SUBMITTED FULFILLMENT OF REQUIREMENT FOR THE

AWARD OF DEGREE OF
MASTER OF BUSINESS ADMINISTRATION

PROJECT REPORT

ON

MARKET STRATEGIES OF AUTOMOBILE COMPANIES IN INDIA

UNDER THE GUIDANCE OF

MS. GEETIKA SRIVASTAVA
(Faculty MBA)

SUBMITTED IN PARTIAL FULFILLMENT FOR

THE AWARD OF DEGREE OF
MASTER OF BUSINESS ADMINISTRATION

VISHAL KIRTI TRIPATHI

1743170047

B.N. COLLEGE OF ENGINEERING AND TECHNOLOGY LUCKNOW

2018-19
 B.N. COLLEGE OF ENGINEERING AND TECHNOLOGY LUCKNOW

RECOMMENDATION

This is to certify that the project report entitled “MARKET

STRATEGIES OF AUTOMOBILE COMPANIES IN INDIA”, submitted by
Vishal Kirti Tripathi towards partial fulfilment for the award of degree of Master of
Business Administration (Marketing and Humar Resource) from B.N. COLLEGE
OF ENGINEERING AND TECHNOLOGY affiliated to Dr. A.P.J. Abdul Kalam
Technical University Uttar Pradesh, Lucknow, is a satisfactory account of their work
based on syllabus and is recommended for the award of the degree.

Ms. Geetika Srivastava Prof (Dr.) Smriti Srivastava

PROJECT GUIDE HEAD OF DEPARTMENT

 DECLARATION

I am Vishal Kirti Tripathi the undersigned, student of BNCET, Lucknow;

declare that this project report titled “MARKET STRATEGIES OF
AUTOMOBILE COMPANIES IN INDIA” is submitted in partial fulfillment of
the requirement for the summer internship project during the course of Master in
Business Administration. I also declare that this is my original work and has not
been previously submitted as part of any other degree, diploma of another B-
school or University. The findings and conclusions of the data in this report are
based on my personal study, during the tenure of my summer internship.

NAME:
VISHAL KIRTI TRIPATHI

ENROLMENT ID:

174317064057

3
 Acknowledgement

My training at “MARKET STRATEGIES OF

AUTOMOBILE COMPANIES IN INDIA” was extremely
enriching. I was given an opportunity to work in close
association with our seniors and was benefited tremendously
with the interaction we had with them during the course of
our project.
I am thankful to my project guides Ms. Geetika
Srivastava (Faculty MBA) for kind support and supervision
under whose kind & constant guidance I had the opportunity
to expand my horizons and view the various problems from
different prospective. I am also thanking her for sparing her
valuable time to listen my problems and difficulties faced by
me during the completion of this project report.

4|P ag e
 Executive Summary

This project report on “MARKET STRATEGIES OF AUTOMOBILE

COMPANIES IN INDIA” has been prepared in partial fulfillment of the

requirement for the Subject: Project report of the Integrated Business

in MBA (Sem. IV) in the academic year 2016-2018. This project is
basically meant to acquire knowledge about the significance of
marketing strategies of the automobiles of Indian Economy. The
project report includes the study of different automobiles sectors and
their marketing strategies. Preparing this project report was good
learning experience for me as I came to gain knowledge about
remarkable role of marketing in automobile sector. I feel great
pleasure in submitting this project report and I hope that you will
accept and appreciate my efforts.

5|P ag e
 TABLE OF CONTENTS

CHAPTER CONTENT PAGE NO.

NO.

1 ACKNOWLEDGEMENT

2 INTRODUCTION 6-7

3 ABOUT THE COMPANY 8-23

4 SIGNIFICANCE OF THE STUDY 24-25

5 LITERATURE REVIEW 26-38

6 OBJECTIVE OF THE STUDY 39-40

7 RESEARCH METHODOLGY 41-55

8 DATA COLLECTION AND INTERPRETATION 56-84

9 LIMITATION AND FINDINGS 85-86

10 CONCLUSION 87-89

11 REFERENCES 90-93

6|P ag e
 CHAPTER 1

7|P ag e
 Introduction
Developing an appropriate public policy towards the industrial
sector has been an important task for Indian policy makers for a long
time. When India moved away from an inward looking
industrialisation strategy to a more ‘open’ economy in 1991, industrial
firms needed to restructure themselves to retain competitiveness.
Much of these restructuring is needed to correct the inefficiencies
created by operating in a protected market.
The automobile sector has been a major candidate in the
industrialisation process since the beginning of planned development.
The policy changes were in two doses and took the form of partial de-
regulations introduced in 1985 and Liberalisation measures launched
since 1991. The pre 1985 regime could be described as an era of strict
controls and regulations. The initial changes, introduced in 1985,
eased the licensing requirements, broad-based the classification of
vehicles for issue of licenses, allowed selective expansion of capacity
and partially relaxed controls with regard to foreign collaborations,
imports of capital goods, raw materials and spares. Though these
measures represented a "domestic Liberalisation", the policy
environment continued being geared towards imposing trade and
investment regulations, constraining the growth of big business houses
and regulating exchange rates. It was only after 1991 that notable
broad-based
changes in policy that had far reaching implications actually came
into being. These changes dispensed with the bulk of controls and
regulations and for the first time since independence assigned a central
role to market forces. This paper analyses the behaviour of Indian
automobile firms operating under regulated and liberal economic
policy regimes. Results from the step-wise discriminant analysis
presented in this paper reveal that the conduct and performance of
firms in this sector differ significantly between the regulated [1985-86

8|P ag e
to 1990-91] and liberal [1991-92 to 1995-96] economic policy
regimes with respect to foreign equity participation, in-house R & D
efforts,technology imports, capital intensity, advertisement, exports,
growth and profits.

9|P ag e
 CHAPTER 2

10 | P a g e
 About Indian Automobile Industry
Following India's growing openness, the arrival of new and
existing models, easy availability of finance at relatively low rate of
interest and price discounts offered by the dealers and manufacturers
all have stirred the demand for vehicles and a strong growth of the
Indian automobile industry.The data obtained from ministry of
commerce and industry, shows high growth obtained since 2001- 02
in automobile production continuing in the first three quarters of the
2004-05. Annual growth was 16.0 per cent in April-December, 2004;
the growth rate in 2003-04 was 15.1 per cent The automobile industry
grew at a compound annual growth rate (CAGR) of 22 per cent
between 1992 and 1997. With investment exceeding Rs. 50,000 crore,
the turnover of the automobile industry exceeded Rs. 59,518 crore in
2002-03. Including turnover of the auto-component sector, the
automotive industry's turnover, which was above Rs. 84,000 crore in
2002-03, is estimated to have exceeded Rs.1,00,000 crore ( USD 22.
74 billion) in 2003-04. Automobile Dealers Network in India.
In terms of Car dealer networks and authorized service stations,
Maruti leads the pack with Dealer networks and workshops across the
country. The other leading automobile manufactures are also trying to
cope up and are opening their service stations and dealer workshops in
all the metros and major cities of the country. Dealers offer varying
kind of discount of finances who in tern pass it on to the customers in
the form of reduced interest rates.

Major Manufacturers in Automobile Industry

 Maruti Udyog Ltd.

 General Motors India
 Ford India Ltd.
 Eicher Motors
 Bajaj Auto
 Daewoo Motors India
 Hero Motors
 Hindustan Motors
 Hyundai Motor India Ltd.
 Royal Enfield Motors
 Telco

11 | P a g e
  TVS Motors
 DC Designs
 Swaraj Mazda Ltd

Government has liberalized the norms for foreign investment

and import of technology and that appears to have benefited the
automobile sector. The production of total vehicles increased from 4.2
million in 1998- 99 to 7.3 million in 2003-04. It is likely that the
production of such vehicles will exceed 10 million in the next
couple of years.
The industry has adopted the global standards and this was manifested
in the increasing exports of the sector.After a temporary slump during
1998- 99 and 1999-00, such exports registered robust growth rates of
well over 50 per cent in 2002-03 and 2003-04 each to exceed two and-
a-half times the export figure for 2001-02.

Automobile Export Numbers

1998-
Category 2004-05 (Apr-Dec)

Passenger Car 25468 121478

Multi Utility Vehicles 2654 3892
Commercial Vehicles 10108 19931
Two Wheelers 100002 256765
Three Wheelers 21138 51535
Percentage Growth -16.6 32.8

The Key Factors Behind This Upswing

Sales incentives, introduction of new models as well as variants
coupled with easy availability of low cost finance with comfortable
repayment options continued to drive demand and sales of
automobiles during the first two quarters of the current year. The risk
of an increase in the interest rates, the impact of delayed monsoons on
rural demand, and increase in the costs of inputs such as steel are the
key concerns for the players in the industry.

As the players continue to introduce new models and variants, the

12 | P a g e
competition may intensify further. The ability of the players to contain
costs and focus on exports will be critical for the performance of their
respective companies.

Performance of automobile sector post

liberalization regime.

Policy Regimes, Firms' Conduct and

Performance
The automobile industry in India grew under a highly regulated
and protected economic
environment over the period 1950 to 1985. Automobile
manufacturing firms were subjected to
strict product specific and capacity licensing and as a result very
few firms dominated all the
products. These restrictions provided no motivation or incentive
for the firms to bring about
technological upgradation.
The policy environment during the period 1985-86 to 1990-91
permitted a limited
increase in technology inflow through various modes. Inflow of
technology from abroad
brought about a shift in the technology frontier as well as a change
in the technological
trajectories in which the firms had been operating. However,
partial relaxation of this kind

13 | P a g e
 failed to bring about a drastic change in the non-competitive
environment in which the firms
had been operating for a long time
liberalisation of economic policies and the outward orientation
introduced since 1991,
on the other hand, brought about a dramatic change in this
industry. These policy measures considerably transformed the
environment in which the firms had been operating. As a
consequence, the industry witnessed the entry of new firms and
adoption of strategies by the already existing firms to introduce
technological change and improve their performance. The new players
brought in modern engineering, efficient processes and effective shop-
floor layouts. The new manufacturing strategies include breaking up
of the plant into modules and cells, reduce the complexity of
purchasing logistics, reduction of inventories and product complexity,
and creation of simpler processes by encouraging flexibility and
teamwork. These firms also make extensive use of CAD/CAM in their
plants.

On the whole, Indian Automotive sector grew at a much faster rate

in the post 1991 era[14.31 % per annum] when compared to [8.56 %
per annum] the period of 1985-91 [Table 1].The growth rate of all the
sectors within the 4 wheelers and Commercial vehicles has been in
double digit with the LCV sector registering the maximum [of 19.93
% per annum] in terms of the growth rate as well as increase over the
earlier period. Medium and Heavy commercial vehicles sector also
registered a growth rate of about 11% per annum, which is a 100%
increase over the previous period, 1985-86 to 1990-91. In the 4-
wheeled drives sector Jeeps [other utility vehicles] experienced the
maximum increase in growth [from about 5.57 % per annum to 14.4
% per annum] between the two periods. The Car sector also had an
increase of about 2.5 percent in its growth rate over the two periods.
This was the only sector which had a double- digit growth rate during
the first period [which can be attributed to Maruti] and has improved
its performance during the 1990s.

