A

PROJECT REPORT
ON
“EQUITY ANALYSIS OF AUTOMOBILE COMPANIES”

AT
RELIGARE SECURITIES LIMITED (“RSL”)
SUBMITTED TO
UNIVERSITY OF PUNE

IN PARTIAL FULFILLMENT
OF
MASTER OF BUSINESS ADMINISTRATION [MBA]
(2009-2011)

UNDER GUIDANCE Of
Prof. Y. S. VADGAONKAR

SUBMITTED BY
MR.YOGESH RAMCHANDRA PATIL
MBA [FINANCE]

THROUGH

PIREN’S
INSTITUTE OF BUSINESS MANAGEMENT AND ADMINISTRATION (IBMA),
LONI (BK), TQ – RAHATA, DIST- AHMEDNAGAR 413736

1
 INTRODUCTION

India is a developing country. Nowadays many people are interested to invest in financial

markets especially on equities to get high returns, and to save tax in honest way. Equities are

playing a major role in contribution of capital to the business from the beginning. Since the

introduction of shares concept, large numbers of investors are showing interest to invest in stock

market. In an industry plagued with skepticism and a stock market increasingly difficult to

predict and contend with, if one looks hard enough there may still be a genuine aid for the Day

Trader and Short Term Investor. The price of a security represents a consensus. It is the price at

which one person agrees to buy and another agrees to sell. The price at which an investor is

willing to buy or sell depends primarily on his expectations. If he expects the security's price to

rise, he will buy it; if the investor expects the price to fall, he will sell it. These simple statements

are the cause of a major challenge in forecasting security prices, because they refer to human

expectations. As we all know firsthand, humans expectations are neither easily quantifiable nor

predictable. If prices are based on investor expectations, then knowing what a security should

sell for (i.e., fundamental analysis) becomes less important than knowing what other investors

expect it to sell for. That's not to say that knowing what a security should sell for isn't important--

it is. But there is usually a fairly strong consensus of a stock's future earnings that the average

investor cannot disprove Fundamental analysis and technical analysis can co-exist in peace and

complement each other. Since all the investors in the stock market want to make the maximum

profits possible, they just cannot afford to ignore either fundamental or technical analysis.

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 INDUSTRY PROFILE

BOMBAY STOCK EXCHANGE

A very common name for all traders in the stock market, BSE, stands for Bombay Stock
Exchange. It is the oldest market not only in the country, but also in Asia. In the early days, BSE
was known as "The Native Share & Stock Brokers Association." It was established in the year
1875 and became the first stock exchange in the country to be recognized by the government. In
1956, BSE obtained a permanent recognition from the Government of India under the Securities
Contracts (Regulation) Act, 1956. In the past and even now, it plays a pivotal role in the
development of the country's capital market. This is recognized worldwide and its index,
SENSEX, is also tracked worldwide. Earlier it was an Association of Persons (AOP), but now it
is a demutualised and corporatized entity incorporated under the provisions of the Companies
Act, 1956, pursuant to the BSE (Corporatization and Demutualization) Scheme, 2005 notified by
the Securities and Exchange Board of India (SEBI).
BSE Vision
The vision of the Bombay Stock Exchange is to "Emerge as the premier Indian stock
exchange by establishing global benchmarks."
BSE Management
Bombay Stock Exchange is managed professionally by Board of Directors. It comprises
of eminent professionals, representatives of Trading Members and the Managing Director. The
Board is an inclusive one and is shaped to benefit from the market intermediaries participation.
The Board exercises complete control and formulates larger policy issues. The day to- day
operations of BSE are managed by the Managing Director and its school of professional as a
management team.
BSE Network
The Exchange reaches physically to 417 cities and towns in the country. The framework
of it has been designed to safeguard market integrity and to operate with transparency. It
provides an efficient market for the trading in equity, debt instruments and derivatives. Its online
trading system, popularly known as BOLT, is a proprietary system and it is BS 7799-2-2002

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certified. The BOLT network was expanded, nationwide, in 1997. The surveillance and clearing
& settlement functions of the Exchange are ISO 9001:2000 certified.
BSE Facts
BSE as a brand is synonymous with capital markets in India. The BSE SENSEX is the
benchmark equity index that reflects the robustness of the economy and finance. It was the –
· First in India to introduce Equity Derivatives
· First in India to launch a Free Float Index
· First in India to launch US$ version of BSE Sensex
· First in India to launch Exchange Enabled Internet Trading Platform
· First in India to obtain ISO certification for Surveillance, Clearing & Settlement
· 'BSE On-Line Trading System’ (BOLT) has been awarded the globally recognized the
Information Security Management System standard BS7799-2:2002.
· First to have an exclusive facility for financial training
· Moved from Open Outcry to Electronic Trading within just 50 days

BSE with its long history of capital market development is fully geared to continue
its contributions to further the growth of the securities markets of the country, thus
helping India increases its sphere of influence in international financial markets.

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 NATIONAL STOCK EXCHANGE OF INDIA LIMITED
The National Stock Exchange of India Limited has genesis in the report of the High
Powered Study Group on Establishment of New Stock Exchanges, which recommended
promotion of a National Stock Exchange by financial institutions (FI’s) to provide access to
investors from all across the country on an equal footing. Based on the recommendations, NSE
was promoted by leading Financial Institutions at the behest of the Government of India and was
incorporated in November 1992 as a taxpaying company unlike other stock Exchange in the
country.
On its recognition as a stock exchange under the Securities Contracts (Regulation) Act,
1956 in April 1993, NSE commenced operations in the Wholesale Debt Market (WDM) segment
in June 1994. The Capital Market (Equities) segment commenced operations in November 1994
and operations in Derivatives segment commenced in June 2000.
NSE GROUP
National Securities Clearing Corporation Ltd. (NSCCL)
It is a wholly owned subsidiary, which was incorporated in August 1995 and commenced
clearing operations in April 1996. It was formed to build confidence in clearing and settlement of
securities, to promote and maintain the short and consistent settlement cycles, to provide a
counter-party risk guarantee and to operate a tight risk containment system.
NSE.IT Ltd.
It is also a wholly owned subsidiary of NSE and is its IT arm. This arm of the NSE is
uniquely positioned to provide products, services and solutions for the securities industry.
NSE.IT primarily focuses on in the area of trading, broker front-end and back-office, clearing
and settlement, web-based, insurance, etc. Along with this, it also provides consultancy and
implementation services in Data Warehousing, Business Continuity Plans, Site Maintenance and
Backups, Stratus Mainframe Facility Management, Real Time Market Analysis & Financial
News.
India Index Services & Products Ltd. (IISL)
It is a joint venture between NSE and CRISIL Ltd. to provide a variety of indices and
index related services and products for the Indian Capital markets. It was set up in May 1998.

5
IISL has a consulting and licensing agreement with the Standard and Poor's (S&P), world's
leading provider of investible equity indices, for co-branding equity indices.
National Securities Depository Ltd. (NSDL)
NSE joined hands with IDBI and UTI to promote dematerialization of securities. This
step was taken to solve problems related to trading in physical securities. It commenced
operations in November 1996.
NSE Facts
· It uses satellite communication technology to energize participation from around 400 cities in
India.
· NSE can handle up to 1 million trades per day.
· It is one of the largest interactive VSAT based stock exchanges in the world.
· The NSE- network is the largest private wide area network in India and the first extended C-
Band VSAT network in the world.
· Presently more than 9000 users are trading on the real time-online NSE application.
Today, NSE is one of the largest exchanges in the world and still forging ahead. At NSE, we are
constantly working towards creating a more transparent, vibrant and innovative capital market.

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 Company Profile:

Religare is a financial services company in India, offering a wide range of financial

products and services targeted at retail investors, high net worth individual and corporate and
institutional clients. Religare is promoted by the promoters of Ranbaxy Laboratories Limited.
Religare operate from six regional offices and 25 sub-regional offices and have a presence in 330
cities and towns controlling 979 locations which are managed either directly by Religare or our
Business Associates all over India, the company has a representative office in London. While the
majority of Religare offices provide the full complement of its services yet it has dedicated
offices for investment banking, institutional brokerage, portfolio management services and
priority client services.

