Analysis of two major automobile company in India which always focusing on Market Capitalisation

1. Fundamental Analysis for Investment Decisions
on Two Major Automobile Company
Abstract
It is felt that the Share market is fluctuating very quickly and the real worth
of the shares also is unstable. The investors need to know the trend of the
share value fluctuations and the stability of share price movements. In every
kind of industry or if we talking about automobile industry, the intrinsic value
of the shares is to be computed to ascertain the share values of the automobile
companies which may either be undervalued or overvalued based on the
performance of the automobile sector. In this study, an analysis is done to help
make decision as regard to whether it is wise to invest in automobile sector in
India or not. Two of the automobile companies have been selected for the
analysis of investment decision over automobile companies whether it is wise
to hold or to sell the shares. The investment decision is made on the basis of
analysis of general trend on automobile sector. The study helps to select
securities which maximizes the yield and minimizes risk. Fundamental
analysis involves finding the intrinsic value of the selected automobile sector
and their share value. It provides additional strength to the investor in
choosing the option of buy / sell strategy. The analysis incorporates with
various financial ratios and their calculations to arrive out the intrinsic value
of the shares of the automobiles finally. The intrinsic value is the yardstick to
measure the financial performance of any bank. Real worth of the share may
not always be reflecting in the market price. Automobile companies are
selected for investment based on the real worth of the shares and the intrinsic
value of the shares will be calculated thus. In this way, we can make
appropriate investment decisions with the help of intrinsic value of shares.
Fundamental analysis is always the proper method to arrive at the results of

2. the company or industry on its financial performance. If the company is
fundamentallystrong, that will help the investor to get a very good return in
the long run. Hence, before making an investment decision the investor has to
check the results of the fundamental analysis of the companies. The study has
thrown more light on the strength with some comprehensive study in
automobile sector performance and as a tool for generating and distributing
the wealth of nation.
INTRODUCTION
This analysis is done to ascertain the financial performance of selected Automobile Companies
in the Automobile sector in India so as to facilitate a buy or sell option through the intrinsic
value of the shares and the prevalent market price using fundamental analysis. It is basically to
know the investment opportunities for the investors in buying the shares of Automobile
companies. This analysis utilizes various data spread over a span of four years (2013-14 to
2016-17) which was collected through the company related documents, websites, etc. The
significance of the study lies in the fact that it helps to make decision to invest in automobile
sector in India. It also will provide information on the existing investments and other norms
with Automobile companies whether it is wise to hold or to sell the shares. It is felt that the
Share market is fluctuating very quickly and the real worth of the shares also is unstable. The
value of the shares of a bank is either undervalued or overvalued. To know the trend of the
share value fluctuations, the intrinsic value of the shares is to be computed. The share values of
the Automobile companies may be either undervalued or overvalued based on the
performance of the Automobile companies in purview.
AUTOMOBILE
Automobile wheeled passenger vehicle that carries its own motor. Most definitions of the term
specify that automobile are designed to run primarily on roads, to have seating for one to six
people, typically have four wheels and be constructed principally for the transport of people
rather than goods. Mainly automobile having two kinds one is passenger another is commercial
vehicle where commercial vehicle is to used carrying goods one location to another.
Profile of selected Automobile Companies

3. MAHINDRA & MAHINDRA MOTORS
Mahindra and Mahindra Limited (M&M) is an Indian company that spreads to multinational
operations, headquartered in Mumbai, Maharashtra, India.
With the largest share in the utility vehicle segment, it is not behind in the passenger vehicle
segment and with its flagship model, XUV 500; it soon became a top seller in India. It had all,
the luxuries of a Automobile as well as the power of an SUV and its sturdiness. It made a path
breaking entry in the Indian market with its Scorpio. It is mostly known to market SUVs, and
majorly farm equipments. So their vehicles are known to be sturdy. Not only in India, but also in
China, the U.K. and the U.S.A., it has its assembly plants that bring down its transportation
costs. With a wide global presence, covering Africa and Europe above all, Mahindra started its
passenger vehicles segment with the Logan in April 2007 under the Mahindra Renault joint
venture-ship. It has its presence in the Energy and the Defense sector with a keen focus on the
eco friendly green power, by harnessing solar power (Mahindra Solar) through Mahindra
Cleantech Ltd. Not only is it big on size and innovation, but also it does give equal importance
to building reliable, sturdy and energy efficient engines. Mahindra & Mahindra Limited
primarily engages in the automotive and farm equipment businesses worldwide. The company
offers aerospace components, airframe parts and assemblies, and aircraft; automotive services
and pre-owned cars; personal and commercial vehicles; application and light trucks; electric
vehicles; recreational and commercial boats; and motor cycles, electric scooters, and e-bikes
TATA MOTORS LTD
Tata Motors, established in the year 1945 under the then name of Tata Engineering and
Locomotive Co. Ltd. (TELCO), is headquartered in Mumbai. It is India's largest automobile
company, with standalone revenues of Rs. 25,660.79 crores (USD 5.5 billion) in 2008–09. 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 Automobile and utility vehicle
segments. The company is the world's fourth largest truck manufacturer, and the world's
second largest bus manufacturer. Tata Motors also distributes and markets Fiat branded
Automobiles in India.
Tata Motors has operations in the UK, South Korea, Thailand and Spain. Among them is Jaguar
Land Rover, a business comprising the two iconic British brands that was acquired in 2008. In
2004 . Following products in passenger Automobile introduced by TATA Motors Indica Vista,
Indica V2, indica V2 Turbo, Indica V2 Xeta, Indica V2 Dicor., Aria, Zest and Bolt
(upcoming),Indigo XL, Indigo, Indigo Marina Indigo CS,Nano.

