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PROJECT REPORT

ON

FUNDAMENTAL ANALYSIS OF

INDIAN AUTOMOBILE INDUSTRY

Submitted to the University of Mumbai in the partial fulfillment of therequirement for the award of the degree in

MASTERS OF MANAGEMENT STUDIES

Submitted by:

JENIFER PEREIRA

MMS II ROLL NO. : 81

2009-11

Under the guidance of

Prof. Natika

St Francis Institute of Management and Research

S F I M A R

St Francis Institute of Management and Research, Mt. Poinsur,S.V.P Road, Borivali (W) Mumbai.

Year: 2009 2011


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EXECUTIVE SUMMARY

The automobile industry, one of the core sectors, has undergone metamorphosis with

the advent of new business and manufacturing practices in the light of liberalization

and globalization. The sector seems to be optimistic of posting strong sales in the

couple of years in the view of a reasonable surge in demand. The Indian automobile

market is gearing towards international standards to meet the needs of the global

automobile giants and become a global hub.

A detailed analysis of Automobile industry has been covered in respect of past

growth and performance. Under this project to better understand the Industry I have

used Fundamental tools to make it more authentic n meaningful. An E.I.C approach

has been followed under Fundamental Analysis: Economic analysis, Industry analysis

and Company Analysis as a part of Fundamental tool I have undergone with the

comparative analysis ofTATA Motors, Mahindra and Mahindra and Maruti Suzuki.


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OBJECTIVES OF THE STUDY

y To deeply analyzing our Indian Automobile Industry by monitoring the growthrate and performance on the basis of historical data.

y Comparative analysis of the three tough competitors TATA Motors, MarutiSuzuki and Mahindra and Mahindra.

NEED FOR THE STUDY

y To find out the impact of growth of the auto industry on the performance of theeconomy.

y To understand this industry for the purpose of investment.


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ANALYSIS OF AUTOMOBILE INDUSTRY

The Automobile industry in India is one of the largest in the world and one of the

fastest growing globally. Over a period of more than two decades the Indian

Automobile industry has been driving its own growth through phases. With

comparatively higher rate of economic growth rate index against that of great

global powers, India has become a hub of domestic and exports business. The

automobile sector has been contributing its share to the shining economic

performance of India in the recent years. To understand this industry for we need

to analyze it by the following approach:

Fundamental Analysis:-

1) Economy2) Industry3) Company


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1.ECONOMIC ANALYSIS

Economic analysis is a process whereby strengths and weaknesses of an economy are

analyzed. Economic analysis is important in order to understand exact condition of an

economy. It can cover a number of important economic issues that keep cropping up

within a particular economy, which is being analyzed.

GDP and Automobile Industry

GDP or gross domestic product is one of the primary indicators used to measure the

health of a countrys economy. It indicates the total dollar value of all the goods and

services produced over a specific period of time. Generally, GDP is expressed as a

comparison with the previous quarter or year.

Basically, the calculation can be done in any of the two ways: either by summing up

what everyone earned in a given year (known as income approach), or by summing

up what everyone spent (known as expenditure method). Reasonably, both measures

should come to roughly the same total.

The income approach, that is sometimes referred to as GDP (I), is calculated by

summing up the total compensation to employees, gross profits for incorporated and

non-incorporated firms, and the taxes less any subsidies. Expenditure method is amore common approach and is computed by adding total investment, consumption,

government spending and the net exports. The Indian GDP is calculated by the

expenditure method.

The Role of Automobile Industry in India GDP has been phenomenon. The

Automobile Industry is one of the fastest growing sectors in India. The increase in the

demand for cars, and other vehicles, powered by the increase in the income is the

primary growth driver of the automobile industry in India.T

he introduction of tailormade finance schemes, easy repayment schemes has also helped the growth of the

automobile sector.

The Economy of India is the eleventh largest in the world by nominal GDP of $1.43

trillion in 2010 and the fourth largest by purchasing power parity (PPP) of $4.00


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trillion. The per capita Income (nominal) is $1,176 (137th; 2010)and (PPP) $3,290

(127th; 2010).

India's large service industry accounts for 55.3% of the country's GDP while the

industrial and agricultural sector contribute 28.6% and 16.1% respectively. Thecontribution of the auto industry to GDP has risen from 2.77% in 1992-93 to 4.14%

in 2008-09.

Agriculture is the predominant occupation in India, accounting for about 52% of

employment followed by service sector accounting for 34% and industry for 14%.

