activity has not been especially

    high through most of the 1990s and that after adjusting for buybacks the dividend yield remains

    low. Likewise the markets to book ratio remains at a record high once charges for retiree health

    liabilities have been taken into account.

    4. METHODOLOGY

    4.1 Type of Research:

    The type of research adopted is Analytical Research as this type of research says that the

    researcher has to use facts or information already available and analyze these to make a critical

    evaluation.

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    4.2 Sampling Technique:

    Simple Random Sampling technique is used to select the companies for the observation

    from sectors namely Banking and Cement. The Simple Random Sampling technique is applied

    so as to obtain a representative sample. As there is more number of companies that are traded on

    the stock exchange, so it is difficult to select companies on some common parameters so,

    randomly companies are selected.

    4.3 Sample size:

    A sample size of 20 companies is selected from two sectors namely Banking and Cement

    sector. The research revolves over these companies to find out the result.

    4.4 Sample description:

    The sample consists of 20 stocks that are actively traded in the Bombay stock Exchange

    and National Stock Exchange. These stocks belong to banking and cement sector. The stock sare

    as follows:

    1. Allahabad Bank2. Andhra Bank3. Bank Of Baroda4. Bank of India5. Bank of Maharashtra6. Canara Bank7. Dena Bank8. HDFC Bank9. ICICI Bank10.Ing Vysya Bank11.Ambuja Cements12.ACC13.JK Cements14.Mangalam Cement15.Mysore Cement

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    not is called test hypothesis or test of significance. In the test of hypothesis it begins with an

    assumption or hypothesis is called Null Hypothesis.

    The null hypothesis asserts that there is no significant difference between the statistics

    and the population parameters and whatever observes difference is there is merely due to

    fluctuations in sampling from the same population. Null hypothesis is usually devoted by the

    symbol H0. Any hypothesis that contradicts the H0 (Null Hypothesis) is called alternate

    hypothesis and is denoted by symbol H1.

    The tests that were conducted on the samples are:

    ANOVA Two way T test Simple Linear Regression

    4.8 Other software used for data analysis

    For the data analysis and the subsequent interpretation the researcher has adopted

    advanced version of MS Excel 2003. This application software has facilitated the researcher to

    construct the ANOVA table, conduct regression tests and also to draw graphs.

    4.9 Limitation of the study:

    The Study is limited to the 20 companies that are listed in BSE.

    Data collected from various databases are assumed to be accurate.

    5. SECTOR ANALYSIS

    5.1 Banking Sector

    With the Indian economy moving on to a high growth trajectory, consumption levels

    soaring and investment riding high, the Indian banking sector is at a watershed. Further, as

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    Indian companies globalize and people of Indian origin increase their investment in India,

    several Indian banks are pursuing global strategies,

    The industry has been growing faster than the real economy, resulting in the ratio of

    assets of commercial banks to GDP increasing to 92.5 per cent at end-March 2007. The Indian

    banks have also been doing exceptionally well in the financial sector with the price-to-book

    value being second only to china, according to a report by Boston Consultancy Group.

    Consequently, the degree of leverage enjoyed by the banking system, as reflected in the

    equity multiplier (measured as total assets divided by total equity), has increased from 15.2 per

    cent at end March 2006 to 15.8 per cent at the end of March 2007.

    Growth

    A burgeoning economy, financial sector reforms, rising foreign investment, favourable

    regulatory climate and demographic profile has led to India becoming one of the fastest growing

    banking markets in the world. The overall banking industry's business grew at a CAGR of about

    20 per cent from US$ 469.4 billion as of March 2002, to US$ 1171.29 billion by March 2007.

    Aggregate bank deposits of banks increased by US$ 129.26 billion (22.1 per cent) at the

    end of March 2007 over the corresponding in 2006. In the current fiscal, aggregate bank deposits

    increased by 23.8 per cent, year-on-year, as of January 4, 2008 as against 21.5 per cent a year

    ago. While aggregate demand deposits increased by 15.6 per cent, aggregate time deposits

    increased by 25.3 per cent in the same period, indicating migration from small savings schemes

    of the Government.

    Similarly, aggregate deposits of the scheduled commercial banks (SCB), after growing by

    17.8 per cent and 24.6 per cent in 2005-06 and 2006-07, rose by 25.2 per cent, year-on-year, as

    on January 4, 2008.