4. Importance of the commercial vehicle (CV) business to the present health and future well-being
of Tata Motors. With the bulk of its revenues and profits — keeping subsidiary Jaguar Land
Rover aside — coming from CVs, this is a segment that will be hugely influential in defining the
course the company takes over the next few years. With trucks, buses, pickups and more in its
stable, Tata Motors has an impressive spread of offerings in CVs. They range from carriers in the
under-a-tonne category to heavyweights in the above 40 tonnes class, frommini vans that can
seat five to buses that ferry 80 passengers
OBJECTIVES
 To do the fundamental analysis of the selected Automobile manufacturing companies
 Evaluating the intrinsic value of shares for decision making
 To recommend for a buy or sell option by comparing the intrinsic value of the share with
the market price using fundamental analysis.
SCOPE OF THE STUDY
The scope of the study is limited to five selected Automobile manufacturing companies in India.
The significance of the study lies in the fact that it helps to make decision as regard to whether
it is wise to invest in automobile companies in India and in case of investment which is already
made in the with Automobile companies whether it is wise to hold or to sell the shares. The
investment decision is made on the basis of analysis of general trend on automobile sector. The
study helps to select securities which maximizes the yield and minimizes risk.
RESEARCH METHODOLOGY
Data of the study was collected from secondary sources. Data was collected from the websites,
Company websites, newspapers and periodicals were also referred which includes,
1. Observations of financial status of the company
2. Study of intrinsic value and extrinsic factors of a company
3. Interaction with stock broker in the stock market
4. Internet
Population and Sample

5. According to the Indian Automobile industry, it estimates there is a total of 25 Automobile
manufacturing companies in India out of which 3 Automobile making companies are Indian
companies and rest are collaboration with Indian automobile companies. These total 25
Automobile manufacturers have been taken as the population for the study. On the basis of the
relative performance of the Automobile manufacturing companies in the market, only two
Indian Automobile companies have been chosen from the population and ranked according to
their market capitalization. Thus, convenient sampling is used for Automobile trying out the
study.
Research Design
Out of the ten companies which were taken on the basis of the market capitalization from the
BSE
Listing and ranked accordingly, two were selected to conduct a detail study. Fundamental
analysis involves finding the intrinsic value of the selected Automobile company shares. It
provides additional strength to the investor in choosing the option of buy / sell strategy.
Tools used in Fundamental Analysis
1. Earnings per Share (EPS) = PAT / No. of Equity shares.
2. Dividend per Share (DPS) = Dividend % * Face value of a share
3. Dividend Payout Ratio (DPOR) = DPS /EPS
4. Average DPOR = Sum of DPOR / No. of years taken
5. Average Retention Ratio = 1- Average DPOR
6. Return On Equity (ROE) = PAT / Net worth where N.W = Capital + Reserves and Surplus
7. Average Return on Equity = Sum of ROE / No. of years
8. Growth Rate in Equity = Average Retention Ratio * Average Return on Equity
9. Price Earnings Ratio = Market Price of the Share i.e. MPS / EPS
10. Normalized average P/E ratio = Sum of Price earnings Ratio / No. of years
11. Projected EPS for next year = EPS for the current year * (1+ Growth rate / 100)
12. Intrinsic value = Projected EPS * Normalized Price Earnings Ratio
Financial Ratios
1. Price Earnings Ratio P / E Ratio = Marketing Price of the Share i.e.MPS / EPS
2. Price To Book Value Price to book value = Market Price of the Share / Book Value of the Share
3. Dividend Pay Out Ratio Dividend Pay Out Ratio = Dividend Per Share / Earnings Per Share * 100
4. Dividend Per Share DPS = Dividend Paid to Equity Shareholders / No. of Equity
5. Return On Equity ROE = Net Profit after Tax / (Equity Capital + Reserves & Surplus) * 100
6. Earnings Per Share EPS= Net profit available to Equity Shareholders / No. of Equity Shares

