Fundamental_Analysis_of_MahindraampMahindra.doc

8/10/2019 Fundamental_Analysis_of_Mahindra__amp__Mahindra.doc

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Fundamental Analysis Of Mahindra & Mahindra

EXECUTIVE SUMMARY

India's domestic automotive industry, enjoyed high

growth in fnancial year-05, continuing the healthy

trend set in fnancial year-04. Increased industrial

growth contributed to the upward trend. ll the

automotive industry segments in which !"! has a

presence witnessed a growth in demand in fnancial

year-05. #he Indian tractor industry too saw an upward

trend a$ter a severe downturn period, due to $avorable

monsoon and better credit terms helped to build

positive sentiments. #he major players in the

%ommercial &ehicle egment are sho( )eyland )td,

*industan !otors )td, #elco, &olvo India +vt.)td, ajaj

#empo )td, icher !otors )td, !ahindra " !ahindra

)td, and waraj !ada )td.

!ahindra " !ahindra )imited /!"! is the

1agship company o$ around 2s. 3000 crore !ahindra

roup, which has a signifcant presence in (ey sectors

o$ the Indian economy. consistently high per$ormer,!"! is one o$ the most respected companies in the

country. et up in 645 to ma(e general-purpose utility

vehicles $or the Indian mar(et, !"! soon branched out


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into manu$acturing agricultural tractors and light

commercial vehicles /)%&s. #he company later

e7panded its operations $rom automobiles and tractors

to secure a signifcant presence in many more

important sectors. #he company has, over the years,

trans$ormed itsel$ into a roup that caters to the Indian

and overseas mar(ets with a presence in vehicles, $arm

e8uipment, in$ormation technology, trade and fnance

related services, and in$rastructure development.!ahindra " !ahindra )td /!"! is a leading player in

the Indian utility vehicles and tractors segment with

mar(et shares o$ 46.59 in :eeps ; !5.69 in #ractors in the

?@>005.

#his study tries to cover the industry related

data and in depth company study and an overview o$

the economy, evaluates the company on various

valuation models.


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THEORETICAL BACKGROUND

FUNDAMENTAL ANALYSIS:

?undamental analysis is the e7amination o$ the

underlying $orces that aAect the well being o$ the

economy, industry groups, and companies. s with most

analysis, the goal is to derive a $orecast and proft $rom

$uture price movements. t the company level,

$undamental analysis may involve e7amination o$fnancial data, management, business concept and

competition. t the industry level, there might be an

e7amination o$ supply and demand $orces $or the

products oAered. ?or the national economy, $undamental

analysis might $ocus on economic data to assess the

present and $uture growth o$ the economy. #o $orecast

$uture stoc( prices, $undamental analysis combines

economic, industry, and company analysis to derive a

stoc('s current $air value and $orecast $uture value. I$

$air value is not e8ual to the current stoc( price,

$undamental analysts believe that the stoc( is either over

or under valued and the mar(et price will ultimately

gravitate towards $air value. ?undamentalists do not

heed the advice o$ the random wal(ers and believe that


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mar(ets are wea( $orm eAicient. y believing that prices

do not accurately re1ect all available in$ormation,

$undamental analysts loo( to capitalie on perceived

price discrepancies.

STRENGTHS AND WEAKNESS OF FUNDAMENTAL

ANALYSIS

Long-term Trend:

?undamental analysis is good $or long-term

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

#he ability to identi$y and predict long-term economic,

demographic, technological or consumer trends can

beneft patient investors who pic( the right industry

groups or companies.

!"#$e S%ott&ng:

ound $undamental analysis will help identi$y

companies that represent good value. ome o$ the most

legendary investors thin( long-term and value. raham

and Bodd, Carren uAett and :ohn DeA are seen as the

champions o$ value investing. ?undamental analysis can


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help uncover companies with valuable assets, a strong

balance sheet, stable earnings and staying power.

B$&ne A'$men:

Ene o$ the most obvious, but less tangible, rewards

o$ $undamental analysis is the development o$ a thorough

understanding o$ the business. $ter such painsta(ing

research and analysis, an investor will be $amiliar with

the (ey revenue and proft drivers behind a company.

arnings and earnings e7pectations can be potent

drivers o$ e8uity prices. ven some technicians will

agree to that. good understanding can help investors

avoid companies that are prone to short$alls and identi$y

those that continue to deliver. In addition to

understanding the business, $undamental analysis allows

investors to develop an understanding o$ the (ey value

drivers and companies within an industry. Its industry

group heavily in1uences a stoc(Fs price. y studying

these groups, investors can better position themselves to

identi$y opportunities that are high-ris( /tech, low-ris(

/utilities, growth oriented /computer, value driven /oil,


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non-cyclical /consumer staples, cyclical /transportation

or income oriented /high yield.

Kno(&ng W)o* W)o:

toc(s move as a group. y understanding a

company's business, investors can better position

themselves to categorie stoc(s within their relevant

industry group. usiness can change rapidly and with it

the revenue mi7 o$ a company. #his happened to many o$

the pure internet retailers, which were not really

internet companies, but plain retailers. Gnowing a

company's business and being able to place it in a group

can ma(e a huge diAerence in relative valuations.

WEAKNESS

T&me Contr"&nt:


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?undamental analysis may oAer e7cellent insights,

but it can be e7traordinarily time consuming. #ime-

consuming models o$ten produce valuations that are

contradictory to the current price.

Ind$tr+,Com%"n+ S%e'&':

&aluation techni8ues vary depending on the industry

group and specifcs o$ each company. ?or this reason, a

diAerent techni8ue and model is re8uired $or diAerent

industries and diAerent companies. #his can get 8uite

time consuming and limit the amount o$ research that

can be per$ormed.

S$./e't&0&t+:

?air value is based on assumptions. ny changes to

growth or multiplier assumptions can greatly alter the

ultimate valuation. ?undamental analysts are generally

aware o$ this and use sensitivity analysis to present a

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

case valuation. *owever, even on a worst case, most


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models are almost always bullish, the only 8uestion is

how much so.

An"#+t B&":

#he majority o$ the in$ormation that goes into the

analysis comes $rom the company itsel$. %ompanies

employ investor relations managers specifcally to

handle the analyst community and release in$ormation.

Introd$'t&on to In0etment !"#$"t&on

very asset, fnancial as well as real, has value. #he

(ey to success$ully investing in and managing these

assets lies in understanding not only what the value is,

but the sources o$ the value. ny asset can be valued,

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

details o$ valuation will vary $rom case to case. #hus, the

valuation o$ a share o$ a real estate property will re8uire

diAerent in$ormation and $ollow a diAerent $ormat $rom

the valuation o$ a publicly traded stoc(. Chat is

surprisingH however, is not the diAerence in valuation

techni8ues across assets, but the degree o$ similarity in


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basic principles. #here is undeniably uncertainty

associated with valuation. E$ten that uncertainty comes

$rom the asset being valued, although the valuation

model may add to that uncertainty.

A 1HILOSO1HICAL BASIS FOR !ALUATION

surprising number o$ investors subscribe to the

bigger $oolJ theory o$ investing, which argues that the

value o$ an asset is irrelevant as long as there is a

bigger $oolJ around who is willing to buy the asset $rom

them. Chile this may provide a basis $or some profts, 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.

postulate o$ sound investing is that an investor

does not pay more $or an asset than its worth. #his

statement may seem logic and obvious, but it is $orgotten


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and rediscovered at some time in every generation and

in every mar(et. #here are those who are disingenuous

enough to argue that value is in the eyes o$ the beholder,

and that any price can be justifed i$ there are other

investors willing to pay that price. #hat is patently

absurd. +erceptions may be all that matter when the

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

/and should not buy most assets $or aesthetic or

emotional reasonsH fnancial assets are ac8uired $or thecash 1ows e7pected $rom owning them. %onse8uently,

perceptions o$ value have to be bac(ed up by reality,

which implies that the price that is paid $or any asset

should re1ect the cash 1ows it is e7pected to generate.

#he models o$ valuation described in this boo( attempt

to relate value to the level and e7pected growth o$ these

cash 1ows.

