A Summer Internship Project Report on

FUNDAMENTAL ANALYSIS OF INDIAN AUTOMOBILE 4-WHEELER

SECTOR

Submittied in partial fulfillment of the requirement for the degree of

Master of Business Administration

(Affiliated to University of Pune)

By
Yogesh Shegokar

Roll No. D2F10

Under the guidance of

Prof. Manmohan Vyas

A study conducted for

BIRLA SUNLIFE INSURANCE

At

Indira School of Business Studies

Tathwade, Pune – 411033

2014-2016
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 Prof. Manmohan Vyas, Associate Professor, Indira
School of Business Studies for his unconditional support and professional approach in guiding
me through the careful details of the project.

I am very grateful to my company guide, Mr. Jitendra Bapna 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 not express my deep sense of gratitude to all the faculty
members for their valuable advice and guidance in this project. I am also thankful to our college
Director Dr. Renu Bhargava.

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Certificate from ISBS

ii
Certificate from the Company

iii
Executive Summary

I am a student of MBA (2nd year) I have prepared this project report on FUNDAMENTAL
ANALYSIS OF INDIAN AUTOMOBILE INDUSTRY 4-wheeler sector as a part of finance
specialization. It has been carried out with purpose to acclimatize with the practical application
of theoretical tools and statistical technique in business world.
An investor wants to invest his money in various kinds of securities but each and every
investment contains some level of risk and as a reward he gets the return. But before making an
investment in particular security he makes the analysis on the particular security. Report entails
the study of every nook & corner of Indian automobile sector specially related to the companies
which are to be preferred to be studied in detail as it is given below. It is considered with the
reference of as follows :-
 Same Industry
 Same Index
 High performance.

In this topic EXPLORATORY RESEARCH DESIGN is selected which is based on the

secondary data. In this study 3-year’s data is to be considered (1st March 2013, 2014 and till 31st
March 2015) of Two Automobile Company, which are listed in NATIONAL STOCK
EXCHANGE.

 MARUTI UDYOG LTD.

 MAHINDRA & MAHINDRA MOTORS

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 Index

Sr. No. Contents Pg. No.

1 Introduction / Project Outline 1-4

2 Industry / Company overview 5 - 12

3 Objectives 13 - 14

4 Theorotical Background 15 - 31

5 Data Analysis , Results and Interpretation 32 - 66

6 Conclusion 67 - 68

7 Learnings & Contribution 69 - 70

8 References / Bibliography 71 - 72

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 List of tables

Sr. No. Table no. Table name Pg no.

1 4.1 Poters Five Force Model 21

2 5.1 Balance Sheet of Maruti Suzuki 45

3 5.2 Statement of Profit & Loss Of MSLI 46

4 5.3 Balance Sheet of Mahindra & Mahindra 47

5 5.4 Statement of Profit & Loss Of M&M 48

6 5.5 Ratio analysis of MSLI 50

7 5.6 Ratio analysis of M&M 51

8 5.7 Calculation of ROI of MSLI 52

9 5.8 Calculation of ROI of M&M 52

10 5.9 Calculation of ROA of MSLI 54

11 5.10 Calculation of ROA of M&M 54

12 5.11 Calculation of ROE of MSLI 56

13 5.12 Calculation of ROE of M&M 56

14 5.13 Calculation of EPS of MSLI 58

15 5.14 Calculation of EPS of M&M 58

16 5.15 Calculation of DPS of MSLI 60

17 5.16 Calculation of DPS of M&M 60

18 5.17 Calculation of Current ratio of MSLI 62

19 5.18 Calculation of Current ratio of M&M 62

20 5.19 Calculation of P/E of MSLI 64

21 5.20 Calculation of P/E of M&M 64

22 5.21 Calculation of Debt Equity ratio of MSLI 66

23 5.22 Calculation of Debt Equity ratio of M&M 66

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 List of Figures

Sr. No. Figure no. Figure name Pg no.

1 2.1 Total production of automobile in India 7

2 2.2 Evlution of Indian automobile sector 7

3 2.3 Market breakup by production volume 8

4 2.4 About the CEO of Birla Sunlife Insurance 12

5 4.1 GDP of India 19

6 4.2 Inflation rate of India 20

7 5.1 Graph for Indian car finance market 33

8 5.2 Growth of Maruti Suzuki 34

9 5.3 Domestic volumes Vs Exports 35

10 5.4 Revenue and Net profit of M&M 36

11 5.5 Total steel production(million tons) 38

12 5.6 India's steel market share by production 38

13 5.7 Effect of rubber prices on auto industry 39

14 5.8 ROI of Maruti Suzuki and M&M 52

15 5.9 ROA of Maruti Suzuki and M&M 54

16 5.10 ROE of Maruti Suzuki and M&M 56

17 5.11 EPS of Maruti Suzuki and M&M 58

18 5.12 DPS of Maruti Suzuki and M&M 60

19 5.13 Current ratio of Maruti Suzuki and M&M 62

20 5.14 P/E ratio of Maruti Suzuki and M&M 64

21 5.15 Debt Equity ratio of Maruti Suzuki and M&M 66

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 Abbreviations

1) BSLI - Birla Sunlife Insurance

2) MSLI - Maruti Suzuki Limited India
3) M&M - Mahindra & Mahindra
4) SWOT - Strength Weakness Opportunities Threat
5) PESTLE - Political Economical Social Technological Legal Environmental
6) GDP - Gross Domestic Product
7) PAT - Profit After Tax
8) EBITDA - Earning Before Interests, Taxes, Depreciation and Ammortization
9) CAGR - Compounded Annual Growth Rate
10) EPS - Earning Per Share
11) DPS - Dividend Per Share
12) DPR - Dividend Payout Ratio
13) ROI - Return on Investment
14) ROA - Return on Assets
15) ROE - Return on Equity
16) NBFC - Non-Banking Financial Company
17) CRGO - Cold-Rolled Grain Oriented

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Chapter 1: Introduction / Project Outline

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  WHAT IS THE PROJECT ABOUT?
A Project executes the pre-standardization research for fundamental analysis of Indian
Automobile companies in which two major automobile companies have considered which are
having a major impact on Indian stock market, in which an investor is guided properly as to
which stock is to be chosen for the future investment and which is to be not.

Fundamental analysis is built on the idea that the stock market may price a company wrong
from time to time. Profits can be made by finding under-priced stocks and waiting for the
market to adjust the valuation of the company. By analysing the financial reports from
companies you will get an understanding of the value of different companies and understand
the pricing in the stock market.

After analysing these factors you have a better understanding of whether the price of the
stock is undervalued or overvalued at the current market price. Fundamental analysis can also
be performed on a sectors basis and in the economy as a whole.

 WHAT IS FUNDAMENTAL ANALYSIS?

Fundamental analysis is a method that attempts to predict the intrinsic value of an
investment. It is based on the theory that the market price of an asset tends to move towards
its 'real value' or 'intrinsic value'.

Fundamental analysis in Forex entails predicting the price valuation of a currency and its
market trends by analysing current economic conditions, government policy and societal
factors within a business cycle framework. Forex Traders gauge a country's economic state
by examining macroeconomic indicators covering:

 Interest Rates Announcement

 Gross Domestic Product (GDP)
 Consumer Price Index (Inflation) and Spending Indicators
 Employment Indicators
 Retail Trade and Consumer Confidence
 Balance of Trade Surplus or Deficit
 Government Fiscal and Monetary Policy

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 WHAT IS THE PURPOSE OF FUNDAMENTAL ANALYSIS?
The end goal or purpose of performing fundamental analysis is to produce a value that an
investor can compare with the security's current price, with the aim of figuring out what sort
of position to take with that security (under-priced = buy, overpriced = sell or short).

For example, an investor can perform fundamental analysis on a bond's value by looking at
economic factors, such as interest rates and the overall state of the economy, and information
about the bond issuer, such as potential changes in credit ratings. For assessing stocks, this
method uses revenues, earnings, future growth, return on equity, profit margins and other
data to determine a company's underlying value and potential for future growth. In terms of
stocks, fundamental analysis focuses on the financial statements of the company being
evaluated.

As with most analysis, the goal is to derive a forecast and profit from future price
movements. At the company level, fundamental analysis may involve examination of
financial data, management, business concept and competition. At the industry level, there
might be an examination of supply and demand forces for the products offered. For the
national economy, fundamental analysis might focus on economic data to assess the present
and future growth of the economy.

 WHAT IS THE SCOPE OF FUNDAMENTAL ANALYSIS?

The Study of fundamental analysis is very important because it helps investors in better
understanding the markets and gauges the direction in which their investment might be
headed and its utility helps in estimating the future trends of stock prices and to make a
decent profit out of it.

It is also necessary because it gives a ratio analysis. Financial ratios are mathematical
calculations using figures mainly from the financial statements, and they are used to gain an
idea of a company's valuation and financial performance. Some of the most well-known
valuation ratios are price-to-earnings and price-to-book. Each valuation ratio uses different
measures in its calculations. For example, price-to-book compares the price per share to the
company's book value.

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 WHAT ARE THE SALIENT CONTRIBUTIONS OF THE PROJECT?
An investor ultimately invests his money in the securities of one or more specific
companies. Each company can be characterized as belonging to as industry. The
performance of companies would, therefore, be influenced by the fortune of the industry to
which it belongs. For this reason as analyst has to study the fundamental factors affecting the
performance of different countries. An industry is a group of firms that have similar
technological structure of production and produce similar products. An industry is defined as
“a group of firms producing reasonably similar products, which serve the same needs of a
common set of buyers”

For a fundamental analyst, the market price of a stock tends to move towards its 'intrinsic
value', which is the 'true value' of a company as calculated by its fundamentals. If the market
value does not match the true value of the company, there is an investment opportunity.

Example of this is that if the current market price of a stock is lower than the intrinsic
price, the investor should purchase the stock because he expects the stock price to rise and
move towards its true value. Alternatively, if the current market price is above the intrinsic
price, the stock is considered overbought and the investor sells the stock because he knows
that the stock price will fall and move closer to its intrinsic value. To determine the true price
of the company's stock, the following factors need to be considered.

 WHAT IS THE OUTLINE OF THE PROJECT?

Every asset may be financial or real, has a value. The key to successfully in and managing
these assets lies in understanding not only what the value is, but the sources of value. Any
asset can be valued, but some assets are easier to value than others, and the details of
valuation will vary from case to case. Thus, the valuation of share of real estate will require
different information and follow a different format from the valuation of publicly traded
stocks. What is surprising, however there is not a difference in valuation techniques across
assets, but the degree of similarity in basic principles. There is undeniably uncertainty
associated with valuation. Often the uncertainty comes from the asset being valued, although
the valuation model may add to that uncertainty.

Likewise here in this report two major automobile conglomerates and their stocks are
considered and there analysis is done on various tools of fundamental analysis and also the
two companies called Maruti Suzuki and Mahindra & Mahindra are judged on the basis of
ratio analysis in which various different types of ratios are mentioned based on which the
future growth and future prospects of these two companies can be judged and an investor can
get a knowledge of company’s financial health.

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Chapter 2: Industry Overview &
Company Overview

5
INDUSTRY OERVIEW:-
Introduction to Indian Automobile sector:
The Indian auto industry is one of the largest in the world with an annual production of
21.48 million vehicles in FY 2013-14.
The automobile industry accounts for 22% of the country's manufacturing gross domestic
product (GDP).
An expanding middle class, a young population, and an increasing interest of the companies
in exploring the rural markets have made the two wheelers segment (with 80% market share)
the leader of the Indian automobile market. The overall passenger vehicle segment has 14%
market share.

