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A Project On Equity Analysis
A Project On Equity Analysis
EQUITY ANALYSIS
At
INDIA INFOLINE LIMITED
(Report submitted to JNTU in partial fulfillment of the requirement for the
award of Master of Business Administration)
Submitted by
SHAMEEM BEGUM
Roll No: 08N31E0048
Under the guidance of
Mr. K Hari Krishna
Assoc. Professor Finance
Equity Analysis
DECLARATION
I declare that this project report entitled EQUITY ANALYSIS is original and bonafide
work of my own in the partial fulfillment of the requirements for the award of the Degree
of MASTER OF BUSINESS ADMINISTRATION and submitted to the Department of
Management,
MALLAREDDY
COLLEGE
OF
ENGINEERING
AND
TECHNOLOGY, Secunderabad.
The data that has been collected by me is truly authentic and contains true and complete
information.
SHAMEEM BEGUM
Equity Analysis
SUMMARY
The automobile industry, one of the core sectors, has undergone metamorphosis with the
advent of new business and manufacturing practices in the light of liberalization and
globalization. The sector seems to be optimistic of posting strong sales in the couple of
years in the view of a reasonable surge in demand. The Indian automobile market is
gearing towards international standards to meet the needs of the global automobile giants
and become a global hub.
A detailed analysis of Automobile industry has been covered in respect of past growth
and performance. Under this project to better understand the Industry I have used
Fundamental tools to make it more authentic and meaningful.
An economy-industry-company (E.I.C) approach has been followed under Fundamental
Analysis which covers effect of Recession, the impact of inflation, FDIs, Export, and
GDP etc. on Automobile Industry. The Industry Analysis has been done with the help of
SWOT analysis and industry life cycle. For Company Analysis as a part of Fundamental
tool we have undergone with the comparative analysis of TATA Motors the leading
company, Maruti Suzuki Indias largest Car manufacturer and Mahindra and Mahindra
along with the help of ratio analysis. The fundamental aspect consists of financial and
Non-Financial analysis of these companies.
At the end conclusion and recommendations have been specified so as to make the
project work more meaningful and purposeful.
Equity Analysis
ACKNOWLEDGEMENT
Accomplishment of a task with desired success calls for dedication towards work and
prompting guidance, co-operation and deliberation from seniors.
At the outset, I would like to thank Mr. K. Hari Krishna, Associate Professor, Mallareddy
College of Engineering and Technology for his support and professional approach in
guiding me through the careful details of the project.
I am very grateful to my company guides, Mr. Subramaniam and Mr. Ashok who not only
helped me on this topic but also helped me to understand the nuances of capital market.
In spite of having a very busy schedule, they made sure in every way that we acquire the
best possible exposure and knowledge during our project.
I would be failing in my duty if I do no express my deep sense of gratitude to Sri K.R.K
Murthy, H.O.D. and all the faculty members for their valuable advice and guidance in this
project. I am also thankful to our college Principal, Dr.V.Siva Kumar Reddy.
SHAMEEM BEGUM
Equity Analysis
CONTENTS
Chapter No.
Page No.
Introduction
II
Review of Literature
7-22
III
Industry Profile
23-42
IV
Company Profile
43-52
53-73
VI
74-80
VII
Bibliography
81
Equity Analysis
CHAPTER I - INTRODUCTION
Equity Analysis
INTRODUCTION
India is a developing country. Nowadays many people are interested to invest in financial
markets especially on equities to get high returns, and to save tax in honest way. Equities
are playing a major role in contribution of capital to the business from the beginning.
Since the introduction of shares concept, large numbers of investors are showing interest
to invest in stock market.
In an industry plagued with skepticism and a stock market increasingly difficult to predict
and contend with, if one looks hard enough there may still be a genuine aid for the Day
Trader and Short Term Investor.
