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CONTENTS

Chapter No.

Name of the concept

Page No.

Introduction

Need of the study

Objectives of the study

Scope of the study

Methodology of the study

Limitations of the study

II

Review of Literature

7-22

III

Industry Profile

23-42

IV

Company Profile

43-52

Data analysis and interpretation

53-73

VI

Findings, Suggestions and Conclusion

74-80

VII

Bibliography

81

Equity Analysis

CHAPTER I - INTRODUCTION

Equity Analysis

INTRODUCTION
India is a developing country. Nowadays many people are interested to invest in financial
markets especially on equities to get high returns, and to save tax in honest way. Equities
are playing a major role in contribution of capital to the business from the beginning.
Since the introduction of shares concept, large numbers of investors are showing interest
to invest in stock market.
In an industry plagued with skepticism and a stock market increasingly difficult to predict
and contend with, if one looks hard enough there may still be a genuine aid for the Day
Trader and Short Term Investor.
The price of a security represents a consensus. It is the price at which one person agrees
to buy and another agrees to sell. The price at which an investor is willing to buy or sell
depends primarily on his expectations. If he expects the security's price to rise, he will
buy it; if the investor expects the price to fall, he will sell it. These simple statements are
the cause of a major challenge in forecasting security prices, because they refer to human
expectations. As we all know firsthand, humans expectations are neither easily
quantifiable nor predictable. If prices are based on investor expectations, then knowing
what a security should sell for (i.e., fundamental analysis) becomes less important than
knowing what other investors expect it to sell for. That's not to say that knowing what a
security should sell for isn't important--it is. But there is usually a fairly strong consensus
of a stock's future earnings that the average investor cannot disprove
Fundamental analysis and technical analysis can co-exist in peace and complement each
other. Since all the investors in the stock market want to make the maximum profits
possible, they just cannot afford to ignore either fundamental or technical analysis.

Equity Analysis

NEED OF THE STUDY


To start any business capital plays major role. Capital can be acquired in two ways by
issuing shares or by taking debt from financial institutions or borrowing money from
financial institutions. The owners of the company have to pay regular interest and
principal amount at the end.
Stock is ownership in a company, with each share of stock representing a tiny piece of
ownership. The more shares you own, the more of the company you own. The more
shares you own, the more dividends you earn when the company makes a profit. In the
financial world, ownership is called Equity.
Advantages of selling stock:

A company can raise more capital than it could borrow.

A company does not have to make periodic interest payments to creditors.

A company does not have to make principal payments

Stock/shares play a major role in acquiring capital to the business in return investors are
paid dividends to the shares they own. The more shares you own the more dividends you
receive.
The role of equity analysis is to provide information to the market. An efficient market
relies on information: a lack of information creates inefficiencies that result in stocks
being misrepresented (over or under valued). This is valuable because it fills information
gaps so that each individual investor does not need to analyze every stock thereby making
the markets more efficient.

Equity Analysis

OBJECTIVES OF THE STUDY


The objective of this project is to deeply analyze our Indian Automobile Industry for
investment purpose by monitoring the growth rate and performance on the basis of
historical data.

The main objectives of the Project study are:

Detailed analysis of Automobile industry which is gearing towards


international standards

Analyze the impact of qualitative factors on industrys and companys


prospects

Comparative analysis of three tough competitors TATA Motors, Maruti Suzuki


and Mahindra and Mahindra through fundamental analysis.

Suggesting as to which companys shares would be best for an investor to


invest.

Equity Analysis

SCOPE OF THE STUDY


The scope of the study is identified after and during the study is conducted. The
project is based on tools like fundamental analysis and ratio analysis. Further, the
study is based on information of last five years.

The analysis is made by taking into consideration five companies i.e. TATA
Motors, Maruti Suzuki and Mahindra and Mahindra.

The scope of the study is limited for a period of five years.

The scope is limited to only the fundamental analysis of the chosen stocks.

Equity Analysis

METHODOLOGY
Research design or research methodology is the procedure of collecting, analyzing
and interpreting the data to diagnose the problem and react to the opportunity in such
a way where the costs can be minimized and the desired level of accuracy can be
achieved to arrive at a particular conclusion.
The methodology used in the study for the completion of the project and the
fulfillment of the project objectives.

The sample of the stocks for the purpose of collecting secondary data has been
selected on the basis of Random Sampling. The stocks are chosen in an unbiased
manner and each stock is chosen independent of the other stocks chosen. The stocks
are chosen from the automobile sector.

The sample size for the number of stocks is taken as 3 for fundamental analysis of
stocks as fundamental analysis is very exhaustive and requires detailed study.

Equity Analysis

LIMITATIONS

This study has been conducted purely to understand Equity analysis for investors.

The study is restricted to three companies based on Fundamental analysis.

The study is limited to the companies having equities.

Detailed study of the topic was not possible due to limited size of the project.

There was a constraint with regard to time allocation for the research study i.e. for
a period of 45 days.

Suggestions and conclusions are based on the limited data of five years.

Equity Analysis

CHAPTER II - REVIEW OF LITERATURE

Equity Analysis

SECURITY ANALYSIS
Investment success is pretty much a matter of careful selection and timing of stock
purchases coupled with perfect matching to an individuals risk tolerance. In order to carry
out selection, timing and matching actions an investor must conduct deep security
analysis.

Investors purchase equity shares with two basic objectives;


1.

To make capital profits by selling shares at higher prices.

2.

To earn dividend income.

These two factors are affected by a host of factors. An investor has to carefully
understand and analyze all these factors. There are basically two approaches to study
security prices and valuation i.e. fundamental analysis and technical analysis

The value of common stock is determined in large measure by the performance of the
firm that issued the stock. If the company is healthy and can demonstrate strength and
growth, the value of the stock will increase. When values increase then prices follow and
returns on an investment will increase. However, just to keep the savvy investor on their
toes, the mix is complicated by the risk factors involved. Fundamental analysis examines
all the dimensions of risk exposure and the probabilities of return, and merges them with
broader economic analysis and greater industry analysis to formulate the valuation of a
stock.

Equity Analysis

FUNDAMENTAL ANALYSIS
Fundamental analysis is a method of forecasting the future price movements of a
financial instrument based on economic, political, environmental and other relevant
factors and statistics that will affect the basic supply and demand of whatever underlies
the financial instrument. It is the study of economic, industry and company conditions
in an effort to determine the value of a companys stock. Fundamental analysis typically
focuses on key statistics in companys financial statements to determine if the stock
price is correctly valued. The term simply refers to the analysis of the economic wellbeing of a financial entity as opposed to only its price movements.

Fundamental analysis is the cornerstone of investing. The basic philosophy underlying


the fundamental analysis is that if an investor invests re.1 in buying a share of a
company, how much expected returns from this investment he has.

The fundamental analysis is to appraise the intrinsic value of a security. It insists that no
one should purchase or sell a share on the basis of tips and rumors. The fundamental
approach calls upon the investors to make his buy or sell decision on the basis of a
detailed analysis of the information about the company, about the industry, and the
economy. It is also known as top-down approach. This approach attempts to study the
economic scenario, industry position and the company expectations and is also known
as economic-industry-company approach (EIC approach).

Equity Analysis

Thus the EIC approach involves three steps:


1.

Economic analysis

2.

Industry analysis

3.

Company analysis

Equity Analysis

1. ECONOMIC ANALYSIS
The level of economic activity has an impact on investment in many ways. If the
economy grows rapidly, the industry can also be expected to show rapid growth and
vice versa. When the level of economic activity is low, stock prices are low, and when
the level of economic activity is high, stock prices are high reflecting the prosperous
outlook for sales and profits of the firms. The analysis of macro economic environment
is essential to understand the behavior of the stock prices.

The commonly analyzed macro economic factors are as follows:

Gross Domestic Product (GDP): GDP indicates the rate of growth of the economy. It
represents the aggregate value of the goods and services produced in the economy. It
consists of personal consumption expenditure, gross private domestic investment and
government expenditure on goods and services and net exports of goods and services.
The growth rate of economy points out the prospects for the industrial sector and the
return investors can expect from investment in shares. The higher growth rate is more
favorable to the stock market.

Savings and investment: It is obvious that growth requires investment which in turn
requires substantial amount of domestic savings. Stock market is a channel through
which the savings are made available to the corporate bodies. Savings are distributed
over various assets like equity shares, deposits, mutual funds, real estate and bullion.
The savings and investment patterns of the public affect the stock to a great extent.

Equity Analysis

Inflation: Along with the growth of GDP, if the inflation rate also increases, then the
real growth would be very little. The effects of inflation on capital markets are
numerous. An increase in the expected rate of inflation is expected to cause a nominal
rise in interest rates. Also, it increases uncertainty of future business and investment
decisions. As inflation increases, it results in extra costs to businesses, thereby
squeezing their profit margins and leading to real declines in profitability.

Interest rates: The interest rate affects the cost of financing to the firms. A decrease in
interest rate implies lower cost of finance for firms and more profitability. More money
is available at a lower interest rate for the brokers who are doing business with
borrowed money. Availability of cheap funds encourages speculation and rise in the
price of shares.

Tax structure: Every year in March, the business community eagerly awaits the
Governments announcement regarding the tax policy. Concessions and incentives
given to a certain industry encourage investment in that particular industry. Tax reliefs
given to savings encourage savings. The type of tax exemption has impact on the
profitability of the industries.

Infrastructure facilities: Infrastructure facilities are essential for the growth of


industrial and agricultural sector. A wide network of communication system is a must
for the growth of the economy. Regular supply of power without any power cut would

Equity Analysis

boost the production. Banking and financial sectors also should be sound enough to
provide adequate support to the industry. Good infrastructure facilities affect the stock
market favorably.

2. INDUSTRY ANALYSIS
An industry is a group of firms that have similar technological structure of production
and produce similar products and Industry analysis is a type of business research that
focuses on the status of an industry or an industrial sector (a broad industry
classification, like "manufacturing"). Irrespective of specific economic situations, some
industries might be expected to perform better, and share prices in these industries may
not decline as much as in other industries. This identification of economic and industry
specific factors influencing share prices will help investors to identify the shares that fit
individual expectations

Industry Life Cycle: The industry life cycle theory is generally attributed to Julius
Grodensky. The life cycle of the industry is separated into four well defined stages.

Pioneering stage: The prospective demand for the product is promising in this
stage and the technology of the product is low. The demand for the product
attracts many producers to produce the particular product. There would be
severe competition and only fittest companies survive this stage. The producers
try to develop brand name, differentiate the product and create a product image.

Equity Analysis

In this situation, it is difficult to select companies for investment because the


survival rate is unknown.

Rapid growth stage: This stage starts with the appearance of surviving firms
from the pioneering stage. The companies that have withstood the competition
grow strongly in market share and financial performance. The technology of the
production would have improved resulting in low cost of production and good
quality products. The companies have stable growth rate in this stage and they
declare dividend to the shareholders. It is advisable to invest in the shares of
these companies.