Market Size:
Sales of commercial vehicles in India grew 5.3% to 52,481 units in January 2015 from a
year ago, according to Society of Indian Automobile Manufacturers (SIAM).
Sales of cars also grew for a third month in a row to 169,300 units in January 2015, up 3.14%
from the year-ago period.
Car market leader Maruti Suzuki India witnessed 8.6 per cent higher sales at approximately
118,551 units in February 2015, out of which 107,892 were sold in domestic market and
10,659 units were exported.
Investments
To match production with demand, many auto makers have started to invest heavily in
various segments in the industry in the last few months. The industry has attracted foreign
direct investment (FDI) worth US$ 12,232.06 million during the period April 2000 to
February 2015, according to the data released by Department of Industrial Policy and
Promotion (DIPP).
Some of the major investments and developments in the automobile sector in India are as
follows:
 DSK Hyosung has announced to set up a plant in Maharashtra and is planning to add 10-
15 dealerships in the next financial year (FY 15-16) mostly in the tier-II cities and
introduce more models in the 250cc segment.
 Germany-based luxury car maker Bayerische Motoren Werke AG’s (BMW) local unit has
announced to procure components from seven India-based auto parts makers.
 Mahindra Two Wheelers Limited (MTWL) has acquired 51 per cent shares in France-
based Peugeot Motorcycles (PMTC).
 Suzuki Motor Corp is planning to sell the automobiles made in the Gujarat plant, in
Africa.
 Tata Motors Ltd, India’s largest automobile maker, will sell trucks in Malaysia, Vietnam
and Australia to strengthen its presence in the Asia-Pacific region.

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Figure no. 2.1
EVOLUTION OF INDIAN AUTOMOBILE SECTOR

Figure no. 2.2

India is world’s sixth largest vehicles manufacturer globally. Further, India is the
Asia’s second largest two wheeler manufacturer and fifth largest producer of commercial
vehicles, fourth largest manufacturer of passenger car and the largest manufacturer of
tractor.

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 In the figure given below you can see market breakup by production volume.

Figure no. 2.3

PROSPECTS OF INDIAN AUTOMOBILE SECTOR:

 Given that the Modi government has now come into power, there are expectations of
increased focus on reforms and ramp up in infrastructure. Thus, government spending on
infrastructure in roads and airports and higher GDP growth in the future will benefit the
auto sector in general. We expect a slew of launches both in passenger cars and utility
vehicles (UVs) given that the competition has intensified. Since diesel prices have also
been hiked, the differential between petrol and diesel will reduce further and this will
play an important bearing on a consumer’s purchasing decision.

 In the 2-wheeler segment, motorcycles are expected to witness a flurry of new model
launches. Though the market size is expected to grow by 10% to 12%, competitive
pressure could keep prices and margins under control. TVS, Honda and Hero MotoCorp
are poised to benefit from higher demand for ungeared scooters in the urban and rural
markets. The 3 wheeler industry, where Bajaj Auto is the market leader, is also poised
for growth on the back of new permits opening up and increase in exports.

 While good monsoon is a positive for the tractor sector, given the fact that non-farm
incomes have continued to climb up, volumes should still hold up well in the longer run
despite a year or two of poor monsoons. The longer-term picture is impressive in light of
poor mechanisation levels in the country’s farm sector and the thrust of the government
on improving rural infrastructure.

 With an estimated 40% of CVs plying on the roads being 10 years old, demand for
HCVs is expected to grow by 7% to 8% over the long term. While the industry is going
through cyclical hiccups currently, we expect this factor to weaken in the future on
account of strong structural tailwinds. The privatisation of select state transport
undertakings bodes well for the bus segment.

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COMPANY OVERVIEW:

About the company:-

BIRLA SUN LIFE INSURANCE

Birla Sun Life Insurance Company Limited (BSLI) is a joint venture between the Aditya
Birla Group and Sun Life Financial Inc., a leading international financial services
organization. The local knowledge of the Aditya Birla Group combined with the expertise of
Sun Life Financial Inc., offers a formidable value proposition to customers. Sun Life
Financial and its partners today have operations in key markets worldwide, including India,
Canada, the United States, the United Kingdom, Hong Kong, Philippines, Japan, Indonesia,
China and Bermuda. Sun Life Financial Inc. is a leading performer in the life insurance
market in Canada.

About the Aditya Birla Group

The Aditya Birla Group has a turnover close to Rs.65,000 crore (as on 31 March 2010)
and is one of the largest business houses in India. It enjoys a leadership position in all the
sectors in which it operates. With over 75 business units spanning the South East Asian belt,
Africa, Canada and the UK among others, it is reckoned as India's first multinational
corporation. The group is anchored by 72,000 employees and has seven lakh shareholders,
with a market capitalization of Rs.53, 400 crore.

About Sun Life Financial Inc.

Sun Life Financial Inc. is a leading international financial services organization providing
a diverse range of wealth accumulation and protection products and services to individuals
and corporate customers. Tracing its roots back to 1865, Sun Life Financial and its partners
today have operations in key markets worldwide, including Canada, the United States, the
United Kingdom, Hong Kong, the Philippines, Japan, Indonesia, India, China and Bermuda.
As of 31 March 2008, the Sun Life Financial group of companies had total assets under
management of US$ 343 billion. Sun Life Financial Inc. trades on the Toronto (TSX), New
York (NYSE) and Philippine (PSE) stock exchanges under ticker symbol "SLF"

DETAILS OF PRODUCTS
PRODUCTS
Life is unpredictable. But in face of adversity, our responsibilities towards our parents,
children and loved ones need not be compromised. Insurance planning equips you to
smoothen out the uncertainties and adversities that life might send your way, so that the best
that life has to offer, secure in the knowledge that your beloved ones are well provided for.
BSLI offers a complete range of insurance products namely
1. Protection Plans
2. Savings Plans
3. Child Plans

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4. Investment Plans
5. Retirement Plans
6. Group Plans
7. Rural Plans

Insurance Plans
BSLI offers Lifeguard - a set of pure protection plans. Choose from amongst three different
product Bachat Plan, BSLI Dream Plan and Pension Plus to insure your life and provide total
security to your family, at a very affordable cost.

Level Term Assurance with return of premium

 On death the entire sum assured will be paid.

 On maturity, all the premiums paid will be returned.

Level Term Assurance without return of premium

 On death the entire sum assured will be paid.

 No survival or maturity benefits. You can also enhance the above two policies
by adding Accident & Disability Benefit Rider and Waiver of Premium Rider
(WOP)

Level Term Assurance - Single premium:

 On death the entire sum assured will be paid.

 No survival or maturity benefits.

HOLDINGS
Aditya Birla and Sunlife financials had a joint venture with each other in January 2001 in
which Aditya Birla holds 74% of its stake while that of Sun life financials holds 26% of its
stake.
Since its inception in 2000 company has penetrating Indian market with 600 branches and 1,
33,572 empanelled advisors and presence in 1500 cities.

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VISION
To be a world class providers of financial securities to individuals.

MISSION
To be the first preference for their customers by providing innovative need based life
insurance and retirement solutions.
VALUES
INTEGRITY, COMMITMENT, PASSION, SEANLESSNESS, SPEED are some the
important values on which Birla sun life focuses on.

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 ABOUT THE CEO:

Figure no. 2.4

Mr. Pankaj Razdan Chief Executive Officer & MD,

Birla Sun Life Insurance Dy. Chief Executive – Financial Services,
Aditya Birla Group

Mr. Pankaj Razdan is the Chief Executive Officer & MD at Birla Sun Life Insurance (BSLI).
He has rich experience in the financial services business, across various functions and
multiple lines of business. He has been with the Aditya Birla Financial Services Group
(ABFSG) since 2007, as a co-owner of the ABFSG Vision and the Deputy Chief Executive –
Financial Services, a position he continues to hold.

BOARD OF DIRECTORS:

Mr. Pankaj Razdan, Chief Executive Officer & MD, Birla Sun Life Insurance & Dy.
Chief Executive – Financial Services, Aditya Birla Group
Mr. Mayank Bathwal, Deputy Chief Executive Officer
Mr. Anil Kumar Singh, Chief Actuarial Officer & Appointed Actuary
Mr. Shashi Krishnan, Chief Investment Officer
Mr. Amit Jain, Chief Finance Officer
Mr. Lalit Vermani, Chief Legal, Compliance and Risk Officer
Mr. Vikas Seth, Chief Distribution Officer (CDO)
Mrs. Ritu Sethi, Head – Internal Audi

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Chapter 3: Objectives

13
 Detailed analysis of two Indian automobile company’s which are now gearing to the
international standards.

 Comparative analysis of two major competitors of Indian automobile sector through

fundamental analysis.

 Analysis of the key ratios of the two companies.

 Analyse the impact of qualitative factors on industry’s and company’s prospects.

 Suggesting as to which company’s shares would be best in future for an investor to

invest in.

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Chapter 4: Theorotical Background

15
 Fundamental analysis is the cornerstone of investing. In fact, some would say that you
aren't really investing if you aren't performing fundamental analysis. Because the subject is so
broad, however, it's tough to know where to start. There are an endless number of investment
strategies that are very different from each other, yet almost all use the fundamentals.

The goal of this tutorial is to provide a foundation for understanding fundamental analysis.
It's geared primarily at new investors who don't know a balance sheet from an income
statement. While you may not be a "stock-picker extraordinaire" by the end of this tutorial,
you will have a much more solid grasp of the language and concepts behind security analysis
and be able to use this to further your knowledge in other areas without feeling totally lost.

The biggest part of fundamental analysis involves delving into the financial statements.
Also known as quantitative analysis, this involves looking at revenue, expenses, assets,
liabilities and all the other financial aspects of a company. Fundamental analysts look at this
information to gain insight on a company's future performance. A good part of this tutorial
will be spent learning about the balance sheet, income statement, cash flow statement and
how they all fit together.

But there is more than just number crunching when it comes to analysing a company. This
is where qualitative analysis comes in - the breakdown of all the intangible, difficult-to-
measure aspects of a company. Finally, we'll wrap up the tutorial with an intro on valuation
and point you in the direction of additional tutorials you might be interested in.
When talking about stocks, fundamental analysis is a technique that attempts to determine
a security's value by focusing on underlying factors that affect a company's actual business
and its future prospects. On a broader scope, you can perform fundamental analysis
on industries or the economy as a whole. The term simply refers to the analysis of the
economic well-being of a financial entity as opposed to only its price movements.

Fundamental analysis serves to answer questions, such as:

 Is the company's revenue growing?
 Is it actually making a profit?
 Is it in a strong-enough position to beat out its competitors in the future?
 Is it able to repay its debts?
Of course, these are very involved questions, and there are literally hundreds of others you
might have about a company. It all really boils down to one question: Is the company's stock
a good investment? Think of fundamental analysis as a toolbox to help you answer this
question.

Note: The term fundamental analysis is used most often in the context of stocks, but you can
perform fundamental analysis on any security, from a bond to a derivative. As long as you
look at the economic fundamentals, you are doing fundamental analysis. For the purpose of
this tutorial, fundamental analysis always is referred to in the context of stocks.
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Fundamentals: Quantitative and Qualitative

You could define fundamental analysis as "researching the fundamentals", but that doesn't
tell you a whole lot unless you know what fundamentals are. As we mentioned in the
introduction, the big problem with defining fundamentals is that it can include anything
related to the economic well-being of a company. Obvious items include things like revenue
and profit, but fundamentals also include everything from a company's market share to the
quality of its management.

The various fundamental factors can be grouped into two categories: quantitative and
qualitative. The financial meaning of these terms isn't all that different from their regular
definitions. Here is how the MSN Encarta dictionary defines the terms:
 Quantitative – capable of being measured or expressed in numerical terms.
 Qualitative – related to or based on the quality or character of something, often as
opposed to its size or quantity.
In our context, quantitative fundamentals are numeric, measurable characteristics about a
business. It's easy to see how the biggest source of quantitative data is the financial
statements. You can measure revenue, profit, assets and more with great precision.
Turning to qualitative fundamentals, these are the less tangible factors surrounding a business
- things such as the quality of a company's board members and key executives, its brand-
name recognition, patents or proprietary technology.

Quantitative Meets Qualitative

Neither qualitative nor quantitative analysis is inherently better than the other. Instead, many
analysts consider qualitative factors in conjunction with the hard, quantitative factors. Take
the Coca-Cola Company, for example. When examining its stock, an analyst might look at
the stock's annual dividend payout, earnings per share, P/E ratio and many other quantitative
factors. However, no analysis of Coca-Cola would be complete without taking into account
its brand recognition. Anybody can start a company that sells sugar and water, but few
companies on earth are recognized by billions of people. It's tough to put your finger on
exactly what the Coke brand is worth, but you can be sure that it's an essential ingredient
contributing to the company's ongoing success.