#here are many areas in valuation where there is

room $or disagreement, including how to estimate true

value and how long it will ta(e $or prices to adjust to true

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

disagreement. sset prices cannot be justifed merely by

using the argument that there will be other investors

around willing to pay a higher price in the $uture.


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THE ROLE OF !ALUATION

&aluation is use$ul in a wide range o$ tas(s. #he role

it plays, however, is diAerent in diAerent arenas. #he

$ollowing section lays out the relevance in port$olio

management, in ac8uisition analysis, and in corporate

fnance.

!"#$"t&on "nd 1ort2o#&o M"n"gement

#he role that valuation plays in port$olio

management is determined in large part by the

investment philosophy o$ the investor. &aluation plays a

minimal role in port$olio management $or a passive

investor, whereas it plays a larger role $or an active

investor. ven among active investors, the nature and

role o$ valuation are diAerent $or diAerent types o$ active

investors can be categoried as either mar(et timers,

who trust in their abilities to $oresee the direction o$ the

overall stoc( or bond mar(ets, on security selection who

believe that their s(ills lie in $unding under or over

valued securities. !ar(et timers use valuation much less


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than do investors who pic( stoc(s, and the $ocus is on

mar(et valuation rather than on frm specifc valuation.

mong security selectors, valuation plays a central role

in port$olio management $or $undamental analysts and a

peripheral role $or technical analysis.

#he $ollowing subsections describe, in broad terms.

BiAerent philosophies and the role played by valuation in

each.

F$nd"ment"# An"#+t

#he underlying theme in $undamental analysis is

that the true value o$ the frm can be related to its

fnancial characteristics- its growth prospects, prospects,

ris( profle, and cash 1ows. ny deviation $rom this true

value is a sign that a stoc( is under or overvalued. It is a

long-term investment strategy and the assumptions

underlying it are thatK

/a #he relationship between value and the underlying

fnancial $actors can be measured.

/b #he relationship is stable over time.

/ c Beviations $rom the relationship are corrected in a

reasonable time period.

&aluation is the central $ocus in $undamental analysis.

ome analystsF usediscounted cash 1ow models to value


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frms, while others use multiples such as price;earnings

and price;boo( value ratios. ince investors using this

approach hold a large number o$ Lundervalued' stoc(s in

their port$olios, their hope is that, on average, these

port$olios will do better than the mar(et.

Fr"n')&e B$+er

#he philosophy o$ a $ranchise buyer is best

e7pressed by an investor who has been very success$ulat it -Carren uAet. Ce try to stic( to businesses we

believe we.


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/a Investors who understand a business well are in a

better position to value it correctly.

/b #hese undervalued businesses can be ac8uired

without driving the price above the true value.

&aluation plays a (ey role in this philosophy, since

$ranchise buyers arc attracted to a particular business

because they believe it is undervalued. #hey are also

interested in how much additional value they can create

by restructuring the business and running it right.

C)"rt&t

%hartists believe that prices are driven as much by

investor psychology as by any underlying fnancial

variables. #he in$ormation available $rom trading - price

movements, trading volume, short sales, and so $orth -

gives an indication o$ investor psychology and $uture

price movements. #he assumptions here are that prices

move in predictable patterns, that there are not enough

marginal investors ta(ing advantage o$ these patterns to

eliminate them, and that the average investor in the

mar(et is driven more by emotion than by rational

analysis.


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Chile valuation does not play much o$ a role in

charting, there are ways in which an enterprising

chartist can incorporate it into analysis. ?or instance

valuation can be used to determine support and

resistance lines4 on price chart.

In2orm"t&on Tr"der

+rices move on in$ormation about the frm.

In$ormation traders attempt to trade in advance o$ new

in$ormation or shortly a$ter it is revealed to fnancial

mar(ets, buying on good news and selling on bad. #he

underlying assumption is that these traders can

anticipate in$ormation announcements and gauge the

mar(et reaction to them better than the average investor

in the mar(et.

?or in$ormation trader the $ocus is on the

relationship between in$ormation and changes in value,

rather than on value per se. #hus an in$ormation trader

may buy an overvaluedJ frm i$ he or she believes that

the ne7t in$ormation announcement is going to cause the

price to go up because it contains better-than-e7pected

news. I$ there is a relationship between how undervalue


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or overvalued a company is and how its stoc( price

reacts to new in$ormation then valuation could play a

role in investing $or an in$ormation trader.

M"r3et T&mer

!ar(et timers note, with some legitimacy, that the

payoA to calling turns in mar(ets is much greater than

the returns $rom stoc( pic(ing. #hey argue that it is

easier to predict mar(et movements than to select stoc(sand that these predictions can be based upon $actors

that are observable.

Chile valuation o$ individual stoc(s may not be o$ any

use to a mar(et timer, mar(et timing strategies can use

valuation in at least two waysK

/a #he overall mar(et itsel$ can be valued and compared

to the current level.

/b valuation model can be used to value all stoc(s, and

the results $rom the cross-section can be used to

determine whether the mar(et is over or undervalued.

?or e7ample, as the numbers o$ stoc(s that are

overvalued using the dividend discount model increases

relative to the numbers that are undervalued, there may

be reason to believe that the mar(et is overvalued.


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E4&'&ent M"r3eter

Aicient mar(eters believe that the mar(et price at

any point in time represents the best estimate o$ the true

value o$ the frm and that any attempt to e7ploit

perceived mar(et eAiciencies will cost more than it will

ma(e in e7cess profts. #hey assume that mar(ets

aggregate in$ormation 8uic(ly and accurately, that

marginal investors promptly e7ploit any ineAiciencies,

and that any ineAiciencies in the mar(et are caused by

$riction, such as transaction costs, and cannot be

arbitraged away.

?or eAicient mar(eters, valuation is a use$ul

e7ercise to determine why, stoc( sells $or the price it

does. ince the underlying assumption is that the mar(et

price is the best estimate o$ the true value o$ the

company, the objective becomes determining what

assumptions about growth and ris( are implied in this

mar(et price, rather than on fnding under- or

overvalued frms.


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!"#$"t&on &n A'5$&&t&on An"#+& 6

&aluation should play a central part in ac8uisition

analysis. #he bidding frm or individual has to decide on

a $air value $or the target frm be$ore ma(ing a bid, and

the target frm has to determine a reasonable value $or

itsel$ be$ore deciding to accept or reject the oAer.

#here are also special $actors to consider inta(eover valuation. ?irst, the eAects o$ synergy on the

combined value o$ the two frms /target plus bidding

frm have to be considered be$ore a decision is made on

the bid. #hose who suggest that synergy is impossible to

value and should not be considered impossible to value

should not be considered in 8uantitative terms are

wrong. econd, the eAects on value o$ changing

management and restructuring the target frm will have

to be ta(en into account in deciding on a $air price. #his

is o$ particular concern in hostile ta(eovers.

?inally, there is a signifcant problem with bias in

ta(eover valuations. #arget frms may be overly

optimistic in estimating value, especially when the

ta(eover is hostile and they are trying to convince their


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stoc(holders that the oAer price is too low. imilarly, i$

the bidding frm has decided, $or strategic reasons, to do

an ac8uisition, there may be strong pressure on the

analyst to come up with an estimate o$ value that bac(s

up the ac8uisition decision.

!"#$"t&on &n Cor%or"te F&n"n'e

#he objective in corporate fnance is the

ma7imiation o$ frm value, and then the relationship

between fnancial decisions, corporate strategy, and frm

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

consulting frms have started oAering companies advice

on how to increase value. #heir suggestions have o$ten

provided the basis $or the restructuring o$ these frms.

#he value o$ a frm can be directly related to

decisions that it ma(es-on that projects it ta(es, on how

it fnances them, and on its dividend policy.


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8uity represents a residual cash 1ow rather than a

promised cash 1ow.

@ou can value e8uity in one o$ two waysK

M y discounting cash 1ows to e8uity at the cost o$

e8uity to arrive at the value o$ e8uity directly.

M y discounting cash 1ows to the frm at the cost o$

capital to arrive at the value o$ the business. ubtracting

out the frmFs outstanding debt should yield the value o$

e8uity.

