Calculation of Beta

Beta is a risk metric employed primarily in the equity markets. It measures the systematic risk of a
single instrument or an entire portfolio.
Here we have calculated lever beta to calculate the cost of equity of Ranbaxy. We have calculated
unlevered beta for its peer companies e.g. Cipla, Sun Pharma and DRL.
The calculation of unlevered beta is done in the following steps

1. The unlevered beta is calculated in the following formula

The formula for beta is.

Cov (Zp, Zm)

is the covariance between the stock return and the market return, and

2 is the variance of the market's return

We have taken 64 monthly closing price prior to Apr 2008 as the data point for calculation of variance
and co-variance.

2. We convert the levered beta to unlevered beta as per the following formula

Where:
BL is the firm's beta with leverage.
Tc is the corporate tax rate.
D/E is the company's debt/equity ratio.

Beta of Cipla
We have taken 64 monthly closing price of the stock and then calculate levered beta using the
above formula. We have used the monthly closing price from Jan-03 to Apr-08 as data point.
We have incorporate the share split (1:5) of the company occurred in May 2004.
The unlevered beta of the company found to be 0.780
We found the D/E ratio was 0.15
Corporate tax rate considered was 33.6 %
So the levered beta for the company was 0.86

Beta of DRL
We have taken 64 monthly closing price of the stock and then calculate levered beta using the
above formula. We have used the monthly closing price from Jan-03 to Apr-08 as data point..
The unlevered beta of the company found to be 0.659
We found the D/E ratio was 0.1
Corporate tax rate considered was 33.6 %
So the levered beta for the company was 0.7

Beta of Sun Pharma

We have taken 64 monthly closing price of the stock and then calculate levered beta using the
above formula. We have used the monthly closing price from Jan-03 to Apr-08 as data point..
The unlevered beta of the company found to be 0.935
We found the D/E ratio was 0.02
Corporate tax rate considered was 33.6 %
So the levered beta for the company was 0.95

Beta of Ranbaxy

We have calculate unlevered beta for all the individual peer companies and then take the
mean of the these peer companies beta and then took the average industry unlevered beta. We
have considered the industry unlevered beta is same is that of Ranbaxy. Then we calculate the
levered beta of Ranbaxy using the corporate tax rate and its D/E ratio.
The average of the unlevered beta / industry beta was 0.75
D/E ratio for Ranbaxy was 1.38
So the levered beta calculated for the Ranbaxy was 1.43

Beta Calculation for

Cipla
Monthly Stock Prices
Month

Jan--

1
2
3
4

BSE

Returns

cipla

BSE

cipla

3250.38 33 828.35
8634.48
1900.25
10.62%
3283.66 34 769.25
-7.13% -8.60%
7892.32 1.02%1799.5
3048.72 35 714.45
-7.12%11.36%
8788.81-7.15%
1988.25

11.19%
-5.30%
10.49%

2959.79 36 631.35
-11.63% 6.93%
9397.93-2.92% 2217
3180.75 37 684.55
9919.89 7.47%2206.58.43% 5.55%
3607.13 38
755
10.29% 4.54%
10370.2413.41%2759.5
3792.61 39 820.75
5.14%
11279.96
3309.758.71% 8.77%

4244.73 401010.45
23.11% 6.76%
12042.5611.92% 1304

-60.60%

10398.61 4.91%1147.51.88%-13.65%
4453.24 411029.45
42
10609.25
1079
2.03%
4906.87
1298.7
10.19%
26.15%
43
10743.88
1180
1.27%
5044.82 1201.35
2.81%
-7.50%
44
11699.05
1249.75
8.89%
5838.96 1317.25
15.74%
9.65%
45
12454.42
1311.25
6.46%
5695.67
1201.4
-2.45%
-8.79%
46
12961.9
1310.25
4.07%
5667.51 471195.65
-0.48% 5.67%
13696.31-0.49%
1269.25

-12.00%

5
6

10
11
12
13
14
15
16
17
18

5590.6 481169.95
-2.15% 0.66%
13786.91-1.36%1253.5
5655.09 49 1368.2
1.15%
16.95%
14090.92
1229
2.21%
4759.62 501170.75
-15.83%1166.5
-14.43% -8.18%
12938.09

-0.47%
25.06%
19.94%

-5.97%
9.36%
5.91%
4.92%
-0.08%
-3.13%
-1.24%
-1.95%
-5.09%

1062
-9.29% 1.04%
13072.1 0.75%1178.5
1245
17.23% 6.12%
13872.37 7.82%
1054.25
5192.08 531190.25
-4.40% 4.84%
14544.46 0.42%
1088.25

