Genesis of the report I have done my summer training at SHAREKHANLtd. It is one of the reputed company& brand name in the share broking companies in India. During my interns I have got the practical knowledge of Stock market. Working in share khan I have got to know that research team of Share Khan makes analysis of the companies & prepares research report which contains information & news about different companies. Through this research report researcher recommends investors about what stock should be buy, sale or hold etc. it contains the performance of the companies. So investor can invest in stock market by reading this report. This report appears daily on the Share Khan website. After getting this I have decided to do my summer project on Equity research. There is a lot of scope and growth opportunities in the Automobile sector. Development of Automobile sector is the key for the economic growth of developing countries like India and so I have selected this sector. During the training session I had observed the price rise and decline inthese sectors every day. Even I have earned some money by trading in this sector companies. This report constitutes the detailed analysis of automobile sector& Analysis of two companies. EQUITY RESEARCH ON AUTOMOBILE SECTOR Page 1
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Genesis of the report
I have done my summer training at SHAREKHANLtd. It is one of the reputed company& brand name
in the share broking companies in India.
During my interns I have got the practical knowledge of Stock market. Working in share khan I
have got to know that research team of Share Khan makes analysis of the companies & prepares
research report which contains information & news about different companies. Through this research
report researcher recommends investors about what stock should be buy, sale or hold etc. it contains the
performance of the companies. So investor can invest in stock market by reading this report. This
report appears daily on the Share Khan website. After getting this I have decided to do my summer
project on Equity research.
There is a lot of scope and growth opportunities in the Automobile sector. Development of
Automobile sector is the key for the economic growth of developing countries like India and so I have
selected this sector. During the training session I had observed the price rise and decline inthese sectors
every day. Even I have earned some money by trading in this sector companies.
This report constitutes the detailed analysis of automobile sector& Analysis of two companies.
EQUITY RESEARCH ON AUTOMOBILE SECTOR Page 1
OBJECTIVE OF STUDY
To acquire a deep knowledge of the Automobile Sector which I am studying.
To predict expected share price with the projected company’s financial performance (2009-
20010)
Fundamental analysis of the company.
Comparative analysis of Tata Motors & Mahindra & Mahindra.
To study the demand of Automobile sector.
Projection about improving performance of the company.
To evaluate management & internal business decisions.
Application of various fundamental & technical tools.
5. Share khan Dematerialization Charges: RS.3 per certificate or RS.15 per request, whichever is
higher.
6. Share khan Demat Account Custody Fee: NIL
Minimum amount requires to open demat account- 5000 Rs. You can do trading from this
amount & 750 advance brokerage for 6 months validity. There are different plans for reducing the
amount of brokerage.
Scheme
Name
Period in
Months
Brokerage slab
Cash F&O
Trading Delivery Futures Options
%Min
(paisa)%
Min
(paisa)%
Min
(paisa)%
AMC
200012 0.07 5 0.40 10 0.07 1
2% of premium
or Rs. 90,
whichever is
higher
AMC
600012 0.05 5 0.25 5 0.05 1
1.5% of premium
or Rs. 75,
whichever is
higher
AMC
1800012 0.04 4 0.20 4 0.04 1
1% of premium
or Rs. 50,
whichever is
higher
Table 1: Brokerage slab
EQUITY RESEARCH ON AUTOMOBILE SECTOR Page 8
Indian Stock Market
Indian Stock market contains more than 20 stock exchanges, some of which are popular nationally as
well as regionally. The first stock market started in country was Bombay Stock Exchange(BSE ) stock
market. It’s the oldest stock market in Asia. It has around 5000 listings & a volume of more than US$
1 Trillion. The other most popular stock exchange is National Stock Exchange(NSE). Its also largest
stock exchange in the country & third in the world. These two Exchanges constitutes major part of
Indian Capital Market.
Purpose of stock market?
Stock markets basic role to provide platform for the people of the country to invest their
savings & also a source of funds for the various institutions & organizations. It provides an opportunity
for any person to become a part owner of the company by buying the companies share. One can deal in
variety of financial instruments such as Equity, futures & options, currency future, commodities etc.