    Potential

    While this growth has been very impressive, the potential banking market waiting to be

    tapped in India is still fairly huge. Out of the 203 million Indian households, three-fourths, or

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    147 million, are in rural areas and 89 million are farmer households. In this segment, 51.4 per

    cent have no access to formal or informal sources of credit, while 73 per cent have no access to

    formal sources of credit. In fact, according to a report by Boston Consultancy Group, India has

    the second largest financially excluded households of about 135 million, which is next only to

    china. Also, about 60 million new households are expected to be added to India's bankable pool

    between 2005 and 2009. With such a large untapped market, the Indian banking industry is

    estimated to grow rapidly, faster than even china in the long run.

    Road Ahead

    Banks aspiring to become global must have a presence in India and other merging

    markets, says a report of consultancy major Ernst & Young, as they are set to become a major

    source of financial sector revenue and profit growth.

    As the Indian banking industry continues its rapid growth along with rise in financial

    services penetration in the Indian economy, the industry's profit is likely to simultaneously surge

    ahead. According to a report by Boston Consultancy Group, the profit pool of the Indian banking

    industry is estimated to increase from US$ 4.8 billion in 2005 to US$ 20 billion in 2010 and

    further to US$ 40 billion by 2015.

    5.2 Cement Sector

    The cement industry is experiencing a boom on account of the overall growth of the

    Indian economy. The demand for cement, being a derived demand, depends primarily on the

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    industrial activity, real estate business, construction activity, and investment in the infrastructure

    sector. India is experiencing growth on all these fronts and hence the cement market is

    flourishing like never before. Indian cement industry is globally competitive because the industry

    has witnessed healthy trends such as cost control and continuous technology up gradation.

    Global rating agency, Fitch Ratings, has commented that cement demand in India is expected to

    grow at 10% annually in the medium term buoyed by housing, infrastructure and corporate

    capital expenditures.

    Current Scenario

    The Indian cement industry is the second largest producer of quality cement, which meets

    global standards. The cement industry comprises 130 large cement plants with an installed

    capacity of 156. 26 million tonnes and more than 300 mini cement plants with an estimated

    capacity of 11.10 million tonnes making a total installed capacity of 167.36 million tonnes.Keeping in view the trend of growth of the industry, a production target of 142 million tonnes

    was fixed for the year 2005-2006. Cement production during April to December 2005 was

    106.83 million tonnes, registering a growth of 9.31 percent. During November 2006, cement

    production was 12.43 Million tonnes, registering a growth of 11.98% as compared to 11.10

    million tonnes in November 2005.

    Exports

    Indian cement industry meets entire domestic demand and is able to export cement and

    clinker. The export of cement and clinker during April- December 2005 was 4.24 Million Tonnes

    and 2.53 million tonnes respectively. During November 2006, cement export showed a decline of

    36.92% (from 0.65 million tonnes in November 2005 to 0.41 million tonnes in November 2006),

    whereas clinker export grew by 40.74% (from 0.27 million tonnes in Nov 2005 to 0.38 million

    tonnes in November 2006).

    Future growth will be driven by expected GDP growth of more than 8 percent, growth of

    the housing sector and the development of roads, ports, airports and other infrastructure

    Concerns

    Cement industry going through a consolidation phase in the last few years

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    Transportation

    Transportation costs high - freight accounts for 17% of the production cost Road preferred mode for transportation for distances less than 250kms. Industry is heavily dependant on roads as the railway infrastructure is not adequate Shortage of wagons.

    Capacity additions

    Acquisitions have been the mainstay of the business Regional imbalance resulting in cross regional movement limestone availability in pockets has led to uneven capacity additions

    Capacity additions have slowed downIndustry inputs

    Highly capital intensive industry Nearly 55-60% of the inputs controlled by the government Facing problems due to power shortage Coal availability and quality affecting production Mini plants realisation of revenue lower than large plants, survival difficult

    6. ANALYSIS AND INTERPRETATION

    6.1 Banking Sector

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    6.1.1 Allahabad Bank

    Allahabad Bank BV MV F P Value

    2003 2004 27.06 39.59 Rows 12.41886 0.015833

    2004 2005 38.1 84.31 Columns 22.62244 0.0089292005 - 2006 49.82 78.95

    2006 2007 68.27 90.61

    2007 - 2008 80.44 103

    Table 6.1

    Interpretation:

    Since value of P is lesser than 5% Level of significance; there is significant relationship between

    Book Value and Market value.