14 | P a g e
 ANNUAL AVERAGE GROWTH OF PRODUCTION OF
AUTOMOBILES

Sector/Period 1985-86 to 1991-92 to

1991-92 1995-96

CARS 12.63 15.17

JEEPS 5.57 14.40
ALL 4 11.10 14.84
WHEELERS
M&HCVS 5.39 11.32
LCVS 7.33 19.33
ALL CVs 6.03 13.93
TOTAL 8.56 14.31

During this growth process, the industry experienced changes in

the strategy adopted by many firms in that efforts were made to build
up technology acquisition, product quality was improved and in
general the industry became more competitive. Economic policy
forces have an impact on the extent and direction of technological
efforts of firms. While the technological efforts during import
substitution era were generally directed at increasing the local content
of products, the export-oriented policy induced the firms to direct
efforts to reduce costs and improve quality by implementing changes
that upgrade the production process. Rao [1993] found that the
investment strategies for R & D, plant modernisation and expansion,
material and machine tool inputs undertaken by Indian automobile
firms are all related to the technological position of the firm on
product and process dimension. Narayanan [1998] also found that
inter-firm differences in competitiveness in the automobile sector in
India, depended on technological trajectory advantages during the
licensing regime and on the variables capturing technological
paradigm shifts after the introduction of de-regulation policies during
the mid 1980s. Before 1983 the passenger Car sector of the Indian
automobile industry consisted of only three firms with limited

15 | P a g e
capacity. In 1983, Maruti [which is a joint venture of the
Government of India and Suzuki Motors, Japan] entered the industry
and dramatically affected the market share of all firms. Maruti enjoyed
as much as 50% of the market share during the first period of this
study. Later Maruti, with its range of four wheeled vehicles, was able
to push up its market share during the 1990s to 60%. Telco, a leading
Commercial Vehicle manufacturer in India, also entered the Car
segment after 1991 and introduced four wheeled passenger cars that
are ideally suited for long distance travel on Indian roads. The entry of
Telco virtually decreased the market share of the two formerly leading
car manufacturers in India - Hindustan Motor and Premier
Automobiles - to single digit. These two firms, Hindustan Motor and
Premier Automobiles, continue to struggle for survival in the face of
competition that has resulted from the entry of new subsidiaries of the
world's leading auto manufacturers: General Motors and Ford
Motor Company [from USA], Mercedes Benz [from Germany,
Daewoo Corporation [from Korea] and Automobiles Peugeot [from
France]. All these firms have entered into the Indian Car segment after
this sector was de-licensed in 1993 and their products hit the market in
1996. Recently there are two more entrants in the Car segment -
Honda [Japan] and Hyundai [Korea] - which have introduced small
sized cars to compete with Suzuki. Market share of Maruti Suzuki has
declined from as high as 89% during the early 1990s to 54% by the
late 1990s. Telco also introduced a small sized car during 1998,
keeping in mind the idiosyncrasies of the Indian market. The Car
segment, therefore, has emerged as a leading competitive sector in
India during the post Liberalisation period.

Hypotheses
On the basis of these possible effects of Liberalisation on the
behaviour of firms and

16 | P a g e
 drawing upon the empirical knowledge, this study formulates
hypotheses [in Section 3]
concerning the nature of differences in the behaviour of firms
across the two policy regimes.
The parameters to capture the behaviour of firms have been
classified into technology
acquisition, product improvements through imports of
components, vertical integration, product differentiation and
performance.

Technology Acquisition:
Technology acquisition by a firm can be facilitated through
imports [technology transfer
from abroad] and in-house R&D efforts. Technology acquisition
from abroad consists of
technology imports through the market or "arms-length" purchase
of technology against
lumpsum and royalty payments [LR], intra-firm transfer of
technology through foreign direct
investment (foreign equity participation [FE]) and technology
transfer through the supply of
machinery and equipment, where the technology is embodied in
the imported capital good
itself [IMCAP]. An in-house research and development effort
of firms [RD] is one of the
important methods of location, adaptation, assimilation and
development of the imported
technology. Following Ansal [1990], Basant [1997] and
Narayanan [1998], it could be argued
that the technological strategies adopted by a firm could be
different during varying policy
regimes. The present study examines the role of all the four
technological factors identified
above during the two policy periods
 Intra-firm Technology Transfer: Restrictions on foreign
equity investment and selective permission allocate a limited rolefor
intra-firm transfer of technology. Moreover, since most of the firms
during the first period were established with minority foreign equity
holding, diffusion of technological knowledge in India could also have
17 | P a g e
been slower. With Liberalisation multinational firms could have
majority equity holdings and therefore influence management of the
firm as well. This ability to influence the management may have led to
transfer of design and drawings which accelerated the diffusion of
technological knowledge and also enabled such concerns to develop
export markets in association with the Indian firms.

 Disembodied Technology Imports: Restrictions on

technology collaborations involving heavy lumpsum and royalty
payments resulted in selective use of imports of disembodied
technology during the first period.Liberalisation of restrictions on
lumpsum and royalty payments could have led to an increase in the
use of this mode of technology imports. The increasing presence of
multinationals and transfer of better quality technology could have
also led to an increase in technology [lumpsum and royalty] payments.

 In-house R & D Efforts: The absence of competitive

pressure and the perpetuation of sellers markets may lead tolow R &
D activity in firms belonging to a developing country. Limited use of
in-house efforts, either for adaptation of imported technology or in
locating technology imports could also explain low R & D activity.
With a more open policy environment, increasing competition and
higher costs of technology imports, firms may realise that to catch up
with technological frontier, they need to direct their efforts to build
capabilities for technology generation, rather than depend on imports.
As a result expenditure on in-house R & D would increase in a
liberalized environment. Reddy [1997], on the basis of a survey of 32
R & D units of transnational corporations in India, found evidence
suggesting an increasing trend of investments on R & D seeking to
develop new products and processes. This, he argued, was facilitated
by the availability of trained personnel. Since auto industry has been
one of the major beneficiaries of multinational participation during the
Liberalisation period, it may be appropriate to hypothesise an
increasingly important role for R & D intensity

18 | P a g e
  Technology Interaction: As stated earlier, firms operating
in a restrictive regime directed their in-house R & D efforts either to
complement imported technology to facilitate technological trajectory
shifts or to locate their technology imports. Some firms in the process
of diffusion of imported technology, as a result, could have used the
interaction between technological imports and in- house efforts. With
the entry of leading multinationals and transfer of design and
drawings, the technological search activity during the post
Liberalisation period may have resulted in bringing about cost
reduction and technological upgradation of vehicles to face global
challenges. This could have been undertaken by developing
technological trajectory advantages. The study, therefore, analyses the
difference in the role played by technology interaction [between
imported technology and in-house R & D] variables over the two
policy regimes. The means of all the three interaction variables
[FE*RD, LR*RD and IMCAP*RD] are expected to be higher in the
second period over the earlier one and emerge as important
discriminants.

Imports of Components:
Firms use imported components and parts either as a part of a
'package' in the transfer of
technology or due to certain costs and quality advantages. In an
era of domestic Liberalisation,
restricted trade and strict exchange rate control, imports of
components were used by some
firms as a source of technological upgradation of their product.
Higher imports could also be
because firms would choose the quicker option of importing the
parts and components rather
than encouraging parallel technology transfer to component
manufacturers as well. With an
across the board change in trade policy, devaluation of the
currency, move towards tariff
controls and more realistic exchange rate, however, dependency
on imports of components may

19 | P a g e
 actually decline. This is because of the choice between importing
at a higher price and domestic
procurement. To stay put in competition, firms may use the latter
option. The study, therefore,
expects a reduction in the dependency on imports of components
[IMCOM] between the two
policy regimes.
Product Differentiation:
Advertisement is an important aspect of non-price rivalry among
firms. The absence of
effective competition during the first period could have been a
source of low advertisement
intensity. The presence of a number of multinationals after the
1991 policy reforms, and the
resultant scope for non-price competition may have led to an
increase in advertisement
xpenditures. Dunning [1981] has found an increasing dependency
on advertisement for a
given rise in multinational participation. Since the automobile
industry witnessed entry of a
number of multinationals during the post1991 period, it is only
appropriate to hypothesise a
positive and increased use of advertisement [AD] as a varying
strategy over the policy changes.
Vertical Integration:
Following Williamson [1985] it could be argued that vertical
integration [VI] takes
place in order to economise on transaction costs. The restricted
policy environment during the
second half of the 1980s would have encouraged firms to depend
on the easier options of either
importing or procuring required components and parts from the
market. Liberalisation of
economic and trade policies [especially with a more realistic
exchange rate] can lead to higher
costs of imported components and parts. In addition the
emergence of non-price competition
may cause firms to produce most of the components and parts
themselves to ensure quality and

20 | P a g e
 timely delivery. The study, therefore, postulates an increased
vertical integration as a strategy
by firms operating under a liberalised regime in contrast to their
behaviour under the earlier
policy regime.
Performance:
The performance of automobile firms operating under partially de-
controlled and
liberalised regimes has been compared in terms of price-cost
margins [PCM], growth
[GROWTH] and exports [EX]. Most of the studies linking
Liberalisation to performance have
analysed the impact of trade Liberalisation on productivity and
efficiency of firms. Evidence on the relationship between trade
Liberalisation and firm-level productivity improvements vary
across countries and industries [Tybout, 1992].
 Price-Cost Margins:
Competition seeking to maximise profits could be a preferred
objective of all firms in
the short-run. During the initial period under study, which was
characterised by extensive
regulations and unfulfilled demand, the price-cost margins of
firms would have been quite high.
However, introduction of products involving technological
upgradation by new firms, could
lead to lower profits for older firms. As a result, during the first
period, the average profits earned by all firms in this industry could be
low. With Liberalisation and change in the macro environment, profit
margins can be expected to have gone up. This is because most of the
firms in all the segments of this industry would have already been
established and new firms would not yet have garnered a large market
share.

 Growth:

Following Marris [1964], it could be argued that a shift to a higher

growth and profit
frontier usually takes place with a change in the economic
environment in which the firms

21 | P a g e
 operate. During the post1985 period, firms in this industry
concentrated primarily on creating
capacity and obtaining a large market share. With the intense
competition that has come to
characterise the industry since the 1991 policy changes, firms
would have attempted to shift to a higher growth-profit frontier.
 Exports:
Growth through geographical diversification would have been a
preferred strategy by
firms, either due to insufficient domestic demand or to fulfil the
export obligations that the
Government has imposed from time to time. During the first
period, increased production was
basically aimed at catering to the requirements of unfulfilled
demand. As a result, barring a few firms, which had been exporting
their vehicles for a long time, achieving a high domestic
market share was the preferred objective of most of the firms.
However, with a more open. economic environment and introduction
of new technological sophisticated vehicles by both the Indian as well
as the multinational firms, there may have been some orientation
towards external markets. Further, a fall in the value of Indian rupee
would have made Indian vehicles cheaper internationally and could
possibly have stimulated exports. The study, therefore, postulates an
increased role for exports in the post Liberalisation period in contrast
to the second half of eighties.

22 | P a g e
 Indian automobile sector - A Booming
Market
De-licensing in 1991 has put the Indian automobile industry on a
new growth track, attracting foreign auto giants to set up their
production facilities in the country to take advantage of various
benefits it offers. This took the Indian automobile production from 5.3
Million Units in 2001-02 to 10.8 Million Units in 2007-08. The other
reasons attracting global auto manufacturers to India are the country’s
large middle class population, growing earning power, strong
technological capability and availability of trained manpower at
competitive prices.

In 2006-07, the Indian automotive industry provided direct

employment to more than 300,000 people, exported auto component
worth around US$ 2.87 Billion, and contributed 5% to the GDP. Due
to this large contribution of the industry in the national economy, the
Indian government lifted the requirement of forging joint ventures for
foreign companies, which attracted global to the Indian market to
establish their plants, resulting in heightened automobile production.
Key Research Highlights

- Passenger car production in India is projected to cross three million

23 | P a g e
units in 2014-15.
- Sales of passenger cars during 2008-09 to 2015-16 are expected to
grow at a CAGR of around 10%.
- Export of passenger cars is anticipated to rise more than the domestic
sales during 2008-09 to
2015-16.
- Motorcycle sales will perform positively in future, exceeding 10
Million units by 2012-13.
- Value of auto component exports is likely to attain a double digit
figure in 2012-13.
- Turnover of the Indian auto component industry is forecasted to
surpass US$ 50 Billion in 2014-15.