Religare Enterprises Limited is the holding company and its principle subsidiaries include:

 Religare Securities Limited (“RSL”)

o Registered with SEBI as an registered stockbroker with membership of National
stock Exchange (“NSE”) and Bombay Stock Exchange (“BSE”).
NSE: SEBI Registration. No: INB 230653732 and INF 230653732 TM Co: 06537
clearing Member (F&O) No: M50235
BSE: SEBI Registration. No: INB 010653732
o Registered with SEBI for portfolio management services (“PMS”)
PMS Registration No: INP 0000000738 MAPIN No: 100001834
o Registered with SEBI as a Depository Participant providing services of National
Securities Depository Limited (“NSDL”) and Central Depository Services
Limited (“CDSL”).
o Registered with SEBI as Category I Merchant banker.
o Applied with SEBI to be sponsor of an asset management company (“AMC”) in a
joint venture with Aegon International N.V., a global provider of life insurance
and pension services.

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 Religare Finvest Limited (“RFL”)
o Registered with the Reserve Bank of India (“RBI”) as a non-banking finance
company (“NBFC”) and presently engaged in providing personal credit (such a
loans against shares (“LAS”), and personal loans), distribution of mutual funds,
wealth management, IPO financing, and corporate finance services.
 Religare Commodities Limited (“RCL”)
o Registered with the Forward Market Commission (“FMC”) as a commodity
broker.
o Member of National Commodities and Derivative Exchange (“NCDEX”), Multi
Commodity Exchange (“MCX”) and National Multi Commodity Exchange of
India Limited (“NMCE”).
 Religare Insurance Broking Limited (“RIBL”)
o Registered with the insurance Regulatory Development Authority (“IRDA”) as
composite broker, which enables RIBL to distribute products and services of life
insurance companies, non-life insurance companies and re-insurance businesses.

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 Product Profile

Retail Spectrum Wealth Spectrum Institutional Spectrum

Caters to a large number To provide customized To forge and build

of wealth advisory strong
retail clients by offering all services to relationships with
products under one roof high net worth corporate
through our branch individuals and institutional clients
network
and online mode

Equity and Commodity Wealth advisory services Institutional Equity

Trading Broking
Personal financial Portfolio Management Investing Banking
Services services Merchant banking
 Distribution of International equity Transaction advisory
mutual funds services
 Distribution Priority Client equity
of insurance services
 Distribution
of saving products Arts initiative
Personal Credit
 Personal loan
Services
 Loan against shares
Online investment

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Retail Spectrum cover equity brokerage services, commodity brokerage services, personal
financial services (financial planning for the retail investor, including the distribution of mutual
funds, savings products, life insurance and initial public offerings (“IPO”) and personal credit
(personal loans services (“PLC”) and loans against shares (“LAS”). Historically services offered
in this spectrum have been the most substantial part of Religare business. Religare Retail
Spectrum services in india are being offerd through a network of 979 business locations spread
across 330 cities and towns and also through Religare online platform, www.religareonline.com,
which is being developed as an integrated portal to offer financial and other services. Religare
business locations include intermediaries, or Religare “Business Associates”, who diliver a
standard quality of service offering on the basis of a pre-detmined revenue sharing ratio for the
business generated through them. Religare Retail Spectrum focuses on clients who keep less than
Rs. 2.5 million on a continuing basis, in the form of either equity trading account margin, mutual
fund investment, portfolio management investment or insurance premiums paid up. We also
increased Religare local commodity locations (or mandis) to 38 as of March 31, 2007 in order to
expand Religare retail commodity brokerage services.

Wealth Spectrum Covers products and services which are geared to services high net worth
individuals and provide wealth advisory services ( on an asset allocation model), PMS
(discretionary equity investments), priority client equity services (non-discretionary equity
trading services), art initiatives (an art which we intend shortly to launch as an investment
diversification product) and international equity investment advisory services. Religare has
entered into an exclusive arrangement with Wall Street Religare Wealth Spectrum focuses on
clients who keep at least Rs. 2.5 million on a continuing basis or more in the form of equity
trading account margins, mutual fund investments, portfolio management investment or
insurance premiums paid up.

Institutional Spectrum covers products and services which cater under one services offering to
corporate and institutional clients, including domestic mutual funds, FIIs, banks and corporate
customers. The Institutional Spectrum provides services to the institutions investor community
through institutional brokerage and investment banking services. We also link corporate clients
with a transaction advisory group, which consists of account managers through whom
institutional clients are able to access the full range of Religare services.

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Competitive Strengths

Regional management for retail branch network

The retail business locations are managed through six regional and 25 other sub-regional
offices across India. The regional offices are based in Chennai for the South region, Kolkata for
the East region, Delhi for the North and Central regions, Ahmadabad for Gujarat and west
Rajasthan, Pune for Maharashtra and Goa, and Mumbai. Religare has maintained these regional
offices to facilitate greater penetration nationally and to delegate decision-making and customer
services to a more decentralized level. Each of the regional offices is headed by a regional head
who has significant experience in the industry and has been able to work with respective
management teams to quickly build a branch network capable of generating significant business.
The regional decentralization has helped the company to operate with more local knowledge and
management and to rapidly expand national network coverage.

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 Objectives

 To know the various aspects of fundamental analysis.

 To study the comparative analysis of three company TATA Motors, Maruti Suzuki and

Mahindra and Mahindra through fundamental analysis.

 To predict the future market shares prices of the above companies and also predict future

behavior of the equity in the market.

 To suggest which company’s shares would be best for an investor to invest.

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 Research Methodology
Definition of Research Methodology:
Research design or research methodology is the procedure of collecting, analyzing and
interpreting the data to diagnose the problem and react to the opportunity in such a way where
the costs can be minimized and the desired level of accuracy can be achieved to arrive at a
particular conclusion. The methodology used in the study for the completion of the project and
the fulfillment of the project objectives.
Research Design:

Decisions regarding what, where, when, how much, by what means concerning an inquiry or a
research study constitute a research design. “A Research design is the arrangement of conditions for
collection & Analysis of data in a manner that aims to combine relevance to the research purpose with
economy procedure.”

Research Type:

The Research type here is a “Descriptive Research” as it is based on the relevant theories & the
prediction.

Data Sources

1) Primary Data:
A data which is collected for the first time is called as the primary data.

2) Secondary Data:
The Secondary Data on the other hand, are based on second-hand information. The data which
have been already been collected, compiled & presented.

Here I used the various books, magazines, Internet websites, Library Research as the secondary
data.

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 SCOPE OF THE STUDY

The scope of the study is identified after and during the study is conducted. The project is

based on tools like fundamental analysis and ratio analysis. Further, the study is based on

information of last five years.

 The analysis is made by taking into consideration three companies i.e. TATA Motors,

Maruti Suzuki and Mahindra and Mahindra.

 The scope of the study is limited for a period of five years.

 The scope is limited to only the fundamental analysis of the chosen stocks.

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 LIMITATIONS

 This study has been conducted purely to understand Equity Research for investors.

 The study is restricted to three companies based on Fundamental analysis.

 The study is limited to the companies having equities.

 Detailed study of the topic was not possible due to limited size of the project.

 There was a constraint with regard to time allocation for the research study i.e. for a

period of 60 days.

 Suggestions and conclusions are based on the limited data of five years.

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 Theoretical Background of the study:
SECURITY ANALYSIS
Investment success is pretty much a matter of careful selection and timing of stock
purchases coupled with perfect matching to an individual’s risk tolerance. In order to carry out
selection, timing and matching actions an investor must conduct deep security analysis.
Investors purchase equity shares with two basic objectives;
1. To make capital profits by selling shares at higher prices.
2. To earn dividend income.
These two factors are affected by a host of factors. An investor has to carefully
understand and analyze all these factors. There are basically two approaches to study security
prices and valuation i.e. fundamental analysis and technical analysis. The value of common stock
is determined in large measure by the performance of the firm that issued the stock. If the
company is healthy and can demonstrate strength and growth, the value of the stock will
increase. When values increase then prices follow and returns on an investment will increase.
However, just to keep the savvy investor on their toes, the mix is complicated by the risk factors
involved. Fundamental analysis examines all the dimensions of risk exposure and the
probabilities of return, and merges them with broader economic analysis and greater industry
analysis to formulate the valuation of a stock.

FUNDAMENTAL ANALYSIS
Fundamental analysis is a method of forecasting the future price movements of a
financial instrument based on economic, political, environmental and other relevant factors and
statistics that will affect the basic supply and demand of whatever underlies the financial
instrument. It is the study of economic, industry and company conditions in an effort to
determine the value of a company’s stock. Fundamental analysis typically focuses on key
statistics in company’s financial statements to determine if the stock price is correctly valued.
The term simply refers to the analysis of the economic well-being of a financial entity as
opposed to only its price movements.