Impact on the economy
Provides source of funding for the organization
An investment avenue
A source of income for investors
A source of revenue for government in the form of taxes.
A source of employment
Present scenario-
Current condition of Stock Market has drastically improved. SENSEX has already crossed 17000 Mark & Nifty has crossed 5000 mark. We have seen that in the recession SENSEX has come down to 8000 point from 21000. But now market is gearing up & crossed 17000 points. Lot of people invest in stock market. Indian Stock Market has been giving average 19% return on investment much more than returns which we get from bank or any other sources. Though the Indian Stock Market can be very rewarding avenue of investment but the constant changes & the inherent dynamic changes in
EQUITY RESEARCH ON AUTOMOBILE SECTOR Page 9
the market can wipe your funds or savings. Because market is very volatile. So every investor has to very alert & observant. People from across the country & globe get in touch with minute wise reading on the stock market & gain a lot of trading aptitude after daily seeing BSE Stop Gainers or BSE top losers list which does a world of good to their investment portfolio.
Stock AnalysisIndian Securities markets are touching new heights as it has surpassed 17,000 marks. More and
more investors are attracting towards equity investment and trading. But this is not always the case that
no one can assure you certain returns there is always uncertainty and risk in investment and that push
investors on back seats. Sometimes it becomes very difficult for investors to predict the share price of
the particular company in this very volatile market. It raises questions in investor’s mind that
At what price I should buy? When to sell it... hold?
As trading and investments are increasing on the markets as SEBI made it compulsory for all
the companies to disclose important information to its Shareholder and investor. So they can get as
possible as information about the companies of which they are holding the shares or going to buy.
now-a-days brokers and some analyst providing some future predictions of stocks price movements. So
now investment has become somewhat easy for investors.
This is done with a Stock Analysis getting the information about company and its price
movements on stock markets and tries to predict the value of shares. So, there is great importance of
stock analysis among investors. Stock analysis is usually done by Broking Firms. They recommends
there investors regarding buying & selling of shares.
Types of Stock Analysis-
1. Technical Analysis
2. Fundamental Analysis
Here we have selected a Fundamental analysis as subject of our project so we would do it in detail
with practical analysis. We would get only some flavor of technical analysis and then we would
understand about fundamental analysis.
TECHNICAL ANALYSIS1
1 http://en.wikipedia.org/wiki/Technical_analysis
EQUITY RESEARCH ON AUTOMOBILE SECTOR Page 10
“Technical analysis is a method of evaluating securities by analyzing the statistics generated by market
activity, such as past prices and volume. Technical analysts do not attempt to measure a security's
intrinsic value, but instead use charts and other tools to identify patterns that can suggest future
activity.”
Just as there are many investment styles on the fundamental side, there are also many different types of
technical traders. Some rely on chart patterns; others use technical indicators and oscillators, and most
use some combination of the two. In any case, technical analysts' exclusive use of historical price and
volume data is what separates them from their fundamental counterparts. Unlike fundamental analysts,
technical analysts don't care whether a stock is undervalued - the only thing that matters is a security's
past trading data and what information this data can provide about where the security might move in
the future. Technical analysis is very useful for short term investors.
The field of technical analysis is based on three assumptions: 2
1. The Market discounts everything.
2. Price moves in trends.
3. History tends to repeat itself.
1. The Market Discounts Everything
A major criticism of technical analysis is that it only considers price movement, ignoring
the fundamental factors of the company. However, technical analysis assumes that, at any given time, a
stock's price reflects everything that has or could affect the company - including fundamental factors.
Technical analysts believe that the company's fundamentals, along with broader economic factors and
market psychology , are all priced into the stock, removing the need to actually consider these factors
separately. This only leaves the analysis of price movement, which technical theory views as a product
of the supply and demand for a particular stock in the market.
2. Price Moves in Trends
In technical analysis, price movements are believed to follow trends. This means that after a trend has 2 ttp://www.tradegreeks.com/articles/Article-Technical-Analysis-Indepth1.htm
economy declines, most sectors and companies usually suffer. The stock market does not operate in a
vacuum it is an integral part of ht whole economy of a country, more so in a free economy that of
United States and to some extent in mixed economy like ours.
