Report on Indian Automobile industry

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This is a report on Indian Automobile industry, which separate comments on each segment, future trends. it also has specific focus on valuation of Maruti Suzuki India Ltd.

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  • 1. Summer Internship Report On Valuation of Maruti Suzuki Ltd. and Study of Sales Trends in AutomobileIndustry At:In partial fulfilment of the requirements for: Masters of Business Administration (Full Time) Submitted by:Tanesh GagnaniRoll No. 081121Batch of 2011Internship period: April 12, 2010 to June 07, 2010Under the guidance of:Parthiv ShahProf Parag RijwaniResearch Head IMNUJhaveri Securities Pvt. Ltd.Ahmedabad

2. ACKNOWLEDGEMENTThe special thank goes to my supervisor and research head, Mr. Parthiv Shah. The supervisionand support that he gave truly helped the progression and smoothness of the internship program.The co-operation is much indeed appreciated.My grateful thanks also go to Mr. Nipun Bhadd, Ms. Pratik Sharma, Mr. Arpit Amin, Mr.Mukesh Khayani and Ms. Meha Debuy. A big contribution and hard worked from all of youduring the eight week is very great indeed. My project during the program would be nothingwithout the enthusiasm and imagination from all of you. Besides, this internship program mademe realize the value of working together as a team and as a new experience in workingenvironment, which challenges us every minute. Not to forget, great appreciation goes to the restof Jhaveri Securities staff who help me from time to time during the project. The whole programreally brought us together to work in a team and develop respect of each other.I would also like to appreciate the contribution of my faculty, Prof Parag Rijwani, for hisconstant support throughout the internship.Last but not the least I would like to thank all the other people who contributed to the successfulcompletion of the project.Tanesh GagnaniPage | 1 3. EXECUTIVE SUMMARYJhaveri Securities is one of biggest share brokering house in Gujarat with a client base ofapproximately 70000 and presence in every major city in Gujarat. It provides all the facilitiesranging from basic stock broking with strong support from in house research department tocommodity trading, mutual funds, derivative trading and currency derivatives.In the first part of this report valuation of Maruti Suzuki Ltd. has been. The valuation methodused for this is two stage FCFF. In this valuation the first stage is considered of high growthphase in which the company will grow at a rate of 10.8% from 2012, since 2010 had aexceptionally high growth in profits for 2011 the growth projection is kept at 13.5%, terminalgrowth rate is kept equal to risk free rate i.e. 4.58%. In the end the fair value of Maruti is foundto be Rs1465 which is approximately 5% higher than current market price of Rs.1396. Thereforethe call given on Maruti Suzuki Ltd. is BUY.Indias automobile industry is 7th largest in the world and it also its growth rate is also one of thefastest in the world. In the last 5 years Indian automobile industry has grown at a phenomenalCAGR of 12.4%, while the world average for the same duration has been just .81%. During 2007to 2009 the growth of Indian automobile industry considerably slowed down but 2010 has beenphenomenal for Indian companies almost all of the companies across all segments have bouncedback with brilliant numbers. This was attributed to three factors:1. Increase in sales due to increase in demand2. Increase in profit margins due to decline in raw material prices.3. Low base effect.Now since economic scenario seems favorable the growth is likely to continue.Page | 2 4. Jhaveri Securities ............................................................................................................................ 6Services Offered.............................................................................................................................. 7 Derivatives Trading: ................................................................................................................... 7 Commodity Trading:................................................................................................................... 7 Currency Derivatives: ................................................................................................................. 7 Mutual Fund ................................................................................................................................ 77S Framework ................................................................................................................................. 8 STRATEGY................................................................................................................................ 9 STRUCTURE ............................................................................................................................. 9 SYSTEMS................................................................................................................................... 9 STYLE ...................................................................................................................................... 10 STAFF....................................................................................................................................... 10 SHARED VALUES .................................................................................................................. 10Company History .......................................................................................................................... 12Shareholding Pattern ..................................................................................................................... 13Investment Rationale .................................................................................................................... 14Financial Analysis......................................................................................................................... 17 Key Ratios................................................................................................................................. 17 Ratios to measure Short Term Solvency ................................................................................ 17 Turnover Measures ................................................................................................................... 17 Receivables Turnover ............................................................................................................... 18Historical Trends........................................................................................................................... 19 Net Sales ................................................................................................................................... 19 Growth rates in PBIT and Net Profit ........................................................................................ 19 Return on Net-Worth ................................................................................................................ 19 Dividend Pay-out ratio .............................................................................................................. 19 Reinvestment Rate .................................................................................................................... 19 Return on Capital ...................................................................................................................... 20 Growth Rate .............................................................................................................................. 20 Valuation ................................................................................................................................... 20Free Cash Flow to Firm ................................................................................................................ 22Page | 3 5. Balance Sheet Abstract ................................................................................................................. 23Profit and Loss Account Abstract ................................................................................................. 24EPS................................................................................................................................................ 25Price Variations............................................................................................................................. 26Conclusion .................................................................................................................................... 26Overview ....................................................................................................................................... 27Economy as a Factor ..................................................................................................................... 30STRENGTHS ............................................................................................................................... 31WEAKNESS ................................................................................................................................. 31OPPOURTINITES........................................................................................................................ 32THREATS..................................................................................................................................... 32Two Wheelers Segment ................................................................................................................ 38Three Wheeler Segment ................................................................................................................ 42Passenger Vehicles Segment......................................................................................................... 43Bajaj Auto Ltd............................................................................................................................... 46 Highlights....................................................................................................................