23817760 Fundamental and Technical Analysis of Automobile Sector

7/29/2019 23817760 Fundamental and Technical Analysis of Automobile Sector

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By :ChitraDarshiniDeepak

Faizal


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The automobile industry in India isthe ninth largest in the world with anannual production of over 2.3 million

units in 2008.[1] In 2009, India emergedas Asia's fourth largest exporter ofautomobiles, behind Japan, South Korea

and Thailand.[2]
http://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Automotive_industryhttp://en.wikipedia.org/wiki/Automobile_industry_in_Indiahttp://en.wikipedia.org/wiki/Automobile_industry_in_Indiahttp://en.wikipedia.org/wiki/Automobile_industry_in_Indiahttp://en.wikipedia.org/wiki/Automobile_industry_in_Indiahttp://en.wikipedia.org/wiki/Automotive_industryhttp://en.wikipedia.org/wiki/India


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India ranks 1st in the global two-wheelermarket

India is the 4th biggest commercial vehicle

market in the world India ranks 11th in the international

passenger 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.


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Fundamental Analysis

Technical Analysis


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There is an intrinsic value of security.Which depends upon underlying economic(fundamental) factors.

This intrinsic value can be determined

by analyzing fundamental factors relatingto Company, Industry and Economic.

3 steps of Fundamental Analysis Economy Analysis Industry Analysis Company Analysis


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Economic analysis is the analysis offorces operating the overall economy acountry. Economic analysis is a process

whereby strengths and weaknesses ofan economy are analyzed. Economicanalysis is important in order to

understand exact condition of aneconomy.


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India is 16th in the world in termsof nominal factory output

The per capita Income is nearabout Rs38,000

more than 10 million peopleemployed in this industry

The market value of AutomobileIndustry is more than US$8 bl.and Contribution in Indian GDP isnear about 5%


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India ranks second worldwide in farmoutput. Agriculture and allied sectors likeforestry and logging accounted for 16.6%

of the GDP, employed 60% of the totalworkforce.

Agro based economy

Direct impact on industryUncertainty of monsoon
http://en.wikipedia.org/wiki/List_of_countries_by_GDP_sector_compositionhttp://en.wikipedia.org/wiki/Agriculturehttp://en.wikipedia.org/wiki/Forestryhttp://en.wikipedia.org/wiki/Logginghttp://en.wikipedia.org/wiki/Logginghttp://en.wikipedia.org/wiki/Forestryhttp://en.wikipedia.org/wiki/Agriculturehttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_sector_composition


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In December 2008, overallproduction fell by 22 %.

Passenger Vehicles segmentregistered negative growth.

Total number of vehicles sold

including passenger vehicles,commercial vehicles, two-wheelers and three-wheelersin 2008-09 was 9.72 million ascompared to 9.65 million in2007-08.


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The increase in the priceof fuel and the steel dueto inflation has led to aslower growth rate of thecar industry in India.

The effect of inflation hastaken the rise in the pricerate of the cars by 3-4%

a fall of 8-9% in terms ofturnover.


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Negative correlation

Lower interest rates


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In India FDI up to 100 percent, has been permittedunder automatic route to this sector

which has led to a turnover of USD 12 billion in theIndian auto industry and USD 3 billion in the autoparts industry.

manufacturing costs in India are 25 to 30 per centlower than their western counterparts

FDI inflows in Automobile Industry 2008-09 wasRs.5,212 Cr an increase of 47.25% compare to 2007-08, while in April-May 2009 it was around Rs.497 Cr.


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The Auto sector had a few pre-budget demandsas they were going through a rough patch. Thedemands were: Adoption of a uniform excise structure for all

passenger and utility vehicles Reduction of excise duty on two and threewheelers Provision of benefits for hybrid technology

Offer liberal credit to the agricultural sectorto enable purchase of tractors


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The budget proposals for the Auto sector were: Excise duty on small cars reduced to 14percent Excise cut on two and three wheelers to 12

percent Excise duty on buses and chassis cut from 16percent to 12 percent Excise duty on hybrid cars cut from 24

percent to 14percent Custom duty on steel removed


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Possible Impact Reduction in excise duty of petrol driven trucks and itschassis is a positive sign for the commercial vehicleindustry as it would the cost of the petrol driven trucksand thereby improving the sales.