To gain an insight into the complexities of stock market. One needs to develop a sound
economic understanding and be able to interpret the impact of important economic indicators on stock
markets.
The following are some important factors which should be taken into account while doing
fundamental analysis:
Economic Growth
Per capita income
Industrial Production
Inflation
Interest Rates
Foreign Exchange Reserves
Budgetary Deficit
Domestic Savings and Investment
Tax Rates
Infrastructure
Political Situation
In absolute terms, India is 16th in the world in terms of nominal factory output. The service
sector is growing rapidly in the past few years. This is the pie- chart showing contributions of different
sectors in Indian economy. 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 terms of the
employment. Directly and indirectly it employs more than 10 million people and if we add the number
of people employed in the auto-component and auto ancillary industry then the number goes even
higher.
EQUITY RESEARCH ON AUTOMOBILE SECTOR Page 17
Figure 1: Composition of GDP by industries(08-09)
India GDP Growth Rate-
India Gross Domestic Product (GDP) expanded 8.5% over the last quarter. The India Gross Domestic Product is worth 1217 billion dollars or 1.96% of the world economy, according to the World Bank
EQUITY RESEARCH ON AUTOMOBILE SECTOR Page 18
Figure 2: Quarterly GDP growth
Contribution of automobile sector in GDP is about 5% & will be doubled by 2016.
FDI(Foreign Direct Investment)
In India FDI has been permitted up to 100% in automobile sector. Which has led to a turnover
of USD 12 billion in Indian Auto industry & USD 3 billion in auto parts industry. Manufacturing cost
in India is 25% to 30% lower than there foreign counterparts. Investment commission has set a target of
US $ 5 billion in next 7 years to increase the share of India in global Auto market. From existing .9 %
to 2.5 % by 2015.
Highlights of 2010-11 budget regarding Automobile Industry-
The correction in Excise duty on Electric Vehicles which will enable the manufacturers take
CENVAT credit and exemption of Customs duty on Electric Vehicles parts.
Payment made to an approved association engaged in research in Social Sciences or Statistical
Research will be allowed as a weighted deduction of 125 per cent. The income of such ap-
proved research association shall be exempted from tax.
increase in weighted deduction for in-house R&D to 200% from 150% and outsourced R&D
from 125% to 175%.
EQUITY RESEARCH ON AUTOMOBILE SECTOR Page 19
2% hike in Excise duty
The budget did not meet all the expectations as the sector is yet to recover fully from
recession.
Indian automobile industry is expected to grow at 9-11 % in near future.
From the above analysis we have seen that our economic condition is preferable to Automobile
Industry.
Industry Analysis
Brief history of Automobile Industry - In 1898 car had touched the Indian streets for the first time. The Automobile Industry in India
is the seventh largest in the world with an annual production of over 2.6 million units in 2009. In 2009,
India emerged as Asia's fourth largest exporter of automobiles, behind Japan, South Korea and
Thailand. By 2050, the country is expected to top the world in car volumes with approximately 611
million vehicles on the nations road.
Following economic liberalization in India in 1991, allowed foreign companies to enter into
India for the business purpose. The Indian automotive industry has demonstrated sustained growth as
a result of increased competitiveness and relaxed restrictions. Several Indian automobile manufacturers
such as Tata Motors, Maruti Suzuki and Mahindra and Mahindra, expanded their domestic and
international operations. In February 2009, monthly sales of passenger cars in India exceeded 100,000
units.
India’s automobile sector consists of the passenger cars and utility vehicles, commercial
vehicle, two wheelers and tractors segment. The total market size of the auto sector in India is
approximately RS. 540 billion and has been growing at around 8 percent per annum for the last few
years. Since the last four to five years, the two wheelers segment has driven the overall volume growth
on account of the spurt in the sales of motorcycles. However, lately the passenger cars and commercial
vehicles segment has also seen a good growth due to high discounts, lower financing rates and a pickup
in industrial activity respectively.
