fundamental analysis about indian automobile sector ....it includes economic analysis , industry analysis and company analysis ...

1. Fundamental Analysis
SUKLA PAUL
MBA , 2ND
YEAR
SOMS , IIEST

2. OBJECTIVES
 Fundamental analysis is an approach to arrive at the ‘correct price’ of the
security.
 Its objective is to identify the underpriced and overpriced securities in the
market place so that the investment decision-buying and selling of
securities can be made.
 measure intrinsic value of securities by examining related economic,
financial and other qualitative and quantitative factors, and company
specific factors.

3. Three Steps of Top-Down
Fundamental Analysis
 Macroeconomic analysis: evaluates current
economic environment and its effect on industry
and company fundamentals
 Industry analysis: evaluates outlook for particular
industries
 Company analysis: evaluates company’s strengths
and weaknesses within industry

4. Macroeconomic Analysis
 Gross Domestic Product
 Inflation
 Unemployment
 Foreign Direct Investments
 fiscal and monetary framework

5. Fiscal & Monetary Policy
 Fiscal Policy (Keynesians)
 Government expenditures (demand)
 Tax policies
 Monetary Policy (Monetarists – M. Friedman)
 Interest rates (discount, fed funds)
 Money supply (Open market ops)
 Reserve requirements (commercial banks)

6. Goals of Policy
 Full Employment
 Price Stability (control inflation)
 Economic Growth

7. GDP Growth Rate

8. Sector wise GDP contribution
Indian economy is classified in three sectors — Agriculture and allied, Industry and Services.
sector wise Indian GDP composition in 2014 are as follows : Agriculture (17.9%), Industry
(24.2%) and Services (57.9%). Total production of agriculture sector is $366.92 billion. India is
2nd larger producer of agriculture product. India accounts for 7.68 percent of total global
agricultural output. GDP of Industry sector is $495.62 billion and world rank is 12. In Services
sector, India world rank is 11 and GDP is $1185.79 billion. Contribution of Agriculture sector in
Indian economy is much higher than world's average (6.1%). Contribution of Industry and
Services sector is lower than world's average 30.5% for Industry sector and 63.5% for Services
sector.

9. Inflation
 Inflation Rate in India averaged 7.48 percent from 2012 until 2016, reaching
an all time high of 11.16 percent in November of 2013 and a record low of 3.69
percent in July of 2015.

10. India Foreign Direct Investment
 Foreign Direct Investment in India increased by 4612 USD Million in September of
2016. Foreign Direct Investment in India averaged 1203.96 USD Million from
1995 until 2016, reaching an all time high of 5670.00 USD Million in February of
2008 and a record low of -60.00 USD Million in February of 2014.

11. Unemployment
 Unemployment Rate in India decreased to 4.90 percent in 2013 from 5.20
percent in 2012. Unemployment Rate in India averaged 7.32 percent from
1983 until 2013, reaching an all time high of 9.40 percent in 2009 and a record
low of 4.90 percent in 2013.

12. Findings of Economy Analysis
 From the Economy Analysis of India, we can say
that in last five years, inflation rate and
unemployment rate have declined considerably.
This shows a favorable situation in Indian
economy. In Indian economy GDP has
continuously increased. A huge flow of FDI is
also available in India during this period. This
shows the possibility of significant growth of
Indian economy in future.

13. Industry Analysis
 ( Automobile Industry)
Major aspects covered under industry analysis are:
 Development of Automobile Industry
 Segmentation of Industry
 Automobile Production Trend
 Gross Turnover of the Automobile Industry in India
 Automobile Export Trend
 Life Cycle of Indian automobile industry
 Porter’s five forces analysis of Automobile Industry
 SWOT Analysis of Automobile Industry of India
 FDI in automobile sector of India

14. Development of Automobile
Industry
 According to history, automobile industry of US, dominated the
automobile market around the globe with no notable competitors. However
after the end of the Second World War in 1945, the automobile industry of
other technologically advanced nations such as Japan and certain European
nations gained momentum and within a very short period, beginning in the
early 1980s, the US auto industry was flooded with foreign automobile
companies, especially those of Japan and Germany.
The current trend of the global automobile industry reviews that in
developed countries the automobile industry is stagnating as a result of the
drooping car markets, whereas the automobile industry in developing
nations such as India & Brazil, have been consistently registering higher
growth rates every passing year for their flourishing domestic automobile
markets.

