Amar Project 6th Sem Fundamental Analysis on m and m

7/28/2019 Amar Project 6th Sem Fundamental Analysis on m and m

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FUNDAMENTAL ANALYSIS OF MAHINDRA&MAHINDRA

EXECUTIVE SUMMARY

India's domestic automotive industry, enjoyed high

growth in financial year-05, continuing the healthy trend

set in financial year-04. Increased industrial growth

contributed to the upward trend. All the automotive

industry segments in which M&M has a presence

witnessed a growth in demand in financial year-05. The

Indian tractor industry too saw an upward trend after a

severe downturn period, due to favorable monsoon and

better credit terms helped to build positive sentiments.

The major players in the Commercial Vehicle Segment

are Ashok Leyland Ltd, Hindustan Motors Ltd, Telco,

Volvo India Pvt.Ltd, Bajaj Tempo Ltd, Eicher Motors Ltd,

Mahindra & Mahindra Ltd, and Swaraj Mazda Ltd.

Mahindra & Mahindra Limited (M&M) is the flagship

company of around Rs. 8000 crore Mahindra Group,

which has a significant presence in key sectors of the

Indian economy. A consistently high performer, M&M is

one of the most respected companies in the country. Setup in 1945 to make general-purpose utility vehicles for

the Indian market, M&M soon branched out into

manufacturing agricultural tractors and light commercial


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vehicles (LCVs). The company later expanded its

operations from automobiles and tractors to secure a

significant presence in many more important sectors.

The company has, over the years, transformed itself into

a Group that caters to the Indian and overseas markets

with a presence in vehicles, farm equipment,

information technology, trade and finance related

services, and infrastructure development. Mahindra &

Mahindra Ltd (M&M) is a leading player in the Indianutility vehicles and tractors segment with market shares

of 49.5% in Jeeps / MUVs, 30.9% in 3-wheelers, and

market share of 25.9% in Tractors in the FY2005. This

study tries to cover the industry related data and in

depth company study and an overview of the economy,

evaluates the company on various valuation models.


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THEORETICAL BACKGROUND

FUNDAMENTAL ANALYSIS:

Fundamental analysis is the examination of the

underlying forces that affect the well being of the

economy, industry groups, and companies. As with most

analysis, the goal is to derive a forecast and profit from

future price movements. At the company level,

fundamental analysis may involve examination offinancial data, management, business concept and

competition. At the industry level, there might be an

examination of supply and demand forces for the

products offered. For the national economy, fundamental

analysis might focus on economic data to assess the

present and future growth of the economy. To forecast

future stock prices, fundamental analysis combines

economic, industry, and company analysis to derive a

stock's current fair value and forecast future value. If fair

value is not equal to the current stock price, fundamental

analysts believe that the stock is either over or under

valued and the market price will ultimately gravitate

towards fair value. Fundamentalists do not heed the

advice of the random walkers and believe that markets


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are weak form efficient. By believing that prices do not

accurately reflect all available information, fundamental

analysts look to capitalize on perceived price

discrepancies.

STRENGTHS AND WEAKNESS OF FUNDAMENTAL

ANALYSIS

Long-term Trends:

Fundamental analysis is good for long-term

investments based on long-term trends, very long-term.

The ability to identify and predict long-term economic,

demographic, technological or consumer trends can

benefit patient investors who pick the right industry

groups or companies.

Value Spotting:

Sound fundamental analysis will help identify

companies that represent good value. Some of the most

legendary investors think long-term and value. Graham

and Dodd, Warren Buffett and John Neff are seen as the

champions of value investing. Fundamental analysis can


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help uncover companies with valuable assets, a strong

balance sheet, stable earnings and staying power.

Business Acumen:

One of the most obvious, but less tangible, rewards

of fundamental analysis is the development of a thorough

understanding of the business. After such painstaking

research and analysis, an investor will be familiar with thekey revenue and profit drivers behind a company.

Earnings and earnings expectations can be potent drivers

of equity prices. Even some technicians will agree to that.

A good understanding can help investors avoid

companies that are prone to shortfalls and identify those

that continue to deliver. In addition to understanding the

business, fundamental analysis allows investors to

develop an understanding of the key value drivers and

companies within an industry. Its industry group heavily

influences a stocks price. By studying these groups,

investors can better position themselves to identify

opportunities that are high-risk (tech), low-risk (utilities),

growth oriented (computer), value driven (oil), non-


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cyclical (consumer staples), cyclical (transportation) or

income oriented (high yield).

Knowing Who's Who:

Stocks move as a group. By understanding a

company's business, investors can better position

themselves to categorize stocks within their relevant

industry group. Business can change rapidly and with itthe revenue mix of a company. This happened to many of

the pure internet retailers, which were not really internet

companies, but plain retailers. Knowing a company's

business and being able to place it in a group can make a

huge difference in relative valuations.

WEAKNESS

Time Constraints:


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Fundamental analysis may offer excellent insights,

but it can be extraordinarily time consuming. Time-

consuming models often produce valuations that are

contradictory to the current price.

Industry/Company Specific:

Valuation techniques vary depending on the industrygroup and specifics of each company. For this reason, a

different technique and model is required for different

industries and different companies. This can get quite

time consuming and limit the amount of research that

can be performed.

Subjectivity:

Fair value is based on assumptions. Any changes to

growth or multiplier assumptions can greatly alter the

ultimate valuation. Fundamental analysts are generally

aware of this and use sensitivity analysis to present a

base-case valuation, a best-case valuation and a worst-

case valuation. However, even on a worst case, most


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models are almost always bullish, the only question is

how much so.

Analyst Bias:

The majority of the information that goes into the

analysis comes from the company itself. Companies

employ investor relations managers specifically to handle

the analyst community and release information.

Introduction to Investment Valuation

Every asset, financial as well as real, has value. The

key to successfully investing in and managing these

assets lies in understanding not only what the value is,

but the sources of the value. Any asset can be valued,

but some assets are easier to value than others, and the

details of valuation will vary from case to case. Thus, the

valuation of a share of a real estate property will require

different information and follow a different format from

the valuation of a publicly traded stock. What is

surprising; however, is not the difference in valuation

techniques across assets, but the degree of similarity in


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basic principles. There is undeniably uncertainty

associated with valuation. Often that uncertainty comes

from the asset being valued, although the valuation

model may add to that uncertainty.

A PHILOSOPHICAL BASIS FOR VALUATION

A surprising number of investors subscribe to the

bigger fool theory of investing, which argues that the

value of an asset is irrelevant as long as there is a

bigger fool around who is willing to buy the asset from

them. While this may provide a basis for some profits, it

is a dangerous game to play, since there is no guarantee

that such an investor will still be around when the time to

sell comes.

A postulate of sound investing is that an investor

does not pay more for an asset than its worth. This

statement may seem logic and obvious, but it is forgotten


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and rediscovered at some time in every generation and in

every market. There are those who are disingenuous

enough to argue that value is in the eyes of the beholder,

and that any price can be justified if there are other

investors willing to pay that price. That is patently

absurd. Perceptions may be all that matter when the

asset is a painting or a sculpture, but investors do not

(and should not) buy most assets for aesthetic or

emotional reasons; financial assets are acquired for thecash flows expected from owning them. Consequently,

perceptions of value have to be backed up by reality,

which implies that the price that is paid for any asset

should reflect the cash flows it is expected to generate.

