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org © 2021 IJCRT | Volume 9, Issue 5 May 2021 | ISSN: 2320-2882

A STUDY ON FUNDAMENTAL ANALYSIS IN

AUTOMOBILE COMPANY
Kalpana devi N
Student, Sathyabama Institute of Science and Technology, Chennai
Dr.Velumoni D, MBA., M.Phil., Ph.D
Faculty, Sathyabama Institute of Science and Technology, Chennai

ABSTRACT

The aim of the thesis is to perform the fundamental analysis of automobile industry with reference to
the selected companies. Fundamental analysis is an approach to arrive at the ‘correct price’ of the
security. Its objective is to identify the under priced and overpriced securities in the market place so
that the investment decision-buying and
sellingofsecuritiescanbemade.Theautomobileindustryisoneofthecoreindustriesin
Indiaandisoptimisticofpostinggoodsalesinthecomingyears.So,theinvestmentinthe shares and
securities of automobile companies seems to be profitable. As a part of the analysis, Automobile
industry is turned out to be one of the essential business of the
Economy.ThestudyisdoneusingsecondarydatacollectedfromEmployeewhoworksin selected
automobile industry for the period of last five years from year 2015 to 2019.The first part of the thesis
is focused on introduction of necessary
theoreticalframework,thesecondpartcontinueswithanalysisofautomobileindustryand finally in last part
valuation is performed and an investment recommendation is formulated.

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1. INTRODUCTION TO FUNDAMENTAL ANALYSIS

Fundamental analysis assesses the fair market value of equity shares by examining the assets,
earnings prospects, cash flow projections, and dividend potential. Fundamental analysis differs from
technical analysis that essentially relies on price and volume trends and other market indicators to
identify trading opportunities.

Fundamental analysis of a business involves analyzing its financial statements and health, its
management and competitive advantages, and its competitors and markets. Fundamental analysis is
performed on historical and present data, but with the goal of making financial forecasts.
Fundamental analysis helps in analyzing strategy, management, product, financial position and
many other readily and not-so-readily quantifiable numbers which will help to choose stocks that will
outperform in the market.

OBJECTIVE OF THE STUDY PRIMARY OBJECTIVE

 To study the fundamental analysis of company and strategies of the company for five years

SECONDARY OBJECTIVE

 To finding the balance sheet with necessary calculations of the company for past five years
 To analyse the financial performance of thecompany
 To analyse as to investing for past five years of this company would maximizethe wealth of
theinvestor.
2. To determine the various investment valuation models that canused
REVIEW OFLITERATURE

A literature review is a body of text that aims to review the critical points of current knowledge on a
particular topic.

P. Devika (2019), A Study on fundamental analysis of Automobile companies in India - The term
Financial Markets is often used to refer just to the markets that are mused to
raisefinance.Afinancialmarketisamarketinwhichpeopletradefinancialsecuritiesand derivatives such as
futures and options at low transaction costs. An investor wants to invest his money in various kinds
of securities but each and every investment contains some level of risk and as a reward he gets
thereturn.

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EugineF.Fama(2010),EfficientCapitalMarkets:AReviewofTheoryandEmpiricalwork
Thispaperreviewsthetheoreticalandempiricalliteratureontheefficientmarketsmodel.
Afteradiscussionofthetheory,empiricalworkconcernedwiththeadjustmentofsecurity prices to three
relevant information subsets isconsidered.

Moonchul Kim, Jay R. Ritter (1998), Valuing IPOs - The use of accounting information in conjunction
with comparable "rm multiples is widely recommended for valuing initial public o! erings (IPOs). We
"and that the price-earnings (P/E), market-to-book, and price-to-sales multiples of comparable "rms
have only modest predictive ability without further adjustments.

Aw Alford (1992), The Effect of the set of comparable Firms on the accuracy of the price earnings–
ThispaperstudiesempiricallytheaccuracyoftheP/Evaluationmethodwhen comparable firms are
selected on the basis of industry, risk, and earnings growth. The effect of adjusting earnings for
cross-sectional differences in leverage is alsoexamined.

