Indian Automobile Industry Analysis 3p404q

AN ALYSIS OF INDIAN AUTOMOBILE INDUSTRY

PROJECT REPORT ON ANALYSIS OF INDIAN AUTOMOBILE INDUSTRY

SUBMITTED TO :

SUBMITTED BY:

MR. KUMAR BIJOY

ISHEETA NIRMAL (195) DEEPIKA GARG (188) RASHMI SHARMA (215) ROSHAN AGARWAL(218) VIKAS GUPTA (229) NIKHIL MAHAJAN (240)

NEW DELHI INSTITUTE OF MANAGEMENT 60, 50(B&C), TUGHLAKABAD INSTITUTIONAL AREA NEW DELHI-110062 NEW DELHI INSTITUTE OF MANAGEMENT- PGDM(2008-10)

GROUP-15, FINANCE-II

1


DECLARATION We hereby declare that the work presented in this Project entitled “ Analysis of Indian Automobile Industry” submitted to Prof. Bijoy kumar (visiting Faculty) at

New Delhi Institute Of Management, New Delhi is an authentic record of our original work.

Signature of Mentor

Signature of Candidates

Date:

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


2


ACKNOWLEDGEMENT The satisfaction and joy that accompanies the successful completion of a task is incomplete without mentioning the name of the person who extended his help and in making it a success. We are greatly indebted to Mr. Bijoy (Guest Faculty at NDIM), my Project Guide and Mentor for devoting his valuable time and efforts towards my project. We thank him for being a constant source of knowledge, inspiration and help during this period of making project.

ISHEETA NIRMAL DEEPIKA GARG RASHMI SHARMA ROSHAN AGARWAL VIKAS GUPTA NIKHIL MAHAJAN



3


PREFACE Indian automobile industry has grown leaps and bounds since 1898, a time when a car had touched the Indian streets for the first time. At present it holds a promising tenth position in the entire world with being # 1 in Two Wheelers and # 4 in commercial vehicles. Withstanding a growth rate of 18% per annum and an annual production of more than 2 million units, it may not be an exaggeration to say that this industry in the coming years will soon touch a figure of 10 million units per year. The automobile industry in India — the ninth largest in the world with an annual production of over 2.3 million units in 2008 — is expected to become one of the major global automotive industries in the coming years. In this project we have undergone a detailed analysis of India automobile industry by using Fundamental and Technical tools. In order to better understand the performance of the industry we have made comparative analysis of Two players Tata motors as (leading player) and Maruti Suzuki. The project report is divided into 5 chapters. The first two chapters include Executive Summery & objective of the research. The third chapter deals with analysis of automobile Industry which entails fundamental and technical analysis of Indian Automobile Industry. The fourth chapter deals with Conclusion & Recommendations and the last chapter includes Bibliography.



4


TABLE OF CONTENT S.NO.

PARTICULARS

PAGE NO.

Chapter 1. Executive Summary of the Project Chapter 2. Objective of the Project Chapter 3. Analysis of Indian Automobile Industry • Fundamental Analysis a. Economy b. Industry c. Company - Financial & Non-Financial

• Technical Analysis a. b. c. d.

Share Price Analysis Moving Average Moving Average Crossover Bollinger Band e. M.A.C.D

Chapter 4

Conclusion & Recommendations

Chapter 5

Bibliography Annexure



5


EXECUTIVE SUMMARY The automobile industry, one of the core sectors, has undergone metamorphosis with the advent of new business and manufacturing practices in the light of liberalization and globalization. The sector seems to be optimistic of posting strong sales in the couple of years in the view of a reasonable surge in demand. The Indian automobile market is gearing towards international standards to meet the needs of the global automobile giants and become a global hub. A detailed analysis of Automobile industry has been covered in respect of past growth and performance. Under this project to better understand the Industry we have used Fundamental and Technical tools to make it more authentic n meaningful. An E.I.C approach has been followed under Fundamental Analysis which covered effect of Recession, the impact of inflation, FDI’s, Export, GDP etc. on Automobile Industry. The Industry Analysis has been done with the help of five forces model, BCG Matrix, SWOT analysis, industry life cycle and the industry specific index. For Company Analysis as a part of Fundamental tool we have undergone with the comparative analysis of TATA Motors as our leading company with Maruti Suzuki India’s largest Car manufacturer. The fundamental aspect consists financial and Non-Financial analysis of both the company. In the Technical aspect we have considered Share price analysis, moving average, moving average crossover, Bollinger bands and M.A.C.D. of both the company by keeping TATA Motors as our leading company. At the end conclusion and recommendations have been specified so as to make the research work more meaningful and purposeful.



6


OBJECTIVE OF THE PROJECT The objective of this project is deeply analyze our Indian Automobile Industry for investment purpose by monitoring the growth rate and performance on the basis of historical data. The main objectives of the Project study are: • Detailed analysis of Automobile industry which is gearing towards international standards •

Analyze the impact of qualitative factors on industry’s and company’s prospects

•

Comparative analysis of two tough competitors TATA Motors and Maruti Suzuki

•

Application of various Technical Tools and Fundamental tools (like Financial and Nonfinancial statements).



7


ANALYSIS OF AUTOMOBILE INDUSTRY Over a period of more than two decades the Indian Automobile industry has been driving its own growth through phases. With comparatively higher rate of economic growth rate index against that of great global powers, India has become a hub of domestic and exports business. The automobile sector has been contributing its share to the shining economic performance of India in the recent years. To understand this industry for the purpose of investment we need to analyze it by following two approaches: 1). Fundamental Analysis (E.I.C Approach) a. Economy b. Industry c. Company 2).Technical Analysis 1)

FUNDAMENTAL ANALYSIS

a). ECONOMY Economic analysis is the analysis of forces operating the overall economy a country. Economic analysis is a process whereby strengths and weaknesses of an economy are analyzed. Economic analysis is important in order to understand exact condition of an economy.