The models of valuation described in this book attempt to

relate value to the level and expected growth of these

cash flows.

There are many areas in valuation where there is

room for disagreement, including how to estimate true

value and how long it will take for prices to adjust to true

value. But there is one point on which there can be no

disagreement. Asset prices cannot be justified merely by

using the argument that there will be other investors

around willing to pay a higher price in the future.


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THE ROLE OF VALUATION

Valuation is useful in a wide range of tasks. The role

it plays, however, is different in different arenas. The

following section lays out the relevance in portfolio

management, in acquisition analysis, and in corporate

finance.

Valuation and Portfolio Management

The role that valuation plays in portfolio

management is determined in large part by the

investment philosophy of the investor. Valuation plays a

minimal role in portfolio management for a passive

investor, whereas it plays a larger role for an active

investor. Even among active investors, the nature and

role of valuation are different for different types of active

investors can be categorized as either market timers,

who trust in their abilities to foresee the direction of the

overall stock or bond markets, on security selection who

believe that their skills lie in funding under or over valued

securities. Market timers use valuation much less than do


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investors who pick stocks, and the focus is on market

valuation rather than on firm specific valuation. Among

security selectors, valuation plays a central role in

portfolio management for fundamental analysts and a

peripheral role for technical analysis.

The following subsections describe, in broad terms.

Different philosophies and the role played by valuation in

each.

Fundamental Analysts

The underlying theme in fundamental analysis is that

the true value of the firm can be related to its financial

characteristics- its growth prospects, prospects, risk

profile, and cash flows. Any deviation from this true value

is a sign that a stock is under or overvalued. It is a long-

term investment strategy and the assumptions

underlying it are that:

(a) The relationship between value and the underlying

financial factors can be measured.

(b) The relationship is stable over time.

( c ) Deviations from the relationship are corrected in a

reasonable time period.

Valuation is the central focus in fundamental analysis.

Some analysts usediscounted cash flow models to value


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firms, while others use multiples such as price/earnings

and price/book value ratios. Since investors using this

approach hold a large number of "undervalued' stocks in

their portfolios, their hope is that, on average, these

portfolios will do better than the market.

Franchise Buyers

The philosophy of a franchise buyer is best

expressed by an investor who has been very successfulat it -Warren Buffet. We try to stick to businesses we

believe we. Understand, Mr.Buffett writes. That means

they must be relatively simple and stable in character. If

a business is complex and subject to constant change,

we're not smart enough to predict future cash flows.

Franchise buyers concentrate on a few businesses they

understand well and attempt to acquire undervalued

firms. Often, as in the case of Mr. Buffet, franchise buyers

wield influence on the management of these firms and

can change financial and investment policy. As a long-

term strategy, the underselling assumptions are that:

(a) Investors who understand a business well are in a

better position to value it correctly.


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(b) These undervalued businesses can be acquired

without driving the price above the true value.

Valuation plays a key role in this philosophy, since

franchise buyers arc attracted to a particular business

because they believe it is undervalued. They are also

interested in how much additional value they can create

by restructuring the business and running it right.

Chartists

Chartists believe that prices are driven as much by

investor psychology as by any underlying financial

variables. The information available from trading - price

movements, trading volume, short sales, and so forth -

gives an indication of investor psychology and future

price movements. The assumptions here are that prices

move in predictable patterns, that there are not enough

marginal investors taking advantage of these patterns to

eliminate them, and that the average investor in the

market is driven more by emotion than by rational

analysis.


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While valuation does not play much of a role in

charting, there are ways in which an enterprising chartist

can incorporate it into analysis. For instance valuation

can be used to determine support and resistance lines4

on price chart.

Information Traders

Prices move on information about the firm.Information traders attempt to trade in advance of new

information or shortly after it is revealed to financial

markets, buying on good news and selling on bad. The

underlying assumption is that these traders can

anticipate information announcements and gauge the

market reaction to them better than the average investor

in the market.

For information trader the focus is on the relationship

between information and changes in value, rather than

on value per se. Thus an information trader may buy an

overvalued firm if he or she believes that the next

information announcement is going to cause the price to

go up because it contains better-than-expected news. If

there is a relationship between how undervalue or


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overvalued a company is and how its stock price reacts to

new information then valuation could play a role in

investing for an information trader.

Market Timers

Market timers note, with some legitimacy, that the

payoff to calling turns in markets is much greater than

the returns from stock picking. They argue that it is

easier to predict market movements than to select stocksand that these predictions can be based upon factors that

are observable.

While valuation of individual stocks may not be of any use

to a market timer, market timing strategies can use

valuation in at least two ways:

(a) The overall market itself can be valued and compared

to the current level.

(b) A valuation model can be used to value all stocks, and

the results from the cross-section can be used to

determine whether the market is over or undervalued.

For example, as the numbers of stocks that are

overvalued using the dividend discount model increases

relative to the numbers that are undervalued, there may

be reason to believe that the market is overvalued.


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Efficient Marketer

Efficient marketers believe that the market price at

any point in time represents the best estimate of the true

value of the firm and that any attempt to exploit

perceived market efficiencies will cost more than it willmake in excess profits. They assume that markets

aggregate information quickly and accurately, that

marginal investors promptly exploit any inefficiencies,

and that any inefficiencies in the market are caused by

friction, such as transaction costs, and cannot be

arbitraged away.

For efficient marketers, valuation is a useful exercise

to determine why, stock sells for the price it does. Since

the underlying assumption is that the market price is the

best estimate of the true value of the company, the

objective becomes determining what assumptions about

growth and risk are implied in this market price, rather

than on finding under- or overvalued firms.


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Valuation in Acquisition Analysis

Valuation should play a central part in acquisition

analysis. The bidding firm or individual has to decide on a

fair value for the target firm before making a bid, and the

target firm has to determine a reasonable value for itself

before deciding to accept or reject the offer.

There are also special factors to consider in takeover

valuation. First, the effects of synergy on the combinedvalue of the two firms (target plus bidding firm) have to

be considered before a decision is made on the bid.

Those who suggest that synergy is impossible to value

and should not be considered impossible to value should

not be considered in quantitative terms are wrong.

Second, the effects on value of changing management

and restructuring the target firm will have to be taken

into account in deciding on a fair price. This is of

particular concern in hostile takeovers.

Finally, there is a significant problem with bias in

takeover valuations. Target firms may be overly

optimistic in estimating value, especially when the

takeover is hostile and they are trying to convince their

stockholders that the offer price is too low. Similarly, if


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the bidding firm has decided, for strategic reasons, to do

an acquisition, there may be strong pressure on the

analyst to come up with an estimate of value that backs

up the acquisition decision.

Valuation in Corporate Finance

The objective in corporate finance is themaximization of firm value, and then the relationship

between financial decisions, corporate strategy, and firm

value has to be delineated. In recent years, management-

consulting firms have started offering companies advice

on how to increase value. Their suggestions have often

provided the basis for the restructuring of these firms.

The value of a firm can be directly related to

decisions that it makes-on that projects it takes, on how it

finances them, and on its dividend policy. Understanding

this relationship is key to making value-increasing

decisions and to sensible financial restructuring.