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 Fundamental analysis is the cornerstone of investing. The basic philosophy underlying
the fundamental analysis is that if an investor invests re.1 in buying a share of a company, how
much expected returns from this investment he has.
The fundamental analysis is to appraise the intrinsic value of a security. It insists that no
one should purchase or sell a share on the basis of tips and rumors. The fundamental approach
calls upon the investors to make his buy or sell decision on the basis of a detailed analysis of the
information about the company, about the industry, and the economy. It is also known as “top-
down approach”. This approach attempts to study the economic scenario, industry position and
the company expectations and is also known as “economic-industry-company approach (EIC
approach)”.
Thus the EIC approach involves three steps:
1. Economic analysis
2. Industry analysis
3. Company analysis
ECONOMIC ANALYSIS
The level of economic activity has an impact on investment in many ways. If the
economy grows rapidly, the industry can also be expected to show rapid growth and vice versa.
When the level of economic activity is low, stock prices are low, and when the level of economic
activity is high, stock prices are high reflecting the prosperous outlook for sales and profits of the
firms. The analysis of macro economic environment is essential to understand the behavior of the
stock prices.
The commonly analyzed macro economic factors are as follows:
Gross Domestic Product (GDP): GDP indicates the rate of growth of the economy. It
represents the aggregate value of the goods and services produced in the economy. It consists of
personal consumption expenditure, gross private domestic investment and government
expenditure on goods and services and net exports of goods and services. The growth rate of
economy points out the prospects for the industrial sector and the return investors can expect
from investment in shares. The higher growth rate is more favorable to the stock market.
Savings and investment: It is obvious that growth requires investment which in turn
requires substantial amount of domestic savings. Stock market is a channel through which the
savings are made available to the corporate bodies. Savings are distributed over various assets

17
like equity shares, deposits, mutual funds, real estate and bullion. The savings and investment
patterns of the public affect the stock to a great extent.
Inflation: Along with the growth of GDP, if the inflation rate also increases, then the real
growth would be very little. The effects of inflation on capital markets are numerous. An
increase in the expected rate of inflation is expected to cause a nominal rise in interest rates.
Also, it increases uncertainty of future business and investment decisions. As inflation increases,
it results in extra costs to businesses, thereby squeezing their profit margins and leading to real
declines in profitability.
Interest rates: The interest rate affects the cost of financing to the firms. A decrease in
interest rate implies lower cost of finance for firms and more profitability. More money is
available at a lower interest rate for the brokers who are doing business with borrowed money.
Availability of cheap funds encourages speculation and rise in the price of shares.
Tax structure: Every year in March, the business community eagerly awaits the
Government’s announcement regarding the tax policy. Concessions and incentives given to a
certain industry encourage investment in that particular industry. Tax relief’s given to savings
encourage savings. The type of tax exemption has impact on the profitability of the industries.
Infrastructure facilities: Infrastructure facilities are essential for the growth of industrial
and agricultural sector. A wide network of communication system is a must for the growth of the
economy. Regular supply of power without any power cut would boost the production. Banking
and financial sectors also should be sound enough to provide adequate support to the industry.
Good infrastructure facilities affect the stock market favorably.

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2. INDUSTRY ANALYSIS
An industry is a group of firms that have similar technological structure of production
and produce similar products and Industry analysis is a type of business research that focuses on
the status of an industry or an industrial sector (a broad industry classification, like
"manufacturing"). Irrespective of specific economic situations, some industries might be
expected to perform better, and share prices in these industries may not decline as much as in
other industries. This identification of economic and industry specific factors influencing share
prices will help investors to identify the shares that fit individual expectations.
Industry Life Cycle: The industry life cycle theory is generally attributed to Julius
Grodensky. The life cycle of the industry is separated into four well defined stages.
Pioneering stage: The prospective demand for the product is promising in this stage and the
technology of the product is low. The demand for the product attracts many producers to produce
the particular product. There would be severe competition and only fittest companies survive this
stage. The producers try to develop brand name, differentiate the product and create a product
image. In this situation, it is difficult to select companies for investment because the survival rate
is unknown.
Rapid growth stage: This stage starts with the appearance of surviving firms from the
pioneering stage. The companies that have withstood the competition grow strongly in market
share and financial performance. The technology of the production would have improved
resulting in low cost of production and good quality products.
The companies have stable growth rate in this stage and they declare dividend to the
shareholders. It is advisable to invest in the shares of these companies.
Maturity and stabilization stage: the growth rate tends to moderate and the rate of growth
would be more or less equal to the industrial growth rate or the gross domestic product growth
rate. Symptoms of obsolescence may appear in the technology. To keep going, technological
innovations in the production process and products should be introduced. The investors have to
closely monitor the events that take place in the maturity stage of the industry.
Decline stage: demand for the particular product and the earnings of the companies in the
industry decline. It is better to avoid investing in the shares of the low growth industry even in
the boom period. Investment in the shares of these types of companies leads to erosion of capital.

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Growth of the industry: The historical performance of the industry in terms of growth and
profitability should be analyzed. The past variability in return and growth in reaction to macro
economic f actors provide an insight into the future.
Nature of competition: Nature of competition is an essential factor that determines the
demand for the particular product, its profitability and the price of the concerned company scrips.
The companies' ability to withstand the local as well as the multinational competition counts
much. If too many firms are present in the organized sector, the competition would be severe.
The competition would lead to a decline in the price of the product. The investor before investing
in the scrip of a company should analyze the market share of the particular company's product
and should compare it with the top five companies.
SWOT analysis: SWOT analysis represents the strength, weakness, opportunity and threat
for an industry. Every investor should carry out a SWOT analysis for the chosen industry. Take
for instance, increase in demand for the industry’s product becomes its strength, presence of
numerous players in the market, i.e. competition becomes the threat to a particular company. The
progress in R & D in that industry is an opportunity and entry of multinationals in the industry is
a threat. In this way the factors are to be arranged and analyzed.

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3. COMPANY ANALYSIS
In the company analysis the investor assimilates the several bits of information related to
the company and evaluates the present and future values of the stock. The risk and return
associated with the purchase of the stock is analyzed to take better investment decisions. The
present and future values are affected by a number of factors.
Competitive edge of the company: Major industries in India are composed of hundreds
of individual companies. Though the number of companies is large, only few companies control
the major market share. The competitiveness of the company can be studied with the help of the
following;
Market share: The market share of the annual sales helps to determine a company’s relative
competitive position within the industry. If the market share is high, the company would be able
to meet the competition successfully. The companies in the market should be compared with like
product groups otherwise, the results will be misleading.
Growth of sales: The rapid growth in sales would keep the shareholder in a better position
than one with stagnant growth rate. Investors generally prefer size and growth in sales because
the larger size companies may be able to withstand the business cycle rather than the company of
smaller size.
Stability of sales: If a firm has stable sales revenue, it will have more stable earnings. The fall
in the market share indicates the declining trend of company, even if the sales are stable. Hence
the stability of sales should be compared with its market share and the competitor’s market share.
Earnings of the company: Sales alone do not increase the earnings but the costs and
expenses of the company also influence the earnings. Further, earnings do not always increase
with increase in sales. The company’s sales might have increased but its earnings per share may
decline due to rise in costs. Hence, the investor should not only depend on the sales, but should
analyze the earnings of the company.
Financial analysis: The best source of financial information about a company is its own
financial statements. This is a primary source of information for evaluating the investment
prospects in the particular company’s stock. Financial statement analysis is the study of a
company’s financial statement from various viewpoints. The statement gives the historical and
current information about the company’s operations. Historical financial statement helps to

21
predict the future and the current information aids to analyze the present status of the company.
The two main statements used in the analysis are Balance sheet and Profit and Loss Account.
The balance sheet is one of the financial statements that companies prepare every year for their
shareholders. It is like a financial snapshot, the company's financial situation at a moment in
time. It is prepared at the year end, listing the company's current assets and liabilities. It helps to
study the capital structure of the company. It is better for the investor to avoid a company with
excessive debt component in its capital structure.
From the balance sheet, liquidity position of the company can also be assessed with the
information on current assets and current liabilities.
Ratio analysis: Ratio is a relationship between two figures expressed mathematically.
Financial ratios provide numerical relationship between two relevant financial data. Financial
ratios are calculated from the balance sheet and profit and loss account. The relationship can be
either expressed as a percent or as a quotient. Ratios summarize the data for easy understanding,
comparison and interpretations. Ratios for investment purposes can be classified into profitability
ratios, turnover ratios, and leverage ratios. Profitability ratios are the most popular ratios since
investors prefer to measure the present profit performance and use this information to forecast
the future strength of the company. The most often used profitability ratios are return on assets,
price earnings multiplier, price to book value, price to cash flow, and price to sales, dividend
yield, return on equity, present value of cash flows, and profit margins.
a) Return on Assets (ROA)
ROA is computed as the product of the net profit margin and the total asset turnover ratios.
ROA = (Net Profit/Total income) x (Total income/Total Assets)
This ratio indicates the firm's strategic success. Companies can have one of two
strategies: cost leadership, or product differentiation. ROA should be rising or keeping pace with
the company's competitors if the company is successfully pursuing either of these strategies, but
how ROA rises will depend on the company's strategy. ROA should rise with a successful cost
leadership strategy because the company’s increasing operating efficiency. An example is an
increasing, total asset, turnover ratio as the company expands into new markets, increasing its
market share. The company may achieve leadership by using its assets more efficiently. With a
successful product differentiation strategy, ROA will rise because of a rising profit margin.