EQUITY RESEARCH ON AUTOMOBILE SECTOR Page 20
In the initial years after independence Indian automobile industry was plagued by unfavorable
government policies. All it had to offer in the passenger car segment was a 1940s Morris model called
the Ambassador and a 1960s Suzuki-derived model called the Maruti 800. The automobile sector in
India underwent a metamorphosis as a result of the liberalization policies initiated in the 1991.
Measures such as relaxation of the foreign exchange and equity regulations, reduction of tariffs on
imports, and refining the banking policies played a vital role in turning around the Indian
automobileindustry. Until the mid 1990s, the Indian auto sector consisted of just a handful of local
companies. However, after the sector opened to foreign direct investment in 1996, global majors moved
in. 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.
Indian automobile industry has matured in last few years and offers differentiated products for different
segments of the society. It is currently making inroads into the rural middle class market after its
inroads into the urban markets and rural rich. In the recent years Indian automobile sector has
witnessed a slew of investments. India is on every major global automobile player's radar. Indian
automobile industry is also fast becoming an outsourcing hub for automobile companies worldwide, as
indicated by the zooming automobile exports from the country. Today, Hyundai, Honda, Toyota, GM,
Ford and Mitsubishi have set up their manufacturing bases in India. Due to rapid economic growth and
higher disposable income it is believed that the success story of the Indian automobile industry is not
going to end soon..
EQUITY RESEARCH ON AUTOMOBILE SECTOR Page 21
Figure3: Indian automobile industry
EQUITY RESEARCH ON AUTOMOBILE SECTOR Page 22
Industry Analysis
Analysis of automobile industry-
this is the pie chart showing segment wise market share in automobile induistry.
Figure 2: Composition of GDP by industries (08-09)
Figure 4: Proportion of different type of vehicles
FIVE FORCES MODEL-
Porter identifies five forces model that influences industry.
degree of rivalry-
Rivalry in the Indian Auto sector is intense due to entry of foreign companies. The rivalry is
too high because any new kind of product manufactured by a particular company is being is being
manufactured by competitors also. This is done because technical capabilities of companies under
the technical collaboration with foreign players.
Threat of Substitutes-
The threat of substitutes to the Automobile Sector is fairly low. Many forms of
EQUITY RESEARCH ON AUTOMOBILE SECTOR Page 23
transportation are available but none offered utility, convenience, independence & value offered by
automobiles. & the cost associated with other modes of transport may be high in terms of personal
time, convenience & utility.
Barriers to entry-
The barriers to enter automobile sector is substantial. For a new company the initial capital
require to establish new manufacturing setup up achieve minimum efficient scale is prohibitive. But
existing companies entered in to market by alliance with domestic partner acquiring stake. However
the domestic company with potentials & expertise has the potential to compete with foreign
players.
Suppliers Power-
Relationship between the industry & its suppliers the power is in favor of industry.The
industry is powerful buyer who is generally able to dictate their terms to suppliers.
Buyers Power-
In the relationship between industry & its consumers the power axis is in favor of its
consumers. This is because of the competition.
SWOT ANALYSIS
Scanning of internal & external factors of industry is very essential while analyzing the
Automobile industry. Internal factors include strengths, weakness & external factors includes
opportunities, threats.
Strengths-
Large domestic market
Sustainable labor cost advantage
Competitive Auto component vendor base
Government incentives for manufacturing plants
Strong engineering skills in design etc.
EQUITY RESEARCH ON AUTOMOBILE SECTOR Page 24
Weakness-
Low labor productivity
High interest cost & high overheads
various forms of taxes
low investment in research & developments
infrastructure problem
Opportunities-
Commercial vehicles- SC ban on overloading
Heavy thrust on mining & construction activity
increase in the income level
cut in excise duty
rising rural demand
Threats-
Rising input cost
Rising interest rates
Cut throat competition
Largest three wheeler market in the world.
2nd largest two wheeler market in the world.
4th largest passenger vehicle market in Asia.
4th largest tractor market in the world.
EQUITY RESEARCH ON AUTOMOBILE SECTOR Page 25
AUTOMOTIVE MISSION PLAN5
A mission for development of automobile industry
VISION
“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
Accounting for more than 10% of the GDP
And providing additional employment to
25 million people by 2016.”