Equity represents a residual cash flow rather than a

promised cash flow.

You can value equity in one of two ways:


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By discounting cash flows to equity at the cost of equity

to arrive at the value of equity directly.

By discounting cash flows to the firm at the cost of

capital to arrive at the value of the business. Subtracting

out the firms outstanding debt should yield the value of

equity.

Two Measures of Cash Flows

Cash flows to Equity: These are the cash flows

generated by the asset after all expenses and taxes, and

also after payments due on the debt. This cash flow,

which is after debt payments, operating expenses and

taxes, is called the cash flow to equity investors.

Cash flow to Firm: There is also a broader definition of

cash flow that we can use, where we look at not just the

equity investor in the asset, but at the total cash flows

generated by the asset for both the equity investor and

the lender. This cash flow, which is before debt payments

but after operating expenses and taxes, is called the cash

flow to the firm.


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Two Measures of Discount Rates

Cost of Equity: This is the rate of return required by

equity investors on an investment. It will incorporate a

premium for equity risk the greater the risk, the greater

the premium.

Cost of capital: This is a composite cost of all of the

capital invested in an asset or business. It will be a

weighted average of the cost of equity and the after-taxcost of borrowing.

FREE CASH FLOWS TO THE FIRM

The best things in life are free, and the same holds

true for cash flow. Smart investors love companies that

produce plenty of free cash flow (FCF). It signals a

company's ability to pay debt, pay dividends, buy back

stock and facilitate the growth of business - all important

undertakings from an investor's perspective. However,

while free cash flow is a great gauge of corporate health,

it does have its limits and is not immune to accounting

trickery.


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What Is Free Cash Flow?

By establishing how much cash a company has after

paying its bills for ongoing activities and growth, FCF is a

measure that aims to cut through the arbitrariness and

"guesstimations" involved in reported earnings.

Regardless of whether a cash outlay is counted as an

expense in the calculation of income or turned into an

asset on the balance sheet, free cash flow tracks themoney.

To calculate FCF, make a beeline for the company's cash

flow statement and balance sheet. There you will find the

item cash flow from operations (also referred to as

"operating cash"). From this number subtract estimated

capital expenditure required for current operations:

- Cash Flow from Operations (Operating Cash)

- Capital Expenditure

To do it another way, grab the income statement and

balance sheet. Start with net income and add back

charges for depreciation and amortization. Make an

additional adjustment for changes in working capital,

which is done by subtracting current liabilities from


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current assets. Then subtract capital expenditure, or

spending on plants and equipment:

- Net income

+ Depreciation/Amortization

- Change in Working Capital

- Capital Expenditure

It might seem odd to add back

depreciation/amortization since it accounts for capital

spending. The reasoning behind the adjustment,however, is that free cash flow is meant to measure

money being spent right now, not transactions that

happened in the past. This makes FCF a useful instrument

for identifying growing companies with high up-front

costs, which may eat into earnings now but have the

potential to pay off later.

What Does Free Cash Flow Indicate?

Growing free cash flows are frequently a prelude to

increased earnings. Companies that experience surging

FCF - due to revenue growth, efficiency improvements,

cost reductions, share buy backs, dividend distributions

or debt elimination - can reward investors tomorrow. That


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is why many in the investment community cherish FCF as

a measure of value. When a firm's share price is low and

free cash flow is on the rise, the odds are good that

earnings and share value will soon be on the up.

By contrast, shrinking FCF signals trouble ahead. In

the absence of decent free cash flow, companies are

unable to sustain earnings growth. An insufficient FCF for

earnings growth can force a company to boost its debt

levels. Even worse, a company without enough FCF maynot have the liquidity to stay in business.

RESEARCH DESIGN OF THE STUDY

INTRODUCTION:

Every stock available in the markets has a value

called market price, which is the indicator of the


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companys performance. According to fundamental

analysis we will try to find the intrinsic value of a

particular stock, which is the true value of the stock,

based on which investment arguments take place.

STATEMENT OF PROBLEM:

Every asset, financial as well as real, has value. The

key to successfully investing in and managing theseassets lies in understanding not only what the value is,

but the sources of the value. Any asset at can be valued

but some assets are easier to value than others, and the

details of the valuation will vary from case to case. Thus,

the valuation of a share of a real estate property will

require different information and follow a different format

from the valuation of a publicly traded stock. What is

surprising; however, is not the difference in valuation

techniques across assets, but the degree of similarity in

basic principles. There is undeniably uncertainty

associated with valuation. Often the uncertainty comes

from the asset being valued, although the valuation

model may add to that ascertained.


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A postulate of sound investing is that an investor

does not pay more for asset than its worth. This

statement may seem logical and obvious as financial

assets are acquired for the cash flows expected from

owning them, which implies that the price that is paid for

any asset should reflect the cash flows it is expected to

generate.

The problem in valuation is not that there are not

enough models to value an asset; it is that there are toomany. Choosing the right model to use in valuation is as

critical to arriving at a reasonable value as understanding

how to use the model. Analysts use a wide variety of

models from simple to the sophisticated. These models

often make different assumptions about pricing, but they

do share some common characteristics so in the study we

tried to use price-earning multiples and discounted cash

flow models of valuation.


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OBJECTIVES OF THE STUDY:

To understand the macroeconomic variables those

will an impact on the company progress.

To study the various trends, opportunities,

challenges of the industry in which the company

operates.

To understand the various policies of the company

those have impact on the financial performance of

the company. To understand the various investment valuation

models that can be used.

To select the appropriate model that suits the stock.

Find the intrinsic value of the stock and compare

with market value of the study.

To recommend whether to buy, hold or sell the stock

based on the analysis.


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SCOPE OF THE STUDY:

The study basically tries to identify the intrinsic value

of the company by using the published financial details of

the company. The study is restricted to one particular

company in the sector. The study also includes testing

the intrinsic value of the company.

RESEARCH METHODOLOGY:

Type of research:

Research design is the conceptual structure within

which research is conducted. It constitutes the blue print

for the collection, measurement, and analysis of data.

The type of research adopted for the study is descriptive

research as the research does not require any

manipulation of variables and does not establish causal

relationship between events; it just simply describes the

variables.

Sources of data:

Primary data


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Those are the data that are obtained by a study

specially designed to fulfill the data needs of the problem.

Meeting the company professionals personally collected

the information necessary for the study.

Secondary data

Data, which are not originally collected but rather

obtained from published or unpublished sources, are

known as secondary data. In this research secondarydata was collected through sources like Internet, research

reports, magazines, and company journals.

Sampling plan:

Type of sampling : Non-probabilistic judgment

sampling.

Sample size : One company from automobile

sector.

RESEARCH INSTRUMENTS:


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Financial calculations: - This was done to find the

various valuation ratios and necessary calculations to

find the intrinsic value of the company.

Z Test: - This test was used to test the hypothesis.

PLAN OF ANALYSIS:

After having collected the financial data related to

the entities i.e., the sample selected from the selectedsector. Calculate the various valuation ratios and other

financial calculations that will help in the company

valuation. This helps in finding out the intrinsic value of

the companys share. Then hypothesis was tested

whether the company is under or over valued.

LIMITATIONS OF THE STUDY:

The study was confined only to one particular sector.

The study was more confined with secondary data.


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The study assumes no changes in the tax rates in the

country.