The real GDP growth rate trend in the past 7 years:

AGRICULTU

RE

55%

SERVICE

29%

INDUSTRY

16%

GDP

20042005 2006 2007 2008 2009 2010

7.90%9.20%9.80% 9.30%

6.70% 7.20%8.20%

GROWTH(%)


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EMPLOYMENT

Today, automobile sector in India is one of the key sectors of the economy in terms

of the employment. Directly and indirectly it employs more than 10 million people

and if we add the number of people employed in the auto-component and auto

ancillary industry then the number goes even higher.

AGRICULTUR

E

52%SERVICE

34%

INDUSTRY

14%

EMPLOYMENT


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Export

Society of Indian Automobile Manufacturers (SIAM), automobile sales (including

passenger vehicles, commercial vehicles, two-wheelers and three-wheelers) in the

overseas markets increased to 1.53 million units in 2008-09 from 1.23 million unitsin 2007-08. Export of passenger vehicles increased from 218,401 in 2007-08 to

335,739 units in 2008-09.

Automobile Exports Trends (Number o

Vehicles)

Category2003-

04

2004-

05

2005-

062006-07

2007-08 2008-09 2009-10

PassengerVehicles

129,291 166,402 175,572 198,452 218,401 335,729 446,146

Commercial

Vehicles17,432 29,940 40,600 49,537 58,994 42,625 45,007

Three

Wheelers68,144 66,795 76,881 143,896 141,225 148,066 173,282

Two Wheelers 265,052 366,407 513,169 619,644 819,713 1,004,174 1,140,184

Grand Total 479,919 629,544 806,222 1,011,529 1,238,333 1,530,594 1,804,619

There is a continuous increase in the export of automobiles since the financial year

2002-03, except for the decline in the export of commercial vehicles in the financial

year 2008-09, which may be attributed to the global economic recession.


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Indian Automobile Industry at Global level:

India manufactures over 11 million vehicles (including 2 wheeled and 4 wheeled) and

exports about 1.5 million every year. It is the world's second largest manufacturer ofmotorcycles, with annual sales exceeding 8.5 million in 2009. India's passenger car

and commercial vehicle manufacturing industry is the seventh largest in the world,

with an annual production of more than 2.6 million units in 2009. In 2009, India

emerged as Asia's fourth largest exporter of passenger cars, behind Japan, South

Korea and Thailand.

As of 2009, India is home to 40 million passenger vehicles and more than 2.6 million

cars were sold in India in 2009 (an increase of 26%), making the country the second

fastest growing automobile market in the world. According to the Society of Indian

Automobile Manufacturers, annual car sales are projected to increase up to 5 million

vehicles by 2015 and more than 9 million by 2020. By 2050, the country is expected

to top the world in car volumes with approximately 611 million vehicles on the

nation's roads. It ranks 11th in the international passenger car market, 5th pertaining

to the number of bus and truck sold in the world and is the second largest tractor

manufacturer in the world.

It is expected that the Automobile Industry in India would be the 7th largestautomobile market within the year 2016. (Projected Growth rate in Automobile

Industry)


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2.INDUSTRY ANALYSIS (AUTOMOBILE)

The current trends of the global automobile industry reveal that in the developed

countries the automobile industries are stagnating as a result of drooping markets,

whereas the automobile industry in the developing nations, have been consistently

registering higher growth rates every passing year for their domestic flourishing

domestic automobile markets. Being one of the fastest growing sectors in the world

its dynamic growth phases are explained by the nature of competition, Product Life

Cycle and consumer demand. The industry is at the crossroads with global mergers

and relocation of production centers to emerging developing countries.

The automobile industry comprises of passenger cars; Two-wheelers; Commercial

Vehicles; and Three-wheelers. Following is the segmentation that how much eachsector comprises of whole Indian Automobile Industry.

Domestic Market Share for 2009-10

Passenger Vehicles 15.86

Commercial Vehicles 4.32

Three Wheelers 3.58

Two Wheelers 76.23


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BCG Matrix

In an economy, different industries are present and different industries have different

growth rate as compared to the growth of the economy. In an economy, there are a

number of major industries and they all occupy different positions in the BCG matrixaccording to their growth and contribution towards the economy. In the Indian

economy, some of the major sectors are FMCG, automobiles, banking and insurance,

steel, telecom, software, pharmacology and retail sectors and these can be placed in

the different positions in the matrix as shown below:

AUTOMOBILE

INDUSTRY


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3.COMPANY ANALYSIS

The company analysis shows the long-term strength of the company which is the

financial Position of the company in the market where it stand among its competitors

and what are the key drivers of the company, what is the future plans of the company,

what are the policies of government.