    Therefore, Null Hypothesis is rejected.

    Alternative Hypothesis is accepted.

    Regression Statistics:

    Multiple R R2

    Intercept Slope T stat for Slope P value

    0.854893 0.730842 -8.83389 0.776521 2.854094 0.064891

    Table 6.2

    Interpretation:

    Since the Multiple R is 85.48% for Book value and Market Value. It shows that there is a

    highly positively Correlation between Book Value and Market Value.

    Since the Value of R square is 73%, this shows that the market value is dependent on

    book value by 73% and 27% due to other factors.

    If the book value of the share is -8.83, then the market value is 0.

    If the book value increases by 0.78, then the market value increases by 1.

    Since the probability of getting t stat for slope is higher than 5%, null hypothesis is

    accepted.

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    0

    20

    40

    60

    80

    100

    120

    2004 2005 2006 2007 2008

    Allahabad Bank

    BV

    MV

    Chart 6.1

    Interpretation:

    Fromthe above chart it can be seen that, there has been a constant rise in the book value

    of the share, which in turn is reflected in the market value.

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    6.1.2 Andhra Bank

    Andhra Bank BV MV F Value P Value

    2003 2004 27.89 52.22 Rows 3.773293 0.11328

    2004 2005 36.31 97.14 Columns 26.92264 0.0065672005 - 2006 45.93 82.94

    2006 2007 59.67 87.7

    2007 - 2008 65.08 90.8

    Table 6.3

    Interpretation:

    Since value of P is lesser than 5% Level of significance; there is significant relationship between

    Book Value and Market value.

    Therefore, Null Hypothesis is rejected.

    Alternative Hypothesis is accepted.

    Regression Statistics:

    Multiple R R2

    Intercept Slope T stat for Slope P value

    0.585081581 0.342320456 4.274651583 0.519734036 1.249597 0.300058

    Table 6.4

    Interpretation:

    Since the Multiple R is 58.50% for Book value and Market Value. It shows that there is a

    positive Correlation between Book Value and Market Value.

    Since the Value of R square is 34%, this shows that the market value is dependent on

    book value by 34% and 66% due to other factors.If the book value of the share is 4.27, then the market value is 0.

    If the book value increases by 0.519, then the market value increases by 1.

    Since the probability of getting t stat for slope is higher than 5%, null hypothesis is

    accepted.

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    0 50 100

    2004

    2005

    2006

    2007

    2008

    Andhra Bank

    MV

    BV

    Chart 6.2

    Interpretation:Fromthe above chart it can be seen that, there has been a constant rise in the book value

    of the share, which in turn is reflected in the market value, how ever there has been an

    abnormal increase in the market value in the year 2005.

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    6.1.3 Bank of Baroda

    Bank of Baroda BV MV F Value P Value

    2003 2004 149.04 195 Rows 8.04652 0.033956

    2004 2005 174.21 221 Columns 18.53814 0.012592005 - 2006 191.08 240

    2006 2007 214.6 283

    2007 - 2008 236.64 365

    Table 6.5

    Interpretation:

    Since value of P is lesser than 5% Level of significance; there is significant relationship between

    Book Value and Market value.

    Therefore, Null Hypothesis is rejected.

    Alternative Hypothesis is accepted.

    Regression Statistics:

    Multiple R R2

    Intercept Slope T stat for Slope P value

    0.958799 0.919296 64.79556 0.492019 5.845753 0.009977

    Table 6.6

    Interpretation:

    Since the Multiple R is 95.88% for Book value and Market Value. It shows that there is a

    highly positively Correlation between Book Value and Market Value.

    Since the Value of R square is 91.9%, this shows that the market value is dependent on

    book value by 91.9% and 8.1% due to other factors.If the book value of the share is 64.79, then the market value is 0.

    If the book value increases by 0.492, then the market value increases by 1.

    Since the probability of getting t stat for slope is lesser than 5%, null hypothesis is

    rejected.