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b) Return on Investment (ROI)
ROI is the return on capital invested in business, i.e., if an investment Rs 1 crore in men,
machines, land and material is made to generate Rs. 25 lakhs of net profit, then the ROI is 25%.
The computation of return on investment is as follows:
Return on Investment (ROI) = (Net profit/Equity investments) x 100
As this ratio reveals how well the resources of a firm are being used, higher the ratio,
better are the results. The return on shareholder’s investment should be compared with the return
of other similar firms in the same industry. The inert-firm comparison of this ratio determines
whether the investments in the firm are attractive or not as the investors would like to invest only
where the return is higher.
c) Return on Equity
Return on equity measures how much an equity shareholder's investment is actually
earning. The return on equity tells the investor how much the invested rupee is earning from the
company. The higher the number, the better is the performance of the company and suggests the
usefulness of the projects the company has invested in.
The computation of return on equity is as follows:
Return on equity = (Net profit to owners/value of the specific owner's Contribution to the
business) x 100
The ratio is more meaningful to the equity shareholders who are invested to know profits
earned by the company and those profits which can be made available to pay dividend to them.
d) Earnings per Share (EPS)
This ratio determines what the company is earning for every share. For many investors,
earnings are the most important tool. EPS is calculated by dividing the earnings (net profit) by
the total number of equity shares.
The computation of EPS is as follows:
Earnings per share = Net profit/Number of shares outstanding
The EPS is a good measure of profitability and when compared with EPS of similar other
companies, it gives a view of the comparative earnings or earnings power of a firm. EPS
calculated for a number of years indicates whether or not earning power of the company has
increased.

23
e) Dividend per Share (DPS)
The extent of payment of dividend to the shareholders is measured in the form of
dividend per share. The dividend per share gives the amount of cash flow from the company to
the owners and is calculated as follows:
Dividend per share = Total dividend payment / Number of shares outstanding
The payment of dividend can have several interpretations to the shareholder. The
distribution of dividend could be thought of as the distribution of excess profits/abnormal profits
by the company. On the other hand, it could also be negatively interpreted as lack of investment
opportunities. In all, dividend payout gives the extent of inflows to the shareholders from the
company.
f) Dividend Payout Ratio
From the profits of each company a cash flow called dividend is distributed among its
shareholders. This is the continuous stream of cash flow to the owners of shares, apart from the
price differentials (capital gains) in the market. The return to the shareholders, in the form of
dividend, out of the company's profit is measured through the payout ratio. The payout ratio is
computed as follows:
Payout Ratio = (Dividend per share / Earnings per share) * 100
The percentage of payout ratio can also be used to compute the percentage of retained
earnings. The profits available for distribution are either paid as dividends or retained internally
for business growth opportunities. Hence, when dividends are not declared, the entire profit is
ploughed back into the business for its future investments.
g) Dividend Yield
Dividend yield is computed by relating the dividend per share to the market price of the
share. The market place provides opportunities for the investor to buy the company's share at any
point of time. The price at which the share has been bought from the market is the actual cost of
the investment to the shareholder. The market price is to be taken as the cum-dividend price.
Dividend yield relates the actual cost to the cash flows received from the company. The
computation of dividend yield is as follows
Dividend yield = (Dividend per share / Market price per share) * 100
High dividend yield ratios are usually interpreted as undervalued companies in the
market. The market price is a measure of future discounted values, while the dividend per share

24
is the present return from the investment. Hence, a high dividend yield implies that the share has
been under priced in the market. On the other hand a low dividend yield need not be interpreted
as overvaluation of shares. A company that does not pay out dividends will not have a dividend
yield and the real measure of the market price will be in terms of earnings per share and not
through the dividend payments.
h) Price/Earnings Ratio (P/E)
The P/E multiplier or the price earnings ratio relates the current market price of the share
to the earnings per share. This is computed as follows:
Price/earnings ratio = Current market price / Earnings per share
This ratio is calculated to make an estimate of appre’’’ciation in the value of a share of a
company and is widely used by investors to decide whether or not to buy shares in a particular
company. Many investors prefer to buy the company's shares at a low P/E ratio since the general
interpretation is that the market is undervaluing the share and there will be a correction in the
market price sooner or later. A very high P/E ratio on the other hand implies that the company's
shares are overvalued and the investor can benefit by selling the shares at this high market price.
i) Debt-to-Equity Ratio
Debt-Equity ratio is used to measure the claims of outsiders and the owners against the
firm’s assets.
Debt-to-equity ratio = Outsiders Funds / Shareholders Funds
The debt-equity ratio is calculated to measure the extent to which debt financing has been
used in a business. It indicates the proportionate claims of owners and the outsiders against the
firm’s assets. The purpose is to get an idea of the cushion available to outsiders on the liquidation
of the firm.

25
DATA ANALYSIS & INTERPRETATIONS

ANALYSIS OF AUTOMOBILE INDUSTRY

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 the purpose of investment we need to analyze it by the
following approach:
Fundamental Analysis (E.I.C Approach)
a. Economy analysis
b. Industry analysis
c. Company analysis
Fundamental Analysis
Fundamental analysis is the study of economic, industry and company conditions in an
effort to determine the value of a company s stock. Fundamental analysis typically focuses on
key statistics in companys financial statements to determine if the stock price is correctly valued.
Most fundamental information focuses on economic, industry and company statistics.
The typical approach to analyzing a company involves three basic steps:
1. Determine the condition of the general economy.
2. Determine the condition of the industry.
3. Determine the condition of the company.

26
1. ECONOMY ANALYSIS
Economic analysis is the analysis of forces
operating the overall economy a country. 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.
GDP and Automobile Industry
In absolute terms, India is 16th in the world in
terms of nominal factory output. The service sector is
growing rapidly in the past few years. This is the pie- chart showing contributions of different
sectors in Indian economy. 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. As the world economy slipped into recession hitting
the demand hard and the banking sector takes conservative approach towards lending to
corporate sector, the GDP growth has downgraded it to 7.1 per cent for 2008-09 and it has
increased to 8.6% in 2010 by overcoming the setbacks of recession.

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. As the world economy slipped into recession hitting the demand hard and the

27
banking sector takes conservative approach towards lending to corporate sector, the GDP growth
has downgraded it to 7.1 per cent for 2008-09 and it has increased to 8.6% in 2010 by
overcoming the setbacks of recession.
Recession
Auto industry in India had been hit hard by ongoing global financial recession. But it is in
a good shape now. Much of this optimism resulted from renewed interest being shown in India
auto industry by reputed overseas car makers. Nissan Motors which is a well known Japanese car
making company regarded India automobile market as a global car manufacturing hub for future
and invested huge amount in our market. There are some other automobile companies of world
who have shown interest in India auto market. Major names among these are General Motors,
Skoda Auto and Mercedes-Benz. These companies have major plans lined up for India auto
industry. These are few signs of the revolutionized auto industry after recession.
Inflation
The rise in inflation will have adverse impact on the industry that will not only see
interest rates getting further hardened but also a drop in demand due to the squeeze in purchasing
power. The effect of inflation has affected every sector which is related to car manufacturing and
production. The increase in the price of fuel and the steel due to inflation has led to a slower
growth rate of the car industry in India.