15. Segmentation of the Industry

16. Industry Life Cycle
 Birth (heavy R&D, large losses - low revenues)
 Growth (building market share and economies of scale)
 Mature growth (maximum profitability)
 Stabilization (increase in unit sales may be achieved by
decreasing prices)
 Decline (demand shifts lead to declining sales and
profitability - losses)

18. GROSS TRUNOVER

20. Porter’s Five Forces Analysis

21. SWOT ANALYSIS
 STRENGTHS
Large Domestic Market
India has the target domestic market which is not fully exploited. In specific, the passenger
vehicles segment has a bright scope in the coming years.
Cost Advantage
India enjoys lower cost of $8 per hour of skilled labour while the labour cost in other
developed countries is around $20 per hour. The cost of creating an automotive design is very
economical in India ($60 per hour) as compared to Europe and US (around $800 per hour)
Engineering Skills
India has a strong competitive advantage in design and engineering skills as compared to other
low cost economies. India is the ninth country in the world to design a vehicle on its own.
Competitive Auto Component Vendor Base
India has a competitive auto component vendor base which helps to get the required auto
components at competitive rates leading to lower manufacturing costs.

22. SWOT ANALYSIS
 WEAKNESSES
Research and Development: Even though there is a development in R&D,
India is not competitive with other countries. The industry should improve
its R&D.
Infrastructure and Facilities: India is lacking proper infrastructural facilities.
Many companies view that the cost advantages in India are being eroded
because of its bad infrastructural facilities.
Low Labour Productivity: The labour productivity in the country is low as
compared to the developed countries. This is mainly because of huge
unskilled labour force.

23. SWOT ANALYSIS
OPPORTUNITIES
Increasing Disposable Income: With the economy on a high growth path on a secured
long term basis and with the consequent increase in disposable incomes of the
population at large, the Indian automotive industry is expected to provide
significant growth opportunities.
Vehicle Switchovers: Passenger cars segment has a bright scope because people are
switching from two wheelers to cars as a result of increased personal disposable
income and rising standard of living.
Infrastructure Development Stirs Demand: The increased investments in
infrastructure required for maintaining the high growth of the Indian economy-such
as the national highway development program with a huge budget- and the
increased goods movement in a fast growing economy would result in a high
demand for commercial vehicles.
Rising Rural Demand: There is a greater change in the rural consumer’s spending
pattern and demand levels because of increasing level of disposable income.

24. SWOT ANALYSIS
THREATS
Integration of Indian Economy with Global Economy: With the growing integration
of the Indian economy with the global economy, events around the world have a
direct or indirect impact on the Indian automobile industry. In particular, Indian
financial markets are highly integrated to global financial markets. As a result,
liquidity and availability of credit, which are the important facilitators for
automobile and tractor sales in Indian market, will be impacted by conditions in the
global market.
Pollution and Emission Controls: Stringent legislation on pollution and emission
requirements will increase the cost of the company’s products for the automobile
sector. Holding the price line could have an impact on profitability. Price increase
on the other hand could impact volumes.
Increased Competition: The entry of a new player will result in ever increasing level
of competition in all the segments of the automobile industry, resulting in intense
pressure on the profit margins of all participants.

25. Foreign Direct Investment in
Automobile Sector
 The Indian government encourages foreign investment in the automobile sector and allows
100% FDI under the automatic route. It is a fully delicensed industry and free imports of
automotive components are allowed. Moreover, the government has not laid down any
minimum investment criteria for the automobile industry.

