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Summer projct

  1. 1. Genesis of the reportI have done my summer training at SHAREKHANLtd. It is one of the reputed company& brand namein the share broking companies in India. During my interns I have got the practical knowledge of Stock market. Working in share khan Ihave got to know that research team of Share Khan makes analysis of the companies & preparesresearch report which contains information & news about different companies. Through this researchreport researcher recommends investors about what stock should be buy, sale or hold etc. it contains theperformance of the companies. So investor can invest in stock market by reading this report. Thisreport appears daily on the Share Khan website. After getting this I have decided to do my summerproject on Equity research. There is a lot of scope and growth opportunities in the Automobile sector. Development ofAutomobile sector is the key for the economic growth of developing countries like India and so I haveselected this sector. During the training session I had observed the price rise and decline inthese sectorsevery day. Even I have earned some money by trading in this sector companies. This report constitutes the detailed analysis of automobile sector& Analysis of two companies.EQUITY RESEARCH ON AUTOMOBILE SECTOR Page 1
  2. 2. OBJECTIVE OF STUDY  To acquire a deep knowledge of the Automobile Sector which I am studying.  To predict expected share price with the projected company‟s financial performance (2009- 20010)  Fundamental analysis of the company.  Comparative analysis of Tata Motors & Mahindra & Mahindra.  To study the demand of Automobile sector.  Projection about improving performance of the company.  To evaluate management & internal business decisions.  Application of various fundamental & technical tools.EQUITY RESEARCH ON AUTOMOBILE SECTOR Page 2
  3. 3. Share Khan ltd.Name of the company- Share Khan ltd.Year of establishment - 1925Headquarter - Share Khan SSKI A 206 phoenix house Phoenix Mills Compound Lower Parel Mumbai.Nature of business - Service ProviderServices - Depository services, online services & technical research.Website - www.sharekhan.comSlogan - Your guide to financial jungle.Vision - TO be the best broking brand in the retail broking business.Mission - to educate & empower individual investor to make better investment decision throughquality advice & superior services. Share Khan is the one of the leading retail brokerage company of SSKI group which is runningsuccessfullysince 1022 in the country. It is the leading retail firm of Mumbai based SSKI group. Whichhas over 8 decades of experience in retail broking? Sharekhan offers its customers wide range of equityrelated services including trade execution on BSE, NSE, DERIVATIVES, DEPOSITORY SERVICES,ONLINE TRADING & DMAT ACCOUNT. The firms online site “” Was launched in 8 Feb 2000. the site give access tosuperior content & transaction facility to retail customers across the country. The site has registeredbase of over 100000 lakh client & number is increasing day by day. Share Khan stands for 32 % of theEQUITY RESEARCH ON AUTOMOBILE SECTOR Page 3
  4. 4. volume traded online. The site is very user friendly. It gives superior market information. Share Khandaily provides research report on its site. It involves recommendation to its clients regarding differentdeferent stocks. Investor can get an idea about investment from this research report. Share Khan Networks include over 588 centers in 148 cities in India of which 32 are fully owedbranches. Share Khanalways believein investment in technology to build its business. The company has usedsome of the best names in IT Industry. Like Sun Microsystem, Oracle, Microsoft, CambridgeTechnologies, Nexgenix, Spider Software To build its online trading terminal. The Morakhiya family holds a majority stakes in company. HSBC, Intel & Carlyle are the otherinvestors.With a legacy of more than 80 years in stock market, the SSKI group ventured in to institutionalbroking & corporate finance 18 years ago. Presently SSKI is one of the leading players in institutionalbroking & corporate finance activity. SSKI holds a Sizable portion of the market in each of thissegment. SSKIs institutional broking arm accounts for a 7 % of the market for foreign institutionalportfolio investment & 5 % of all the domestic institutional portfolio investment in the country. It has60 institutional client spread over India, far East UK, & U.S. Foreign institutional investors generateabout 65 % of the organizations revenue, with a daily turnover of over US$ 2 million. The corporatefinance section has a list of very prestigious clients & has many first to its credit in terms of the size ofdeal, sector tapped etc. The group has placed over US$ 1 million in private equity deals. Some of theclient includes BPL, Cellular holding, GujaratPipavav, Assar, Hutchison, Planet Asia, &Shoppers Stop.Products offered by Share Khan- BOLT for online trading NEAT for online trading Port Folio management services Online trade & commodities Mutual Fund Advisory InsuranceEQUITY RESEARCH ON AUTOMOBILE SECTOR Page 4
  5. 5. Three types of online terminal trade Tiger classic fast trade 1- Trade Tiger- A single platform for multiple exchange BSE & NSE (Cash & F&O), MCX, NCDEX, Mutual Funds, IPOs Multiple Market Watch available on Single Screen Multiple Charts with Tick by Tick Intraday and End of Day Charting powered with various Studies Graph Studies include Average, Band- Bollinger, Know SureThing, MACD, RSI, etc Apply studies such as Vertical, Horizontal, Trend, Retracement & Free lines User can save his own defined screen as well as graph template, that is, saving the layout for future use User-defined alert settings on an input Stock Price trigger Tools available to guage market such as Tick Query, Ticker, Market Summary, Action Watch, Option Premium Calculator, Span Calculator Shortcut key for FAST access to order placements & reports Online fund transfer activated with 12 Banks 2- classic account- Online trading account for investing in Equities and Derivatives via Integration of: Online trading + Bank + Demat account Instant cash transfer facility against purchase & sale of shares Make IPO bookings You get Instant order and trade confirmations by e-mail Streaming QuotesEQUITY RESEARCH ON AUTOMOBILE SECTOR Page 5
  6. 6. Personalized Market Scan with your own customized stock ticker! Single screen interface for cash and derivatives Your very own Portfolio Tracker! Reasons to choose Share Kahn ltd.Experience- SSKI has more than 8 years of trust & credibility in the Indian Stock Market. SSKI has won the“ best broking house award” in the year 2004. Share Khan has been providing Institutional research &broking services to individual investors. Technology- with online trading account anyone who is having demat account in Share Khan can buy & sellstocks instantly from any PC with an internet connections. The online trading terminal is technicallyvery strong & user friendly. You get all details regarding your demat account. Anyone can transfer hisfund online from bank account to demat account or from demat account to his bank account.Knowledge- Access to the wide range of information on content rich portal, also get a knowledge based toolsthat will empower you to take right decisions. Convenience- You can call our “DIAL & TRADE” number to get investment advice & execute yortransaction. Share Khan is having a dedicated call centre to provide this service via a toll free number1800-22-7500 & 1800-22-7050.Customer Service- Share Khan Customer service team will assist you for any help that you need relating totransactions, billing, demat & other queries. Customer service can be contracted via a toll free no, emailor online chat on “”. Investment Advice- Share Khan has a dedicated research team of more than 30 people for fundamental & technicalresearch. Analyst constantly tracks the pulse of the market & provides timely investment advice to youin the form of daily research emails, online chats, printed reports & SMS on your mobile phone.EQUITY RESEARCH ON AUTOMOBILE SECTOR Page 6
  7. 7. Sharekhan Demat Account A Demat Account is an account which you need in India in order to buy and sell shares. Earliershares or stocks or a company were bought and sold in paper format. Now they are storedelectronically. Just like money is saved in your bank account, Shares are stored in your Demat Account(sometimes also called DMAT account). You can open a Demat Account with sharekhan. This isespecially recommended if you have an online trading account with Share khan. You can then link youShare khan trading account with your Share khan Demat Account so that any shares bought with thetrading account can be directly transferred to your Demat. Here is all information you need about Sharekhan Demat Account.Documents Needed to Open a Sharekhan Demat Account. 1. PAN Card. Pan card is now mandatory in order to open a Demat Account. 2. Address Proof. Example- your ration card, drivers licence, electricity bill, voters id or election card, etc. 3. Your recent photographs. Two or three. 4. A cancelled check. This may or may not be required. But carry your bank passbook and check book when you go to open a Sharekhan Demat Account.Sharekhan Demat Account Charges 1. Share khan Demat Account Opening Charges: NIL 2. Share khan Demat Account Maintenance Charges: Rs. 75 per quarter, i.e. Rs. 300 per anum. 3. Share khan Demat Account Closing Charges: Rs. 100. 4. Brokerage - for trading in Equity- Intraday- 0.10% Delivery- 0.50%EQUITY RESEARCH ON AUTOMOBILE SECTOR Page 7