GDP and Automobile Industry In absolute , India is 16th in the world in of nominal factory output. The service sector is growing rapidly in the past few years. This is the pie- chart showing contributions of different sectors in Indian economy. The per capita Income is near about Rs38,000 reflecting improvement in the living standards of an average Indian. Today, automobile sector in India is one of the key sectors of the economy in of the employment. Directly and indirectly it employs more than 10 million people and if we add the number of people employed in the auto-component and auto ancillary industry then the number goes even higher. As the world economy slips into recession hitting the demand hard and the banking sector takes conservative approach towards lending to corporate sector, the GDP growth has downgraded it to 7.1 per



8


cent for 2008-09 and predicted it to be 6.5 per cent for FY 2009-10 Mr. Montek Singh (Planning Commission of India). Following is the graph showing a trend of Indian GDP trend in past 3 years.

Source:India Central Statistical Organization The market value of Automobile Industry is more than US$8 bl. and Contribution in Indian GDP is near about 5% and will be double by 2016. The automotive industry in India grew at a computed annual growth rate (CAGR) of 11.5 percent over the past five years, but growth rate in last FY2008-09 was only 0.7% with enger car sales shows 1.31% growth while Commercial Vehicles segment slumped 21.7%.

Recession All the major auto companies enjoyed the high growth ride till the mid 2008. But at the end of the year, industry had to face the hard truth and witnessed the fall in sales compared to last year. In December 2008, overall production fell by 22 % over the same month last year. Global recession has hit the Indian auto industry, India is strong and growing industry but the impact of recession is evident now on industry as sales & growth of automobile companies have declined. enger Vehicles segment ed negative growth. One of its ing facts is that the sales in December 2008 for enger vehicles fell by 13.86% over December 2007 Two Wheelers ed minor growth of 1.85 % during April – December 2008. However, Two Wheelers sales recorded 15.43 percent fall in December 2008 over the same month last year. Although the sector was hit by economic slowdown, overall production (enger vehicles, commercial vehicles, two wheelers and three wheelers) increased from 10.85 million vehicles in 2007-08 to 11.17 million vehicles in 2008-09. enger vehicles increased marginally from 1.77 million to 1.83 million while two-wheelers increased from 8.02 million to 8.41 million. Total number of vehicles sold including enger vehicles, commercial vehicles, two-wheelers and three-wheelers in 2008-09 was 9.72 million as compared to 9.65 million in 2007-08.

Inflation Despite of negative inflation these days (-.21% on 22-Aug-09) we saw an increasing trend of sales in auto sector. A moderate amount of inflation is important for the proper growth of an economy like India because it attracts more private investment. The fall in wholesale prices from a year earlier is mainly due to a statistical base effect and doesn’t suggest contraction in demand, the Reserve Bank of India said few week back, while revising its inflation forecast for the FY through March to around 5% from 4%.



9


In last FY despite of skyrocketing oil prices (crude oil price has already up to $130 compared to $20 per barrel five years back), Indian automobile Industry was not as much affected and experts think that Indian automobile industry will continue to grow this year despite all obstacles- oil price hike, higher interest rates. However, the effect of inflation has affected every sector which is related to car manufacturing and production. The increase in the price of fuel and the steel due to inflation has led to a slower growth rate of the car industry in India. The effect of inflation has taken the rise in the price rate of the cars by 3-4% which in turn suffices the need to meet the rise in price of the raw materials to build a car. The car market and the car industry witnessed a fall of 8-9%.

FDI’s In India FDI up to 100 percent, has been permitted under automatic route to this sector, which has led to a turnover of USD 12 billion in the Indian auto industry and USD 3 billion in the auto parts industry. India enjoys a cost advantage with respect to casting and forging as manufacturing costs in India are 25 to 30 per cent lower than their western counterparts the Investment Commission has set a target of attracting foreign investment worth US$ 5 billion for the next seven years to increase India's share in the global auto components market from the existing 0.9 per cent to 2.5 per cent by 2015. FDI inflows in Automobile Industry 2008-09 was Rs.5,212 Cr an increase of 47.25% compare to 2007-08, while in April-May 2009 it was around Rs.497 Cr. Source- FDI Statistics Govt. of India

Foreign Exchange India holds the third largest stock of reserves among the emerging market economies after China and Russia. The overall approach to the management of India's foreign exchange reserves in recent years reflects the changing composition of the balance of payments and the 'liquidity risks' associated with different types of flows and other requirements.

Source: rbi.org.in

Taking these factors into , India's foreign exchange reserves continued to be at a comfortable level and consistent with the rate of growth, the share of external sector in the economy and the size of risk-adjusted capital flows. Following is the table shows the trend of foreign reserves held by central bank in last FY. Reserves came down cause of recession all over the world however India still able to maintain its reserves hence a minor fall was seen compare to all other country which shows great strength in long-term for Indian Economy. Increase in Exports specially from auto industry shows an expectations of huge income from western countries and new $200 bl. target for exports by 2011 helps in increasing. Note:



10

AN ALYSIS OF INDIAN AUTOMOBILE INDUSTRY 1.FCA (Foreign Currency Assets): FCAs are maintained as a multicurrency portfolio comprising ajor currencies, such as, US dollar, Euro, Pound sterling, Japanese yen, etc. and is valued in of US dollars. 2. SDR (Special Drawing Rights): Values in SDR have been indicated in parentheses. 3. Gold: Physical stock has remained unchanged at approximately 357 tonnes. 4. RTP refers to the Reserve Tranche Position in the IMF.

Export Society of Indian Automobile Manufacturers (SIAM), automobile sales (including enger vehicles, commercial vehicles, two-wheelers and three-wheelers) in the overseas markets increased to 1.53 million units in 2008-09 from 1.23 million units in 2007-08. Export of enger vehicles increased from 218,401 in 2007-08 to 335,739 units in 2008-09.