Philip G. Berger and Eli Ofek (1995), Diversifications effect on firm value - We estimate
diversification's effect on firm value by imputing stand-alone values for individual business segments.
The value loss is smaller when the segments of the diversified firm areinthesametwo-
digitSICcode.Wefindthatoverinvestmentandcross-subsidization contribute to the value loss. The loss
is reduced modestly by tax benefits of diversification. Urs Peyer (2001), Leverage and internal
capital markets: Evidence from leveraged recapitalizations - We study the internal allocation of
resources for diversified firms that
completealeveragedrecapitalization.Beforetherecapitalization,internalcapitalmarkets allocate
investment to high q segments. After the recapitalization, segment investment becomes less
sensitive to q and more sensitive to segment cashflow.

Salikhova, T. (2019). Essays on Networks and Corporate Finance – The study is about how social
connections among divisional managers act the capital allocation to divisions in diversied
conglomertes. In contrast to the previous studies, it focus on horizontal connections formed among
managers of the same level of corporate hierarchy.

3. RESEARCH METHODOLOGY Researchdesign:

Research design is the conceptual structure within which research is conducted. This research is
about finding annual report of the company. Every stock available in the markets has a value called
market price, which is the indicator of the company’s
performance.Accordingtofundamentalanalysis,wewilltrytofindtheintrinsicvalueofa particular stock
which is the true value of the stock, based on which investment arguments takeplace.
Sampling Unit:
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This study is about collecting the fundamental data for the past 5 years. According to fundamental
analysis, we will try to find the intrinsic value of a particular stock which is the true value of the stock.

Data Collection Methods/Source of data:

The study is about collecting the secondary data that has been collected from company
reportsanditisquantitativeinnature.Thedataarecollectedfromtheemployeeworking inautomobile
industry.Thesourcesareinternalanditstypeisa
balancesheetforlastfiveyears.Herethisstudyconsistsoffundamentaldataanalysisof thecompany.

TOOLS USED

 Microsoft excel :Spreadsheets

 Financial calculations: This was done to find the various valuation ratios and necessary calculations to find the
intrinsic value of thecompany.
 Growthrate
Retention Ratio* Return on Equity
Returnonequity=Riskfreerate+(Betaofstock)*(Expectedmarketrisk premium)
Retention ratio = 1- Dividend pay-out Ratio
 Volatility

V= Range of ROE over n years / Average ROE over n years

4. ANALYSIS

Analysis of Earning and Dividend Level

• Return onEquity

• Book Value pershare

• Earnings PerShare

• Dividend PerShare

• Dividend PayoutRatio

• Debt-EquityRatio

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Growth Performance

Compound Annual Growth Rate (CA-GR) Sustainable Growth Rate

Risk Exposure

Volatility
Estimation of Intrinsic Value

This estimation is based on various assumptions taken by looking into past performance of the
company and consistencies in the financial information provided in their annual report.

FINANCIAL STATEMENT

PROFIT AND LOSS ACCOUNT FROM THE PERIOD OF 2015 TO 2019 IS AS FOLLOWS (‘in Rs. Cr.)

Particulars Mar-19 Mar-18 Mar-17 Mar-16 Mar-15

INCOME
Revenue from 423.53 316.30 276.87 201.56 154.83
Operations [Gross]
Revenue from 423.53 316.30 276.87 201.56 154.83
Operations [Net]
Other Operating 26.90 19.07 13.65 9.08 6.67
Revenues
Total Operating 450.43 335.37 291.01 234.98 185.08
Revenues
Other Income 0.04 2.97 4.53 5.98 7.09
Total Revenue 450.47 338.34 297.76 243.65 174.21
EXPENSES
Employee Benefit 85.65 70.08 63.20 59.18 53.56
Expenses
Finance Costs 140.52 23.23 20.67 15.43 10.75
Depreciation and 2.83 2.56 2.12 1.98 1.65
Amortization Expenses
Other Expenses 77.87 57.48 50.01 46.78 41.78
Total Expenses 306.88 153.35 144.98 132.56 112.90

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BALANCE SHEET FROM THE PERIOD OF 2015 TO 2019 IS AS FOLLOWS

( in Rs. Cr.)

