An empirical study on the application of stock valuation methods: evidence from pharmaceuticals, automotive and cement industries in Bangladesh

Abstract

This report aims at analyzing the application of stock valuation methods in the context of the Pharmaceutical, Automotive, and Cement industries of Bangladesh. Using the Price-to-Earnings (P/E) ratio, Comparable Company Analysis, and Asset Valuation to evaluate companies in these industries is the context undertaken in this study. The study was performed using data of well-acclaimed companies within each industry such as ACI Limited, Renata Pharmaceuticals, Beacon Pharmaceuticals, IFAD Autos, Aftab Automobiles, Runner Auto, Crown Cement, Premier Cement Mills, and Meghna Cement Mills, to identify potential areas of investment and market insights. The first chapter of this report describes my internship at the International Finance Corporation (IFC), where I worked in the Country Management Unit (CMU). During my three-month internship, I was responsible for a variety of research activities, including developing firm profiles, analyzing market data across numerous sectors, and compiling reports on the capital market and political events in Bangladesh. The chapter also discusses the training and learning objectives I received from the internship, with an emphasis on research, analytical abilities, and understanding the practical applications of financial concepts. In the second chapter, I present a thorough review of the International Finance Corporation (IFC), focusing on its operations in Bangladesh. The IFC's involvement in the country's private sector growth is examined, with a focus on its work in areas such as infrastructure, financial services, and manufacturing. The chapter also discusses the IFC's management techniques, financial performance, and how its strategic emphasis helps Bangladesh achieve its development goals. While financial data for IFC Bangladesh was not publicly available, I conducted a financial analysis using data from IFC globally and made recommendations for future improvements in the country's operations. The third chapter of the research compares stock value in Bangladesh's pharmaceutical, automobile, and cement industries. I used the P/E ratio, Comparable Company Analysis, and Asset Valuation techniques to determine whether companies such as Beacon Pharmaceuticals, Renata Pharmaceuticals, ACI Limited, IFAD Autos, Aftab Automobiles, Runner Auto, Crown Cement, Premier Cement Mills, and Meghna Cement Mills are undervalued or overvalued based on market prices and financial data. The findings indicate that although some firms are undervalued, others, such as Beacon Pharmaceuticals and Meghna Cement Mills, are overvalued based on the P/E ratio and other valuation criteria. This chapter finishes with advice for potential investors and an analysis of the investment attractiveness of various industries. Through this study, I was able to apply my academic expertise in financial analysis to real-world situations. This study not only contributed to my personal and academic development but also improved my awareness of the market dynamics of Bangladesh’s industries.