There is a continuous increase in the export of automobiles since the financial year 2002-03, except for the decline in the export of commercial vehichles in the financial year 2008-09, which may be attributed to the global economic recession. Despite recession, the Indian automobile market continues to perform better than most of the other industries in the economy in coming future, more and more MNC’s coming in India to setup their ventures which clearly shows the scope of expansion. Current Scenario of Automobile Industry in Economy With the latest available data Indian Automobile Industry is expected to grow at 9%-10% in near future, Two wheeler segment sales grew up by 12.8% with the modest 2.6% growth rate, under this segment the market leader Hero Honda ed growth of 12% in its domestic sales where as Bajaj Auto disappointed as sales plunging by 23%, on the other hand car sales has been grew up by a healthy 22.7% in last February and Commercial Vehicles reported slower sales. It is assumed that in coming festive season to meet demand, carmakers going to produce 70000units/month more over the average 1.3lac/month with help of 5000 new hands. Source: Economic Times



11


Indian Automobile Industry at Global level: • • • • •

India ranks 1st in the global two-wheeler market India is the 4th biggest commercial vehicle market in the world India ranks 11th in the international enger car market India ranks 5th pertaining to the number of bus and truck sold in the world India is the second largest tractor manufacturer in the world.

Volkswagen, Toyota, Nissan & Ford plan new cars to cash in on fastest-growing compact car section of car market in India. Source: Economic Times Sales of different Auto Companies speed up even before festive season Maruti by 29%, TATA by 11%,Skoda Auto 33%, Hero Honda 33%, Mahindra 42%, Yamaha 63% etc. Source: Economic Times (3/09/09) It is expected that the Automobile Industry in India would be the 7th largest automobile market within the year 2016. Projected Growth rate in Automobile Industry • • •

enger vehicle sales in the country will grow at a CAGR of 12 per cent to touch 3.75 million units by 2014. The domestic two-wheeler sales will grow at a CAGR of 8.8% by 2014 at 11.3 million units. To emerge as the destination of choice in the world for design and manufacture of automobiles and auto components with output reaching a level of US$ 145 billion ing for more than 10% of the GDP and providing additional employment to 25 million people by 2016.

b.) INDUSTRY ANALYSIS (AUTOMOBILE) The current trends of the global automobile industry reveal that in the developed countries the automobile industries are stagnating as a result of drooping markets, whereas the automobile industry in the developing nations, have been consistently ing higher growth rates every ing year for their domestic flourishing domestic automobile markets. Being one of the fastest growing sectors in the world its dynamic growth phases are explained by the nature of competition, Product Life Cycle and consumer demand. The industry is at the crossroads with global mergers and relocation of production centers to emerging developing countries. In 2009, estimated rate of growth of India Auto industry is going to be 9% .The Indian automobile sector is far from being saturated, leaving ample opportunity for volume growth.

Segmentation of Automobile Industry The automobile industry comprises of Heavy NEW DELHI INSTITUTE OF MANAGEMENT- PGDM(2008-10)


12


vehicles (trucks, buses, tempos, tractors); enger cars; Two-wheelers; Commercial Vehicles; and Three-wheelers. Following is the segmentation that how much each sector comprises of whole Indian Automobile Industry.

Industrial Analysis of any industry can be done based on the following headings: 1. 2. 3. 4. 5.

Five Forces Model BCG Matrix Industrial Life Cycle SWOT Analysis Industry Specific Index

1.) Five Forces Model Michael Porter identifies five forces that influence an industry. These forces are •

Degree of Rivalry Despite the high concentration ratio seen in the automotive sector, rivalry in the Indian auto sector is intense due to the entry of foreign companies in the market. The industry rivalry is extremely high with any being product being matched in a few months by the competitors. This instinct of the industry is primarily driven by technical capabilities acquired over years of gestation under the technical collaboration with international players.

•

Threat of Substitutes The threat of substitutes to the automotive industry is fairly mild. Numerous other forms of transportation are available, but none offer the utility, convenience, independence and value offered by automobiles. The switching cost associated with using a different mode of transportation, may be high in of personal time, convenience and utility.

•

Barriers to entry The barriers to enter automotive industry are substantial. For a new company, the startup capital required to establish manufacturing capacity to achieve minimum efficient scale is prohibitive. Although the barriers to new companies are substantial, establishing companies are entering the new markets through strategic partnerships or through buying out or merging with other companies. However, a domestic company, with local knowledge and expertise, has the potential to compete its home market against the global firms who are not well established there.

•

Supplier’s power



13


In the relationship between the industry and its suppliers, the power axis is tipped in industry’s favor. The industry is comprised of powerful buyers who are generally able to dictate their to the suppliers. •

Buyers’ Power In the relationship between the automotive industry and its ultimate consumers, the power axis is tipped in the consumers’ favor. This is due to the fairly standardized nature and the low switching costs associated with selecting from among competing brands.

2.) BCG

Matrix

In an economy, different industries are present and different industries have different growth rate as compared to the growth of the economy. In an economy, there are a number of major industries and they all occupy different positions in the BCG matrix according to their growth and contribution towards the economy. In the Indian economy, some of the major sectors are FMCG, automobiles, banking and insurance, steel, telecom, software, pharmacology and retail sectors and these can be placed in the different positions in the matrix as shown below: INDUSTRY BCG MATRIX H igh

S TAR

M a r k e t G r o w t h

Banking &

QUESTION MARKS Telecom Retai l

AUTOMOBIL ES Softwa re CASH COWS

F MCG

D OGS

Low H

Relative market share


Low GROUP-15, FINANCE-II

14


STARS

Question Marks

Mahindra& BCG matrix Mahindra is used to determine the Hero TVS relative position of Bajaj General Mototrs the Auto companies of an industry or Dogs Cash Cows different SBU’s of any institution, in of the market growth rate and the market share of the company in the industry. In the Indian automobile sector, the major players are Maruti Suzuki Limited, General motors, Mahindra and Mahindra, Tata Motors, Hero Honda and Bajaj auto. In the BCG matrix, the companies are placed in one of the following four categories: Star, Cash Cows, Dogs and Question marks. In the Stars we place the companies with high market growth and high market share, cash cows are the companies who have low market growth rate and high relative market share, the category of the question marks include the companies with low relative market share and high market growth rate and dogs include the companies who have low relative market share and low market growth rate.