The study was done for a short period of time, which

might not hold true over a long period of time.

As the scope is defined by the researcher it restricts

the number of variables which

Influence the industry.

OPERATIONAL DEFINITIONS OF THE CONCEPTS:

1) BETA:

A measure of a security's or portfolio's volatility, or

systematic risk, in comparison to the market as a whole.

It is also known as "beta coefficient."

2) CAPEX:Funds used by a company to acquire or upgrade

physical assets such as property, industrial buildings, or

equipment.

3) CAGR:

The year over year growth rate of an investment

over a specified periodoftime.

Calculated by taking the nth root of the total percentage

growth rate where n is the number of years in the period

being considered.


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This can be written as:

4) COST OF EQUITY:

The return that stockholders require for a company

for the capital invested. The traditional formula is the

dividend capitalization model:

5) DEBT/EQUITY RATIO:

A measure of a company's financial leverage

calculated by dividing long-term debt by shareholders

equity. It indicates what proportion of equity and debt the

company is using to finance its assets.

Note: Sometimes investors only use interest bearing long-

term debt instead of total liabilities.

6) DEPRECIATION:

An expense recorded to reduce the value of a long-

term tangible asset. Since it is a non-cash expense, it


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increases free cash flow while decreasing reported

earnings.

7) DIVIDEND PAYOUT RATIO:

The percentage of earnings paid to shareholders in

dividends.

9) DUPONT ANALYSIS:

A method of performance measurement that wasstarted by the DuPont Corporation in the 1920s, and has

been used by them ever since. With this method, assets

are measured at their gross book value rather than at net

book value in order to produce a higher ROI.

10) EPS:

The portion of a company's profit allocated to each

outstanding share of common stock. Calculated as:

11) EFFECTIVE TAX RATE:

The portion of a company's profit allocated to each

outstanding share of common stock. Calculated as:


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12) EQUITY MULTIPLIER:

A measure of financial leverage calculated as:

Total Assets divided by Total Stockholders' Equity.

Like all debt management ratios, the equity

multiplier is a way of examining how a company uses

debt to finance its assets. It is also known as the financial

leverage ratio or leverage ratio.

13) ASSET TURN OVER RATIO:

The amount of sales generated for every dollar's

worth of assets. It is calculated by dividing sales in rupees

by assets in rupees.

Formula:

14) FUNDMENTAL ANALYSIS:

The amount of sales generated for every dollar's

worth of assets. It is calculated by dividing sales in rupees

by assets in rupees.

Formula:


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15) MARKET CAPITALISATION:

It is the total value of all outstanding shares of

particular company, which is represented in the market.

It's calculated by multiplying the number of shares times

the current market price. This term is often referred to as

market cap.

16) PE (PRICE EARNING MULTIPLES):

A valuation ratio of a company's current share price

compared to its per-share earnings. A valuation ratio of a

company's current share price compared to its per-share

earnings.

Calculated as:

17) PEG (PRICE EARNING TO GROWTH):

A valuation ratio of a company's current share price

compared to its per-share earnings.


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18) ROE:A measure of a corporation's profitability, calculated as:

19) WACC: A calculation of a firm's cost of capital that

weight each category of capital proportionately. Includedin the WACC calculations are all capital sources, including

common stock, preferred stock, bonds, and any other

long-term debt.

WACC is calculated by multiplying the cost of each capital

component by its proportional weighting and then

summing:


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CHAPTER SCHEME

Chapter: 1 THEORITICAL BACKGROUND OF THE

STUDY

This chapter mainly deals with secondary data

collected to support the study and the reasons to

problem of study.

Chapter: 2 RESEARCH DESIGN

A research design serves as a bridge between what

has been done in the conduct of study to realize the


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specified objectives. It is an outline of the projects

working.

Chapter: 3 PROFILES

This chapter includes the profile of the industry as

well as the company in which the study is conducted. This

is also tries to deal with trends and prospects in the

industry as well as the company.

Chapter: 4 ANALYSES AND INTERPRETATION

In this chapter using the analyzed data we have triedto find out the intrinsic value of the company. Hypothesis

test is done to find whether the value of the company is

under or over valued.

Chapter: 5 SUMMARY OF FINDINGS, CONCLUSIONS

AND SUGGESTIONS

In this chapter we will actually include all that we

have analyzed and what has been found. Finally conclude

checking whether the objective of the study has been

achieved or not.

ECONOMIC ANALYSIS

Economic Outlook:


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During the fiscal year 2003-04, Indias GDP which

grew by 8.10% was principally on account of a strong

recovery in the agriculture sector and accelerated growth

in the industry and services sectors. A growth rate higher

than 8% has been achieved in the past in only three

years - 1967-68, 1975-76 and 1988-89. Exports have

grown by 17.1% in 2003-04 in USD terms. While the

rupee appreciated against USD in 2003-04, it depreciated

against the currencies of major non dollar-tradingpartners. Foreign exchange reserves crossed the levels of

USD 100 billion mark on December 2003 and stood at

USD 199.3 billion as on 31st March 2004. Foreign

Institutional Investors (FIIs) investments saw a sharp rise

during the year, which amounted to USD 10 billion.

Overall economic conditions look positive and expected

to post a GDP growth of 6-6.5% during FY05.


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GRAPH 1: ACCELERATING GROWTH OF GDP

TABLE 1: INDIA - ECONOMIC PARAMETERS

F 04 F 05GDP Growth

(%)

8.1 6.0 -

6.5 Fiscal Deficit

(%)

4.8 4.4

Interest Rate Decline

d

Harden

ing Inflation

(Average) %

5.3 6.5


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Rupee - US

Dollar

Appreci

ated

Steady

(Source: RBI, CMI)

GRAPH 2: SHOWING INDIAS REAL GDP GROWTH

As chart also shows, growth in nonagricultural GDP

remained solid during 2004. Although a breakdown of

Indian real GDP into its demand components is not

readily available, it is likely that Indias strong

nonagricultural growth performance last year was due

entirely too robust domestic demand. The 10% rise in the

production of consumer goods last year and the 20%

increase in auto sales suggest that consumer spending

has been very strong indeed.

Consumer spending in India has been supported

recently by strong income growth as growth in real per

capita GDP has averaged 3.8% per annum since


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2000.India has liberalized its economy over the past

decade or so, much more needs to be done, and better

allocation of resources, domestically and internationally,

has contributed to this strong growth in per capita

income.

The Real Gross Domestic Product (GDP) is estimated

to have grown by 8.10% in 2003-04, buoyed by a strong

agricultural recovery. While the agricultural sector grew

by 9.1% during the FY04, the industry and servicessectors have also maintained their momentum with the

GDP growth by achieving a growth rate of 6.5% and 8.4%

respectively during the year. The growth GDP has grown

by 7.4% during April-June 2004 period, lower than the

8.2% growth registered in January-March 2004 and 10.5%

in October-December 2003 quarter. Inflation is also

inching up higher, driven by increases in fuel and

commodity prices. Non food credit has increased by

11.5% during the April-September 2004 period as against

previous corresponding years 6% indicating the

progressive economic activities. But the global crude oil

shock will definitely have an adverse affect on the growth

during fiscal 2005.