Maturity and stabilization stage: the growth rate tends to moderate and the rate
of growth would be more or less equal to the industrial growth rate or the gross
domestic product growth rate. Symptoms of obsolescence may appear in the
technology. To keep going, technological innovations in the production process
and products should be introduced. The investors have to closely monitor the
events that take place in the maturity stage of the industry.

Decline stage: demand for the particular product and the earnings of the
companies in the industry decline. It is better to avoid investing in the shares of
the low growth industry even in the boom period. Investment in the shares of
these types of companies leads to erosion of capital.

Growth of the industry: The historical performance of the industry in terms of growth
and profitability should be analyzed. The past variability in return and growth in
reaction to macro economic factors provide an insight into the future.

Equity Analysis

Nature of competition: Nature of competition is an essential factor that determines the


demand for the particular product, its profitability and the price of the concerned
company scrips. The companies' ability to withstand the local as well as the
multinational competition counts much. If too many firms are present in the organized
sector, the competition would be severe. The competition would lead to a decline in the
price of the product. The investor before investing in the scrip of a company should
analyze the market share of the particular company's product and should compare it
with the top five companies.

SWOT analysis: SWOT analysis represents the strength, weakness, opportunity and
threat for an industry. Every investor should carry out a SWOT analysis for the chosen
industry. Take for instance, increase in demand for the industrys product becomes its
strength, presence of numerous players in the market, i.e. competition becomes the
threat to a particular company. The progress in R & D in that industry is an opportunity
and entry of multinationals in the industry is a threat. In this way the factors are to be
arranged and analyzed.

Equity Analysis

3. COMPANY ANALYSIS
In the company analysis the investor assimilates the several bits of information related
to the company and evaluates the present and future values of the stock. The risk and
return associated with the purchase of the stock is analyzed to take better investment
decisions. The present and future values are affected by a number of factors.

Competitive edge of the company: Major industries in India are composed of


hundreds of individual companies. Though the number of companies is large, only few
companies control the major market share. The competitiveness of the company can be
studied with the help of the following;

Market share: The market share of the annual sales helps to determine a
companys relative competitive position within the industry. If the market share
is high, the company would be able to meet the competition successfully. The
companies in the market should be compared with like product groups
otherwise, the results will be misleading.

Growth of sales: The rapid growth in sales would keep the shareholder in a
better position than one with stagnant growth rate. Investors generally prefer
size and growth in sales because the larger size companies may be able to
withstand the business cycle rather than the company of smaller size.

Stability of sales: If a firm has stable sales revenue, it will have more stable
earnings. The fall in the market share indicates the declining trend of company,

Equity Analysis

even if the sales are stable. Hence the stability of sales should be compared with
its market share and the competitors market share.

Earnings of the company: Sales alone do not increase the earnings but the costs and
expenses of the company also influence the earnings. Further, earnings do not always
increase with increase in sales. The companys sales might have increased but its
earnings per share may decline due to rise in costs. Hence, the investor should not only
depend on the sales, but should analyze the earnings of the company.

Financial analysis: The best source of financial information about a company is its
own financial statements. This is a primary source of information for evaluating the
investment prospects in the particular companys stock. Financial statement analysis is
the study of a companys financial statement from various viewpoints. The statement
gives the historical and current information about the companys operations. Historical
financial statement helps to predict the future and the current information aids to
analyze the present status of the company. The two main statements used in the analysis
are Balance sheet and Profit and Loss Account.

The balance sheet is one of the financial statements that companies prepare every year
for their shareholders. It is like a financial snapshot, the company's financial situation at
a moment in time. It is prepared at the year end, listing the company's current assets and
liabilities. It helps to study the capital structure of the company. It is better for the
investor to avoid a company with excessive debt component in its capital structure.

Equity Analysis

From the balance sheet, liquidity position of the company can also be assessed with the
information on current assets and current liabilities.

Ratio analysis: Ratio is a relationship between two figures expressed mathematically.


Financial ratios provide numerical relationship between two relevant financial data.
Financial ratios are calculated from the balance sheet and profit and loss account. The
relationship can be either expressed as a percent or as a quotient. Ratios summarize the
data for easy understanding, comparison and interpretations.

Ratios for investment purposes can be classified into profitability ratios, turnover ratios,
and leverage ratios. Profitability ratios are the most popular ratios since investors prefer
to measure the present profit performance and use this information to forecast the future
strength of the company. The most often used profitability ratios are return on assets,
price earnings multiplier, price to book value, price to cash flow, and price to sales,
dividend yield, return on equity, present value of cash flows, and profit margins.

a) Return on Assets (ROA)


ROA is computed as the product of the net profit margin and the total asset turnover
ratios.
ROA = (Net Profit/Total income) x (Total income/Total Assets)

This ratio indicates the firm's strategic success. Companies can have one of two
strategies: cost leadership, or product differentiation. ROA should be rising or keeping
pace with the company's competitors if the company is successfully pursuing either of

Equity Analysis

these strategies, but how ROA rises will depend on the company's strategy. ROA should
rise with a successful cost leadership strategy because the companys increasing
operating efficiency. An example is an increasing, total asset, turnover ratio as the
company expands into new markets, increasing its market share. The company may
achieve leadership by using its assets more efficiently. With a successful product
differentiation strategy, ROA will rise because of a rising profit margin.

b) Return on Investment (ROI)


ROI is the return on capital invested in business, i.e., if an investment Rs 1 crore in
men, machines, land and material is made to generate Rs. 25 lakhs of net profit, then
the ROI is 25%. The computation of return on investment is as follows:

Return on Investment (ROI) = (Net profit/Equity investments) x 100

As this ratio reveals how well the resources of a firm are being used, higher the ratio,
better are the results. The return on shareholders investment should be compared with
the return of other similar firms in the same industry. The inert-firm comparison of this
ratio determines whether the investments in the firm are attractive or not as the
investors would like to invest only where the return is higher.

c) Return on Equity
Return on equity measures how much an equity shareholder's investment is actually
earning. The return on equity tells the investor how much the invested rupee is earning

Equity Analysis

from the company. The higher the number, the better is the performance of the
company and suggests the usefulness of the projects the company has invested in.
The computation of return on equity is as follows:

Return on equity = (Net profit to owners/value of the specific owner's


Contribution to the business) x 100

The ratio is more meaningful to the equity shareholders who are invested to know
profits earned by the company and those profits which can be made available to pay
dividend to them.

d) Earnings per Share (EPS)


This ratio determines what the company is earning for every share. For many investors,
earnings are the most important tool. EPS is calculated by dividing the earnings (net
profit) by the total number of equity shares.
The computation of EPS is as follows:

Earnings per share = Net profit/Number of shares outstanding

The EPS is a good measure of profitability and when compared with EPS of similar
other companies, it gives a view of the comparative earnings or earnings power of a
firm. EPS calculated for a number of years indicates whether or not earning power of
the company has increased.

Equity Analysis

e) Dividend per Share (DPS)


The extent of payment of dividend to the shareholders is measured in the form of
dividend per share. The dividend per share gives the amount of cash flow from the
company to the owners and is calculated as follows:

Dividend per share = Total dividend payment / Number of shares outstanding

The payment of dividend can have several interpretations to the shareholder. The
distribution of dividend could be thought of as the distribution of excess
profits/abnormal profits by the company. On the other hand, it could also be negatively
interpreted as lack of investment opportunities. In all, dividend payout gives the extent
of inflows to the shareholders from the company.

f) Dividend Payout Ratio


From the profits of each company a cash flow called dividend is distributed among its
shareholders. This is the continuous stream of cash flow to the owners of shares, apart
from the price differentials (capital gains) in the market. The return to the shareholders,
in the form of dividend, out of the company's profit is measured through the payout
ratio. The payout ratio is computed as follows:

Payout Ratio = (Dividend per share / Earnings per share) * 100


The percentage of payout ratio can also be used to compute the percentage of retained
earnings. The profits available for distribution are either paid as dividends or retained

Equity Analysis

internally for business growth opportunities. Hence, when dividends are not declared,
the entire profit is ploughed back into the business for its future investments.

g) Dividend Yield
Dividend yield is computed by relating the dividend per share to the market price of the
share. The market place provides opportunities for the investor to buy the company's
share at any point of time. The price at which the share has been bought from the
market is the actual cost of the investment to the shareholder. The market price is to be
taken as the cum-dividend price. Dividend yield relates the actual cost to the cash flows
received from the company. The computation of dividend yield is as follows

Dividend yield = (Dividend per share / Market price per share) * 100

High dividend yield ratios are usually interpreted as undervalued companies in the
market. The market price is a measure of future discounted values, while the dividend
per share is the present return from the investment. Hence, a high dividend yield
implies that the share has been under priced in the market. On the other hand a low
dividend yield need not be interpreted as overvaluation of shares. A company that does
not pay out dividends will not have a dividend yield and the real measure of the market
price will be in terms of earnings per share and not through the dividend payments.

Equity Analysis

h) Price/Earnings Ratio (P/E)


The P/E multiplier or the price earnings ratio relates the current market price of the
share to the earnings per share. This is computed as follows:

Price/earnings ratio = Current market price / Earnings per share

This ratio is calculated to make an estimate of appreciation in the value of a share of a


company and is widely used by investors to decide whether or not to buy shares in a
particular company. Many investors prefer to buy the company's shares at a low P/E
ratio since the general interpretation is that the market is undervaluing the share and
there will be a correction in the market price sooner or later. A very high P/E ratio on
the other hand implies that the company's shares are overvalued and the investor can
benefit by selling the shares at this high market price.

i) Debt-to-Equity Ratio
Debt-Equity ratio is used to measure the claims of outsiders and the owners against the
firms assets.
Debt-to-equity ratio = Outsiders Funds / Shareholders Funds

The debt-equity ratio is calculated to measure the extent to which debt financing has
been used in a business. It indicates the proportionate claims of owners and the
outsiders against the firms assets. The purpose is to get an idea of the cushion available
to outsiders on the liquidation of the firm.

Equity Analysis

CHAPTER III - INDUSTRY PROFILE

Equity Analysis

FINANCIAL MARKETS
Finance is the pre-requisite for modern business and financial institutions play a vital
role in the economic system. It is through financial markets and institutions that the
financial system of an economy works. Financial markets refer to the institutional
arrangements for dealing in financial assets and credit instruments of different types
such as currency, cheques, bank deposits, bills, bonds, equities, etc.

Financial market is a broad term describing any marketplace where buyers and sellers
participate in the trade of assets such as equities, bonds, currencies and derivatives.
They are typically defined by having transparent pricing, basic regulations on trading,
costs and fees and market forces determining the prices of securities that trade.