T(o Me"$re o2 C") F#o(

C") 7o( to E5$&t+: #hese are the cash 1ows

generated by the asset a$ter all e7penses and ta7es, and

also a$ter payments due on the debt. #his cash 1ow,

which is a$ter debt payments, operating e7penses and

ta7es, is called the cash 1ow to e8uity investors.

C") 7o( to F&rm:#here is also a broader defnition o$

cash 1ow that we can use, where we loo( at not just the

e8uity investor in the asset, but at the total cash 1ows

generated by the asset $or both the e8uity investor and

the lender. #his cash 1ow, which is be$ore debt payments


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but a$ter operating e7penses and ta7es, is called the cash

1ow to the frm.

T(o Me"$re o2 D&'o$nt R"te

Cot o2 E5$&t+K #his is the rate o$ return re8uired by

e8uity investors on an investment. It will incorporate a

premium $or e8uity ris( Nthe greater the ris(, the greater

the premium.

Cot o2 '"%&t"#K #his is a composite cost o$ all o$ the

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

weighted average o$ the cost o$ e8uity and the a$ter-ta7

cost o$ borrowing.

FREE CASH FLOWS TO THE FIRM

#he best things in li$e are $ree, and the same holds

true $or cash 1ow. mart investors love companies that

produce plenty o$ $ree cash 1ow /?%?. It signals a

company's ability to pay debt, pay dividends, buy bac(

stoc( and $acilitate the growth o$ business - all important

underta(ings $rom an investor's perspective. *owever,


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while $ree cash 1ow is a great gauge o$ corporate health,

it does have its limits and is not immune to accounting

tric(ery.

W)"t I Free C") F#o(8

y establishing how much cash a company has a$ter

paying its bills $or ongoing activities and growth, ?%? is

a measure that aims to cut through the arbitrariness and

LguesstimationsL involved in reported earnings.2egardless o$ whether a cash outlay is counted as an

e7pense in the calculation o$ income or turned into an

asset on the balance sheet, $ree cash 1ow trac(s the

money.

#o calculate ?%?, ma(e a beeline $or the company's cash

1ow statement and balance sheet. #here you will fnd the

item cash 1ow $rom operations /also re$erred to as

Loperating cashL. ?rom this number subtract estimated

capital e7penditure re8uired $or current operationsK

- %ash ?low $rom Eperations /Eperating %ash

- %apital 7penditure

#o do it another way, grab the income statement and

balance sheet. tart with net income and add bac(

charges $or depreciation and amortiation. !a(e an


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additional adjustment $or changes in wor(ing capital,

which is done by subtracting current liabilities $rom

current assets. #hen subtract capital e7penditure, or

spending on plants and e8uipmentK

- Det income

O Bepreciation;mortiation

- %hange in Cor(ing %apital

- %apital 7penditure

It might seem odd to add bac( depreciation;amortiation since it accounts $or capital

spending. #he reasoning behind the adjustment,

however, is that $ree cash 1ow is meant to measure

money being spent right now, not transactions that

happened in the past. #his ma(es ?%? a use$ul

instrument $or identi$ying growing companies with high

up-$ront costs, which may eat into earnings now but have

the potential to pay oA later.

W)"t Doe Free C") F#o( Ind&'"te8

rowing $ree cash 1ows are $re8uently a prelude to

increased earnings. %ompanies that e7perience surging

?%? - due to revenue growth, eAiciency improvements,


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cost reductions, share buy bac(s, dividend distributions

or debt elimination - can reward investors tomorrow.

#hat is why many in the investment community cherish

?%? as a measure o$ value. Chen a frm's share price is

low and $ree cash 1ow is on the rise, the odds are good

that earnings and share value will soon be on the up.

y contrast, shrin(ing ?%? signals trouble ahead. In

the absence o$ decent $ree cash 1ow, companies are

unable to sustain earnings growth. n insuAicient ?%?$or earnings growth can $orce a company to boost its

debt levels. ven worse, a company without enough ?%?

may not have the li8uidity to stay in business.

RESEARCH DESIGN OF THE STUDY

INTRODUCTION:


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very stoc( available in the mar(ets has a value

called mar(et price, which is the indicator o$ the

companyFs per$ormance. ccording to $undamental

analysis we will try to fnd the intrinsic value o$ a

particular stoc(, which is the true value o$ the stoc(,

based on which investment arguments ta(e place.

STATEMENT OF 1ROBLEM:

very asset, fnancial as well as real, has value. #he

(ey to success$ully investing in and managing these

assets lies in understanding not only what the value is,

but the sources o$ the value. ny asset at can be valued

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

details o$ the valuation will vary $rom case to case. #hus,

the valuation o$ a share o$ a real estate property will

re8uire diAerent in$ormation and $ollow a diAerent

$ormat $rom the valuation o$ a publicly traded stoc(.

Chat is surprisingH however, is not the diAerence in

valuation techni8ues across assets, but the degree o$

similarity in basic principles. #here is undeniably

uncertainty associated with valuation. E$ten the


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uncertainty comes $rom the asset being valued, although

the valuation model may add to that ascertained.

postulate o$ sound investing is that an investor

does not pay more $or asset than its worth. #his

statement may seem logical and obvious as fnancial

assets are ac8uired $or the cash 1ows e7pected $rom

owning them, which implies that the price that is paid

$or any asset should re1ect the cash 1ows it is e7pected

to generate.#he problem in valuation is not that there are not

enough models to value an assetH it is that there are too

many. %hoosing the right model to use in valuation is as

critical to arriving at a reasonable value as

understanding how to use the model. nalysts use a wide

variety o$ models $rom simple to the sophisticated. #hese

models o$ten ma(e diAerent assumptions about pricing,

but they do share some common characteristics so in the

study we tried to use price-earning multiples and

discounted cash 1ow models o$ valuation.


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OB9ECTI!ES OF THE STUDY:

#o understand the macroeconomic variables those

will an impact on the company progress.

#o study the various trends, opportunities,

challenges o$ the industry in which the company

operates.

#o understand the various policies o$ the companythose have impact on the fnancial per$ormance o$

the company.

#o understand the various investment valuation

models that can be used.

#o select the appropriate model that suits the stoc(.

?ind the intrinsic value o$ the stoc( and compare

with mar(et value o$ the study.


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#o recommend whether to buy, hold or sell the stoc(

based on the analysis.

SCO1E OF THE STUDY:

#he study basically tries to identi$y the intrinsic

value o$ the company by using the published fnancial

details o$ the company. #he study is restricted to one

particular company in the sector. #he study also

includes testing the intrinsic value o$ the company.

RESEARCH METHODOLOGY:

T+%e o2 ree"r'):

2esearch design is the conceptual structure within

which research is conducted. It constitutes the blue print

$or the collection, measurement, and analysis o$ data.

#he type o$ research adopted $or the study is descriptive

research as the research does not re8uire any

manipulation o$ variables and does not establish causal

relationship between eventsH it just simply describes the

variables.


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So$r'e o2 d"t":

1r&m"r+ d"t"

#hose are the data that are obtained by a study

specially designed to $ulfll the data needs o$ the

problem. !eeting the company pro$essionals personally

collected the in$ormation necessary $or the study.

Se'ond"r+ d"t"

Bata, which are not originally collected but rather

obtained $rom published or unpublished sources, are

(nown as secondary data. In this research secondary

data was collected through sources li(e Internet,

research reports, magaines, and company journals.

S"m%#&ng %#"n:

T+%e o2 "m%#&ng : Don-probabilistic judgment

sampling.

S"m%#e &e : Ene company $rom automobile

sector.


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RESEARCH INSTRUMENTS:

F&n"n'&"# '"#'$#"t&on: - #his was done to fnd the

various valuation ratios and necessary calculations to

fnd the intrinsic value o$ the company.

; 6 Tet: -#his test was used to test the hypothesis.

1LAN OF ANALYSIS:

$ter having collected the fnancial data related to

the entities i.e., the sample selected $rom the selected

sector. %alculate the various valuation ratios and other

fnancial calculations that will help in the company

valuation. #his helps in fnding out the intrinsic value o$

the companyFs share. #hen hypothesis was tested

whether the company is under or over valued.

LIMITATIONS OF THE STUDY:

#he study was confned only to one particular sector.


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#he study was more confned with secondary data.

#he study assumes no changes in the ta7 rates in the

country.