Comparative analysis using key financial ratios of the three tough competitors:

1. TATA MOTORS

y Established in 1945.y Over 5.9 million Tata vehicles ply on Indian roads, since the first rolled out

in 1954.

y India's largest automobile company, with consolidated revenues of Rs.92,519crores (USD 20 billion) in 2009-10.

y It is the leader in commercial vehicles in each segment, and among the topthree in passenger vehicles with winning products in the compact, midsize

car and utility vehicle segments.

y The Company is the world's fourth largest truck manufacturer, and theworld's second largest bus manufacturer.

2. MAHINDRA AND MAHINDRA

y Founded in 1945 as a steel trading company, entered automotivemanufacturing in 1947.

y Over the years, they have diversified into many new businesses in orderto better meet the needs of our customers.

y They have grown into a US $7.1 billion multinational group with morethan 112,000 employees in 79 countries across the globe.

y Today, their operations span 17 key industries that form the foundationof every modern economy: aerospace, aftermarket, agribusiness,

automotive, components, consulting services, defense, energy, farm

equipment, finance and insurance, industrial equipment, information


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technology, leisure and hospitality, logistics, real estate, retail, and two

wheelers.

3.

MARUTI SUZUKI

y Maruti Suzuki India Limited (MSIL, formerly known as Maruti UdyogLimited) is a subsidiary of Suzuki Motor Corporation, Japan.

y The company has two manufacturing facilities: combined capability to produceover a 1.2 million passenger car units annually.

y In fiscal 2009-10 Maruti Suzuki became the only Indian company tomanufacture and sell One Million cars in a year.

y Largest car maker in India, Maruti Suzuki India Limited sold a total of 1,11,645 vehicles, including 10,102 units of exports, in Feb 2011.

y In Feb 2011, the company sold 1, 01,543 units in the domestic market, up 19.8per cent over corresponding month in 2010.

MARKET SHARE


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RATIO ANALYSIS:

1. CURRENT RATIO

CONCLUSION: Tata Motors has been unable to meet the standard current ratio

and is dissatisfactory from 2006 to 2010 due to negative net current assets since the

C.A. are increased by 5% whereas C.L. are increased by 20% from 2008 to 2010.

Mahindra as well as Maruti has shown satisfactory ratio but in 2008 mahindras

C.A. is decreased by 2.5% whereas C.L is increased by 21% and in 2009 the

increase in C.L. is more than the increase in C.A.

Marutis C.A. is decreased whereas C.L. is increased in 2008 and 2010.

Overall Maruti has performed well.

1.24 1.24

1.77

1.24

1.37 1.4

0.89

1.11.03

0.84

1.06

1.53

0.62

1.181.02

TATA MOTORS MAHINDRA MARUTI

2006 2007 2008 2009 2010


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2. QUICK RATIO

CONCLUSION: Maruti has performed well accept in 2008 and 2010 where C.A. is

decreased and C.L. is increased in 2008 and 2010. But the average of three years is1:1 which the standard ratio is.

0.97

0.84

1.31

0.921.01

1.13

0.660.74

0.660.58

0.83

1.26

0.44

0.86

0.68


2006 2007 2008 2009 2010


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3. DEBT-EQUITY RATIO

CONCLUSION: Maruti has shown the least ratio among all the three companieswhich means that the company has minimum debt and maximum equity capital and

it indicates that the creditors enjoy high degree of safety.

0.53

0.31

0.01

0.59

0.46

0.09

0.8

0.6

0.11

1.06

0.77

0.07

1.11

0.37

0.07


2006 2007 2008 2009 2010


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4. NET PROFIT RATIO

CONCLUSION: Mahindras Net Profit ratio is highest among all the three

companies. This indicates that it has the highest profit margin on its sales.

7.35

10.59.75

6.94

10.34 10.5

6.96

9.45 9.6

3.77

6.25 66.26

11.08

8.5


2006 2007 2008 2009 2010


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5. ROCE

CONCLUSION: Maruti have the highest ROCE among all the three companies in all

the three years. This indicates the optimum utilization of funds and optimum capital

structure planning.

26.47

22.94

33.46

25.82 25.71

30.65

18.96 18.52

26.18

6.41

13.9917.37

9.66

27.7 27.89


2006 2007 2008 2009 2010


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6. RONW

CONCLUSION: Mahindra and Tata have performed well which indicates efficient

utilization of the owners fund.