Auto sector set for a smooth drive

After the strenuous, but fairly good growth of about 14 per cent in
the last fiscal, the automobile industry as a whole continues to be on a
roll. Buoyed by the cut in excise duties announced in the Budget, and
a general improvement in consumer confidence, domestic sales of
passenger vehicles rose by 31 per cent during first two months of this
fiscal compared to the corresponding previous period. Sales of
motorcycles, the largest selling sub-segment of two-wheelers, grew by
6.7 per cent during the same period. And, cumulative sales of the
commercial vehicles segment as a whole also went up by about 17 per
cent.

Behind cars' rally: The key question is whether the kind of

growth rates in the passenger vehicles segment is sustainable. The
sharp spike in volumes in April and May has been influenced by a few
developments the benefits of which may not be available through the
rest of the year. For one, the expected cut in the excise duty on
passenger cars and the subsequent 8 per cent reduction effected in the
Budget, led to a substantial postponement of purchases by potential
buyers. The over 35 per cent rise in car sales during April and May is
attributable to this duty cut. On the other hand, the jump in sales could
also have been due to customers advancing their purchase decisions
before the expected round of price hikes is announced by the car
manufacturers. In fact, price hikes, which may be slapped on by car

24 | P a g e
makers as early as next month (Hyundai and Maruti Udyog have
already hiked prices of some of their products once this fiscal), can
potentially dent the benefit that the excise cut gave away to customers.
From the manufacturer's point of view, the increasing cost of inputs,
especially sheet metal, could prove to be the reason for a gradual
increase in prices.

Utility vehicles on overdrive: Amongst passenger

vehicles, the utility vehicles sub-segment is likely to sustain the
scorching 23.8 per cent growth witnessed during the first two months
of this fiscal. This is compared to a lower 16.5 per cent growth in the
previous year. With the launch of a bunch of new upper end sports
utility vehicles, such as the Chevrolet Forester, the Suzuki Grand
Vitara XL-7, and the soon to be introduced Ford Explorer, this sub-
segment will corner more sales volumes later this fiscal.

More models in store: Talking of new product

introduction, the small car club could witness a further expansion in
terms of number of models available, and in terms of total sales with
the planned launch of at least two new cars.

They will include the Opel Corsa Sail from General Motors India
and possibly one new top-end small car model each from Maruti
Udyog and Hyundai Motor India by early 2004. Further, with the roll
out of the Chevrolet Optra also next month, a C+ segment car, GM
India alone is likely to inch up the market share ladder.

The export thrust: Apart from the developments in the

domestic passenger car market, manufacturers could also get a leg up
from the steadily increasing exports of these vehicles, especially in the
small car segment. Korean Chaebol Hyundai Motors and Japanese
auto giants Toyota Motor Corporation and Suzuki Motor Corporation
are already sourcing out of or have indicated their intention to source
out of their Indian operations and subsidiaries. The trend of increased
exports from India even evident during 2002-03, when the total export
of passenger vehicles from the country shot up by about 34 per cent
compared to the previous year.

25 | P a g e
 Monsoon drive two-wheelers: The prospects of the
other most watched segment of the auto industry — two wheelers —
should also improve with the expectations of a near normal monsoon
this year. Teetering on the brink of negative growth rates during a few
months of 2002, the motorcycles sub-segment has now been
drumming up good sales numbers during the last four months. After a
growth of over 30 per cent during the year ended March 2003, for the
first two months of the current fiscal, motorcycles and step-throughs
recorded a modest 6.7 per cent growth. The practice of price
discounts, which had become rampant amongst bike dealers (at the
behest of the manufacturers), has been on the decline, indicative of a
revival of demand in the segment. Again, the two-wheelers segment as
a whole is likely to be positively influenced by the improvement in the
economy and new product introductions.

Top gear beckons: Commercial vehicles, widely considered

to be the economy's barometer, have had a good start for the year.
According to the Society of Indian Automobile Manufacturers
(SIAM), the auto industry's growth is likely to be good this fiscal as
industrial growth has been projected to grow at eight per cent in 2003-
04 compared to the estimated 6 per cent last year. Overall, the auto
industry's prospects look bright this year. A good monsoon with
widespread precipitation may help automobile manufacturers ease into
top gear.

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 CHAPTER 3

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 Siginificance of the study

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

Advantages of selling stock:

 A company can raise more capital than it could borrow.

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

Stock/shares play a major role in acquiring capital to the business in return

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

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 CHAPTER 4

Literature review

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 Equity analysis

Investment success is pretty much a matter of careful selection and timing of

stock purchases coupled with perfect matching to an individuals risk tolerance. In
order to carry out selection, timing and matching actions an investor must conduct
deep security analysis.

Investors purchase equity shares with two basic objectives;

1. To make capital profits by selling shares at higher prices.
2. To earn dividend income.

These two factors are affected by a host of factors. An investor has to

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

In Equity Analysis, anticipated growth and calculations are based on

considered FACTS & not on HOPE. Equity analysis is basically a combination of
two independent analysis, namely fundamental analysis & Technical analysis.
The subject of Equity analysis, i.e. the attempt to determine future share price
movement & its reliability by references to historical data is a vast one, covering

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many aspect from the calculating various FINANCIAL RATIOS, plotting of
CHARTS to extremely sophisticated indicators.

A general investor can apply the principles by using the simplest of tools:
pocket calculator, pencil, ruler, chart paper & your cautious mind, watchful
attention. It should be pointed out that, this equity analysis does not discuss how
to buy & sell shares, but does discuss a method which enables the investor to
arrive at buying & selling decision

EQUITY ANALYSIS

FUNADAMENTAL ANALYSIS
TECHNICAL ANALYSIS

ECONOMIC ANALYSIS INDUSTRY ANALYSIS

COMPANY ANALYSIS

FUNDAMENTAL ANALYSIS

Fundamental analysis is a method of forecasting the future price movements

of a financial instrument based on economic, political, environmental and other
relevant factors and statistics that will affect the basic supply and demand of

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whatever underlies the financial instrument. It is the study of economic, industry
and company conditions in an effort to determine the value of a company’s stock.
Fundamental analysis typically focuses on key statistics in company’s financial
statements to determine if the stock price is correctly valued. The
term simply refers to the analysis of the economic well-being of a
financial entity as opposed to only its price movements.
Fundamental analysis is the cornerstone of investing. The basic 1.ECONOMIC
philosophy underlying the fundamental analysis is that if an ANALYSIS
investor invests in buying a share of a company, how much 2.INDUSTRY ANALYSIS
expected returns from this investment he has .The fundamental 3.COMPANY
ANALYSIS
analysis is to appraise the intrinsic value of a security. It insists that
no one should purchase or sell a share on the basis of tips and
rumors. The fundamental approach calls upon the investors to
make his buy or sell decision on the basis of a detailed analysis of the information
about the company, about the industry, and the economy. It is also known as “top-
down approach”. This approach attempts to study the economic scenario, industry
position and the company expectations and is also known as “economic-
industry-company approach (EIC approach)”
Thus the EIC approach involves three steps:
1. Economic analysis
2. Industry analysis
3. Company analysis

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

The commonly analyzed macro economic factors are as follows:

1. Gross Domestic Product (GDP): GDP indicates the rate of growth
of the economy. It represents the aggregate value of the goods and services
produced in the economy. It consists of personal consumption expenditure, gross
private domestic investment and government expenditure on goods and services
and net exports of goods and services. The growth rate of economy points out the
prospects for the industrial sector and the return investors can expect from
investment in shares. The higher growth rate is more favorable to the stock
market.
2. Savings and investment: It is obvious that growth requires
investment which in turn requires substantial amount of domestic savings. Stock
market is a channel through which the savings are made available to the corporate
bodies. Savings are distributed over various assets like equity shares, deposits,
mutual funds, real estate and bullion. The savings and investment patterns of the
public affect the stock to a great extent.
3. Inflation: Along with the growth of GDP, if the inflation rate also
increases, then the real growth would be very little. The effects of inflation on
capital markets are numerous. An increase in the expected rate of inflation is
expected to cause a nominal rise in interest rates. Also, it increases uncertainty of
future business and investment decisions. As inflation increases, it results in extra
costs to businesses, thereby squeezing their profit margins and leading to real
declines in profitability.

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 4. Interest rates: The interest rate affects the cost of financing to the
firms. A decrease in interest rate implies lower cost of finance for firms and more
profitability. More money is available at a lower interest rate for the brokers who
are doing business with borrowed money. Availability of cheap funds encourages
speculation and rise in the price of shares.
5. Tax structure: Every year in March, the business community eagerly
awaits the Government’s announcement regarding the tax policy. Concessions and
incentives given to a certain industry encourage investment in that particular
industry. Tax relief’s given to savings encourage savings. The type of tax
exemption has impact on the profitability of the industries.
6. Infrastructure facilities: Infrastructure facilities are essential for the
growth of industrial and agricultural sector. A wide network of communication
system is a must for the growth of the economy. Regular supply of power without
any power cut would boost the production. Banking and financial sectors also
should be sound enough to provide adequate support to the industry. Good
infrastructure facilities affect the stock market favorably.

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

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 defined stages.

I. Pioneering stage: The prospective demand for the product is

promising in this stage and the technology of the product is low. The demand for
the product attracts many producers to produce the particular product. There
would be severe competition and only fittest companies survive this stage. The
producers try to develop brand name, differentiate the product and create a
product image. In this situation, it is difficult to select companies for investment
because the survival rate is unknown.
II. Rapid growth stage: This stage starts with the appearance of
surviving firms from the pioneering stage. The companies that have withstood the
competition grow strongly in market share and financial performance. The
technology of the production would have improved resulting in low cost of
production and good quality products. The companies have stable growth rate in
this stage and they declare dividend to the shareholders. It is advisable to invest in
the shares of these companies.
III. Maturity and stabilization stage: the growth rate tends to moderate
and the rate of growth would be more or less equal to the industrial growth rate or
the gross domestic product growth rate. Symptoms of obsolescence may appear in
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the technology. To keep going, technological innovations in the production
process and products should be introduced. The investors have to closely monitor
the events that take place in the maturity stage of the industry.
IV. Decline stage: demand for the particular product and the earnings of
the companies in the industry decline. It is better to avoid investing in the shares
of the low growth industry even in the boom period. Investment in the shares of
these types of companies leads to erosion of capital.

Growth of the industry: The historical performance of the industry in terms

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

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

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

SWOT analysis: SWOT analysis represents the strength, weakness,

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

3. COMPANY ANALYSIS

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 In the company analysis the investor assimilates the several bits of
information related to the company and evaluates the present and future values of
the stock. The risk and return associated with the purchase of the stock is analyzed
to take better investment decisions. The present and future values are affected by a
number of factors.
A. Competitive edge of the company: Major industries in India are
composed of hundreds of individual companies. Though the number of companies
is large, only few companies control the major market share. The competitiveness
of the company can be studied with the help of the following.
B. Market share: The market share of the annual sales helps to
determine a company’s relative competitive position within the industry. If the
market share is high, the company would be able to meet the competition
successfully. The companies in the market should be compared with like product
groups otherwise, the results will be misleading.
C. Growth of sales: The rapid growth in sales would keep the
shareholder in a better position than one with stagnant growth rate. Investors
generally prefer size and growth in sales because the larger size companies may
be able to withstand the business cycle rather than the company of smaller size.
D. Stability of sales: If a firm has stable sales revenue, it will have more
stable earnings. The fall in the market share indicates the declining trend of
company, even if the sales are stable. Hence the stability of sales should be
compared with its market share and the competitor’s market share.
E. Earnings of the company: Sales alone do not increase the earnings
but the costs and expenses of the company also influence the earnings. Further,
earnings do not always increase with increase in sales. The company’s sales might
have increased but its earnings per share may decline due to rise in costs. Hence,
the investor should not only depend on the sales, but should analyze the earnings
of the company.