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GRAPH 3: INFLATION

The average inflation during fiscal year 2003-04 wasaround 5.5% as against the previous corresponding

fiscals average of 3.4%, the prime movers being sugar,

edible oils, textiles, leather and leather products, basic

metals, alloys, iron and steel. With the increase of few

commodity prices mainly the crude oil prices have

increased the global inflation levels from June 2004, India

being no exception to this. The domestic fuel prices have

risen by more than 10% during the fiscal 2004-05 over

last years. The inflation during the fiscal year 2004-05

touched three and a half years high of 8.33% for the

week ended August 28th

2004 from 5.55% for the weekended June 5th 2004 due to the excess money supply in

the economy. The reasons for the high inflation are both

domestic and international. The domestic reasons include


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excess liquidity in the market and delay in monsoon that

increased the prices of essential commodities. M3, the

measure of money supply grew by 15.5 per cent in July

2004, compared to 11.25 per cent in July 2003. The

international causes are inexorable rise in oil prices,

global increase in the prices of commodities, supply side

shock and growth in chinas demand for goods. This is

cost-push inflation wherein the supply problems in a few

important commodities push up prices of commodities.Since crude oil import constitute almost one third of the

total exports, we can say that the present situation is on

account of imported inflation. To check the rising prices,

government took some measures like duty cuts on steel

and oil products. Reserve Bank of India raised the Cash

Reserve Ratio to 5% from 4.5% in two tranches of 25

basis points and has also cut the rate of interest payable

on eligible cash balances maintained with it by banks by

250 basis points to 3.5 percent. In fact, the gradual

reduction in the CRR over the past few years in

successive credit policies had been one of the major

contributors for the sustained reduction in the interest

rates on auto loans. These moves were expected to draw

out around Rs.8000 crore from the banking system.


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Later, the inflation was reduced to 7.20% in the last week

of September. With the increase in the interest rates the

auto loans will become costlier, thus having an adverse

effect on the auto industry sales. The average inflation for

the fiscal 2004-05 is expected to stay around 6-6.5%.

Industry:

Sales:

The automobile industry growth relies mainly on thecountrys economic and general conditions. Any

slowdown in the economic momentum would definitely

slowdown the growth of the industry. It can be seen from

the below chart that the industrys sales is positively

correlated with the economic growth with a co-relation of

0.96.


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GRAPH 4: GDP AND AUTO SALES

GDP and Auto sales

1100

11501200

1250

1300

1350

1400

1450

1999-

00

2000-

01

2001-

02

2002-

03

2003-

04

RealG

DP

(Rs.

'00

At1993-9

4price

404550556065707580

Noofunits(in

GDP No of units (in lakhs)

(Source: www.indiabudget.nic.in)

Rubber Prices:

With the increase in rural activities, the commercial

vehicles are expected to grow. Sports Utility Vehicles

(SUV) after being a very big hit in the domestic market,

the players now are planning to introduce them to the

domestic market. But the increase in the input prices like

steel and rubber has a negative impact on the industry

profitability. The truckers strike has affected the auto

players production and distribution to certain extent.


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GRAPH 5: SHOWING RUBBER PRICES

Interntional & Domestic Rubber Prices

400

600

800

1000

1200

1400

1600

Mar-

01

Jul-01 Nov-

01

Apr-

02

Aug-

02

Dec-

02

Apr-

03

Aug-

03

Dec-

03

Apr-

04

USD/Ton

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

Rs/Ton

USD/Ton Rs/Ton

Source: indiainfoline

A combination of internal and external factors has

contributed to the price volatility in the rubber market.

Since the domestic prices of rubber are less than the

global prices, the tyre manufacturers in other countries,

sourcing natural rubber from India which has led to the

increase in the exports thereby reducing the domestic

stock levels to less than sixty days of consumption of the


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rubber users sector. Also, the subsidy given by the

government for exports of rubber has resulted in an

increase in the exports.

The steel prices

GRAPH 6: SHOWING STEEL PRICES

Steel Prices

20,000

30,000

40,000

Ap

r-02

Ju

l-02

Oct-02

Ja

n-03

Ap

r-03

Ju

l-03

Oct-03

Ja

n-04

Ap

r-04

Ju

l-04

Oct-04

Rs/Ton

GC sheets

Source: indiainfoline

The steel prices are on rise following a sharp

increase in the prices of raw materials like iron ore, coke,

coal, power, gas and scrap. While the cost of iron ore

went up by 75% during the period June2003 to July 2004,

the scrap prices jumped up by 91%. Cokes prices saw an

increase of 50% during the same period. There are no


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signs of decline in the prices of steel products following a

strong demand from the housing and infrastructure

sectors, with additional growth potential in the auto and

consumer durables sectors too. With China taking steps

to cool down its overheated economy, demand from that

country is expected to slow down. But any shortfall in

demand from China may be offset by growth in demand

in the US, Europe and Japan as economic recovery

gathers momentum leaving no scope for the steel pricedeclines in the near short term.

Competition and Market

In the Automotive Sector the continuing convergence

between the car and the UV markets is a positive

development. High-end MUV sales accounted for 51% of

mid-size car sales in India in F-04, as compared to 16% in

F-00. The Co also believes that as the car market

expands in India, MUVs will continue to take an increasing

share of this market. After the success of the Scorpio and

Bolero, Reduced interest rates with the maturing of the

vehicle financing market will also add an impetus to

vehicle sales growth. Increased penetration of such


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financing products in rural and semi-urban markets will

directly benefit the Company given its strong presence in

these markets. M&M has the additional advantage that its

subsidiary, MMFSL has a wide rural network. The ongoing

WTO & Free Trade Area negotiations with Thailand,

ASEAN, SAARC countries and the Mercosur countries are

likely to lead to lowered tariffs across many of our target

export markets. This could provide the Co with a

significant opportunity to generate larger volumes fromexport sales.

Being an agrarian economy Indias GDP growth is

much dependent on the fortunes of the agro sector.

Given this backdrop the Tractor industry assumes

significance. The Indian Tractor industry is the largest in

the world in terms of production and sales. However in

terms of per capita usage it still scores low against

comparable developing nations. This provides for ample

scope of growth for the industry in future. With

liberalization restrictions on capacities and production

were removed. Today anybody can walk in and put up a

plant and start operations.


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COMPANY PROFILE:

Mahindra & Mahindra Limited (M&M) is the flagship

company of around US $ 2.5 billion Mahindra Group,


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which has a significant presence in key sectors of the

Indian economy. A consistently high performer, M&M is

one of the most respected companies in the country.

Set up in 1945 to make general-purpose utility

vehicles for the Indian market, M&M soon branched out

into manufacturing agricultural tractors and light

commercial vehicles (LCVs). The company later expanded

its operations from automobiles and tractors to secure a

significant presence in many more important sectors. TheCompany has, over the years, transformed itself into a

Group that caters to the Indian and overseas markets

with a presence in vehicles, farm equipment, information

technology, trade and finance related services, and

infrastructure development.

M&M has two main operating divisions:

1) The Automotive Division manufactures utility vehicles,

light commercial vehicles and three wheelers.

2) The Tractor (Farm Equipment) Division makes

agricultural tractors and implements that are used in

conjunction with tractors, and has also ventured into

manufacturing of industrial engines. The Tractor Division

has won the coveted Deming Application Prize 2003,


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making it the only tractor manufacturing company in the

world to secure this prize.