  8. 8. for trading in derivatives- 100 RS per lot.( per lot includes 50 shares) 5. Share khan Dematerialization Charges: RS.3 per certificate or RS.15 per request, whichever is higher. 6. Share khan Demat Account Custody Fee: NIL Minimum amount requires to open demat account- 5000 Rs. You can do trading from thisamount & 750 advance brokerage for 6 months validity. There are different plans for reducing theamount of brokerage. Brokerage slab Cash F&OScheme Period in Trading Delivery Futures OptionsName Months Min Min Min % % % % (paisa) (paisa) (paisa) 2% of premiumAMC or Rs. 90, 12 0.07 5 0.40 10 0.07 12000 whichever is higher 1.5% of premiumAMC or Rs. 75, 12 0.05 5 0.25 5 0.05 16000 whichever is higher 1% of premiumAMC or Rs. 50, 12 0.04 4 0.20 4 0.04 118000 whichever is higherEQUITY RESEARCH ON AUTOMOBILE SECTOR Page 8
  9. 9. Table 1: Brokerage slab Indian Stock MarketIndian Stock market contains more than 20 stock exchanges, some of which are popular nationally aswell as regionally. The first stock market started in country was Bombay Stock Exchange(BSE ) stockmarket. It‟s the oldest stock market in Asia. It has around 5000 listings & a volume of more than US$1 Trillion. The other most popular stock exchange is National Stock Exchange(NSE). Its also largeststock exchange in the country & third in the world. These two Exchanges constitutes major part ofIndian Capital Market.Purpose of stock market? Stock markets basic role to provide platform for the people of the country to invest theirsavings & also a source of funds for the various institutions & organizations. It provides an opportunityfor any person to become a part owner of the company by buying the companies share. One can deal invariety of financial instruments such as Equity, futures & options, currency future, commodities etc.Impact on the economy  Provides source of funding for the organization  An investment avenue  A source of income for investors  A source of revenue for government in the form of taxes.  A source of employment Present scenario- Current condition of Stock Market has drastically improved. SENSEX has already crossed17000 Mark & Nifty has crossed 5000 mark. We have seen that in the recession SENSEX has comedown to 8000 point from 21000. But now market is gearing up & crossed 17000 points. Lot of peopleinvest in stock market. Indian Stock Market has been giving average 19% return on investment muchEQUITY RESEARCH ON AUTOMOBILE SECTOR Page 9
  10. 10. more than returns which we get from bank or any other sources. Though the Indian Stock Market canbe very rewarding avenue of investment but the constant changes & the inherent dynamic changes inthe market can wipe your funds or savings. Because market is very volatile. So every investor has tovery alert & observant. People from across the country & globe get in touch with minute wise readingon the stock market & gain a lot of trading aptitude after daily seeing BSE Stop Gainers or BSE toplosers list which does a world of good to their investment portfolio. Stock Analysis Indian Securities markets are touching new heights as it has surpassed 17,000 marks. More andmore investors are attracting towards equity investment and trading. But this is not always the case thatno one can assure you certain returns there is always uncertainty and risk in investment and that pushinvestors on back seats. Sometimes it becomes very difficult for investors to predict the share price ofthe particular company in this very volatile market. It raises questions in investor‟s mind that At what price I should buy? When to sell it... hold? As trading and investments are increasing on the markets as SEBI made it compulsory for allthe companies to disclose important information to its Shareholder and investor. So they can get aspossible as information about the companies of which they are holding the shares or going to brokers and some analyst providing some future predictions of stocks price movements. Sonow investment has become somewhat easy for investors. This is done with a Stock Analysis getting the information about company and its pricemovements on stock markets and tries to predict the value of shares. So, there is great importance ofstock analysis among investors. Stock analysis is usually done by Broking Firms. They recommendsthere investors regarding buying & selling of shares. Types of Stock Analysis- 1. Technical Analysis 2. Fundamental Analysis Here we have selected a Fundamental analysis as subject of our project so we would do it in detailwith practical analysis. We would get only some flavor of technical analysis and then we wouldunderstand about fundamental analysis.EQUITY RESEARCH ON AUTOMOBILE SECTOR Page 10
  11. 11. TECHNICAL ANALYSIS1“Technical analysis is a method of evaluating securities by analyzing the statistics generated by marketactivity, such as past prices and volume. Technical analysts do not attempt to measure a securitysintrinsic value, but instead use charts and other tools to identify patterns that can suggest futureactivity.”Just as there are many investment styles on the fundamental side, there are also many different types oftechnical traders. Some rely on chart patterns; others use technical indicators and oscillators, and mostuse some combination of the two. In any case, technical analysts exclusive use of historical price andvolume data is what separates them from their fundamental counterparts. Unlike fundamental analysts,technical analysts dont care whether a stock is undervalued - the only thing that matters is a securityspast trading data and what information this data can provide about where the security might move inthe future. Technical analysis is very useful for short term investors.The field of technical analysis is based on three assumptions: 21. The Market discounts everything.2. Price moves in trends.3. History tends to repeat itself. 1. The Market Discounts Everything A major criticism of technical analysis is that it only considers price movement, ignoringthe fundamental factors of the company. However, technical analysis assumes that, at any given time, astocks price reflects everything that has or could affect the company - including fundamental factors.Technical analysts believe that the companys fundamentals, along with broader economic factors andmarketpsychology, are all priced into the stock, removing the need to actually consider these factorsseparately. This only leaves the analysis of price movement, which technical theory views as a productof the supply and demand for a particular stock in the market.1 ttp:// RESEARCH ON AUTOMOBILE SECTOR Page 11
  12. 12. 2. Price Moves in TrendsIn technical analysis, price movements are believed to follow trends. This means that after a trend hasbeen established, the future price movement is more likely to be in the same direction as the trend thanto be against it. Most technical trading strategies are based on this assumption. 3. History Tends To Repeat ItselfAnother important idea in technical analysis is that history tends to repeat itself, mainly in terms ofprice movement. The repetitive nature of price movements is attributed to market psychology; in otherwords, market participants tend to provide a consistent reaction to similar market stimuli over time.Technical analysis uses chart patterns to analyze market movements and understand trends. Althoughmany of these charts have been used for more than 100 years, they are still believed to be relevantbecause they illustrate patterns in price movements that often repeat themselves.  Other UsageTechnical analysis can be used on any security with historical trading data. This includes stocks, futuresand commodities, fixed-income securities, forex, etc. these concepts can be applied to any type ofsecurity. In fact, technical analysis is more frequently associated with commodities and forex, wherethe participants are predominantly traders.  Strengths of Technical Analysis3 Focus on PriceIf the objective is to predict the future price, then it makes sense to focus on price movements. Pricemovements usually precede fundamental developments. By focusing on price action, technicians areautomatically focusing on the future. The market is thought of as a leading indicator and generallyleads the economy by 6 to 9 months. To keep pace with the market, it makes sense to look directly atthe price movements. More often than not, change is a subtle beast. Even though the market is prone to3 ttp:// RESEARCH ON AUTOMOBILE SECTOR Page 12