COMPANY BCG MATRIX H igh M a r k e t G r o w t h

TATA Motors Maruti Suzuki

Low H igh

Relative market share


Low


15


3.) Industrial Life Cycle The industrial life cycle is a term used for classifying industry vitality over time. Industry life cycle classification generally groups industries into one of four stages: pioneer, growth, maturity and decline. In the pioneer phase, the product has not been widely accepted or adopted. Business strategies are developing, and there is high risk of failure. However, successful companies can grow at extraordinary rates. The Indian automobile sector has ed this stage quite successfully. In the growth phase, the product market has been established and there is at least some historical guide to ground demand estimates. The industry is growing rapidly, often at an accelerating rate of sales and earnings growth. Indian Automotive Industry is booming with a growth rate of around 15 % annually. The cumulative growth of the enger Vehicles segment during April 2007 – March 2008 was 12.17 percent. enger Cars grew by 11.79 percent, Utility Vehicles by 10.57 percent and Multi Purpose Vehicles by 21.39 percent in this period. The Commercial Vehicles segment grew marginally at 4.07 percent. While Medium & Heavy Commercial Vehicles declined by 1.66 percent, Light Commercial Vehicles recorded a growth of 12.29 percent. Three Wheelers sales fell by 9.71 percent with sales of Goods Carriers declining drastically by 20.49 percent and enger Carriers declined by 2.13 percent during April- March 2008 compared to the last year. Two Wheelers ed a negative growth rate of 7.92 % during this period, with motorcycles and electric two wheelers segments declining by 11.90 percent and 44.93% respect. However, Scooters and Mopeds segment grew by 11.64% and 16.63% respect. The growth rate of the automobile industry in India is greater than the GDP growth rate of the economy, so the automobile sector can be very well be said to be in the growth phase. As the product matures, growth slows as penetration reaches practical limits. Companies began to focus on market share rather than growth. Industry demand tends to follow the overall economy, but the scope of growth of the automobile sector is very much possible in India due to the increasing income of the middle class and their income as well as standard of living.

4.) SWOT Analysis A scan of the internal and external environment is an important part of the strategic planning process. Environmental factors internal to the firm usually can be classified as strengths (S) or weaknesses (W), and those external to the firm can be classified as opportunities (O) or threats (T). Such an analysis of the strategic environment is referred to as a SWOT analysis. SWOT analysis of the Indian automobile sector gives the following points:



16


Strengths • Large domestic market • Sustainable labor cost advantage • Competitive auto component vendor base • Government incentives for manufacturing plants • Strong engineering skills in design etc Weaknesses • Low labor productivity • High interest costs and high overheads make the production uncompetitive • Various forms of taxes push up the cost of production • Low investment in Research and Development • Infrastructure bottleneck Opportunities • Commercial vehicles: SC ban on overloading • Heavy thrust on mining and construction activity • Increase in the income level • Cut in excise duties • Rising rural demand Threats • Rising input costs • Rising interest rates • Cut throat competition

5.) Industry Specific Index Industry specific index also called as sectoral index are those indices, which represent a specific industry sector. All stocks in a sectoral index belong to that sector only. Hence an index like the BSE auto index is made of auto stocks. Sectoral Indices are very useful in tracking the movement and performance of particular sector. BSE Auto Index comprises all the major auto stocks in the BSE 500 Index.



17


•

BSE AUTO Index 5 Year Chart

• Automobile Industry Index at BSE for 5 Year

COMPANY Source:Googlefinance.com Above is the Indian Auto Industry Index(BSE) shows the up’s and down’s over the period of 5 years. Intially in 2003 when major giants got listed on stock exchange TATA Motors, Maruti Suzuki, etc. indian auto industry start picking up growth slowly in the first end of 1st quarter index reaches to its highest in his history. Than we saw a steady fall in the index and in the mid 2006 reaches to years lowest point it again start booming and than year on year we saw a up and down movement in the index as lots of new players came in Indian market with foreign colaboration but when 2008 came with global slowdown it brings the demand of automobile so low that index reaches to its lowest in past 5year . Most of the company even shut down their manufacturing units for more than a week, production came down because of less demand in the economy. Also no further launches were made in mid or late 2008 and postponed to next year. We have also saw a fall in FDI’s in automobile Industry. But in the beginning of 2009 right from 1st quarter auto industry again start regaining and we saw a tremondous growth in auto industry which never seen before not in india but all over the world. The demand of 2 and 4 Wheelers start increasing rapidly which also force auto industry to employ more workers to meet demand and with



18


in the 2nd quarter of FY2009-10 Auto index reaches to its highest ever crossed mark of 6000. And this growth of industry will be carry further as festive season still to come, so there is a lot of scope to growth in this industry.

c.) COMPANY ANALYSIS (Maruti Suzuki & TATA Motors) The company analysis shows the longterm strenght of the company that what is the financial Position of the company in the market where it stand among its competitors and who are the key drivers of the company, what is the future plans of the company, what are the policies of government towards the company and how the stake of the company divested among different groups of people.

Profile of Maruti Suzuki Maruti Suzuki is one of India's leading automobile manufacturers and the market leader in the car segment, both in of volume of vehicles sold and revenue earned. Until recently, 18.28% of the company was owned by the Indian government, and 54.2% by Suzuki of Japan. As of May 10, 2007, Govt. of India sold its complete share to Indian financial institutions. With this, Govt. of India no longer has stake in Maruti Udyog. The turnover for the fiscal 2008-09 stood at Rs. 203,583 Million & Profit After Tax at Rs. 12,187ml.Maruti Suzuki India Ltd. has sold a total of 84,808 vehicles in August 2009, an increase of 41.6%, compared to 59,908 vehicles in the same period of 2008. The company's domestic sales in August 2009 increased 29.3% to 69,961 vehicles, compared to 54,113 vehicles in August 2008. Total enger car sales in August 2009 increased 30.5% to 69,629 units, compared to 53,351 units in August 2008 The company's exports increased 156.2% to 14,847 units, compared to 5,795 units in August 2008.