The price of a security represents a consensus. It is the price at which one person agrees
to buy and another agrees to sell. The price at which an investor is willing to buy or sell
depends primarily on his expectations. If he expects the security's price to rise, he will
buy it; if the investor expects the price to fall, he will sell it. These simple statements are
the cause of a major challenge in forecasting security prices, because they refer to human
expectations. As we all know firsthand, humans expectations are neither easily
quantifiable nor predictable. If prices are based on investor expectations, then knowing
what a security should sell for (i.e., fundamental analysis) becomes less important than
knowing what other investors expect it to sell for. That's not to say that knowing what a
security should sell for isn't important--it is. But there is usually a fairly strong consensus
of a stock's future earnings that the average investor cannot disprove
Fundamental analysis and technical analysis can co-exist in peace and complement each
other. Since all the investors in the stock market want to make the maximum profits
possible, they just cannot afford to ignore either fundamental or technical analysis.
Equity Analysis
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.
Equity Analysis
Equity Analysis
The analysis is made by taking into consideration five companies i.e. TATA
Motors, Maruti Suzuki and Mahindra and Mahindra.
The scope is limited to only the fundamental analysis of the chosen stocks.
Equity Analysis
METHODOLOGY
Research design or research methodology is the procedure of collecting, analyzing
and interpreting the data to diagnose the problem and react to the opportunity in such
a way where the costs can be minimized and the desired level of accuracy can be
achieved to arrive at a particular conclusion.
The methodology used in the study for the completion of the project and the
fulfillment of the project objectives.
The sample of the stocks for the purpose of collecting secondary data has been
selected on the basis of Random Sampling. The stocks are chosen in an unbiased
manner and each stock is chosen independent of the other stocks chosen. The stocks
are chosen from the automobile sector.
The sample size for the number of stocks is taken as 3 for fundamental analysis of
stocks as fundamental analysis is very exhaustive and requires detailed study.
Equity Analysis
LIMITATIONS
This study has been conducted purely to understand Equity analysis for investors.
Detailed study of the topic was not possible due to limited size of the project.
There was a constraint with regard to time allocation for the research study i.e. for
a period of 45 days.
Suggestions and conclusions are based on the limited data of five years.
Equity Analysis
Equity Analysis
SECURITY 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.
2.
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.
Equity 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 whatever underlies
the financial instrument. It is the study of economic, industry and company conditions
in an effort to determine the value of a companys stock. Fundamental analysis typically
focuses on key statistics in companys financial statements to determine if the stock
price is correctly valued. The term simply refers to the analysis of the economic wellbeing of a financial entity as opposed to only its price movements.
The fundamental 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).
Equity Analysis
Economic analysis
2.
Industry analysis
3.
Company analysis
Equity Analysis
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.
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.
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.
Equity Analysis
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.
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.
Tax structure: Every year in March, the business community eagerly awaits the
Governments announcement regarding the tax policy. Concessions and incentives
given to a certain industry encourage investment in that particular industry. Tax reliefs
given to savings encourage savings. The type of tax exemption has impact on the
profitability of the industries.
Equity Analysis
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
Grodensky. The life cycle of the industry is separated into four well defined stages.
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.
Equity Analysis
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.
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 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.
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.
Equity Analysis
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 industrys 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.
Equity Analysis
3. COMPANY ANALYSIS
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.
Market share: The market share of the annual sales helps to determine a
companys 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.
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.
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,
Equity Analysis
even if the sales are stable. Hence the stability of sales should be compared with
its market share and the competitors market share.
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 companys 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 for evaluating the
investment prospects in the particular companys stock. Financial statement analysis is
the study of a companys financial statement from various viewpoints. The statement
gives the historical and current information about the companys 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.
Equity Analysis
From the balance sheet, liquidity position of the company can also be assessed with the
information on current assets and current liabilities.
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.
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
Equity Analysis
these strategies, but how ROA rises will depend on the company's strategy. ROA should
rise with a successful cost leadership strategy because the companys 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.
As this ratio reveals how well the resources of a firm are being used, higher the ratio,
better are the results. The return on shareholders 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 rupee is earning
Equity Analysis
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:
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.
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.
Equity Analysis
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.
Equity Analysis
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.
Equity Analysis
i) Debt-to-Equity Ratio
Debt-Equity ratio is used to measure the claims of outsiders and the owners against the
firms 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 firms assets. The purpose is to get an idea of the cushion available
to outsiders on the liquidation of the firm.
Equity Analysis
Equity Analysis
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.
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.
Equity Analysis
Financial markets
Organized markets
Capital Markets
Unorganized markets
Money Markets
Industrial Securities
Market
Money Lenders,
Indigenuos Bankers
Primary Market
Commercial Bill
Market
Secondary market
Government
Securities Market
Long-term loan
market
Equity Analysis
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.