  13. 13. sudden knee-jerk reactions, hints usually develop before significant moves. A technician will refer toperiods of accumulation as evidence of an impending advance and periods of distribution as evidenceof an impending decline. Supply, Demand, and Price ActionMany technicians use the open, high, low and close when analyzing the price action of a security.Separately, these will not be able to tell much. However, taken together, the open, high, low and closereflect forces of supply and demand. Before the open, the number of buy orders exceeded the number of sell orders and the price wasraised to attract more sellers. Demand was brisk from the start. The intraday high reflects the strengthof demand (buyers). The intraday low reflects the availability of supply (sellers). The close representsthe final price agreed upon by the buyers and the sellers. Even after this selling pressure, the closeremained above the open. higher prices reflect increased demand and lower prices reflect increasedsupply. Support/ResistanceSimple chart analysis can help identify support and resistance levels. These are usually marked byperiods of congestion (trading range) where the prices move within a confined range for an extendedperiod, telling us that the forces of supply and demand are deadlocked. When prices move out of thetrading range, it signals that either supply or demand has started to get the upper hand. If prices moveabove the upper band of the trading range, then demand is winning. If prices move below the lowerband, then supply is winning. Pictorial Price HistoryA price chart can offer plenty of valuable information. The price chart is an easy to read historicalaccount of a securitys price movement over a period of time. Charts are much easier to read than atable of numbers. On most stock charts, volume bars are displayed at the bottom. With this historicalpicture, it is easy to identify the following: Reactions prior to and after important events. Past and present volatility. Historical volume or trading levels.EQUITY RESEARCH ON AUTOMOBILE SECTOR Page 13
  14. 14. Relative strength of a stock versus the overall market. Assist with Entry Point Technical analysis can help with timing a proper entry point. Someanalysts use fundamentalanalysis to decide what to buy and technical analysis to decide when to buy. It is no secret that timingcan play an important role in performance. Technical analysis can help spot demand (support) andsupply (resistance) levels as well as breakouts. Simply waiting for a breakout above resistance orbuying near support levels can improve returns.  Weaknesses of Technical Analysis Analyst BiasJust as with fundamental analysis, technical analysis is subjective and our personal biases can bereflected in the analysis. It is important to be aware of these biases when analyzing a chart. If theanalyst is a perpetual bull, then a bullish bias will overshadow the analysis. On the other hand, if theanalyst is a disgruntled eternal bear, then the analysis will probably have a bearish tilt. Open to InterpretationFurthering the bias argument is the fact that technical analysis is open to interpretation. Even thoughthere are standards, many times two technicians will look at the same chart and paint two differentscenarios or see different patterns. Both will be able to come up with logical support and resistancelevels as well as key breaks to justify their position. While this can be frustrating, it should be pointedout that technical analysis is more like an art than a science, somewhat like economics. Is the cup half-empty or half-full? It is in the eye of the beholder. Too LateTechnical analysis has been criticized for being too late. By the time the trend is identified, asubstantial portion of the move has already taken place. After such a large move, the reward to riskratio is not great. Lateness is a particular criticism of Dow theory.EQUITY RESEARCH ON AUTOMOBILE SECTOR Page 14
  15. 15. Predictions may go wrong-Sometimes predictions may go wrong. Analysis is done only by charts & past trends. Generally if aparticular stock going up it is predicted that this stock will go up in future also. If a stock of a particularcompany increasing from last 1 year it is not sure that it will increase in future also. It may go down ifthe company fails to perform well or any other economic reason. Fundamental Analysis  Meaning: -Fundamental analysis is the examination of the underlying forces that affect the wellbeing of the economy, industry groups, and companies. As with most analysis, the goal is to derive a forecast and profit from future price movements.  At the company level, fundamental analysis may involve examination of financial data, management, business concept and competition.  At the industry level, there might be an examination of supply and demand forces for the products offered.  For the national economy, fundamental analysis might focus on economic data to assess the present and future growth of the economy.  Strengths of Fundamental Analysis Useful for Long-term- Fundamental analysis is good for long-term investments based on long-term. It is very important for those who wants to invest in market for long term. Value prediction- Sound fundamental analysis help to identify companies that represent a good value. Some of the most legendary investors think long-term and value. Graham and Dodd, Warren Buffett and John Neff are seen as the champions of value investing.EQUITY RESEARCH ON AUTOMOBILE SECTOR Page 15
  16. 16. Business Accuracy- Fundamental analysis is the development of a thorough understanding of the business. After research and analysis, an investor will be familiar with the key revenue and profit drivers behind a company. Earnings and earnings expectations can be main drivers of equity prices. A good understanding can help investors avoid companies that are to be going to shortfalls and identify those that continue to deliver. Weaknesses of Fundamental Analysis4 Time Constraints Fundamental analysis may offer excellent insights, but it can be extraordinarily time- consuming. It requires lot of research. Industry/Company Specific Valuation techniques vary depending on the industry group and specifics of each company. For this reason, a different technique and model is required for different industries and different companies. This can get quite time-consuming, which can limit the amount of research that can be performed. A subscription-based model may work great for an Internet Service Provider (ISP), but is not likely to be the best model to value an oil company. Subjectivity Fair value is based on assumptions. Any changes to growth or assumptions can greatly alter the ultimate valuation. & i will cause loss to the investors.4 RESEARCH ON AUTOMOBILE SECTOR Page 16
  17. 17. Economic Analysis- The purpose of analyze economic condition of the country in fundamental analysis to asses thegeneral economic situation both within the country and inter nationally. The economy is like the tide and the various industry groups and individual companies are likeboats. When economy expands most industry groups and companies benefits and grows. When theeconomy declines, most sectors and companies usually suffer. The stock market does not operate in avacuum it is an integral part of ht whole economy of a country, more so in a free economy that ofUnited States and to some extent in mixed economy like ours. To gain an insight into the complexities of stock market. One needs to develop a soundeconomic understanding and be able to interpret the impact of important economic indicators on stockmarkets.The following are some important factors which should be taken into account while doingfundamental analysis: Economic Growth Per capita income Industrial Production Inflation Interest Rates Foreign Exchange Reserves Budgetary Deficit Domestic Savings and Investment Tax Rates Infrastructure Political Situation In absolute terms, India is 16th in the world in terms of nominal factory output. The servicesector is growing rapidly in the past few years. This is the pie- chart showing contributions of differentsectors in Indian economy. The per capita Income is near about Rs38,000 reflecting improvement in theEQUITY RESEARCH ON AUTOMOBILE SECTOR Page 17
  18. 18. living standards of an average Indian. Today, automobile sector in India is one of the key sectors of the economy in terms of theemployment. Directly and indirectly it employs more than 10 million people and if we add the numberof people employed in the auto-component and auto ancillary industry then the number goes evenhigher.Figure 1: Composition of GDP by industries(08-09)India GDP Growth Rate- India Gross Domestic Product (GDP) expanded 8.5% over the last quarter. The India GrossDomestic Product is worth 1217 billion dollars or 1.96% of the world economy, according to the WorldBankEQUITY RESEARCH ON AUTOMOBILE SECTOR Page 18
  19. 19. Figure 2: Quarterly GDP growth Contribution of automobile sector in GDP is about 5% & will be doubled by 2016.FDI(Foreign Direct Investment) In India FDI has been permitted up to 100% in automobile sector. Which has led to a turnoverof USD 12 billion in Indian Auto industry & USD 3 billion in auto parts industry. Manufacturing costin India is 25% to 30% lower than there foreign counterparts. Investment commission has set a target ofUS $ 5 billion in next 7 years to increase the share of India in global Auto market. From existing .9 %to 2.5 % by 2015.Highlights of 2010-11 budget regarding Automobile Industry-  The correction in Excise duty on Electric Vehicles which will enable the manufacturers take CENVAT credit and exemption of Customs duty on Electric Vehicles parts.  Payment made to an approved association engaged in research in Social Sciences or Statistical Research will be allowed as a weighted deduction of 125 per cent. The income of such approved research association shall be exempted from tax.  increase in weighted deduction for in-house R&D to 200% from 150% and outsourced R&D from 125% to 175%.EQUITY RESEARCH ON AUTOMOBILE SECTOR Page 19