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    6.1.4 Bank of India

    Bank of India BV MV F Value P Value

    2003 2004 68.78 60.78 Rows 1.005169 0.498067

    2004 2005 78.57 107.8 Columns 2.070379 0.2235832005 - 2006 88.07 139

    2006 2007 98.48 240

    2007 - 2008 117.71 339

    Table 6.7

    Interpretation:

    Since value of P is greater than 5% Level of significance; there is no significant relationship

    between Book Value and Market value.

    Therefore, Null Hypothesis is accepted.

    Alternative Hypothesis is rejected.

    Regression Statistics:

    Multiple R R2

    Intercept Slope T stat for Slope P value

    0.990463 0.981018 60.67042 0.167224 12.45159 0.001116

    Table 6.8

    Interpretation:

    Since the Multiple R is 99.04% for Book value and Market Value. It shows that there is a

    highly positively Correlation between Book Value and Market Value.

    Since the Value of R square is 98%, this shows that the market value is dependent on

    book value by 98% and 2% due to other factors.

    If the book value of the share is 60.67, then the market value is 0.

    If the book value increases by 0.167, then the market value increases by 1.

    Since the probability of getting t stat for slope is lesser than 5%, null hypothesis is

    rejected.

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    54 M P Birla Institute of Management

    0 50 100

    2004

    2005

    2006

    2007

    2008

    Bank of India

    MV

    BV

    Chart 6.4

    Interpretation:

    Fromthe above chart it can be seen that, there has been a constant rise in the book value

    of the share, which in turn is reflected in the market value for the periods 2004 and 2005,

    how ever there has been an abnormal increase in the book value in the year 2006, which is

    not reflected in the market value.

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    55 M P Birla Institute of Management

    6.1.5 Bank of Maharashtra

    Bank of Maharashtra BV MV F Value P Value

    2003 2004 28.69 29 Rows 2.364268 0.212533

    2004 2005 32.63 34 Columns 1.813284 0.2493562005 - 2006 95.15 29.94

    2006 2007 35.88 52.51

    2007 - 2008 39.85 64.9

    Table 6.9

    Interpretation:

    Since value of P is greater than 5% Level of significance; there is no significant relationship

    between Book Value and Market value.

    Therefore, Null Hypothesis is accepted.

    Alternative Hypothesis is rejected.

    Regression Statistics:

    Multiple R R2

    Intercept Slope T stat for Slope P value

    0.289819 0.083995 67.53581 0.50145 -0.52449 0.636224

    Table 6.10

    Interpretation:

    Since the Multiple R is 28.98% for Book value and Market Value. It shows that there is a

    positively Correlation between Book Value and Market Value.

    Since the Value of R square is 8.39%, this shows that the market value is dependent on

    book value by 8.39% and 91.61% due to other factors.If the book value of the share is 67.53, then the market value is 0.

    If the book value increases by 0.501, then the market value increases by 1.

    Since the probability of getting t stat for slope is higher than 5%, null hypothesis is

    accepted.

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    56 M P Birla Institute of Management

    0

    20

    40

    60

    80

    100

    2004 2005 2006 2007 2008

    Bank of Maharashtra

    BV

    MV

    Chart 6.5

    Interpretation:

    Fromthe above chart it can be seen that, there has been a constant rise in the book value of

    the share, which in turn is reflected in the market value for the periods 2004 and 2005, how ever

    there has been an abnormal increase in the book value in the year 2006, which is not reflected in

    the market value.

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    57 M P Birla Institute of Management

    6.1.6 Canara Bank

    Canara Bank BV MV F Value P Value

    2003 2004 98.15 146.75 Rows 19.50692 0.006902

    2004 2005 125.14 213.56 Columns 81.57854 0.0008322005 - 2006 146.15 249.33

    2006 2007 171.19 259.51

    2007 - 2008 197.83 279

    Table 6.11

    Interpretation:

    Since value of P is lesser than 5% Level of significance; there is significant relationship between

    Book Value and Market value.

    Therefore, Null Hypothesis is rejected.

    Alternative Hypothesis is accepted.

    Regression Statistics:

    Multiple R R2

    Intercept Slope T stat for Slope P value

    0.941594 0.8866 -13.5478 0.702172 4.843032 0.016795

    Table 6.12

    Interpretation:

    Since the Multiple R is 94.16% for Book value and Market Value. It shows that there is a

    highly positively Correlation between Book Value and Market Value.