#he study was done $or a short period o$ time, which

might not hold true over a long period o$ time.

s the scope is defned by the researcher it restricts

the number o$ variables which

In1uence the industry.

O1ERATIONAL DEFINITIONS OF THE CONCE1TS:

= CA1E?:

?unds used by a company to ac8uire or upgrade

physical assets such as property, industrial buildings, or

e8uipment.

@= CAGR:

#he year over year growth rate o$ an investment

over a specifed periodo$time.

%alculated by ta(ing the nth root o$ the total percentage


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#he portion o$ a company's proft allocated to each

outstanding share o$ common stoc(. %alculated asK

= EUITY MULTI1LIER:

measure o$ fnancial leverage calculated asK

#otal ssets divided by #otal toc(holders' 8uity.

)i(e all debt management ratios, the e8uity

multiplier is a way o$ e7amining how a company uses

debt to fnance its assets. It is also (nown as the

fnancial leverage ratio or leverage ratio.


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#he amount o$ sales generated $or every dollar's

worth o$ assets. It is calculated by dividing sales in

rupees by assets in rupees.

?ormulaK


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valuation ratio o$ a company's current share price

compared to its per-share earnings.


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CHA1TER SCHEME

C)"%ter: < THEORITICAL BACKGROUND OF THE

STUDY

#his chapter mainly deals with secondary data

collected to support the study and the reasons to

problem o$ study.


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C)"%ter: > RESEARCH DESIGN

research design serves as a bridge between what

has been done in the conduct o$ study to realie the

specifed objectives. It is an outline o$ the projects

wor(ing.

C)"%ter: @ 1ROFILES

#his chapter includes the profle o$ the industry as

well as the company in which the study is conducted.

#his is also tries to deal with trends and prospects in theindustry as well as the company.

C)"%ter: ANALYSES AND INTER1RETATION

In this chapter using the analyed data we have

tried to fnd out the intrinsic value o$ the company.

*ypothesis test is done to fnd whether the value o$ the

company is under or over valued.

C)"%ter: SUMMARY OF FINDINGSJ

CONCLUSIONS AND SUGGESTIONS

In this chapter we will actually include all that we

have analyed and what has been $ound. ?inally

conclude chec(ing whether the objective o$ the study has

been achieved or not.


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ECONOMIC ANALYSIS

E'onom&' O$t#oo3:

Buring the fscal year >00=-04, IndiaFs B+ which

grew by 3.09 was principally on account o$ a strong

recovery in the agriculture sector and accelerated

growth in the industry and services sectors. growth

rate higher than 39 has been achieved in the past in

only three years - 6PQ-P3, 6Q5-QP and 633-36.

7ports have grown by Q.9 in >00=-04 in


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GRA1H


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Interet R"te De'#&ne

d

*arden

ing In7"t&on

A0er"ge=

@ P.5

2upee -


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%onsumer spending in India has been supported

recently by strong income growth as growth in real per

capita B+ has averaged =.39 per annum since

>000.India has liberalied its economy over the past

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

allocation o$ resources, domestically and internationally,

has contributed to this strong growth in per capita

income.

#he 2eal ross Bomestic +roduct /B+ is estimatedto have grown by 3.09 in >00=-04, buoyed by a strong

agricultural recovery. Chile the agricultural sector grew

by 6.9 during the ?@04, the industry and services

sectors have also maintained their momentum with the

B+ growth by achieving a growth rate o$ P.59 and

3.49 respectively during the year. #he growth B+ has

grown by Q.49 during pril-:une >004 period, lower than

the 3.>9 growth registered in :anuary-!arch >004 and

0.59 in Ectober-Becember >00= 8uarter. In1ation is

also inching up higher, driven by increases in $uel and

commodity prices. Don $ood credit has increased by

.59 during the pril-eptember >004 period as

against previous corresponding yearFs P9 indicating the

progressive economic activities. ut the global crude oil


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shoc( will defnitely have an adverse aAect on the

growth during fscal >005.

GRA1H @: INFLATION

#he average in1ation during fscal year >00=-04 was

around 5.59 as against the previous corresponding

fscals average o$ =.49, the prime movers being sugar,

edible oils, te7tiles, leather and leather products, basic

metals, alloys, iron and steel. Cith the increase o$ $ew

commodity prices mainly the crude oil prices have

increased the global in1ation levels $rom :une >004,

India being no e7ception to this. #he domestic $uel prices

have risen by more than 09 during the fscal >004-05over last years. #he in1ation during the fscal year >004-

05 touched three and a hal$ years high o$ 3.==9 $or the

wee( ended ugust >3th>004 $rom 5.559 $or the wee(


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ended :une 5th>004 due to the e7cess money supply in

the economy. #he reasons $or the high in1ation are both

domestic and international. #he domestic reasons

include e7cess li8uidity in the mar(et and delay in

monsoon that increased the prices o$ essential

commodities. !=, the measure o$ money supply grew by

5.5 per cent in :uly >004, compared to .>5 per cent in

:uly >00=. #he international causes are ine7orable rise in

oil prices, global increase in the prices o$ commodities,supply side shoc( and growth in chinaFs demand $or

goods. #his is cost-push in1ation wherein the supply

problems in a $ew important commodities push up prices

o$ commodities. ince crude oil import constitute almost

one third o$ the total e7ports, we can say that the

present situation is on account o$ imported in1ation. #o

chec( the rising prices, government too( some measures

li(e duty cuts on steel and oil products. 2eserve an( o$

India raised the %ash 2eserve 2atio to 59 $rom 4.59 in

two tranches o$ >5 basis points and has also cut the rate

o$ interest payable on eligible cash balances maintained

with it by ban(s by >50 basis points to =.5 percent. In

$act, the gradual reduction in the %22 over the past $ew

years in successive credit policies had been one o$ the


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major contributors $or the sustained reduction in the

interest rates on auto loans. #hese moves were e7pected

to draw out around 2s.3000 crore $rom the ban(ing

system. )ater, the in1ation was reduced to Q.>09 in the

last wee( o$ eptember. Cith the increase in the interest

rates the auto loans will become costlier, thus having an

adverse eAect on the auto industry sales. #he average

in1ation $or the fscal >004-05 is e7pected to stay around

P-P.59.

Ind$tr+:

S"#e:

#he automobile industry growth relies mainly on the

countryFs economic and general conditions. ny

slowdown in the economic momentum would defnitely

slowdown the growth o$ the industry. It can be seen $rom

the below chart that the industryFs sales is positively

correlated with the economic growth with a co-relation

o$ 0.6P.


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li(e steel and rubber has a negative impact on the

industry proftability. #he truc(erFs stri(e has aAected

the auto playerFs production and distribution to certain

e7tent.

GRA1H : SHOWING RUBBER 1RICES

Source: indiainfoline

combination o$ internal and e7ternal $actors has

contributed to the price volatility in the rubber mar(et.


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ince the domestic prices o$ rubber are less than the

global prices, the tyre manu$acturers in other countries,

sourcing natural rubber $rom India which has led to the

increase in the e7ports thereby reducing the domestic

stoc( levels to less than si7ty days o$ consumption o$ the

rubber userFs sector. lso, the subsidy given by the

government $or e7ports o$ rubber has resulted in an

increase in the e7ports.

T)e tee# %r&'e

GRA1H : SHOWING STEEL 1RICES

Source: indiainfoline


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#he steel prices are on rise $ollowing a sharp

increase in the prices o$ raw materials li(e iron ore,

co(e, coal, power, gas and scrap. Chile the cost o$ iron

ore went up by Q59 during the period :une>00= to :uly

>004, the scrap prices jumped up by 69. %o(eFs prices

saw an increase o$ 509 during the same period. #here

are no signs o$ decline in the prices o$ steel products

$ollowing a strong demand $rom the housing and

in$rastructure sectors, with additional growth potentialin the auto and consumer durables sectors too. Cith

%hina ta(ing steps to cool down its overheated economy,

demand $rom that country is e7pected to slow down. ut

any short$all in demand $rom %hina may be oAset by

growth in demand in the


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to P9 in ?-00. #he %o also believes that as the car

mar(et e7pands in India, !