Retention of excise duty for two wheelers and smallcars may enable more sales. As service tax is imposed on rail and waterwaysfreight charges, there is a possibility of increasetransport of goods carried by roadways. Finally, the cut in the excise and customs duties would

create good improvement for the automobile sector.


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Society of Indian Automobile Manufacturers(SIAM), automobile sales (including passengervehicles, commercial vehicles, two-wheelersand three-wheelers) in the overseas markets

increased to 1.53 million units in 2008-09 from1.23 million units in 2007-08. Export ofpassenger vehicles increased from 218,401 in2007-08 to 335,739 units in 2008-09.


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The current trends of the global

automobile industry reveal that in thedeveloped countries the automobileindustries are stagnating as a result ofdrooping markets, whereas the automobileindustry in the developing nations, have

been consistently registering highergrowth rates every passing year for theirdomestic flourishing domestic automobilemarkets


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The automobile industry comprises of4-wheelers2-wheelersAuto cmponents(auto parts)Auto finance


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Five Forces Model

Industrial Life

Cycle SWOT Analysis

Industry Specific

Index


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Degree of Rivalry

Despite the high concentration ratioseen in the automotive sector, rivalry

in the Indian auto sector is intense dueto the entry of foreign companies in themarket. The industry rivalry is

extremely high with any being productbeing matched in a few months by thecompetitors


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Threat of Substitutes

The threat of substitutes to theautomotive industry is fairly mild.Numerous other forms of transportationare available, but none offer the utility,convenience, independence and value

offered by automobiles


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Barriers to entry

The barriers to enter automotiveindustry are substantial. For a newcompany, the startup capital requiredto establish manufacturing capacity toachieve minimum efficient scale is

prohibitive


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Suppliers power In the relationship between the industry and its suppliers, the

power axis is tipped in industrys favor. The industry iscomprised of powerful buyers who are generally able todictate their terms 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 standardizednature and the low switching costs associated with selectingfrom among competing brands.


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The industrial life cycle is a term used for classifyingindustry vitality over time. Industry life cycleclassification generally groups industries into one of fourstages:

Pioneering Growth Maturity Decline

In the growth phase, the product markethas been established and there is at leastsome historical guide to ground demandestimates. The industry is growing rapidly,often at an accelerating rate of sales andearnings growth


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A scan of the internal and externalenvironment is an important part of thestrategic planning process. Environmentalfactors internal to the firm usually can beclassified as strengths (S) or weaknesses (W),and those external to the firm can be classifiedas opportunities (O) or threats (T). Such ananalysis of the strategic environment isreferred to as a SWOT analysis. SWOT analysisof the Indian automobile sector gives thefollowing points:


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Industry specific index also called assectoral index are those indices, whichrepresent a specific industry sector. All

stocks in a sectoral index belong tothat sector only. Hence an index likethe BSE auto index is made of auto

stocks. Sectoral Indices are very usefulin tracking the movement andperformance of particular sector


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EPS measures the profit available to theequity shareholders per share, that is, theamount that they can get on every shareheld.

EPS = Net income- Dividends onPreferredstock

Average Outstandingshares


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The trend shows that Tatas net profit margin is quitestable until it falls to 3.77 in 2009. While the net profit ofIndias no.1 car manufacturer Maruti Suzuki shows anegative trend from 2007 onwards. But the future prospectfor both the companys profit is higher. Profit margins

come down as recession hits economy badly hence salesget reduced and cost get increased very much.Net profit Ratio = (Net profit) 100

(Net sales)


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Both giants of Automobile industry shows positivetrend in Sales Revenue over the past 5year.However recession brought hurdles but bothcompanies have potential to grow in future as lots

of products are still to add in their portfolio.Moreover increased demand in foreign marketalso seems to be a positive signal for betterfuture.


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The quick ratio is a very stringent measure of

solvency. A general rule of thumb suggeststhat the quick ratio should be around 1.


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A high debt to equity ratio suggests that acompany has financed its growth mostly viadebt.