    Since the Value of R square is 88%, this shows that the market value is dependent on

    book value by 88% and 12% due to other factors.

    If the book value of the share is -13.54, then the market value is 0.

    If the book value increases by 0.702, then the market value increases by 1.

    Since the probability of getting t stat for slope is lesser than 5%, null hypothesis is

    rejected.

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    58 M P Birla Institute of Management

    0

    50

    100

    150

    200

    250

    300

    2004 2005 2006 2007 2008

    Canara Bank

    BV

    MV

    Chart 6.6

    Interpretation:

    Fromthe above chart it can be seen that, there has been a constant rise in the book value

    of the share, which in turn is reflected in the market value.

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    59 M P Birla Institute of Management

    6.1.7 Dena Bank

    Dena Bank BV MV F Value P Value

    2003 2004 24.73 27.52 Rows 4.000915 0.103965

    2004 2005 24.61 32.35 Columns 2.121379 0.2189752005 - 2006 34.61 32.55

    2006 2007 37.15 52.38

    2007 - 2008 43.24 66.02

    Table 6.13

    Interpretation:

    Since value of P is greater than 5% Level of significance; there is no significant relationship

    between Book Value and Market value.

    Therefore, Null Hypothesis is accepted.

    Alternative Hypothesis is rejected.

    Regression Statistics:

    Multiple R R2

    Intercept Slope T stat for Slope P value

    0.891351 0.794506 14.27998 0.440851 3.405725 0.042283

    Table 6.14

    Interpretation:

    Since the Multiple R is 89.13% for Book value and Market Value. It shows that there is a

    highly positively Correlation between Book Value and Market Value.

    Since the Value of R square is 79%, this shows that the market value is dependent on

    book value by 79% and 21% due to other factors.

    If the book value of the share is 14.27, then the market value is 0.

    If the book value increases by 0.44, then the market value increases by 1.

    Since the probability of getting t stat for slope is lesser than 5%, null hypothesis is

    rejected.

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    60 M P Birla Institute of Management

    0 20 40 60 80

    2004

    2005

    2006

    2007

    2008

    Dena Bank

    MV

    BV

    Chart 6.7

    Interpretation:Fromthe above chart it can be seen that, there has been a constant rise in the book value of

    the share, which in turn is reflected in the market value for the periods 2004 and 2005, how ever

    there has been an abnormal increase in the book value in the year 2006, which is not reflected in

    the market value.

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    6.1.8 HDFC Bank

    HDFC Bank BV MV F Value P Value

    2003 2004 79.59 392.65 Rows 1.579714 0.334297

    2004 2005 24.52 611.75 Columns 19.51877 0.0115292005 - 2006 145.86 845

    2006 2007 169.24 1217

    2007 - 2008 201.42 1,474.00

    Table 6.15

    Interpretation:

    Since value of P is lesser than 5% Level of significance; there is significant relationship between

    Book Value and Market value.

    Therefore, Null Hypothesis is rejected.

    Alternative Hypothesis is accepted.

    Regression Statistics:

    Multiple R R2

    Intercept Slope T stat for Slope P value

    0.866439 0.750717 -3.6365 0.140695 3.005746 0.057406

    Table 6.16

    Interpretation:

    Since the Multiple R is 86.64% for Book value and Market Value. It shows that there is a

    highly positively Correlation between Book Value and Market Value.

    Since the Value of R square is 75%, this shows that the market value is dependent on

    book value by 75% and 25% due to other factors.

    If the book value of the share is -3.63, then the market value is 0.

    If the book value increases by 0.140, then the market value increases by 1.

    Since the probability of getting t stat for slope is higher than 5%, null hypothesis is

    accepted.

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    62 M P Birla Institute of Management

    0

    200

    400

    600

    800

    1000

    1200

    1400

    1600

    2004 2005 2006 2007 2008

    HDFC Bank

    BV

    MV

    Chart 6.8

    Interpretation:

    From the chart it can be seen that the market values are constantly increasing irrespective

    of the book values.