Generally, there is no specific place or location to indicate a financial market. Wherever


a financial transaction takes place, it is deemed to have taken place in the financial
market. Hence financial markets are pervasive in nature since financial transactions are
themselves very pervasive throughout the economic system. For instance, issue of
equity shares, granting of loan by term lending institutions, deposit of money into a
bank, purchase of debentures, sale of shares and so on.

In a nutshell, financial markets are the credit markets catering to the various needs of
the individuals, firms and institutions by facilitating buying and selling of financial
assets, claims and services.

Equity Analysis

CLASSIFICATION OF FINANCIAL MARKETS

Financial markets

Organized markets

Capital Markets

Unorganized markets

Money Markets

Industrial Securities
Market

Money Lenders,
Indigenuos Bankers

Call Money Market

Primary Market

Commercial Bill
Market

Secondary market

Treasury Bill Market

Government
Securities Market
Long-term loan
market

Equity Analysis

Capital Market
The capital market is a market for financial assets which have a long or indefinite
maturity. Generally, it deals with long term securities which have a period of above one
year. In the widest sense, it consists of a series of channels through which the savings of
the community are made available for industrial and commercial enterprises and public
authorities. As a whole, capital market facilitates raising of capital.

The major functions performed by a capital market are:


1. Mobilization of financial resources on a nation-wide scale.
2. Securing the foreign capital and know-how to fill up deficit in the required
resources for economic growth at a faster rate.
3. Effective allocation of the mobilized financial resources, by directing the same
to projects yielding highest yield or to the projects needed to promote balanced
economic development.

Capital market consists of primary market and secondary market.


Primary market: Primary market is a market for new issues or new financial claims.
Hence it is also called as New Issue Market. It basically deals with those securities
which are issued to the public for the first time. The market, therefore, makes available
a new block of securities for public subscription. In other words, it deals with raising of
fresh capital by companies either for cash or for consideration other than cash. The best
example could be Initial Public Offering (IPO) where a firm offers shares to the public
for the first time.

Equity Analysis

Secondary market: Secondary market is a market where existing securities are traded.
In other words, securities which have already passed through new issue market are
traded in this market. Generally, such securities are quoted in the stock exchange and it
provides a continuous and regular market for buying and selling of securities. This
market consists of all stock exchanges recognized by the government of India.

Money Market
Money markets are the markets for short-term, highly liquid debt securities. Money
market securities are generally very safe investments which return relatively low
interest rate that is most appropriate for temporary cash storage or short term time
needs. It consists of a number of sub-markets which collectively constitute the money
market namely call money market, commercial bills market, acceptance market, and
Treasury bill market.

Derivatives Market
The derivatives market is the financial market for derivatives, financial instruments like
futures contracts or options, which are derived from other forms of assets. A derivative
is a security whose price is dependent upon or derived from one or more underlying
assets. The derivative itself is merely a contract between two or more parties. Its value
is determined by fluctuations in the underlying asset. The most common underlying
assets include stocks, bonds, commodities, currencies, interest rates and market
indexes. The important financial derivatives are the following:

Equity Analysis

Forwards: Forwards are the oldest of all the derivatives. A forward contract
refers to an agreement between two parties to exchange an agreed quantity of an
asset for cash at a certain date in future at a predetermined price specified in that
agreement. The promised asset may be currency, commodity, instrument etc.

Futures: Future contract is very similar to a forward contract in all respects


excepting the fact that it is completely a standardized one. It is nothing but a
standardized forward contract which is legally enforceable and always traded on
an organized exchange.

Options: A financial derivative that represents a contract sold by one party


(option writer) to another party (option holder). The contract offers the buyer
the right, but not the obligation, to buy (call) or sell (put) a security or other
financial asset at an agreed-upon price (the strike price) during a certain period
of time or on a specific date (exercise date). Call options give the option to buy
at certain price, so the buyer would want the stock to go up. Put options give the
option to sell at a certain price, so the buyer would want the stock to go down.

Swaps: It is yet another exciting trading instrument. Infact, it is the combination


of forwards by two counterparties. It is arranged to reap the benefits arising
from the fluctuations in the market either currency market or interest rate
market or any other market for that matter.

Equity Analysis

Foreign Exchange Market


It is a market in which participants are able to buy, sell, exchange and speculate on
currencies. Foreign exchange markets are made up of banks, commercial companies,
central banks, investment management firms, hedge funds, and retail forex brokers and
investors. The forex market is considered to be the largest financial market in the world.
It is a worldwide decentralized over-the-counter financial market for the trading of
currencies. Because the currency markets are large and liquid, they are believed to be
the most efficient financial markets. It is important to realize that the foreign exchange
market is not a single exchange, but is constructed of a global network of computers
that connects participants from all parts of the world.
Commodities Market
It is a physical or virtual marketplace for buying, selling and trading raw or primary
products. For investors' purposes there are currently about 50 major commodity
markets worldwide that facilitate investment trade in nearly 100 primary
commodities. Commodities are split into two types: hard and soft commodities. Hard
commodities are typically natural resources that must be mined or extracted (gold,
rubber, oil, etc.), whereas soft commodities are agricultural products or livestock (corn,
wheat, coffee, sugar, soybeans, pork, etc.)

Equity Analysis

INDIAN FINANCIAL MARKETS


India Financial market is one of the oldest in the world and is considered to be the
fastest growing and best among all the markets of the emerging economies.

The history of Indian capital markets dates back 200 years toward the end of the
18th century when India was under the rule of the East India Company. The
development of the capital market in India concentrated around Mumbai where
no less than 200 to 250 securities brokers were active during the second half of
the 19th century.
The financial market in India today is more developed than many other sectors because
it was organized long before with the securities exchanges of Mumbai,
Ahmadabad and Kolkata were established as early as the 19th century.
By the early 1960s the total number of securities exchanges in India rose to eight,
including Mumbai, Ahmadabad and Kolkata apart from Madras, Kanpur, Delhi,
Bangalore and Pune. Today there are 21 regional securities exchanges in India
in addition to the centralized NSE (National Stock Exchange) and OTCEI (Over
the Counter Exchange of India).
However the stock markets in India remained stagnant due to stringent controls on the
market economy that allowed only a handful of monopolies to dominate their
respective sectors. The corporate sector wasn't allowed into many industry segments,
which were dominated by the state controlled public sector resulting in stagnation of

Equity Analysis

the economy right up to the early 1990s. Thereafter when the Indian economy began
liberalizing and the controls began to be dismantled or eased out; the securities markets
witnessed a flurry of IPOs that were launched. This resulted in many new companies
across different industry segments to come up with newer products and services.

A remarkable feature of the growth of the Indian economy in recent years has been the
role played by its securities markets in assisting and fuelling that growth with money
rose within the economy. This was in marked contrast to the initial phase of growth in
many of the fast growing economies of East Asia that witnessed huge doses of FDI
(Foreign Direct Investment) spurring growth in their initial days of market decontrol.
During this phase in India much of the organized sector has been affected by high
growth as the financial markets played an all-inclusive role in sustaining financial
resource mobilization. Many PSUs (Public Sector Undertakings) that decided to offload
part of their equity were also helped by the well-organized securities market in India.

The launch of the NSE (National Stock Exchange) and the OTCEI (Over the Counter
Exchange of India) during the mid 1990s by the government of India was meant to
usher in an easier and more transparent form of trading in securities. The NSE was
conceived as the market for trading in the securities of companies from the large-scale
sector and the OTCEI for those from the small-scale sector. While the NSE has not just
done well to grow and evolve into the virtual backbone of capital markets in India the
OTCEI struggled and is yet to show any sign of growth and development. The
integration of IT into the capital market infrastructure has been particularly smooth in

Equity Analysis

India due to the countrys world class IT industry. This has pushed up the operational
efficiency of the Indian stock market to global standards and as a result the country has
been able to capitalize on its high growth and attract foreign capital like never before.

The regulating authority for capital markets in India is the SEBI (Securities and
Exchange Board of India). SEBI came into prominence in the 1990s after the capital
markets experienced some turbulence. It had to take drastic measures to plug many
loopholes that were exploited by certain market forces to advance their vested interests.
After this initial phase of struggle SEBI has grown in strength as the regulator of Indias
capital markets and as one of the countrys most important institutions.

Equity Analysis

FINANCIAL MARKET REGULATIONS


Regulations are an absolute necessity in the face of the growing importance of capital
markets throughout the world. The development of a market economy is dependent on
the development of the capital market. The regulation of a capital market involves the
regulation of securities; these rules enable the capital market to function more
efficiently and impartially.
A well regulated market has the potential to encourage additional investors to partake,
and contribute in, furthering the development of the economy. The chief capital market
regulatory authority is Securities and Exchange Board of India (SEBI).
SEBI is the regulator for the securities market in India. It is the apex body to develop
and regulate the stock market in India It was formed officially by the Government of
India in 1992 with SEBI Act 1992 being passed by the Indian Parliament. Chaired by C
B Bhave, SEBI is headquartered in the popular business district of Bandra-Kurla
complex in Mumbai, and has Northern, Eastern, Southern and Western regional offices
in New Delhi, Kolkata, Chennai and Ahmedabad. In place of Government Control, a
statutory and autonomous regulatory board with defined responsibilities, to cover both
development & regulation of the market, and independent powers has been set up.

The basic objectives of the Board were identified as:

to protect the interests of investors in securities;

to promote the development of Securities Market;

to regulate the securities market and

Equity Analysis

For matters connected therewith or incidental thereto.

Since its inception SEBI has been working targeting the securities and is attending to
the fulfillment of its objectives with commendable zeal and dexterity. The
improvements in the securities markets like capitalization requirements, margining,
establishment of clearing corporations etc. reduced the risk of credit and also reduced
the market.

SEBI has introduced the comprehensive regulatory measures, prescribed registration


norms, the eligibility criteria, the code of obligations and the code of conduct for
different intermediaries like, bankers to issue, merchant bankers, brokers and subbrokers, registrars, portfolio managers, credit rating agencies, underwriters and others.
It has framed bye-laws, risk identification and risk management systems for Clearing
houses of stock exchanges, surveillance system etc. which has made dealing in
securities both safe and transparent to the end investor.

Another significant event is the approval of trading in stock indices (like S&P CNX
Nifty & Sensex) in 2000. A market Index is a convenient and effective product because
of the following reasons:

It acts as a barometer for market behavior;

It is used to benchmark portfolio performance;

It is used in derivative instruments like index futures and index options;

It can be used for passive fund management as in case of Index Funds.

Equity Analysis

Two broad approaches of SEBI is to integrate the securities market at the national level,
and also to diversify the trading products, so that there is an increase in number of
traders including banks, financial institutions, insurance companies, mutual funds,
primary dealers etc. to transact through the Exchanges. In this context the introduction
of derivatives trading through Indian Stock Exchanges permitted by SEBI in 2000 AD
is a real landmark.
SEBI has enjoyed success as a regulator by pushing systemic reforms aggressively and
successively (e.g. the quick movement towards making the markets electronic and
paperless rolling settlement on T+2 bases). SEBI has been active in setting up the
regulations as required under law.