  20. 20.  2% hike in Excise duty The budget did not meet all the expectations as the sector is yet to recover fully from recession. Indian automobile industry is expected to grow at 9-11 % in near future.From the above analysis we have seen that our economic condition is preferable to AutomobileIndustry. Industry AnalysisBrief history of Automobile Industry- In 1898 car had touched the Indian streets for the first time. The Automobile Industry in Indiais the seventh largest in the world with an annual production of over 2.6 million units in 2009. In 2009,India emerged as Asias fourth largest exporter of automobiles, behind Japan, South Korea andThailand. By 2050, the country is expected to top the world in car volumes with approximately 611million vehicles on the nations road. Following economic liberalization in India in 1991, allowed foreign companies to enter intoIndia for the business purpose. The Indian automotive industry has demonstrated sustained growth asa result of increased competitiveness and relaxed restrictions. Several Indian automobile manufacturerssuch as Tata Motors, Maruti Suzuki and Mahindra and Mahindra, expanded their domestic andinternational operations. In February 2009, monthly sales of passenger cars in India exceeded 100,000units. India‟s automobile sector consists of the passenger cars and utility vehicles, commercialvehicle, two wheelers and tractors segment. The total market size of the auto sector in India isapproximately RS. 540 billion and has been growing at around 8 percent per annum for the last fewyears. Since the last four to five years, the two wheelers segment has driven the overall volume growthon account of the spurt in the sales of motorcycles. However, lately the passenger cars and commercialvehicles segment has also seen a good growth due to high discounts, lower financing rates and a pickupin industrial activity respectively.In the initial years after independence Indian automobile industry was plagued by unfavorablegovernment policies. All it had to offer in the passenger car segment was a 1940s Morris model calledthe Ambassador and a 1960s Suzuki-derived model called the Maruti 800. The automobile sector inIndia underwent a metamorphosis as a result of the liberalization policies initiated in the 1991.EQUITY RESEARCH ON AUTOMOBILE SECTOR Page 20
  21. 21. Measures such as relaxation of the foreign exchange and equity regulations, reduction of tariffs onimports, and refining the banking policies played a vital role in turning around the Indianautomobileindustry. Until the mid 1990s, the Indian auto sector consisted of just a handful of localcompanies. However, after the sector opened to foreign direct investment in 1996, global majors movedin. Automobile industry in India also received an unintended boost from stringent government autoemission regulations over the past few years. This ensured that vehicles produced in India conformed tothe standards of the developed world.Indian automobile industry has matured in last few years and offers differentiated products for differentsegments of the society. It is currently making inroads into the rural middle class market after itsinroads into the urban markets and rural rich. In the recent years Indian automobile sector haswitnessed a slew of investments. India is on every major global automobile players radar. Indianautomobile industry is also fast becoming an outsourcing hub for automobile companies worldwide, asindicated by the zooming automobile exports from the country. Today, Hyundai, Honda, Toyota, GM,Ford and Mitsubishi have set up their manufacturing bases in India. Due to rapid economic growth andhigher disposable income it is believed that the success story of the Indian automobile industry is notgoing to end soon..EQUITY RESEARCH ON AUTOMOBILE SECTOR Page 21
  22. 22. Figure3: Indian automobile industryEQUITY RESEARCH ON AUTOMOBILE SECTOR Page 22
  23. 23. Industry AnalysisAnalysis of automobile industry- this is the pie chart showing segment wise market share in automobile induistry.Figure 2: Composition of GDP by industries (08-09) Figure 4: Proportion of different type of vehicles FIVE FORCES MODEL- Porter identifies five forces model that influences industry. degree of rivalry- Rivalry in the Indian Auto sector is intense due to entry of foreign companies. The rivalry is too high because any new kind of product manufactured by a particular company is being is being manufactured by competitors also. This is done because technical capabilities of companies under the technical collaboration with foreign players. Threat of Substitutes- The threat of substitutes to the Automobile Sector is fairly low. Many forms ofEQUITY RESEARCH ON AUTOMOBILE SECTOR Page 23
  24. 24. transportation are available but none offered utility, convenience, independence & value offered by automobiles. & the cost associated with other modes of transport may be high in terms of personal time, convenience & utility. Barriers to entry- The barriers to enter automobile sector is substantial. For a new company the initial capital require to establish new manufacturing setup up achieve minimum efficient scale is prohibitive. But existing companies entered in to market by alliance with domestic partner acquiring stake. However the domestic company with potentials & expertise has the potential to compete with foreign players. Suppliers Power- Relationship between the industry & its suppliers the power is in favor of industry.Theindustry is powerful buyer who is generally able to dictate their terms to suppliers. Buyers Power- In the relationship between industry & its consumers the power axis is in favor of its consumers. This is because of the competition. SWOT ANALYSIS Scanning of internal & external factors of industry is very essential while analyzing theAutomobile industry. Internal factors include strengths, weakness & external factors includesopportunities, threats. Strengths- Large domestic market Sustainable labor cost advantage Competitive Auto component vendor base Government incentives for manufacturing plants Strong engineering skills in design etc.EQUITY RESEARCH ON AUTOMOBILE SECTOR Page 24
  25. 25. Weakness- Low labor productivity High interest cost & high overheads various forms of taxes low investment in research & developments infrastructure problem Opportunities- Commercial vehicles- SC ban on overloading Heavy thrust on mining & construction activity increase in the income level cut in excise duty rising rural demand Threats- Rising input cost Rising interest rates Cut throat competition Largest three wheeler market in the world. 2nd largest two wheeler market in the world. 4th largest passenger vehicle market in Asia. 4th largest tractor market in the world.EQUITY RESEARCH ON AUTOMOBILE SECTOR Page 25
  26. 26. AUTOMOTIVE MISSION PLAN5 A mission for development of automobile industry VISION “To emerge as the destination of choice in The world for design and manufacture of Automobiles and auto components with Output reaching a level of US$ 145 billion Accounting for more than 10% of the GDP And providing additional employment to 25 million people by 2016.” The necessity of this Mission Plan arises in the background of a newfound strength and resurgence in the Indian manufacturing sector. For most of the decade of the 1990s, post economic deregulation in 1991, growth in the Indian economy has been led by growth in the service sector, a growth that has overshadowed the growth in the manufacturing sector. In the past few years, several industries in the Indian manufacturing sector have become internationally competitive and have acquired a new energy to grow. Several industries, including the automotive industry, genuinely believe that they can become world-beaters. 4.2 In developing a Mission Plan for India‟s automotive sector, answer to the following questions has been sought: i) Where is automotive sector in India today? What linkages does the automotive sector have with other facets of the India‟s economy? (ii) What do we want the automotive sector of India to look like in 2016? in other words, what is the potential of 4th largest position in world to grow along other segments of its value chain. & what can be the maximum impact on its shareholder. (iii) How do we attain the vision? What policy interventions will facilitate the attainment of this potential? Vision for the Future: The opportunity landscape for the Indian auto industry wouldencompass manufacture of vehicles and components for domestic sales, manufacture for exports (both5 ttp:// RESEARCH ON AUTOMOBILE SECTOR Page 26