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    6.1.9 ICICI Bank

    ICICI Bank BV MV F Value P Value

    2003 2004 75 291.14 Rows 3.099276 0.149494

    2004 2005 75 452 Columns 23.13539 0.0085862005 - 2006 170.34 635

    2006 2007 249.55 977

    2007 - 2008 270.35 1054

    Table 6.17

    Interpretation:

    Since value of P is lesser than 5% Level of significance; there is significant relationship between

    Book Value and Market value.

    Therefore, Null Hypothesis is rejected.

    Alternative Hypothesis is accepted.

    Regression Statistics:

    Multiple R R2

    Intercept Slope T stat for Slope P value

    0.980536 0.961451 -20.4097 0.276401 8.649995 0.00325

    Table 6.18

    Interpretation:

    Since the Multiple R is 98.05% for Book value and Market Value. It shows that there is a

    highly positively Correlation between Book Value and Market Value.

    Since the Value of R square is 96%, this shows that the market value is dependent on

    book value by 96% and 4% due to other factors.

    If the book value of the share is -20.40, then the market value is 0.

    If the book value increases by 0.276, then the market value increases by 1.

    Since the probability of getting t stat for slope is lesser than 5%, null hypothesis is

    rejected.

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    64 M P Birla Institute of Management

    0 500 1000 1500

    2004

    2005

    2006

    2007

    2008

    ICICI Bank

    MV

    BV

    Chart 6.9

    Interpretation:

    From the chart it can be seen that with increase in the book value, the market value have been

    increasing.

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    65 M P Birla Institute of Management

    6.1.10 ING Vysya Bank

    ING Vysya Bank BV MV F Value P Value

    2003 2004 256 128.41 Rows 0.071949 0.987089

    2004 2005 277 162 Columns 7.51E-05 0.9935022005 - 2006 260.65 142.8

    2006 2007 100.1 235

    2007 - 2008 109.19 338

    Table 6.19

    Interpretation:

    Since value of P is greater than 5% Level of significance; there is no significant relationship

    between Book Value and Market value.

    Therefore, Null Hypothesis is accepted.

    Alternative Hypothesis is rejected.

    Regression Statistics:

    Multiple R R2

    Intercept Slope T stat for Slope P value

    0.865847 0.749691 377.3211 -0.87821 -2.99753 0.057783

    Table 6.20

    Interpretation:

    Since the Multiple R is 86.58% for Book value and Market Value. It shows that there is a

    highly positively Correlation between Book Value and Market Value.

    Since the Value of R square is 74%, this shows that the market value is dependent onbook value by 75% and 25% due to other factors.

    If the book value of the share is 377.32, then the market value is 0.

    If the book value decreases by 0.872, then the market value increases by 1.

    Since the probability of getting t stat for slope is higher than 5%, null hypothesis is

    accepted.

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    66 M P Birla Institute of Management

    0

    50

    100

    150

    200

    250

    300

    350

    2004 2005 2006 2007 2008

    ING Vysya

    BV

    MV

    Chart 5.10

    Interpretation:

    From the chart it can be seen that there exits no relationship between the book value and the

    market value.

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    67 M P Birla Institute of Management

    6.2 Cement Sector

    6.2.1 Ambuja Cement

    Ambuja Cement BV MV F P Value

    2003 2004 104.09 42.55 Rows 0.050603 0.993264

    2004 2005 112.69 64.73 Columns 0.95898 0.382891

    2005 - 2006 16.11 108.61

    2006 2007 23.01 131.06

    2007 - 2008 30.6 123.26

    Table 6.21

    Interpretation:

    Since value of P is greater than 5% Level of significance; there is no significant relationship

    between Book Value and Market value.

    Therefore, Null Hypothesis is accepted.

    Alternative Hypothesis is rejected.

    Regression Statistics:

    Multiple R R2

    Intercept Slope T stat for Slope P value

    0.736093 0.541834 38.08998 0.14415 1.883571 0.156143

    Table 6.22

    Interpretation:

    Since the Multiple R is 73.6% for Book value and Market Value. It shows that there is a

    highly positively Correlation between Book Value and Market Value.

    Since the Value of R square is 54%, this shows that the market value is dependent on

    book value by 54% and 46% due to other factors.

    If the book value of the share is 38.09, then the market value is 0.

    If the book value increases by 0.144, then the market value increases by 1.