Profile of Maruti Suzuki Tata Motors Limited is India’s largest automobile company, reported gross revenue (stand-alone) of Rs.28599.27 crores (2007-08: Rs.33093.93 crores) in 2008-09, a year marked by severe demand contraction in the automobile industry. Revenues (net of excise) for the year were Rs. 25660.79 crores compared to Rs.28739.41 crores in 2007-08, a decline of 10.7%. The Profit before Tax was Rs.1013.76 crores compared to Rs.2576.47 crores in 2007-08, a decline of 60.7%. The Profit after Tax for the year was Rs.1001.26 crores compared to Rs.2028.92 crores, a decline of 50.7%. It is the leader in commercial vehicles in each segment, and among the top three in enger vehicles with winning products in the compact, midsize car and utility vehicle segments. The company is the world’s fourth largest truck manufacturer, and the world’s second largest bus manufacturer. Following is the financial and Non-Financial analysis of Maruti Suzuki & TATA Motors.



19


• Financial Analysis 1. Financial Statements

RATIO ANALYSIS OF TATA MOTORS AND MARUTI SUZUKI EPS measures the profit available to the equity shareholders per share, that is, the amount that they can get on every share held. Till 2008 both the companies had a rising EPS but in 2009 both of them fall and the effect more on Tata motors as they bought two brands Ford Motors and fall in sales results in low EPS. But as trend shows TATA motors have potential so an shareholder expect better in future. EPS = Net income- Dividends on Preferred stock Average Outstanding shares

The trend shows that Tata’s net profit margin is quite stable until it falls to 3.77 in 2009. While the net profit of India’s no.1 car manufacturer Maruti Suzuki shows a negative trend from 2007 onwards. But the future prospect for both the company’s profit is higher. Profit margins come down as recession hits economy badly hence sales get reduced and cost get increased very much. Net profit Ratio = (Net profit) × 100 (Net sales)

Both giants of Automobile industry shows positive trend Sales Revenue over the past 5year. However recession brought hurdles but both companies have potential to in future as lots of products


in

grow are


20


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

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

A high debt to equity ratio suggests that a company has financed its growth mostly via debt. We see that the debt –equity ratio of TATA motors is very high compared to that of Maruti. It means that a lot of debt is used by TATA’s to finance its increased operations. Sometimes the cost of the debt financing may outweigh the return that the company generates on the debt through investment and business activities and can lead to bankruptcy. Maruti is going very swiftly in this field. Debt-Equity Ratio= Total Debt Total Equity The current ratio is a convenient and reliable tool for measuring a company's level of liquidity. The ratio acts as an indication that the firm is able to generate



21


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

Tata motors and Maruti Suzuki both the companies showed a positive trend in paying dividends till 2008, but the scenario changed in 2009 as both the company’s dividend per share fell. According to graph TATA’s dividend was much higher than that of Maruti, it always provided dividend of above 10 per share to its shareholders while maruti stick to below 5 per share, even though the fall in dividend in 2009, still both the companies are earning good profit. Dividend Per Share= Total amount of Dividend Share Outstanding

a.)

Balance Sheets Maruti Suzuki


TATA Motors


22


b.) Income Statements Maruti Suzuki


TATA Motors


23


• Non-Financial Analysis 1. Share Holding Pattern for Quarter Ended 30-June-09



24


Above is the updated share holding pattern of TATA motors which shows that Indian promoter share in the company is 41% that means if they are not in the position to raise further money from general public, Company already raised huge money by selling their large stake to institutional investors about 27%. General Public also have quite large stake in the company 2.

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

Board of Director TATA Motors

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

Chairman Director Director Director Director Director Vice Chairman Director Director Director Director Director

Maruti Suzuki Mr. R. C. Bhargava Mr. Shinzo Hakanishi Mr. Manvinder Singh Banga Mr. Amal Ganguli Mr. D. S. Brar Mr. Keiichi Asai Mr. Osamu Suzuki Mr. Shuji Oishi Ms. Pallavi Shroff Mr. Kenichi Ayukawa Mr. Tsuneo Shashi

3. Ventures & Products

Chairman MD and CEO Director Director Director Director Director Director Director Director Director & Managing Executive Office (Production)

TATA Motors Tata Motors is try to be in a position to dominate the Indian Auto industry, at least in four-wheeler segment. Tata Motors have announced that they are interested in the idea of deg electric cars. To take it a step further Tata has also initialized plans for the manufacture of a hybrid car which it will market with Chryster in the U.S. After the launch of Nano, Tata also apparently has its eye on the European and U.S. markets. The company hopes to have a version for Europe by 2011 and one for the U.S perhaps by 2012. Tata Motors,



25


is now aiming to launch its cars in Indonesia and is also planning to sell Nano in South America with the help of Fiat. After launching the world’s cheapest car, Nano, Tata Motors is looking east, towards neighboring Myanmar to boost its sales by setting up a truck manufacturing plant. As part of its expansion plans in Southeast Asia, Tata Motors had inked a t venture with Thailand’s Thonburi Auto Assembly’s to manufacture up to 35,000 one tone pickup trucks a year over the next 3-5 years. Tata Motors, is searching options to pump approximately Rs. 8,000 cr. During the next 3-4 years on capital expenditure and product development.

