EQUITY RESEARCH

ON AUTOMOBILE
SECTOR OF INDIA
MADE BY – HITESH THAPAR
A1802011333
 INTRODUCTION
• Automobile industry of India is one of the core industry,
contributing approximately 6% to the GDP.
• Analysis of the automobile sector, determining if it is the right
time to invest in this sector or not.
• Investment in the stocks of the automobile companies
involves huge risks but they tend to yield greater returns too.
OBJECTIVES, SCOPE AND LIMITATIONS
• Analyse the automobile sector of India through fundamental
analysis and assist the investors in making investment
decision
• Scope – Fundamental analysis of the companies including the
analysis of the 4 automobile players of India
 Mahindra and Mahindra
 Tata Motors
 Hero motocorp
 Ashok Leyland
• Limitation – the analysis if fully based on secondary data and
hence the accuracy of data is the main concern
 RESEARCH METHODOLOGY
• TYPE OF STUDY
The project will be exploratory in the initial stage and the
knowledge thus gained will be used for further descriptive
research
• DATA
The project is done using secondary data
• SAMPLE SIZE
4 automobile companies listed in the national stock exchange
 FOREIGN INVESTMENTS OF THE
AUTOMOBILE SECTOR
• Presently, Indian automobile industry’s foreign sector is worth
US$ 15 million
• M&M set up a utility assembly in Brazil in collaboration with
Bramont
• M&M collaborated with Bavarian motors to set up an
assembly plant in Egypt
• Tata motors acquired jaguar and landrover for the estimated
price price of US$ 1.5 bn
• It is expected that the share of the automobile sector in the
GDP of India will rise from 5% to 10%
SEGMENTATION OF THE AUTOMOBILE
SECTOR
• The automobile sector of India is majorly categorized into 4
categories;-
 Two wheelers – 76%
 Three Wheelers – 3.39%
 Passenger vehicles – 16.25%
 Commercial vehicles – 4.36 %
 INTRODUCTION TO FUNDAMENTAL
ANALYSIS
• E-I-C approach
• Macroeconomic analysis ( economic cycle, political equation,
foreign exchange reserves, inflation, interest rates, taxation,
government policies)
• Industry analysis, includes Industry lifecycle ( introduction, growth,
maturity, decline)
Also includes Porter’s five forces model
 Barrier to entry
 Threat of substitutes
 Bargaining power of suppliers
 Bargaining power of customers
 Rivalry among competitors.
• COMPANY ANALYSIS (final stage of fundamental analysis)
 The management
 The company
 The annual report
 Balance sheet, P&L A/c
 Cash flows
 Ratios
 CURRENT SCENARIO
• LOW SALES AND HIGH INVENTORY LEVELS

• JAIPAL REDDY’S PROPOSAL

• HUGE DIFFERENCE IN THE RATES OF PETROL AND DIESEL

LEADING TO LOWER SALES OF PETROL DRIVEN CARS
 MAHINDRA AND MAHINDRA
• Increase in the fixed assets by 40%
• Liabilities decreased by 16%
• Very less cash available with the company because major amount of
cash is used up in the investing activities
• Various macro-economic factors affecting the sales of M&M
1) Diesel engines
2) Domestic company
3) Launch of suv’s at a very reasonable price
• FUNDAMENTAL ANALYSIS (findings and
conclusions)
• EPS increased considerably, recovered from 2008 global meltdown
• Higher P/E ratio shows high confidence level among investors
• Entry into electrical vehicle segments shows better future
prospects.
 Findings and conclusions of TATA
•
MOTORS
Increase in the fixed assets by 20%
LTD.
• Increase in the sales revenue and COGS
• Fundamental analysis – EPS was continously rising till 2007-
08, but then in 2008 EPS was extremely low due to global
meltdown and acquisition of landrover and jaguar.
• Rise in DPS and dividend payout ratio
 Hero motocorp
• World’s largest manufacturer of two wheelers based in India
• ABOUT TWO WHEELER INDUSTRY
 This segment is least affected by the prevailing headwinds in
the industry due to the following factors.
 Lower impact of fuel prices on two wheeler owners
 Lower impact of interest rate hikes on two wheeler owners
 Marginally lower impact of commodity inflation on two
wheeler ( rubber)
 Monsoon factor
Cost per vehicle Two wheelers Passenger vehicles Medium and heavy
commercial vehicle
Cost of 8456 78,739 458,067
commodities (INR)
Increase in 10 10 10
commodity prices
(%)
Increase in 846 7874 45807
commodity prices
(INR)
Total raw material 27000 232000 880000
cost
Increase in raw 3.1 3.4 5.2
material cost (%)
 Findings and conclusions of hero
motocorp
• On looking at the balance sheet we can
observe that the total debt of the company
has increased by 21.59% when compared with
the previous year
• In application of funds column there was a
very marginal increase in the net assets by
0.25%
 Ashok Leyland
• Finding and conclusion
 EPS increased drastically in the year 2010-11 and it shows that
the company has recovered from the slowdown and is back to
normal
 The company has also got a lot of projects from the
governments which ensures stable returns for a few years.