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19611839 Indian Automobile Industry Analysis

19611839 Indian Automobile Industry Analysis

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The industrial life cycle is a term used for classifying industry vitality 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.

In the growth phase, the product market has been established and there is at least some historical guide to
ground demand estimates. 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 cumulative growth of the Passenger Vehicles segment during April 2007 – March 2008 was 12.17
percent. Passenger Cars grew by 11.79 percent, Utility Vehicles by 10.57 percent and Multi Purpose
Vehicles by 21.39 percent in this period. The Commercial Vehicles segment grew marginally at 4.07
percent. While Medium & Heavy Commercial Vehicles declined by 1.66 percent, Light Commercial
Vehicles recorded a growth of 12.29 percent. Three Wheelers sales fell by 9.71 percent with sales of
Goods Carriers declining drastically by 20.49 percent and Passenger Carriers declined by 2.13 percent
during April- March 2008 compared to the last year. Two Wheelers registered a negative growth rate of
7.92 % during this period, with motorcycles and
electric two wheelers segments declining by 11.90
percent and 44.93% respect. However, Scooters and
Mopeds segment grew by 11.64% and 16.63% respect.
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.

As the product matures, growth slows as penetration reaches practical limits. Companies began to focus
on market share rather than growth. Industry demand tends to follow the overall economy, but the scope
of growth of the automobile sector is very much possible in India due to the increasing income of the
middle class and their income as well as standard of living.

4.)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
strategic environment is referred to as a SWOT analysis. SWOT analysis of the Indian automobile sector
gives the following points:

NEW DELHI INSTITUTE OF MANAGEMENT- PGDM(2008-10)

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ANALYSIS OF

INDIAN AUTOMOBILE INDUSTRY

GROUP-15, FINANCE-II

Strengths

•Large domestic market
•Sustainable labor cost advantage
•Competitive auto component vendor base
•Government incentives for manufacturing plants
•Strong engineering skills in design etc

Weaknesses

•Low labor productivity
•High interest costs and high overheads make the production uncompetitive
•Various forms of taxes push up the cost of production
•Low investment in Research and Development
•Infrastructure bottleneck

Opportunities

•Commercial vehicles: SC ban on overloading
•Heavy thrust on mining and construction activity
•Increase in the income level
•Cut in excise duties
•Rising rural demand

Threats

•Rising input costs
•Rising interest rates
•Cut throat competition

5.)Industry Specific Index

Industry specific index also called as sectoral index are those indices, which represent a specific industry
sector. All stocks in a sectoral index belong to that sector only. Hence an index like the BSE auto index is
made of auto stocks. Sectoral Indices are very useful in tracking the movement and performance of
particular sector.

BSE Auto Index comprises all the major auto stocks in the BSE 500 Index.

NEW DELHI INSTITUTE OF MANAGEMENT- PGDM(2008-10)

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ANALYSIS OF

INDIAN AUTOMOBILE INDUSTRY

GROUP-15, FINANCE-II

BSE AUTO Index 5 Year Chart

Automobile Industry Index at BSE for 5 Year

COMPANY

Source:Googlefinance.com

Above is the Indian Auto Industry Index(BSE) shows the up’s and down’s over the period of 5 years.
Intially in 2003 when major giants got listed on stock exchange TATA Motors, Maruti Suzuki, etc. indian
auto industry start picking up growth slowly in the first end of 1st

quarter index reaches to its highest in
his history. Than we saw a steady fall in the index and in the mid 2006 reaches to years lowest point it
again start booming and than year on year we saw a up and down movement in the index as lots of new
players came in Indian market with foreign colaboration but when 2008 came with global slowdown it
brings the demand of automobile so low that index reaches to its lowest in past 5year . Most of the
company even shut down their manufacturing units for more than a week, production came down
because of less demand in the economy. Also no further launches were made in mid or late 2008 and
postponed to next year. We have also saw a fall in FDI’s in automobile Industry. But in the beginning of
2009 right from 1st

quarter auto industry again start regaining and we saw a tremondous growth in auto
industry which never seen before not in india but all over the world. The demand of 2 and 4 Wheelers
start increasing rapidly which also force auto industry to employ more workers to meet demand and with

NEW DELHI INSTITUTE OF MANAGEMENT- PGDM(2008-10)

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ANALYSIS OF

INDIAN AUTOMOBILE INDUSTRY

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in the 2nd

quarter of FY2009-10 Auto index reaches to its highest ever crossed mark of 6000. And this
growth of industry will be carry further as festive season still to come, so there is a lot of scope to growth
in this industry.

c.)COMPANY ANALYSIS (Maruti Suzuki & TATA Motors)

The company analysis shows the longterm strenght of the company that what is the financial Position of
the company in the market where it stand among its competitors and who are the key drivers of the
company, what is 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.