Maruti Suzuki Maruti Suzuki has expanded the capacity at its Manesar plant to 1.7 lakhs unit per annum from January 2009. By the year 2010, Suzuki Motors plan to increase their dealership in India. This is a step to increase their sales to one million units as well as for a better position in the Indian auto market. The expansion is estimated to cost $ 3.5 billion, out of which a quarter will be assigned for amplifying leadership network to 1000 in number. As Maruti Suzuki eyes one million sales by 2010, they have firmed up a massive expansion plan of its service network and plans to expand it to 1700 towns and cities from the current of about 1200. The company plans to increase the number of service stations and workshops to over 3800 from about 2800 currently. They have also been coming with specific sales promotion programmes targeted at interior regions, among them is the “Mera Sapna Meri Maruti: New Panchayati Scheme”. The Haryana government has allotted 700 acres of land to Maruti Suzuki for hi – tech Research & Development complex at Rohtak. The facility, will see an investment in the range of Rs. 1,000 cr. to 1,500 cr. And will introduce world class R&D facilities into India. While the development of the allotted land and construction of the test tracks will be completed in the first phase by 2012, the overall R&D facilities will be progressively completed by 2015. In a move ahead, Maruti Suzuki India limited launched the Estilo with all new overall looks and advanced technological features.

The cars in near future by both companies are:

TATA Motors

Maruti Suzuki Products (CAR) Expected Launch Maruti Grand Vitara Diesel December- 2009 Maruti 02 December 2009 Maruti SX4 Diesel December 2009 Maruti Cervo December 2009 Maruti Kizashi December 2009 Maruti xl7 March 2010



26


Maruti APV Maruti Jimny

4.

June 2010 July 2010

Government Policies Towards Indian Automobile Industry

Automobile industry in India also received an unintended boost from stringent government auto emission regulations over the past few years. This ensured that vehicles produced in India conformed to the standards of the developed world. Though it has an advantage in India, thanks to low costs and government policies it soon faces stiff competition from it multinational competitors all eyeing for a share in the ever growing Indian auto sector. The policies adopted by Government will increase competition in domestic market, motivate many foreign commercial vehicle manufactures to set up shops in India, whom will make India as a production hub and export to nearest market. • • • • •

• •

Bring in a minimum foreign equity of US $ 50 Million if a t venture involved majority foreign equity ownership Automatic approval for foreign equity investment upto 100% of manufacture of automobiles and component is permitted FIIs including overseas corporate bodies (OCBs) and NRIs are permitted to invest up to 49 per cent of the paid-up equity capital of the investee company, subject to approval of the board of directors and of the by way of a special resolution. . Investments in making auto parts by a foreign vehicle maker will also be considered a part of the minimum foreign investment made by it in an auto-making subsidiary in India. The move is aimed at helping India emerge as a hub for global manufacturing and sourcing for auto parts. Specific component of excise duty applicable to large cars and utility vehicles will be reduced to 15,000 rupees per vehicle from 20,000 rupees earlier. The Proposal by the Govt. to set up an expert group to advise on a viable and sustainable system of pricing petroleum products, as this will surely had an impact on the Automobile Industry. The announced reduction on the basic customs on bio-diesel is great news for all companies working on environmental saving technologies.

2.) TECHNICAL ANALYSIS Technical analysts track price movements and trading volumes in various securities to identify patterns in the price behavior of particular stocks, mutual funds, commodities, or options in specific market sectors or in the overall financial markets.The goal is to predict probable, often short-term, price changes in the investments that they study, which allows them to choose an appropriate trading strategy. Following is the Technical Analysis of TATA Motors & Maruti Suzuki to understand their pattern and behavior of share prices in the market. Implication of DOW THEORY NEW DELHI INSTITUTE OF MANAGEMENT- PGDM(2008-10)


27

AN ALYSIS OF

28

INDIAN AUTOMOBILE INDUSTRY

The Dow Theory is valid even in today’s volatile and technology driven market. The Dow Theory addresses not only technological analysis and price action, but also price philosophy.Dow Theory is broken down into six basic tenets.

Accumulati on

Public

Continuati

Exces Upstrea m

Correctio n

The first tenet of Dow Theory is that the market has three trends; Uptrends are defined as a time when successive rallies in a security price close at levels higher than those achieved in previous rallies; Downtrends, which are defined as when the market makes lower lows and lower highs and Corrections, which are defined as a move after the market makes a move sharply in one direction where the market recedes in the opposite direction before continuing in its original direction. In the graph shown above, it is shown that the share prices of Tata motors were increasing in the year 2009, but it then suddenly decreased near the month of June’2009, but then started increasing again. The second tenet of Dow Theory is that trends have three phases; Accumulation, Public participation and Excess. The accumulation phase is one in which the expert traders are actively taking positions which are against the majority of people in the market. The public participation phase, which is when the public at large catches on to what the experts know and begin to trade in the same direction and in the Excess phase, where rampant speculations occur and the “smart money” starts to exit their positions.




Upstrea m Primary trend Deviati

Reaction rally

The third tenet of Dow Theory is that the market counts all news, meaning that once news is released it is quickly reflected in the price of an asset. In the case of Tata motors, as the market started recovering after December’2008, the share prices started increasing but they again saw a decline, which may be attributed to the news of breach of JLR contract with Ford Motors which may cause Rs.3bl ty. The sales of Tata motors decreased by 4% in June end’ 2009 which can be one more reason for the decline in stock prices of Tata motors. The above graph also illustrates the sixth tenet, which says that trends exist until definitive signals prove that they have ended. The market may show moves which are against the primary trend but this do not mean that the trend is over and the market will normally resume its prior trend. In the case of Tata motors, when the prices were decreasing during recession, the stock price even increased once, but the market then again followed its prior trend of declining prices.

SENSEX AND TATA MOTORS



29


Tenet four of Dow Theory is that the averages must confirm each other, that means that the performance of related industries should move in one direction for the health of a particular industry. When the performances diverge, it is warning that change is in the air. However, we can see that the movement of stock prices of Tata motors and SENSEX are more or less in the same direction. One thing which very clear is TATA motors react very badly whenever there is a negative sentiments comes in market results SENSEX comes down, and TATA motors also comes down. Different sets of colored line in above chart prove this fact.