Financial analysis: The best source of financial information about a

company is its own financial statements. This is a primary source of information

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for evaluating the investment prospects in the particular company’s stock.
Financial statement analysis is the study of a company’s financial statement from
various viewpoints. The statement gives the historical and current information
about the company’s operations. Historical financial statement helps to predict the
future and the current information aids to analyze the present status of the
company. The two main statements used in the analysis are Balance sheet and
Profit and Loss Account.
The balance sheet is one of the financial statements that companies prepare
every year for their shareholders. It is like a financial snapshot, the company's
financial situation at a moment in time. It is prepared at the year end, listing the
company's current assets and liabilities. It helps to study the capital structure of
the company. It is better for the investor to avoid a company with excessive debt
component in its capital structure. From the balance sheet, liquidity position of the
company can also be assessed with the information on current assets and current
liabilities.

Ratio analysis: Ratio is a relationship between two figures expressed

mathematically. Financial ratios provide numerical relationship between two
relevant financial data. Financial ratios are calculated from the balance sheet and
profit and loss account. The relationship can be either expressed as a percent or as
a quotient. Ratios summarize the data for easy understanding, comparison and
interpretations.
Ratios for investment purposes can be classified into profitability ratios,
turnover ratios, and leverage ratios. Profitability ratios are the most popular ratios
since investors prefer to measure the present profit performance and use this
information to forecast the future strength of the company. The most often used
profitability ratios are return on assets, price earnings multiplier, price to book
value, price to cash flow, and price to sales, dividend yield, return on equity,
present value of cash flows, and profit margins.

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 a) Return on Assets (ROA)
ROA is computed as the product of the net profit margin and the total asset
turnover ratios.
ROA = (Net Profit/Total income) x (Total income/Total Assets)
This ratio indicates the firm's strategic success. Companies can have one of
two strategies: cost leadership, or product differentiation. ROA should be rising or
keeping pace with the company's competitors if the company is successfully
pursuing either of these strategies, but how ROA rises will depend on the
company's strategy. ROA should rise with a successful cost leadership strategy
because the company’s increasing operating efficiency. An example is an
increasing, total asset, turnover ratio as the company expands into new markets,
increasing its market share. The company may achieve leadership by using its
assets more efficiently. With a successful product differentiation strategy, ROA
will rise because of a rising profit margin.

b) Return on Investment (ROI)

ROI is the return on capital invested in business, i.e., if an investment Rs 1
crore in men, machines, land and material is made to generate Rs. 25 lakhs of net
profit, then the ROI is 25%. The computation of return on investment is as
follows:
Return on Investment (ROI) = (Net profit/Equity investments) x 100
As this ratio reveals how well the resources of a firm are being used, higher
the ratio, better are the results. The return on shareholder’s investment should be
compared with the return of other similar firms in the same industry. The inert-
firm comparison of this ratio determines whether the investments in the firm are
attractive or not as the investors would like to invest only where the return is
higher.

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

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rupee is earning from the company. The higher the number, the better is the
performance of the company and suggests the usefulness of the projects the
company has invested in. The computation of return on equity is as follows:
Return on equity = (Net profit to owners/value of the specific owner's
Contribution to the business) x 100
The ratio is more meaningful to the equity shareholders who are invested to
know profits earned by the company and those profits which can be made
available to pay dividend to them.

d) Earnings per Share (EPS)

This ratio determines what the company is earning for every share. For many
investors, earnings are the most important tool. EPS is calculated by dividing the
earnings (net profit) by the total number of equity shares. The computation of EPS
is as follows:
Earnings per share = Net profit/Number of shares outstanding
The EPS is a good measure of profitability and when compared with EPS of
similar other companies, it gives a view of the comparative earnings or earnings
power of a firm. EPS calculated for a number of years indicates whether or not
earning power of the company has increased.

e) Dividend per Share (DPS)

The extent of payment of dividend to the shareholders is measured in the
form of dividend per share. The dividend per share gives the amount of cash flow
from the company to the owners and is calculated as follows:
Dividend per share = Total dividend payment / Number of shares
outstanding
The payment of dividend can have several interpretations to the shareholder.
The distribution of dividend could be thought of as the distribution of excess
profits/abnormal profits by the company. On the other hand, it could also be
negatively interpreted as lack of investment opportunities. In all, dividend payout
gives the extent of inflows to the shareholders from the company.

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 f) Dividend Payout Ratio
From the profits of each company a cash flow called dividend is distributed
among its shareholders. This is the continuous stream of cash flow to the owners
of shares, apart from the price differentials (capital gains) in the market. The
return to the shareholders, in the form of dividend, out of the company's profit is
measured through the payout ratio. The payout ratio is computed as follows:
Payout Ratio = (Dividend per share / Earnings per share) * 100
The percentage of payout ratio can also be used to compute the percentage of
retained earnings. The profits available for distribution are either paid as
dividends or retained internally for business growth opportunities. Hence, when
dividends are not declared, the entire profit is ploughed back into the business for
its future investments.

g) Dividend Yield
Dividend yield is computed by relating the dividend per share to the market
price of the share. The market place provides opportunities for the investor to buy
the company's share at any point of time. The price at which the share has been
bought from the market is the actual cost of the investment to the shareholder. The
market price is to be taken as the cum-dividend price. Dividend yield relates the
actual cost to the cash flows received from the company. The computation of
dividend yield is as follows
Dividend yield = (Dividend per share / Market price per share) * 100
High dividend yield ratios are usually interpreted as undervalued companies
in the market. The market price is a measure of future discounted values, while
the dividend per share is the present return from the investment. Hence, a high
dividend yield implies that the share has been under priced in the market. On the
other hand a low dividend yield need not be interpreted as overvaluation of shares.
A company that does not pay out dividends will not have a dividend yield and the
real measure of the market price will be in terms of earnings per share and not
through the dividend payments.

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 h) Price/Earnings Ratio (P/E)
The P/E multiplier or the price earnings ratio relates the current market price
of the share to the earnings per share. This is computed as follows:
Price/earnings ratio = Current market price / Earnings per share
This ratio is calculated to make an estimate of appreciation in the value of a
share of a company and is widely used by investors to decide whether or not to
buy shares in a particular company. Many investors prefer to buy the company's
shares at a low P/E ratio since the general interpretation is that the market is
undervaluing the share and there will be a correction in the market price sooner or
later. A very high P/E ratio on the other hand implies that the company's shares
are overvalued and the investor can benefit by selling the shares at this high
market price.

i) Debt-to-Equity Ratio
Debt-Equity ratio is used to measure the claims of outsiders and the owners
against the firm’s assets.
Debt-to-equity ratio = Outsiders Funds / Shareholders Funds
The debt-equity ratio is calculated to measure the extent to which debt
financing has been used in a business. It indicates the proportionate claims of
owners and the outsiders against the firm’s assets. The purpose is to get an idea of
the cushion available to outsiders on the liquidation of the firm.

Technical analysis:
Technical analysis refers to the study of market generated data like prices and
volume to determine the future direction of prices movements. Technical analysis
mainly seeks to predict the short-term price travels. It is important criteria for
selecting the company to invest. It also provides the base for decision-making in
investment. It is one of the most frequently used yardstick to check and analyze
underlying price progress. For that matter a variety of tools are used.

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 The Technical analysis is helpful to general investor in many ways. It
provides important & vital information regarding the current price position of the
company. Technical analysis involves the use of various methods for charting,
calculating and interpreting graph & chart to assess the performances & status of
the price. It is the tool of financial analysis, which not only studies but also
reflecting the numerical & graphical relationship between the important financial
factors. The focus of technical analysis is mainly on the internal market data, i.e.
prices & volume data. It appeals mainly to short term traders. It is the oldest
approach to equity investment dating back to the late 19th century.

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 CHAPTER 6

OBJECTIVES OF THE STUDY

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

The main objectives of the Project study are:

 Detailed analysis of Automobile industry which is gearing towards
international standards
 Analyze the impact of qualitative factors on industry’s and company’s
prospects
 Comparative analysis of three tough competitors TATA Motors,
Maruti Suzuki and Mahindra and Mahindra through fundamental analysis.
 Suggesting as to which company’s shares would be best for an
investor to invest.

The scope of the study is identified after and during the study is conducted.
The project is based on tools like fundamental analysis and ratio analysis.
 The analysis is made by taking into consideration five companies i.e.
TATA Motors, Maruti Suzuki and Mahindra .
 The scope is limited to only the fundamental analysis of the chosen
stocks.

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 CHAPTER 7

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 Research methodology

FINANCIAL MARKETS

Finance is the pre-requisite for modern business and financial institutions

play a vital role in the economic system. It is through financial markets and
institutions that the financial system of an economy works. Financial markets
refer to the institutional arrangements for dealing in financial assets and credit
instruments of different types such as currency, cheques, bank deposits, bills,
bonds, equities, etc. Financial market is a broad term describing any marketplace
where buyers and sellers participate in the trade of assets such as equities, bonds,
currencies and derivatives.

They are typically defined by having transparent pricing, basic regulations on

trading, costs and fees and market forces determining the prices of securities that
trade. Generally, there is no specific place or location to indicate a financial
market. Wherever a financial transaction takes place, it is deemed to have taken
place in the financial market. Hence financial markets are pervasive in nature
since financial transactions are themselves very pervasive throughout the
economic system. For instance, issue of equity shares, granting of loan by term
lending institutions, deposit of money into a bank, purchase of debentures, sale of
shares and so on. In a nutshell, financial markets are the credit markets catering to
the various needs of the individuals, firms and institutions by facilitating buying
and selling of financial assets, claims and services.

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CLASSIFICATION OF FINANCIAL MARKETS

Financial markets

Organized markets
Unorganized markets

Money Lenders,
Capital Markets Money Markets
Indigenuos Bankers

Industrial
Call Money Market
Securities

Market

Primary Commercial Bill

Market
Market

Secondary
market Treasury Bill Market

Government

Securities Market
Long-term loan

market

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 Capital Market

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

1. Mobilization of financial resources on a nation-wide scale.

2. Securing the foreign capital and know-how to fill up deficit in the required
resources for economic growth at a faster rate.

3. Effective allocation of the mobilized financial resources, by directing the

same to projects yielding highest yield or to the projects needed to promote
balanced economic development.

Capital market consists of primary market and secondary market.

1. Primary market: Primary market is a market for new issues or new

financial claims. Hence it is also called as New Issue Market. It basically deals
with those securities which are issued to the public for the first time. The market,
therefore, makes available a new block of securities for public subscription. In
other words, it deals with raising of fresh capital by companies either for cash or
for consideration other than cash. The best example could be Initial Public
Offering (IPO) where a firm offers shares to the public for the first time.
2. Secondary market: Secondary market is a market where existing
securities are traded. In other words, securities which have already passed through
new issue market are traded in this market. Generally, such securities are quoted
in the stock exchange and it provides a continuous and regular market for buying
and selling of securities. This market consists of all stock exchanges recognized
by the government of India.