26. Company analysis
 Last step of fundamental analysis .
 Mainly deals with : the analysis of financial
information , evaluation of management , and
accessing the present situation and future prospect

27. Calculate intrinsic value
 Based on fundamental analysis intrinsic value of share is computed .
VALUATION OF FIRM :
(VALUE is aggregate of future income )
CAPITALISATION METHOD (V) = FUTURE INCOME / COST OF
CAPITAL
GORDONS MODEL : VALUATION = D1/(K-g)
WHEN CFs are constant :
V= CF/(1+i) + CF/(1+i)^2 + CF/(1+i)^3 ….. =CF/I
CFs has constant growth :
V= DCF(1+g)/(1+i) + DCF(1+g)^2/(1+i)^2 + DCF(1+g)^3/(1+i)^3 …
=CF1/(K-g)

28. (For valuation we use FCFF )
 FCFF = CF – CAPITAL EXPENDITURE (CE)
 FCFF= EBIT(1-t) +deprecation – increase in
NCWC – CE
 FCFF = NOPAT –(CE- deprecation) – increase
in NCWC
 EQUITY = V-D [V=E+D ]
 VALUE PER SHARE (INTRINSIC VALUE)
= V/ N (Where N= No of outstanding share )

29.  INTRINSIC VALUE < MARKET PRICE
(SELL )
 INTRINSIC VALUE > MARKET PRICE
(BUY)

30. Company analysis

31. SWOT ANALYSIS
STRENGTH WEAKNESS
 Maruti Suzuki is the largest passenger car company
in India, accounting for around 45% market share
The Company is always focused on launching new
vehicles to tap more number of buyers in the
passenger vehicles segment.
Strong distribution network
Good advertising, product portfolio, self-competing
brands.
Strong brand value and strong presence in the
second hand car market.
Having different revenue streams like Maruti
finance, Maruti Insurance and Maruti driving schools
Inability to penetrate into the international market.
Employee management, strikes, worker wage
problems have affected Maruti's brand image in the
past

32. SWOT ANALYSIS
OPPORTUNITIES THREATS
Developing hybrid cars and fuel
efficient cars for the future can be an
opportunity for Maruti Suzuki
Maruti can target tapping emerging
markets across the world and building a
global brand
Fast growing automobile market and
increased purchasing power
 Intense Competition
 Government policies for the automobile
sector across the world
 Ever increasing fuel prices
 Intense competition from global
automobile brands and cheaper brands can
hurt Maruti Suzuki's business
Substitute modes of public transport like
buses, metro trains etc

33. FINANCIAL ANALYSIS

34. FINANCIAL ANALYSIS

36. Ownership pattern
 In its latest stock exchange filing dated 31 March 2016, Maruti
reported a promoter holding of 56.21 %. Large promoter
holding indicates conviction and sincerity of the promoters.
(35 % promoter holding offers safety to the retail investors.)
 At the same time, institutional holding in the Company stood
at 36.48 % (FII+DII). Large institutional holding indicates the
confidence of seasoned investors. At the same time, it can also
lead to high volatility in the stock price as institutions buy and
sell larger stakes than retail participants.

37. Estimation of Intrinsic Value

38. CONCLUSION
 From the analysis of Indian economy, we have found that Indian economy is one of the
growing economies of the World. In India inflation rate has declined in last two years. Due to
this up to some extent control on cost of raw-materials and other expenses is possible.
 GDP growth rate in India has also an overall increasing trend in the last decade except for the
recessionary period. Due to this production of goods and services have increased in the
economy, and the rate of unemployment has reduced in the economy.
 In last ten years, FDI in India has also increased. This shows the willingness of the foreigners
to invest in Indian economy. There is a huge FDI available in Indian economy, which is helps
India to grow and to be more competitive in the world.
 On the basis of SWOT analysis, we conclude that Indian automobile industry has cost
advantages because in India due to unemployment cheap labour is available.
 But there is a great threat to the automobile industry in India that there are more than 20
MNCs operating in India. So the Indian automobile industry has to meet global competition.
 From the analysis of the one leading company of automobile industry, we conclude that
growth rate of sales of automobile company is high.
 The results of fundamental analysis clearly indicate Maruti Suzuki to be fundamentally
stronger hence it is seems to be more profitable for the investors to invest in Maruti Suzuki in
order to earn higher returns in the long run.

39. LIMITATIONS
 This analysis is fully based on secondary data and
hence the accuracy of data is a major concern.
 Only one company are selected for analysis
because of time constraints.
 There are some underlying assumptions of this
analysis , like : growth is sustainable .

40. THANK
YOU …