The Concept of Intrinsic Value:

Before we get any further, we have to address the subject of intrinsic value. One of the
primary assumptions of fundamental analysis is that the price on the stock market does not
fully reflect a stock's "real" value. After all, why would you be doing price analysis if the
stock market were always correct? In financial jargon, this true value is known as the intrinsic
value.
For example, let's say that a company's stock was trading at $20. After doing extensive

17
homework on the company, you determine that it really is worth $25. In other words, you
determine the intrinsic value of the firm to be $25. This is clearly relevant because an
investor wants to buy stocks that are trading at prices significantly below their estimated
intrinsic value.

This leads us to one of the second major assumptions of fundamental analysis: in the long
run, the stock market will reflect the fundamentals. There is no point in buying a stock based
on intrinsic value if the price never reflected that value. Nobody knows how long "the long
run" really is. It could be days or years.
This is what fundamental analysis is all about. By focusing on a particular business, an
investor can estimate the intrinsic value of a firm and thus find opportunities where he or she
can buy at a discount. If all goes well, the investment will pay off over time as the market
catches up to the fundamentals.
Fundamental analysis is also known as E-I-C approach that is Economic-Industrial-company
approach.
Thus it involves 3 steps:
 Economic analysis
 Industrial analysis
 Company analysis

 ECONOMIC ANALYSIS

A systematic approach to determining the optimum use of scarce resources, involving

comparison of two or more alternatives in achieving a specific objective under the given
assumptions and constraints.
Economic analysis takes into account the opportunity costs of resources employed and
attempts to measure in monetary terms the private and social costs and benefits of a project to
the community or economy.

It comprises of the following:

1. GROSS DOMESTIC PRODUCT: The gross domestic product (GDP) is one the
primary indicators used to gauge the health of a country's economy. It represents the total
dollar value of all goods and services produced over a specific time period - you can
think of it as the size of the economy.

18
Figure no. 4.1

2. SAVINGS & INVESTMENT: Saving is income not spent, or deferred consumption.

Methods of saving include putting money aside in, for example, a deposit account,
a pension account, an investment fund, or as cash. Investment is time, energy, or matter
spent in the hope of future benefits actualized within a specified date or time frame.
Investment has a different meaning in finance from that in economics.

3. INFLATION: Inflation is defined as a sustained increase in the general level of prices

for goods and services. It is measured as an annual percentage increase. As inflation
rises, every dollar you own buys a smaller percentage of a good or service. The value of
a dollar does not stay constant when there is inflation.

19
Figure no. 4.2

4. INTEREST RATES: The proportion of a loan that is charged as interest to the

borrower, typically expressed as an annual percentage of the loan outstanding.

5. TAX STRUCTURES: Tax Base, Tax Rate, Proportional, Regressive, and Progressive
Taxation. To calculate most taxes, it is necessary to know the tax base and the tax rate.
The tax base is the amount to which a tax rate is applied. The tax rate is the percentage of
the tax base that must be paid in taxes.

 INDUSTRY ANALYSIS

The Indian automobile market can be divided into several segments viz., two-wheelers
(motorcycles, geared and ungeared scooters and mopeds), three wheelers, commercial
vehicles (light, medium and heavy), passenger cars, utility vehicles (UVs) and tractors.

 Demand is linked to economic growth and rise in income levels. Per capita penetration at
around nine cars per thousand people is among the lowest in the world (including other
developing economies like Pakistan in segments like cars).
 While the industry is highly capital intensive in nature in case of four-wheelers, capital
intensity is a lot less for two-wheelers. Though three-wheelers and tractors have low

20
 barriers to entry in terms of technology, four wheelers is technology intensive. Costs
involved in branding, distribution network and spare parts availability increase entry
barriers. With the Indian market moving towards complying with global standards, capital
expenditure will rise to take into account future safety regulations.
 As compared to their global counterparts, both the two-wheeler as well as four wheeler
segments are relatively lesser fragmented. However, things have changed, especially on
the passenger cars front as many foreign majors have entered the Indian market. As a
result, pricing power is likely to diminish going forward.
 Automobile majors increase profitability by selling more units. As number of units sold
increases, average cost of selling an incremental unit comes down. This is because the
industry has a high fixed cost component. This is the key reason why operating efficiency
through increased localization of components and maximizing output per employee is of
significance.

SUPPLY The Indian automobile market has some

amount of excess capacity.

DEMAND Largely cyclical in nature and dependent

upon economic growth and per capita
income. Seasonality is also a vital factor.

High capital costs, technology, distribution

BARRIERS TO ENTRY Network, and availability of auto
components.

BARGAINING POWER OF
SUPPLIERS Low, due to stiff competition.

BARGAINING POWER OF
CUSTOMERS Very high, due to availability of options.

COMPETITION High. Expected to increase even further.

Table no. 4.1

21
 FINANCIAL YEAR 2014

A total of 16.9 m two-wheelers were sold in FY14, a growth of a tepid 7% over the previous
year. The slow growth was on account of the overall slowdown in the Indian economy and
firm interest rates and fuel prices that dampened demand. Motorcycles accounted for 74%
of the total two wheelers sold and grew by a mere 4% YoY. The scooters (geared &
ungeared) segment was the star of the two wheeler industry logging in a growth rate of 22%
YoY. In the domestic market, the 3-wheeler segment did badly as volumes were down 11%
YoY, but the exports growth was strong at 17% YoY.

It was a second consecutive challenging year for the medium and heavy commercial
vehicles (M/HCVs) segment as volumes plunged by 25% during the fiscal given the
sluggishness in industrial activity and low freight rates. LCVs were at the receiving end as
well as volumes dropped by 17.6% YoY. As a result, volumes for the overall CV industry
fell by 20% YoY. The HCV industry is highly cyclical and because the industrial and
construction sectors slowed down, its effect was felt on HCVs as well. Both Tata Motors
and Ashok Leyland faced heavy challenges during the year given that both of them corner a
significant chunk of the CV pie.

Tractors did very well during the year as monsoons in 2013 were quite healthy and M&M,
which is a market leader in the tractors space, benefitted from this as its auto division faced
rough weather.

Passenger vehicles (PV) also did badly as volumes declined by 6%. Slowdown in the
economy, firm interest rates and fuel prices had an adverse impact on demand. This time the
decline was seen across the segments of the PV space viz., passenger cars, utility vehicles
(UVs) and vans. Maruti Suzuki, which is the market leader in the PV space, was not spared
either and saw its volumes fall.

As volumes took a beating, few of the companies did manage to report an improvement in
operating margins largely on account of various cost rationalization measures undertaken.

 COMPANY ANALYSIS:

Company analysis consists of measuring its performance and ascertaining the cause of this
performance. When some companies have done well irrespective of economic or industry
failures, it implies that there are certain unique characteristics for this particular company that
had made it a success. The identification of these characteristics whether quantitative or
qualitative, is referred to as company analysis

22
Quantitative indicators of company analysis are the financial indicators and operational
efficiency indicators. Financial indicators are the profitability indicators and financial
position indicators, analyzed through the income and balance sheet statement of the company.

Qualitative factors are the management reputation, name of the company, operational plans of
the company for the future and so on as revealed in the director’s /auditor's reports and also
the information revealed by the management to the media.

Comparable company analysis starts with establishing a peer group consisting of similar
companies of similar size in the same industry and region. Investors are then able to use
online resources to compare a particular company to its competitors.

MAHINDRA AND MAHINDRA

Mahindra & Mahindra was established on October 2, 1945 when K.C. Mahindra visited the
United States of America as Chairman of the India Supply Mission. He met Barney Roos,
inventor of the rugged 'general purpose vehicle' or Jeep and had a flash of inspiration:
wouldn't a vehicle that had proved its invincibility on the battlefields of World War II be
ideal for India's rugged terrain and its kutcha rural roads. Swift action followed thought. The
Mahindra brothers joined hands with a distinguished gentleman called Ghulam Mohammed.
And, Mahindra & Mohammed was set up as a franchise for assembling jeeps from Willys,
USA.
Two years later, India became an independent nation and Mahindra & Mohammed changed
its name to Mahindra & Mahindra. Ghulam Mohammed migrated to Pakistan post–partition
and became the first Finance Minister of Pakistan.
Mahindra & Mahindra is the only Indian company among the top three tractor manufacturers
in the world. The Group has a leading presence in key sectors of the Indian economy. The
Group employs over 50,000 people and has several state–of–the–art facilities in India and
overseas.
Mahindra & Mahindra has comprehensive manufacturing facilities with high level of vertical
integration. Catering to the Sector's diverse customer base spanning rural and semi urban
customers, defence requirements and luxurious urban utility vehicles or SUVs. These
manufacturing plants keep abreast with the latest technology to meet the growing market
expectations. These manufacturing facilities have some of the best technologies and
equipment in India and provide for a very challenging and satisfying work environment. Its
plants in Mumbai and Nasik manufacture multi–utility vehicles and engines are produced at
the Igatpuri plant. Utility Vehicles, Light commercial vehicles and 3 wheelers are
manufactured at the Zaheerabad plant in Andhra Pradesh and three–wheelers at the Haridwar
plant.

The business area of the company spreads to:

Automotive sector
The company manufactures & markets utility vehicles, light commercial vehicles that
includes three wheeler vehicles, namely; Scorpio, Bolero, Champion and many more. The

23
 company also exports its products to several countries in Europe, Africa, South America,
South Asia and the Middle East. M&M has a tie up with Renault for production & marketing
of Logan. Mahindra International is into producing trucks and buses. The company has
entered into a joint venture with Navistar for production of diesel engines & trucks.

Farm equipment
M&M's farm equipment segment has presence in six continents and has a worldwide network
of 800 dealers .Its total combined production capacity is 1,50,000 tractors a year from
countries like India, USA, China and Australia. The company is also into agricultural
business.

Trade, Retail & Finance

Mahindra’s Intergrade Division provides steel & steel related services. It offers steel raw
materials, metals, Ferro alloys, etc. It also processes Cold Rolled Grain Oriented (CRGO)
and Cold Rolled Non Grain Oriented (CRNGO) steels that are required for transformers
&compressors. Mahindra Retails is into distribution business and has tie up with big names
like Lego, Disney, Mattel and others. Mahindra Finance is into financing of tractors and other
vehicles and is also into Insurance broking.

Infrastructure
M&M has also entered Infrastructure development that operates in real estates, SEZs,
hospitality, project engineering and design. Under this it has created Mahindra Holiday &
Resorts, Mahindra Life spaces & Mahindra World City.

Information Technology
Tech Mahindra provides solutions & services to tele-communication majors namely Alcatel,
AT&T, BT, Convergys, Ericsson and O2, among others. It is also into business process and
technology consulting services through Bristle.

Systech
It is into supply of automotive components. It produces forged and forged / machined
components, gears and composites.

Speciality Business
Under this division it has companies like Mahindra Defence, engaged in manufacturing
defence related vehicles & Mahindra Ashtech.

Products and services offered by the company:–

Automotive

 Scorpio
 Xylo
 Bolero
 Maxx Range
 Naya Commander
 Savari
 Major
 Bolero Camper DLX
 Maxx Pic–ups
 Champion range of Three Wheelers.

24
 Farm Equipment
 Agri inputs and services
 Engines
 Farm Implements
 Tractors

Strong product pipeline - key for future!!!

• Mahindra & Mahindra (M&M) reported its numbers including Consolidation of
Mahindra Trucks & Bus Ltd making the YoY Comparison meaningless
• Reported revenues at 10262 crore (2.4% YoY increase) came Higher than our estimate of |
10,046 crore while reported margins Improved ~400 bps QoQ (impact of MTBL merger in
last quarter) to 12.4%, 20 bps higher than estimates
• Consequently, reported PAT came in at ~| 882 crore, in line with Estimates but lower by 6%
YoY

New platform launches to drive volumes, market share in FY15E, FY16E

The M&M utility vehicle portfolio has seen a significant market share erosion over the past
year owing to lack of a strong offering (only Quanto) in the compact SUV segment (where
Duster, Eco sport) have grown strongly. M&M’s market share in the overall UV segment has,
thus, declined from ~56% in FY12 to ~42% in FY14E. However, with M&M launching two
new platforms in H2FY15E, FY16E in the compact SUV segment, we expect M&M to regain
market share as volumes improve.
We also expect an improvement in volumes for the pick-up and HCV segments, as industrial
activity levels in the country improve.