The resurgence of the automotive industry and M&M's

success in exploiting it, has created an opportunity to

strengthen the company through an entry into the Auto

Components business, the growth of which is being

fueled by both, domestic and export demand.

M&M employs around 11,500 people and has six

state-of-the-art manufacturing facilities spread over500,000 square meters. M&M has also set up two satellite

plants for tractor assembly. It has 49 sales offices that

are supported by a network of over 780 dealers across

the country. This network is connected to the Company's

sales departments by an extensive IT infrastructure.

M&M's outstanding manufacturing and engineering

skills allow it to constantly innovate and launch new

products for the Indian market. The Company's significant

recent product launch, the "Scorpio", resulted in the

Company winning the National Award for outstanding in-

house research and development from the Department of

Science and Industry of the Government in 2003. The


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Company has launched India's first tractor with turbo

technology - the Mahindra Sarpanch 595 DI Super Turbo.

The Company's commitment to technology-driven

innovation is reflected in Company's plans of setting up of

the Mahindra Research Valley, a facility that will house

the Company's engineering research and product

development wings, under one roof.

The M&M philosophy of growth is centered on its

belief in people. As a result, the company has put in placeinitiatives that seek to reward and retain the best talent

in the industry. M&M is also known for its progressive

labour management practices. In the community

development sphere, the company has implemented

several programs that have benefited the people and

institutions in its areas of operations.

Mahindra and Mahindra continues to be a solid

company

Company has registered a 28 % rise in its total vehicle

sales at 11,484 units for August 2004 as against 8,946

units in the corresponding period previous fiscal.

Mahindra City was granted special economic zone

(SEZ) which includes 100% tax holiday for the next 5


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years and a 50% tax holiday for the next five years,

exemption from customs duty, central excise, service tax,

education cess, central sales tax, and all local taxes

levied by the state.

Company has set up four overseas operations in

Uruguay, Italy, Dubai and South Africa for sale of Scorpio

and Bolero models in these markets.

Enters in to segments such as retailing agri-inputs,

under its own brand, manage corn and soya as collateral

for banks, export fruit to European supermarkets.

The Farm Equipment Sector is the first Tractor Company

in the world to win the Deming Prize. Also, it is the fourth

company in India and the 10th in the world, outside

Japan, to win this prize.Launched India's first tractor with turbo technology in

Patna, it is now eyeing to capture the tractor market in

the Bihar state in a big way.

Regained dominance as a leader in both utility vehicles

and tractors acquiring 50% market share.

Recent Developments &Future plans:

The companys long-term focus will continue to be

MUVs. With the difference between the passenger car

and the MUV segments fast disappearing, as the market


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for MUVs is likely to see a spurt in the near future. The

company plans to be the worlds biggest tractor maker by

2006, intends to overcome lack of similar size in utility

vehicles (UV) manufacture by being a niche player. Their

tractors were selling well in the US, giving M&M a

handsome market share in the 40-60 hp ranges in Texas.

M&M`s main US markets are in the South and South

West. The company is growing at rate of 80 per cent in

the US. Apart from US it also plans to market its tractorsin Europe through a sister-trading firm after rescheduling

plans to set up a subsidiary in the region. The company

will also launch 85-horse power (HP) and 100HP models

within the next 18 months to meet the specific demand

for high-powered tractors in the European and US

markets. On the cards are a number of improvements on

the Maxx, based on customer feedback. The company

also plans to expand its appeal with new variants. For the

low-end personal segment, M&M has introduced the

Marshal Royale.

Marketing competencies:


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this, the company also proposes to implement a

compulsory early day-off at 5 pm at least once a week.

They want their employees to spend value time with their

family at home. They are trying to follow ergonomic rules

for providing efficient working atmosphere, which is being

effectively implemented by companies abroad. The

company is also focusing on training and development

programmers for the career mapping of its employees

and provides them with a meaningful professional careerahead. In addition, the company also plans to implement

various development plans for training different level of

employees. These measures will surely help in retaining

its efficient contributors.

Board of directors:

Mr. Anand G Mahindra Vice-Chairman &Managing

Director and the four Executive Directors of the Company

manage the Company. The Board reviews and approves

strategy and oversees the actions and results of

management to ensure that the long-term objectives of


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enhancing stakeholder value are met. The Company

presently has seventeen Directors. The Vice-Chairman &

Managing Director and the four Executive Directors are

Whole-time Directors. Reimbursement of expenses

incurred in the discharge of their duties, the

remuneration that these Directors would be entitled to

under the Companies Act, 1956 as Non-Executive

Directors. The Company has not entered into any

materially significant transactions with its Promoters,Directors or the Management or relatives, etc. that may

have potential conflict with the interests of the Company

at large.

Dividend policy:

The Directors have recommended a dividend at 90%

(Rs.9 per share). The dividend, together with the tax on

distributed profit, will absorb a sum of Rs.117.79 crores

(previous year Rs.71.98 crores) and will be paid to those

shareholders whose names stand registered in the books

of the Company as on the book closure date.


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INDUSTRY PROFILE:

The Indian automobile sector can be divided into

several segments: 2 & 3 wheelers, passenger cars,

commercial vehicles (Heavy CVs/ Medium CVs/Light CVs),

utility vehicles (UVs) and tractors. The industry is highly

capital intensive in nature. Though three-wheelers and

tractors have low barriers to entry in terms of technology,

other segments are capital and technology intensive.

Costs involved in branding, distribution network andspare parts availability increase entry barriers. With the

Indian market moving towards complying with global

standards, capital expenditure will rise to attune to future

safety regulations.

The industry is highly fragmented in nature. In the

last ten years, supply has outstripped demand, as

multinationals and domestic players have set up large-

scale manufacturing facilities to meet future needs. As a

result, there is an absence of pricing power with

manufacturers. Competition is expected to increase

further, as global majors are planning to enter India

either through direct investment or imports. Automobile

majors increase profitability by selling more units. As

number of units sold increases, average cost of selling


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incremental unit comes down when demand recovers.

This is because the industry has a high fixed cost

component. This is the key reason why operating

efficiency through increased localization of components

and maximizing output per employee is of significance.

INDUSTRY GROWTH IN VARIOUS SEGMENTS

Passenger cars : 17%

Utility vehicles : 23%Light commercial vehicles : 12%

Heavy and multi commercial vehicles : 23%

3 wheelers : 8%

PORTER FIVE FORCES MODEL:

Supply: The Indian automobile market is plagued with

excess capacity.

Demand: Is largely cyclical in nature and dependent

upon economic growth and per capita income.

Seasonality is also a vital factor.

Barriers to entry: High capital costs, technology,

distribution network, and availability of auto components.


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After three years in the wilderness, tractor industry

seems to have finally come out of the trough as it grew

by 10% during FY05. While good monsoon is a positive for

the sector, given the fact that the country has had erratic

rainfall in the past, volumes may not recover sharply. But

the longer-term picture is impressive in light of poor

mechanization levels in the country.

With an estimated 39% of CVs plying on the roads 10

years old, demand for HCVs is expected to grow by 8% in

FY05. Also adding the positives are higher crop output,

industrial sector growth and favorable interest rate

environment. While the industry is cyclical in nature, we

expect this factor to weaken in the medium term arising

out of structural changes in the industry. The

privatization of select state transport undertakings and

hiking of bus fares bodes well for the bus segment as

well.