-10.54%
-4.23%

22

14650.51 7.54%
1042.25
5583.61 541480.25
24.36% 0.73%
15550.99 1.59% 953.5
5672.27 55 1397.5
-5.59% 6.15%

23

15318.6 9.91%836.75
6234.29 561387.25
-0.73% -1.49%

-12.24%

24

17291.1 5.91%
6602.69 571586.25

912
14.34%12.88%

8.99%

25

19837.99-0.71%893.75
6555.94 581433.75
-9.61%14.73%

-2.00%

26

6713.86 59

19363.19 2.41%917.25
1301
-9.26% -2.39%

2.63%

27

6492.82 60

20286.99-3.29% 1063
1274
-2.08% 4.77%

15.89%

28

17648.71-5.21%942.253.49%-13.00%
6154.44 61 1318.5

-11.36%

29

17578.72 9.11%
1036.259.76% -0.40%
6715.11 621447.25

9.98%

30

15644.44 7.13%
1098.758.34%-11.00%
7193.85 63 1568
64
17287.31
1065.25
10.50%
7635.42
1681.5
6.14%
7.24%

19
20
21

31
32

4795.46 51
5170.32 52

11.51%

7805.43

1709

2.23%

1.03%
3.23%
-8.52%

6.03%
-3.05%

1.64%

Unlevered Beta
BSE
Cipla
1.000
0.780
L=u(1+(1-t)D/E)