FES segment to remain cash cow with strong margins, market share
With a strong margin profile and relatively low capex and product development expenses, the
FES segment is a cash-cow business in M&M’s portfolio. We believe, going ahead, as farm
mechanisation levels increase and MSPs for food grains continue to remain strong, the FES
segment is likely to witness continued momentum in the next few years.
With M&M outpacing the industry, its market share has been on the uptrend and currently
stands at ~44% (highest in 10 quarters). Also, with an increase in >30 HP tractor volumes,
realisations are likely to remain on the uptrend. With new platforms being a rarity in the
tractor business, H2FY15E will be awaited for M&M’s first new platform launch in 12 years.

Subsidiary performance continues to be impressive across segments

Along with strength of the core business, the performance of subsidiaries has also continued
to remain impressive across business areas like financials, information technology,
infrastructure, hospitality, etc. In addition, its automotive subsidiary in South Korea,
SsangYong Motors, has turned around post acquisition in FY11 entity. Synergy benefits with
SsangYong like platform sharing, R&D, common sourcing, etc. are likely to bring in longer-
term benefits to M&M’s plans to scale up globally. With room for more partnerships/JVs in
related areas in the future, sustained growth for the conglomerate is likely to continue in the
future.

25
Strong long-term business case for tractor, UV king; recommend HOLD
M&M’s ability to sustain profitability despite pressure on volumes, owing to its diversified
nature is a strong demonstration of its strong business case. However, with no new product
launches in the immediate term coupled with uncertainty of monsoon leading to a possible
slowdown in tractor volumes and decline in margins owing to merger of the CV business, we
believe there are some short-term roadblocks. However,
these are unlikely to persist in the long-term. The strong performance of subsidiaries also
lends significant cushion from a valuations perspective.

We recommend HOLD with an SOTP target price of | 1336, valuing the core business at 7.5x
EV/EBITDA FY16E. We continue to maintain our HOLD recommendation.

MARUTI SUZUKI INDIA LIMITED (MSIL)

Maruti Suzuki India Limited (MSIL), formerly known as Maruti Udyog Limited, a subsidiary
of Suzuki Motor Corporation of Japan, is India's largest passenger car company, accounting
for over 50 per cent of the domestic car market. Maruti Udyog Limited was incorporated in
1981 under the provisions of Indian Companies Act 1956 and the government of India
selected Suzuki Motor Corporation as the joint venture partner for the company. In 1982 a JV
was signed between Government of India and Suzuki Motor Corporation.
It was in 1983 that the India’s first affordable car, Maruti 800, a 796 cc hatch back was
launched as the company went into production in a record time of 13 month.
More than half the number of cars sold in India wear a Maruti Suzuki badge. They are a
subsidiary of Suzuki Motor Corporation Japan. The company offer 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, the company has produced and sold over 7.5 million vehicles in India and
exported over 500,000 units to Europe and other countries.
They were born as a government company, with Suzuki as a minor partner, to make a
people's car for middle class India. Over the years, its product range has widened, ownership
has changed hands and the customer has evolved. What remains unchanged, then and now, is
their mission to motorise India. MSIL’s parent company, Suzuki Motor Corporation, has
been a global leader in mini and compact cars for three decades. Suzuki's technical
superiority lies in its ability to pack power and performance into a compact, lightweight
engine that is clean and fuel efficient. The same characteristics make their cars extremely
relevant to Indian customers and Indian conditions. Product quality, safety and cost
consciousness are embedded into their manufacturing process, which they have inherited
from their parent company.
Right from inception, Maruti brought to India, a very simple yet powerful Japanese
philosophy 'smaller, fewer, lighter, shorter and neater'

26
From the Japanese work culture they imbibed simple practices like an open office, a common
uniform and common canteen for everyone from the Managing Director to the workman,
daily morning exercise, and quality circle teams.
Maruti Suzuki exports entry–level models across the globe to over 100 countries and the
focus has been to identify new markets. Some important markets include Latin America,
Africa and South East Asia. Interestingly with a brand new offering A–star, Maruti Suzuki is
ready to take on European markets. Maruti Suzuki sold 53,024 units during 2007–08. This is
the highest ever export volume in a year for the company, and marked a growth of 35 per
cent over the previous year. Maruti Suzuki has exported over 552,000 units cumulatively
with about 280,000 units to Europe and Israel.
Maruti Suzuki has two state–of–the–art manufacturing facilities in India. The first facility is
at Gurgaon spread over 300 acres and the other facility is at Manesar, spread over 600 acres
in North India.
The Gurgaon facility – Maruti Suzuki's facility in Gurgaon houses three fully integrated
plants. While the three plants have a total installed capacity of 350,000 cars per year, several
productivity improvements or shop floor Kaizens over the years have enabled the company to
manufacture nearly 700,000 cars/ annum at the Gurgaon facilities.
The Manesar facility – Its Manesar facility has been made to suit Suzuki Motor Corporation
(SMC) and Maruti Suzuki India Limited's (MSIL) global ambitions. The plant was
inaugurated in February 2007. At present the plant rolls out World Strategic Models Swift,
A–star & SX4 and DZire. The plant has several in–built systems and mechanisms.
Diesel Engine Plant– Suzuki Powertrain India Limited – Suzuki Powertrain India Limited the
diesel engine plant at Manesar is SMC's & Maruti's first and perhaps the only plant designed
to produce world class diesel engine and transmissions for cars. The plant is under a joint
venture company, called Suzuki Powertrain India Limited (SPIL) in which SMC holds 70 per
cent equity the rest is held by MSIL. This facility has an initial capacity to manufacture
100,000 diesel engines a year. This will be scaled up to 300,000 engines/annum by 2010.
In 2012 senior management members were injured as workers resort to violence at Maruti
Suzuki’s Manesar plant.
Product range of the company includes:
It offer 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.
 Maruti Alto 800
 Omni
 Gypsy
 Zen Estillo
 Wagon R
 Versa
 A– Star
 Ritz
 SX4
 Dzire
27
  Grand Vitara
 Ertiga
 Celerio
Margins drive the growth..!!
• MSIL reported revenues of |13,625 crore vs. our estimate of |13,733 crore (up ~12.6% YoY)
led by 6.7% YoY increase in volumes
• EBITDA margins at 15.9% came in ~558 bps higher YoY, much higher than our estimate of
13.1% owing to lower input cost, favourable foreign exchange and lower sales promotion
expense.
• Higher margins boosted the profitability with PAT at |1,284 crore vs our estimate of |1,124
crore. (60.5% YoY higher)
• Management expects volumes to grow ~10% in FY16E outpacing the industry while lower
discounts coupled with new launches (better product mix) & stable input cost could drive
margins going forward.

Market leader to benefit from domestic passenger vehicle up cycle!

A recovery in the overall economy would have a multiplier effect on the passenger vehicle up
cycle, which would benefit MSIL, the largest carmaker in India. We believe MSIL’s largely
petrol denominated small car portfolio is likely to benefit the most as the industry comes off a
lean patch of about five years with overall volumes growing at merely ~5.9%
CAGR in FY10-15. In the next five years, we expect penetration levels to increase from
current lowly levels of ~15 cars per 1000 and march towards peer penetration levels (China:
~60/1000, Brazil: ~200/1000).

New launches help withstand competition onslaught, retain market share MSIL has seen a
major challenge to its dominant market share position as global carmakers launched products
aimed to gain market share.
However, it still stands at an impressive ~45% on the back of its vast distribution network
(~1200 dealerships in ~800 cities) and strong service network (~3000 workshops in ~1400
cities). Launch of “S-Cross” and compact SUV will help MSIL create presence in the SUV
segment. Diesel variant of Celerio & AMT based Swift model would help improve market
share. Hence strong product pipeline of new launches and facelifts of some of its existing
models coupled with further enhancement of distribution network & production capacity will
help MSIL to maintain its leadership position in passenger vehicle even as competition
intensifies.
Leverage benefits, reducing discounts, forex to aid margin expansion! MSIL is likely to
benefit with strong operating leverage benefits which would accrue as volumes pick up. With
higher discretionary spending coupled new launches and higher contribution from the
premium segment is likely to lever margins going forward. With demand likely to pick-up,
we expect a reduction in average discounts from |19,625 in FY15 to |17,000 in FY16E and

28
 |15,000 in FY17E. Another factor that has aided margins has been JPY depreciation as well
as localisation drive.
Considering all factors, we have built in 160 bps increase in margin over
FY15-17E.
Preferred “domestic recovery play”; earnings on strong growth wicket
We prefer four-wheeler auto segment to the two-wheeler segment as low penetration levels
still provide headroom for sustained growth. We continue to remain bullish on longer-term
growth prospects of the car segment, especially MSIL, considering its dominant market share
at ~45%. Rationalisation of the diesel-petrol price gap is also expected to aid MSIL’s petrol-
dominated product portfolio. Currency also continues to aid MSIL. We believe earnings
growth trajectory would be strong (32% CAGR in FY15-17E). Thus, we ascribe a multiple of
20x its FY17E EPS of|213 and recommend Buy with target of |4,266.

RATIO ANALYSIS
Ratio analysis is a useful management tool that will improve your understanding of financial
results and trends over time, and provide key indicators of organizational performance.
Managers will use ratio analysis to pinpoint strengths and weaknesses from which strategies
and initiatives can be formed.
Some important ratios to calculate the company’s financial status are as follows:

I. Return on assets (ROA): An indicator of how profitable a company is relative to its total
assets. ROA gives an idea as to how efficient management is at using its assets to generate
earnings. Calculated by dividing a company's annual earnings by its total assets, ROA is
displayed as a percentage.

Sometimes this is referred to as "return on investment".

𝑵𝑬𝑻 𝑷𝑹𝑶𝑭𝑰𝑻
Return on Assets = 𝑻𝑶𝑻𝑨𝑳 𝑨𝑺𝑺𝑬𝑻𝑺

II. Return on investment (ROI): A performance measure used to evaluate the efficiency of an
investment or to compare the efficiency of a number of different investments. ROI measures
the amount of return on an investment relative to the investment’s cost. To calculate ROI, the
benefit (or return) of an investment is divided by the cost of the investment, and the result is
expressed as a percentage or a ratio.

Formula as given below:

𝑵𝑬𝑻 𝑷𝑹𝑶𝑭𝑰𝑻
Return on Investment = 𝑬𝑸𝑼𝑰𝑻𝒀 𝑰𝑵𝑽𝑬𝑺𝑻𝑴𝑬𝑵𝑻 × 𝟏𝟎𝟎

29
III. Return on Equity (ROE): The amount of net income returned as a percentage of
shareholders equity. Return on equity measures a corporation's profitability by revealing how
much profit a company generates with the money shareholders have invested.

ROE is expressed as a percentage and calculated as:

𝑵𝑬𝑻 𝑷𝑹𝑶𝑭𝑰𝑻 𝑻𝑶 𝑶𝑾𝑵𝑬𝑹
Return on Equity = 𝑽𝑨𝑳𝑼𝑬 𝑶𝑭 𝑶𝑾𝑵𝑬𝑹𝑺 𝑪𝑶𝑵𝑻𝑹𝑰𝑩𝑼𝑻𝑰𝑶𝑵 𝑻𝑶 𝑩𝑼𝑺𝑰𝑵𝑬𝑺𝑺 × 𝟏𝟎𝟎

IV. Earnings per share (EPS): It is the portion of a company's profit that is allocated to each
outstanding share of common stock, serving as an indicator of the company's profitability.

Formula is:
𝑵𝑬𝑻 𝑷𝑹𝑶𝑭𝑰𝑻
Earnings per Share = 𝑵𝑶.𝑶𝑭 𝑺𝑯𝑨𝑹𝑬𝑺 𝑶𝑼𝑻𝑺𝑻𝑨𝑵𝑫𝑰𝑵𝑮

V. Dividend per share (DPS): Dividend per share is the total dividends paid out over an entire
year (including interim dividends but not including special dividends) divided by the number
of outstanding ordinary shares issued.