  27. 27. vehicles and components), and export of services in areas such as design, engineering, and back officeoperations. It is estimated that the total turnover of the automotive industry in India would be in theorder of USD 122-159 billion in 2016 (a substantial increase from the size of USD 34 billion in 2006).4. It is expected that in real terms, India would continue to enjoy its eminent position of being the largest tractor and three wheeler manufacturers in the world and the world‟s second largest two wheeler manufacturer By 2016, India would emerge as the world‟s seventh largest car producer (as compared to the In eleventh largest currently) and retain the automotive sector to grow along manufacturing sector. Further, by 2016 and the automotive sector would double its contribution to the country‟s GDP up to10 % the share of industry in GDP is expected to go up to around 35% from current level of 24% by 2016. So this Automotive Mission Plan is already helping Automobile sector & this plan contributes to the growth of the Automobile Sector. & it will boost this sector in future also. Current status of Indian Automobile Industry- The time has gone when people just wanted to have vehicles as a means of transportation butnowadays they are more aware about the vehicle model, their price and various other features. Indiaopened its gates for the foreign companies in 1991 various automobiles giants entered our countryseeking it as their target market. We Indians also got a wide variety of cars to choose from. Hyundaientered in India with a view to capture the small market segment earlier captured mostly by two giantIndian companies- Tata Motors and Maruti Udyog Limited. Tata is one of the company in which the Indians trust like anything. It has diversified itself in anumber of sectors gaining the trust and proving its competence in every such field. Tata when come upwith a small car segments it was welcomed by people in the same way as it welcomed all its products.It has a wide choice of four wheelers to satisfy the varied Indian choices. In the other hand MARUTIalso is said to capture the pulse of Indian middle class by giving them their MARUTI 800.To its wing itadded many other cars to competition to TATA motors. TATA has Launched TATA NANO the world‟s cheapest car. This was the remarkable point inIndian Automobile history. This car is generally made for middle class people. Tata Nano‟s launchcould expand the Indian car market by 65%. TATA has launched world‟s cheapest car so now otherplayers will invent the car like TATA NANO. The customers will have the different options in that priceEQUITY RESEARCH ON AUTOMOBILE SECTOR Page 27
  28. 28. segment. Middle class people can afford Rs.1 lack car. This leads to increase in the number of carholders. & this automatically leads to growth of car segment.Indian Automobile Industry Largest three wheeler market in the world. 2nd largest two wheeler market in the world. 4th largest passenger vehicle market in Asia. 4th largest tractor market in the world. 5th largest commercial vehicle market in the world.The industry structure spans all segments and is concentrated in regional clusters The India automotive sector has a presence across all vehicle segments and key components. Interms of volume, two wheelers dominate the sector, with nearly 80 per cent share, followed bypassenger vehicles with 13 per cent. The industry had few players and was protected from globalcompetition till the 1990s. After government lifted licensing in 1993, 17 new ventures have come up.At present, there are 12 manufacturers of passenger cars, 5 manufacturers of multi utility vehicles(MUVs), 9 manufacturers of commercial vehicles, 12 of two wheelers and 4 of three wheelers, besides5 manufacturers of engines. With the arrival of global players, the sector has become highlycompetitive.Concentrated in regional clustersEQUITY RESEARCH ON AUTOMOBILE SECTOR Page 28
  29. 29. Automobile manufacturing units are located all over India. These are, however, concentrated insome pockets such as Chennai and Bangalore in the south, Pune in the west, the National CapitalRegion (NCR, which includes New Delhi and its suburban districts) in the north, Jamshedpur andKolkata in the east and Pithampur in the central region. Following global trends, the Indian automotivesector also has most autoSuppliers located close to the manufacturing locations of OEMs, forming regional automotive clusters.Broadly, the three main clusters are centered around Chennai, Pune and the NCR.Auto Components sector is highly fragmented India is emerging as one of the most attractive automotive markets in the world, and ispoised to become a key sourcing base for auto components.The Indian automotive component industry is highly fragmented. There-are nearly 6,400 players in thesector, of which only about 6 per cent are organized and the remaining 94 per cent are small-scale,unorganized players. In terms of value added, however, the organized players account for nearly 77 percent of the output in the sector. The sector manufactures components across all key vehicle systems.The break-up of the output from the organized sector, in value terms, across key vehicle systems, isshown in the figure.Exports of automobiles from India are booming While the domestic sales of automobiles have been increasing at a significant rate,exports havetaken a quantum leap in recent years. The exports of automobiles from India have been growing at aCAGR of 39 per cent for the past four years. Exports growth has been spearheaded by the passenger vehicle segment, which has grown at arate of 57.4 per cent. Europe is the biggest importer of cars from the country while predominantlyAfrican nations import buses and trucks.The Association of South East Asian Nations (ASEAN) regionis the prime destination for Indian two wheelers. Most of the key auto component manufacturers in India are very positive about the outlook forexports, and expect about 15 per cent of their revenue to come from exports over the next 3-5 years. Ithas been estimated that exports of auto components from India could be around US$ 20-25 billion by2015.EQUITY RESEARCH ON AUTOMOBILE SECTOR Page 29
  30. 30. Competitive Advantages India has several competitive advantages in the automobile sector,which have been analyzedusing the following framework. Availability of skilled manpower with engineering and designcapabilities India has a growing workforce that is English-speaking, highly skilled and trained indesigning and machining skills required byThe automotive and engineering industries. In a combined assessment of manpower availability andcapabilities, India ranks much ahead of other competing economies (see figure). Figure 5: India competitiveness compared to other industriesMany Indian and global players are leveraging this advantage by increasingly outsourcing activitieslike design and R&D to their Indian arms. The Society of Indian Automobile manufacturers(SIAM)estimates that automotive vehicle manufacturers areExpected to invest US$ 5.7 billion in the Indian market from 2010 to 2012. Of this, about US$ 2.3billion will be on research and development and the rest probably on capex.EQUITY RESEARCH ON AUTOMOBILE SECTOR Page 30
  31. 31. Table 2: Key players in automobile industry The Indian automobile industry is highly competitive with a large number of players in eachindustry segment. Most of the global majors are present in the passenger vehicle and two wheelersegments. In the components industry too,global players such as VISTEON, Delphi and Bosch are wellestablished,competing with domestic players. The presence of global competition has led to an overallincrease in capabilities of the Indian auto sector. Increase in competition has led to a pressure onmargins, and players have become increasingly cost efficient. Quality levels have gone up, and there isan increasing focus on compliance to TPM, TQM and Six Sigma processes. This has led to anincreased confidence among domestic players, who are now focusing on opportunities abroad. Keyplayers in the components sector like Bharat Forge and Sundaram Fasteners have become key globalsuppliers in their categories.EQUITY RESEARCH ON AUTOMOBILE SECTOR Page 31
  32. 32. Expected Growth by 2015-16 Potential Vehicle sales in India in 2015 - 16 ( in mn) 0.87 27.8 2015-16 0.64 2.65 0 10 20 30 Three Wheelers Two wheelers CVs Cars Figure 6: potential vehicle sales After this whole analysis of Automobile Industry we can say that though there are somebacklogs like regional clusters, some threats & weaknesses of Automobile Industry there are morepositive sign than the negative. There is a lot of potential in this industry. This is the industry whichwill go day by day. Because the population level of India is increasing. Many of the villages in India isEQUITY RESEARCH ON AUTOMOBILE SECTOR Page 32
  33. 33. segment -today car is not meant for need only it becomes a luxury & income level of people is increasing this canb leads to increase in sale of cars.TATA NANO RS. 1 lack car.Petrol prices are increasing but it does not affect the sale of car because people gives more important toneed & luxury than the petrol & diesel prices.Commercial vehicles-today transportation facilities are developing. Business is expanding so it leads to requirement of more & more commercial vehicles.Two Wheeler-Even lower middle class people can afford two wheelers. Today almost every company provides twowheeler at a price of RS. 35000 to is cheaper than the other mode of transport & less time consuming. So we can say that there is so much potential to invest in Automobile sector. in future also thissector will grow.EQUITY RESEARCH ON AUTOMOBILE SECTOR Page 33
  34. 34. Company Analysis-i have taken two companies from the Automobile Sector-1- TATA Motors2- MAHINDRA & MAHINDRA TATA MOTORSTATA Motors Limited is Indias largest automobile company, with consolidated revenues of RS. 92,519crores (USD 20 billion) in 2009-10. It is the leader in commercial vehicles in each segment, and amongthe top three in passenger vehicles with winning products in the compact, midsize car and utilityvehicle segments. The company is the worlds fourth largest truck manufacturer, and the worlds secondlargest bus manufacturer.The companys 24,000 employees are guided by the vision to be "best in the manner in which weoperate, best in the products we deliver, and best in our value system and ethics."Established in 1945, Tata Motors presence indeed cuts across the length and breadth of India. Over 5.9million Tata vehicles ply on Indian roads, since the first rolled out in 1954. The companysmanufacturing base in India is spread across Jamshedpur (Jharkhand), Pune (Maharashtra), Lucknow(Uttar Pradesh), Patagar (Uttarakhand) and Dhār wad (Karnataka). Following a strategic alliance withFiat in 2005, it has set up an industrial joint venture with Fiat Group Automobiles at Ranjangaon(Maharashtra) to produce both Fiat and Tata cars and Fiat powertrains. The company is establishing anew plant at Sanand (Gujarat). The companys dealership, sales, services and spare parts networkcomprises over 3500 touch points; Tata Motors also distributes and markets Fiat branded cars in India.Tata Motors, the first company from Indias engineering sector to be listed in the New York StockExchange (September 2004), has also emerged as an international automobile company. Throughsubsidiaries and associate companies, Tata Motors has operations in the UK, South Korea, ThailandEQUITY RESEARCH ON AUTOMOBILE SECTOR Page 34