Tax rate
0.34

D/E
0.15

0.86

Beta Calculation for DRL

Monthly Stock Prices
Month
BSE
DRL

Returns
BSE
DRL

33

8634.48

852.55

10.62%

6.59%

34

7892.32

807.3

-8.60%

-5.31%

35

8788.81

913.7

11.36%

13.18%

36

9397.93

978.5

6.93%

7.09%

37

9919.89

1119.6

5.55%

14.42%

38

10370.24

1302.85

4.54%

16.37%

39

11279.96

1420.3

8.77%

9.01%

40

12042.56

1431.85

6.76%

0.81%

41

10398.61

1357.4

-13.65%

-5.20%

3250.38

903.55

3283.66

876.9

1.02%

-2.95%

3048.72

916.7

-7.15%

4.54%

2959.79

873.55

-2.92%

-4.71%

3180.75

890.2

7.47%

1.91%

3607.13

1094.7

13.41%

22.97%

3792.61

1148.7

5.14%

4.93%

4244.73

1152.6

11.92%

0.34%

42

10609.25

1274

2.03%

-6.14%

4453.24

1057.4

4.91%

-8.26%

43

10743.88

1396.95

1.27%

9.65%

10

4906.87

1195.2

10.19%

13.03%

44

11699.05

720.5

8.89%

-48.42%

6.40%

45

12454.42

731.3

6.46%

1.50%

46

12961.9

748.05

4.07%

2.29%

47

13696.31

750.8

5.67%

0.37%

48

13786.91

811.2

0.66%

8.04%

49

14090.92

742.8

2.21%

-8.43%

50

12938.09

677.2

-8.18%

-8.83%

51

13072.1

727.5

1.04%

7.43%

52

13872.37

709.6

6.12%

-2.46%
-8.48%

11

5044.82

1271.65

2.81%

12

5838.96

1428.05

15.74%

12.30%

13

5695.67

1399.4

-2.45%

-2.01%

14

5667.51

1240.05

-0.49%

-11.39%

15

5590.6

973.95

-1.36%

-21.46%

16

5655.09

869.5

1.15%

-10.72%

17

4759.62

796.25

-15.83%

-8.42%

18

4795.46

735.4

0.75%

-7.64%

53

14544.46

649.45

4.84%

19

5170.32

759.8

7.82%

3.32%

54

14650.51

655.95

0.73%

1.00%

20

5192.08

704.7

0.42%

-7.25%

55

15550.99

633.55

6.15%

-3.41%

21

5583.61

736.85

7.54%

4.56%

56

15318.6

640.8

-1.49%

1.14%

22

5672.27

751.55

1.59%

1.99%

57

17291.1

649

12.88%

1.28%

23

6234.29

793.95

9.91%

5.64%

58

19837.99

620.95

14.73%

-4.32%

24

6602.69

865.3

5.91%

8.99%

59

19363.19

632.15

-2.39%

1.80%

25

6555.94

736.2

-0.71%

-14.92%

60

20286.99

735.35

4.77%

16.33%

26

6713.86

719.65

2.41%

-2.25%

61

17648.71

528.2

-13.00%

-28.17%

27

6492.82

739.1

-3.29%

2.70%

62

17578.72

582.65

-0.40%

10.31%

28

6154.44

637.15

-5.21%

-13.79%

63

15644.44

590.95

-11.00%

1.42%

29

6715.11

724.9

9.11%

13.77%

17287.31

622.45

10.50%

5.33%

30

7193.85

753.2

7.13%

3.90%

7635.42

835.55

6.14%

10.93%

7805.43

799.85

2.23%

-4.27%

3
1
32

Tax rate
0.34

D/E
0.1

0.7

Unlevered Beta
BSE
DRL
1.000
0.659

Beta Calculation for Sun Pharma

Monthly Stock Prices
Month

BSE

Returns

Sun P

BSE

Sun P

33
34

8634.48
7892.32

665.25
601.35

10.62%
-8.60%

-9.61%

6.24%

3250.38

290

35

8788.81

662.5

11.36%

3283.66

280.05

1.02%

-3.43%

10.17%

36

9397.93

682.15

6.93%

3048.72

270.5

-7.15%

-3.41%

2.97%

37

9919.89

695.7

5.55%

2959.79

277.3

-2.92%

2.51%

1.99%

38

10370.24

776.4

4.54%

3180.75

296.4

7.47%

6.89%

11.60%

3607.13

348.3

13.41%

17.51%

39

11279.96

866.4

8.77%

11.59%

3792.61

401.2

5.14%

15.19%

40

12042.56

863.7

6.76%

-0.31%

41

10398.61

805.4

-13.65%

-6.75%

4244.73

504.85

11.92%

25.83%

42

10609.25

790.75

2.03%

-1.82%

4453.24

491.55

4.91%

-2.63%

43

10743.88

817.5

1.27%

3.38%

44

11699.05

905.8

8.89%

10.80%

45

12454.42

930.1

6.46%

2.68%

10

4906.87

536.3

10.19%

9.10%

11

5044.82

602.75

2.81%

12.39%

12

5838.96

595.35

15.74%

-1.23%

13

5695.67

614.45

-2.45%

3.21%

14

5667.51

647.85

-0.49%

5.44%

15

5590.6

649.9

-1.36%

0.32%

16

5655.09

750.95

1.15%

15.55%

51

17

4759.62

385.85

-15.83%

-48.62%

52

18

4795.46

366.2

0.75%

-5.09%

53

19

5170.32

354.45

7.82%

-3.21%

20

5192.08

386.4

0.42%

21

5583.61

427

7.54%

22

5672.27

441.5

1.59%

3.40%

23

6234.29

495.5

9.91%

24

6602.69

554.45

25

6555.94

495.9

26

6713.86

27

6492.82

28

46

12961.9

905.4

4.07%

-2.66%

47

13696.31

1014.9

5.67%

12.09%

48

13786.91

979

0.66%

-3.54%

49

14090.92

1027.75

2.21%

4.98%

50

12938.09

927.55

-8.18%

-9.75%

13072.1

1054

1.04%

13.63%

13872.37

1026.95

6.12%

-2.57%

14544.46

1108.3

4.84%

7.92%

54

14650.51

1022.1

0.73%

-7.78%

9.01%

55

15550.99

930.5

6.15%

-8.96%

10.51%

56

15318.6

931.05

-1.49%

0.06%

57

17291.1

965.5

12.88%

3.70%

12.23%

58

19837.99

1054.2

14.73%

9.19%

5.91%

11.90%

59

19363.19

1102.5

-2.39%

4.58%

-0.71%

-10.56%

60

20286.99

1222.05

4.77%

10.84%

478.25

2.41%

-3.56%

61

17648.71

1138.45

-13.00%

-6.84%

471.4

-3.29%

-1.43%

62

17578.72

1225.9

-0.40%

7.68%

6154.44

500.35

-5.21%

6.14%

63

15644.44

1231.4

-11.00%

0.45%

29

6715.11

525.4

9.11%

5.01%

17287.31

1449.2

10.50%

17.69%

30
3

7193.85

577.05

7.13%

9.83%

7635.42

614.75

6.14%

6.53%

7805.43

626.15

2.23%

1.85%

1
32

Tax rate
0.34

D/E
0.1

0.95

Unlevered Beta
BSE
Sun P
1.000
0.935