DPS can be calculated by using the following formula:

𝑻𝑶𝑻𝑨𝑳 𝑫𝑰𝑽𝑰𝑫𝑬𝑵𝑫 𝑷𝑨𝑰𝑫
DPS = 𝑵𝑶. 𝑶𝑭 𝑺𝑯𝑨𝑹𝑬𝑺 𝑶𝑼𝑻𝑺𝑻𝑨𝑵𝑫𝑰𝑵𝑮

VI. Current Ratio: The current ratio is a financial ratio that measures whether or not a firm has
enough resources to pay its debts over the next 12 months. It compares a firm's current assets
to its current liabilities.

It can be calculated by using the formula:

𝑪𝑼𝑹𝑹𝑬𝑵𝑻 𝑨𝑺𝑺𝑬𝑻𝑺
Current Ratio = 𝑪𝑼𝑹𝑹𝑬𝑵𝑻 𝑳𝑰𝑨𝑩𝑰𝑳𝑰𝑻𝑰𝑬𝑺

VII. Dividend yield: A dividend expressed as a percentage of a current share price.

It can be calculated by using the formula:

𝑫𝑰𝑽𝑰𝑫𝑬𝑵𝑫 𝑷𝑬𝑹 𝑺𝑯𝑨𝑹𝑬
Dividend Yield = × 𝟏𝟎𝟎
𝑴𝑨𝑹𝑲𝑬𝑻 𝑷𝑹𝑰𝑪𝑬 𝑷𝑬𝑹 𝑺𝑯𝑨𝑹𝑬

30
VIII. Price/Earnings Ratio (P/E): A valuation ratio of a company's current share price compared
to its per-share earnings.

It can be calculated as:

𝐶𝑈𝑅𝑅𝐸𝑁𝑇 𝑀𝐴𝑅𝐾𝐸𝑇 𝑃𝑅𝐼𝐶𝐸
P/E = 𝐸𝐴𝑅𝑁𝐼𝑁𝐺 𝑃𝐸𝑅 𝑆𝐻𝐴𝑅𝐸

IX. Debt to Equity Ratio: The debt-to-equity ratio (D/E) is a financial ratio indicating the
relative proportion of shareholders' equity and debt used to finance a company's assets.

It can be calculated as:

𝑶𝑼𝑻𝑺𝑰𝑫𝑬𝑹𝑺 𝑭𝑼𝑵𝑫
Debt to Equity Ratio = 𝑺𝑯𝑨𝑹𝑬𝑯𝑶𝑳𝑫𝑬𝑹𝑺 𝑭𝑼𝑵𝑫

31
Chapter 5: Data Analysis and
Interpretation

32
 The Indian automobile sector is increasing vastly and the growing prospects of the
companies are visible and there is the intense competition amongst the automobile
companies to give the best product to customers which can be proved to be a cheaper but
luxurious in Indian market. People are also choosing international brands like BMW, Audi,
Mercedes as utmost care is taken by these companies to give their customers highest level
of comfort and luxury and excellent driving pleasure. But as most of the Indians do not
prefer to invest so much money in vehicles just for driving comfort or pleasure. But as the
days are changing people are moving towards better automobile product. The main reason
behind this is easier availability of credit and also we can say that this can be a major factor
for the growth of Indian automobile sector.

Easy availability of credit

 Greater access to credit eases the purchase of passenger and commercial vehicles.
 The auto finance industry has grown at the rate of 13% over FY08-13, the car finance
penetration has increased from 68% in FY08-10 to 70%-72% in FY11-14.
 BMW, Audi, Toyota, Skoda, Volkswagen and Mercedes Benz have started providing
customized finance to customer’s dealers and suppliers through dedicated Non-banking
Financial Services (NBFC’s).

Indian car finance market size

15
13.2 12.9
13
11.7

11
9.3
9
7.7
Units

2.5 2.6 2.7

3
1.9
1.5
1

-1 FY09 FY10 FY11 FY12 FY13

Years

Car industry sales volume(mn) Car finance industry(USD bn)

Figure no. 5.1

33
MARUTI SUZUKI FINANCIALS:
Maruti Suzuki India Ltd, India's top-selling car-maker, said on Tuesday first-quarter net
profit rose 56 percent helped by lower costs, favourable foreign exchange rates and higher
sales, but still missed bullish analyst estimates.
Maruti, controlled by Japan's Suzuki Motor Corp’s profit for the April-June quarter was
11.9 billion rupees ($185.94 million), up from 7.6 billion rupees in the same period a year
earlier. Analysts had expected a profit of 12.35 billion rupees.
Net sales rose about 18 percent to 130.8 billion rupees, the company said, as India's car
trade continues to grow. India is expected to become the world's third-largest car market by
2020, moving up three places.
Total expenses as a percentage of net sales fell to 91 percent during the quarter from about
96 percent in the year ago period, while finance costs were halved to 190.4 million rupees.
Maruti, which imports certain car components from Japan and also pays royalty to its
Japanese parent, Suzuki, is benefiting from the yen's weakening.
The carmaker, which sells about one in every two cars in India, wants to increase its share
of the premium car segment at a time when rivals like Honda Motor Co and Ford Motor Co
are launching cheaper, compact cars - Maruti's mainstay.
Maruti had little prior success in the premium segment and is now planning an aggressive
rollout of new vehicles and dealerships to capture buyers with deeper pockets - a move that is
expected to boost margins and profits, say analysts.
Next week Maruti will launch the S-Cross - a crossover between a sport-utility vehicle and
a hatchback - the first car to be sold at its new Nexa showrooms. These spruced-up
showrooms will differ from existing dealerships in design and service, managing director
Kenichi Ayukawa said recently.
Shares in Maruti, valued by the market at about $20 billion at Monday's close, were trading
0.5 percent higher at 4,200 rupees a share at 0850 GMT in a weak Mumbai market.
Maruti's shares have risen more than 25 percent since January - the highest among major
automobile companies in India.

Figure no. 5.2

34
 Figure no. 5.3

Maruti Exports Limited is the subsidiary of Maruti Suzuki with its major focus on exports
and it does not operate in the domestic Indian market. The first commercial consignment of
480 cars were sent to Hungary. By sending a consignment of 571 cars to the same country
Maruti Suzuki crossed the benchmark of 300,000 cars. Since its inception export was one of
the aspects government was keen to encourage. Every political party expected Maruti Suzuki
to earn foreign currency. Angola, Benin, Djibouti, Ethiopia, Europe, Kenya, Morocco, Nepal,
Sri Lanka, Uganda, Chile, Guatemala, Costa Rica and El Salvador are some of the markets
served by Maruti Exports.

35
MAHINDRA & MAHINDRA FINANCIALS:
In F2015, The Indian Auto Industry, especially Passenger Vehicles (PV) has shown signs
of revival, but this has been patchy. The car segment growth is largely driven by new
launches, while the UV segment growth reflects the market shift towards compact UVs
attracting lower excise rates. The < 2T LCV industry continues to shrink and the 2 to 3.5T
LCV industry (Pickups) suffered due to slowdown in agricultural incomes and finance
availability. The medium and heavy commercial vehicles (MHCV) goods segment, grew on
back of pickup in economic growth and thrust on infrastructure projects. In Q4 F2015, sales
were somewhat impacted due to rollback of excise duty concession w.e.f 1st January 2015. In
Q4 F2015, unseasonal rains and hail storms in various parts of the country caused crop
damage. The crop damage, coupled with subdued crop prices resulted in loss of agricultural
incomes which in turn created a negative sentiment in the farming community.

Figure no. 5.4

During Q4 of the previous year, the Scheme of Arrangement for the merger of the Trucks
business of M&M’s subsidiary, Mahindra Trucks and Buses Ltd. (MTBL) with M&M, was
approved by the Honourable High Court of Bombay vide its order dated 7th March 2014 and
as required by the order, it has been given effect to w.e.f. 1st April 2013. Due to the same,
the past unabsorbed tax losses related to the Trucks business of MTBL became available to
the company and there was a one-time tax benefit during Q4 of the previous year. The Gross
Revenues and other income of the Combined Entity for the year ended 31st March 2015 is
Rs. 41498 crore as against Rs. 43256 crore in the previous year. The Net Profit after
exceptional items and tax for the current year is Rs. 3423 crore against Rs. 3905 crore in the
previous year.

36
RAW MATERIAL CRITIQUE
1) STEEL AND ALUMINIUM:
The raw materials are the basic elements auto industry needs for their manufacturing and its
production and prices may affect auto industry in positive and negative effects. Considering
the raw materials like steel, rubber, and aluminium. Steel prices may go up in the new year
ahead of an expected increase in car prices, automobile industry executives and analysts said,
although makes of the alloy are unwilling to reveal their pricing strategies.
The steel makers hope to cash in on demand from auto makers who traditionally raise prices
by around 2% in January. All in all, there could be a 2-3% or Rs.500-Rs.1,000 per tonne rise
in prices. Steel price at Rs.45,000 a tonne in November is down 2.2% from July when it rose
to the year’s high of Rs.46,000 a tonne, as per data from Oreteam, a natural resources web
site. With the economy failing to gain speed, demand from industries has remained low.
Steel companies in India are facing pressure and struggling to keep their heads above water,
Auto makers watch the steel price trend closely, since the metal accounts for 8% of net sales
for auto companies. Typically, any hike in prices of inputs such as steel, rubber and
aluminium reflects in higher prices of cars, trucks and two-wheelers.
Mahindra and Mahindra Ltd increased prices of its passenger and commercial vehicles by an
average 1% effective this month to offset rising input costs. The increase will be in the range
of Rs.2,300-11,500, it said in a statement to stock exchanges.
In October, Indians bought 3.5% fewer cars than in the same month last year, the second
consecutive month of falling sales, industry body Society of Indian Automobile
Manufacturers said on Monday. Carmakers are unlikely to benefit from the softening of global
(commodity) prices. The firm imports half its requirement from South Korean steel maker Posco and
buys the rest from domestic steel companies such as Tata Steel Ltd, Bhushan Steel Ltd and Essar
Steel Ltd.

In 2013, car sales fell for the first time in more than a decade. In 2014, sales grew until
August, before falling 1% in September. Unlike previous years, October, which usually
witnesses brisk sales due to the festival season, turned out to be a disappointment. Discounts
and freebies during the festive season failed to perk up the sales this year. With the exception
of market leader Maruti Suzuki India Ltd, which saw sales rise by 1% and 15%, respectively,
most firms saw sputtering sales. In the steel market, the expected demand increase in 2014-15
is likely to be 3.5% over last year owing to a low base effect.

37
Figure no. 5.5

Figur no. 5.6

A new scheme, ‘The scheme for the promotion of R&D in the iron and steel sector’, has been
approved with budgetary provision of US$ 24.6 million to initiate and implement the
provisions of the scheme as per the 11th Five-Year Plan which has continued in the 12th Five
Year Plan. The development of technology for Cold-Rolled Grain Oriented (CRGO) steel
sheets and other value-added products is also included under the policy purview and is
allocated US$ 6.7 million.
RUBBER :
Rubber is one of the essential commodity which can affect the Indian auto industry.
According to the recent surveys Natural rubber production in India has slumped 21% year-on-year
to 50,000 tonne in June, a development that has left the Indian tyre makers worried as it increases
their dependence on imported rubber.

According to the Rubber Board, rubber production fell 14% in the quarter to June to 1,
43,000 tonne, while consumption slipped just 1% both in the quarter and in the month of
June. Imports of the commodity rose 6% in the quarter to 1, 06,294 tonne.

38
Figure no. 5.7

SWOT ANALYSIS OF INDIAN AUTOMOBILE SECTOR

Strength

1) Skilled low cost manpower.

2) Decentralised Management.
3) Total in-house manufacturing and testing with the latest precision instruments.
4) A Technocrat MD, in touch with new technology and fast adaptation of this to the
industry.
5) Supplier to one of the largest Two-Wheeler manufacturers in the world has resulted in
exposure to good manufacturing & functional quality systems.
6) Machines of International std.
7) Capital Reserves.
8) Strong Lineage with last 29 year’s experience in the field of Ignition Coils.

Weaknesses

1) Low thrust marketing.