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COM1ANY 1ROFILE:

!ahindra " !ahindra )imited /!"! is the

1agship company o$ around .5 billion !ahindra

roup, which has a signifcant presence in (ey sectors o$

the Indian economy. consistently high per$ormer, !"!

is one o$ the most respected companies in the country.

et up in 645 to ma(e general-purpose utility

vehicles $or the Indian mar(et, !"! soon branched out

into manu$acturing agricultural tractors and light

commercial vehicles /)%&s. #he company later

e7panded its operations $rom automobiles and tractors

to secure a signifcant presence in many more important

sectors. #he %ompany has, over the years, trans$ormed

itsel$ into a roup that caters to the Indian and overseas

mar(ets with a presence in vehicles, $arm e8uipment,

in$ormation technology, trade and fnance related

services, and in$rastructure development.

!"! has two main operating divisionsK

#he utomotive Bivision manu$actures utility vehicles,

light commercial vehicles and three wheelers.


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> #he #ractor /?arm 8uipment Bivision ma(es

agricultural tractors and implements that are used in

conjunction with tractors, and has also ventured into

manu$acturing o$ industrial engines. #he #ractor

Bivision has won the coveted Beming pplication +rie

>00=, ma(ing it the only tractor manu$acturing company

in the world to secure this prie.

#he resurgence o$ the automotive industry and !"!'s

success in e7ploiting it, has created an opportunity tostrengthen the company through an entry into the uto

%omponents business, the growth o$ which is being

$ueled by both, domestic and e7port demand.

!"! employs around ,500 people and has si7

state-o$-the-art manu$acturing $acilities spread over

500,000 s8uare meters. !"! has also set up two

satellite plants $or tractor assembly. It has 46 sales

oAices that are supported by a networ( o$ over Q30

dealers across the country. #his networ( is connected to

the %ompany's sales departments by an e7tensive I#

in$rastructure.

!"!'s outstanding manu$acturing and engineering

s(ills allow it to constantly innovate and launch new


54/115


products $or the Indian mar(et. #he %ompany's

signifcant recent product launch, the LcorpioL, resulted

in the %ompany winning the Dational ward $or

outstanding in-house research and development $rom the

Bepartment o$ cience and Industry o$ the overnment

in >00=. #he %ompany has launched India's frst tractor

with turbo technology - the !ahindra arpanch 565 BI

uper #urbo.

#he %ompany's commitment to technology-driveninnovation is re1ected in %ompany's plans o$ setting up

o$ the !ahindra 2esearch &alley, a $acility that will

house the %ompany's engineering research and product

development wings, under one roo$.

#he !"! philosophy o$ growth is centered on its

belie$ in people. s a result, the company has put in

place initiatives that see( to reward and retain the best

talent in the industry. !"! is also (nown $or its

progressive labour management practices. In the

community development sphere, the company has

implemented several programs that have benefted the

people and institutions in its areas o$ operations.


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M")&ndr" "nd M")&ndr" 'ont&n$e to .e " o#&d

'om%"n+

%ompany has registered a >3 9 rise in its total vehicle

sales at ,434 units $or ugust >004 as against 3,64P

units in the corresponding period previous fscal.

S!ahindra %ityF was granted special economic one

/T which includes 009 ta7 holiday $or the ne7t 5

years and a 509 ta7 holiday $or the ne7t fve years,

e7emption $rom customs duty, central e7cise, service ta7,

education cess, central sales ta7, and all local ta7es

levied by the state.

%ompany has set up $our overseas operations in


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)aunched India's frst tractor with turbo technology in

+atna, it is now eyeing to capture the tractor mar(et in

the ihar state in a big way.

2egained dominance as a leader in both utility vehicles

and tractors ac8uiring 509 mar(et share.

Re'ent De0e#o%ment F$t$re %#"n:

#he companyFs long-term $ocus will continue to be

!


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uropean and


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Em%#o+ee Re#"t&on

mployee relations have been generally cordial at

all plants o$ the company. #hey have recently introduced

two new schemes, which are in the pipeline $or its top-

level managers in order to bring balance in their wor(

and personal li$e.


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Bo"rd o2 d&re'tor:

!r. nand !ahindra &ice-%hairman "!anaging

Birector and the $our 7ecutive Birectors o$ the

%ompany manage the %ompany. #he oard reviews and

approves strategy and oversees the actions and results

o$ management to ensure that the long-term objectives

o$ enhancing sta(eholder value are met. #he %ompany

presently has seventeen Birectors. #he &ice-%hairman "

!anaging Birector and the $our 7ecutive Birectors are

Chole-time Birectors. 2eimbursement o$ e7penses

incurred in the discharge o$ their duties, the

remuneration that these Birectors would be entitled to

under the %ompanies ct, 65P as Don-7ecutive

Birectors. #he %ompany has not entered into any

materially signifcant transactions with its +romoters,

Birectors or the !anagement or relatives, etc. that may

have potential con1ict with the interests o$ the %ompany

at large.


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D&0&dend %o#&'+:

#he Birectors have recommended a dividend at 609

/2s.6 per share. #he dividend, together with the ta7 on

distributed proft, will absorb a sum o$ 2s.Q.Q6 crores

/previous year 2s.Q.63 crores and will be paid to those

shareholders whose names stand registered in the boo(s

o$ the %ompany as on the boo( closure date.

INDUSTRY 1ROFILE:

#he Indian automobile sector can be divided into

several segmentsK > " = wheelers, passenger cars,

commercial vehicles /*eavy %&s; !edium %&s;)ight

%&s, utility vehicles /


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1ORTER FI!E FORCES MODEL:

S$%%#+:#he Indian automobile mar(et is plagued with

e7cess capacity.

Dem"nd:Is largely cyclical in nature and dependent

upon economic growth and per capita income.

easonality is also a vital $actor.

B"rr&er to entr+:*igh capital costs, technology,

distribution networ(, and availability o$ auto

components.

B"rg"&n&ng %o(er o2 $%%#&er:)ow, due to stiA

competition and its $ragmented nature.

B"rg"&n&ng %o(er o2 '$tomer:&ery high due to

availability o$ options.

Com%et&t&on:7cept $or heavy commercial vehicles

segment, competition is stiA. #he competition is

e7pected to increase even $urther.

1ROS1ECT IN THE SECTOR:


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#he government spending on in$rastructure in roads

and airports and higher B+ growth in the $uture could

beneft the auto sector in general. #his combined with a

so$ter interest rate environment will play a vital role in

providing a fllip to demand. 9

-59, competitive pressure could (eep prices and

margins under control.

$ter three years in the wilderness, tractor industry

seems to have fnally come out o$ the trough as it grew

by 09 during ?@05. Chile good monsoon is a positive

$or the sector, given the $act that the country has haderratic rain$all in the past, volumes may not recover

sharply. ut the longer-term picture is impressive in light

o$ poor mechaniation levels in the country.

Cith an estimated =69 o$ %&s plying on the roads 0

years old, demand $or *%&s is e7pected to grow by 39

in ?@05. lso adding the positives are higher crop

output, industrial sector growth and $avorable interest

rate environment. Chile the industry is cyclical in

nature, we e7pect this $actor to wea(en in the medium


65/115


term arising out o$ structural changes in the industry.

#he privatiation o$ select state transport underta(ings

and hi(ing o$ bus $ares bodes well $or the bus segment

as well.

#he reduction in pea( customs duty $rom =09 to >59 in

the budget will result in savings on the raw material

$ront as well. ince raw material costs account $or

almost 509 o$ revenues o$ auto companies in general,

this is a positive. lso, steel prices have shown some

signs o$ so$tening and this is li(ely to have a positive

impact on the margins o$ the players.

Ce e7pect Indian auto majors to increase capital

e7penditure budget at an average o$ 49-59 o$ revenues

in ?@05 as against around >9-=9 historically. #his would

be towards product development and complying with

new environmental regulations. Cith !D%s willing to

sacrifce proftability $or growth in the short-term, it has

become imperative $or domestic players to spruce up

2"B eAorts. t the same time, cash 1ow position is

much stronger now given that most manu$acturers have

reduced wor(ing capital and debt. #his would mean


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fnancing bul( o$ incremental cape7 $rom internal

accruals.