Debt-Equity Ratio= Total Debt

Total Equity


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The current ratio is a convenient andreliable tool for measuring a company's levelof liquidity. The ratio acts as an indicationthat the firm is able to generate funds tomake all needed payments in the future;thus, the ratio indicates whether the firm islikely to be a going concern.


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Tata motors and Maruti Suzuki both the companies showed a

positive trend in paying dividends till 2008, but the scenariochanged in 2009 as both the companys dividend per sharefell. According to graph TATAs dividend was much higherthan that of Maruti, it always provided dividend of above 10

per share to its shareholders while maruti stick to below 5per share, even though the fall in dividend in 2009, still boththe companies are earning good profit.

Dividend Per Share= Total amount ofDividend

ShareOutstanding


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Balance Sheets


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Share Holding Pattern for QuarterEnded 30-June-09


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Mr. Ratan Tata Chairman Mr. N.A. Soonawala Director Mr. R. Gopalakrishnan Director

Mr. S.M. Palia Director Mr. S. Bhargava Director Mr. V. K. Jairath Director Mr. Ravi Kant Vice Chairman Mr. J. J. Irani Director Mr. N. N. Wadia Director Mr. R.A. Mashelkar Director Mr. n Munjee Director Mr. Prakash M Telang Director


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Mr. R. C. Bhargava Chairman Mr. Shinzo Hakanishi MD and CEO Mr. Manvinder Singh Banga Director Mr. Amal Ganguli Director Mr. D. S. Brar Director Mr. Keiichi Asai Director

Mr. Osamu Suzuki Director Mr. Shuji Oishi Director Ms. Pallavi Shroff Director Mr. Kenichi Ayukawa Director Mr. Tsuneo Shashi Director &

Managing

ExecutiveOffice (Production)


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Maruti Suzuki Products (CAR) Expected LaunchMaruti Grand Vitara Diesel December- 2009Maruti 02 December 2009

Maruti SX4 Diesel December 2009Maruti Cervo December 2009Maruti Kizashi December 2009Maruti xl7 March 2010

Maruti APV June 2010Maruti Jimny July 2010


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Car Expected launchTata indica vista IGNIS Sept 2009

Tata indigo vista Sept 2009

Tata indicruz Nov 2009

Tata prima Aug 2010


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Technical analysts track pricemovements and trading volumes invarious securities to identify patterns in

the price behavior of particular stocks,mutual funds, commodities, or optionsin specific market sectors or in theoverall financial markets .


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Upstream

Correction

Continuation

Accumulation

Publicparticipation

Excess


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1. The first tenet is that the market has three trends i.e.;Up trendsDown trendsCorrections

2. The second tenet is that the trend have three phases i.e;Accumulation

Public participationExcess

3. The third tenet is that the market counts all news.

4. The fourth is that the averages must confirm each other.

5. The fifth tenet is that trends are confirmed by volume.

6. The sixth tenet says that trends exist until definite signals prove that theyhave ended


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Upstream

Reaction

rally

Primary trend

Deviation

SENSEX AND TATA MOTORS


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SENSEX AND TATA MOTORS


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This Technical tool helps in telling that whatwould be the price band of share price in whichit move in near future on the basis of past highand low levels made by a particular scrip.

Resistance Level shows the price above whichshare price will not move in normal case on theother hand Support level shows the minimumshare price which can be touched by share or

crossing of this share will not be there innormal market condition


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ResistanceLevelRs.1425

approx.

Support level

RS.1275 approx.


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Resistance LevelRs.490 approx.

Support LevelRs.430 approx.


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A Moving Average is an indicator thatshows the average value of a security'sprice over a period of time. The method

of interpreting a moving average is tocompare the relationship between amoving average of the security's pricewith the security's price itself.


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A crossover occurs when a faster MovingAverage crosses either above a slowerMoving Average which is considered a bullishcrossover or below which is considered a

bearish crossover. M.A.C helps in tellingbuying opportunities when the shortermoving average crosses above the longermoving average and selling opportunitieswhen the shorter moving averagecrosses below the longer moving average.


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20 Periods MA S

B

50 Periods MA


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No Sell Position orAlways Position of Buy

Buy


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Documents

23817760 Fundamental and Technical Analysis of Automobile Sector