2) Over dependence on 2 key players.
3) Low in exports.

39
Opportunities

1) Price war in the market is putting pressure on O.E.Ms.in cutting costs.

Our QCD advantage namely>>
-High Quality Machinery,
-Lean Organisation Structure
-Quality Systems in place,
>> mean an ability to contribute to the success of our customers
2) Technically driven management adds value to conventional processes and products.
3) Globally tuned organisation open for Foreign Collaborations.

Threats

1) Foreign players.
2) Slow growth in domestic auto sales.
3) Government policies.

PESTLE ANALYSIS OF INDIAN AUTOMOBILE SECTOR

Political

 In 2002, the Indian government formulated an auto policy that aimed

at promoting integrated, phased, enduring and self-sustained growth of the Indian
automotive industry

 Allows automatic approval for foreign equity investment up to 100% in the automotive
sector and does not lay down any minimum investment criteria

 Formulation of an appropriate auto fuel policy to ensure availability of adequate

amount of appropriate fuel to meet emission norms

 Confirms the government’s intention on harmonizing the regulatory standards with the
rest of the world

 Indian government auto policy aimed at promoting an integrated, phased and

conductive growth of the Indian automobile industry.

 Allowing automatic approval for foreign equity investment up to 100% with no

minimum investment criteria.

 Establish an international hub for manufacturing small, affordable passenger cars as

well as tractor and two wheelers.

 Ensure a balanced transition to open trade at minimal risk to the Indian economy and
local industry.
40
 Assist development of vehicle propelled by alternate energy source.

 Lying emphasis on R&D activities carried out by companies in India by giving a

weighted tax deduction of up to 150% for in house research and R&D activities.
 Plan to have a terminal life policy for CVs along with incentives for replacement for
such vehicles.

 Promoting multi-model transportation and the implementation of mass rapid transport

system

Economic

 The level of inflation Employment level per capita is right.

 Economic pressures on the industry are causing automobile companies to reorganize

the traditional sales process.

 Weighted tax deduction of up to 150% for in-house research and R & D activities.

 Govt. has granted concessions, such as reduced interest rates for export financing.

 The Indian economy has grown at 8.5% per annum.

 The manufacturing sector has grown at 8-10 % per annum in the last few years.

 More than 90% of the CV purchase is on credit.

 Finance availability to CV buyers has grown in scope during the last few years.

 The increased enforcement of overloading restrictions has also contributed to an

increase in the no. of CVs plying on Indian roads.

 Several Indian firms have partnered with global players.

 While some have formed joint ventures with equity participation, other also has entered
into technology tie-ups.

 Establishment of India as a manufacturing hub, for mini, compact cars, OEMs and for
auto components.

Social

 Since changed lifestyle of people, leads to increased purchase of automobiles, so

automobile sector have a large customer base to serve.

 The average family size is 4, which makes it favourable to buy a four wheeler.

41
 Growth in urbanization, 4th largest economy by ppp index.

 Upward migration of household income levels.

 85% of cars are financed in India.

 Car priced below USD 12000 accounts for nearly 80% of the market.

 Vehicles priced between USD 7000-12000 form the largest segment in the passenger
car market.

 Indian customers are highly discerning, educated and well informed. They are price
sensitive and put a lot of emphasis on value for money.

 Preference for small and compact cars. They are socially acceptable even amongst the
well off.

 Preference for fuel efficient cars with low running costs.

Technological

 More and more emphasis is being laid on R & D activities carried out by companies in
India.

 Weighted tax deduction of up to 150% for in-house research and R & D activities.

 The Government of India is promoting National Automotive Testing and R&D

Infrastructure Project (NATRIP)to support the growth of the auto industry in India

 Technological solutions helps in integrating the supply chain, hence reduce losses and
increase profitability.

 Customized solutions (designer cars, etc.)can be provided with the proliferation of

technology

 Internet makes it easy to collect and analyse customer feedback

 With the entry of global companies into the Indian market, advanced technologies, both
in product and production process have developed.

 With the development or evolution of alternate fuels, hybrid cars have made entry into
the market.

 Few global companies have setup R &D centres in India.

 Major global players like Audi, BMW, Hyundai etc. have setup their manufacturing
units in India.

42
 Environmental

 Physical infrastructure such as roads and bridges affect the use of automobiles. If there
is good availability of roads or the roads are smooth then it will affect the use of
automobiles.

 Physical conditions like environmental situation affect the use of automobiles. If the
environment is pleasant then it will lead to more use of vehicles.

 Technological solutions helps in integrating the supply chain, hence reduce losses and
increase profitability.

 With the entry of global companies into the Indian market, advanced technologies, both
in product and production process have developed.

 With the development or evolution of alternate fuels, hybrid cars have made entry into
the market.

 Few global companies have setup R &D centres in India.

 Major global players like Audi, BMW, Hyundai etc. have setup their manufacturing
units in India

Legal

 Legal provision relating to environmental population by automobiles.

 Legal provisions relating to safety measures.

 Confirms the government’s intention on harmonizing the regulatory standards with the
rest of the world

 Indian government auto policy aimed at promoting an integrated, phased and

conductive growth of the Indian automobile industry.

 Establish an international hub for manufacturing small, affordable passenger cars as

well as tractor and two wheelers.

 Ensure a balanced transition to open trade at minimal risk to the Indian economy and
local industry.

43
FINANCIAL SYNOPSIS OF MARUTI SUZUKI AND MAHINDRA & MAHINRA
MARUTI SUZUKI:
Given below is the balance-sheet of Maruti Suzuki.

BALANCE SHEET

Y/E March FY2013 FY2014 FY2015E

SOURCES OF FUNDS
Equity share capital 151 151 151
Reserves & surplus 18,427 20,827 23,553
Shareholder's Funds 18,579 20,978 23,704
Total loans 1389 1685 1400
Deferred tax liability 409 587 587
Other long term liabilities 104 239 239
Long term provisions 226 198 198
Total Liabilities 19,968.10 22,663 23,884
APPLICATION OF FUNDS
Gross block 19,801 22,702 26,202
Depreciation(less) 10,002 11,911 14,372
Net Block 9,799 10,791 11,830
Capital work-in-progress 1,942 2,621 2,500
Investments 7,078 10,118 8,849
Long term loans and advances 1,279 1,638 1,701
Current assets 5,695 5,359 8,440
Cash 775 630 3,597
Loans & advances 1,115 1,251 1,375
Other 3,805 3,478 3,468
Current liabilities 5,982 6,849 7,090
Net current assets -287 -1,491 1,350
Total Assets 20,706 23,686 25,931

Revenues grew strongly by 15% YoY, led by a healthy 12% volume growth. Volume
growth was boosted by improved consumer sentiments and success of new launches.
Realisation/vehicle improved marginally by 3% YoY due to a better product mix. The
EBIDTA margin at 12.7%, improved marginally by 30bp both on YoY as well as sequential
basis and was in line with our estimates. Margins improved despite a one-time charge of
`80cr on account of excise duty on sales tax subsidy received from the year 2000 to year
2015. Soft commodity prices and weakening of the JPY led to the improvement in margins.
However, lower other income at 129cr (33% QoQ decline), impacted profitability. The net
profit, at 802cr, grew 18% YoY but was lower than our estimate of 857cr.

44
Given below is the profit and loss statement of Maruti Suzuki

Profit and loss statement

Y/E March (rs.cr) FY2013 FY2014 FY2015

Total operating income 43,588 43,701 49,901

% change 22.5 1.4 14.2
Total expenditure 39,358 38,611 43,268
Net raw material costs 32,559 31,314 35,008
Employee expenses 1,070 1,368 1,607
Other expenditure 5,730 5,928 6,654
EBITDA 4,230 5,090 6,633
% change 68.3 44.8 30.1
Depreciation & amortization 1,861 2,084 2,470
EBIT 2,368 3,834 5,074
% change 72.3 27.7 32.3
PBT 2,991 3,659 4,868.2
Tax 7 876 1,105.0
PAT 2,392 2,783 3,614.0
EPS 79.2 92.1 122.9
% change 46.3 15.8 33.4

The EBIDTA margin, at 12.7%, grew marginally by 30bp on both YoY as well as sequential
basis. Softer raw material prices coupled with benefit of JPY depreciation on direct imports
boosted margins.
Lower other income at 129cr (33% QoQ decline) and higher taxation negated the benefits of
improved operating performance. Net profit at `802.2cr grew 18% YoY.

Investment arguments
 Per capita car penetration near inflexion point: In FY2009, car penetration in India was
estimated at around 12 vehicles/1,000 people compared to around 21 vehicles/1,000
people in China. Moreover, India’s PPP-based per capita is estimated to approach US$
7,000 over the next four to five years, which is expected to be the inflexion point for the
country’s car demand. Further, MSIL has a sizeable competitive advantage over new
foreign entrants due to its widespread distribution network (nearly 3,000 and 1,200
service and sales outlets, respectively), which is not easy to replicate.
 Suzuki focusing to make Maruti a small car manufacturing hub: Suzuki Japan is focusing
to make MSIL a global small car manufacturing hub to cater to the increasing global
demand for small cars due to rising fuel prices and stricter emission standards. Thus, we
believe there is a huge potential for the company to increase its market share in the
export market. Moreover, R&D capabilities, so far largely housed at Suzuki Japan, are
progressively moving to MSIL. The company is aiming to achieve full model change

45
 capabilities over the next couple of years, which will enable it to launch new models and
variants at a much faster pace. This is expected to reduce its royalty payment in the
medium-term (2-3 years).
 Merger with SPIL to be a positive in the long run: MSIL has merged its associate
company, Suzuki Powertrain India (SPIL) with itself. SPIL manufactures and supplies
diesel engines and transmission components for vehicles. SPIL currently supplies ~90%
of its production to MSIL. We believe the merger of SPIL with MSIL is a positive for
MSIL given that MSIL itself is setting up a new diesel engine facility (capacity of
300,000 units by FY2015) in Gurgaon. Further, with foray increased product
introductions in the diesel segment (LCV and compact utility vehicle), the integration
of SPIL will result in better control over diesel engine sourcing, flexibility in production
planning, and managing fluctuations in market demand. Additionally, single
management control of diesel engine operations will result in better sourcing,
localization and cost-reduction.

MAHINDRA & MAHINDRA:

Given below is the balance sheet of the company

BALANCE SHEET

Y/E March FY2013 FY2014 FY2015E

SOURCES OF FUNDS
Equity share capital 295 295 296
Reserves & surplus 14,352.92 16,485.24 18,948.60
Shareholder's Funds 14,648 16,780 19,244
Total loans 4152 4308 4308
Deferred tax liability 756 1051 1051
Other long term liabilities 2960.40 3451.06 2620.38
Long term provisions 478 557 562
Total Liabilities 20,782 23,767 26,344
APPLICATION OF FUNDS
Gross block 11,152 13,110 15,610
Depreciation(less) 4,325 5,308 6,406
Net Block 6,827 7,801 9,203
Capital work-in-progress 919 1,254 1,254
Investments 10,894 10,464 11,664
Long term loans and advances 2,087 3,018 2,997
Current assets 8,782 10,595 10,247
Cash 1,823 3,141 3,131
Loans & advances 827 1,031 974
Other 6,132 6,422 6,141
Current liabilities 9,232 9,782 9,439
Net current assets -450 813 808
Total Assets 20,782 23,767 26,344

46
For 4QFY2015, M&M posted numbers in line of our expectations. For MM+MVML,
revenues dipped 9% YoY to 9,123cr, largely in line with our estimate of 8,781cr; owing to a
16% volume decline in the quarter. Automotive volumes dipped 10% while tractor volumes
dipped 30%. However, realization/vehicle grew 7% YoY on account of better mix and price
hikes and to an extent limited the downslide in the top-line. On the operating front, M&M’s
margin of 11% was in line with our expectations of 11.3%. The margin declined 180bp YoY
given the huge volume decline and with lower contribution of the high margin tractor
business in the mix. During the quarter, M&M realized a one-time gain of 36.4cr on account
of profit on sale of long term investments. Adjusted Profit, at 550cr, largely met our
expectation of 572 cr.