1rod$'t 1r&'&ng:

#he Indian automobiles are slowly shi$ting away

$rom the price sensitiveness towards the value addition

concept. esides, even the I! has changed the norms

o$ classifcation $rom the previously $ollowed +rice basis

to the sie; length o$ the vehicle. +reviously, the industrywas highly price sensitive and the sales were dependent

on price brac(ets. ut the Indian customerFs perception

is slowly changing and moving towards the value

additions such as the sie o$ the car, the style, the

com$ort, the level o$ service oAered by the

manu$acturers, the variants available in the category etc.

ven though the perception is changing, it is true that

still price plays an important role in the industry. #he

role o$ price may be very negligible in some segments,

but in the other segments they are very much reactive to

the price 1uctuations. #hus, the some players in

segments concentrate on the value addition to achieve

competitive advantage, while the other players in the

segments use price as weapon along with their core


67/115


service. #hese players also oAer discounts during $estival

season to boost the sales.

Gro(t)Dr&0erK

In'ome #e0e#:#he level o$ income has got a direct

impact on the sales o$ the automobile. #he rise in income

level, results in increase in the number o$ people

crossing the income threshold, thus changing the profle

o$ customer. #he li$estyle o$ the people tends to change

automatically. Cith their increased buying power, they

would loo(out $or more com$ort. ?or .g. when the

income o$ a lower middle class $amily increases, say they


68/115


would li(e to shi$t $rom two-wheeler to buy a used car.

#his in turn increases the demand $or used car mar(et

and a good resale value $or the seller, thereby indirectly

increasing the sales o$ new cars. Cith the entry o$ !D%s

especially in the I#, I# and +E sector, the income

level and li$estyle, both are encouraging the younger

generation. #his has also reduced the average age o$ a

car buyer.

@Monoon, R$r"# e'onom+: #he monsoon is the

bac(bone o$ the Indian agriculture. In India, around P5

percent o$ the national income is contributed by the

agricultural sector and constitutes about >> percent in

the B+. #he monsoons support the economic growth.

Cith the arrival o$ monsoons, the rural sector is

e7pected generate more jobs in the rural economy and

more income, thus increasing the purchasing power o$

people. long with this, even other industries

per$ormance will boost up. #hus, the demand mainly $or

utility vehicles increases with the better per$ormance o$

the rural sector.


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Ued '"r Segment: #he industry saw a growth o$

around =0 percent in the used car segment during fscal

year. #he profle o$ an Indian %ar buyer has been

changing due to the increasing purchasing power.

esides, the used cars are becoming aAordable due to

the reduced 8uated !onthly Installments /!I and

increased repayment period. more active li$estyle,

rising disposable income and lower cost o$ replacement

are guiding the customers to change their cars onceevery three years now. ven though this mar(et is

unorganied to a large e7tent, the organied used car

segment is slowly growing in India. Cith the

manu$acturerFs only coming $orward to buy bac( their

models, has in turn helped the sales o$ new vehicles.

A0"".&t+ o2 n"n'e 2or .ot) ne( "nd $ed

0e)&'#e:Cith the ease in the availability o$ fnance both

the new and used auto mar(et segment has been

witnessing a growth. +reviously, loans were provided

only $or the new vehicles, but now the fnancial

institutions have come $orward to oAer the loans $or used

vehicles too. Cith the increasing competition among the

fnance providers, they are reducing the rates day by


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E%ort:Cith the global players loo(ing at developing

vehicles that can be launched in multiple mar(ets to

reduce their developmental cost and to reduce their

development costs, India is e7pected to increase its

e7ports. #hese giants are planning to use their Indian

$acilities as hub $or their worldwide operations. Cith this

move, eneral motors and Baimler %hrysler both have

their 2 " B center in angalore, which will have an

important role in International product development.#oyota has plans to turn India into its lowest cost-

manu$acturing center. !00P-0Q, which will mainly be

driven by compact and mid sie car segment.

TABLE >: COST ANALYSIS

A o2 net "#e FY FY

2aw !aterial P6.4 PQ.3

taA %ost 5.0 5.6

Ether e7penditure =. =.4Source: India Infoline Research

2aw material cost pressures was $aced by most o$

the companies in the sector. ?or instance, raw material

cost as a percentage o$ net sales increased by 5.Q


72/115


percentage points $or +unjab #ractors, 5.> percentage

points $or ), >.3 percentage points $or )) and >.5

percentage points $or #ata !otors.

taA cost declined by PPbps and other e7penditure

increased 4bps as a percentage o$ net sales. +unjab

#ractors and !"! enjoyed the beneft o$ a reduced staA

cost by =Q0bps and >=0bps as a percentage o$ net sales.

+unjab #ractors maintained its margins in spite o$ a high

rise in raw material cost due to savings in staA cost andother e7penditure.

M"/or 'om%et&tor "nd M"r3et %o&t&on:

+rior to 630, +remier utomobiles )imited /+)

and *industan !otors /*! had dominated the Indian

passenger car mar(et. Cith the entry o$ !aruti


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slowly. Buring the initial stages o$ liberaliation, since

!


74/115


with its three models in the segments vi Ten, lto and

Cagon 2, $ollowed by *yundai. ut, model wise antro

tops the segment with its =Q percent share in this

segment. #here are three players in the upper

segment, with #ata in the Do. position. Its model Indica

accounts to 3P percent o$ the total sales in the segment.

!> percent respectively. *onda iel occupies the

dominant position with its %ity model. #oyotaFs %orolla

and *ondaFs ccord are dominant in the B " segments

respectively ccent and ?ord I(on, whose mar(et shares

are >Q. Cith the launch o$ new models in !


75/115


the lines o$ Vualis, dragging the passenger car

customers. Catching the corpioFs success a new range

o$


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S$%%#&er:

#he Indian uto component industry was started

with an aim o$ reducing the imports and being sel$-

suAicient. ut, over a period o$ time this industry has

achieved its objective along with being a good $oreign

e7change earner. #he auto component industry

maintained a low but positive growth rate mainly due to

its e7port per$ormance. #his industry has maintained a

0 percent to > percent share o$ e7ports in its total


78/115


production. IndiaFs automotive component industry

manu$actures the entire range o$ parts re8uired by the

domestic automobile industry and currently employs

about >50,000 persons. uto component manu$acturers

supply to two (inds o$ customers N original e8uipment

manu$acturers /E! and the replacement mar(et. #he

replacement mar(et is characteried by the presence o$

several small-scale suppliers who score over the

organied players in terms o$ e7cise duty e7emptions andlower overheads. #he demand $rom the E! mar(et, on

the other hand, is dependent on the demand $or new

vehicles. #he strict re$orm by the overnment with

respect to the indigeniation programme has led the

E!Fs to increase their indignation over the years. In

India, the auto component manu$acturers are $ound

wor(ing close in pro7imity with the vehicle

manu$acturers ensuring the just in time deliveries. #he

trend o$ the auto component industry is to outsource

manu$acturing assembly to component suppliers while

the E! imperative is to cut costs, improve customer

responsiveness and build to order, which helps them to

build their own competitive advantage.


79/115


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periodically to encourage demand, promote the growth

o$ the industry and prevent India $rom becoming a

dumping ground $or international rejects. #he incidence

o$ import tariA will be f7ed in a manner so as to

$acilitate development o$ manu$acturing capabilities as

opposed to mere assembly without giving undue

protection, to ensure balanced transition to open trade,

to promote increased competition in the mar(et and

enlarge purchase options to the Indian customer.ppropriate measures including anti dumping duties will

be put in place to chec( dumping and un$air trade

practices. #he conditions $or import o$ new %ompletely

uilt


81/115


brea(s and concessional duty. #he government is

supporting the development and introduction o$ vehicles

propelled by energy sources other than hydrocarbons by

promoting appropriate automotive technology. #he road

ta7 on vehicles varies $rom state to state and a li$etime

road ta7 is in e7istence. #he government controls the

import o$ automobiles and its components through its

WI! policy. It has allowed the import o$ used cars with

some restrictions and they should confrm to the %entral!otor &ehicle 2ules, /636. 7cise duty on /asic O

B on cars and !9 to >49 and

$or %GB and GB (its reduced $rom =09 to >59. #he

government has announced 43 new road projects with an

estimated cost o$ 2s400bn and it a levy o$ 50 paisa on

per liter o$ diesel will be collected $or the $unding o$ the

above road projects. y the year >00, the Indian sa$ety

regulations will be completely aligned with the %

regulations li(e anti-the$t, !%, noise, $ront, side and

lateral collision, etc.