STOCK EXCHANGES IN INDIA


Stock Exchanges are an organized marketplace, either corporation or mutual
organization, where members of the organization gather to trade company stocks or
other securities. The members may act either as agents for their customers, or as
principals for their own accounts.
As per the Securities Contracts Regulation Act, 1956 a stock exchange is an
association, organization or body of individuals whether incorporated or not,
established for the purpose of assisting, regulating and controlling business in buying,
selling and dealing in securities.

Equity Analysis

Stock exchanges facilitate for the issue and redemption of securities and other financial
instruments including the payment of income and dividends. The record keeping is
central but trade is linked to such physical place because modern markets are
computerized. The trade on an exchange is only by members and stock broker do have
a seat on the exchange.
List of Stock Exchanges in India
Bombay Stock Exchange
National Stock Exchange

19. Uttar Pradesh

OTC Exchange of India

20. Vadodara

Regional Stock Exchanges


1. Ahmedabad
2. Bangalore
3. Bhubaneswar
4. Calcutta
5. Cochin
6. Coimbatore
7. Delhi
8. Guwahati
9. Hyderabad
10. Jaipur
11. Ludhiana
12. Madhya Pradesh
13. Madras
14. Magadh
15. Mangalore
16. Meerut
17. Pune
18. Saurashtra Kutch

Equity Analysis

BOMBAY STOCK EXCHANGE

A very common name for all traders in the stock market, BSE, stands for Bombay
Stock Exchange. It is the oldest market not only in the country, but also in Asia. In the
early days, BSE was known as "The Native Share & Stock Brokers Association." It
was established in the year 1875 and became the first stock exchange in the country
to be recognized by the government. In 1956, BSE obtained a permanent recognition
from the Government of India under the Securities Contracts (Regulation) Act, 1956.

In the past and even now, it plays a pivotal role in the development of the country's
capital market. This is recognized worldwide and its index, SENSEX, is also tracked
worldwide. Earlier it was an Association of Persons (AOP), but now it is a
demutualised and corporatised entity incorporated under the provisions of the
Companies Act, 1956, pursuant to the BSE (Corporatisation and Demutualization)
Scheme, 2005 notified by the Securities and Exchange Board of India (SEBI).

BSE Vision
The vision of the Bombay Stock Exchange is to "Emerge as the premier Indian stock
exchange by establishing global benchmarks."

BSE Management
Bombay Stock Exchange is managed professionally by Board of Directors. It
comprises of eminent professionals, representatives of Trading Members and the
Managing Director. The Board is an inclusive one and is shaped to benefit from the
market intermediaries participation.

The Board exercises complete control and formulates larger policy issues. The dayto-day operations of BSE are managed by the Managing Director and its school of
professional as a management team.

BSE Network
The Exchange reaches physically to 417 cities and towns in the country. The
framework of it has been designed to safeguard market integrity and to operate with
transparency. It provides an efficient market for the trading in equity, debt instruments
and derivatives. Its online trading system, popularly known as BOLT, is a proprietary
system and it is BS 7799-2-2002 certified. The BOLT network was expanded,
nationwide, in 1997. The surveillance and clearing & settlement functions of the
Exchange are ISO 9001:2000 certified.

BSE Facts
BSE as a brand is synonymous with capital markets in India. The BSE SENSEX is
the benchmark equity index that reflects the robustness of the economy and finance. It
was the

First in India to introduce Equity Derivatives

First in India to launch a Free Float Index

First in India to launch US$ version of BSE Sensex

First in India to launch Exchange Enabled Internet Trading Platform

First in India to obtain ISO certification for Surveillance, Clearing &


Settlement

'BSE On-Line Trading System (BOLT) has been awarded the globally
recognized the Information Security Management System standard
BS7799-2:2002.

First to have an exclusive facility for financial training

Moved from Open Outcry to Electronic Trading within just 50 days

BSE with its long history of capital market development is fully geared to continue
its contributions to further the growth of the securities markets of the country, thus
helping India increases its sphere of influence in international financial markets.

NATIONAL
LIMITED

STOCK

EXCHANGE

OF

INDIA

The National Stock Exchange of India Limited has genesis in the report of the High
Powered Study Group on Establishment of New Stock Exchanges, which
recommended promotion of a National Stock Exchange by financial institutions (FIs)
to provide access to investors from all across the country on an equal footing. Based
on the recommendations, NSE was promoted by leading Financial Institutions at the
behest of the Government of India and was incorporated in November 1992 as a taxpaying company unlike other stock Exchange in the country.
On its recognition as a stock exchange under the Securities Contracts (Regulation)
Act, 1956 in April 1993, NSE commenced operations in the Wholesale Debt Market
(WDM) segment in June 1994. The Capital Market (Equities) segment commenced
operations in November 1994 and operations in Derivatives segment commenced in
June 2000.
NSE GROUP
National Securities Clearing Corporation Ltd. (NSCCL)
It is a wholly owned subsidiary, which was incorporated in August 1995 and
commenced clearing operations in April 1996. It was formed to build confidence in
clearing and settlement of securities, to promote and maintain the short and consistent

settlement cycles, to provide a counter-party risk guarantee and to operate a tight risk
containment system.

NSE.IT Ltd.
It is also a wholly owned subsidiary of NSE and is its IT arm. This arm of the NSE is
uniquely positioned to provide products, services and solutions for the securities
industry. NSE.IT primarily focuses on in the area of trading, broker front-end and
back-office, clearing and settlement, web-based, insurance, etc. Along with this, it
also provides consultancy and implementation services in Data Warehousing,
Business Continuity Plans, Site Maintenance and Backups, Stratus Mainframe
Facility Management, Real Time Market Analysis & Financial News.

India Index Services & Products Ltd. (IISL)


It is a joint venture between NSE and CRISIL Ltd. to provide a variety of indices and
index related services and products for the Indian Capital markets. It was set up in
May 1998. IISL has a consulting and licensing agreement with the Standard and
Poor's (S&P), world's leading provider of investible equity indices, for co-branding
equity indices.

National Securities Depository Ltd. (NSDL)


NSE joined hands with IDBI and UTI to promote dematerialization of securities. This
step was taken to solve problems related to trading in physical securities. It
commenced operations in November 1996.

NSE Facts

It uses satellite communication technology to energize participation from


around 400 cities in India.

NSE can handle up to 1 million trades per day.

It is one of the largest interactive VSAT based stock exchanges in the world.

The NSE- network is the largest private wide area network in India and the
first extended C- Band VSAT network in the world.

Presently more than 9000 users are trading on the real time-online NSE
application.

Today, NSE is one of the largest exchanges in the world and still forging ahead. At
NSE, we are constantly working towards creating a more transparent, vibrant and
innovative capital market.

OVER THE COUNTER EXCHANGE OF INDIA


OTCEI was incorporated in 1990 as a section 25 company under the companies Act
1956 and is recognized as a stock exchange under section 4 of the securities Contracts
Regulation Act, 1956. The exchange was set up to aid enterprising promotes in raising
finance for new projects in a cost effective manner and to provide investors with a
transparent and efficient mode of trading Modeled along the lines of the NASDAQ
market of USA, OTCEI introduced many novel concepts to the Indian capital markets
such as screen-based nationwide trading, sponsorship of companies, market making

and scrip less trading. As a measure of success of these efforts, the Exchange today
has 115 listings and has assisted in providing capital for enterprises that have gone on
to build successful brands for themselves like VIP Advanta, Sonora Tiles & Brilliant
mineral water, etc.

Need for OTCEI:


Studies by NASSCOM, software technology parks of India, the venture capitals funds
and the governments IT tasks Force, as well as rising interest in IT, Pharmaceutical,
Biotechnology and Media shares have repeatedly emphasized the need for a national
stock market for innovation and high growth companies.

Innovative companies are critical to developing economics like India, which is


undergoing a major technological revolution. With their abilities to generate
employment opportunities and contribute to the economy, it is essential that these
companies not only expand existing operations but also set up new units. The key
issue for these companies is raising timely, cost effective and long term capital to
sustain their operations and enhance growth. Such companies, particularly those that
have been in operation for a short time, are unable to raise funds through the
traditional financing methods, because they have not yet been evaluated by the
financial world.

CHAPTER IV - COMPANY PROFILE

INDIA INFOLINE LIMITED


India Infoline is a one-stop financial services shop, most respected for quality of its
information, personalized service and cutting-edge technology.
Vision
Our vision is to be the most respected company in the financial services space.

India Infoline Group


The India Infoline group, comprising the holding company, India Infoline Limited
and its wholly-owned subsidiaries, include the entire financial services space with
offerings ranging from Equity research, Equities and derivatives trading,
Commodities trading, Portfolio Management Services, Mutual Funds, Life Insurance,
Fixed deposits, GoI bonds and other small savings instruments to loan products and
Investment banking.

India Infoline also owns and manages the websites www.indiainfoline.com and
www.5paisa.com. The company has a network of over 2100 business locations
(branches and sub-brokers) spread across more than 450 cities and towns. The group
caters to approximately a million customers.

Founded in 1995 by Mr. Nirmal Jain (Chairman and Managing Director) as an


independent business research and information provider, the company gradually
evolved into a one-stop financial services solutions provider.

India Infoline received registration for a housing finance company from the National
Housing Bank and received the Fastest growing Equity Broking House - Large
firms in India by Dun & Bradstreet in 2009. It also received the Insurance broking
license from IRDA; received the venture capital license; received in principle
approval to sponsor a mutual fund; received Best broker- India award from Finance
Asia; Most Improved Brokerage- India award from Asia money.

COMPANY STRUCTURE
India Infoline Limited is listed on both the leading stock exchanges in India, viz. the
Stock Exchange, Mumbai (BSE) and the National Stock Exchange (NSE) and is also
a member of both the exchanges. It is engaged in the businesses of Equities broking,
Wealth Advisory Services and Portfolio Management Services. It offers broking
services in the Cash and Derivatives segments of the NSE as well as the Cash
segment of the BSE. It is registered with NSDL as well as CDSL as a depository
participant, providing a one-stop solution for clients trading in the equities market. It
has recently launched its Investment banking and Institutional Broking business.

A SEBI authorized Portfolio Manager; it offers Portfolio Management Services to


clients. These services are offered to clients as different schemes, which are based on
differing investment strategies made to reflect the varied risk-return preferences of
clients.