    Since the probability of getting t stat for slope is higher than 5%, null hypothesis is

    accepted.

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    68 M P Birla Institute of Management

    0

    20

    40

    60

    80

    100

    120

    140

    2004 2005 2006 2007 2008

    Ambuja Cements

    BV

    MV

    Chart 6.11

    Interpretation:

    From the chart it can be seen that with increase book value the market value market value

    is increasing, how ever for the years 2004 and 2005 the book value is greater than the market

    value.

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    69 M P Birla Institute of Management

    6.2.2 ACC

    ACC BV MV F Value P Value

    2003 2004 76.28 264.31 Rows 1.768612 0.297137

    2004 2005 89.36 420.62 Columns 20.0464 0.0110122005 - 2006 115.63 849.6

    2006 2007 167.63 980.6

    2007 - 2008 221.3 813

    Table 6.23

    Interpretation:

    Since value of P is lesser than 5% Level of significance; there is significant relationship between

    Book Value and Market value.

    Therefore, Null Hypothesis is rejected.

    Alternative Hypothesis is accepted.

    Regression Statistics:

    Multiple R R2 Intercept Slope T stat for Slope P value

    0.736093 0.381834 38.08998 0.184415 1.883571 0.156143

    Table 6.24

    Interpretation:

    Since the Multiple R is 73.6% for Book value and Market Value. It shows that there is a

    positive Correlation between Book Value and Market Value.

    Since the Value of R square is 38%, this shows that the market value is dependent on

    book value by 38% and 62% due to other factors.

    If the book value of the share is 38.09, then the market value is 0.

    If the book value increases by 0.1844, then the market value increases by 1.

    Since the probability of getting t stat for slope is higher than 5%, null hypothesis is

    accepted.

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    6.2.3 J K Cement

    J K Cement BV MV F Value P Value

    2003 2004 10 140 Rows 3.392504 0.131889

    2004 2005 10.01 143 Columns 190.2151 0.000162005 - 2006 22.84 170.49

    2006 2007 36.06 172.48

    2007 - 2008 73.7 166.54

    Table 6.25

    Interpretation:

    Since value of P is lesser than 5% Level of significance; there is significant relationship between

    Book Value and Market value.

    Therefore, Null Hypothesis is rejected.

    Alternative Hypothesis is accepted.

    Regression Statistics:

    Multiple R R2

    Intercept Slope T stat for Slope P value

    0.620277 0.384744 -135.005 1.044321 1.369678 0.264303

    Table 6.26

    Interpretation:

    Since the Multiple R is 62.02% for Book value and Market Value. It shows that there is a

    highly positively Correlation between Book Value and Market Value.

    Since the Value of R square is 38%, this shows that the market value is dependent on

    book value by 38% and 62% due to other factors.

    If the book value of the share is -135, then the market value is 0.

    If the book value increases by 1.044, then the market value increases by 1.

    Since the probability of getting t stat for slope is higher than 5%, null hypothesis is

    accepted.

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    72 M P Birla Institute of Management

    JK Cement

    0

    20

    40

    60

    80

    100

    120

    140

    160

    180

    200

    2004 2005 2006 2007 2008

    BV

    MV

    Chart 6.13

    Interpretation:

    From the chart it can be seen that with the increase in the book value there has been

    increase in the market value.

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    73 M P Birla Institute of Management

    6.2.4 Mangalam Cement

    Mangalam Cement BV MV F Value P Value

    2003 2004 -74.78 36.29 Rows 8.309119 0.032139

    2004 2005 13.42 75.86 Columns 47.23948 0.0023482005 - 2006 13.42 165

    2006 2007 37.85 177

    2007 - 2008 50.4 141

    Table 6.27

    Interpretation:

    Since value of P is lesser than 5% Level of significance; there is significant relationship between

    Book Value and Market value.

    Therefore, Null Hypothesis is rejected.

    Alternative Hypothesis is accepted.

    Regression Statistics:

    Multiple R R2

    Intercept Slope T stat for Slope P value

    0.802847 0.644564 -69.2541 0.649552 2.332452 0.10192

    Table 6.28

    Interpretation:

    Since the Multiple R is 80.28% for Book value and Market Value. It shows that there is a

    highly positively Correlation between Book Value and Market Value.