The reduction in peak customs duty from 30% to 25% in

the budget will result in savings on the raw material front

as well. Since raw material costs account for almost 50%

of revenues of auto companies in general, this is a

positive. Also, steel prices have shown some signs of


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such as the size of the car, the style, the comfort, the

level of service offered by the manufacturers, the

variants available in the category etc. Even though the

perception is changing, it is true that still price plays an

important role in the industry. The role of price may be

very negligible in some segments, but in the other

segments they are very much reactive to the price

fluctuations. Thus, the some players in segments

concentrate on the value addition to achieve competitiveadvantage, while the other players in the segments use

price as weapon along with their core service. These

players also offer discounts during festival season to

boost the sales.

GrowthDrivers:

1. Economic growth: There is a direct co-relationship

between the per capita income of the people and the

demand for automobiles. Due to the increased business

activity, the economy supports the industry growth as

well as generates employment. The demand for

automobile is expected to grow with the improved

standard of living. Even though the economic growth rate

during the year was 8.056 percent, the future average


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growth rate is expected to be around 6.5 percent without

any economic reforms.

2. Income level: The level of income has got a direct

impact on the sales of the automobile. The rise in income

level, results in increase in the number of people crossing

the income threshold, thus changing the profile of

customer. The lifestyle of the people tends to change

automatically. With their increased buying power, theywould lookout for more comfort. For E.g. when the

income of a lower middle class family increases, say they

would like to shift from two-wheeler to buy a used car.

This in turn increases the demand for used car market

and a good resale value for the seller, thereby indirectly

increasing the sales of new cars. With the entry of MNCs

especially in the IT, ITES and BPO sector, the income level

and lifestyle, both are encouraging the younger

generation. This has also reduced the average age of a

car buyer.

3. Monsoons/ Rural economy: The monsoon is the

backbone of the Indian agriculture. In India, around 65

percent of the national income is contributed by the


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agricultural sector and constitutes about 22 percent in

the GDP. The monsoons support the economic growth.

With the arrival of monsoons, the rural sector is expected

generate more jobs in the rural economy and more

income, thus increasing the purchasing power of people.

Along with this, even other industries performance will

boost up. Thus, the demand mainly for utility vehicles

increases with the better performance of the rural sector.

4. Used car Segment: The industry saw a growth of

around 30 percent in the used car segment during fiscal

year. The profile of an Indian Car buyer has been

changing due to the increasing purchasing power.

Besides, the used cars are becoming affordable due to

the reduced Equated Monthly Installments (EMI) and

increased repayment period. A more active lifestyle,

rising disposable income and lower cost of replacement

are guiding the customers to change their cars once

every three years now. Even though this market is

unorganized to a large extent, the organized used car

segment is slowly growing in India. With the

manufacturers only coming forward to buy back their

models, has in turn helped the sales of new vehicles.


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5. Availability of finance for both new and used

vehicles: With the ease in the availability of finance both

the new and used auto market segment has been

witnessing a growth. Previously, loans were provided only

for the new vehicles, but now the financial institutions

have come forward to offer the loans for used vehicles

too. With the increasing competition among the finance

providers, they are reducing the rates day by day. Alongwith this, even some companies go beyond the industry

benchmark by financing up to seven year old vehicles,

thereby helping the growth of the used auto segment.

The interest rate has almost halved in comparison to the

rates during 1998 and has touched as low as 6.5 percent

per annum. Auto manufacturers are using this as a tool to

increase the sales. They are having tie-ups with the

finance providers or floating their own finance companies.

6. Infrastructure: Due to the increased investment in

infrastructural projects especially in the development and

improvement of road projects, the overall transport

business activities and the tourism is expected to grow,

which in turn creates a good demand for the utility


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vehicles.Traffic on roads is growing at a rate of 7 to 10%

per annum while the vehicle population growth for the

past few years is of the order of 12% per annum. So there

is a need for the development of good infrastructural

roads for the growth of the automobile industry. On the

other side, poor road infrastructure and traffic congestion

can be a bottleneck in the growth of vehicle industry.

7. Exports: With the global players looking at developing

vehicles that can be launched in multiple markets toreduce their developmental cost and to reduce their

development costs, India is expected to increase its

exports. These giants are planning to use their Indian

facilities as hub for their worldwide operations. With this

move, General motors and Daimler Chrysler both have

their R & D center in Bangalore, which will have an

important role in International product development.

Toyota has plans to turn India into its lowest cost-

manufacturing center. MUL is also becoming a hub for

small cars for Suzuki Motor Corporation. The countrys car

sales and exports is expected to register around 8.5 lakh

units by the fiscal 2006-07, which will mainly be driven by

compact and mid size car segment.

TABLE 2: COST ANALYSIS


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As % of net sales FY05 FY04

Raw Material 69.4 67.8

Staff Cost 5.0 5.9

Other expenditure 13.1 13.4Source: India Infoline Research

Raw material cost pressures was faced by most of

the companies in the sector. For instance, raw material

cost as a percentage of net sales increased by 5.7

percentage points for Punjab Tractors, 5.2 percentage

points for BAL, 2.8 percentage points for ALL and 2.5

percentage points for Tata Motors.

Staff cost declined by 66bps and other expenditure

increased 41bps as a percentage of net sales. Punjab

Tractors and M&M enjoyed the benefit of a reduced staff

cost by 370bps and 230bps as a percentage of net sales.Punjab Tractors maintained its margins in spite of a high

rise in raw material cost due to savings in staff cost and

other expenditure.

Major competitors and Market position:

Prior to 1980, Premier Automobiles Limited (PAL) and

Hindustan Motors (HM) had dominated the Indian

passenger car market. With the entry of Maruti Udyog


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Limited (MUL) in 1980, the former players faced a tough

competition. Even though they were able to maintain

their volumes, their market share drastically reduced.

MUL dominated the passenger car market and faced no

competition till early 1990s. After the liberalization took

place, with the entry of foreign players, the problems

began for MUL. MUL started loosing its market share

slowly. During the initial stages of liberalization, since

MUL had depreciated its plant already by then, no playerin the industry was able to match MULs Maruti 800s

entry price. But still, MUL faced tough time in the upper

segment. With the launch of the models like Indica,

Santro and Matiz by Tata, Hyundai and Daewoo

respectively, in the price range of 3- 4.5 lakhs, MULs

market share fell down sharply. But, however MUL is still

the market leader in the passenger car segment, and was

able to maintain its market share with its successful

models like Maruti 800, Esteem, Zen, Wagon R and Alto.

The overall market share of MUL fell from 70.2 percent in

1995-96 to 58.1 percent during 1999-00, which further

declined to 51 percent as on February 2004. This can be

attributed to the increased competition from Hyundai,


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Tata motors, Fiat, General motors, Hindustan motors and

Honda Siel.