India Infoline Media and Research Services Limited


The services represent a strong support that drives the broking, commodities, mutual
fund and portfolio management services businesses. It undertakes equities research
which is acknowledged by none other than Forbes as 'Best of the Web' and 'a must
read for investors in Asia'. India Infoline's research is available not just over the
internet but also on international wire services like Bloomberg (Code: IILL),
Thomson First Call and Internet Securities where India Infoline is amongst the most
read Indian brokers.
India Infoline Commodities Limited.
India Infoline Commodities Pvt Limited is engaged in the business of commodities
broking. Their experience in securities broking empowered them with the requisite

skills and technologies to allow them to offer commodities broking as a contracyclical alternative to equities broking. It enjoys memberships with the MCX and
NCDEX, two leading Indian commodities exchanges, and recently acquired
membership of DGCX. It has a multi-channel delivery model, making it among the
select few to offer online as well as offline trading facilities.
India Infoline Marketing & Services
India Infoline Marketing and Services Limited is the holding company of India
Infoline Insurance Services Limited and India Infoline Insurance Brokers Limited.

India Infoline Insurance Services Limited is a registered Corporate Agent with


the Insurance Regulatory and Development Authority (IRDA). It is the largest
Corporate Agent for ICICI Prudential Life Insurance Co Limited, which is
India's largest private Life Insurance Company. India Infoline was the first
corporate agent to get licensed by IRDA in early 2001.

India Infoline Insurance Brokers Limited India Infoline Insurance Brokers


Limited is a newly formed subsidiary which will carry out the business of
Insurance broking.

India Infoline Investment Services Limited


Consolidated shareholdings of all the subsidiary companies engaged in loans and
financing activities under one subsidiary. Recently, Orient Global, a Singapore-based
investment institution invested USD 76.7 million for a 22.5% stake in India Infoline
Investment Services. This will help focused expansion and capital raising in the said

subsidiaries for various lending businesses like loans against securities, SME
financing, distribution of retail loan products, consumer finance business and housing
finance business. India Infoline Investment Services Private Limited consists of the
following step-down subsidiaries.

India Infoline Distribution Company Limited (distribution of retail loan


products)

Moneyline Credit Limited (consumer finance)

India Infoline Housing Finance Limited (housing finance)

IIFL (Asia) Private Limited


IIFL (Asia) Private Limited is wholly owned subsidiary which has been incorporated
in Singapore to pursue financial sector activities in other Asian markets. Further to
obtaining the necessary regulatory approvals, the company has been initially
capitalized at 1 million Singapore dollars.

IIFL MANAGEMENT

THE MANAGEMENT TEAM

Mr. Nirmal Jain, Chairman & Managing Director


Nirmal Jain, MBA (IIM, Ahmadabad) and a Chartered and Cost Accountant, founded
Indias leading financial services company India Infoline Ltd. in 1995,
providing globally acclaimed financial services in equities and
commodities broking, life insurance and mutual funds distribution, among others.

Mr. R Venkataraman, Executive Director


R Venkataraman, co-promoter and Executive Director of India Infoline
Ltd., is a B. Tech (Electronics and Electrical Communications
Engineering, IIT Kharagpur) and an MBA (IIM Bangalore). He joined
the India Infoline board in July 1999.

THE BOARD OF DIRECTORS

Apart from Nirmal Jain and R Venkataraman, the Board of Directors of India Infoline
Ltd. comprises:
Mr. Nilesh Vikamsey, Independent Director
Mr. Vikamsey, Board member since February 2005 - a practicing Chartered
Accountant and partner (Khimji Kunverji & Co., Chartered
Accountants), a member firm of HLB International, headed the audit

department till 1990 and thereafter also handles financial services, consultancy,
investigations, mergers and acquisitions, valuations etc
Mr Sat Pal Khattar, Non Executive Director
Mr Sat Pal Khattar, - Board member since April 2001 - Presidential Council of
Minority Rights member, Chairman of the Board of Trustee of
Singapore Business Federation, is also a life trustee of SINDA, a non
profit body, helping the under-privileged Indians in Singapore. He joined the India
Infoline board in April 2001.
Mr Kranti Sinha, Independent Director
Mr. Kranti Sinha Board member since January 2005 completed
his masters from the Agra University and started his career as a Class I
officer with Life Insurance Corporation of India.
Mr Arun K. Purvar, Independent Director
Mr. A.K. Purvar Board member since March 2008 completed his
Masters degree in commerce from Allahabad University in 1966 and a
diploma in Business Administration in 1967.

PRODUCTS & SERVICES


Equities
India Infoline provided the prospect of researched investing to its clients, which was
hitherto restricted only to the institutions. Research for the retail investor did not exist
prior to India Infoline. India Infoline leveraged technology to bring the convenience
of trading to the investors location of preference (residence or office) through
computerized access. India Infoline made it possible for clients to view transaction
costs and ledger updates in real time. The Company is among the few financial
intermediaries in India to offer a complement of online and offline broking. The
Companies network of branches also allows customers to place orders on phone or
visit our branches for trading.
Commodities
India Infolines extension into commodities trading reconciles its strategic intent to
emerge as a one stop solutions financial intermediary. Its experience in securities
broking has empowered it with requisite skills and technologies. The Companies
commodities business provides a contra-cyclical alternative to equities broking. The
Company was among the first to offer the facility of commodities trading in Indias
young commodities market (the MCX commenced operations in 2003). Average
monthly turnover on the commodity exchanges increased from Rs 0.34 bn to Rs
20.02 bn.

Insurance
An entry into this segment helped complete the client's product basket; concurrently,
it graduated the Company into a one stop retail financial solutions provider. To ensure
maximum reach to customers across India, it has employed a multi pronged approach
and reaches out to customers via our Network, Direct and Affiliate channels. India
Infoline was the first corporate in India to get the agency license in early 2001.
Invest Online
India Infoline has made investing in Mutual funds and primary market so effortless.
Only registration is needed. No paperwork no queues and No registration
charges. India Infoline offers a host of mutual fund choices under one roof,
backed by in-depth research and advice from research house and tools configured
as investor friendly.
Wealth Management
The key to achieving a successful Investment Portfolio is to have a carefully planned
financial strategy based on a thorough understanding of the client's investment
needs and risk appetite. The IIFL Private Wealth Management Team of financial
experts will recommend an appropriate financial strategy to effectively meet
customers investment requirements.

Asset Management
India Infoline is a leading pan-India mutual fund distribution house associated with
leading asset management companies. It operates primarily in the retail segment
leveraging its existing distribution network to reach prospective clients. It has
received the in-principle approval to set up a mutual fund.
Portfolio Management
IIFL Portfolio Management Service is a product wherein an equity investment
portfolio is created to suit the investment objectives of a client. India Infoline
invests the clients resources into stocks from different sectors, depending on
clients risk-return profile. This service is particularly advisable for investors who
cannot afford to give time or don't have that expertise for day-to-day
management of their equity portfolio.
Newsletters
As a subscriber to the Daily Market Strategy, clients get research reports of India
Infoline research team on a priority basis. The Indiainfoline Weekly Newsletter is
the flashback for the week gone by. A weekly outlook coupled with the best of
the web stories from Indiainfoline and links to important investment ideas,
Leader Speak and features is delivered in the clients inbox every Friday evening.

CHAPTER V
DATA ANALYSIS & INTERPRETATIONS

ANALYSIS OF AUTOMOBILE INDUSTRY


Over a period of more than two decades the Indian Automobile industry has been
driving its own growth through phases. With comparatively higher rate of economic
growth rate index against that of great global powers, India has become a hub of
domestic and exports business. The automobile sector has been contributing its share
to the shining economic performance of India in the recent years.
To understand this industry for the purpose of investment we need to analyze it by the
following approach:
Fundamental Analysis (E.I.C Approach)
a. Economy analysis
b. Industry analysis
c. Company analysis

Fundamental Analysis

Fundamental analysis is the study of economic, industry and company conditions in


an effort to determine the value of a company s stock. Fundamental analysis typically
focuses on key statistics in company s financial statements to determine if the stock
price is correctly valued.

Most fundamental information focuses on economic, industry and company statistics.


The typical approach to analyzing a company involves three basic steps:

1. Determine the condition of the general economy.


2. Determine the condition of the industry.
3. Determine the condition of the company.

1. ECONOMY ANALYSIS
Economic analysis is the analysis of forces operating the overall economy a country.
Economic analysis is a process whereby strengths and weaknesses of an economy are
analyzed. Economic analysis is important in order to understand exact condition of an
economy.
GDP and Automobile Industry
In absolute terms, India is 16th in the world in
terms of nominal factory output. The service
sector is growing rapidly in the past few years.
This is the pie- chart showing contributions of
different sectors in Indian economy.

Today, automobile sector in India is one of the key sectors of the economy in terms of
the employment. Directly and indirectly it employs more than 10 million people and
if we add the number of people employed in the auto-component and auto ancillary
industry then the number goes even higher.
As the world economy slipped into recession hitting the demand hard and the banking
sector takes conservative approach towards lending to corporate sector, the GDP
growth has downgraded it to 7.1 per cent for 2008-09 and it has increased to 8.6% in
2010 by overcoming the setbacks of recession.
Recession
Auto industry in India had been hit hard by ongoing global financial recession. But it
is in a good shape now. Much of this optimism resulted from renewed interest being
shown in India auto industry by reputed overseas car makers. Nissan Motors which is
a well known Japanese car making company regarded India automobile market as a
global car manufacturing hub for future and invested huge amount in our market.
There are some other automobile companies of world who have shown interest in
India auto market. Major names among these are General Motors, Skoda Auto and
Mercedes-Benz. These companies have major plans lined up for India auto industry.
These are few signs of the revolutionized auto industry after recession.

Inflation
The rise in inflation will have adverse impact on the industry that will not only see
interest rates getting further hardened but also a drop in demand due to the squeeze in
purchasing power. The effect of inflation has affected every sector which is related to
car manufacturing and production. The increase in the price of fuel and the steel due
to inflation has led to a slower growth rate of the car industry in India.
Foreign Direct Investment
The automobile sector in the Indian industry is one of the high performing sectors of
the Indian economy. This has contributed largely in making India a prime destination
for many international players in the automobile industry who wish to set up their
businesses in India. Automatic approval for foreign equity investment up to 100 per
cent of manufacture of automobiles and component is permitted.
Exports
Despite recession, the Indian automobile market continues to perform better than
most of the other industries in the economy in coming future; more and more MNCs
coming in India to setup their ventures which clearly shows the scope of expansion.
During April-January 2010, overall automobile exports registered a growth rate of
13.24 percent.

2. INDUSTRY ANALYSIS (AUTOMOBILE)


The automobile industry in India is the ninth largest in the world with an annual
production of over 2.3 million units in 2008. In 2009, India emerged as Asia's fourth
largest exporter of automobiles, behind Japan, South Korea and Thailand. The
Automobile Industry is one of the fastest growing sectors in India. The increase in the
demand for cars, and other vehicles, powered by the increase in the income is the
primary growth driver of the automobile industry in India. In 2009, estimated rate of
growth of India Auto industry is going to be 9% .The Indian automobile sector is far
from being saturated, leaving ample opportunity for volume growth.