Equity Analysis
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.
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:
Equity Analysis
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.
Equity Analysis
Equity Analysis
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
Equity Analysis
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 IPOs 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.
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
Equity Analysis
India due to the countrys 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 Indias
capital markets and as one of the countrys most important institutions.
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Equity Analysis
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, margining,
establishment of clearing corporations etc. reduced the risk of credit and also reduced
the market.
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:
Equity Analysis
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.
Equity Analysis
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
20. Vadodara
Equity Analysis
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 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.
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
'BSE On-Line Trading System (BOLT) has been awarded the globally
recognized the Information Security Management System standard
BS7799-2:2002.
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
LIMITED
STOCK
EXCHANGE
OF
INDIA
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 (FIs)
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 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.
NSE Facts
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.
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.
India Infoline also owns and manages the websites www.indiainfoline.com and
www.5paisa.com. The company has a network of over 2100 business locations
(branches and sub-brokers) spread across more than 450 cities and towns. The group
caters to approximately a million customers.
India Infoline received registration for a housing finance company from the National
Housing Bank and received the Fastest growing Equity Broking House - Large
firms in India by Dun & Bradstreet in 2009. It also received the Insurance broking
license from IRDA; received the venture capital license; received in principle
approval to sponsor a mutual fund; received Best broker- India award from Finance
Asia; Most Improved Brokerage- India award from Asia money.
COMPANY STRUCTURE
India Infoline Limited is listed on both the leading stock exchanges in India, viz. the
Stock Exchange, Mumbai (BSE) and the National Stock Exchange (NSE) and is also
a member of both the exchanges. It is engaged in the businesses of Equities broking,
Wealth Advisory Services and Portfolio Management Services. It offers broking
services in the Cash and Derivatives segments of the NSE as well as the Cash
segment of the BSE. It is registered with NSDL as well as CDSL as a depository
participant, providing a one-stop solution for clients trading in the equities market. It
has recently launched its Investment banking and Institutional Broking business.
skills and technologies to allow them to offer commodities broking as a contracyclical alternative to equities broking. It enjoys memberships with the MCX and
NCDEX, two leading Indian commodities exchanges, and recently acquired
membership of DGCX. It has a multi-channel delivery model, making it among the
select few to offer online as well as offline trading facilities.
India Infoline Marketing & Services
India Infoline Marketing and Services Limited is the holding company of India
Infoline Insurance Services Limited and India Infoline Insurance Brokers Limited.
subsidiaries for various lending businesses like loans against securities, SME
financing, distribution of retail loan products, consumer finance business and housing
finance business. India Infoline Investment Services Private Limited consists of the
following step-down subsidiaries.
IIFL MANAGEMENT
Apart from Nirmal Jain and R Venkataraman, the Board of Directors of India Infoline
Ltd. comprises:
Mr. Nilesh Vikamsey, Independent Director
Mr. Vikamsey, Board member since February 2005 - a practicing Chartered
Accountant and partner (Khimji Kunverji & Co., Chartered
Accountants), a member firm of HLB International, headed the audit
department till 1990 and thereafter also handles financial services, consultancy,
investigations, mergers and acquisitions, valuations etc
Mr Sat Pal Khattar, Non Executive Director
Mr Sat Pal Khattar, - Board member since April 2001 - Presidential Council of
Minority Rights member, Chairman of the Board of Trustee of
Singapore Business Federation, is also a life trustee of SINDA, a non
profit body, helping the under-privileged Indians in Singapore. He joined the India
Infoline board in April 2001.
Mr Kranti Sinha, Independent Director
Mr. Kranti Sinha Board member since January 2005 completed
his masters from the Agra University and started his career as a Class I
officer with Life Insurance Corporation of India.
Mr Arun K. Purvar, Independent Director
Mr. A.K. Purvar Board member since March 2008 completed his
Masters degree in commerce from Allahabad University in 1966 and a
diploma in Business Administration in 1967.
Insurance
An entry into this segment helped complete the client's product basket; concurrently,
it graduated the Company into a one stop retail financial solutions provider. To ensure
maximum reach to customers across India, it has employed a multi pronged approach
and reaches out to customers via our Network, Direct and Affiliate channels. India
Infoline was the first corporate in India to get the agency license in early 2001.