Tenet five is that Trends are confirmed by volume. In case of Tata motors, when the people stopped investing during recession, prices went down and after recession, when people came back to the market, prices also increased.



30

AN ALYSIS OF

31

INDIAN AUTOMOBILE INDUSTRY

1. Resistance & Level This Technical tool helps in telling that what would be the price band of share price in which it move in near future on the basis of past high and low levels made by a particular scrip. Resistance Level shows the price above which share price will not move in normal case on the other hand level shows the minimum share price which can be touched by share or crossing of this share will not be there in normal market condition Following is the Resistance & level of Maruti Suzuki & TATA Motors for the period of 2 months:

Resistance Level Rs.1425 level RS.1275 approx.

(1-Jul-09 to 7-SeptResistance Level Rs.490 approx. Level Rs.430 approx. As it is seen in the past 4 months TATA share price moved up and it keeps making on new level so perfect resistance level for this share is not easy to predict as performance of this share is very good compare to all scrips of this segment.

The above band of resistance and level shows that the price of shares will move in between this range only until unless any wrong reaction came out in economy or when any correction takes place the prices will move in between this band only.



AN ALYSIS OF

32

INDIAN AUTOMOBILE INDUSTRY 2. Simple Moving Average

(50 periods)-Medium Term

A

Moving Average is an indicator that shows the average value of a security's price over a period of time. The method of interpreting a moving average is to compare the relationship between a moving average of the security's price with the security's price itself. In above figure we have compare the share price of Tata Motor and Maruti with moving average of 50 period of Tata Motors, Maruti respectively. A buy signal is generated when the security's price rises above its moving average and a sell signal is generated when the security's price falls below its moving average. It is designed to keep you in line with the security's price trend by buying shortly after the security's price bottoms and selling shortly after it tops. Yellow area in the graph indicates buy signal and Green area indicates sell signal. In the near future both the companies show buy signal as their security prices rises above its moving average. It shows that both companies are performing better, so industry as whole is also performing outstanding. So keeping a hold position for the companies would be profitable in future.




3. Long Term Simple Moving Average (200 periods)

In the above chart Moving Average is an indicator that shows the average value of a security's price over a period of time. We have compare the share price of Tata Motor and Maruti with moving average of 200 period of Tata Motors, Maruti respectively by taking share prices of 5 year to take out the Moving average for 200 periods. This Tool of 200 Periods tells us about the position of share to buy or sell for a long period say for 9-12 months. A buy signal is generated when the security's price rises above its moving average and a sell signal is generated when the security's price falls below its moving average. Yellow area in the graph indicates Buy signal and Green area indicates Sell signal. In the near future both the companies show Buy signal NEW DELHI INSTITUTE OF MANAGEMENT- PGDM(2008-10)


33


as their security prices rises above its moving average. This shows that an investor can kept a hold position or can buy for longer period of time but as we can see in case of Maruti the moving average line is also rising which shows that Buy n hold position for very long period could be unprofitable a minor correction in the share price can bring down the share price line and then moving average line will easily cross the share price line. 4. TATA MOTORS MACD

Sell

Overboug

Overso

Buy

Above graph shows the MACD of TATA motors for the period of 6 months. The MACD is the difference between a 26-day and 12-day exponential moving average. A 9-day exponential moving average(EMA), called the "signal" (or "trigger") line is plotted on top of the MACD to show buy/sell opportunities. here are three popular ways to use the MACD: crossovers, overbought/oversold, and divergences. Crossovers: Yellow area shows that there was situation when sell position occurred in the end of month June till mid of July as MACD curve below EMA or Signal line shows a sell situation otherwise we saw a buy position of TATA Motors most of the time Light Green area shows that investor want to buy and wan to be in hold position. The trend of buying is seems to be over here or in coming few days and a selling or booking of profit could be seen hence MACD line could fall below EMA in coming time.

MARUTI SUZUKI MACD NEW DELHI INSTITUTE OF MANAGEMENT- PGDM(2008-10)


34


Overso

Overboug

Crossover: The above graph shows the MACD of Maruti Suzuki, here Yellow area shows the selling position as MACD line is below EMA line the Light Green area shows the buy position which occur last time in the end of July but now buy position for Maruti is created as EMA or signal line seems to be below MACD line and it will probably continue in near future. For both TATA Motors & Maruti Suzuki Overbought/Oversold: The amount of green lines in above graph on the up side shows the overbought situation by the investor which mean that investor buy more shares at this time and oversold situation occurs when green line is on the downside. 5.

Moving Average Crossover

A crossover occurs when a faster Moving Average (i.e. a shorter period Moving Average-20 periods) crosses either above a slower Moving Average (i.e. a longer period Moving Average-50 periods) which is considered a bullish crossover or below which is considered a bearish crossover. M.A.C helps in telling buying opportunities when the shorter moving average crosses above the longer moving average and selling opportunities when the shorter moving average crosses below the longer moving average. Following is the MAC of TATA Motors & Maruti Suzuki to understand the position of both companies average share movement: S NEW DELHI INSTITUTE OF MANAGEMENT- PGDM(2008-10) 20 Periods


35


20 Periods

B 50 Periods

Above is the MAC graph of TATA Motors for the period of 6 months in which ‘S’ denote the selling situation or position whereas ‘B’ is the point after approx 1 month when we saw a bounce back in share prices hence a buy signal occurs which is because, longer moving average of 50 periods cut shorter moving average from the lower side and shows a holding position of shares in coming future also. The increasing trend in the prices after buy signal of shares shows that good amount of profit could be achieved in future if stick with hold position. A move below the moving average suggests that the bears are in control of the price action and that the asset will likely move lower, above yellow circle shows that area when price fall below average price and then it move onto lower side. Below is the MAC graph of Maruti Suzuki for past 6 months in which we haven’t see any sell position till yet the movement of share price is always on the positive side that is increasing so we can say that buying opportunities is always there in case of Maruti Suzuki. A cross above a moving average suggests that the bulls are is in control and that the price may be getting ready to make a move higher and Maruti Share Prices show that trend of moving up prices.