Segmentation of Automobile Industry


The automobile industry comprises of Heavy
vehicles

(trucks, buses, tempos, tractors);

passenger cars; Two-wheelers; Commercial


Vehicles; and Three-wheelers. Following is the
segmentation that how much each sector
comprises of whole Indian Automobile Industry.
Industry life cycle
The industrial life cycle is a term used for classifying industry life over time. Industry
life cycle classification generally groups industries into one of four stages: pioneer,
growth, maturity and decline. In the pioneer phase, the product has not been widely
accepted or adopted. Business strategies are developing, and there is high risk of

failure. However, successful companies can grow at extraordinary rates. The Indian
automobile sector has passed this stage quite successfully. The industry is growing
rapidly, often at an accelerating rate of sales and earnings growth. Indian Automotive
Industry is booming with a growth rate of around 15 % annually. The growth rate of
the automobile industry in India is greater than the GDP growth rate of the economy,
so the automobile sector can be very well be said to be in the growth phase.
Swot analysis:
A scan of the internal and external environment is an important part of the strategic
planning process. Environmental factors internal to the firm usually can be classified
as strengths (S) or weaknesses (W), and those external to the firm can be classified as
opportunities (O) or threats (T). Such an analysis of the strategic environment is
referred to as a SWOT analysis. SWOT analysis of the Indian automobile sector gives
the following points:
1. Strengths

Large domestic market

Sustainable labor cost advantage

Competitive auto component vendor base

Government incentives for manufacturing plants

Strong engineering skills in design etc

2. Weaknesses

Low labor productivity

High interest costs and high overheads make the production uncompetitive

Various forms of taxes push up the cost of production

Low investment in Research and Development

Infrastructure bottleneck

3. Opportunities

Increasing challenges in consumer demands, technology development, and


globalization.

Heavy thrust on mining and construction activity

Increase in the income level

Cut in excise duties

4. Threats

Ignorance of Research & development

Rising interest rates

Cut throat competition

3. COMPANY ANALYSIS
The company analysis shows the long-term strenght of the company that what is the
financial position of the company in the market, where it stands among its
competitors and who are the key drivers of the company, what are the future plans of

the company, what are the policies of government towards the company and how the
stake of the company divested among different groups of people.
Here, I have taken three companies namely TATA Motors, Maruti Suzuki and
Mahindra and Mahindra for the purpose of fundamental analysis.

Tata Motors Limited is India's largest automobile company, with consolidated


revenues of Rs. 92,519 crores (USD 20 billion) in 2009-10. It is the leader in
commercial vehicles in each segment, and among the top three in passenger vehicles
with winning products in the compact, midsize car and utility vehicle segments. The
company is the world's fourth largest truck manufacturer, and the world's second
largest bus manufacturer.

Maruti Suzuki is a subsidiary of Suzuki Motor Corporation Japan. More than half the
numbers of cars sold in India wear Maruti Suzuki badge. They offer a full range of
cars from entry level Maruti 800 & Alto to stylish hatchback Ritz, A star, Swift,
Wagon R, Estillo and sedans Dzire, SX4 and Sports Utility Vehicle Grand Vitara.
Since inception, it has produced and sold over 7.5 million vehicles in India and
exported over 500,000 units to Europe and other countries. Its turnover for the fiscal
2008-09 stood at Rs. 203,583 Million & Profit after Tax at Rs. 12,187 Million.

The Mahindra Groups Automotive Sector is in the business of manufacturing and


marketing utility vehicles and light commercial vehicles, including three-wheelers. It
is the market leader in utility vehicles in India since inception, and currently accounts
for about half of Indias market for utility vehicles. The Automotive Sector continues
to be a leader in the utility vehicle segment with a diverse portfolio that includes mass
transport as well as new generation vehicles like Scorpio, Bolero and the recently
launched Xylo.

TATA MOTORS - Balance sheet


Balance Sheet of Tata
Motors
Mar '05

Mar '06

Mar '07

Mar '08

Mar '09

Total Share Capital

361.79

382.87

385.41

385.54

514.05

Equity Share Capital

361.79

382.87

385.41

385.54

514.05

Share Application Money


Reserves

0.00
3,749.60

0.00
5,127.81

0.00
6,458.39

0.00
7,428.45

0.00
11,855.15

Revaluation Reserves
Networth

0.00
4,111.39

26.39
5,537.07

25.95
6,869.75

25.51
7,839.50

25.07
12,394.27

489.81

822.76

2,022.04

2,461.99

5,251.65

Unsecured Loans

2,005.61

2,114.08

1,987.10

3,818.53

7,913.91

Total Debt

2,495.42

2,936.84

4,009.14

6,280.52

13,165.56

Total Liabilities

6,606.81

8,473.91

10,878.89

14,120.02

25,559.83

Gross Block

6,611.95

7,971.55

8,775.80

10,830.83

13,905.17

Less: Accum. Depreciation


Net Block

3,454.28
3,157.67

4,401.51
3,570.04

4,894.54
3,881.26

5,443.52
5,387.31

6,259.90
7,645.27

538.84

951.19

2,513.32

5,064.96

6,954.04

Investments

2,912.06

2,015.15

2,477.00

4,910.27

12,968.13

Inventories

1,601.36

2,012.24

2,500.95

2,421.83

2,229.81

Sundry Debtors

811.32

715.78

782.18

1,130.73

1,555.20

Cash and Bank Balance

345.26

327.66

535.78

750.14

638.17

Total Current Assets

2,757.94

3,055.68

3,818.91

4,302.70

4,423.18

Loans and Advances

2,831.16

5,964.61

6,208.53

4,831.36

5,909.75

Fixed Deposits
Total CA, Loans & Advances

1,659.78
7,248.88

791.77
9,812.06

290.98
10,318.42

1,647.17
10,781.23

503.65
10,836.58

0.00

0.00

0.00

0.00

0.00

Current Liabilities

6,142.74

6,673.61

6,956.88

10,040.37

10,968.95

Provisions

1,126.06

1,215.04

1,364.32

1,989.43

1,877.26

Total CL & Provisions

7,268.80

7,888.65

8,321.20

12,029.80

12,846.21

Net Current Assets

-19.92

1,923.41

1,997.22

-1,248.57

-2,009.63

Total Assets
Contingent Liabilities

6,606.81
1,450.32

8,473.91
2,185.63

10,878.89
5,196.07

14,120.02
5,590.83

25,559.83
5,433.07

113.65

143.94

177.59

202.70

240.64

Sources of funds

Secured Loans

Application of funds

Capital Work in Progress

Deffered Credit

Book Value (Rs)

TATA MOTORS Profit & Loss account


Profit & Loss account of Tata
Motors
Mar '05

Mar '06

Mar '07

Mar '08

Mar '09

Income
Sales Turnover

20,262.61

23,490.55

31,089.69

33,123.54

28,538.20

Excise Duty
Net Sales

3,063.44
17,199.17

3,401.92
20,088.63

4,425.44
26,664.25

4,355.63
28,767.91

2,877.53
25,660.67

Other Income

403.98
144.00
17,747.15

852.41
256.91
21,197.95

1,114.38
349.68
28,128.31

734.17
-40.48
29,461.60

921.29
-238.04
26,343.92

12,245.28
237.81
1,039.34

14,633.02
258.51
1,143.13

19,879.56
327.41
1,367.83

20,891.33
325.19
1,544.57

18,801.37
304.94
1,551.39

Other Manufacturing Expenses

592.64

671.31

872.95

904.95

866.65

Selling and Admin Expenses

890.21

1,061.07

1,505.23

2,197.49

1,652.31

Miscellaneous Expenses

620.27

740.99

1,051.49

964.78

1,438.89

-282.43
15,343.12

-308.85
18,199.18

-577.05
24,427.42

-1,131.40
25,696.91

-916.02
23,699.53

Operating Profit

2,000.05

2,146.36

2,586.51

3,030.52

1,723.10

PBDIT

2,404.03

2,998.77

3,700.89

3,764.69

2,644.39

234.30

350.24

455.75

471.56

704.92

2,169.73

2,648.53

3,245.14

3,293.13

1,939.47

450.16
67.12

520.94
73.78

586.29
85.02

652.31
64.35

874.54
51.17

Profit Before Tax


Extra-ordinary items

1,652.45
-1.54

2,053.81
0.00

2,573.83
-0.07

2,576.47
0.00

1,013.76
15.29

PBT (Post Extra-ord Items)


Tax

1,650.91
415.50

2,053.81
524.93

2,573.76
660.37

2,576.47
547.55

1,029.05
12.50

Reported Net Profit


Total Value Addition

1,236.95
3,097.84

1,528.88
3,566.16

1,913.46
4,547.86

2,028.92
4,805.58

1,001.26
4,898.16

0.00
452.19
63.42

0.00
497.94
69.84

0.00
578.07
98.25

0.00
578.43
81.25

0.00
311.61
34.09

3,617.52
34.19
125.00
113.65

3,828.34
39.94
130.00
143.94

3,853.74
49.65
150.00
177.59

3,855.04
52.63
150.00
202.70

5,140.08
19.48
60.00
240.64

Stock Adjustments
Total Income
Expenditure
Raw Materials
Power & Fuel Cost
Employee Cost

Preoperative Exp Capitalised


Total Expenses

Interest
PBDT
Depreciation
Other Written Off

Preference Dividend
Equity Dividend
Corporate Dividend Tax
Per share data (annualised)
Shares in issue (lakhs)
Earning Per Share (Rs)
Equity Dividend (%)
Book Value (Rs)

MARUTI SUZUKI Balance Sheet

Balance Sheet of Maruti


Suzuki India
Mar '05

Mar '06

Mar '07

Mar '08

Mar '09

144.50
144.50
0.00

144.50
144.50
0.00

144.50
144.50
0.00

144.50
144.50
0.00

144.50
144.50
0.00

4,234.30
0.00
4,378.80
307.60

5,308.10
0.00
5,452.60
71.70

6,709.40
0.00
6,853.90
63.50

8,270.90
0.00
8,415.40
0.10

9,200.40
0.00
9,344.90
0.10

0.00

0.00

567.30

900.10

698.80

307.60
4,686.40

71.70
5,524.30

630.80
7,484.70

900.20
9,315.60

698.90
10,043.80

Gross Block
Less: Accum. Depreciation
Net Block
Capital Work in Progress
Investments
Inventories
Sundry Debtors
Cash and Bank Balance
Total Current Assets

5,053.10
3,179.40
1,873.70
42.10
1,516.60
666.60
599.50
79.40
1,345.50

4,954.60
3,259.40
1,695.20
92.00
2,051.20
881.20
654.80
51.60
1,587.60

6,146.80
3,487.10
2,659.70
238.90
3,409.20
713.20
747.40
114.80
1,575.40

7,285.30
3,988.80
3,296.50
736.30
5,180.70
1,038.00
655.50
324.00
2,017.50

8,720.60
4,649.80
4,070.80
861.30
3,173.30
902.30
918.90
239.00
2,060.20

Loans and Advances


Fixed Deposits
Total CA, Loans & Advances
Deffered Credit
Current Liabilities
Provisions
Total CL & Provisions
Net Current Assets
Miscellaneous Expenses