Invest Online
India Infoline has made investing in Mutual funds and primary market so effortless.
Only registration is needed. No paperwork no queues and No registration
charges. India Infoline offers a host of mutual fund choices under one roof,
backed by in-depth research and advice from research house and tools configured
as investor friendly.
Wealth Management
The key to achieving a successful Investment Portfolio is to have a carefully planned
financial strategy based on a thorough understanding of the client's investment
needs and risk appetite. The IIFL Private Wealth Management Team of financial
experts will recommend an appropriate financial strategy to effectively meet
customers investment requirements.
Asset Management
India Infoline is a leading pan-India mutual fund distribution house associated with
leading asset management companies. It operates primarily in the retail segment
leveraging its existing distribution network to reach prospective clients. It has
received the in-principle approval to set up a mutual fund.
Portfolio Management
IIFL Portfolio Management Service is a product wherein an equity investment
portfolio is created to suit the investment objectives of a client. India Infoline
invests the clients resources into stocks from different sectors, depending on
clients risk-return profile. This service is particularly advisable for investors who
cannot afford to give time or don't have that expertise for day-to-day
management of their equity portfolio.
Newsletters
As a subscriber to the Daily Market Strategy, clients get research reports of India
Infoline research team on a priority basis. The Indiainfoline Weekly Newsletter is
the flashback for the week gone by. A weekly outlook coupled with the best of
the web stories from Indiainfoline and links to important investment ideas,
Leader Speak and features is delivered in the clients inbox every Friday evening.
CHAPTER V
DATA ANALYSIS & INTERPRETATIONS
Fundamental Analysis
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.
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 GDP
growth has downgraded it to 7.1 per cent for 2008-09 and it has increased to 8.6% in
2010 by overcoming the setbacks of recession.
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.
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.
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 MNCs
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.
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 strategic environment is
referred to as a SWOT analysis. SWOT analysis of the Indian automobile sector gives
the following points:
1. Strengths
2. Weaknesses
High interest costs and high overheads make the production uncompetitive
Infrastructure bottleneck
3. Opportunities
4. Threats
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.
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.
Mar '06
Mar '07
Mar '08
Mar '09
361.79
382.87
385.41
385.54
514.05
361.79
382.87
385.41
385.54
514.05
0.00
3,749.60
0.00
5,127.81
0.00
6,458.39
0.00
7,428.45
0.00
11,855.15
Revaluation Reserves
Networth
0.00
4,111.39
26.39
5,537.07
25.95
6,869.75
25.51
7,839.50
25.07
12,394.27
489.81
822.76
2,022.04
2,461.99
5,251.65
Unsecured Loans
2,005.61
2,114.08
1,987.10
3,818.53