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 Money Market

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

Derivatives Market

The derivatives market is the financial market for derivatives, financial

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

Forwards: Forwards are the oldest of all the derivatives. A forward

contract refers to an agreement between two parties to exchange an agreed
quantity of an asset for cash at a certain date in future at a predetermined price
specified in that agreement. The promised asset may be currency, commodity,
instrument etc.

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

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

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

(option writer) to another party (option holder). The contract offers the buyer the

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

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

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

Foreign Exchange Market

It is a market in which participants are able to buy, sell, exchange and

speculate on currencies. Foreign exchange markets are made up of banks,
commercial companies, central banks, investment management firms, hedge
funds, and retail forex brokers and investors. The forex market is considered to be
the largest financial market in the world. It is a worldwide decentralized over-the-
counter financial market for the trading of currencies. Because the currency
markets are large and liquid, they are believed to be the most efficient financial
markets. It is important to realize that the foreign exchange market is not a single
exchange, but is constructed of a global network of computers that connects
participants from all parts of the world.

Commodities Market

It is a physical or virtual marketplace for buying, selling and trading raw or

primary products. For investors' purposes there are currently about 50 major
commodity markets worldwide that facilitate investment trade in nearly 100
primary commodities. Commodities are split into two types: hard and soft
commodities. Hard commodities are typically natural resources that must be
mined or extracted (gold, rubber, oil, etc.), whereas soft commodities are
agricultural products or livestock (corn, wheat, coffee, sugar, soybeans, pork, etc.)

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 INDIAN FINANCIAL MARKETS

India Financial market is one of the oldest in the world and is considered to
be the fastest growing and best among all the markets of the emerging economies.
The history of Indian capital markets dates back 200 years toward the end of the
18th century when India was under the rule of the East India Company. The
development of the capital market in India concentrated around Mumbai where no
less than 200 to 250 securities brokers were active during the second half of the
19th century.

The financial market in India today is more developed than many other
sectors because it was organized long before with the securities exchanges of
Mumbai, Ahmadabad and Kolkata were established as early as the 19th century.
By the early 1960s the total number of securities exchanges in India rose to eight,
including Mumbai, Ahmadabad and Kolkata apart from Madras, Kanpur, Delhi,
Bangalore and Pune. Today there are 21 regional securities exchanges in India in
addition to the centralized NSE (National Stock Exchange) and OTCEI (Over the
Counter Exchange of India). However the stock markets in India remained
stagnant due to stringent controls on the market economy that allowed only a
handful of monopolies to dominate their respective sectors. The corporate sector
wasn't allowed into many industry segments, which were dominated by the state
controlled public sector resulting in stagnation of the economy right up to the
early 1990s. Thereafter when the Indian economy began liberalizing and the
controls began to be dismantled or eased out; the securities markets witnessed a
flurry of IPO’s that were launched. This resulted in many new companies across
different industry segments to come up with newer products and services.

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

The launch of the NSE (National Stock Exchange) and the OTCEI (Over the
Counter Exchange of India) during the mid 1990s by the government of India was
meant to usher in an easier and more transparent form of trading in securities. The
NSE was conceived as the market for trading in the securities of companies from
the large-scale sector and the OTCEI for those from the small-scale sector. While
the NSE has not just done well to grow and evolve into the virtual backbone of
capital markets in India the OTCEI struggled and is yet to show any sign of
growth and development. The integration of IT into the capital market
infrastructure has been particularly smooth in India due to the country’s world
class IT industry. This has pushed up the operational efficiency of the Indian stock
market to global standards and as a result the country has been able to capitalize
on its high growth and attract foreign capital like never before.

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

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 FINANCIAL MARKET REGULATIONS

Regulations are an absolute necessity in the face of the growing importance

of capital markets throughout the world. The development of a market economy is
dependent on the development of the capital market. The regulation of a capital
market involves the regulation of securities; these rules enable the capital market
to function more efficiently and impartially.

A well regulated market has the potential to encourage additional investors to

partake, and contribute in, furthering the development of the economy. The chief
capital market regulatory authority is Securities and Exchange Board of India
(SEBI).

SEBI is the regulator for the securities market in India. It is the apex body to
develop and regulate the stock market in India It was formed officially by the
Government of India in 1992 with SEBI Act 1992 being passed by the Indian
Parliament. Chaired by C B Bhave, SEBI is headquartered in the popular business
district of Bandra-Kurla complex in Mumbai, and has Northern, Eastern,
Southern and Western regional offices in New Delhi, Kolkata, Chennai and
Ahmedabad. In place of Government Control, a statutory and autonomous
regulatory board with defined responsibilities, to cover both development &
regulation of the market, and independent powers has been set up.

The basic objectives of the Board were identified as:

 to protect the interests of investors in securities;

 to promote the development of Securities Market;
 to regulate the securities market and
 For matters connected therewith or incidental thereto.

Since its inception SEBI has been working targeting the securities and is
attending to the fulfillment of its objectives with commendable zeal and dexterity.
The improvements in the securities markets like capitalization requirements,

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margining, establishment of clearing corporations etc. reduced the risk of credit
and also reduced the market.

SEBI has introduced the comprehensive regulatory measures, prescribed

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

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

 It acts as a barometer for market behavior;

 It is used to benchmark portfolio performance;
 It is used in derivative instruments like index futures and index
options;
 It can be used for passive fund management as in case of Index
Funds.

Two broad approaches of SEBI is to integrate the securities market at the

national level, and also to diversify the trading products, so that there is an
increase in number of traders including banks, financial institutions, insurance
companies, mutual funds, primary dealers etc. to transact through the Exchanges.
In this context the introduction of derivatives trading through Indian Stock
Exchanges permitted by SEBI in 2000 AD is a real landmark.

SEBI has enjoyed success as a regulator by pushing systemic reforms

aggressively and successively (e.g. the quick movement towards making the
markets electronic and paperless rolling settlement on T+2 bases). SEBI has been
active in setting up the regulations as required under law.

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 STOCK EXCHANGES IN INDIA

Stock Exchanges are an organized marketplace, either corporation or mutual

organization, where members of the organization gather to trade company stocks
or other securities. The members may act either as agents for their customers, or
as principals for their own accounts.

As per the Securities Contracts Regulation Act, 1956 a stock exchange is an

association, organization or body of individuals whether incorporated or not,
established for the purpose of assisting, regulating and controlling business in
buying, selling and dealing in securities.

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

List of Stock Exchanges in India

 Bombay Stock Exchange

 National Stock Exchange
 OTC Exchange of India

BOMBAY STOCK EXCHANGE

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

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

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

BSE Management

Bombay Stock Exchange is managed professionally by Board of Directors. It

comprises of eminent professionals, representatives of Trading Members and the
Managing Director. The Board is an inclusive one and is shaped to benefit from
the market intermediaries participation. The Board exercises complete control and
formulates larger policy issues. The dayto- day operations of BSE are managed by
the Managing Director and its school of professional as a management team.

BSE Network

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

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 BSE Facts

BSE as a brand is synonymous with capital markets in India. The BSE

SENSEX is the benchmark equity index that reflects the robustness of the
economy and finance. It was the –

 First in India to introduce Equity Derivatives

 First in India to launch a Free Float Index
 First in India to launch US$ version of BSE Sensex
 First in India to launch Exchange Enabled Internet Trading Platform
 First in India to obtain ISO certification for Surveillance, Clearing &
Settlement

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

 First to have an exclusive facility for financial training

 Moved from Open Outcry to Electronic Trading within just 50 days

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

NATIONAL STOCK EXCHANGE OF INDIA LIMITED

The National Stock Exchange of India Limited has genesis in the report of
the High Powered Study Group on Establishment of New Stock Exchanges, which
recommended promotion of a National Stock Exchange by financial institutions
(FI’s) to provide access to investors from all across the country on an equal
footing. Based on the recommendations, NSE was promoted by leading Financial
Institutions at the behest of the Government of India and was incorporated in

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November 1992 as a taxpaying company unlike other stock Exchange in the
country.

On its recognition as a stock exchange under the Securities Contracts

(Regulation) Act, 1956 in April 1993, NSE commenced operations in the
Wholesale Debt Market (WDM) segment in June 1994. The Capital Market
(Equities) segment commenced operations in November 1994 and operations in
Derivatives segment commenced in June 2000.

NSE GROUP

National Securities Clearing Corporation Ltd. (NSCCL)

It is a wholly owned subsidiary, which was incorporated in August 1995 and

commenced clearing operations in April 1996. It was formed to build confidence
in clearing and settlement of securities, to promote and maintain the short and
consistent settlement cycles, to provide a counter-party risk guarantee and to
operate a tight risk containment system.

NSE.IT Ltd.

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

India Index Services & Products Ltd. (IISL)

It is a joint venture between NSE and CRISIL Ltd. to provide a variety of

indices and index related services and products for the Indian Capital markets. It
was set up in May 1998. IISL has a consulting and licensing agreement with the

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Standard and Poor's (S&P), world's leading provider of investible equity indices,
for co-branding equity indices.

National Securities Depository Ltd. (NSDL)

NSE joined hands with IDBI and UTI to promote dematerialization of

securities. This step was taken to solve problems related to trading in physical
securities. It commenced operations in November 1996.

NSE Facts

 It uses satellite communication technology to energize participation

from around 400 cities in India.
 NSE can handle up to 1 million trades per day.
 It is one of the largest interactive VSAT based stock exchanges in the
world.
 The NSE- network is the largest private wide area network in India
and the first extended C- Band VSAT network in the world.
 Presently more than 9000 users are trading on the real time-online
NSE application.

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

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 OVER THE COUNTER EXCHANGE OF INDIA

OTCEI was incorporated in 1990 as a section 25 company under the

companies Act 1956 and is recognized as a stock exchange under section 4 of the
securities Contracts Regulation Act, 1956. The exchange was set up to aid
enterprising promotes in raising finance for new projects in a cost effective
manner and to provide investors with a transparent and efficient mode of trading
Modeled along the lines of the NASDAQ market of USA, OTCEI introduced
many novel concepts to the Indian capital markets such as screen-based
nationwide trading, sponsorship of companies, market making and scrip less
trading. As a measure of success of these efforts, the Exchange today has 115
listings and has assisted in providing capital for enterprises that have gone on to
build successful brands for themselves like VIP Advanta, Sonora Tiles & Brilliant
mineral water, etc.

Need for OTCEI:

Studies by NASSCOM, software technology parks of India, the venture

capitals funds and the government’s IT tasks Force, as well as rising interest in IT,
Pharmaceutical, Biotechnology and Media shares have repeatedly emphasized the
need for a national stock market for innovation and high growth companies.
Innovative companies are critical to developing economics like India, which is
undergoing a major technological revolution. With their abilities to generate
employment opportunities and contribute to the economy, it is essential that these
companies not only expand existing operations but also set up new units. The key
issue for these companies is raising timely, cost effective and long term capital to
sustain their operations and enhance growth. Such companies, particularly those
that have been in operation for a short time, are unable to raise funds through the
traditional financing methods, because they have not yet been evaluated by the
financial world.

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 CHAPTER 8

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 Data collection and interpretation

ANALYSIS OF AUTOMOBILE INDUSTRY

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

Fundamental Analysis (E.I.C Approach)

a. Economy analysis

b. Industry analysis

c. Company analysis

Fundamental Analysis

Fundamental analysis is the study of economic, industry and company

conditions in an effort to determine the value of a company s stock. Fundamental
analysis typically focuses on key statistics in company s financial statements to
determine if the stock price is correctly valued. Most fundamental information
focuses on economic, industry and company statistics. The typical approach to
analyzing a company involves three basic steps:

1. Determine the condition of the general economy.

2. Determine the condition of the industry.

3. Determine the condition of the company.

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 1. ECONOMY ANALYSIS

Economic analysis is the analysis of forces operating the overall economy a

country. Economic analysis is a process whereby strengths and weaknesses of an
economy are analyzed. Economic analysis is important in order to understand
exact condition of an economy.