27.7429.6

21.81

27.9630.18

22.79

25.98 25.51

20.56

8.09

16.03

13.04

14.96

26.74

21.1


2006 2007 2008 2009 2010


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7. INVENTORY TURNOVER RATIO

CONCLUSION: Maruti has the highest ratio among all and increasing by a higher %

as compared to that of Mahindra.

10.329.48

14.15

11.0211.75

21.27

14.44

12.49

22.93

13.4714.56

30.46

13.07

17.91

30.47


2006 2007 2008 2009 2010


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8. TOTAL ASSETS TURNOVER

CONCLUSION:T

ata has performed well accept in 2009 due to decrease in salesinstead of increase in T.A.

Maruti has performed well in last two years since the sales are increased by a higher

% than that ofT.A.

2.4

2.16 2.21

2.49

1.92 1.982.06

1.64

1.94

1.02

1.42

2.06

1.13

1.74

2.32


2006 2007 2008 2009 2010


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9. EPS

CONCLUSION: Maruti achieves the highest EPS among all the three companies.

39.9436.72

41.16

49.6544.88

54.0752.63

46.15

59.91

19.48

30.69

42.1839.26

36.89

86.45


2006 2007 2008 2009 2010


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10.DPS

CONCLUSION: Tata Motors has the highest DPS.

13

10

7

15

11.5

9

15

11.5

10

6

10

7

15

9.5

12


2006 2007 2008 2009 2010


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CONCLUSION

COMPANY ANALYSIS:

y Maruti Suzuki has performed well out of the three companies having thehighest Current ratio, Quick ratio, Debt-equity ratio, ROCE, Inventory

turnover ratio and EPS.

y Mahindra has performed well out of the three companies having highest Netprofit ratio and RONW.

y Tata Motors has performed well out of the three companies having the highestTotal assets turnover and DPS.

So it can be concluded that for the purpose of investment Tata Motors is a better

option and is advisable.


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ECONOMIC AND INDUSTRY ANALYSIS:

y The Automobile Industry is one of the fastest growing sectors in India and theincrease in the demand for cars, and other vehicles, powered by the increase in

the income is the primary growth driver of the automobile industry in India.y The contribution of the auto industry to GDP was 2.77% in 1992-93 and 4.14%

in 2008-09.

y The Economy of India is the 11th largest in the world by nominal GDP of $1.43trillion in 2010 and 4

thlargest by purchasing power parity (PPP) of $4.00

trillion.

y It provides employment to around 13 million people directly or indirectly atpresent.

y India exports automobiles in about 203 countries. The total revenues fromexports of automobiles, in the year 2008-2009 were USD 6,001.81 million

with a growth of 33.85% from the previous year.

y It is the world's 2nd largest manufacturer of motorcycles.y 7th largest in the India's passenger car and commercial vehicle manufacturing

industry.

y In 2009, India emerged as Asia's fourth largest exporter.y 5th pertaining to the number of bus and truck sold in the world and is the

second largest tractor manufacturer in the world.


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Influence of government policies on the development of

Indias automotive industry

Modernization programme for automotive industry:

In early 1980s, the Indian government made policy decisions for infusing fuel-

efficient technologies and competition into the automotive industry. These policy

decisions, collectively referred to as the modernization programme, included

relaxations in new entries, foreign equity collaborations and imports of technology

and machinery. The relaxations were in the form of simplification of bureaucratic

procedures and rationalization of tariff duties. The timing of relaxations coincidedwith the desire of Japanese firms to find new markets. As a result, several Joint

Ventures were established between the Japanese and Indian entities for technology

transfer and equity participation. Other domestic firms formed technology

collaborations with western and Japanese manufacturers for introducing new fuel-

efficient vehicle models. The modernization programme had a significant impact on

the development of Indias automotive industry. The programme transformed the

industry with mixed outcomes. The number of vehicle models available to the Indian

consumer increased. Both product technology and quality saw improvements. Inorder to reduce weight of the vehicle for increased fuel efficiency, the product

designs changed considerably to include components made of aluminium, fibres and

plastics. This brought changes to the manufacturing technologies of auto-

components. Further, the Japanese collaborators brought world-class manufacturing

practices into the country. The Japanese practice of subcontracting that involves

establishment of vendor parks in the geographical vicinity of automobile plants led to

the creation of two new industrial sites in the country Gurgaon in Haryana and

Pithampur in Madhya Pradesh.