7,913.91
Total Debt
2,495.42
2,936.84
4,009.14
6,280.52
13,165.56
Total Liabilities
6,606.81
8,473.91
10,878.89
14,120.02
25,559.83
Gross Block
6,611.95
7,971.55
8,775.80
10,830.83
13,905.17
3,454.28
3,157.67
4,401.51
3,570.04
4,894.54
3,881.26
5,443.52
5,387.31
6,259.90
7,645.27
538.84
951.19
2,513.32
5,064.96
6,954.04
Investments
2,912.06
2,015.15
2,477.00
4,910.27
12,968.13
Inventories
1,601.36
2,012.24
2,500.95
2,421.83
2,229.81
Sundry Debtors
811.32
715.78
782.18
1,130.73
1,555.20
345.26
327.66
535.78
750.14
638.17
2,757.94
3,055.68
3,818.91
4,302.70
4,423.18
2,831.16
5,964.61
6,208.53
4,831.36
5,909.75
Fixed Deposits
Total CA, Loans & Advances
1,659.78
7,248.88
791.77
9,812.06
290.98
10,318.42
1,647.17
10,781.23
503.65
10,836.58
0.00
0.00
0.00
0.00
0.00
Current Liabilities
6,142.74
6,673.61
6,956.88
10,040.37
10,968.95
Provisions
1,126.06
1,215.04
1,364.32
1,989.43
1,877.26
7,268.80
7,888.65
8,321.20
12,029.80
12,846.21
-19.92
1,923.41
1,997.22
-1,248.57
-2,009.63
Total Assets
Contingent Liabilities
6,606.81
1,450.32
8,473.91
2,185.63
10,878.89
5,196.07
14,120.02
5,590.83
25,559.83
5,433.07
113.65
143.94
177.59
202.70
240.64
Sources of funds
Secured Loans
Application of funds
Deffered Credit
Mar '06
Mar '07
Mar '08
Mar '09
Income
Sales Turnover
20,262.61
23,490.55
31,089.69
33,123.54
28,538.20
Excise Duty
Net Sales
3,063.44
17,199.17
3,401.92
20,088.63
4,425.44
26,664.25
4,355.63
28,767.91
2,877.53
25,660.67
Other Income
403.98
144.00
17,747.15
852.41
256.91
21,197.95
1,114.38
349.68
28,128.31
734.17
-40.48
29,461.60
921.29
-238.04
26,343.92
12,245.28
237.81
1,039.34
14,633.02
258.51
1,143.13
19,879.56
327.41
1,367.83
20,891.33
325.19
1,544.57
18,801.37
304.94
1,551.39
592.64
671.31
872.95
904.95
866.65
890.21
1,061.07
1,505.23
2,197.49
1,652.31
Miscellaneous Expenses
620.27
740.99
1,051.49
964.78
1,438.89
-282.43
15,343.12
-308.85
18,199.18
-577.05
24,427.42
-1,131.40
25,696.91
-916.02
23,699.53
Operating Profit
2,000.05
2,146.36
2,586.51
3,030.52
1,723.10
PBDIT
2,404.03
2,998.77
3,700.89
3,764.69
2,644.39
234.30
350.24
455.75
471.56
704.92
2,169.73
2,648.53
3,245.14
3,293.13
1,939.47
450.16
67.12
520.94
73.78
586.29
85.02
652.31
64.35
874.54
51.17
1,652.45
-1.54
2,053.81
0.00
2,573.83
-0.07
2,576.47
0.00
1,013.76
15.29
1,650.91
415.50
2,053.81
524.93
2,573.76
660.37
2,576.47
547.55
1,029.05
12.50
1,236.95
3,097.84
1,528.88
3,566.16
1,913.46
4,547.86
2,028.92
4,805.58
1,001.26
4,898.16
0.00
452.19
63.42
0.00
497.94
69.84
0.00
578.07
98.25
0.00
578.43
81.25
0.00
311.61
34.09
3,617.52
34.19
125.00
113.65
3,828.34
39.94
130.00
143.94
3,853.74
49.65
150.00
177.59
3,855.04
52.63
150.00
202.70
5,140.08
19.48
60.00
240.64
Stock Adjustments
Total Income
Expenditure
Raw Materials
Power & Fuel Cost
Employee Cost
Interest
PBDT
Depreciation
Other Written Off
Preference Dividend
Equity Dividend
Corporate Dividend Tax
Per share data (annualised)
Shares in issue (lakhs)
Earning Per Share (Rs)
Equity Dividend (%)
Book Value (Rs)
Mar '06
Mar '07
Mar '08
Mar '09
144.50
144.50
0.00
144.50
144.50
0.00
144.50
144.50
0.00
144.50
144.50
0.00
144.50
144.50
0.00
4,234.30
0.00
4,378.80
307.60
5,308.10
0.00
5,452.60
71.70
6,709.40
0.00
6,853.90
63.50
8,270.90
0.00
8,415.40
0.10
9,200.40
0.00
9,344.90
0.10
0.00
0.00
567.30
900.10