6. 7. Net Profit Margin Net Profit Margin = Net Profit After tax / Net Sales
8. Current Ratio Current Ratio = Current Assets / Current Liabilities
9. Quick Ratio (Liquid Ratio) Quick Ratio = Quick Assets / Current LiabilitiesQuick Assets = Total
Current Assets — Stock
10. Debt Equity Ratio Debt Equity Ratio = Long Term Debts / Equity (Shareholder's Fund)
FUNDAMENTALANALYSIS AND INTERPRETATION
Basis for Selection of the Companies Out of the top companies which were taken on the basis
of high market capitalization, the two were selected to perform the detailed study. Then, Ratio
analysis was done on the both automobile companies using the related data of the respective
company and tabled as follows.
TATA MOTORS
Table.1 Ratios (TATA MOTORS)
ITEMS 2013-14 2014-15 2015-16 2016-17
Current Ratio 1.0 1.0 1.0 1.0
Debt-Equity Ratio 0.76 1.35 0.61 1.0
Net Profit Margin
(%)
6.0 5.3 4.3 2.8
Table.2 Normalized Price Earnings Ratios (TATA Motors)
ITEMS 2013-14 2014-15 2015-16 2016-17
Reported EPS 51.1 51.1 40.4 26.2
Market High 417 605 568 589
Low 255 403 276 371
Market High/EPS 8.1604 11.8395 14.0594 22.4809
Low/EPS 4.9902 7.8864 6.8316 14.1603
Avg. P/E 6.6 9.9 10.4 18.3

7. Table. Intrinsic Value Calculation
Average Dividend Pay Out
Ratio for 4 years
Sum of DPOR for 4 years
4
(0.390+0.0+0.120+0.0)/4
0.1275
Average Retention Ratio
Average Return on Equity
1-Avg.DPOR=
1-0.1275=0.8725
Sum of ROE for 4 years
4
(21.3+25.30+14.8+13.0)/4
= 18.6%
Long Term Growth Rate in
Dividend & Earnings
Avg. retention Ratio * Avg. Return on Equity
=0.8725*(0.186)= 0.162285

8. Normalized Average Price
Earnings Ratio
Sum of P/E ratios for 4 years
4
(6.6+9.9+10.4+18.3)/4
=11.3
Projected Earnings per Share (Earning Per Share for current year) *
(1+Growth Rate)
26.2*(1+0.162285)=30.451867
Intrinsic Value
Projected Dividend Per Share
Projected EPS * Normalized Avg. P/E Ratio
30.451867*11.3=344.106097
(Dividend Per Share for Current year) *
(I+Growth Rate)
0.0*(1.162285)=0.00
Interpretation:
The stock is said to be over priced as the intrinsic value of the security (344.106097), is lower
Than the current market price 465.93 (as on 31 March 2017). Such a share is considered to be
overpriced and it not suitable for the investment purposes but under some circumstances
investor go for other suitable option. The projected Earnings per Share (EPS) and Dividend per
Share (DPS) of the security is estimated to be Rs 30.451867 and Rs.0.0
Table.1 Ratios (MAHINDRA & MAHINDRA Motors)
ITEMS 2013-14 2014-15 2015-16 2016-17
Current Ratio 1.19 1.05 1.01 1.03
Debt-Equity Ratio 0.22 0.14 0.08 0.11
Net Profit
Margin(%)
9.27 8.52 7.74 9.03
Table.2 Normalized Price Earnings Ratios (MAHINDRA & MAHINDRA MOTORS)
ITEMS 2013-14 2014-15 2015-16 2016-17
Reported EPS 79.1 58.1 65.7 74.8

9. Market High 1054 1421 1381 1509
Low 742 965 1092 1142
Market High/EPS 13.324 24.457 21.019 20.173
Low/EPS 9.380 16.609 16.621 15.267
Avg. P/E 11.4 20.5 18.8 17.7
‘
Average Dividend Pay Out Ratio for 4 years Sum of DPOR for 4 years
4
(0.177+0.206+0.183+0.174)/4
=0.185

10. Table. Intrinsic Value Calculation
Interpretation:
The stock is said to be under priced as the intrinsic value of the security (1435.716), is higher
than the current market price Rs.639.93 (as on 31 Dec 2013). Such a share is considered to be
underpriced and it suitable for the investment purposes. The projected Earnings per Share
(EPS) and Dividend per Share (DPS) of the security is estimated to be Rs 83.960 and
Rs.14.5918
Company Wise Comparison for the Year 2016-17
Average Retention Ratio 1-Avg. DPOR
=1-0.185=0.815
Average Return on Equity Sum of ROE for 4 years
4
(13.6%+13.4%+13.1%+20.0%)/4
=15.025%
Long Term Growth Rate in
Dividend & Earnings
Avg. retention Ratio * Avg. Return on Equity
=0.122453
Normalized Average Price
Earnings Ratio
Sum of PE ratios for 4 years
4
(11.4+20.5+18.8+17.7)/4
17.1
Projected Earnings per Share (Earning Per Share for current year) *
(1+Growth Rate)
74.8*(1+0.122453)=83.960
Intrinsic Value Projected EPS * Normalized Avg. P/E Ratio
83.960*17.1=1435.716
Projected Dividend Per Share (Dividend Per Share for Current year) *
(1+GrowthRate)
13*(1+0.122453)
=14.5918