The necessity of this Mission Plan arises in the background of a newfound strength and
resurgence in the Indian manufacturing sector. For most of the decade of the 1990s, post economic
deregulation in 1991, growth in the Indian economy has been led by growth in the service sector, a
growth that has overshadowed the growth in the manufacturing sector. In the past few years, several
industries in the Indian manufacturing sector have become internationally competitive and have
acquired a new energy to grow. Several industries, including the automotive industry, genuinely
believe that they can become world-beaters.
4.2 In developing a Mission Plan for India’s automotive sector, answer to the following questions
has been sought:
i) Where is automotive sector in India today? What linkages does the automotive sector have with
other facets of the India’s economy?
(ii) What do we want the automotive sector of India to look like in 2016? in other words, what is
the potential of 4th largest position in world to grow along other segments of its value chain. &
what can be the maximum impact on its shareholder.
(iii) How do we attain the vision? What policy interventions will facilitate the attainment of
this potential?
Vision for the Future: The opportunity landscape for the Indian auto industry would
encompass manufacture of vehicles and components for domestic sales, manufacture for exports (both
Net Current Assets 550.67 1,062.74 347.64 283.44 605.52Miscellaneous Expenses 18.05 17.55 13.53 12.55 4.12
Total Assets3,792.2
55,188.92 6,937.13 9,296.73 10,710.38
Table 12: Balance sheet of Mahindra & Mahindra
Analysis of balance sheetCompany has raised good amount of equity share capital in the year 2008 & 2009. Investment of the
company is also increasing. In the year 2009 company’s debt decreased by more than 100 %. Company
has paid their debt so the amount of risk of the company also decreased.
EQUITY RESEARCH ON AUTOMOBILE SECTOR Page 54
Key Financial Ratios of Mahindra and Mahindra
------------------- in Rs. Cr. -------------------
Mar '06
Mar '07 Mar '08 Mar '09 Mar '10
Dividend Per Share 10.00 11.50 11.50 10.00 19.00Profitability RatiosOperating Profit Margin(%) 10.71 11.45 10.23 8.32 15.89Net Profit Margin(%) 10.28 10.34 9.45 6.22 11.11Return On Net Worth(%) 29.60 30.18 25.51 16.03 26.70Return on Long Term Funds(%) 23.17 26.09 19.64 12.36 26.01Liquidity And Solvency RatiosCurrent Ratio 1.21 1.31 0.86 0.90 1.11Debt Equity Ratio 0.31 0.46 0.60 0.77 0.37Long Term Debt Equity Ratio 0.40 0.53 0.63 0.83 0.37Total Debt to Owners Fund 0.31 0.46 0.60 0.77 0.37Dividend Payout Ratio Net Profit 32.45 30.39 29.10 37.29 29.87Cash Earning Retention Ratio 65.14 72.28 71.61 70.69 73.66
Earnings Per Share 36.72 44.88 46.15 30.69 36.89Book Value 124.06 148.72 181.43 191.91 138.22
Table 13: Key financial ratios of Mahindra & Mahindra
Analysis of Ratio.
Company has paid 19 RS.Dividend per share in the year 2010. Means 9 RS. More than the
previous year. It states that company was able to earn more profit. Good amount of dividend holds the
interest of Share Holders. It is a positive sign so Company can raise more amount of share capital in
near future.Company is giving sufficient amount of return on its total net worth.
We can see that from the above ratios, every ratio shows downward trend in the year 2008-0
but company bounce back in the year 2009-10. In the year 2009-10 every ratio has increased compare
to previous year.
EQUITY RESEARCH ON AUTOMOBILE SECTOR Page 55
Report Card
Attribute Value DatePE ratio 16.37 16/07/10EPS (Rs) 36.89 Mar, 10Sales (Rscrore) 5,304.63 Mar, 10Face Value (Rs) 5 Net profit margin (%) 11.11 Mar, 10Last bonus 1:1 14/06/05Last dividend (%) 190 24/05/10Return on average equity 26.7 Mar, 10Table 14: Report card