36


Bu

No Sell Position or Always Position of

6.) BOLLINGER BAND Bollinger bands are used to measure a market’s volatility. Basically, this little tool tells us whether the market is quiet or whether the market is LOUD! When the market is quiet, the bands contract; and when the market is LOUD, the bands expand.

TATA Motors

On the graph it can be seen the overall trend of the market and quick reference for supply and demand as well as and resistance areas by using a 20 days moving average and 2 standard deviation in calculating the Bollinger Bands. As we can see in the graph is that the at most of the time the graph lies between the middle band and the upper band which shows an increasing price trend in the market and it’s called Riding the Band. When the stock is outside the upper end of the Bollinger band it is considered as NEW DELHI INSTITUTE OF MANAGEMENT- PGDM(2008-10)

Maruti


37


‘OVERBOUGHT’, which means that stock has gone up too fast and when a stock is outside the lower band it is ‘OVERSOLD’. An oversold stock has gone down too fast. During the months of April, May, mid July and mid august the stock of TATA motors crossed the upper band which means that during these periods the prices rose very fast, while in mid of July the stock went below the lower band, i.e. The prices fell too fast and are susceptible to bargain hunting. The overbought and oversold stocks are apt to reverse course. It’s also seen that the volatility increased to new highs after July because the bands started to widen. It’s better to buy stocks when it touches the lower band, but in regards all other technical factors should be considered while buying.

Initially the bands show slight slope and lie approximately parallel to each other, this means that the price of the stock is oscillating up and down between the bands through a channel. The stock also shows overbought many times during the six months but it did not show any oversold trend, therefore it becomes an important factor in determining the price trend as it tells that the prices have not fallen very fast in these six months. During the june month the bands contracted very much which shows low volatility, but then onwards the bands started to widen which creates high volatility and looking at the future scenario it may be analysed that the stock will see a fall as at the end of august the band was overbought, because when price is trading near the upper or lower Bollinger band line, there is a possibility of trend reversal. The buy and sell signals are not given when prices reach the upper or lower bands. Such levels merely indicate that prices are high or low on a relative basis. A security can become overbought or oversold for an extended period of time. Knowing whether or not prices are high or low on a relative basis can enhance the interpretation of other indicators, and it can assist with timing issues in trading.

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


38


Indian Automobile Industry is in the growth phase and the expected growth rate is 9-10% for FY2009-10 compare to last year growth rate which was just 0.7% and the above facts and figures in our study also this truth. Indian Automobile has a lot of scope for both two wheelers and four wheelers due to development in infrastructure of the country and especially the rural sector in which demand of two wheeler has increased even in recession. According to Indian Statistical Organization the per capita income (Rs.38000) is increasing and national income at the rate of 14.4% which shows potential to buy vehicle in auto industry. The growth rate of Indian Automobile is so fast that by 2016 Indian Industry will be world 7 largest manufacturer in all sections. The Indian auto market is still untapped the majority of the people in country don’t own a four wheeler and all the major auto companies are trying to increase their sales by several moves. Like TATA has launch NANO the people’s car and now TATA motors is also planning to come out with an electric car as well as hybrid car, moreover in two wheeler segment many companies like Mahindra and Mahindra grow even more than expectations. From the Technical Analysis of both companies we come to know that the share price of Maruti will move in the band of Rs.1275 to Rs.1425 and that of TATA Motors will move in the range of Rs. 430 to Rs. 490 if certain correction made in the market. We have also come to know that share price movement of TATA Motors is just according to the movement of SENSEX, whenever there is a negative sentiment in the market regarding TATA Motors there is a steep fall in the stock price of TATA Motors but we have seen quick recovery in its share prices to regain its primary trend E.g as we seen in last 3-4 months TATA recovers approx.90% after downfall. By analyzing the current trend of Indian Economy and Automobile Industry we can say that being a developing economy there is lot of scope for growth and this industry still have to cross many levels so there is huge opportunities to invest in and this is proving as more and more foreign Companies setting up there ventures in India.

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


39


By analyzing the industry on various parameters with the help of implementing Fundamental and Technical tools we came to know that this industry has a lot of potential to grow in future. So recommending to invest in Automobile Industry have no doubt is going to be a good and smart option because this industry is booming like never before not only in India but all around the world. The returns which came out of this industry were very impressive recently, as if we take an example of TATA motors it gives approx 90% return in a period of just 3 months while Maruti Suzuki shows always a buy and hold position because there is possibility of growth in future, same situation is in two wheeler segment with market leader Hero-Honda a debt free company also have bright future ahead. The numbers which came out in the end of financial year 2009 prove that even in the period of recession the overall sales went up is sufficient to to this fact. Through Technical analysis of TATA Motors and Maruti it can be recommended that for now Maruti share price shows that it’s a time to hold the position or buy more shares as there is scope in further rise in share prices until and unless any negative reaction or sentiments comes in the Economy. Investing in Maruti Suzuki for long time could be a good option whereas in TATA motors there is a chance of getting correction, as it already went on high side in a very short period of time so holding the shares for long time could be a wrong step, so at this point of time those who invested earlier can book their profit or new investors can buy now and sell with in short period of time by earning profit in short period of time.

BIBLIOGRAPHY



40


www.bseindia.com www.googlefinance.com www.yahoofinance.com www.google.co.in www.moneycontrol.com www.worldfact.com www.rbi.org.in FDI statistic government of India India Central Statistical Organization Economic Times



41

Indian Automobile Industry Analysis 3p404q

Overview 5o1f4z

More details 6z3438

Related Documents c2h70

Indian Automobile Industry Analysis 3p404q

Analysis Of Automobile Industry 3a4p5w

Automobile Industry Ratio Analysis 406u1y

Automobile Industry Analysis 122v4r

Indian Telecom Industry Analysis 17274d

Indian Tyre Industry Analysis 415h5d