GDP and Automobile Industry

In absolute terms, India is 16th in the world in terms of nominal factory

output. The service

sector is growing rapidly in the past few years. This is the pie- chart showing
contributions of

different sectors in Indian economy.

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 Today, automobile sector in India is one of the key sectors of the economy in
terms of the employment. Directly and indirectly it employs more than 10 million
people and if we add the number of people employed in the auto-component and
auto ancillary industry then the number goes even higher. As the world economy
slipped into recession hitting the demand hard and the banking sector takes
conservative approach towards lending to corporate sector. The Gross Domestic
Product (GDP) in India expanded 6.9 percent in the third quarter of 2011 over the
previous quarter. Historically, from 2000 until 2011, India's average quarterly
GDP Growth was 7.45 percent reaching an historical high of 11.80 percent in
December of 2003 and a record low of 1.60 percent in December of 2002. India's
diverse economy encompasses traditional village farming, modern agriculture,
handicrafts, a wide range of modern industries, and a multitude of services.
Services are the major source of economic growth, accounting for more than half
of India's output with less than one third of its labor force. The economy has
posted an average growth rate of more than 7% in the decade since 1997, reducing
poverty by about 10 percentage points.

The market value of Automobile Industry is more than US$8 bl. and
Contribution in Indian GDP is near about 5% and will be double by 2016. The
automotive industry in India grew at a computed annual growth rate (CAGR) of

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11.5 percent over the past five years, but growth rate in last FY2008-09 was only
0.7% with passenger car sales shows 1.31% growth while Commercial Vehicles
segment slumped 21.7%.

Recession

Auto industry in India had been hit hard by ongoing global financial
recession. But it is in a good shape now. Much of this optimism resulted from
renewed interest being shown in India auto industry by reputed overseas car
makers. Nissan Motors which is a well known Japanese car making company
regarded India automobile market as a global car manufacturing hub for future
and invested huge amount in our market.

There are some other automobile companies of world who have shown
interest in India auto market. Major names among these are General Motors,
Skoda Auto and Mercedes-Benz. These companies have major plans lined up for
India auto industry. These are few signs of the revolutionized auto industry after
recession. All the major auto companies enjoyed the high growth ride till the mid
2008. But at the end of the year, industry had to face the hard truth and witnessed
the fall in sales compared to last year. In December 2008, overall production fell
by 22 % over the same month last year. Global recession has hit the Indian auto
industry, India is strong and growing industry but the impact of recession is
evident now on industry as sales & growth of automobile companies have
declined. Passenger Vehicles segment registered negative growth.

One of its supporting facts is that the sales in December 2008 for passenger
vehicles fell by 13.86% over December 2007 Two Wheelers registered minor
growth of 1.85 % during April – December 2008. However, Two Wheelers sales
recorded 15.43 percent fall in December 2008 over the same month last year.
Although the sector was hit by economic slowdown, overall production
(passenger vehicles, commercial vehicles, two wheelers and three wheelers)

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increased from 10.85 million vehicles in 2007-08 to 11.17 million vehicles in
2008-09. Passenger vehicles increased marginally from 1.77 million to 1.83
million while two-wheelers increased from 8.02 million to 8.41 million. Total
number of vehicles sold including passenger vehicles, commercial vehicles, two-
wheelers and three-wheelers in 2008-09 was 9.72 million as compared to 9.65
million in 2007-08.

Inflation

The rise in inflation will have adverse impact on the industry that will not
only see interest rates getting further hardened but also a drop in demand due to
the squeeze in purchasing power. The effect of inflation has affected every sector
which is related to car manufacturing and production. The increase in the price of
fuel and the steel due to inflation has led to a slower growth rate of the car
industry in India.

Despite of negative inflation these days (-.21% on 22-Aug-09) we saw an

increasing trend of sales in auto sector. A moderate amount of inflation is
important for the proper growth of an economy like India because it attracts more
private investment. The fall in wholesale prices from a year earlier is mainly due
to a statistical base effect and doesn’t suggest contraction in demand, the Reserve
Bank of India said few week back, while revising its inflation forecast for the FY
through March to around 5% from 4%.

In last FY despite of skyrocketing oil prices (crude oil price has already up to
$130 compared to $20 per barrel five years back), Indian automobile Industry was
not as much affected and experts think that Indian automobile industry will
continue to grow this year despite all obstacles- oil price hike, higher interest
rates. The effect of inflation has taken the rise in the price rate of the cars by 3-4%
which in turn suffices the need to meet the rise in price of the raw materials to
build a car. The car market and the car industry witnessed a fall of 8-9%.

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 Foreign Direct Investment

The automobile sector in the Indian industry is one of the high performing
sectors of the Indian economy. This has contributed largely in making India a
prime destination for many international players in the automobile industry who
wish to set up their businesses in India. Automatic approval for foreign equity
investment up to 100 per cent of manufacture of automobiles and component is
permitted.

Exports

Despite recession, the Indian automobile market continues to perform better

than most of the other industries in the economy in coming future; more and more
MNC’s coming in India to setup their ventures which clearly shows the scope of
expansion. During April-January 2010, overall automobile exports registered a
growth rate of 13.24 percent.

2. INDUSTRY ANALYSIS (AUTOMOBILE)

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

Segmentation of Automobile Industry

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 The automobile industry comprises of Heavy vehicles (trucks, buses, tempos,
tractors); passenger cars; Two-wheelers; Commercial Vehicles; and Three-
wheelers. Following is the segmentation that how much each sector comprises of
whole Indian Automobile Industry.

Industry life cycle

The industrial life cycle is a term used for classifying industry life over time.
Industry life cycle classification generally groups industries into one of four
stages: pioneer, growth, maturity and decline. In the pioneer phase, the product
has not been widely accepted or adopted. Business strategies are developing, and
there is high risk of failure. However, successful companies can grow at
extraordinary rates. The Indian automobile sector has passed this stage quite
successfully. The industry is growing rapidly, often at an accelerating rate of sales
and earnings growth. Indian Automotive Industry is booming with a growth rate
of around 15 % annually. The growth rate of the automobile industry in India is
greater than the GDP growth rate of the economy, so the automobile sector can be
very well be said to be in the growth phase.

Swot analysis:

A scan of the internal and external environment is an important part of the

strategic planning process. Environmental factors internal to the firm usually can
be classified as strengths (S) or weaknesses (W), and those external to the firm
can be classified as opportunities (O) or threats (T). Such an analysis of the

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strategic environment is referred to as a SWOT analysis. SWOT analysis of the
Indian automobile sector gives the following points:

1. Strengths 2. Weaknesses

 Large domestic market  Low labor productivity

 Sustainable labor cost  High interest costs and high
advantage overheads make the production
 Competitive auto component
uncompetitive
vendor base  Various forms of taxes push
 Government incentives for
up the cost of production
manufacturing plants  Low investment in Research
 Strong engineering skills and
in Development
design etc  Infrastructure bottleneck

3. Opportunities 4. Threats

 Increasing challenges in  Ignorance of Research &

consumer demands, technology
development
development, and globalization.  Rising interest rates
 Heavy thrust on mining and  Cut throat competition
construction activity
 Increase in the income level
 Cut in excise duties

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 3. COMPANY ANALYSIS

The company analysis shows the long-term strenght of the company that
what is the financial position of the company in the market, where it stands among
its competitors and who are the key drivers of the company, what are the future
plans of the company, what are the policies of government towards the company
and how the stake of the company divested among different groups of people.

Here, I have taken three companies namely TATA Motors, Maruti Suzuki
and Mahindra and Mahindra for the purpose of fundamental analysis.

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

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

Tata Motors Limited is India’s largest automobile company, reported gross

revenue (stand-alone) of Rs.28599.27 crores (2007-08: Rs.33093.93 crores) in
2008-09, a year marked by severe demand contraction in the automobile industry.
Revenues (net of excise) for the year were Rs. 25660.79 crores compared to
Rs.28739.41 crores in 2007-08, a decline of 10.7%. The Profit before Tax was
Rs.1013.76 crores compared to Rs.2576.47 crores in 2007-08, a decline of 60.7%.
The Profit after Tax for the year was Rs.1001.26 crores compared to Rs.2028.92
crores, a decline of 50.7%. It is the leader in commercial vehicles in each
segment, and among the top three in passenger vehicles with winning products in
the compact, midsize car and utility vehicle segments. The company is the

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world’s fourth largest truck manufacturer, and the world’s second largest bus
manufacturer.

Maruti Suzuki is a subsidiary of Suzuki Motor Corporation Japan. More than

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

Maruti Suzuki is one of India's leading automobile manufacturers and the

market leader in the car segment, both in terms of volume of vehicles sold and
revenue earned. Until recently, 18.28% of the company was owned by the Indian
government, and 54.2% by Suzuki of Japan. As of May 10, 2007, Govt. of India
sold its complete share to Indian financial institutions. With this, Govt. of India no
longer has stake in Maruti Udyog. Maruti Suzuki India Ltd. has sold a total of
84,808 vehicles in August 2009, an increase of 41.6%, compared to 59,908
vehicles in the same period of 2008. The company's domestic sales in August
2009 increased 29.3% to 69,961 vehicles, compared to 54,113 vehicles in August
2008. Total passenger car sales in August 2009 increased 30.5% to 69,629 units,
compared to 53,351 units in August 2008 The company's exports increased
156.2% to 14,847 units, compared to 5,795 units in August 2008.

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

The Company operates in nine segments: automotive segment comprises of

sales of automobiles, spare parts and related services; farm equipment segment
comprises of sales of tractors, spare parts and related services; information
technology (IT) services comprises of services rendered for IT and telecom;
financial services comprise of services relating to financing, leasing and hire
purchase of automobiles and tractors; steel trading and processing comprises of
trading and processing of steel; infrastructure comprise of operating of
commercial complexes, project management and development; hospitality
segment comprises of sale of timeshare; Systech segment comprises of
automotive components and other related products and services, and its others
segment comprise of logistics, after-market, two wheelers and investment. During
the fiscal year ended March 31, 2011, the Company acquired a 70% stake in
Ssangyong Motor Company Limited.