Particulars Mar-19 Mar-18 Mar-17 Mar-16 Mar-15

LIABILITIES
Share Capital 87.35 83.46 75.40 69.88 61.23
Reserves & Surplus 1632.16 1520.46 1476.89 1389.56 1309.67
Net Worth 1719.51 1603.92 1547.87 1433.07 1311.43
Secured Loan 21.20 10.41 9.71 7.60 4.54
Unsecured Loan 715.03 564.67 484.87 370.76 289.56
TOTAL LIABILITIES 2455.75 2274.80 1954.56 1732.77 1502.87
ASSETS
Gross Block 12.17 10.41 9.45 7.63 6.91
Net Block 6.58 4.46 4.09 3.64 3.21
Investments 1663.34 1556.67 1498.78 1356.76 1243.43
Sundry Debtors 52.20 93.31 112.76 115.78 120.89
Cash and Bank 31.58 21.53 19.78 15.80 14.11
Loansand 910.26 899.49 802.67 754.09 698.43
Advances
Total Current Assets 994.05 1014.33 1150.88 1208.56 1297.32
Current Liabilities 164.57 255.90 302.43 376.11 414.98
Provisions 47.43 47.23 46.9 46.54 45.32
Total Current 212.00 303.13 411.98 525.76 601.90
Liabilities
NET CURRENT 782.05 711.20 698.30 634.76 587.07
ASSETS
5. SUGGESTION
Intrinsic ValueAnalysis Intrinsic ValueAnalysis

 Purely based on intrinsic value, selling the stock isrecommended.

 Thecompaniesthathavetheirstockpriceclosertotheintrinsicvaluearetheones that can achieve intrinsic value
much faster and produce fasterreturns.
 Butintrinsicvaluealonecannotbethedecidingfactor.Therearemanyfactorsthat can affect the gain part of
thestock.

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6. CONCLUSION

Fromthepointofviewofinvestmentdecision,fundamentalanalysisprovidesawareness into the economic

performance of a business enterprise. The Indian economy is on the verge on expansion. This is a
positive sign for industries like the automobile industry.
Therearemanyfactorsthataffectstheindividualcompaniesintheindustry.Bydoingthe industry analysis
we found that there is much more potential in the automobile industry than what is being displayed
currently. The inflow of FDI is constantly increasing which
canleadtotechnologicalbreakthroughsandinnovations.
BydoingthecompanyanalysiswecanconcludethatinthetermsofCAGRofsales,EPS and DPS: Earing per
Share, Dividend per Share, BVSP, Dividend Pay-out and Volatility.
Investigation helps the financial specialist in settling on speculation choices however few out of every
odd venture is totally subject to key examination alone. After effects of specialized investigation and
also other subjective elements identified with the organization's execution should likewise be
considered while settling on a speculation choice. An appropriate examination helps in decreasing
the dangers on interest in the offer market and aides in picking less unsafe and exceptionally
compensating speculation roads.
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Study of Indian Automobile Industry. The Indian Economic Journal, 1995, 43(2), October-December.
 Bhardwaj, Rajesh, Raheja, Rekha and Priyanka, Fundamental Analysis of Selected Listed
Companies of Automobile Industry‖, 2012, Journal Economic Challenger, Number-14, Issue-54, pp.
59-63.
 Daniel, A. Moses Joshuva, A study of Financial Status of Tata Motors Ltd.,‖ IndianJournal of Applied
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 Dawar, Varun, Determinants of shares prices in India Auto Industry,‖ 2012,TECNIACAL journal of
Management Studies, 7(1), pp.24-29.
 Dyna Seng & Jason R. Hancock, Fundamental Analysis and the Prediction of Earnings‖, February
2012, International Journal of Business and Management Vol. 7, No. 3.
 Gaddam, J.C. Analysis of growth exports and geographic concentration of automobile industry in
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