Foreign Direct Investment

The automobile sector in the Indian industry is one of the high performing sectors of the
Indian economy. This has contributed largely in making India a prime destination for many
international players in the automobile industry who wish to set up their businesses in India.
Automatic approval for foreign equity investment up to 100 per cent of manufacture of
automobiles and component is permitted.
Exports
Despite recession, the Indian automobile market continues to perform better than most of
the other industries in the economy in coming future; more and more MNC’s coming in India to
setup their ventures which clearly shows the scope of expansion. During April-January 2010,
overall automobile exports registered a growth rate of 13.24 percent.

28
 2. INDUSTRY ANALYSIS (AUTOMOBILE)
The automobile industry in India is the ninth largest in the world with an annual
production of over 2.3 million units in 2009. In 2010, India emerged as Asia's fourth largest
exporter of automobiles, behind Japan, South Korea and Thailand. 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. In 2010, estimated rate of growth of India Auto industry is going to be 9% .The
Indian automobile sector is far from being saturated, leaving ample opportunity for volume
growth.
Segmentation of Automobile Industry
The automobile industry comprises of Heavy vehicles (trucks, buses, tempos, tractors);
passenger cars; Two-wheelers; Commercial Vehicles; and Three-wheelers. Following is the
segmentation that how much each sector comprises of whole Indian Automobile Industry.

Category-Wise Market Share in 2008-09

Commercial
Passenger
Vehicles
Vehicles
4%
16%
Three Wheelers
4%

Two Wheelers
76%

29
Industry life cycle
The industrial life cycle is a term used for classifying industry life over time. Industry life
cycle classification generally groups industries into one of four stages: pioneer, growth, maturity
and decline. In the pioneer phase, the product has not been widely accepted or adopted. Business
strategies are developing, and there is high risk of failure. However, successful companies can
grow at extraordinary rates. The Indian automobile sector has passed this stage quite
successfully. The industry is growing rapidly, often at an accelerating rate of sales and earnings
growth. Indian Automotive Industry is booming with a growth rate of around 15 % annually. The
growth rate of the automobile industry in India is greater than the GDP growth rate of the
economy, so the automobile sector can be very well be said to be in the growth phase.
Swot analysis:
A scan of the internal and external environment is an important part of the strategic
planning process. Environmental factors internal to the firm usually can be classified as strengths
(S) or weaknesses (W), and those external to the firm can be classified as opportunities (O) or
threats (T). Such an analysis of the strategic environment is referred to as a SWOT analysis.
SWOT analysis of the Indian automobile sector gives the following points:
1. Strengths
 Large domestic market
 Sustainable labor cost advantage
 Competitive auto component vendor base
 Government incentives for manufacturing plants
 Strong engineering skills in design etc
2. Weaknesses
 Low labor productivity
 High interest costs and high overheads make the production uncompetitive
 Various forms of taxes push up the cost of production
 Low investment in Research and Development
 Infrastructure bottleneck

30
3. Opportunities
 Increasing challenges in consumer demands, technology development, and globalization.
 Heavy thrust on mining and construction activity
 Increase in the income level
 Cut in excise duties
4. Threats
 Ignorance of Research & development
 Rising interest rates
 Cut throat competition

3. COMPANY ANALYSIS
The company analysis shows the long-term strength of the company that what is the
financial position of the company in the market, where it stands among its competitors and who
are the key drivers of the company, what are the future plans of the company, what are the
policies of government towards the company and how the stake of the company divested among
different groups of people.
Here, I have taken three companies namely TATA Motors, Maruti Suzuki and Mahindra
and Mahindra for the purpose of fundamental analysis.

Tata Motors Limited is India's largest automobile company, with consolidated revenues
of Rs. 92,519 crores (USD 20 billion) in 2009-10. It is the leader in commercial vehicles in each
segment, and among the top three in passenger vehicles with winning products in the compact,
midsize car and utility vehicle segments. The company is the world's fourth largest truck
manufacturer, and the world's second largest bus manufacturer.

31
TATA MOTORS- Balance Sheet
Mar-10 Mar-09 Mar-08 Mar-07 Mar-06

Source of Funds

Owner's Fund

Equity share capital 570.60 514.05 385.54 385.41 382.87

Share application money

Preference share capital

Reserve & surplus 14,394.87 11,855.15 7,428.45 6,458.39 5,127.81

Loan funds

Secured loan 7,742.60 5,251.65 2,461.99 2,022.04 822.76

Unsecured loan 8,883.31 7,913.91 3,818.53 1,987.10 2,114.08

Total 31,591.38 25,534.76 14,094.51 10,852.94 8,447.52

Uses of funds

Fixed assets

Gross block 18,416.81 13,905.17 10,830.83 8,775.80 7,971.55

Less: revaluation reserve 25.07 25.51 25.95 26.39

Less: accumulated depreciation 7,212.92 6,259.90 5,443.52 4,894.54

Net block 11,203.89 7,620.20 5,361.80 3,855.31 3,543.65

Capital Work-in-Progress 5,232.15 6,954.04 5,064.96 2,513.32 951.19

Investment 22,336.90 12,968.13 4,910.27 2,477.00 2,015.15

Net current asset

Current asset, loans and advances 11,699.67 10,836.58 10,781.23 10,318.42 9,812.06

Less: currenct liabilities and provision 18,881.23 12,846.21 12,029.80 8,321.20 7,888.65

Total net current assets -7,181.56 -2,009.63 -1,248.57 -1,997.22 -1,923.4

Miscellaneous expences not written 2.02 6.05 10.09 14.12

Total 31,591.38 25,534.76 14,094.51 10,852.94 8,447.52

Notes:

Book value of unquoted investment 21,991.93 12,358.84 4,145.82 2,117.86 1,648.57

Market value of quoted investment 345.53 558.32 2,530.55 1,323.08 1,550.00

Contingent liabilities 3,447.50 5,433.07 5,590.83 5,196.07 2,185.63

Number of equity shareoutstanding (Lacs) 5,705.58 5,140.08 3,855.04 3,853.74 3,828.34

32
Profit and Loss A/c of Tata Motors:-
Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06
Income
Operating income 35,564.00 25,660.67 28,767.91 26,664.25 20,088.63

Expenses
Material consumed 24,759.49 19,039.41 20,931.81 19,529.88 14,376.11
Manufacturing expenses 439.32 1,171.59 1,230.14 1,200.36 929.82
Personnel expenses 1,836.13 1,551.39 1,544.57 1,367.83 1,143.13
Selling expenses - 1,224.15 1,179.48 1,068.56 759.54
Adminstrative expenses 5,091.32 1,867.05 1,982.79 1,488.16 1,042.52
Expenses capitalized -740.54 -916.02 -1,131.40 -577.05 -308.85
Cost of sales 31,385.72 23,937.57 25,737.39 24,077.74 17,942.27
Operating profit 4,178.28 1,723.10 3,030.52 2,586.51 2,146.36
Other recurring income 51.74 841.54 359.42 887.23 685.18
Adjusted PBDIT 4,230.02 2,564.64 3,389.94 3,473.74 2,831.54
Financial expenses 1,103.84 704.92 471.56 455.75 350.24
Depreciation 1,033.87 874.54 652.31 586.29 520.94
Other write offs 144.03 51.17 64.35 85.02 73.78
Adjusted PBT 1,948.28 934.01 2,201.72 2,346.68 1,886.58
Tax charges 589.46 12.5 547.55 660.37 524.93
Adjusted PAT 1,358.82 921.51 1,654.17 1,686.31 1,361.65
Non recurring items 881.26 79.75 374.75 227.15 167.23
Other non cash adjustments - 15.29 - -0.07 -
Reported net profit 2,240.08 1,016.55 2,028.92 1,913.39 1,528.88
Earnigs before appropriation 3,926.07 2,399.62 3,042.75 2,690.15 2,094.54
Equity dividend 859.05 311.61 578.43 578.07 497.94
Preference dividend - - - - -
Dividend tax 132.89 34.09 81.25 98.25 69.84
Retained earnings 2,934.13 2,053.92 2,383.07 2,013.83 1,526.76

33
 Maruti Suzuki is a subsidiary of Suzuki Motor Corporation Japan. More than half the
numbers of cars sold in India wear Maruti Suzuki badge. They offer a full range of cars – from
entry level Maruti 800 & Alto to stylish hatchback Ritz, A star, Swift, Wagon R, Estillo and
sedans Dzire, SX4 and Sports Utility Vehicle Grand Vitara. Since inception, it has produced and
sold over 7.5 million vehicles in India and exported over 500,000 units to Europe and other
countries. Its turnover for the fiscal 2008-09 stood at Rs. 203,583 Million & Profit after Tax at
Rs. 12,187 Million.