TATA MOTORS

Balance Sheet of Tata Motors ------------------- in Rs. Cr. -------------------

Mar '11 Mar '10 Mar '09 Mar '08 Mar '07

Sources Of Funds

Total Share Capital 634.65 570.60 514.05 385.54 385.41

Equity Share Capital 634.65 570.60 514.05 385.54 385.41

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 Share Application 3.06 0.00 0.00 0.00 0.00
Money

Preference Share 0.00 0.00 0.00 0.00 0.00

Capital

Reserves 19,351.4 14,208.5 11,855.1 7,428.45 6,458.39

Revaluation Reserves 24.19 24.63 25.07 25.51 25.95

Networth 20,013.3 14,803.7 12,394.2 7,839.50 6,869.75

Secured Loans 7,766.05 7,742.60 5,251.65 2,461.99 2,022.04

Unsecured Loans 8,132.70 8,883.31 7,913.91 3,818.53 1,987.10

Total Debt 15,898.7 16,625.9 13,165.5 6,280.52 4,009.14

Total Liabilities 35,912.0 31,429.6 25,559.8 14,120.02 10,878.89

Application Of Funds

Gross Block 21,883.3 18,416.8 13,905.1 10,830.83 8,775.80

Less: Accum. 8,466.25 7,212.92 6,259.90 5,443.52 4,894.54

Depreciation

Net Block 13,417.0 11,203.8 7,645.27 5,387.31 3,881.26

Capital Work in 4,058.56 5,232.15 6,954.04 5,064.96 2,513.32

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Progress

Investments 22,624.2 22,336.9 12,968.1 4,910.27 2,477.00

Inventories 3,891.39 2,935.59 2,229.81 2,421.83 2,500.95

Sundry Debtors 2,602.88 2,391.92 1,555.20 1,130.73 782.18

Cash and Bank 638.79 612.16 638.17 750.14 535.78

Balance

Total Current Assets 7,133.06 5,939.67 4,423.18 4,302.70 3,818.91

Loans and Advances 5,852.42 5,248.71 5,909.75 4,831.36 6,208.53

Fixed Deposits 1,790.13 1,141.10 503.65 1,647.17 290.98

Total CA, Loans & 14,775.6 12,329.4 10,836.5 10,781.23 10,318.42

Advances

Deffered Credit 0.00 0.00 0.00 0.00 0.00

Current Liabilities 15,740.6 16,909.3 10,968.9 10,040.37 6,956.88

Provisions 3,222.71 2,763.43 1,877.26 1,989.43 1,364.32

Total CL & Provisions 18,963.4 19,672.7 12,846.2 12,029.80 8,321.20

Net Current Assets -4,187.79 -7,343.25 -2,009.63 -1,248.57 1,997.22

Miscellaneous 0.00 0.00 2.02 6.05 10.09

Expenses

Total Assets 35,912.0 31,429.6 25,559.8 14,120.02 10,878.89

75 | P a g e
 Contingent Liabilities 4,798.83 3,708.33 5,433.07 5,590.83 5,196.07

Book Value (Rs) 314.93 259.03 240.64 202.70 177.59

Profit & Loss account of Tata

------------------- in Rs. Cr. -------------------
Motors

Mar '11 Mar '10 Mar '09 Mar '08 Mar '07

Income

Sales Turnover 52,067.8 38,173.3 28,538.2 33,123.5 31,089.6

Excise Duty 4,110.63 2,800.10 2,877.53 4,355.63 4,425.44

Net Sales 47,957.2 35,373.2 25,660.6 28,767.9 26,664.2

Other Income 341.53 1,220.86 921.29 734.17 1,114.38

Stock Adjustments 354.22 606.63 -238.04 -40.48 349.68

Total Income 48,652.9 37,200.7 26,343.9 29,461.6 28,128.3

Expenditure

Raw Materials 35,047.0 25,366.1 18,801.3 20,891.3 19,879.5

Power & Fuel Cost 471.28 362.62 304.94 325.19 327.41

76 | P a g e
 Employee Cost 2,294.02 1,836.13 1,551.39 1,544.57 1,367.83

Other Manufacturing 1,753.46 1,289.60 866.65 904.95 872.95

Expenses

Selling and Admin 2,790.19 2,126.10 1,652.31 2,197.49 1,505.23

Expenses

Miscellaneous 2,067.42 1,707.06 1,438.89 964.78 1,051.49

Expenses

Preoperative Exp -817.68 -740.54 -916.02 -1,131.40 -577.05

Capitalised

Total Expenses 43,605.7 31,947.0 23,699.5 25,696.9 24,427.4

Mar '11 Mar '10 Mar '09 Mar '08 Mar '07

Operating Profit 4,705.72 4,032.83 1,723.10 3,030.52 2,586.51

PBDIT 5,047.25 5,253.69 2,644.39 3,764.69 3,700.89

Interest 1,383.79 1,246.25 704.92 471.56 455.75

PBDT 3,663.46 4,007.44 1,939.47 3,293.13 3,245.14

Depreciation 1,360.77 1,033.87 874.54 652.31 586.29

Other Written Off 106.17 144.03 51.17 64.35 85.02

Profit Before Tax 2,196.52 2,829.54 1,013.76 2,576.47 2,573.83

Extra-ordinary items 0.00 0.00 15.29 0.00 -0.07

PBT (Post Extra-ord 2,196.52 2,829.54 1,029.05 2,576.47 2,573.76

Items)

77 | P a g e
 Tax 384.70 589.46 12.50 547.55 660.37

Reported Net Profit 1,811.82 2,240.08 1,001.26 2,028.92 1,913.46

Total Value Addition 8,558.69 6,580.97 4,898.16 4,805.58 4,547.86

Preference Dividend 0.00 0.00 0.00 0.00 0.00

Equity Dividend 1,274.23 859.05 311.61 578.43 578.07

Corporate Dividend 192.80 132.89 34.09 81.25 98.25

Tax

Per share data (annualised)

Shares in issue (lakhs) 6,346.14 5,705.58 5,140.08 3,855.04 3,853.74

Earning Per Share 28.55 39.26 19.48 52.63 49.65

(Rs)

Equity Dividend (%) 200.00 150.00 60.00 150.00 150.00

Book Value (Rs) 314.93 259.03 240.64 202.70 177.59

MARUTI SUZUKI

Profit & Loss account of Maruti ------------------- in Rs. Cr. -------------------

Suzuki India

Mar '11 Mar '10 Mar '09 Mar '08 Mar '07

Income

Sales 40,865.50 32,174.10 23,381.50 21,200.40 17,358.40

Turnover

Excise Duty 4,304.00 2,856.40 2,652.10 3,133.60 2,552.00

78 | P a g e
 Net Sales 36,561.50 29,317.70 20,729.40 18,066.80 14,806.40

Other Income 784.60 662.00 491.70 494.00 338.10

Stock 73.20 200.90 -356.60 336.30 -200.70

Adjustments

Total Income 37,419.30 30,180.60 20,864.50 18,897.10 14,943.80

Expenditure

Raw Materials 28,880.00 22,636.30 15,983.20 13,958.30 10,863.00

Power & Fuel 210.20 216.60 193.60 147.30 97.40

Cost

Employee Cost 703.60 545.60 471.10 356.20 288.40

Other 1,949.40 1,061.60 716.10 523.30 392.40

Manufacturing
Expenses

Selling and 1,153.87 1,032.17 817.66 521.48 483.26

Admin Expenses

Miscellaneous 289.73 201.73 236.84 287.62 239.44

Expenses

Preoperative -25.70 0.00 -22.30 -19.80 -14.30

Exp Capitalised

Total Expenses 33,161.10 25,694.00 18,396.20 15,774.40 12,349.60

Operating 3,473.60 3,824.60 1,976.60 2,628.70 2,256.10

Profit

PBDIT 4,258.20 4,486.60 2,468.30 3,122.70 2,594.20

79 | P a g e
 Interest 24.40 33.50 51.00 59.60 37.60

PBDT 4,233.80 4,453.10 2,417.30 3,063.10 2,556.60

Depreciation 1,013.50 825.00 706.50 568.20 271.40

Other Written 0.00 0.00 0.00 0.00 0.00

Off

Profit Before 3,220.30 3,628.10 1,710.80 2,494.90 2,285.20

Tax

Extra- 18.90 51.10 37.90 76.60 33.40

ordinary items

PBT (Post 3,239.20 3,679.20 1,748.70 2,571.50 2,318.60

Extra-ord Items)

Tax 820.20 1,094.90 457.10 763.30 705.30

Reported Net 2,288.60 2,497.60 1,218.70 1,730.80 1,562.00

Profit

Total Value 4,281.10 3,057.70 2,413.00 1,816.10 1,486.60

Addition

Preference 0.00 0.00 0.00 0.00 0.00

Dividend

Equity 216.70 173.30 101.10 144.50 130.00

Dividend

Corporate 35.10 28.80 17.20 24.80 21.90

Dividend Tax

Per share data

80 | P a g e
(annualised)

Shares in issue 2,889.10 2,889.10 2,889.10 2,889.10 2,889.10

(lakhs)

Earning Per 79.21 86.45 42.18 59.91 54.07

Share (Rs)

Equity 150.00 120.00 70.00 100.00 90.00

Dividend (%)

Book Value 479.99 409.65 323.45 291.28 237.23

(Rs)

Mahindra and Mahindra

Balance Sheet of Mahindra and

------------------- in Rs. Cr. -------------------
Mahindra

Mar Mar '10 Mar '09 Mar '08 Mar

Sources Of Funds

Total Share 293.62 282.95 272.62 239.07 238.03

Capital

Equity Share 293.62 282.95 272.62 239.07 238.03

Capital

Share 33.97 8.01 0.00 0.00 0.00

Application
Money

81 | P a g e
 Preference 0.00 0.00 0.00 0.00 0.00
Share Capital

Reserves 9,974.62 7,527.60 4,959.26 4,098.53 3,302.01

Revaluation 11.18 11.67 12.09 12.47 12.86

Reserves

Networth 10,313.39 7,830.23 5,243.97 4,350.07 3,552.90

Secured 407.23 602.45 981.00 617.26 106.65

Loans

Unsecured 1,998.06 2,277.70 3,071.76 1,969.80 1,529.35

Loans

Total Debt 2,405.29 2,880.15 4,052.76 2,587.06 1,636.00

Total 12,718.68 10,710.38 9,296.73 6,937.13 5,188.90

Liabilities

Mar '11 Mar '10 Mar '09 Mar '08 Mar '07

Application Of Funds

Gross Block 5,849.27 4,866.18 4,653.66 3,552.64 3,180.57

Less: Accum. 2,841.73 2,537.77 2,326.29 1,841.68 1,639.12

Depreciation

Net Block 3,007.54 2,328.41 2,327.37 1,710.96 1,541.45

Capital Work 1,364.31 1,374.31 886.96 649.94 329.72

in Progress

Investments 9,325.29 6,398.02 5,786.41 4,215.06 2,237.46

82 | P a g e
 Inventories 1,694.21 1,188.78 1,060.67 1,084.11 878.48

Sundry 1,354.72 1,258.08 1,043.65 1,004.88 700.89

Debtors

Cash and 447.62 475.17 635.61 310.58 415.89

Bank Balance

Total Current 3,496.55 2,922.03 2,739.93 2,399.57 1,995.26

Assets

Loans and 2,653.52 2,034.47 1,402.45 866.19 1,011.50

Advances

Fixed 167.02 1,268.06 938.82 550.65 910.18

Deposits

Total CA, 6,317.09 6,224.56 5,081.20 3,816.41 3,916.94

Loans & Advances

Deffered 0.00 0.00 0.00 0.00 0.00

Credit

Current 5,289.67 3,822.50 3,520.20 2,525.31 2,138.77

Liabilities

Provisions 2,005.88 1,796.54 1,277.56 943.46 715.43

Total CL & 7,295.55 5,619.04 4,797.76 3,468.77 2,854.20

Provisions

Net Current -978.46 605.52 283.44 347.64 1,062.74

Assets

Miscellaneous 0.00 4.12 12.55 13.53 17.55

Expenses

83 | P a g e
 Total Assets 12,718.68 10,710.38 9,296.73 6,937.13 5,188.92

Contingent 2,632.10 2,307.70 1,220.39 985.35 1,008.27

Liabilities

Book Value 174.85 138.02 191.91 181.43 148.72

(Rs)