Given below is the profit & loss statement of the company:

Profit and loss statement

Y/E March (rs.cr) FY2013 FY2014 FY2015

Total operating income 38,357 38,817 37,468

% change 22.3 1.2 -3.5
Total expenditure 33,027 33,569 32,865
Net raw material costs 27,439 26,920 25,727
Employee expenses 1,998 2,311 2,494
Other 3,590 4,338 4,645
EBITDA 5,329 5,248 4,603
% change 28.4 -1.5 -12.3
Depreciation & amortization 818 976 1,098
EBIT 5,081 4,937 4,325
% change 28.2 -2.8 -12.4
PBT 4,875 4,629 4,357
Tax 1,241 724 934
PAT 3,634 3,905 3,423
EPS 59.2 63.4 55.6
% change 22.7 9.8 -13.1

EBIDTA margin, at 11%, declined 180bp YoY. Double digit volume decline coupled with
adverse mix (lower proportion of high margin tractor segment) impacted the margins.
Weak operating performance coupled with higher taxation impacted the profitability. The
adjusted net profit stood at 550cr which is largely in line with our estimate of 572cr.

47
Investment arguments:
 Volume uptrend expected over the next two years: M&M is likely to witness volume
uptrend over the next two years (FY2016-17) driven by recovery in both the automotive
and the tractor segment. M&M would launch two new products in the compact UV space
beginning FY2016 (M&M has limited presence in compact UVs which account for 40%
of the UV industry) enabling it to regain market share. It also plans to launch a small
commercial vehicle. Further, the other two key automotive segments - LCVs and three-
wheelers - are likely to recover given the improved economic scenario.
The tractor segment is also expected to recover from 2HFY2016 on back of improved
sentiments and early signs of a normal monsoon. Further, with an improvement in the
economy, the non-agricultural usage of tractors is also likely to increase which would
boost demand for tractors.
 Investments constitute 45% of total assets: MM has presence in various sectors through
majority stakes in various listed companies, i.e. in sectors like technology, hospitality,
real estate and finance. The high growth potential of MM's subsidiaries has supported its
valuation in the past and may continue to do so in the long term as well. Investments
constitute ~45% of MM’s total assets as of March 2014.

48
RATIO ANALYSIS OF MARUTI SUZUKI:

Key ratios
Y/E March FY2013 FY2014 FY2015E
Valuation ratios(x)
P/E ratio 18.91 26.07 34.71
P/BV 6.1 5.4 4.8
Dividend Yield % 0.2 0.6 1
EV/Sales 2.5 2.4 2.1
EV/EBITDA 30.7 20.6 16.2
EV/Total Assets 5.3 4.4 4
Per Share Data(Rs)
EPS 79.18% 92.12% 119.6%
DPS 7.18% 23.04% 35.9%
DPR 10.10 13.02 20.34
Book Value 615 694.5 778.2
Du-Pont Analysis
EBIT margin 5.4 8.8 9.7
Tax retention ratio 80.8 0.8 0.8
Asset turnover 2.5 1.9 2.2
Cost of debt(post tax) 12.3 7.9 8.1
Operating ROE 11.5 10.6 12.7
Current Ratio 0.952 0.78 1.14
Returns(%)
ROCE(pre-tax) 12.6 16.2 18.8
ROE 12.87% 13.26% 15.37%
ROI 33.79% 27.50% 40.84%
ROA 11.55% 11.74% 13.93%
Turnover ratios(x)
Asset turnover(gross) 2.5 1.9 1.9
Inventory/Sales (days) 15 14 13
Receivables (days) 10 12 11
Payables (days) 39 52 47
WC cycle (days) -11 -25 -22
Solvency ratios
Debt to equity 7% 8% 0.76%
Net debt to EBITDA -1.5 -1.8 -1.7
Interest coverage (EBIT/Int.) 12.5 21.8 32.8

49
RATIO ANALYSIS OF MAHINDRA & MAHINDRA:

Key ratios
Y/E March FY2013 FY2014 FY2015E
Valuation ratios(x)
P/E 15.08 18.10 22.25
P/BV 5.1 4.5 4
Dividend Yield % 1.6 1.6 1.0
EV/Sales 2 2 2.1
EV/EBITDA 14.7 14.6 17
EV/Total Assets 3.8 3.2 3
Per Share Data(Rs)
EPS 61.55% 66.03% 57.88%
DPS 15.14% 16.33% 16.33%
DPR 18.7 17.7 22.6
Book Value 244 280.3 317.6
Du-Pont Analysis
EBIT margin 13.2 12.7 11.5
Tax retention ratio 0.7 0.8 0.8
Asset turnover 2 1.9 1.6
Cost of debt(post tax) 5.3 7.1 5.5
Operating ROE 11.6 13.1 9.8
Current Ratio 0.951 1.083 1.085
Returns (%)
ROI 33.35% 37.31% 29.34%
ROA 17.48% 16.43% 13.00%
ROCE(pre-tax) 24.4 20.8 16.4
ROE 24.25% 22.61% 17.35%
Turnover ratios(x)
Asset turnover(gross) 3.4 3 2.4
Inventory/Sales (days) 29 30 30
Receivables (days) 21 24 23
Payables (days) 79 81 81
WC cycle (days) -28 -28 -28
Solvency ratios
Debt to equity 20.2% 20.5% 13.6%
Net debt to EBITDA -1.6 -1.8 -2.3
Interest coverage (EBIT/Int.) 17.1 13.7 14.2

50
INTERPRETATION OF SOME IMPORTANT RATIOS :-

ROI: It is a popular financial metric for evaluating the financial consequences of individual
investments and actions. Several different metrics are called by that name, but the best known
is the metric presented here as simple ROI.

Calculation of ROI for Maruti Suzuki

YEAR CALCULATION ANSWER

𝟐𝟑𝟗𝟐
2013 = × 𝟏𝟎𝟎 33.79%
𝟕𝟎𝟕𝟖

2014 𝟐𝟕𝟖𝟑 27.50%

= × 𝟏𝟎𝟎
𝟏𝟎,𝟏𝟏𝟖

𝟑𝟔𝟏𝟒
2015 = × 𝟏𝟎𝟎 40.84%
𝟖𝟖𝟒𝟗

ROI calculations for Mahindra & Mahindra

YEAR CALCULATION ANSWER

2013 𝟑𝟔𝟑𝟒 33.35%

= × 𝟏𝟎𝟎
𝟏𝟎,𝟖𝟗𝟒

2014 𝟑𝟗𝟎𝟓 37.31%

= × 𝟏𝟎𝟎
𝟏𝟎,𝟒𝟔𝟒

2015 𝟑𝟒𝟐𝟑 29.34%

= × 𝟏𝟎𝟎
𝟏𝟏,𝟔𝟔𝟒

51
 Return on Investment
45.00%

40.00%

35.00%

30.00%
% of ROI

25.00%

20.00%

15.00%

10.00%

5.00%

0.00%
2013 2014 2015
Years

ROI of Maruti Suzuki ROI of Mahindra & Mahindra

Figure no. 5.8

From the above data given it is to interpretated that return on investment of Maruti Suzuki is
more better for the two years of 2013 and 2015 while that of Mahindra & Mahindra is not
doing so well in which we can see the downfall of ROI of Mahindra & Mahindra in 2015.
Hence the profitability of Maruti Suzuki is better than Mahindra & Mahindra.

52
ROA - An indicator of how profitable a company is relative to its total assets. ROA gives an
idea as to how efficient management is at using its assets to generate earnings.

Calculation of ROA for Maruti Suzuki:

Year Calculation Answer

2013 𝟐𝟑𝟗𝟐 11.55%

= × 𝟏𝟎𝟎
𝟐𝟎,𝟕𝟎𝟔

2014 𝟐𝟕𝟖𝟑 11.74%

= × 𝟏𝟎𝟎
𝟐𝟑,𝟔𝟖𝟔

2015 𝟑𝟔𝟏𝟒 13.93%

= × 𝟏𝟎𝟎
𝟐𝟓,𝟗𝟑𝟏

Calculation of ROA for Mahindra & Mahindra

Year Calculation Answer

2013 𝟑𝟔𝟑𝟒 17.48%

= × 𝟏𝟎𝟎
𝟐𝟎,𝟕𝟖𝟐

2014 𝟑𝟗𝟎𝟓 16.43%

= × 𝟏𝟎𝟎
𝟐𝟑,𝟕𝟔𝟕

2015 𝟑𝟒𝟐𝟑 13.00%

= × 𝟏𝟎𝟎
𝟐𝟔,𝟑𝟒𝟒

53
 Return On Assets
20.00%

18.00%

16.00%

14.00%

12.00%
% of ROA

10.00%

8.00%

6.00%

4.00%

2.00%

0.00%
2013 2014 2015

Years

ROA of Maruti Suzuki ROA of Mahindra & Mahindra

Figure no. 5.9

From the above data it is stated that Mahindra & Mahindra was having good record of
maintaining ROA in the two consecutive years 2013 and 2014 but in 2015 MAruti Suzuki
overtook them in this regard. Hence in 2015 management of Maruti Suzuki is more efficient
in using the allocated funds.

54
ROE - The amount of net income returned as a percentage of shareholders equity.

Calculation of ROE for Maruti Suzuki

Year Calculation Answer

2013 𝟐𝟑𝟗𝟐 12.87%

= × 𝟏𝟎𝟎
𝟏𝟖,𝟓𝟕𝟗

2014 𝟐𝟕𝟖𝟑 13.26%

= × 𝟏𝟎𝟎
𝟐𝟎,𝟗𝟕𝟖

2015 𝟑𝟔𝟏𝟒 15.37%

= × 𝟏𝟎𝟎
𝟐𝟑,𝟓𝟎𝟖

Calculation of ROE for Mahindra & Mahindra

Year Calculation Answer

2013 𝟑𝟔𝟑𝟒 24.25%

= × 𝟏𝟎𝟎
𝟏𝟒,𝟗𝟖𝟏

2014 𝟑𝟗𝟎𝟓 22.61%

= × 𝟏𝟎𝟎
𝟏𝟕,𝟐𝟔𝟓

2015 𝟑𝟒𝟐𝟑 17.35%

= × 𝟏𝟎𝟎
𝟏𝟗,𝟕𝟐𝟑

55
 Return on Equity
30.00%

25.00%

20.00%
% of ROE

15.00%

10.00%

5.00%

0.00%
2013 2014 2015
Years

ROE of Maruti Suzuki ROE of Mahindra & Mahindra

Figure no. 5.10

As per the above data ROE of Maruti Suzuki is continuously lowered down than Mahindra &
Mahindra hence Maruti Suzuki generates lesser profits by the money invested by
shareholders as compared to that of Mahindra & Mahindra.

56
Earning per share - The portion of a company's profit allocated to each outstanding share
of common stock. Earnings per share serves as an indicator of a company's profitability.

Calculation of EPS for Maruti Suzuki

Year Calculation Answer

𝟐𝟑𝟗𝟐
2013 = × 𝟏𝟎𝟎 79.18%
𝟑𝟎𝟐𝟎.𝟖

𝟐𝟕𝟖𝟑
2014 = × 𝟏𝟎𝟎 92.12%
𝟑𝟎𝟐𝟎.𝟖

𝟑𝟔𝟏𝟒
2015 = × 𝟏𝟎𝟎 119.6%
𝟑𝟎𝟐𝟎.𝟖

Calculation of EPS for Mahindra & Mahindra

Year Calculation Answer

𝟑𝟔𝟑𝟒
2013 = × 𝟏𝟎𝟎 61.55%
𝟓𝟗𝟎𝟑.𝟐𝟑

2014 𝟑𝟗𝟎𝟓 66.03%

= × 𝟏𝟎𝟎
𝟓𝟗𝟏𝟑.𝟗𝟐

𝟑𝟒𝟐𝟑
2015 = × 𝟏𝟎𝟎 57.88%
𝟓𝟗𝟏𝟑.𝟗𝟐

57
 Earning Per Share
140.00%

120.00%

100.00%

80.00%
% of EPS

60.00%

40.00%

20.00%

0.00%
2013 2014 2015
Years

EPS of Maruti Suzuki EPS of Mahindra & Mahindra

Figure no. 5.11

From the above given data it is very clear that Maruti Suzuki is having higher earning per
share than Mahindra & Mahindra hence it can be assumed that Maruti Suzuki is having
higher profitability than Mahindra & Mahindra and it can also be assumed that Maruti Suzuki
is more healthy in finance terms.