11. Table. Fundamental analysis
ITEMS TATA MOTORS MAHINDRA & MAHINDRA
CurrentRatio 1.0 1.2
Debt-Equity 1.0 1.0
NetProfitMargin 2.8 4.8
EPS 26.2 74.8
DPS 0 13.00
Avg. DPOR 0.1275 0.185
Avg.ROE 18.6% 15.025%
ProjectedEPS 30.451867 83.960
ProjectedDPS 0.0 14.5918
Market Value 465.93 548.9000
IntrinsicValue 344.106097 1435.716
Suggestion BUY BUY
Interpretation:
From the above table, it can be seen that intrinsic value is high for both two company taken up
for the study and their market prices are low. So it is worthwhile to invest in any of these
company as the market value can raise and that will lead to more profitability and returns for
the investors . Among the two companies taken for the study, it can be found that M&M shares
have the highest intrinsic value and hence it can be considered to be the best investment
option.
FINDINGS

12. TATA MOTORS
The short term and long term solvency of the company is unsatisfactory. The current ratio of
TATA MOTORS for the year 2016-17 is 1.0, which is below the benchmark of 2:1 and the Debt-
Equity ratio of the company is 1.0, which is also below the maximum limit of 2:1.
The stock is said to be under priced as the intrinsic value of the security (344.106097), is lower
than the current market price (as on 31 March, 2017) 465.93.This means that the investor
should buy the share as the price of the security may rise in future.
In the year 2016-17, the Net-Profit margin and (EPS) has slightly decreased, Average P/E Ratio
have increased and the Return on Equity (ROE) has decreased
Slightly for the last three years. The projected Earnings per Share (EPS) and Dividend per Share
(DPS) of the security is estimated to be Rs 30.451697 and Rs 0.0 respectively.
MAHINDRA & MAHINDRA MOTORS
The short term and long term solvency of the company is unsatisfactory. The current ratio of
M&M Company for the year 2016-17 is 1.2, which is exist in the benchmark of 2:1 and the Debt-
Equity ratio of the company is 1, which lies bottom level of the limit of 2:1. The stock is said to
be under priced as the intrinsic value of the security (1435.316), is higher than the current
market price (as on 31 March, 2017). This means that the investor should buy the share as the
price of the security may rise in future.
In the year 2016-17, the Net-Profit margin has slightly increased with Earnings per Share (EPS)
also increased slightly and Average P/E Ratio have increased early then slightly decreases and
the return on equity (ROE) has decreased 20 to 13.1 then bit of increasing.
The Projected Earnings per Share (EPS) and Dividend per Share (DPS) of the security is
estimated to be Rs 74.8 and Rs 13.00 respectively.
SUGGESTIONS
TATA MOTORS

13. The intrinsic value of TATA MOTORS is lower than the current market price. So in order to gain
the advantage over the future increase in market prices, First Investor waiting for the increasing
price investors might be choose for a buy option or existing shareholder will remain hold their
shares because TATA MOTORS always looking for market capitalization , therefore a good
sensible investor looking for the opportunity in TATA MOTORS. The investors are recommended
to hold the shares.
M&M
The intrinsic value of MAHINDRA is higher than the current market price. So the investors may
buy the share. He can buy the scrip as early as possible because there is possibility of rise in
market prices towards intrinsic value as the time passes.
CONCLUSION
The study is meant to do the analysis of the share price movements of selected Automobile
companies in India. The market is fluctuating very quickly. Real worth of the shares is unstable.
The value of the shares of a company is either undervalued or overvalued. To arrive at the
intrinsic value, share prices and their intrinsic values were computed. The share values of the
companies that are under study were observed. Through this study, we could find that these
companies have grown well and if we invest in such companies it will be fruitful. Real worth of
the shares may not be always reflecting in the market price. The selected automobile
companies and the real worth of their shares have to be evaluated and the intrinsic value of the
shares computed. In this way, the appropriate investment decisions could be made with the
help of intrinsic value of shares. The study has thrown more light on the strength of automobile
sector performance and as a tool for generating and distributing the wealth of nation.
It can be concluded that fundamental analysis is always the proper method of arriving the
results of the company or industry over its financial performance. If the company is
fundamentally strong, that will help the investor to get a return in the long run.
Hence, before making an investment decision the investor has to check the results of the
fundamental analysis of the companies.