698.80
307.60
4,686.40
71.70
5,524.30
630.80
7,484.70
900.20
9,315.60
698.90
10,043.80
Gross Block
Less: Accum. Depreciation
Net Block
Capital Work in Progress
Investments
Inventories
Sundry Debtors
Cash and Bank Balance
Total Current Assets
5,053.10
3,179.40
1,873.70
42.10
1,516.60
666.60
599.50
79.40
1,345.50
4,954.60
3,259.40
1,695.20
92.00
2,051.20
881.20
654.80
51.60
1,587.60
6,146.80
3,487.10
2,659.70
238.90
3,409.20
713.20
747.40
114.80
1,575.40
7,285.30
3,988.80
3,296.50
736.30
5,180.70
1,038.00
655.50
324.00
2,017.50
8,720.60
4,649.80
4,070.80
861.30
3,173.30
902.30
918.90
239.00
2,060.20
801.90
950.00
3,097.40
0.00
1,454.20
389.20
1,843.40
1,254.00
0.00
933.10
1,350.00
3,870.70
0.00
1,704.80
480.00
2,184.80
1,685.90
0.00
1,072.60
1,308.00
3,956.00
0.00
2,288.60
490.50
2,779.10
1,176.90
0.00
1,173.00
0.00
3,190.50
0.00
2,718.90
369.50
3,088.40
102.10
0.00
1,809.80
1,700.00
5,570.00
0.00
3,250.90
380.70
3,631.60
1,938.40
0.00
Total Assets
Contingent Liabilities
Book Value (Rs)
4,686.40
893.60
151.56
5,524.30
1,289.70
188.73
7,484.70
2,094.60
237.23
9,315.60
2,734.20
291.28
10,043.80
1,901.70
323.45
Sources Of Funds
Total Share Capital
Equity Share Capital
Share Application Money
Reserves
Revaluation Reserves
Networth
Secured Loans
Unsecured Loans
Total Debt
Total Liabilities
Application Of Funds
Mar '06
Mar '07
Mar '08
Mar '09
Sales Turnover
Excise Duty
Net Sales
Other Income
13,458.20
2,411.90
11,046.30
187.50
14,898.80
2,700.90
12,197.90
184.40
17,358.40
2,552.00
14,806.40
338.10
21,200.40
3,133.60
18,066.80
494.00
23,381.50
2,652.10
20,729.40
491.70
Stock Adjustments
Total Income
Expenditure
Raw Materials
141.70
11,375.50
199.70
12,582.00
-200.70
14,943.80
336.30
18,897.10
-356.60
20,864.50
8,650.20
9,423.40
10,863.00
13,958.30
15,983.20
58.10
196.00
215.70
374.27
121.73
-22.40
9,593.60
1,594.40
1,781.90
36.00
1,745.90
456.80
16.30
1,272.80
57.20
228.70
302.40
349.51
145.39
-6.70
10,499.90
1,897.70
2,082.10
20.40
2,061.70
285.40
0.00
1,776.30
97.40
288.40
392.40
483.26
239.44
-14.30
12,349.60
2,256.10
2,594.20
37.60
2,556.60
271.40
0.00
2,285.20
147.30
356.20
523.30
521.48
287.62
-19.80
15,774.40
2,628.70
3,122.70
59.60
3,063.10
568.20
0.00
2,494.90
193.60
471.10
716.10
751.06
303.44
-22.30
18,396.20
1,976.60
2,468.30
51.00
2,417.30
706.50
0.00
1,710.80
Extra-ordinary items
PBT (Post Extra-ord Items)
Tax
51.40
1,324.20
446.50
5.40
1,781.70
560.90
33.40
2,318.60
705.30
76.60
2,571.50
763.30
37.90
1,748.70
457.10
853.60
1,189.10
1,562.00
1,730.80
1,218.70
943.40
1,076.50
1,486.60
1,816.10
2,413.00
Preference Dividend
Equity Dividend
0.00
57.80
0.00
101.10
0.00
130.00
0.00
144.50
0.00
101.10
8.20
14.20
21.90
24.80
17.20
2,889.10
2,889.10
2,889.10
2,889.10
2,889.10
29.55
40.00
151.56
41.16
70.00
188.73
54.07
90.00
237.23
59.91
100.00
291.28
42.18
70.00
323.45
Income
Mar '06
Mar '07
Mar '08
Mar '09
116.01
233.40
238.03
239.07
272.62
116.01
0.00
0.00
1,881.93
233.40
0.00
0.00
2,662.14
238.03
0.00
0.00
3,302.01
239.07
0.00
0.00
4,098.53
272.62
0.00
0.00
4,959.26
Revaluation Reserves
Networth
Secured Loans
Unsecured Loans
Total Debt
Total Liabilities
Application Of Funds
Gross Block
Less: Accum. Depreciation
Net Block
14.32
2,012.26
336.82
715.80
1,052.62
3,064.88
13.33
2,908.87
216.68
666.71
883.39
3,792.26