58
DPS - The the sum of declared dividends for every ordinary share issued. Dividend per share
(DPS) is the total dividends paid out over an entire year.

Calculation of DPS for Maruti Suzuki

Years Calculation Answer

𝟐𝟏𝟕
2013 = ×100 7.18%
𝟑𝟎𝟐𝟎.𝟖

𝟔𝟗𝟔
2014 = × 𝟏𝟎𝟎 23.04%
𝟑𝟎𝟐𝟎.𝟖

𝟏𝟎𝟖𝟒
2015 = × 𝟏𝟎𝟎 35.88%
𝟑𝟎𝟐𝟎.𝟖

Calculation of DPS for Mahindra & Mahindra

Years Calculation Answer

𝟖𝟗𝟒
2013 = × 𝟏𝟎𝟎 15.14%
𝟓𝟗𝟎𝟑.𝟐𝟑

𝟗𝟔𝟔
2014 = × 𝟏𝟎𝟎 16.33%
𝟓𝟗𝟏𝟑.𝟗𝟐

𝟗𝟔𝟔
2015 = × 𝟏𝟎𝟎 16.33%
𝟓𝟗𝟏𝟑.𝟗𝟐

59
 Dividend Per Share
40.00%

35.00%

30.00%

25.00%
% of DPS

20.00%

15.00%

10.00%

5.00%

0.00%
2013 2014 2015
Years

DPS of Maruti Suzuki DPS of Mahindra & Mahindra

Figure no. 5.12

From the above data it is observed that Maruti Suzuki for the year 2013 was having lower
DPS but in next two consecutive years of 2014 and 2015 it maintained its record of higher
DPS. Mahindra & Mahindra having lower DPS as that of Maruti Suzuki. Hence the dividends
paid by Maruti Suzuki was higher in 2014 and also higher in 2015. This may be the reason
why customers are more intended to go towards Maruti Suzuki to buy.

60
Current ratio - The current ratio is a liquidity ratio that measures a company's ability to pay
short-term and long-term obligations.

Calculations of Current ratio for Maruti Suzuki

Years Calculation Answer

𝟓𝟔𝟗𝟓
2013 = 0.952
𝟓𝟗𝟖𝟐

𝟓𝟑𝟓𝟗
2014 = 0.78
𝟔𝟖𝟒𝟗

𝟖𝟏𝟔𝟖
2015 = 1.14
𝟕𝟏𝟑𝟕

Calculation of current ratio for Mahindra & Mahindra

Years Calculation Answer

𝟖𝟕𝟖𝟐
2013 = 0.951
𝟗𝟐𝟑𝟐
𝟏𝟎,𝟓𝟗𝟓
2014 = 1.083
𝟗𝟕𝟖𝟐
𝟏𝟎,𝟐𝟒𝟕
2015 = 1.085
𝟗𝟒𝟑𝟗

61
 Current Ratio
1.2

0.8
Current Ratio

0.6

0.4

0.2

0
2013 2014 2015
Years

Current Ratio of Maruti Suzuki Current Ratio of Mahindra & Mahindra

Figure no. 5.13

From the above mentioned data it is observed that both the companies are giving good
competition to each other in terms of current ratio. But if compared Maruti Suzuki proved
itself that it has enough resources to pay its debt also in future hence its liquidity is more
higher compared to that of Mahindra & Mahindra.

62
P/E Ratio - The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that
measures its current share price relative to its per-share earnings.

Calculation of P/E ratio for Maruti Suzuki

Years Calculation Answer

𝟏𝟒𝟗𝟕. 𝟗𝟏
2013 = 18.91
𝟕𝟗. 𝟏𝟖

𝟐𝟒𝟎𝟐. 𝟓
2014 = 26.07
𝟗𝟐. 𝟏𝟐

𝟒𝟏𝟓𝟐
2015 = 34.71
𝟏𝟏𝟗. 𝟔

Calculation of P/E ratio for Mahindra &Mahindra

Years Calculation Answer

𝟗𝟐𝟖. 𝟐𝟎
2013 = 15.08
𝟔𝟏. 𝟓𝟓

𝟏𝟐𝟎𝟎. 𝟑𝟎
2014 = 18.10
𝟔𝟔. 𝟑𝟎

𝟏𝟐𝟖𝟖
2015 = 22.25
𝟓𝟕. 𝟖𝟖

63
 P/E Ratio
40

35

30

25
P/E Ratio

20

15

10

0
2013 2014 2015
Years

P/E Ratio of Maruti Suzuki P/E Ratio of Mahindra & Mahindra

Figure no. 5.14

As it is observed from the above data that Maruti Suzuki is giving cut-throat competition to
Mahindra and Mahindra in terms of P/E ratio and Maruti Suzuki has maintained its record of
higher P/E ratio in all the three consecutive years. Hence from the above observation it can be
stated that investors are having more faith in Maruti Suzuki as compared to Mahindra &
Mahindra and are anticipating higher growth in future. Mahindra & Mahindra is loosing
money hence its P/E ratio is lowering YoY.

64
Debt to Equity Ratio – It is a financial ratio indicating the relative proportion
of shareholders' equity and debt used to finance a company's assets. Closely related to
leveraging, the ratio is also known as Risk, Gearing or Leverage.

Calculation of Debt Equity ratio for Maruti Suzuki

Years Calculations Answers

𝟏𝟑𝟖𝟗
2013 = × 𝟏𝟎𝟎 7%
𝟏𝟖, 𝟓𝟕𝟖
𝟏𝟔𝟖𝟓. 𝟏𝟎
2014 = × 𝟏𝟎𝟎 8%
𝟐𝟎, 𝟗𝟕𝟖
𝟏𝟖𝟎. 𝟐𝟎
2015 = × 𝟏𝟎𝟎 0.76%
𝟐𝟑, 𝟕𝟎𝟒

Calculation of debt equity ratio for Mahindra & Mahindra

Years Calculations Answers

𝟐𝟗𝟔𝟎
2013 = × 𝟏𝟎𝟎 20.2%
𝟏𝟒, 𝟔𝟒𝟖
𝟑𝟒𝟓𝟏
2014 = × 𝟏𝟎𝟎 20.5%
𝟏𝟔, 𝟕𝟖𝟎
𝟐𝟔𝟐𝟎. 𝟑𝟖
2015 = × 𝟏𝟎𝟎 13.6%
𝟏𝟗, 𝟐𝟒𝟒. 𝟑𝟎

65
 Debt-Equity Ratio
25%

20%

15%
Debt-Equity Ratio

10%

5%

0%
2013 2014 2015
Years

Debt-Equity Ratio of Maruti Suzuki Debt-Equity Ratio of Mahindra & Mahindra

Figure no. 5.15

From the above graphical data and also the calculations it is observed that percentage level of
Maruti Suzuki is very low as compared to that of Mahindra & Mahindra. While Mahindra &
Mahindra is having growth in percentage of debt-equity ratio which can harm the financial
health of the company and may have the adverse effects on the company. Hence from the
above observations it can be stated that the debt-to-equity ratio shows the proportion of
equity and debt a firm is using to finance its assets and in case of Maruti Suzuki, it shows
lower debt equity ratio, indicates lower risk, since debt holders have less claim on the
company's assets and on the other hand Mahindra & Mahindra which is having higher debt-
to-equity ratio, shows that a company has been aggressive in financing its growth with debt,
and there may be a greater potential for financial distress if earnings do not exceed the cost of
borrowed funds.

66
Chapter 6: Conclusions

67
 As we all know India is fastest growing economies of the world. The automotive industry is
facing tremendous and unprecedented changes these days. On a global scale, the assets of top
ten automotive corporations accounts for 28% of assets of the world’s top 50 companies,
29% of their employment and 30% of their total sales. The Indian auto industry is one of the
largest in the world with an annual production of 23.37 million vehicles in FY 2014-15,
following a growth of 8.68 per cent over the last year. The sales of Passenger Vehicles grew
3.9 per cent in FY 2014-15 over the same period last year. Within the Passenger Vehicles
segment, Passenger Cars and Utility Vehicles registered a growth of 4.99 per cent and 5.30
per cent respectively. As per data provided by Society of Indian Automobile manufacturers,
the Indian Auto industry produced a total 7.8 million vehicles in April-July 2015 as against
7.7 million in April-July 2014, thereby indicating a growth of 1.8 per cent year-on-year (yoy).

Leading auto maker Maruti Suzuki expects Indian passenger car market to reach four
million units by 2020, up from 1.97 million units in 2014-15. The Maruti Suzuki scrip
recouped some of the losses it had sustained over and gave better-than-expected sales
volumes in December 2014. The company is expected to improve its 52% market size in the
small-car segment. Its new launches such as the Ciaz and the Celerio have had some success,
with the former launched in October 2014 grossing about 5,000 units a month. The success
of new products and a strong launch pipeline will add to the overall market share. The
automobile industry is highly competitive and competition is likely to further intensify in
view of the continuing globalization and consolidation in the worldwide automotive industry.
On the domestic front, Maruti Suzuki competes against Tata Motors, Mahindra & Mahindra,
Hyundai Motors, and Honda. The competition within the industry is increasing further with
new players entering the market and some smaller players catching up.

The tractor industry in India is dominated by 3 players viz. M&M, TAFE and Escorts who
together control 70% of the overall tractor market. M&M is the market leader with ~42%
market share. M&M has maintained its market share in domestic tractor industry since
acquisition of Swaraj Tractors in FY 2009. The company plans to launch six new tractors in
the next three years, three each under its Mahindra and Swaraj brands.

68
Chapter 7: Learnings & Contribution

69
 From the above data, theory, tables, diagrams and graphs it is to be observed that Maruti
Suzuki is doing well in the market in which the vehicles of Maruti are always preferred by
the people as they are low cost and have more features. Also Maruti has maintained its
standards in capital market by maintaining its reputation in the market and holding the
interests of the investors due to which investors of Maruti Suzuki are having more faith in the
company and its shares.

Due to economic analysis it is to be understood that how companies are getting benefitted
or also how companies are getting adversely affected due to economic factors like GDP,
inflation rates, interest rates and also tax rates which is also been mentioned in the SWOT
and Pestle analysis.

Industrial analysis done in report gives us the knowledge of how industry is working
currently and its growth in near future. Also the participants of the industry is discussed in the
report.

Company analysis gives us the detailed information of the preferred companies for e.g.
Maruti Suzuki and Mahindra & Mahindra. About the company, its products and also the
quantitative indicators of company analysis which are the financial indicators and operational
efficiency indicators. Financial indicators are the profitability indicators and financial
position indicators, analyzed through the income and balance sheet statement of the company
mentioned in the report. Qualitative factors are the management reputation, name of the
company, operational plans of the company for the future and so on as revealed in the
director’s /auditor's reports and also the information revealed by the management to the
media.

Ratio analysis provides the information of the investment, profitability, working of

management, utilization of funds, debt, dividends paid to shareholders, faith of investors,
resources, risk, etc. all the information is furnished with detailed calculations and graphical
representations.

According to this study Mahindra & Mahindra is lagging behind Maruti Suzuki due to
some factors which are to be fixed by the companies as early as possible which may harm the
company’s financial position and would not compete in future with other automotive
companies so far.

It is recommended to Mahindra & Mahindra that it should make the optimum use of
allocated resources and should gain the faith of customers for making more equity
investments and also should lower the risk and debt as fast as possible to raise the bar of
profitability by making proper utilization of funds and resources. Foreign automobile
companies like BMW, Audi, Mercedez, Toyota are already running good in the Indian market
and some steps should be taken earlier before they overtake the Indian companies and get a
hold on the Indian market.

70
Chapter 8: Bibliography

71
JOURNALS
Annual report of the companies given by Angel broking and Equitymaster.

WEBSITES

1. www.bseindia.com
2. www.nseindia.com
3. www.stockchart.com
4. www.marutisuzuki.com
5. www.investopedia.com
6. www.equitymaster.com
7. www.moneycontrol.com
8. www.mahindraandmahindra.com

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