Profile of Maruti Suzuki

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.

The turnover for the fiscal 2008-09 stood at Rs. 203,583 Million & Profit After Tax at Rs.
12,187ml.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.

Profile of Maruti Suzuki

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

Following is the financial and Non-Financial analysis of Maruti Suzuki & TATA Motors.

NEW DELHI INSTITUTE OF MANAGEMENT- PGDM(2008-10)

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ANALYSIS OF

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Financial Analysis

1.Financial Statements

RATIO ANALYSIS OF TATA MOTORS AND MARUTI SUZUKI

EPS measures the profit available to the equity
shareholders per share, that is, the amount that they
can get on every share held. Till 2008 both the
companies had a rising EPS but in 2009 both of them
fall and the effect more on Tata motors as they bought
two brands Ford Motors and fall in sales results in
low EPS. But as trend shows TATA motors have
potential so an shareholder expect better in future.

EPS = Net income- Dividends on Preferred
stock

Average Outstanding shares

The trend shows that Tata’s net profit margin is quite
stable until it falls to 3.77 in 2009. While the net profit of
India’s no.1 car manufacturer Maruti Suzuki shows a
negative trend from 2007 onwards. But the future
prospect for both the company’s profit is higher. Profit
margins come down as recession hits economy badly
hence sales get reduced and cost get increased very
much.

Net profit Ratio = (Net profit) × 100

(Net

sales)

Both giants of Automobile
industry shows positive trend

in

Sales Revenue over the past
5year. However recession
brought hurdles but both
companies have potential to

grow

in future as lots of products

are

NEW DELHI INSTITUTE OF MANAGEMENT- PGDM(2008-10)

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ANALYSIS OF

INDIAN AUTOMOBILE INDUSTRY

GROUP-15, FINANCE-II

still to add in their portfolio. Moreover increased demand in foreign market also seems to be a
positive signal for better future.

The quick ratio is a very stringent measure of
solvency. A general rule of thumb suggests that the
quick ratio should be around 1. Maruti is always
showing a positive trend as its ratio is always
greater than 1 except in 2008, while TATA motors
was doing good till 2007, but the performance
decreased from 2008 onwards as shortage of cash
was there and current liabilities and provision
increased by Rs800Cr.

A high debt to equity ratio suggests that a
company has financed its growth mostly
via debt. We see that the debt –equity ratio
of TATA motors is very high compared to
that of Maruti. It means that a lot of debt is
used by TATA’s to finance its increased
operations. Sometimes the cost of the debt
financing may outweigh the return that the
company generates on the debt through
investment and business activities and can

lead to bankruptcy. Maruti is going very swiftly in this field.

Debt-Equity Ratio= Total Debt

Total Equity

The current ratio is a convenient and reliable tool for
measuring a company's level of liquidity. The ratio
acts as an indication that the firm is able to generate

NEW DELHI INSTITUTE OF MANAGEMENT- PGDM(2008-10)

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ANALYSIS OF

INDIAN AUTOMOBILE INDUSTRY

GROUP-15, FINANCE-II

funds to make all needed payments in the future; thus, the ratio indicates whether the firm is likely to be
a going concern. Both the companies possess a good ratio but the ratio which is close to 2 is desirable, so
we see in graph that Maruti has more strong liquidity than TATA Motors as its current ratio is always
greater than 1. Maruti is more successful in paying off its liabilities. Expansion plans of TATA brought
down its cash & Bank Balance and increase of outside liabilities.

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 per share fell. According to
graph TATA’s dividend was much higher than that of
Maruti, it always provided dividend of above 10 per
share to its shareholders while maruti stick to below
5 per share, even though the fall in dividend in 2009,
still both the companies are earning good profit.

Dividend Per Share= Total amount of Dividend
Share Outstanding

a.)Balance Sheets

Maruti Suzuki TATA Motors

NEW DELHI INSTITUTE OF MANAGEMENT- PGDM(2008-10)

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ANALYSIS OF

INDIAN AUTOMOBILE INDUSTRY

GROUP-15, FINANCE-II

b.)Income Statements

Maruti Suzuki TATA Motors

NEW DELHI INSTITUTE OF MANAGEMENT- PGDM(2008-10)

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ANALYSIS OF

INDIAN AUTOMOBILE INDUSTRY

GROUP-15, FINANCE-II

Non-Financial Analysis

1.Share Holding Pattern for Quarter Ended 30-June-09

NEW DELHI INSTITUTE OF MANAGEMENT- PGDM(2008-10)

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ANALYSIS OF

INDIAN AUTOMOBILE INDUSTRY

GROUP-15, FINANCE-II

2.Board of Director

TATA Motors Maruti Suzuki

3.Upcoming Ventures & Products

TATA Motors

Tata Motors is try to be in a position to dominate the Indian Auto industry, at least in four-wheeler
segment. Tata Motors have announced that they are interested in the idea of designing electric cars. To
take it a step further Tata has also initialized plans for the manufacture of a hybrid car which it will
market with Chryster in the U.S.