    Since the Value of R square is 64%, this shows that the market value is dependent on

    book value by 64% and 36% due to other factors.

    If the book value of the share is -69.25, then the market value is 0.

    If the book value increases by 0.649, then the market value increases by 1.

    Since the probability of getting t stat for slope is higher than 5%, null hypothesis is

    accepted.

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    74 M P Birla Institute of Management

    Mangalam Cement

    -100 -50 0 50 100 150 200

    2004

    2005

    2006

    2007

    2008

    MV

    BV

    Chart 6.14

    Interpretation:

    From the chart it can be seen that with increase in the book value there has been increase

    in the market value, how ever in the year 2008 there has been a decrease in the market value in

    spite of an increase in the book value.

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    75 M P Birla Institute of Management

    6.2.5 Mysore Cement

    Mysore Cement BV MV F Value P Value

    2003 2004 -1.08 12.23 Rows 5.21463 0.069344

    2004 2005 -6.03 25.93 Columns 13.52365 0.0212512005 - 2006 14.35 47.17

    2006 2007 20.87 50.88

    2007 - 2008 37.6 40.34

    Table 6.29

    Interpretation:

    Since value of P is lesser than 5% Level of significance; there is significant relationship between

    Book Value and Market value.

    Therefore, Null Hypothesis is rejected.

    Alternative Hypothesis is accepted.

    Regression Statistics:

    Multiple R R2

    Intercept Slope T stat for Slope P value

    0.680858 0.463568 -13.1333 0.744131 1.610126 0.20575

    Table 6.30

    Interpretation:

    Since the Multiple R is 68.08% for Book value and Market Value. It shows that there is a

    positive Correlation between Book Value and Market Value.

    Since the Value of R square is 46%, this shows that the market value is dependent on

    book value by 46% and 54% due to other factors.

    If the book value of the share is -13.133, then the market value is 0.

    If the book value increases by 0.744, then the market value increases by 1.

    Since the probability of getting t stat for slope is higher than 5%, null hypothesis is

    accepted.

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    76 M P Birla Institute of Management

    Mysore Cement

    -10

    0

    10

    20

    30

    40

    50

    60

    2004 2005 2006 2007 2008

    BV

    MV

    Chart 6.15

    Interpretation:

    From the chart it can be seen that with increase in the book value there has been increase

    in the market value, how ever in the year 2008 there has been a decrease in the market value in

    spite of an increase in the book value.

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    6.2.6 Ultra Tech Cement

    Ultra Tech Cement BV MV F Value P Value

    2003 2004 10 288.8 Rows 1.582267 0.333751

    2004 2005 86.41 385 Columns 23.84611 0.0081422005 - 2006 85.78 735

    2006 2007 83.45 928

    2007 - 2008 141.7 858

    Table 6.31

    Interpretation:

    Since value of P is lesser than 5% Level of significance; there is significant relationship between

    Book Value and Market value.Therefore, Null Hypothesis is rejected.

    Alternative Hypothesis is accepted.

    Regression Statistics:

    Multiple R R2

    Intercept Slope T stat for Slope P value

    0.707239 0.500188 7.505887 0.115754 1.732701 0.181571

    Table 6.32

    Interpretation:

    Since the Multiple R is 70.72% for Book value and Market Value. It shows that there is a

    positive Correlation between Book Value and Market Value.

    Since the Value of R square is 50%, this shows that the market value is dependent on

    book value by 50% and 50% due to other factors.

    If the book value of the share is 7.50, then the market value is 0.If the book value increases by 0.115, then the market value increases by 1.

    Since the probability of getting t stat for slope is higher than 5%, null hypothesis is

    accepted.

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    78 M P Birla Institute of Management

    0

    100

    200

    300

    400

    500

    600700

    800

    900

    1000

    2004 2005 2006 2007 2008

    UltraTech Cement

    BV

    MV

    Chart 6.16

    Interpretation:From the chart it can be seen that with increase in the book value there has been increase

    in the market value, how ever in the year 2008 there has been a decrease in the market value

    in spite of an increase in the book value.

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    79 M P Birla Institute of Management

    6.2.7 Shree Cement

    Shree Cement BV MV F Value P Value

    2003 2004 63.83 175.52 Rows 1.159482 0.444712

    2004 2005