Em&&on:#he need to reduce vehicular pollution has

led to emission control through regulations in

conjunction with increasingly environment-$riendly


82/115


technologies. It was only in 66 that the frst stage

emission norms came into $orce $or petrol vehicles and in

66> $or diesel vehicles. ?rom pril 665 mandatory

ftment o$ catalytic converters in new petrol passenger

cars sold in the $our metros o$ Belhi, %alcutta, !umbai

and %hennai along with supply o$ 000 norms. uro II e8uivalent harat tage II norms

are in $orce $rom >00 in 4 metroFs o$ Belhi, !umbai,

%hennai and Gol(ata. ince India embar(ed on a $ormal

emission control regime only in 66, there is a gap in

comparison with technologies available in the 005 eAectively


83/115


84/115


immediately be$ore shipment and that the vehicle

con$orms to all the regulations specifed in !otor

&ehicles ct, 633. #he policy lays down that imported

automobiles should have a minimum residual li$e o$ fve

years and the importer should ensure supply o$ spares

and service during this period. Import o$ le$t hand

vehicles was banned. #he vehicles should necessarily

have right-hand steering controls, a speedometer

indicating the speed in (ilometers and a photometry o$the headlamps to suit '(eep-le$t' traAic. ll these

restrictions were made in order to see to it that the

Indian customer gets the best vehicle $rom abroad. #he

government made a policy, which totally bans the import

o$ cars whose engine capacity ranges $rom 000 to

>500cc. ll these steps were ta(en in order to limit the

imports only to the upper end segment.

C)"##enge:

+rice is the $actor to penetrate the Indian

automobile mar(et. !D%s bring in with them


85/115


86/115


87/115


is e7pected to emerge as an International hub $or

product development. *owever, the automotive

industry has to wor( closely with the dealers and

vendors to ma(e the e7pected growth possible. #he

automobile industry needs to aggressively benchmar(

its products and processes with the Industry best -

both in India as well the worldFs best. Enly those

companies, which improve their processes regularly,

will survive. ?urther, Indian automobile Industry needsto learn the best practices 8uic(ly to survive the threat

o$ C#E.

*owever Indian mar(ets are very advanced in

using the state-o$-the-art technology and Indian auto

component ma(ers are becoming global sourcingpartners $or auto ma(ers. !ost Indian players are

sourcing their component re8uirement $rom Indian

component ma(ers only. ny paradigm shi$t in

technology with the emission norms and alternate

$uels will li(ely increase the technology gap between

the local companies and !D%s here. o a substantial

investment in 2"B is necessary $or domestic players.

Bieseliation is going to be a $uture trend in the

Indian mar(et with rising petrol prices and the


88/115


89/115


TABLE @: ASSUM1TIONS MADE FOR THE STUDY

A$m%t&on

In'ome t"tement M"r'

) *

M"r'

) *

M"r'

) *

S"#e gro(t) 0.009

0.009

6.009

O%er"t&ng M"rg&n 6.>39

0.009

0.009


90/115


Ot)er In'ome " " o2 &n0etment

Q.QP9

5.009

5.009

E4e't&0e T" r"te >.6=9

>>.009

>>.009

Cot o2 de.t 1re t"= 0.549

Q.509

Q.509

De.t to e5$&t+ 0.44 0.=5 0.=0Gro "et " o2S"#e

5.59

50.009

50.009

De%re'&"t&on " GAet

P.P9

Q.009

Q.009

D&0&dend %"+o$t .PP

9

>.00

9

>.00

9D&0&dend T" >.3

9>.509

>.509

In0etment " " o2tot"# S"#e

>>.Q49

>>.009

>>.009

C$rrent "et " " o2 "#e

>3.369

>6.009

>6.009

C$rrent #&".&t&e "

" o2 "#e

>P.Q5

9

>P.00

9

>P.00

9

TABLE : WEIGHTED A!ERAGE COST OF CA1ITAL

2is( $ree rate Q.009!ar(et rate o$ return P.009eta .0>Interest +aid /2s. %rore 5.53

!ar(et value o$ debt /2s.%rore

6=4.3>

#a7 rate =Q.009Cost of debt 3.48%Cost of equit !".!8%WACC 14.31%


91/115


TABLE : !ALUE DRI!ERS

>005 >004

>00=

!ar(et%apitalisation/2s. %rore

54Q.P0

+; /#railing+; 4.>4 5.5

3.3P

+; =.>= .3P .Q

TABLE : INCOME STATEMENT

R &n L"3)=

In'ome t"tement M"r *@

M"r *

M"r*

Gro S"#e =66PQ5.=

445>P5

53>6>4.P

)essK 7cise 0 Q3546.0P

64=Q3.

Net S"#e =66PQ5.>P

=PPQ5.6

43354P.43

O%er"t&ng In'omeTot"# In'ome =66PQ5

.>P

=PPQ

5.6

43354P

.43

Le:2aw !aterial O+urchases

>Q>=.

>500>.3

==5>3P.5>

mployee %ost =P66. =3>6. 4Q45.


92/115


4P 0= =6elling 7penses 663>.

65=6.56

353.P

dministrative

7penses

>505.=

>

>655.

>

=>3.>

5Ether 7penses 56545.

>>33=.66

>5Q65.66

+rovisions >=5.=5

400.==

44.>

!iscellaneous e7penses 5>4=.>Q

5>3=.63

6Q.P

%hange in toc( /-

Inc.; /O Bec.

P440.6

4

>=5Q.6

6

-

>4=.>=

7penses %apitalised Q43.6Q

6Q.0QQ

5QQ.55

mortisation 0Q0.65

43P.65 P.QP

Tot"# O%er"t&ngE%ene

=5P43P.P3

=5>335.6

44=64.P5

O%er"t&ng 1rot 4=33.53

=3=0.0

45=5.3=

Interest >5>Q5.PQ

50.=6

QP6=.>Q

Gro 1rot Q6>.6

>PQ6.P>

=QP53.5P

Bepreciation =6=3.

>6

P05P.

Q

P56.

61BT .e2ore non o%"nd etr" ord

=6Q4.P>

-==QQ.03

>=3.PP

Don Eperaing Income 5>35.4=

Q=4.33

6Q=>.3


93/115


ddK 7tra Erd. Income -Q>3.53

5QP5.P

>64Q.3=

)essK 7tra Erd

7penses

0 0 0

1BT Q5=.4Q

6Q0=.4

4=36.=

+rovision $or #a7ation =P0 >=0 P=50BeAered ta7ation ->5>0 =6>0 >P5

1AT 6P6.4Q

455=.4

=4354.=

+rior @ear /OInc.;/-7p.2eported +# 6P6.4

Q455=.4

=4354.=

;? 0 =P5=6.

54Q06.4=

+roft available $orallocation

0 0 365P=.Q=

+roposed 8uityBividend

0 P=30.P4

044.43

Bividend #a7 0 3Q.55 ==Q.3>

8uity Bividend /9E% @ @


94/115


TABLE: E?1ECTED INCOME STATEMENT

E%e'ted &n'omet"tement

M"r')*

M"r')*

M"r')*

O%er"t&ng In'ome 43354P.43

5=Q40.=

535QPQ.>=

Non O%er"t&ng In'ome 6Q=>.3

QQ=4.>4

6==0.=>

O%er"t&ng e%ene 44=64.P5

43=PP.0>

5>Q60.5

O%er"t&ng 1rot 45=5.3=

5=Q40.

535QP.Q>

Interet QP6=.>Q

5>Q4.QP

5=63.>3

Gro 1rot 5Q=6.=Q

PP66.56

Q>503.QQ

De%re'&"t&on P56.6

364=.43

>0P=P.>6

Ot)er Non o%er"t&nge%

6>.33 54.=

T" 36P5 0=5=.6

=Q3.00

1AT =4354.4=

=6PQ.4>

450P=.3

D&0&dend 044.43

4Q00.06

540Q.PP

D&0&dend T" ==Q.3 53Q.5 PQ5.6P


95/115


>Ret"&ned E"rn&ng >=0Q5.