MARUTI SUZUKI-Balance Sheet

Balance Sheet of Maruti Suzuki India
Mar-10 Mar-09 Mar-08 Mar-07 Mar-06
Source of Funds
owner's fund
Equity share capital 144.5 144.5 144.5 144.5 144.5
Share application money
Preference share capital
Reserve & surplus 11690.6 9200.4 8270.9 6709.4 5308.1
Loan funds
Secured loan 26.5 0.1 0.1 63.5 71.7
Unsecured loan 794.9 698.8 900.1 567.3
Total 12656.5 10043.8 9315.6 7484.7 5524.3
Uses of funds
Fixed assets
Gross block 10406.7 8720.6 7285.3 6146.8 4954.6
Less: revaluation reserve
Less: accumulated depreciation 5382 4649.8 3988.8 3487.1 3259.4
Net block 5024.7 4070.8 3296.5 2659.7 1695.2
Capital Work-in-Progress 387.6 861.3 736.3 238.9 92
Investment 7176.6 3173.3 5180.7 3409.2 2051.2
Net current asset
Current asset, loans and advances 3856 5570 3190.5 3956 3870.7
Less: currenct liabilities and provision 3788.4 3631.6 3088.4 2779.1 2184.8
Total net current assets 67.6 1938.4 102.1 1176.9 1685.9
Miscellaneous expences not written
Total 12656.5 10043.8 9315.6 7484.7 5524.3

34
Notes:
Book value of unquoted investment 11.1 3162.2 5169.6 3398.1 2040.1
Market value of quoted investment 215.1 108.7 219.5 270.4 289.8
Contingent liabilities 4039.6 1901.7 2734.2 2094.6 1289.7
Number of equity shareoutstanding (Lacs) 2889.1 2889.1 2889.1 2889.1 2889.1

MARUTI SUZUKI- Profit & Loss A/c Statement

Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06
Income
Operating income 29091.3 20729.4 18066.8 14806.4 12197.9
Expenses
Material consumed 22435.4 16339.8 13622 11063.7 9223.7
Manufacturing expenses 1793.8 909.7 670.6 489.8 359.6
Personnel expenses 545.6 471.1 356.2 288.4 228.7
Selling expenses 738.2 560.2 499.9 356
Adminstrative expenses 916 389.2 326.3 274.5 170.6
Expenses capitalized -22.3 -19.8 -14.3 -6.7
Cost of sales 25690.8 18825.7 15515.5 12602 10331.9
Operating profit 3400.5 1903.7 2551.3 2204.4 1866
Other recurring income 1020.9 547.6 456.1 361.1 268.1
Adjusted PBDIT 4421.4 2451.3 3007.4 2565.5 2134.1
Financial expenses 33.5 51 59.6 37.6 20.4
Depreciation 825 706.5 568.2 271.4 285.4
Other write offs
Adjusted PBT 3562.9 1693.8 2379.6 2256.5 1828.3
Tax charges 1094.9 457.1 763.3 705.3 560.9
Adjusted PAT 2468 1236.7 1616.3 1551.2 1267.4
Non recurring items 29.6 -55.9 37.9 -23 -83.7
Other non cash adjustments 37.9 76.6 33.4 5.4
Reported net profit 2497.6 1218.7 1730.8 1561.6 1189.1
Earnigs before appropriation 10501.8 8244.4 7368.1 5947.1 4631.2
Equity dividend 173.3 101.1 144.5 130 101.1
Preference dividend
Dividend tax 28.8 17.2 24.8 21.9 14.2
Retained earnings 10299.7 8126.1 7198.8 5795.2 4515.9

35
 The Mahindra Group’s Automotive Sector is in the business of manufacturing and marketing
utility vehicles and light commercial vehicles, including three-wheelers. It is the market leader in
utility vehicles in India since inception, and currently accounts for about half of India’s market
for utility vehicles. The Automotive Sector continues to be a leader in the utility vehicle segment
with a diverse portfolio that includes mass transport as well as new generation vehicles like
Scorpio, Bolero and the recently launched Xylo.

Mahindra & Mahindra Ltd.

Balance sheet of Mahindra & Mahindra Ltd.
Mar-10 Mar-09 Mar-08 Mar-07 Mar-06
Source of Funds
owner's fund
Equity share capital 282.95 272.62 239.07 238.03 233.4
Share application money 8.01
Preference share capital
Reserve & surplus 7527.6 4959.26 4098.53 3302.01 2662.14
Loan funds
Secured loan 602.45 981 617.26 106.65 216.68
Unsecured loan 2277.7 3071.76 1969.8 1529.35 666.71
Total 10698.71 9284.64 6924.66 5176.04 3778.93
Uses of funds
Fixed assets
Gross block 4866.18 4653.66 3552.64 3180.57 2859.25
Less: revaluation reserve 11.67 12.09 12.47 12.86 13.33
Less: accumulated depreciation 2537.77 2326.29 1841.68 1639.12 1510.27
Net block 2316.74 2315.28 1698.49 1528.59 1335.65
Capital Work-in-Progress 1374.31 886.96 649.94 329.72 205.46
Investment 6398.02 5786.41 4215.06 2237.46 1669.09
Net current asset
Current asset, loans and advances 6224.56 5081.2 3816.41 3916.94 2805.04
Less: currenct liabilities and provision 5619.04 4797.76 3468.77 2854.2 2254.37
Total net current assets 605.52 283.44 347.64 1062.74 550.66
Miscellaneous expences not written 4.12 12.55 13.53 17.55 18.05
Total 10698.71 9284.64 6924.66 5176.05 3778.92

36
 Notes:
Book value of unquoted investment 4806.15 4305.5 1429.16 1515.23 1419.01
Market value of quoted investment 12216.75 3218.81 7669.9 10285.25 2030.85
Contingent liabilities 2020.79 1220.39 985.35 1008.27 946.36
Number of equity shareoutstanding (Lacs) 5659.08 2726.16 2390.73 2380.33 2334

Mahindra & Mahindra Ltd:- Profit and Loss A/c

Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06
Income
Operating income 18516.33 13081.08 11310.37 9921.34 8136.59
Expenses
Material consumed 12437.87 9365 7814.71 6930.76 5782.01
Manufacturing expenses 217.89 174.05 164.68 134 111.9
Personnel expenses 1199.85 1024.52 853.66 666.15 551.78
Selling expenses 802.02 575.34 804.51 635.1 458.32
Adminstrative expenses 901.45 700.45 561.66 466.22 387.57
Expenses capitalized -59.55 -42.83 -46.49 -47.1 -26.53
Cost of sales 15499.53 11796.53 10152.72 8785.12 7265.04
Operating profit 3016.8 1284.55 1157.65 1136.22 871.54
Other recurring income 317.99 305.98 364.05 404.87 195.82
Adjusted PBDIT 3334.79 1590.53 1521.7 1541.09 1067.36
Financial expenses 156.85 134.12 87.59 19.8 26.96
Depreciation 370.78 291.51 238.66 209.59 200.01
Other write offs 0.59 0.33 0.28
Adjusted PBT 2807.16 1164.9 1194.86 1311.37 840.12
Tax charges 759 199.69 303.4 350.1 242.4
Adjusted PAT 2048.16 965.21 891.46 961.28 597.72
Non recurring items -32.9 -173.33 211.91 126.3 259.38
Other non cash adjustments 72.49 48.97 -19.19
Reported net profit 2087.75 840.85 1103.37 1068.39 857.1
Earnigs before appropriation 5453.07 3807 3228.45 2544.13 1853.5
Equity dividend 549.52 278.83 282.61 282.23 243.97
Preference dividend
Dividend tax 74.23 33.23 38.48 42.5 34.22
Retained earnings 4829.32 3494.94 2907.36 2219.4 1575.31

37
RATIO ANALYSIS OF TATA MOTORS, MARUTI SUZUKI AND
MAHINDRA & MAHINDRA
EARNINGS PER SHARE
Year Mar’06 Mar’07 Mar’08 Mar’09 Mar’10
TATA 39.94 49.65 52.63 19.48 39.26
MARUTI 41.16 54.07 59.91 42.18 41.15
MAHINDRA 36.72 44.88 46.15 30.69 36.89

Calculation of Earnings per share (EPS)

TATA Motors:
Year March 2010
TATA Motors 39.26

Net profit =2240.08

Number of shares outstanding =57.0558

Formula:
Earnings per share = Net profit/Number of shares outstanding
=2240.08/57.0558
=39.26

38
 EPS
60
50
40
Axis Title

30
20
10
0
Mar’06 Mar’07 Mar’08 Mar’09 Mar’10
TATA 39.94 49.65 52.63 19.48 39.26
MARUTI 41.16 54.07 59.91 42.18 41.15
MAHINDRA 36.72 44.88 46.15 30.69 36.89

Interpretations
EPS measures the profit available to the equity shareholders per share, that is, the amount
that they can get on every share held. Till 2008 TATA and Maruti had a rising EPS but in 2009
& 10 both of them fall and the effect is more on Tata motors because of the slump in domestic
and international markets and sharp fall in sales and net profits which resulted in low EPS.
Mahindra is not much affected as its sales have increased from the previous year. But as trend
shows Mahindra motors has potential so a shareholder can expect better in future.