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Promotion of automotive exports:

The automotive industry had been a net user of foreign exchange. Moreover, the

industry was experiencing uneconomic production due to low domestic demand.

Therefore, in 1980, the government made a decision to promote exports ofautomotive products in order to attain a favorable balance of trade and to support a

higher utilization of production capacities. The promotion measures included

simplified procedures for exports, easier availability of licenses for 100% export-

oriented units and easier expansion of existing units for the purpose of exports,

amongst others. The modernization programme also helped indirectly to increase the

exports of the industry. For instance, the technical collaboration made with Iveco

under the programme, helped Ashok Leyland to make exports of its new line of CVs

to Mexico. Moreover, MUL started making indirect exports of the Japanesecollaborators 800cc car model to the European countries. The export of the

automotive industry thus doubled over the period 1984-85 to 1988-89. Even though

the share of Indias automotive exports in the global export market was much small

(around 0.1%) in 1980s, the governments policy decision to promote exports during

this phase was an important initiative in the development of Indias automotive

industry.

Liberalization policy:

The important policy decisions of the liberalization package were delicensing, 51%

FDI via automatic route, relaxations for critical imports and suspension of local

content requirements. The impact of these policy decisions over the developmental

aspects of the industry was visible by the mid-1990s. The policy decisions led to a

second wave of restructuring of the industry and resulted in a fiercely competitive

domestic market, both in terms of price and quality. The policy decisions also altered

the behavior of the established firms with respect to technology acquisition and

performance (Narayanan 2001). Under the delicensing policy, the firms were free to

enter, expand, diversify and relocate based on their commercial judgements. The

delicensing of entry and diversification, combined with automatic approval upto 51%

FDI led to a spate of entries by the foreign players, establishing JVs with the

domestic players. GOI (2002) notes that after delicensing of cars in 1993, 17 new

ventures had come up out of which 16 were for manufacture of cars. This


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transformed the previously oligopolistic car segment into one of the most competitive

sector in the industry.

Auto Policy 2002:

Auto Policy 2002 comprises several policy decisions that aim at making the Indianautomotive industry globally competitive and for raising its contribution to the

economy. Discontinuation of foreign exchange neutrality requirement and approval

of 100% FDI via automatic route are the policy decisions aimed at creating a more

conducive environment for the foreign investors. The influence of the policy

decisions is strikingly visible in the exponential growth in FDI received by the

automotive sector over the period 2004-05 to 2007-08.


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RECOMMENDATIONS

y Maruti Suzuki should improve its DPS that is through increasing the Dividendpayout ratio and decreasing the retention ratio.

y Mahindra & Mahindra should improve its Debt-equity ratio, Inventoryturnover ratio and DPS that is through increasing the Dividend payout ratio

and decreasing the retention ratio.

y Tata Motors should improve its Debt-equity ratio, Net profit ratio andInventory turnover ratio.


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BUDGET 2011

No change in excise duty and Tax concessions for environment friendly vehicles.

World over, substantial investments are being made in the field of hybrid and electric

mobility. To provide green and clean transportation for the masses, National Mission

for Hybrid and Electric Vehicles will be launched in collaboration with all

stakeholders.

In order to popularize electric vehicles, full exemption from basic customs duty and a

concessional rate of central excise duty of 4% on batteries imported by manufacturers

for the replacement market. This is expected to reduce the battery cost when anelectric vehicle user goes for replacement of his old battery.

Fuel cell or hydrogen cell technology is a promising green technology for the

automobile sector. To extend the concessional excise duty of 10% to vehicles based

on this technology.

Full exemption from basic customs duty and special countervailing duty on specified

parts of hybrid vehicles will be given while reducing the excise duty to five per cent

from the current 10% to encourage domestic production.

The largest share in the infrastructure sector spending goes to transport and energy,

which marked an increase of 9.68 per cent in the budget over the previous year.

Various Government undertakings will issue tax free bonds of Rs 300 billion to boostinfrastructure development.

The Government has increased the disbursement target of India InfrastructureFinance Company Limited by Rs 50 billion to provide long term financial assistance

to infrastructure projects.


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BIBLIOGRAPHY

Name of the book: Financial management

Author: Arvind A. Dhond

Edition: Second Edition.

WEBLIOGRAPHY

www.google.co.in

www.acmainfo.com

www.rbi.org.in

www.wikipedia.com

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