  35. 35. and Spain. Among them is Jaguar Land Rover, a business comprising the two iconic British brands thatwas acquired in 2008. In 2004, it acquired the Daewoo Commercial Vehicles Company, South Koreassecond largest truck maker. The rechristened Tata Daewoo Commercial Vehicles Company haslaunched several new products in the Korean market, while also exporting these products to severalinternational markets. Today two-thirds of heavy commercial vehicle exports out of South Korea arefrom Tata Daewoo. In 2005, Tata Motors acquired a 21% stake in Hispano Carrocera, a reputedSpanish bus and coach manufacturer, and subsequently the remaining stake in 2009. Hispanos presenceis being expanded in other markets. In 2006, Tata Motors formed a joint venture with the Brazil-basedMarco polo, a global leader in body-building for buses and coaches to manufacture fully-built busesand coaches for India and select international markets. In 2006, Tata Motors entered into joint venturewith Thornburg Automotive Assembly Plant Company of Thailand to manufacture and market thecompanys pickup vehicles in Thailand. The new plant of Tata Motors (Thailand) has begun productionof the Xenon pickup truck, with the Xenon having been launched in Thailand in 2008.Tata Motors is also expanding its international footprint, established through exports since 1961. Thecompanys commercial and passenger vehicles are already being marketed in several countries inEurope, Africa, the Middle East, South East Asia, South Asia and South America. It has franchisee/jointventure assembly operations in Kenya, Bangladesh, Ukraine, Russia, Senegal and South Africa.The foundation of the companys growth over the last 50 years is a deep understanding of economicstimuli and customer needs, and the ability to translate them into customer-desired offerings throughleading edge R&D. With over 3,000 engineers and scientists, the companys Engineering ResearchCentre, established in 1966, has enabled pioneering technologies and products. The company today hasR&D centers in Pune, Jamshedpur, Lucknow, Dharwad in India, and in South Korea, Spain, and theUK. It was Tata Motors, which developed the first indigenously developed Light Commercial Vehicle,Indias first Sports Utility Vehicle and, in 1998, the Tata Indica, Indias first fully indigenous passengercar. Within two years of launch, Tata Indica became Indias largest selling car in its segment. In 2005,Tata Motors created a new segment by launching the Tata Ace, Indias first indigenously developedmini-truck.In January 2008, Tata Motors unveiled its Peoples Car, the Tata Nano, which India and the world havebeen looking forward to. The Tata Nano has been subsequently launched, as planned, in India in March2009. A development, which signifies a first for the global automobile industry, the Nano brings theEQUITY RESEARCH ON AUTOMOBILE SECTOR Page 35
  36. 36. comfort and safety of a car within the reach of thousands of families. The standard version has beenpriced at Rs.100, 000 (excluding VAT and transportation cost).Designed with a family in mind, it has a roomy passenger compartment with generous leg space andhead room. It can comfortably seat four persons. Its mono-volume design will set a new benchmarkamong small cars. Its safety performance exceeds regulatory requirements in India. Its tailpipeemission performance too exceeds regulatory requirements. In terms of overall pollutants, it has alower pollution level than two-wheelers being manufactured in India today. The lean design strategyhas helped minimize weight, which helps maximize performance per unit of energy consumed anddelivers high fuel efficiency. The high fuel efficiency also ensures that the car has low carbon dioxideemissions, thereby providing the twin benefits of an affordable transportation solution with a lowcarbon footprint.In May 2009, Tata Motors introduced ushered in a new era in the Indian automobile industry, inkeeping with its pioneering tradition, by unveiling its new range of world standard trucks called Prima.In their power, speed, carrying capacity, operating economy and trims, they will introduce newbenchmarks in India and match the best in the world in performance at a lower life-cycle cost.Tata Motors is equally focused on environment-friendly technologies in emissions and alternative fuels.. It has developed electric and hybrid vehicles both for personal and public transportation. It has alsobeen implementing several environment-friendly technologies in manufacturing processes,significantly enhancing resource conservationThrough its subsidiaries, the company is engaged in engineering and automotive solutions, constructionequipment manufacturing, automotive vehicle components manufacturing and supply chain activities,machine tools and factory automation solutions, high-precision tooling and plastic and electroniccomponents for automotive and computer applications, and automotive retailing and service operations.Tata Motors is committed to improving the quality of life of communities by working on four thrustareas – employability, education, health and environment. The activities touch the lives of more than amillion citizens. The companys support on education and employability is focused on youth andwomen. They range from schools to technical education institutes to actual facilitation of incomegeneration. In health, our intervention is in both preventive and curative health care. The goal ofEQUITY RESEARCH ON AUTOMOBILE SECTOR Page 36
  37. 37. environment protection is achieved through tree plantation, conserving water and creating new waterbodies and, last but not the least, by introducing appropriate technologies in our vehicles and operationsfor constantly enhancing environment care.With the foundation of its rich heritage, Tata Motors today is etching a refulgent future. Technical Chart Figure 7: Technical chartEQUITY RESEARCH ON AUTOMOBILE SECTOR Page 37
  38. 38. Profit & Loss account ofTata Motors ------------------- in Rs. Cr. ------------------- Mar 05 Mar 06 Mar 07 Mar 08 Mar 09 12 mths 12 mths 12 mths 12 mths 12 mths Total Income 17,747.15 21,197.95 28,128.31 29,461.60 26,343.92 Operating Profit 2,000.05 2,146.36 2,586.51 3,030.52 1,723.10 PBIT 2,404.03 2,998.77 3,700.89 3,764.69 2,644.39 Interest 234.30 350.24 455.75 471.56 704.92 Profit Before Tax 1,652.45 2,053.81 2,573.83 2,576.47 1,013.76 Reported Net Profit 1,236.95 1,528.88 1,913.46 2,028.92 1,001.26 Preference Dividend 0.00 0.00 0.00 0.00 0.00 Equity Dividend 452.19 497.94 578.07 578.43 311.61 Per share data (annualised) Shares in issue (lakhs) 3,617.52 3,828.34 3,853.74 3,855.04 5,140.08 Earning Per Share (Rs) 34.19 39.94 49.65 52.63 19.48 Equity Dividend (%) 125.00 130.00 150.00 150.00 60.00 Book Value (Rs) 113.65 143.94 177.59 202.70 240.64 Table 3: P & L account of TATA motorsEQUITY RESEARCH ON AUTOMOBILE SECTOR Page 38
  39. 39. Quarterly Results of Tata Motors ------------------- in Rs. Cr. ------------------- Mar 09 Jun 09 Sep 09 Dec 09 Mar 10Total Income 6,976.45 6,723.99 8,399.75 8,980.11 13,342.65Operating Profit 535.91 716.79 1,050.27 1,129.29 1,137.90Net Profit 591.42 513.76 729.14 400.14 597.04Dividend -- -- -- -- --Earnings Per Share 11.51 9.99 14.18 7.36 10.46Equity 514.05 514.05 514.05 543.96 570.60Face Value 10.00 10.00 10.00 10.00 10.00 Table 3:Quarterly P & L account of TATA motors Analysis of profit & loss Total income of the company in the year 2009-10 has increased drastically as compare to previous year but in previous year income had gone down as compare to the year 2008. After a Sharp decline in sales volume auto industry recovered with the sales growth in the year 2009-10. This is because improved economic activity reflected by improvement in industry production, favorable impact ogf government packages & overall improvement in financial environment.Because of increase in the total income net profit of the company has also increased. Company didn‟t pay any dividend in the year 2009-10. Earning per share doubled as compare to previous year. EQUITY RESEARCH ON AUTOMOBILE SECTOR Page 39
  40. 40. Balance sheet(Rs. In crore) Mar 09 Mar 08 Mar 07 Mar 06 Mar 05Sources of fundsOwners fundEquity share capital 514.05 385.54 385.41 382.87 361.79Share application money - - - - -Preference share capital - - - - -Reserves & surplus 11,855.15 7,428.45 6,458.39 5,127.81 3,749.60Loan fundsSecured loans 5,251.65 2,461.99 2,022.04 822.76 489.81Unsecured loans 7,913.91 3,818.53 1,987.10 2,114.08 2,005.61Total 25,534.76 14,094.51 10,852.94 8,447.52 6,606.81Uses of fundsFixed assetsGross block 13,905.17 10,830.83 8,775.80 7,971.55 6,611.95Less : revaluation reserve 25.07 25.51 25.95 26.39 -Less : accumulated depreciation 6,259.90 5,443.52 4,894.54 4,401.51 3,454.28Net block 7,620.20 5,361.80 3,855.31 3,543.65 3,157.67Capital work-in-progress 6,954.04 5,064.96 2,513.32 951.19 538.84Investments 12,968.13 4,910.27 2,477.00 2,015.15 2,912.06EQUITY RESEARCH ON AUTOMOBILE SECTOR Page 40