39
 NET SALES

YEAR Mar’06 Mar’07 Mar’08 Mar’09 Mar’10

TATA 20,088.63 26,664.25 28,767.91 25,660.67 35,564.00

MARUTI 12197.9 14806.4 18066.8 20729.4 29091.3

MAHINDRA 8136.59 9921.34 11310.37 13081.08 18516.33

NET SALES

40,000.00
35,000.00
30,000.00
25,000.00
Axis Title

20,000.00
15,000.00
10,000.00
5,000.00
0.00
Mar’06 Mar’07 Mar’08 Mar’09 Mar’10
TATA 20,088.63 26,664.25 28,767.91 25,660.67 35,564.00
MARUTI 12197.9 14806.4 18066.8 20729.4 29091.3
MAHINDRA 8136.59 9921.34 11310.37 13081.08 18516.33

Interpretations
Maruti and Mahindra show a positive trend in sales over the past five years. Though
slowdown in the economy brought hurdles but these companies have potential to grow in future
as lots of products are still to add in their portfolio. Moreover increased demand in foreign
market also seems to be a positive signal for better future. TATA has witnessed a decline in sales
of each segment. Maruti and Mahindra are going swiftly.

40
 DIVIDEND PER SHARE

Year Mar’06 Mar’07 Mar’08 Mar’09 Mar’10

TATA 13 15 15 6 15
MARUTI 3.5 4.5 5 3.5 6.0
MAHINDRA 10 11.5 11.5 10 9.5

Calculation of Dividend Per Share:

TATA Motors:

Year March 2010

TATA Motors 15

Total dividend payment =859.05

Number of shares outstanding =57.0558

Formula:

Dividend per share = Total dividend payment / Number of shares outstanding

=859.05/57.0558

=15.056

=15

41
 DIVIDEND PER SHARE

16
14
12
10
Axis Title

8
6
4
2
0
Mar’06 Mar’07 Mar’08 Mar’09 Mar’10
TATA 13 15 15 6 15
MARUTI 3.5 4.5 5 3.5 6
MAHINDRA 10 11.5 11.5 10 9.5

Interpretations
Tata motors and Maruti Suzuki both the companies showed a positive trend in paying
dividends till 2008, but the scenario changed in 2009 as both the company’s dividend per share
fell. But again in 2010 Tata motors and Maruti showed good recovery and both companies
showed positive growth. According to graph in 2009 Tata’s dividend has fallen drastically while
Maruti stick to 6 per share. Mahindra has made a slight reduction from Rs.10 per share in 2009
to Rs.9.5 per share this year. There for Maruti Suzuki would be the best option for investors
because maruti shows stable dividend per share.

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 DIVIDEND PAYOUT RATIO

Year Mar’06 Mar’07 Mar’08 Mar’09 Mar’10

TATA 37.13 35.34 32.51 34.52 38.20
MARUTI 9.69 9.72 9.78 9.7 6.94
MAHINDRA 32.45 30.39 29.1 37.29 25.75

Calculation of Dividend Payout Ratio:

TATA Motors:

Year March 2010

TATA Motors 38.20

Dividend per share =15

Earnings per share =39.26

Formula:

Payout Ratio = (Dividend per share / Earnings per share) * 100

= (15/39.26) X 100
= 38.20

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 Divident Payout ratio
40

35

30

25
Axis Title

20

15

10

0
Mar’06 Mar’07 Mar’08 Mar’09 Mar’10
TATA 37.13 35.34 32.51 34.52 38.2
MARUTI 9.69 9.72 9.78 9.7 6.94
MAHINDRA 32.45 30.39 29.1 37.29 25.75

Interpretations

Dividend payout ratio is the percentage of earnings paid to shareholders in dividends. It

provides an idea to an investor of how well earnings support the dividend payments. Maruti has
maintained a stable payout ratio till 2009 but in 2010 Maruti’s payout ratio has decreased.
TATA have increased their payout ratio & shows a higher payout ratio. Mahindra has shows
many fluctuation in the dividend payout ratio in every year.

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 PRICE-EARNINGS RATIO (P/E RATIO)

Year Mar’06 Mar’07 Mar’08 Mar’09 Mar’10

TATA 22.5 14.9 3.02 40.6 38.8
MARUTI 22.5 18.3 8.6 36.9 32.48
MAHINDRA 24.6 19.1 5.9 35.2 34.17

Calculation of Price-Earnings Ratio (P/E Ratio)

TATA Motors:

Year March 2010

TATA Motors 38.8

Current market price = 1523.28 (As on date)

Earnings per share = 39.26

Formula:

Price/earnings ratio = Current market price / Earnings per share

= 1523.28/39.26
=38.8

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 P/E RATIO
50

40
Axis Title

30

20

10

0
Mar’06 Mar’07 Mar’08 Mar’09 Mar’10
TATA 22.5 14.9 3.02 40.6 38.8
MARUTI 22.5 18.3 8.6 36.9 32.48
MAHINDRA 24.6 19.1 5.9 35.2 34.17

Interpretations
This ratio is widely used by investors to decide whether or not to buy shares in a
particular company. As per the graph, in 2008, the P/E ratio of the three companies was the
lowest compared to the previous years. TATA has the highest P/E ratio in 2009 which indicates
that it is overvalued, so the investors can benefit by selling the shares. An investor can go for
Mahindra as its P/E ratio is the lowest in 2010 which indicates that it is undervalued and there is
a scope for growth in the future.

46
Prediction of Future Dividend Payout Ratio:

Company Dividend Payout Ratio (for last 2 year only)

Name 2009 2010
TATA Motors 34.52 38.20
Maruti Suzuki 9.7 6.94
Mahindra 37.29 25.75

Calculation of Annual Growth Rate:

Growth Rate Dividend Payout Ratio (DPR)

= Dividend Payout Ratio for 2010/Dividend Payout Ratio for 2009

Calculation of Growth rate for Tata Motors:

=38.29 / 34.52

=1.10

Dividend Payout Ratio after 1 year:

=Growth Rate X Current Dividend Payout Ratio

=1.10 X 38.20 = 42.02

Calculation of Growth rate for Maruti Suzuki:

=6.94 / 9.7

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=0.71

Dividend Payout Ratio after 1 year:

=Growth Rate X Current Dividend Payout Ratio

= 0.71 X 6.94

= 4.92

Calculation of Growth rate for Mahindra & Mahindra

=25.75/37.29

=0.69

Dividend Payout Ratio after 1 year:

=Growth Rate X Current Dividend Payout Ratio

=0.69 X 25.75

=17.76

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 Company Predicted Dividend Payout Ratio for
Next year

Tata Motor 42.02

Maruti Suzuki 4.92

Mahindra & Mahindra 17.76

Dividend Payout Ratio for Next year

Dividend Payout Ratio for Next year
42.02

17.76

4.92

Tata Motor Maruti Suzuki Mahindra & Mahindra

Interpretation:

As the Dividend payout ratio is showing the growth in Tata Motors here it is expected
that the same will continue and the DPR after 1 year will be 42.02 of Tata Motors fundamentally.
But as far as other two companies concerned they shows decline position in the growth rate i.e
0.71 & 0.69 respectively so that it is expected that DPR after 1 year will be decrease (4.92 &
17.76) in Maruti and Mahindra.

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Future behavior of the Equity in the stock market.

On the basis of above predictions we can analyze future market trend or market prices of
the shares of above companies.

So, when the dividend payout ratio of the Tata Motors is 38.20 then the market price of
the share is 1523.28. So we can predict the future market price of the Tata Motors.