12.86
3,552.90
106.65
1,529.35
1,636.00
5,188.90
12.47
4,350.07
617.26
1,969.80
2,587.06
6,937.13
12.09
5,243.97
981.00
3,071.76
4,052.76
9,296.73
2,676.51
1,335.56
1,340.95
2,859.25
1,510.27
1,348.98
3,180.57
1,639.12
1,541.45
3,552.64
1,841.68
1,710.96
4,893.89
2,326.29
2,567.60
133.93
1,189.79
759.83
205.46
1,669.09
878.74
329.72
2,237.46
878.48
649.94
4,215.06
1,084.11
646.73
5,786.41
1,060.67
Sundry Debtors
511.53
637.97
700.89
1,004.88
1,043.65
198.07
258.39
415.89
310.58
635.61
1,469.43
461.07
1,775.10
558.02
1,995.26
1,011.50
2,399.57
866.19
2,739.93
1,402.45
425.91
471.92
910.18
550.65
938.82
2,356.41
2,805.04
3,916.94
3,816.41
5,081.20
0.00
0.00
0.00
0.00
0.00
1,480.87
499.71
1,980.58
1,711.23
543.14
2,254.37
2,138.77
715.43
2,854.20
2,525.31
943.46
3,468.77
3,520.20
1,277.56
4,797.76
375.83
550.67
1,062.74
347.64
283.44
24.38
18.05
17.55
13.53
12.55
3,064.88
758.14
178.95
3,792.25
946.36
124.06
5,188.92
1,008.27
148.72
6,937.13
985.35
181.43
9,296.73
1,220.39
191.91
Sources Of Funds
Total Share Capital
Equity Share Capital
Share Application Money
Preference Share Capital
Reserves
Mar '06
Mar '07
Mar '08
Mar '09
7,649.51
1,054.82
9,273.09
1,136.50
11,231.99
1,310.65
12,894.94
1,584.57
14,713.03
1,587.05
Net Sales
Other Income
Stock Adjustments
Total Income
Expenditure
Raw Materials
Power & Fuel Cost
Employee Cost
Other Manufacturing Expenses
Selling and Admin Expenses
6,594.69
209.74
174.05
6,978.48
8,136.59
455.20
103.20
8,694.99
9,921.34
531.17
6.41
10,458.92
11,310.37 13,125.98
575.96
369.85
149.11
-156.29
12,035.44 13,339.54
4,829.29
52.64
464.25
48.01
545.57
5,885.21
57.46
551.78
54.44
667.99
6,937.16
65.19
666.15
68.80
891.29
7,963.82
91.33
853.65
73.35
1,108.33
9,208.71
98.69
1,024.61
75.36
954.83
Miscellaneous Expenses
Preoperative Exp Capitalized
Total Expenses
141.95
-31.84
6,049.87
177.89
-26.53
7,368.24
210.03
-47.10
8,791.52
257.84
-46.49
10,301.83
558.07
-42.83
11,877.44
Operating Profit
PBDIT
Interest
718.87
928.61
30.24
871.55
1,326.75
26.96
1,136.23
1,667.40
19.80
1,157.65
1,733.61
87.59
1,092.25
1,462.10
134.12
PBDT
Depreciation
Other Written Off
898.37
184.05
0.15
1,299.79
200.01
0.28
1,647.60
209.59
0.33
1,646.02
238.66
0.59
1,327.98
291.51
0.00
714.17
0.00
1,099.50
0.00
1,437.68
-19.19
1,406.77
0.00
1,036.47
4.07
714.17
201.50
512.67
1,099.50
242.40
857.10
1,418.49
350.10
1,068.39
1,406.77
303.40
1,103.37
1,040.54
199.69
836.78
1,220.58
1,483.04
1,854.37
2,338.01
2,668.73
0.00
0.00
0.00
0.00
0.00
150.81
243.97
282.23
282.61
278.83
21.15
34.22
42.50
38.48
33.23
1,116.48
2,334.00
2,380.33
2,390.73
2,726.16
45.92
36.72
44.88
46.15
30.69
130.00
100.00
115.00
115.00
100.00
178.95
124.06
148.72
181.43
191.91
Income
Sales Turnover
Excise Duty
Mar'05
34.19
29.55
45.92
Mar'06
39.94
41.16
36.72
Mar'07
49.65
54.07
44.88
Mar'08
52.63
59.91
46.15
Mar'09
19.48
42.18
30.69
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 2008 TATA and Maruti had a rising
EPS but in 2009 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
SALES
YEARS
TATA
MARUTI
MAHINDRA
Mar'05
20,262.61
13,458.20
7,649.51
Mar'06
23,490.55
14,898.80
9,273.09
Mar'07
31,089.69
17,358.40
11,231.99
Mar'08
33,123.54
21,200.40
12,894.94
Mar'09
28,538.20
23,381.50
14,713.03
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.