  41. 41. Mar 09 Mar 08 Mar 07 Mar 06 Mar 05Net current assetsCurrent assets, loans & advances 10,836.58 10,781.23 10,318.42 9,812.06 7,248.88Less : current liabilities & provisions 12,846.21 12,029.80 8,321.20 7,888.65 7,268.80Total net current assets -2,009.63 -1,248.57 1,997.22 1,923.41 -19.92 18.12Miscellaneous expenses not written 2.02 6.05 10.09 14.12Total 25,534.76 14,094.51 10,852.94 8,447.52 6,606.81Notes:Book value of unquoted investments 12,358.84 4,145.82 2,117.86 1,648.57 2,480.15Market value of quoted investments 558.32 2,530.55 1,323.08 1,550.00 1,260.05Contingent liabilities 5,433.07 5,590.83 5,196.07 2,185.63 1,450.32Number of equity sharesoutstanding 5140.08 3855.04 3853.74 3828.34 3617.52(Lacs) Table 4: Balance sheet of TATA motors Analysis of Balance Sheet Share capital of a company is continuously increasing. It means no. of shares also increasing. Company is trying to raise more & more funds. Current liabilities of the company is more than the current assets it means company‟s liquidity position is so poor. Company is blocking more & more funds in the form of fixed assets. Investment of the company has increased substantially in the year 2009 which may help the company in long run. But this investment increase the risk of the company because there is a chances of losses on this investment. & if company earns profit through this investment it will boost the company in long run.EQUITY RESEARCH ON AUTOMOBILE SECTOR Page 41
  42. 42. Key Financial Ratios of ------------------- in Rs. Cr. ------------------- Tata Motors Mar Mar 06 Mar 07 Mar 08 Mar 09 05Dividend Per Share 12.50 13.00 15.00 15.00 6.00Profitability RatiosNet Profit Margin(%) 7.02 7.35 6.94 6.96 3.77Return On Net Worth(%) 30.09 27.74 27.96 25.98 8.09Return on Long Term Funds(%) 28.72 28.65 31.18 22.85 8.89Debt Equity Ratio 0.61 0.53 0.59 0.80 1.06Long Term Debt Equity Ratio 0.59 0.42 0.31 0.50 0.49Debt Coverage RatiosTotal Debt to Owners Fund 0.61 0.53 0.59 0.80 1.06Earnings Per Share 34.19 39.94 49.65 52.63 19.48 113.6Book Value 143.94 177.59 202.70 240.64 5 Table 5: Key financial ratios of TATA motors EQUITY RESEARCH ON AUTOMOBILE SECTOR Page 42
  43. 43. Ratio Analysis Dividend per share has decreased by 100 % from the year 2005 to 2009. Net profit margin also decreased more than 100 %. In the year 2009 the company‟s debt is more than its own fund. It is a negative sign. Because higher the debt higher the risk.Earnings per share in the year 2009-10 were approx. 39 RS. Doubled than the previous year. This leads to the growth prospects in future. Return on long term funds are quite better. Report Card- PE ratio - 20.64 (15/7/2010) EPS 39.26 Rs. Sales 12,229.70 Rs. Face Value 10 Rs Net profit margin 3.77 % (Mar, 09) Last bonus3:5 ( 28/09/95) Last dividend 150 (27/05/10) Return on avg. 8.09 (march 2009) Equity Table 6:Report cardEQUITY RESEARCH ON AUTOMOBILE SECTOR Page 43
  44. 44. - Dividend paid by TATA MOTORS Year Month Dividend (%) 2010 May 150 2009 May 60 2008 May 150 2007 May 150 2006 May 130 2005 May 125 Table 7- Dividend paid by Tata Motors.EQUITY RESEARCH ON AUTOMOBILE SECTOR Page 44
  45. 45. Share holding pattern as on : 30/06/2010 31/03/2010 31/12/2009Face value 10.00 10.00 10.00 No. Of No. Of No. Of % Holding % Holding % Holding Shares Shares SharesPromoters holdingIndian Promoters 23213396 36.17 187376876 37.00 182666241 38.08Sub total 23213396 36.17 187376876 37.00 182666241 38.08Non promoters holdingInstitutional investorsBanks Fin. Inst. and 649461 1.01 79506752 15.70 72352755 15.08InsuranceFIIs 17141913 26.71 90736036 17.92 79801995 16.63Sub total 32196708 50.17 181123079 35.77 162862945 33.95Other investorsPrivate Corporate 2807249 4.37 2978660 0.59 2988981 0.62BodiesNRIs/OCBs/Foreign 489478 0.76 27471578 5.43 28637088 5.97OthersDirecctors/Employee 46671 0.07 239972 0.05 238172 0.05sGovt - - 407181 0.08 407181 0.08Others 221562 0.35 62719713 12.39 59565497 12.42Sub total 3564960 5.55 93817104 18.53 91835419 19.14General public 5201496 8.10 44064111 8.70 42371799 8.83Grand total 64176560 100.00 506381170 100.00 479736404 100.00 Table 8: Share holding patternsEQUITY RESEARCH ON AUTOMOBILE SECTOR Page 45
  46. 46. Share Market watch of TATA MOTORSMonth PriceAugust 449.45September 489.35October 580.10November 551.85December 629.50January 792.60February 707.95March 668.70April 739.65May 844.60June 673.70July 798.05Table 9: Share Market watch of TATA MOTORSFrom the above table we can see that the share price of TATA MOTORS has almost doubled in the last12 months. In the month of May it goes up to 872.85. it is very good performance. This trend showsthat the in future also market price of share will increase.EQUITY RESEARCH ON AUTOMOBILE SECTOR Page 46
  47. 47. News related to TATA MOTORS  TATA MOTORS raised US $ 750 through issue of global depository shares & convertible notes.  15-7-2010 Tata Motors global sales grew by 46 %.  07-7-2010 Tata Motors to invest RS. 10000 crore in 2 to 3  IndusInd Bank ties-up with Tata Motors for dealer financing.  Raising of long term capital funds  Tata Motors launches the all-new Tata Indigo e-CS, the most fuel efficient sedan in the country.  Tata Nano bags the Gold Prize in the 2010 Edison Awards  Tata Motors ties up with Indian Overseas Bank for financing its range of commercial vehicles From above whole analysis we can say that there is a lot of potential to invest in this company.on 17-7-2019 also the share price of TATA MOTRS was up by 30 Rs. TATA has launched TATANANO & acquired land rover & they are planning to invest more & more money. & TATA is brand onwhich people blindly trust. So that‟s why this company definitely gives maximum returns in the future.Investment in long term is beneficial. Hike in fuel prices may affect the industry in short run. Then toosmall investor can go for short term investment because fluctuation in share price is more. .EQUITY RESEARCH ON AUTOMOBILE SECTOR Page 47
  48. 48. Mahindra & Mahindra ltd. Mahindra & Mahindra Limited. The Groups principal activities are to manufacture and distribute automobiles and farm equipment. The Group also provides IT, Financial, trading and management services. The Group operates in nine segments: Automotive, Farm equipment, IT services, Financial services, Steel Processing and Trading, Infrastructure, Hospitality, Systech. The Automotive sector manufactures multi utility vehicles and light commercial vehicles. The Farm equipment sectormanufactures and markets tractors. The IT segment comprises of services rendered to IT and Telecom. The Financial services segment includes services like financing, leasing and hire purchase of automobiles and tractors. Infrastructure comprise of operating of complex, Project management and development. Hospitality comprise of sale of time share. SYSTECH comprise of automotivecomponents and other segment includes steel trading, project management, Investment and power plantMahindra & Mahindra Limited was set up in 1945 as Mahindra & Mohammed. Later in 1948 it‟s namechanged to present Mahindra & Mahindra. Initially it manufactured light commercial vehicles (LCVs)and agricultural tractors and later it grown rapidly into manufacturing of utility vehicles.Mahindra & Mahindra Limited is part of the US $6.7 billion Mahindra Group. M&M has entered intopartnership with international companies like Renault SA, France, and International Truck and EngineCorporation, USA. Its UV models include Scorpio, Bolero, Legend, Major, Commander and Logan.Automotive Sector: Mahindra Group is the market leader in utility vehicles in India since inception.Mahindra also manufactures and markets utility vehicles and light commercial vehicles, includingthree-wheelers. Some of the famous automobile brands of Mahindra are: Scorpio and Bolero. Recently,Mahindra joined hands with French automobile major Renault to enter passenger car segment. It haslaunched a car called Mahindra Renault Logan.Farm Equipment Sector: Mahindra is the largest producer of tractors in India and is among the topfive tractor brands in the world. It has its own state-of-the-art plants in India, USA, China andAustralia, and a capacity to produce 1,50,000 tractors a year.Trade & Financial Services: Mahindra Limited and its subsidiaries have specialized domainknowledge in imports and exports of commodities, domestic trading, marketing and distributionservices. Mahindra Finance is one of the largest Non-Banking Finance Companies in India with anEQUITY RESEARCH ON AUTOMOBILE SECTOR Page 48