After the launch of Nano, Tata also apparently has its eye on the European and U.S. markets. The
company hopes to have a version for Europe by 2011 and one for the U.S perhaps by 2012. Tata Motors,

NEW DELHI INSTITUTE OF MANAGEMENT- PGDM(2008-10)

Above is the updated share holding pattern
of TATA motors which shows that Indian
promoter share in the company is 41% that
means if they are not in the position to raise
further money from general public,
Company already raised huge money by
selling their large stake to institutional
investors about 27%. General Public also
have quite large stake in the company

Being a venture of Japanese company
Suzuki big stake of the company is held by
foreign promoters which shows that they
can divest their part(small part) to raise
money in future. However institutional
investors also held 39% major stake in the
company but general public have very
small part which shows that less presence
of share in the secondary market hence low
volume trading in stock market.

Mr. R. C. Bhargava Chairman
Mr. Shinzo Hakanishi MD and CEO
Mr. Manvinder Singh Banga Director
Mr. Amal Ganguli Director
Mr. D. S. Brar Director
Mr. Keiichi Asai Director
Mr. Osamu Suzuki Director
Mr. Shuji Oishi Director
Ms. Pallavi Shroff Director
Mr. Kenichi Ayukawa Director
Mr. Tsuneo Shashi Director &
Managing
Executive
Office (Production)

Mr. Ratan Tata Chairman
Mr. N.A. Soonawala Director
Mr. R. Gopalakrishnan Director
Mr. S.M. Palia Director
Mr. S. Bhargava Director
Mr. V. K. Jairath Director
Mr. Ravi Kant Vice Chairman
Mr. J. J. Irani Director
Mr. N. N. Wadia Director
Mr. R.A. Mashelkar Director
Mr. n Munjee Director
Mr. Prakash M Telang Director

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ANALYSIS OF

INDIAN AUTOMOBILE INDUSTRY

GROUP-15, FINANCE-II

is now aiming to launch its cars in Indonesia and is also planning to sell Nano in South America with the
help of Fiat. After launching the world’s cheapest car, Nano, Tata Motors is looking east, towards
neighboring Myanmar to boost its sales by setting up a truck manufacturing plant. As part of its
expansion plans in Southeast Asia, Tata Motors had inked a joint venture with Thailand’s Thonburi Auto
Assembly’s to manufacture up to 35,000 one tone pickup trucks a year over the next 3-5 years. Tata
Motors, is searching options to pump approximately Rs. 8,000 cr. During the next 3-4 years on capital
expenditure and product development.

Maruti Suzuki

Maruti Suzuki has expanded the capacity at its Manesar plant to 1.7 lakhs unit per annum from January
2009. By the year 2010, Suzuki Motors plan to increase their dealership in India. This is a step to
increase their sales to one million units as well as for a better position in the Indian auto market. The
expansion is estimated to cost $ 3.5 billion, out of which a quarter will be assigned for amplifying
leadership network to 1000 in number.

As Maruti Suzuki eyes one million sales by 2010, they have firmed up a massive expansion plan of its
service network and plans to expand it to 1700 towns and cities from the current of about 1200. The
company plans to increase the number of service stations and workshops to over 3800 from about 2800
currently. They have also been coming with specific sales promotion programmes targeted at interior
regions, among them is the “Mera Sapna Meri Maruti: New Panchayati Scheme”. The Haryana
government has allotted 700 acres of land to Maruti Suzuki for hi – tech Research & Development
complex at Rohtak. The upcoming facility, will see an investment in the range of Rs. 1,000 cr. to 1,500
cr. And will introduce world class R&D facilities into India. While the development of the allotted land
and construction of the test tracks will be completed in the first phase by 2012, the overall R&D facilities
will be progressively completed by 2015.

In a move ahead, Maruti Suzuki India limited launched the Estilo with all new overall looks and
advanced technological features.

The upcoming cars in near future by both companies are:

TATA Motors Maruti Suzuki

Products (CAR) Expected Launch

Maruti Grand Vitara Diesel December- 2009
Maruti 02 December 2009
Maruti SX4 Diesel December 2009
Maruti Cervo December 2009
Maruti Kizashi December 2009
Maruti xl7 March 2010

NEW DELHI INSTITUTE OF MANAGEMENT- PGDM(2008-10)

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ANALYSIS OF

INDIAN AUTOMOBILE INDUSTRY

GROUP-15, FINANCE-II

Maruti APV June 2010
Maruti Jimny July 2010

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