801.90
950.00
3,097.40
0.00
1,454.20
389.20
1,843.40
1,254.00
0.00

933.10
1,350.00
3,870.70
0.00
1,704.80
480.00
2,184.80
1,685.90
0.00

1,072.60
1,308.00
3,956.00
0.00
2,288.60
490.50
2,779.10
1,176.90
0.00

1,173.00
0.00
3,190.50
0.00
2,718.90
369.50
3,088.40
102.10
0.00

1,809.80
1,700.00
5,570.00
0.00
3,250.90
380.70
3,631.60
1,938.40
0.00

Total Assets
Contingent Liabilities
Book Value (Rs)

4,686.40
893.60
151.56

5,524.30
1,289.70
188.73

7,484.70
2,094.60
237.23

9,315.60
2,734.20
291.28

10,043.80
1,901.70
323.45

Sources Of Funds
Total Share Capital
Equity Share Capital
Share Application Money
Reserves
Revaluation Reserves
Networth
Secured Loans
Unsecured Loans
Total Debt
Total Liabilities
Application Of Funds

MARUTI SUZUKI Profit & Loss account


Profit & Loss account of
Maruti Suzuki
Mar '05

Mar '06

Mar '07

Mar '08

Mar '09

Sales Turnover
Excise Duty
Net Sales
Other Income

13,458.20
2,411.90
11,046.30
187.50

14,898.80
2,700.90
12,197.90
184.40

17,358.40
2,552.00
14,806.40
338.10

21,200.40
3,133.60
18,066.80
494.00

23,381.50
2,652.10
20,729.40
491.70

Stock Adjustments
Total Income
Expenditure
Raw Materials

141.70
11,375.50

199.70
12,582.00

-200.70
14,943.80

336.30
18,897.10

-356.60
20,864.50

8,650.20

9,423.40

10,863.00

13,958.30

15,983.20

Power & Fuel Cost


Employee Cost
Other Manufacturing Expenses
Selling and Admin Expenses
Miscellaneous Expenses
Preoperative Exp Capitalized
Total Expenses
Operating Profit
PBDIT
Interest
PBDT
Depreciation
Other Written Off
Profit Before Tax

58.10
196.00
215.70
374.27
121.73
-22.40
9,593.60
1,594.40
1,781.90
36.00
1,745.90
456.80
16.30
1,272.80

57.20
228.70
302.40
349.51
145.39
-6.70
10,499.90
1,897.70
2,082.10
20.40
2,061.70
285.40
0.00
1,776.30

97.40
288.40
392.40
483.26
239.44
-14.30
12,349.60
2,256.10
2,594.20
37.60
2,556.60
271.40
0.00
2,285.20

147.30
356.20
523.30
521.48
287.62
-19.80
15,774.40
2,628.70
3,122.70
59.60
3,063.10
568.20
0.00
2,494.90

193.60
471.10
716.10
751.06
303.44
-22.30
18,396.20
1,976.60
2,468.30
51.00
2,417.30
706.50
0.00
1,710.80

Extra-ordinary items
PBT (Post Extra-ord Items)
Tax

51.40
1,324.20
446.50

5.40
1,781.70
560.90

33.40
2,318.60
705.30

76.60
2,571.50
763.30

37.90
1,748.70
457.10

Reported Net Profit

853.60

1,189.10

1,562.00

1,730.80

1,218.70

Total Value Addition

943.40

1,076.50

1,486.60

1,816.10

2,413.00

Preference Dividend
Equity Dividend

0.00
57.80

0.00
101.10

0.00
130.00

0.00
144.50

0.00
101.10

8.20

14.20

21.90

24.80

17.20

2,889.10

2,889.10

2,889.10

2,889.10

2,889.10

29.55
40.00
151.56

41.16
70.00
188.73

54.07
90.00
237.23

59.91
100.00
291.28

42.18
70.00
323.45

Income

Corporate Dividend Tax


Per share data (annualized)
Shares in issue (lakhs)
Earning Per Share (Rs)
Equity Dividend (%)
Book Value (Rs)

MAHINDRA & MAHINDRA Balance Sheet


Balance Sheet of
Mahindra and Mahindra
Mar '05

Mar '06

Mar '07

Mar '08

Mar '09

116.01

233.40

238.03

239.07

272.62

116.01
0.00
0.00
1,881.93

233.40
0.00
0.00
2,662.14

238.03
0.00
0.00
3,302.01

239.07
0.00
0.00
4,098.53

272.62
0.00
0.00
4,959.26

Revaluation Reserves
Networth
Secured Loans
Unsecured Loans
Total Debt
Total Liabilities
Application Of Funds
Gross Block
Less: Accum. Depreciation
Net Block

14.32
2,012.26
336.82
715.80
1,052.62
3,064.88

13.33
2,908.87
216.68
666.71
883.39
3,792.26

12.86
3,552.90
106.65
1,529.35
1,636.00
5,188.90

12.47
4,350.07
617.26
1,969.80
2,587.06
6,937.13

12.09
5,243.97
981.00
3,071.76
4,052.76
9,296.73

2,676.51
1,335.56
1,340.95

2,859.25
1,510.27
1,348.98

3,180.57
1,639.12
1,541.45

3,552.64
1,841.68
1,710.96

4,893.89
2,326.29
2,567.60

Capital Work in Progress


Investments
Inventories

133.93
1,189.79
759.83

205.46
1,669.09
878.74

329.72
2,237.46
878.48

649.94
4,215.06
1,084.11

646.73
5,786.41
1,060.67

Sundry Debtors

511.53

637.97

700.89

1,004.88

1,043.65

Cash and Bank Balance

198.07

258.39

415.89

310.58

635.61

1,469.43
461.07

1,775.10
558.02

1,995.26
1,011.50

2,399.57
866.19

2,739.93
1,402.45

425.91

471.92

910.18

550.65

938.82

2,356.41

2,805.04

3,916.94

3,816.41

5,081.20

0.00

0.00

0.00

0.00

0.00

1,480.87
499.71
1,980.58

1,711.23
543.14
2,254.37

2,138.77
715.43
2,854.20

2,525.31
943.46
3,468.77

3,520.20
1,277.56
4,797.76

375.83

550.67

1,062.74

347.64

283.44

24.38

18.05

17.55

13.53

12.55

3,064.88
758.14
178.95

3,792.25
946.36
124.06

5,188.92
1,008.27
148.72

6,937.13
985.35
181.43

9,296.73
1,220.39
191.91

Sources Of Funds
Total Share Capital
Equity Share Capital
Share Application Money
Preference Share Capital
Reserves

Total Current Assets


Loans and Advances
Fixed Deposits
Total CA, Loans & Advances
Deffered Credit
Current Liabilities
Provisions
Total CL & Provisions
Net Current Assets
Miscellaneous Expenses
Total Assets
Contingent Liabilities
Book Value (Rs)

MAHINDRA & MAHINDRA Profit & Loss account


Profit & Loss account of
Mahindra and Mahindra
Mar '05

Mar '06

Mar '07

Mar '08

Mar '09

7,649.51
1,054.82

9,273.09
1,136.50

11,231.99
1,310.65

12,894.94
1,584.57

14,713.03
1,587.05

Net Sales
Other Income
Stock Adjustments
Total Income
Expenditure
Raw Materials
Power & Fuel Cost
Employee Cost
Other Manufacturing Expenses
Selling and Admin Expenses

6,594.69
209.74
174.05
6,978.48

8,136.59
455.20
103.20
8,694.99

9,921.34
531.17
6.41
10,458.92

11,310.37 13,125.98
575.96
369.85
149.11
-156.29
12,035.44 13,339.54

4,829.29
52.64
464.25
48.01
545.57

5,885.21
57.46
551.78
54.44
667.99

6,937.16
65.19
666.15
68.80
891.29

7,963.82
91.33
853.65
73.35
1,108.33

9,208.71
98.69
1,024.61
75.36
954.83

Miscellaneous Expenses
Preoperative Exp Capitalized
Total Expenses

141.95
-31.84
6,049.87

177.89
-26.53
7,368.24

210.03
-47.10
8,791.52

257.84
-46.49
10,301.83

558.07
-42.83
11,877.44

Operating Profit
PBDIT
Interest

718.87
928.61
30.24

871.55
1,326.75
26.96

1,136.23
1,667.40
19.80

1,157.65
1,733.61
87.59

1,092.25
1,462.10
134.12

PBDT
Depreciation
Other Written Off

898.37
184.05
0.15

1,299.79
200.01
0.28

1,647.60
209.59
0.33

1,646.02
238.66
0.59

1,327.98
291.51
0.00

Profit Before Tax


Extra-ordinary items

714.17
0.00

1,099.50
0.00

1,437.68
-19.19

1,406.77
0.00

1,036.47
4.07

PBT (Post Extra-ord Items)


Tax
Reported Net Profit

714.17
201.50
512.67

1,099.50
242.40
857.10

1,418.49
350.10
1,068.39

1,406.77
303.40
1,103.37

1,040.54
199.69
836.78

1,220.58

1,483.04

1,854.37

2,338.01

2,668.73

0.00

0.00

0.00

0.00

0.00

150.81

243.97

282.23

282.61

278.83

21.15

34.22

42.50

38.48

33.23

1,116.48

2,334.00

2,380.33

2,390.73

2,726.16

45.92

36.72

44.88

46.15

30.69

Equity Dividend (%)

130.00

100.00

115.00

115.00

100.00

Book Value (Rs)

178.95

124.06

148.72

181.43

191.91

Income
Sales Turnover
Excise Duty

Total Value Addition


Preference Dividend
Equity Dividend
Corporate Dividend Tax
Per share data (annualized)
Shares in issue (lakhs)
Earning Per Share (Rs)

RATIO ANALYSIS OF TATA MOTORS, MARUTI SUZUKI AND


MAHINDRA & MAHINDRA

EARNINGS PER SHARE


EARNINGS PER SHARE
YEARS
TATA
MARUTI
MAHINDRA

Mar'05
34.19
29.55
45.92

Mar'06
39.94
41.16
36.72

Mar'07
49.65
54.07
44.88

Mar'08
52.63
59.91
46.15

Mar'09
19.48
42.18
30.69

Interpretations
EPS measures the profit available to the equity shareholders per share, that is, the
amount that they can get on every share held. Till 2008 TATA and Maruti had a rising
EPS but in 2009 both of them fall and the effect is more on Tata motors because of
the slump in domestic and international markets and sharp fall in sales and net profits
which resulted in low EPS. Mahindra is not much affected as its sales have increased
from the previous year. But as trend shows Mahindra motors has potential so a
shareholder can expect better in future.