  49. 49. asset base of about RS. 5000 crores. Mahindra Insurance Brokers offer Life and Non-life Insuranceplans to retail and corporate customers. Mahindra Steel Service Centre is the first steel service center inthe organized sector in India.Infrastructure Development: Mahindra Group has interests in real estate, special economic zones,hospitality industry, infrastructure development, project engineering consultancy and design. MahindraHolidays & Resorts is the leader in the lifetime holiday market in India. Mahindra Gesco is fastestgrowing Construction Company in India. Mahindra World City is developing and promoting Indiasfirst Integrated Business City. Mahindra Acres Consulting Engineers is a multidisciplinary engineeringconsultancy organization.Information Technology: Mahindra Group entered into IT sector in 1986 when it formed a jointventure with British Telecommunications plc. The company was called Mahindra-British Telecom. TheCompany has recently changed its name to Tech Mahindra. Tech Mahindra is a leading provider oftelecommunication solution and service industry world-wide. It is Indias 8th largest software exporter.Specialty Businesses: Mahindra Group companies such as Mahindra AshTech, Mahindra Defense,Spares Business Unit and Mahindra Logistics are into Specialty Businesses. Mahindra AshTechundertakes turnkey contract execution for Ash Slurry System and Travelling Water Screens. MahindraDefense Systems looks after the requirements of Indias defense and security forces. MahindraLogistics provide complete logistics solutions to complex transportation needs of clients across theworld.While the world-class Scorpio (declared to be the „Car of the Year‟ by CNBC Auto car, BBC Wheelsand Business Standard Motoring) is the Automotive Sector‟s current flagship, it has many moreproducts that have made it popular with individuals and institutions in India and the world. TheAutomotive Sector of the Mahindra Group is currently present in the multi-utility vehicle, lightcommercial vehicle and three-wheeler segments. Now, with its joint ventures, it will have a presence inthe passenger car and the medium and heavy commercial vehicle segments too. Mahindra Group is one of the largest corporate groups of India. It is a US $4.5 billion conglomeratewith employee strength of over 40,000. The group has diverse business interests such as automotive,farm equipment‟s, infrastructure, information technology, hospitality, and financial services. MahindraEQUITY RESEARCH ON AUTOMOBILE SECTOR Page 49
  50. 50. Group has global presence and it is ranked amongst Forbes Top 200 list of the Worlds Most ReputableCompanies and in the Top 10 list of Most Reputable Indian companies. Technical Analysis chartFigure 8: Technical analysisProfit & Loss account of ------------------- in Rs. Cr. -------------------Mahindra and Mahindra Mar 06 Mar 07 Mar 08 Mar 09 Mar 10Net Sales 8,136.5 9,921.34 11,310.37 13,125.98 18,588.82Total Income 8,694.9 10,458.92 12,035.44 13,339.54 18,902.61Operating Profit 871.55 1,136.23 1,157.65 1,092.25 2,955.24Reported Net Profit 857.10 1,068.39 1,103.37 836.78 2,087.75EQUITY RESEARCH ON AUTOMOBILE SECTOR Page 50
  51. 51. Preference Dividend 0.00 0.00 0.00 0.00 0.00Equity Dividend 243.97 282.23 282.61 278.83 549.52Per share data (annualized)Shares in issue (lakhs) 2,334.0 2,380.33 2,390.73 2,726.16 5,659.08Earnings Per Share (Rs) 36.72 44.88 46.15 30.69 36.89Equity Dividend (%) 100.00 115.00 115.00 100.00 190.00 ------------------- in Rs. Cr. -------------------Quarterly Results ofMahindra and Mahindra Mar 09 Jun 09 Sep 09 Dec 09 Mar 10Total Income 3,715.88 4,266.16 4,691.08 4,521.47 5,322.75Net Profit 418.07 400.85 702.94 413.70 570.26Dividend -- -- -- -- --Dividend (%) -- -- -- -- --Earnings Per Share 15.34 14.68 25.71 15.12 10.08Book Value -- -- -- -- --Equity 272.62 272.98 273.36 273.56 282.95Face Value 10.00 10.00 10.00 10.00 5.00 Table 10: Quarterly results of Mahindra & Mahindra Analysis of profit or loss accountSales of the company in the year 2019-2010get doubled as compare to year 2005-06. Sale increased bymore than 100 % in the span of 4 years. In March 2009 profit was down because of economicslowdown. Shareholders get on an average 30 to 35 RS. As EPS. This is a positive sign for futuregrowth.DividendYear Month Dividend (%)2010 May 1902009 May 1002008 May 1152007 May 40EQUITY RESEARCH ON AUTOMOBILE SECTOR Page 51
  52. 52. Year Month Dividend (%) 2007 Mar 75 2006 May 100 Table 11: DividendBalance Sheet of ------------------- in Rs. Cr. -------------------Mahindra and Mahindra Mar 06 Mar 07 Mar 08 Mar 09 Mar 10 Sources Of Funds Total Share Capital 233.40 238.03 239.07 272.62 282.95 Equity Share Capital 233.40 238.03 239.07 272.62 282.95 Share Application Money 0.00 0.00 0.00 0.00 8.01 Preference Share Capital 0.00 0.00 0.00 0.00 0.00 2,662.1 Reserves 3,302.01 4,098.53 4,959.26 7,539.27 4 Revaluation Reserves 13.33 12.86 12.47 12.09 0.00 2,908.8 Networth 3,552.90 4,350.07 5,243.97 7,830.23 7 Secured Loans 216.68 106.65 617.26 981.00 602.45 Unsecured Loans 666.71 1,529.35 1,969.80 3,071.76 2,277.70 Total Debt 883.39 1,636.00 2,587.06 4,052.76 2,880.15 Total Liabilities 3,792.2 5,188.90 6,937.13 9,296.73 10,710.38 Application Of Funds 2,859.2 Gross Block 3,180.57 3,552.64 4,893.89 5,276.29 5 1,510.2 Less: Accumulated. Depreciation 1,639.12 1,841.68 2,326.29 2,537.77 7 1,348.9 Net Block 1,541.45 1,710.96 2,567.60 2,738.52 8 Capital Work in Progress 205.46 329.72 649.94 646.73 964.20 1,669.0 Investments 2,237.46 4,215.06 5,786.41 6,398.02 9 Inventories 878.74 878.48 1,084.11 1,060.67 1,188.78 Sundry Debtors 637.97 700.89 1,004.88 1,043.65 1,258.08 Cash and Bank Balance 258.39 415.89 310.58 635.61 1,743.23 1,775.1 Total Current Assets 1,995.26 2,399.57 2,739.93 4,190.09 0 Loans and Advances 558.02 1,011.50 866.19 1,402.45 1,852.30 Fixed Deposits 471.92 910.18 550.65 938.82 0.00 2,805.0 Total CA, Loans & Advances 3,916.94 3,816.41 5,081.20 6,042.39 4 Deferred Credit 0.00 0.00 0.00 0.00 0.00 Current Liabilities 1,711.2 2,138.77 2,525.31 3,520.20 3,640.33 EQUITY RESEARCH ON AUTOMOBILE SECTOR Page 52
  53. 53. 3Provisions 543.14 715.43 943.46 1,277.56 1,796.54 2,254.3Total CL & Provisions 2,854.20 3,468.77 4,797.76 5,436.87 7Net Current Assets 550.67 1,062.74 347.64 283.44 605.52Miscellaneous Expenses 18.05 17.55 13.53 12.55 4.12 3,792.2Total Assets 5,188.92 6,937.13 9,296.73 10,710.38 5 Table 12: Balance sheet of Mahindra & Mahindra Analysis of balance sheetCompany has raised good amount of equity share capital in the year 2008 & 2009. Investment of thecompany is also increasing. In the year 2009 company‟s debt decreased by more than 100 %. Companyhas paid their debt so the amount of risk of the company also decreased.Key Financial Ratios of ------------------- in Rs. Cr. -------------------Mahindra and Mahindra Mar Mar 07 Mar 08 Mar 09 Mar 10 06Dividend Per Share 10.00 11.50 11.50 10.00 19.00Profitability RatiosOperating Profit Margin(%) 10.71 11.45 10.23 8.32 15.89Net Profit Margin(%) 10.28 10.34 9.45 6.22 11.11Return On Net Worth(%) 29.60 30.18 25.51 16.03 26.70Return on Long Term Funds(%) 23.17 26.09 19.64 12.36 26.01Liquidity And Solvency RatiosCurrent Ratio 1.21 1.31 0.86 0.90 1.11Debt Equity Ratio 0.31 0.46 0.60 0.77 0.37Long Term Debt Equity Ratio 0.40 0.53 0.63 0.83 0.37Total Debt to Owners Fund 0.31 0.46 0.60 0.77 0.37Dividend Payout Ratio Net Profit 32.45 30.39 29.10 37.29 29.87Cash Earning Retention Ratio 65.14 72.28 71.61 70.69 73.66Earnings Per Share 36.72 44.88 46.15 30.69 36.89Book Value 124.06 148.72 181.43 191.91 138.22 Table 13: Key financial ratios of Mahindra & MahindraEQUITY RESEARCH ON AUTOMOBILE SECTOR Page 53
  54. 54. Analysis of Ratio. Company has paid 19 RS.Dividend per share in the year 2010. Means 9 RS. More than theprevious year. It states that company was able to earn more profit. Good amount of dividend holds theinterest of Share Holders. It is a positive sign so Company can raise more amount of share capital innear future.Company is giving sufficient amount of return on its total net worth. We can see that from the above ratios, every ratio shows downward trend in the year 2008-0but company bounce back in the year 2009-10. In the year 2009-10 every ratio has increased compareto previous year.Report Card Attribute Value DatePE ratio 16.37 16/07/10EPS (Rs) 36.89 Mar, 10Sales (Rscrore) 5,304.63 Mar, 10Face Value (Rs) 5Net profit margin (%) 11.11 Mar, 10Last bonus 1:1 14/06/05Last dividend (%) 190 24/05/10Return on average equity 26.7 Mar, 10Table 14: Report cardEQUITY RESEARCH ON AUTOMOBILE SECTOR Page 54
  55. 55. Share market watch of Mahindra & Mahindra ltd.Month PRICEAugust 920.00September 847.30October 896.45November 921.95December 1028.25January 1062.40February 1019.40March 958.85April 549.55May 526.10June 519.45July 627.65Table 15: Share market watch of Mahindra & Mahindra ltd. Abovechart shows the share market prices of per month of Mahindra & Mahindra in last yearshare price has gone down from 920 to 627.EQUITY RESEARCH ON AUTOMOBILE SECTOR Page 55
  56. 56. Share holdingShare holding pattern as on : 30/06/2010 31/03/2010 31/12/2009Face value 5.00 5.00 10.00 No. Of % No. Of % No. Of % Shares Holding Shares Holding Shares Holding Promoters holdingIndian Promoters 138114984 23.88 138114984 23.88 69063784 24.68Foreign Promoters 14070507 2.43 14254608 2.46 7127304 2.55Sub total 152185491 26.31 152369592 26.34 76191088 27.23 Non promoters holding Institutional investorsBanks Fin. Inst. and 117220102 20.27 119657640 20.69 59592156 21.30InsuranceFIIs 133190960 23.03 135337813 23.40 64064714 22.89Sub total 277852033 48.04 279081526 48.25 139908653 50.00 Other investorsPrivate Corporate Bodies 45672952 7.90 44223273 7.65 21273737 7.60NRIs/OCBs/Foreign 22274297 3.85 22122061 3.82 1645395 0.59OthersGovt 448442 0.08 445132 0.08 221416 0.08Others 30495372 5.27 30600421 5.29 16060852 5.74Sub total 98890069 17.10 97389943 16.84 39201200 14.01General public 49505891 8.56 49592473 8.57 24520124 8.76Grand total 578433484 100.00 578433534 100.00 279821065 100.00 Table 16: Share Holding pattern of Mahindra& Mahindra ltd.EQUITY RESEARCH ON AUTOMOBILE SECTOR Page 56