===3Q6.3>

=3630.>0

E%e'ted E1S =0.0> ==.Q4 =3.3>

TABLE : BALANCE SHEET

M"r')* @

M"r')*

M"r')*

SOURCES OFFUNDS

Ewner's ?und8uity hare%apital

P0.3P

P0.3P

P0.3P

hare pplication!oney

0 0 0

+re$erence hare%apital

0 0 0

2eserves "

urplus

=3300

.P

45=3>

.>=

P560>

.46)oan ?undsecured )oans 6>45.

=P6>45.=P

Q>630.Q3

5P6.06

>5P6.06

>4453.0=

Be$erred #a7)iability /Det

0 QQ0.0

>0=>5

Tot"# >

>

>


96/115


97/115


TABLE : RELATI!E 1,E AND 1EG RATIO

E1S

E1S=

E1S=

E1SGro(t)=

E1SGro(t)=

C$rrent1,E

1,E

1EG

sho()eyland

.P=

>.0>

>.= >=.=9 4.=P9

0.P

ajaj#empo

==.55 - - - - - -

M")&ndr"

M")&ndr"

@

@@

@> @> 9

=.0P

0.3

*industan!otors - - - - - - -

#ata!otors

>>.6P

=>.63

=6.P 4=.P49 >0.0Q9

.6

0.Q

/ourceK www.icicidirect.com


98/115


E1S

CE1S

De.t

ToE5$&t+ RO

E

C$rrentR"t&o

Boo30"#$

e%er)"re

O1M=

N1M=

1,B

sho()eyland

P.>3

>4.4 0.43

6.4Q .45 3=.P

.4>

5.5

>.

ajaj

#empo

==.

55

5Q.P

4 0.=

>=.

.P

45.

5 Q.PQ

4.5

>

.

5M")&ndr" M")&ndr"

@

@>

->.Q 5.04

-P.=> .=Q 4.=>

-0.4Q

-0.63

>.

#ata!otors

>>.6P

=5.>P 0.=5

>>.Q 0.Q>

0.03

=.4

P.>

.P

TABLE


99/115


/ourceK www.icicidirect.com

TABLE >

>

@>

>

> @>

E5$&t+M$#t&%#&er

>

@

>

>

>

>

>>

AetT$rno0er

>

@

>

>

>

>

An"#+& > >

ROE U1 U1N1M U1 U1AetT$rno0er U1 U1E5$&t+M$#t&%#&er

DOWN DOWN

S"#e U1 U1E5$&t+ to LT

De.t

DOWN DOWN


100/115


M")&ndr" "nd M")&ndr" !"#$"t&on:

!ahindra and !ahindra is one the leading names in

the utomotive and $arm sector industry. #he

companyFs solid reputation and brand name

recognition give them a great advantage in their

feld. #he company has shown great improvement

and promise throughout its history, and e7pectations

are high as ever. ales are e7pected to continue to

grow and the company will continue to 1ourish. #hisis why we placed such an importance on sales $or

our valuation model. Ce used our growth in sales to

help $orecast many o$ the companyFs accounts. y

using sales growth, or a percentage o$ sales to

$orecast we $eel our numbers sa$ely represent where

the company is headed. ?or the frst year o$ our

$orecast we have sales growth o$ 09, and the

$ollowing $our years have growth reducing by 9

every year. Ce $eel these numbers are accurate

gbowth rates due to companyFs history. #he

company is very well developed and in the growth

and e7pansion o$ their li$ecycle. Ce $eel the

company will continue to grow at a good pace. Ce

chose to $orecast the fve year period $or a $ew


101/115


reasons. Ce $eel the fve year period is enough time

to avoid any 8uestions or uncertainties as number o$

new players entering the mar(et. #hrough the

$orecasting o$ the companyFs major fnancials we

were able to fnd important value driver

calculations.

Ce were able to fnd the 2eported +#, operating

+roft, ?ree %ash ?low o$ !"! %o. #hese are

important numbers needed to fnd our target stoc(price. #he C%% was a very important part o$ our

valuation model. #o fnd the C%% we had to fnd

the cost o$ e8uity and debt $or the company. In order

to fnd the cost o$ e8uity we used the %+!

e8uation. #his allowed us to fnd the companyFs cost

o$ e8uity o$ P.39. #o fnd the cost o$ debt we had

to use interest and total debt $unds o$ the company

and interest spread. #his allowed us to fnd the

companyFs cost o$ debt to be =.439. Cith these

numbers we were then able to fnd companyFs C%%

o$ 4.=9. )ast, to complete our valuation model we

had to fnd our target stoc( price. In order to fnd

our price we used the B%? !odel. ?or the B%?

!odel we use $ree cash 1ows to fnd the stoc( price


102/115


o$ 2s 5Q.>>. Ce also used the relative +; ratio

analysis as well as + ratio .#o use the relative +;

analysisH we $ound comparable companies to

!ahindra, and their respective price to earning

ratios.

F&n"n'&"# %er2orm"n'e

H"#2 +e"r#+ re$#t

#he company managed to post a double digit growth

in its both top line and the bottom line $or the si7

months period ending =0th eptember during the

?@05. #he sales o$ the company grew by a hopping

=69 to 2s. >,6QQ.53 crore during the hal$-year

period in ?@04 as against corresponding period o$

the last yearFs fgure o$ 2s. >4>.>> crore which can

be attributed to the robust demand in the mar(et

due to the increased economic activity. #he

companyFs operating proft moved up by .P69 to

2s =43.06 crore during the period, as against

corresponding period o$ last yearFs fgure o$ 2s

66.>4crore.#he company made a major change in

the operating margin due to the $ollowing reasons


103/115


trong f7ed and variable %ost reductions /53 bps

reduction in mployee cost ; revenues,

&alue engineering, trategic ourcing, &endor

meets, +rice Increases and Increased +roductivity.

ut the bottom line o$ the company rose by 6P9 to

2s.46crore along with the net proft margin which

moved up $rom last yearFs P.4>9 to 4.459.

RECOMMENDATION OF THE STOCK

!ahindra " !ahindra )td /!"! is a

homegrown auto major and the 1agship company o$

the !ahindra group. #he group has varied business

interests ranging $rom automobiles, $arm

e8uipment, telecom, in$rastructure development to

trade and fnancial services. !"! contributes

nearly Q09 o$ the group's total turnover o$ 2sP, >00

crore.

#his $ront-runner o$ the group is into

manu$acture and mar(eting o$ utility vehicles /00=, the


104/115


contributed Q=9 o$ the total revenue while the $arm

e8uipment segments added the balance >=9. #he

automotive division manu$actures and sells a wide

range o$


105/115


It states that there is no signifcant diAerence

between the mar(et value and the intrinsic value

o$ the company. *o denotes the null hypothesis.

> A#tern"te H+%ot)e&:

In case the null hypothesis is rejected, we

should have an alternate hypothesis to accept.

lternate hypothesis is denoted by *. #his

shows there is diAerence between the mar(et

value and intrinsic value o$ the company. It alsoe7plains whether the company is under valued or

over valued.

# % %D2IE -+E+#CE2#% %D2IE -+ +!E# )IG)@ %D2IE -+!)

6

*4PESSMLOPT

PPPEP

++=

6)( PESSOPT

PPP

=

)(P

EPMP

=

ased on the above calculations the e7pected price

comes to 2s 53.04 and the standard error comes to

/.55. Ce use T test and calculate T value /- 5.34


106/115


107/115


108/115


#he reduction in basic e7cise duty $rom =>9 to

>49, as part o$ the 005, has already

led to a >39 surge in domestic vehicle volumes .#he

Gel(ar %ommittee recommendations, which have

been accepted by the government, propose a $urther

cut to

P9 over the ne7t two years

!eanwhile, the cut in the pea( customs duty on

components and the abolition o$ the 49 specialadditional duty will reduce costs $or manu$acturers,

enabling them to cut pr

Documents

Fundamental_Analysis_of_Mahindra__amp__Mahindra.doc

Fundamental_Analysis_of_MahindraampMahindra.doc