SALES
SALES
YEARS
TATA
MARUTI
MAHINDRA

Mar'05
20,262.61
13,458.20
7,649.51

Mar'06
23,490.55
14,898.80
9,273.09

Mar'07
31,089.69
17,358.40
11,231.99

Mar'08
33,123.54
21,200.40
12,894.94

Mar'09
28,538.20
23,381.50
14,713.03

Interpretations
Maruti and Mahindra show a positive trend in sales over the past five years. Though
slowdown in the economy brought hurdles but these companies have potential to
grow in future as lots of products are still to add in their portfolio. Moreover
increased demand in foreign market also seems to be a positive signal for better
future. TATA has witnessed a decline in sales of each segment. Maruti and Mahindra
are going swiftly.

DIVIDEND PER SHARE

DIVIDEND PER SHARE


YEARS
TATA
MARUTI
MAHINDRA

Mar'05
12.5
2
13

Mar'06
13
3.5
10

Mar'07
15
4.5
11.5

Mar'08
15
5
11.5

Mar'09
6
3.5
10

Interpretations
Tata motors and Maruti Suzuki both the companies showed a positive trend in paying
dividends till 2008, but the scenario changed in 2009 as both the companys dividend
per share fell. According to graph Tatas dividend has fallen drastically while Maruti
stick to below 5 per share. Mahindra has made a slight reduction from rs.11.5 per
share in 2008 to rs.10 per share this year. Therefore Mahindra would be the best
option for an investor.

RETURN ON INVESTMENT (ROI)

Return on Investment
YEARS
TATA
MARUTI
MAHINDRA

Mar'05
30.09
19.49
25.66

Mar'06
27.74
21.81
29.6

Mar'07
27.96
22.79
30.18

Mar'08
25.98
20.56
25.51

Mar'09
8.09
13.04
16.03

Interpretations
ROI is one of the most important ratios used for measuring the overall efficiency of a
firm and determines whether the investments in the firms are attractive or not.
According the graph, ROI of TATA has declined to a large extent in 2009, making it a
quite risky investment. Marutis ROI has also declined but Mahindras ROI is
showing a higher rate compared to TATA and Maruti in 2009. As the investors would
like to invest only where the return is higher, Mahindra would be attractive for
investment.

DIVIDEND PAYOUT RATIO

DIVIDEND PAYOUT RATIO


YEARS
TATA
MARUTI
MAHINDRA

Mar'05
41.68
7.73
33.54

Mar'06
37.13
9.69
32.45

Mar'07
35.34
9.72
30.39

Mar'08
32.51
9.78
29.1

Mar'09
34.52
9.7
37.29

Interpretations
Dividend payout ratio is the percentage of earnings paid to shareholders in dividends.
It provides an idea to an investor of how well earnings support the dividend
payments. Maruti has maintained a stable payout ratio. Both TATA and Mahindra
have increased their payout ratio in which Mahindra shows a higher payout ratio.

PRICE-EARNINGS RATIO (P/E RATIO)

PRICE-EARNINGS RATIO
YEARS
TATA
MARUTI
MAHINDRA

Mar'05
19.09
21.5
11.1

Mar'06
22.5
22.5
24.6

Mar'07
14.9
18.3
19.1

Mar'08
3.02
8.6
5.9

Mar'09
40.6
36.9
35.2

Interpretations
This ratio is widely used by investors to decide whether or not to buy shares in a
particular company. As per the graph, in 2008, the P/E ratio of the three companies
was the lowest compared to the previous years. TATA has the highest P/E ratio in
2009 which indicates that it is overvalued, so the investors can benefit by selling the
shares. An investor can go for Mahindra as its P/E ratio is the lowest in 2009 which
indicates that it is undervalued and there is a scope for growth in the future.

CHAPTER VI
FINDINGS, SUGGESTIONS & CONCLUSION

FINDINGS
From the data analysis and interpretations of the ratios of three companies viz. Tata
Motors, Maruti Suzuki and Mahindra and Mahindra, the following findings have been
given:

The three companies were performing well till 2008 with a positive trend in
the earnings per share. But there was a downward trend in 2009. Especially,
TATA has witnessed a steep fall in the year 2009.

The sales trend has been upward and positive in case of all the three
companies. The sales growth looks positive but in the year 2009, TATAs sales
have declined whereas Maruti and Mahindra have maintained the same
upward positive trend.

In case of dividend per share, there were fluctuations during the period 20052009. Due to recession, the dividends per share have declined in all the three
companies. Tatas dividend has fallen drastically while Maruti stick to below 5
per share. Mahindra has made a slight reduction from rs.11.5 per share in
2008 to rs.10 per share this year.

The return on investment has been fluctuating since 2005 and the year 2009
witnessed low returns in case of all the companies amongst which TATA has
the least rate of return. Compared to the three companies, Mahindra has the
highest ROI in 2009.

Maruti had a stable dividend payout ratio since 2005. TATA and Mahindra
have increased their payout ratio in which Mahindra shows a higher payout
ratio.

The three companies have witnessed a low price earnings ratio in 2008
compared to the previous years. But the ratio increased in 2009 in three
companies. TATA has the highest P/E ratio in 2009 which indicates that it is
overvalued and Mahindras P/E ratio is the lowest in 2009 which indicates that
it is undervalued and there is a scope for growth in the future.

By analyzing the current trend of Indian Economy and Automobile Industry I have
found that being a developing economy there is lot of scope for growth and this
industry still has to cross many levels so there are huge opportunities to invest in and
this is being proved as more and more foreign companies are setting up there ventures
in India.
Increase in income level, increase in consumer demand, technology development,
globalization, foreign investments are few of the opportunities which the industry has
to explore for developing the economy.

SUGGESTIONS
By analyzing the automobile industry with the help of fundamental analysis, it has
been revealed that this industry has a lot of potential to grow. So recommending
investing in Automobile industry with no doubt is going to be a good and smart
option because this industry is booming like never before not only in India but all
over the world.
The three giants of Indian Automobile industry viz. TATA Motors, Maruti Suzuki and
Mahindra and Mahindra have outperformed in the industry.

From the company analysis, we can know that Mahindra would be a better
option for an investor compared to TATA and Maruti. In view of the slump in
the domestic and international market, TATA has recorded a slowdown in
sales and income level. Its Earnings per share has also declined drastically. It
has reduced its dividend per share from rs.15 in the previous year to rs.6 in
2009. The return on investment is also very low. In view of all these, TATA is
not a better option for an investor.

The global turmoil in financial markets has affected Maruti also. The
company is maintaining a stable position. Its sales have grown over past five
years. Inspite of the general economic slowdown, the sales of Maruti Suzuki
increased from Rs 21200 Crore to Rs 23381 Crore. As it is maintaining a
stable position, it can be recommended that for now Maruti share price shows

that its a time to hold the position or buy more shares as there is scope of
further rise in share prices.

Despite the challenging business environment, Mahindra has maintained its


upward sales level. Its Return on Investment is much higher compared to
TATA and Maruti. The dividend per share is rs.10 which is higher amongst the
three companies. The company has potential to grow. It would be the best
option for the investor.

Investing in Maruti Suzuki for long time could be a good option whereas in
TATA motors there is a chance of getting correction, as it already went on high
side in a very short period of time and is experiencing a downfall from 2008.

Holding the shares for long time could be a wrong step and at this point of
time those who invested earlier can book their profits. As Mahindras shares
are undervalued, the investor can buy these shares. This is because a relatively
lower P/E would save investors from paying a very high price that does not
justify the value of an investment.

Few Suggestions for Right Stock Selection


There are three factors which an investor must consider for selecting the right stocks.

Business: An investor must look into what kind of business the company is
doing, visibility of the business, its past track record, capital needs of the
company for expansion etc.

Balance Sheet: The investor must focus on its key financial ratios such as
earnings per share, price-earning ratio; debt-equity ratio, dividends per share
etc and he must also check whether the company is generating cash flows.

Bargaining: This is the most important factor which shows the true worth of
the company. An investor needs to choose valuation parameters which suit its
business.

Investment rules

Invest for long term in equity markets

Align your thought process with the business cycle of the company.

Set the purpose for investment.

Long term goals should be the objective of equity investment.

Disciplined investment during market volatility helps attains profits.

Planning, Knowledge and Discipline are very crucial for investment.

CONCLUSION
The Automobile industry in India is the seventh largest in the world with an annual
production of over 2.6 million units in 2009. In 2009, India emerged as Asia's fourth
largest exporter of automobiles, behind Japan, South Korea and Thailand.
The collapse in market place witnessed unprecedented turbulence in the wake of
global financial meltdown. A runaway inflation touching a high point of 12% early in
the year, the tight monetary policies followed by the authorities for most of the year
to control inflation with the consequent high interest rates and weak consumer
demand, have collectively had a devastating effect on the automotive sector.
Maruti Suzuki India LTD. company has a trend of growth from till 2008.During the
financial year 2008-09 the there is downfall in the growth of the company. The main
reason behind this downfall is because of the global recession. The downfall of net
profit during the financial year 2008-09 is 29.6% over the financial year 2007-2008.
TATA Motors, which was trying to consolidate its leadership position in the market,
also had to face the impact of global meltdown. Amid the crippling economic crisis,
Tata purchased Britains Jaguar Land Rover (JLR) from Ford Motor Company.
Acquiring JLR saddled Tata with some tough losses. Dividends and earnings remain
low.

Inspite of it being a tough year for all the companies across the globe and in India,
Mahindra has given a satisfactory performance. At present its shares are undervalued
giving it a potential for growth.
Global recession had a dampener effect on the growth of automobile industry but it
was a short term phenomenon. The industry is bouncing back. One factor favoring
this point is that India has become a hot destination for companies of diverse nature to
invest in. Cut throat competition among top companies, lots of new car and vehicle
model launches at regular intervals keeps the Indian auto sector moving.
A continuous effort at cost cutting and improving productivity will help the
companies in making reasonable profits despite the impact of higher commodity
prices and weaker rupee.

The analysis gives an optimistic view about the industry and its growth which
recommends the investors to keep a good watch on the major players to benefit in
terms of returns on their investments.

BIBLIOGRAPHY
Text Books
Security Analysis and Portfolio Management by Punithavathy Pandian, Vikas
Publications.
Security analysis and portfolio management by V.A. Avadhani
Financial Markets and Services by Gordon and Natarajan, Himalaya
Publications.
Financial Management by Shashi K Gupta and R. K Sharma, Kalyani
Publications.
Newspapers
Economic times
Business line
Websites

www.nseindia.com

www.bseindia.com

www.investopedia.com

www.moneycontrol.com

www.indiainfoline.com

www.sebi.gov.in

www.tatamotors.com

www.marutisuzuki.com

www.mahindra.com

www.yahoofinance.com

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