In the A segment, MUL hold the monopoly position

with its 800 model and no other player has been able to

enter this segment. This model alone accounts for about

25 percent of the total sales of the passenger cars. In the

lower B segment, MUL holds the leadership position with

its three models in the segments viz Zen, Alto and WagonR, followed by Hyundai. But, model wise Santro tops the

segment with its 37 percent share in this segment. There

are three players in the upper B segment, with Tata in the

No.1 position. Its model Indica accounts to 86 percent of

the total sales in the segment. MULs Esteem lost its

leadership position to Tatas Indigo, which has dominated

the market with 31 percent share. This ahs been followed

by Hyundais percent and 22 percent respectively. Honda

Siel occupies the dominant position with its City model.

Toyotas Corolla and Hondas Accord are dominant in the

D & E segments respectively Accent and Ford Ikon, whose

market shares are 27. With the launch of new models in

MUVs and SUVs, the utility vehicles sales are in an

upward trend. In the utilities segment Mahindra &


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Mahindra has been able to maintain its leader position,

followed by MUL, which manufactures the models like

omni and versa. The launch of Qualis model has given a

new look to the industry. Even, it grabbed some share of

passenger car industry, since the customers perceived it

as a big car, which is even easy to drive, unlike other

utility vehicles. The launch of Mahindras SUV Scorpio

also moved along the lines of Qualis, dragging the

passenger car customers. Watching the Scorpios successa new range of SUVs were launched by other players in

the industry. The new SUV models, which are launched,

recently are Marutis Jimny, Fords Endeavour, Suzukis

Vitara, Chevrolets Forester and Hyundais Terracan. With

this move by the players, the red line between the

utilities and the passenger car is slowly vanishing.


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GRAPH 7: SHARE OF PLAYERS IN THE PASSENGER

CAR SEGMENT AS ON FEB 2004-05

Market Share: Companywise

51%

18%

3%

16%

3%9%

Maruti

Hyundai

Ford

Tata Eng

Honda Siel

Others


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GRAPH 8: SHARE OF PLAYERS IN THE UTILITIES

SEGMENT AS ON FEB2004-05

Utilities market share

3%

34%

31%

15%

16%1%

Bajaj Tempo

Mah & mah

Maruti Udyog

Telco

Toyota Kirloskar

Others

Suppliers:

The Indian Auto component industry was started with

an aim of reducing the imports and being self-sufficient.

But, over a period of time this industry has achieved its


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objective along with being a good foreign exchange

earner. The auto component industry maintained a low

but positive growth rate mainly due to its export

performance. This industry has maintained a 10 percent

to 12 percent share of exports in its total production.

Indias automotive component industry manufactures the

entire range of parts required by the domestic

automobile industry and currently employs about

250,000 persons. Auto component manufacturers supplyto two kinds of customers original equipment

manufacturers (OEM) and the replacement market. The

replacement market is characterized by the presence of

several small-scale suppliers who score over the

organized players in terms of excise duty exemptions and

lower overheads. The demand from the OEM market, on

the other hand, is dependent on the demand for new

vehicles. The strict reform by the Government with

respect to the indigenization programme has led the

OEMs to increase their indignation over the years. In

India, the auto component manufacturers are found

working close in proximity with the vehicle manufacturers

ensuring the just in time deliveries. The trend of the auto

component industry is to outsource manufacturing


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assembly to component suppliers while the OEM

imperative is to cut costs, improve customer

responsiveness and build to order, which helps them to

build their own competitive advantage.

Government Regulations:

Even though the auto sector has been deregularised,

the government still vests the powers with itself to

influence the industry, in terms of controlling the import,excise and customs duties and emission norms. After the

lifting of licensing in 1993, 16 ventures came up to

manufacture cars. The governments auto policy has

restricted import of cars and automotive vehicles in

completely built (CBU) form or in completely knocked

down (CKD) or in Semi knocked down (SKD) condition.

And the car manufacturers were issued licenses to import

components in CKD or SKD form only after execution of

the Memorandum of Understanding (MOU) with the

Director General Foreign trade (DGFT). 11 companies

signed MOU and they have agreed to bring in minimum

foreign equity of US $ 50 mn, if a joint venture is involved

in majority foreign equity ownership. Along with this, they

have also agreed to indigenize components up to a


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minimum of 50 percent in the third year and 70 percent

in the fifth year. The government has permitted for 100%

foreign equity investments for the manufacturing of

automobiles and components. The Government will

review the automotive tariff structure periodically to

encourage demand, promote the growth of the industry

and prevent India from becoming a dumping ground for

international rejects. The incidence of import tariff will be

fixed in a manner so as to facilitate development ofmanufacturing capabilities as opposed to mere assembly

without giving undue protection, to ensure balanced

transition to open trade, to promote increased

competition in the market and enlarge purchase options

to the Indian customer. Appropriate measures including

anti dumping duties will be put in place to check dumping

and unfair trade practices. The conditions for import of

new Completely Built Units (CBUs) will be as per Public

Notice issued by the Director General Foreign Trade

(DGFT) having regard to environment and safety

regulations. Used vehicles imported into the country

would have to meet CMVR, environmental requirements

as per Public Notice issued by DGFT laying down specific

standards and other criteria for such imports. The


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governments policy allows weighted tax deduction for

the sponsored research and in-house R&D expenditure

and also excise duty rebate of 1% of the gross turnover.

The government is also encouraging auto design firms by

providing them tax breaks and concessional duty. The

government is supporting the development and

introduction of vehicles propelled by energy sources

other than hydrocarbons by promoting appropriate

automotive technology. The road tax on vehicles variesfrom state to state and a lifetime road tax is in existence.

The government controls the import of automobiles and

its components through its EXIM policy. It has allowed the

import of used cars with some restrictions and they

should confirm to the Central Motor Vehicle Rules, (1989).

Excise duty on (Basic + SED) on cars and MUVs reduced

from 32% to 24% and for CKD and SKD kits reduced from

30% to 25%. The government has announced 48 new

road projects with an estimated cost of Rs400bn and it a

levy of 50 paisa on per liter of diesel will be collected for

the funding of the above road projects. By the year 2010,

the Indian safety regulations will be completely aligned

with the ECE regulations like anti-theft, EMC, noise, front,

side and lateral collision, etc.


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Emission: The need to reduce vehicular pollution has led

to emission control through regulations in conjunction

with increasingly environment-friendly technologies. It

was only in 1991 that the first stage emission norms

came into force for petrol vehicles and in 1992 for diesel

vehicles. From April 1995 mandatory fitment of catalytic

converters in new petrol passenger cars sold in the four

metros of Delhi, Calcutta, Mumbai and Chennai alongwith supply of Unleaded Petrol (ULP) was affected.

Availability of ULP was further extended to 42 major cities

and now it is available throughout the country. From the

year 2000, the passenger cars and commercial vehicles

are meeting Euro I equivalent India-2000 norms. Euro II

equivalent Bharat Stage II norms are in force from 2001

in 4 metros of Delhi, Mumbai, Chennai and Kolkata. Since

India embarked on a formal emission control regime only

in 1991, there is a gap in comparison with technologies

available in the USA or Europe. Currently, India is behind

Euro norms by few years, however, a beginning has been

made, and emission norms are being aligned with Euro

standards and vehicular technology is being accordingly

upgraded. Vehicle manufactures are also working


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towards bridging the gap between Euro standards and

Indian emission norms. In this move, the government is

making all efforts to implement Euro III from 2005

effectively

WTO:

The WTO restrictions came into effect from 1st April

2001 and the Indian industries were feeling a sense of

threat of cheaper i

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