Profit & Loss ------------------- in Rs. Cr. -------------------

account of Mahindra
and Mahindra

Mar Mar '10 Mar '09 Mar '08 Mar

Income

Sales Turnover 25,569.55 20,323.63 14,668.13 12,894.94 11,231.99

Excise Duty 2,092.02 1,807.30 1,587.05 1,584.57 1,310.65

Net Sales 23,477.53 18,516.33 13,081.08 11,310.37 9,921.34

Other Income 563.13 285.09 132.65 575.96 531.17

Stock 202.23 23.69 -156.29 149.11 6.41

Adjustments

Total Income 24,242.89 18,825.11 13,057.44 12,035.44 10,458.92

Expenditure

Raw Materials 16,604.88 12,461.56 9,208.71 7,963.82 6,937.16

Power & Fuel 143.93 120.97 98.69 91.33 65.19

Cost

84 | P a g e
 Employee Cost 1,445.56 1,199.85 1,024.52 853.65 666.15

Other 98.33 96.92 75.36 73.35 68.80

Manufacturing
Expenses

Selling and 1,735.63 1,439.26 1,109.96 1,108.33 891.29

Admin Expenses

Miscellaneous 261.10 264.21 165.83 257.84 210.03

Expenses

Preoperative Exp -50.87 -59.55 -42.83 -46.49 -47.10

Capitalised

Total Expenses 20,238.56 15,523.22 11,640.24 10,301.83 8,791.52

Operating Profit 3,441.20 3,016.80 1,284.55 1,157.65 1,136.23

PBDIT 4,004.33 3,301.89 1,417.20 1,733.61 1,667.40

Interest 70.86 156.85 134.12 87.59 19.80

PBDT 3,933.47 3,145.04 1,283.08 1,646.02 1,647.60

Depreciation 413.86 370.78 291.51 238.66 209.59

Other Written 0.00 0.00 0.00 0.59 0.33

Off

Profit Before Tax 3,519.61 2,774.26 991.57 1,406.77 1,437.68

Extra-ordinary 0.00 72.49 48.97 0.00 -19.19

items

PBT (Post Extra- 3,519.61 2,846.75 1,040.54 1,406.77 1,418.49

ord Items)

85 | P a g e
 Tax 857.51 759.00 199.69 303.40 350.10

Reported Net 2,662.10 2,087.75 836.78 1,103.37 1,068.39

Profit

Total Value 3,633.68 3,061.66 2,431.53 2,338.01 1,854.37

Addition

Preference 0.00 0.00 0.00 0.00 0.00

Dividend

Equity Dividend 706.08 549.52 278.83 282.61 282.23

Corporate 96.56 74.23 33.23 38.48 42.50

Dividend Tax

Per share data (annualised)

Shares in issue 5,872.47 5,659.08 2,726.16 2,390.73 2,380.33

(lakhs)

Earning Per 45.33 36.89 30.69 46.15 44.88

Share (Rs)

Equity Dividend 230.00 190.00 100.00 115.00 115.00

(%)

Book Value (Rs) 174.85 138.02 191.91 181.43 148.72

86 | P a g e
 RATIO ANALYSIS OF TATA MOTORS, MARUTI
SUZUKI AND MAHINDRA & MAHINDRA

EARNINGS PER SHARE

Mar '11 Mar '10 Mar '09 Mar '08 Mar '07

Tata 28.55 39.26 19.48 52.63 49.65

Motors

Maruti 79.21 86.45 42.18 59.91 54.07

Mahindra 45.33 36.89 30.69 46.15 44.88

87 | P a g e
 EARNING PER SHARE
100

80

60 Tata Motors

40 Maruti
Mahindra
20

0
Mar '11 Mar '10 Mar '09 Mar '08 Mar '07

Interpretations

EPS measures the profit available to the equity shareholders per share, that is
the amount that they can get on every share held. Till 2010 TATA and Maruti had
a rising EPS but in 2011 both of them fall and the effect is more on Tata motors
because of the slump in domestic and international markets and sharp fall in sales
and net profits which resulted in low EPS. Mahindra is not much affected as its
sales have increased from the previous year. But as trend shows Mahindra motors
has potential so a shareholder can expect better in future.

SALES

Mar '11 Mar '10 Mar '09 Mar '08 Mar '07

Tata Motors 52,067.87 38,173.3 28,538.2 33,123.5 31,089.69

Maruti 40,865.50 32,174.1 23,381.5 21,200.4 17,358.40

Mahindra 25,569.55 20,323.6 14,668.1 12,894.9 11,231.99

88 | P a g e
 SALES
60,000.00

50,000.00

40,000.00
Tata Motors
30,000.00
Maruti
20,000.00 Mahindra
10,000.00

0.00
Mar '11 Mar '10 Mar '09 Mar '08 Mar '07

Interpretations

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

89 | P a g e
 DIVIDEND PER SHARE

Mar '11 Mar '10 Mar Mar '08 Mar '07

Tata Motors 20 15 6 15 15

Maruti 7.5 6 3.5 5 4.5

Mahindra 11.5 9.5 10 11.5 11.5

DIVIDEND PER SHARE

20
18
16
14
12 Tata Motors
10
Maruti
8
6 Mahindra
4
2
0
Mar '11 Mar '10 Mar '09 Mar '08 Mar '07

Interpretations
Tata motors and Maruti Suzuki both the companies showed a positive trend
in paying dividends till 2008, but the scenario changed in 2009 as both the
company’s dividend

90 | P a g e
 per share fell but again raised from 2010 . According to graph Tata’s
dividend has fallen drastically while Maruti stick to below 5 per share. Mahindra
has made a slight reduction from rs.11.5 per share in 2008 to rs.10 per share this
year. Therefore Mahindra would be the best option for an investor.

RETURN ON INVESTMENT (ROI)

Mar '11 Mar '10 Mar '09 Mar '08 Mar '07

Tata 9.06 15.15 8.09 25.98 28

Motors

Maruti 16.5 21.1 13.04 20.56 22.79

Mahindra 25.92 26.74 16.03 25.51 30.18

RETURN ON INVESTMENT (ROI)

40

30
Tata Motors
20
Maruti
10 Mahindra
0
Mar '11 Mar '10 Mar '09 Mar '08 Mar '07

91 | P a g e
 Interpretations

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

DIVIDEND PAYOUT RATIO

Mar '11 Mar '10 Mar Mar Mar

Tata 80.96 44.28 34.52 32.51 35.34

Motors

Maruti 11 8.09 9.7 9.78 9.72

Mahindra 30.15 29.87 37.29 29.1 30.39

92 | P a g e
 DIVIDEND PAYOUT RATIO
90
80
70
60
50 Tata Motors
40 Maruti
30 Mahindra
20
10
0
Mar '11 Mar '10 Mar '09 Mar '08 Mar '07

Interpretations

Dividend payout ratio is the percentage of earnings paid to shareholders in

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

93 | P a g e
 CHAPTER 8

94 | P a g e
 Limitation and Finding

FINDINGS

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

 The three companies were performing well till 2008 with a positive
trend in the earnings per share. But there was a downward trend in 2009 but again
from 2010 it was upward. Especially, TATA has witnessed a steep fall in the year
2009.
 The sales trend has been upward and positive in case of all the three
companies. The sales growth looks positive but in the year 2009, TATA’s sales
have declined whereas Maruti and Mahindra have maintained the same upward
positive trend.
 In case of dividend per share, there were fluctuations during the
period 2007- 2011. Due to recession, the dividends per share have declined in all
the three companies. Tata’s dividend has fallen drastically while Maruti stick to
below 5 per share. Mahindra has made a slight reduction from rs.11.5 per share in
2008 to rs.10 per share this year.
 The return on investment has been fluctuating since 2007 and the year
2011 witnessed low returns in case of all the companies amongst which TATA
has the least rate of return. Compared to the three companies, Mahindra has the
highest ROI in 2009.
 Maruti had a stable dividend payout ratio since 2007. TATA and
Mahindra have increased their payout ratio in which Mahindra shows a higher
payout ratio.

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

96 | P a g e
 CHAPER 9

Conclusion
97 | P a g e
 The collapse in market place witnessed unprecedented turbulence in the wake
of global financial meltdown. A runaway inflation touching a high point of 12%
early in the year, the tight monetary policies followed by the authorities for most
of the year to control inflation with the consequent high interest rates and weak
consumer demand, have collectively had a devastating effect on the automotive
sector. During the financial year 2008-09 the there is downfall in the growth of the
company. The main reason behind this downfall is because of the global
recession. The downfall of net profit during the financial year 2008-09 is 29.6%
over the financial year 2007-2008.

TATA Motors, which was trying to consolidate its leadership position in the
market, also had to face the impact of global meltdown. Amid the crippling
economic crisis, Tata purchased Britain’s Jaguar Land Rover (JLR) from Ford
Motor Company. Acquiring JLR saddled Tata with some tough losses. Dividends
and earnings remain low.

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

A continuous effort at cost cutting and improving productivity will help the
companies in making reasonable profits despite the impact of higher commodity
prices and weaker rupee. The analysis gives an optimistic view about the industry
and its growth which recommends the investors to keep a good watch on the
major players to benefit in terms of returns on their investments.

Indian Automobile Industry is in the growth phase and the expected growth
rate is 9-10% for FY2009-10 compare to last year growth rate which was just

98 | P a g e
0.7% and the above facts and figures in our study also support this truth. Indian
Automobile has a lot of scope for both two wheelers and four wheelers due to
development in infrastructure of the country and especially the rural sector in
which demand of two wheeler has increased even in recession. According to
Indian Statistical Organization the per capita income (Rs.38000) is increasing and
national income at the rate of 14.4% which shows potential to buy vehicle in auto
industry. The growth rate of Indian Automobile is so fast that by 2016 Indian
Industry will be world 7 largest manufacturer in all sections.

The Indian auto market is still untapped the majority of the people in country
don’t own a four wheeler and all the major auto companies are trying to increase
their sales by several moves. Like TATA has launch NANO the people’s car and
now TATA motors is also planning to come out with an electric car as well as
hybrid car, moreover in two wheeler segment many companies like Mahindra and
Mahindra grow even more than expectations.

By analyzing the current trend of Indian Economy and Automobile Industry

we can say that being a developing economy there is lot of scope for growth and
this industry still have to cross many levels so there is huge opportunities to invest
in and this is proving as more and more foreign Companies setting up there
ventures in India.

99 | P a g e
 CHAPTER 10

100 | P a g e
 References

By analyzing the automobile industry with the help of fundamental analysis,

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

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

The global turmoil in financial markets has affected Maruti also. The
company is maintaining a stable position. Its sales have grown over past five
years. Inspite of the general economic slowdown, the sales of Maruti Suzuki
increased from Rs 21200 Crore to Rs 23381 Crore. As it is maintaining a stable
position, it can be recommended that for now Maruti share price shows that it’s a
time to hold the position or buy more shares as there is scope of further rise in
share prices. Despite the challenging business environment, Mahindra has
maintained its upward sales level. Its Return on Investment is much higher
compared to TATA and Maruti. The dividend per share is rs.10 which is higher
amongst the three companies. The company has potential to grow.

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

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

Few Suggestions for “Right Stock Selection”

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

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

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

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

Investment rules

 Invest for long term in equity markets

 Align your thought process with the business cycle of the company.
 Set the purpose for investment.
 Long term goals should be the objective of equity investment.
 Disciplined investment during market volatility helps attains profits.
 Planning, Knowledge and Discipline are very crucial for investment.

Recommendation

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 By analyzing the industry on various parameters Automobile Industry have
no doubt is going to be a good and smart option because this industry is booming
like never before not only in India but all around the world. The numbers which
came out in the end of financial year 2009 prove that even in the period of
recession the overall sales went up is sufficient to support to this fact. Investing in
Maruti Suzuki for long time could be a good option whereas in TATA motors
there is a chance of getting correction, as it already went on high side in a very
short period of time so holding the shares for long time could be a wrong step, so
at this point of time those who invested earlier can book their profit or new
investors can buy now and sell with in short period of time by earning profit in
short period of time.

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