Mar'05
12.5
2
13
Mar'06
13
3.5
10
Mar'07
15
4.5
11.5
Mar'08
15
5
11.5
Mar'09
6
3.5
10
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 companys dividend
per share fell. According to graph Tatas 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
YEARS
TATA
MARUTI
MAHINDRA
Mar'05
30.09
19.49
25.66
Mar'06
27.74
21.81
29.6
Mar'07
27.96
22.79
30.18
Mar'08
25.98
20.56
25.51
Mar'09
8.09
13.04
16.03
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. Marutis ROI has also declined but Mahindras 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.
Mar'05
41.68
7.73
33.54
Mar'06
37.13
9.69
32.45
Mar'07
35.34
9.72
30.39
Mar'08
32.51
9.78
29.1
Mar'09
34.52
9.7
37.29
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.
PRICE-EARNINGS RATIO
YEARS
TATA
MARUTI
MAHINDRA
Mar'05
19.09
21.5
11.1
Mar'06
22.5
22.5
24.6
Mar'07
14.9
18.3
19.1
Mar'08
3.02
8.6
5.9
Mar'09
40.6
36.9
35.2
Interpretations
This ratio is widely used by investors to decide whether or not to buy shares in a
particular company. As per the graph, in 2008, the P/E ratio of the three companies
was the lowest compared to the previous years. TATA has the highest P/E ratio in
2009 which indicates that it is overvalued, so the investors can benefit by selling the
shares. An investor can go for Mahindra as its P/E ratio is the lowest in 2009 which
indicates that it is undervalued and there is a scope for growth in the future.
CHAPTER VI
FINDINGS, SUGGESTIONS & CONCLUSION
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. 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, TATAs 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 20052009. Due to recession, the dividends per share have declined in all the three
companies. Tatas 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 2005 and the year 2009
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 2005. TATA and Mahindra
have increased their payout ratio in which Mahindra shows a higher payout
ratio.
The three companies have witnessed a low price earnings ratio in 2008
compared to the previous years. But the ratio increased in 2009 in three
companies. TATA has the highest P/E ratio in 2009 which indicates that it is
overvalued and Mahindras P/E ratio is the lowest in 2009 which indicates that
it is undervalued and there is a scope for growth in the future.
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.
SUGGESTIONS
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 its a time to hold the position or buy more shares as there is scope of
further rise in share prices.
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 be a wrong step and at this point of
time those who invested earlier can book their profits. As Mahindras 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.
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
Align your thought process with the business cycle of the company.
CONCLUSION
The Automobile industry in India is the seventh largest in the world with an annual
production of over 2.6 million units in 2009. In 2009, India emerged as Asia's fourth
largest exporter of automobiles, behind Japan, South Korea and Thailand.
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.
Maruti Suzuki India LTD. company has a trend of growth from till 2008.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 Britains 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.
BIBLIOGRAPHY
Text Books
Security Analysis and Portfolio Management by Punithavathy Pandian, Vikas
Publications.
Security analysis and portfolio management by V.A. Avadhani
Financial Markets and Services by Gordon and Natarajan, Himalaya
Publications.
Financial Management by Shashi K Gupta and R. K Sharma, Kalyani
Publications.
Newspapers
Economic times
Business line
Websites
www.nseindia.com
www.bseindia.com
www.investopedia.com
www.moneycontrol.com
www.indiainfoline.com
www.sebi.gov.in
www.tatamotors.com
www.marutisuzuki.com
www.mahindra.com
www.yahoofinance.com