Computation of Future Market shares Price of Tata Motors:

Future Market Price = DPR of next year X Current Market Price / Current
DPR

DPS of Next Yr. = 42.02

Current Market Price = 1523.28 (As on date)

Current DPR = 38.20

= 42.02 X 1523.28 / 38.20

Future Market Price = 1675.60

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As above the followings are Companies future market share prices
will be:

Companies Name Current Prices of Shares Predicted Prices of Shares

Tata Motor 1523.28 1675.60

Maruti Suzuki 2807.89 1990.60
Mahindra & Mahindra 1260.53 869.39

Comparison between current price of shares & Predicted prices of

shares:

3000
2500
2000
1500 Current Prices of Shares

1000 Predicted Prices of Shares

500
0
Tata Motor Maruti Suzuki Mahindra &
Mahindra

Interpretation:
The above graph showing that the only Tata motors shares price will be increase in next
year. Because their growth rate of dividend payout ratio is positive and other two companies
shows negative growth rate. So that their future share prices also decrease in next year.

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 Companies Financial Statement Analysis for the year 2010:-

Name EPS Selling DPS DPR PE Annual Future

Price Ratio Growth Mkt. Share
Rate price
TATA Motors 39.26 35,564.00 15.0 38.20 38.8 1.10 1675.60
Maruti Suzuki 41.15 29091.30 6.0 6.94 32.48 0.71 1990.60
Mahindra & 36.89 18516.33 9.5 25.75 34.17 0.69 869.39
Mahindra

Interpretation:
Basically all of three companies are good option for investors to invest. Because Auto
mobile sectors is showing upward trend in this current year. But on the basis of above table we
can analyze that Maruti Suzuki shows highest earning per share ( 41.15) in 2010. So that
investors can hold that shares for some time. Because EPS measures the profit available to the
equity shareholder per share, that is, the amount that they can get on every share held. But other
data is different that TATA Motors distribute highest dividend per share (15) which is more than
other two companies and annual growth rate and future market share price shows positive
growth. So Tata Motors is good option for those investors who want invest their money for long
term period.

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 FINDINGS
From the data analysis and interpretations of the ratios of three companies’ viz. Tata Motors,

Maruti Suzuki and Mahindra and Mahindra, the following findings have been given:

 Fundamental analysis is the study of economic, industry and company conditions in an

effort to determine the value of a company s stock.

 Fundamental analysis typically focuses on key statistics (For Ex. EPS, Sales Growth,

Dividend per share, Dividend payout ratio & PE ratio) in company financial statements to

determine if the stock price is correctly valued.

 The three companies were performing well till 2008 with a positive trend in the earnings per

share. But there was a downward trend in 2009. Especially, TATA has witnessed a steep fall in

EPS i.e 19.48 in the year 2009.But again we can see good recovery in next 2010.

 The sales trend has been upward and positive in case of all the three companies. The sales growth

looks positive but in the year 2009, only TATA’s sales have declined from 28,767.91 in 2008 to

25,660.67 in 2009 whereas Maruti and Mahindra have maintained the same upward positive

trend.

 In case of dividend per share, there were fluctuations during the period 2005- 2010. Due to

recession, the dividends per share have declined in all the three companies. Tata’s dividend has

fallen drastically in 2009 while Maruti stick to below 6 per share. Mahindra has made a slight

reduction from rs.10 per share in 2009 to Rs.9.5 per share this year.

 Maruti had a stable dividend payout ratio since 2005.But in case of TATA and Mahindra there

were fluctuations during the period 2005-10 payout ratio in which TATA shows a higher

payout ratio (38.20).

 The three companies have witnessed a low price earnings ratio in 2008 compared to the previous

year. But the ratio increased in 2009-10 as compared to previous year in three companies. TATA

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 has the highest P/E ratio in 2010 i.e 38.8 which indicates that it is overvalued and Maruti’s P/E

ratio is the lowest in 2010 i.e 32.48 which indicates that it is undervalued and there is a scope for

growth in the future.

 Future behavior of stock market is shows that Tata motors shares price will be increase in

next year because annual growth rate (1.10) of Tata Motors which is more than other two

companies.

By analyzing the current trend of Indian Economy and Automobile Industry I have found that

being a developing economy there is lot of scope for growth and this industry still has to cross many

levels so there are huge opportunities to invest in and this is being proved as more and more foreign

companies are setting up there ventures in India. Increase in income level, increase in consumer

demand, technology development, globalization, foreign investments are few of the opportunities

which the industry has to explore for developing the economy.

Increase in income level, increase in consumer demand, technology development,

globalization, foreign investments are few of the opportunities which the industry has to

explore for developing the economy.

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 Recommendations
By analyzing the automobile industry with the help of fundamental analysis, it has been
revealed that this industry has a lot of potential to grow. So recommending investing in
Automobile industry with no doubt is going to be a good and smart option because this industry
is booming like never before not only in India but all over the world.
The three giants of Indian Automobile industry viz. TATA Motors, Maruti Suzuki and
Mahindra and Mahindra have outperformed in the industry.
 From the company analysis, we can know that Mahindra would be a better option for an
investor compared to TATA and Maruti. Because Mahindra has maintained the same upward
positive trend in sales.
 The global turmoil in financial markets has affected Maruti also. The company is
maintaining a stable position. Its sales have grown over past five years. Inspite of the
general economic slowdown, the sales of Maruti Suzuki increased from Rs 18825.7 Crore
to Rs 25690.8 Crore. As it is maintaining a stable position, it can be recommended that for
now Maruti share price shows that it’s a time to hold the position or buy more shares as
there is scope of further rise in share prices.
 Despite the challenging business environment, TATA has maintained its upward sales
level except 2009. The dividend per share is Rs.15 which is higher amongst the three
companies. The company has potential to grow. It would be the best option for the
investor.
 Investing in Maruti Suzuki for long time could be a good option whereas in TATA
motors there is a chance of getting correction, as it already went on high side in a very
short period of time and is experiencing a downfall from 2008.

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 Few Suggestions for “Right Stock Selection”

There are three factors which an investor must consider for selecting the right stocks.

 Business: An investor must look into what kind of business the company is doing,

visibility of the business, its past track record, capital needs of the company for expansion

etc.

 Balance Sheet: The investor must focus on its key financial ratios such as earnings per

share, price-earning ratio; debt-equity ratio, dividends per share etc and he must also

check whether the company is generating cash flows.

 Bargaining: This is the most important factor which shows the true worth of the

company. An investor needs to choose valuation parameters which suit its business.

Investment rules

 Invest for long term in equity markets

 Align your thought process with the business cycle of the company.

 Set the purpose for investment.

 Long term goals should be the objective of equity investment.

 Disciplined investment during market volatility helps attains profits.

 Planning, Knowledge and Discipline are very crucial for investment.

56
 Conclusion
The Automobile industry in India is the seventh largest in the world with an annual
production of over 2.6 million units in 2010. In 2009, India emerged as Asia's fourth largest
exporter of automobiles, behind Japan, South Korea and Thailand. The collapse in market place
witnessed unprecedented turbulence in the wake of global financial meltdown. A runaway
inflation touching a high point of 12% early in the year, the tight monetary policies followed by
the authorities for most of the year to control inflation with the consequent high interest rates and
weak consumer demand, have collectively had a devastating effect on the automotive sector.
Maruti Suzuki India LTD. company has a trend of growth from till 2008.During the financial
year 2008-09 the there is downfall in the growth of the company. The main reason behind this
downfall is because of the global recession.
TATA Motors, which was trying to consolidate its leadership position in the market, also
had to face the impact of global meltdown. Amid the crippling economic crisis, Tata purchased
Britain’s Jaguar Land Rover (JLR) from Ford Motor Company. Acquiring JLR saddled Tata with
some tough losses.
Global recession had a dampener effect on the growth of automobile industry but it was a
short term phenomenon. The industry is bouncing back in this year. One factor favoring this
point is that India has become a hot destination for companies of diverse nature to invest in. Cut
throat competition among top companies, lots of new car and vehicle model launches at regular
intervals keeps the Indian auto sector moving.
A continuous effort at cost cutting and improving productivity will help the companies in
making reasonable profits despite the impact of higher commodity prices and weaker rupee.
The analysis gives an optimistic view about the industry and its growth which
recommends the investors to keep a good watch on the major players to benefit in terms of
returns on their investments.

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 BIBLIOGRAPHY
Books Referred

1) Financial Management – I.M. Pande (6th edition).

2) Investment Analysis & Portfolio Management- Prasana Chandra

3) Research Methodology- C.R. Kothari

Websites-

1) www.religaresecurities.com

2) www.nesindia.com

3) www.bseindia.com

4) www.moneycontrol.com

5) www.google.co.in

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