Haresh Swargam: Title: Fundamental Analysis On Leading Automobile Sector in India

Haresh swargam
INTERNATIONAL BANKING AND FINANCE
STUDENT NUMBER: @00230766
Title: Fundamental analysis on leading automobile sector in India
A dissertation submitted in partial fulfilment of the requirements of the

University of Salford for the degree of MSc International Banking and
Finance
Salford Business School

University of Salford
2009-2010
1
DECLARATION
I haresh swargam declare that “ fundamental analysis on leading automobile

sector in India” is my own work and all the sources that I have used or quoted
have been acknowledged by means of complete references.
Signature: ………………………………..
Date: ………………………………
2
ACKNOWLEDGEMENT
My dissertation would have not been so successful without the proper

guidance of my supervisor professor Rose Baker who helped me in
completing my dissertation with proper directions and advice.
I would also like to thank all my professors and lecturers at University of
Salford, who have supported me with their knowledge and guidance in
completing my research work.
I take this opportunity to thank all my family and friends who have
helped me directly or indirectly during my dissertation. I would also like
to thank different authors of various research papers and books where I
have referred during my course of work.
3
Abstract
Contents
Contents..........................................................................................................................4
........................................................................................................................................5
Chapter 1.........................................................................................................................5
Introduction....................................................................................................................5
Chapter 2.........................................................................................................................9
Literature Review...........................................................................................................9
Chapter 3.......................................................................................................................11
Research Methodology.................................................................................................11
3.1 Purpose of the study and data used.....................................................................11
Chapter 4.......................................................................................................................13
Analysis and Discussion...............................................................................................13
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Chapter 1
Introduction
This study is conducted to analyze the equity stocks of a few Indian companies in
the automobile industry. The aim of the study is to undertake the fundamental
5
analysis of the stocks in order to arrive at a rational decision to make investments.
This helps the investors to meet their expected returns with minimum risk.
Continuous economic liberalization over the years by the government of India has
resulted in making India as one of the prime business destination for many global
automotive players. The automotive sector in India is growing at around 18 per
cent per annum.
The automotive industry is one of the core industries of the Indian economy. The
sector has a great influence on the Indian stock market and the equity stocks of
automobile industry are one of the most preferred stocks at present. This is one of
the main reasons why this sector is opted for the study. The study is focused on
equity performance of companies like Tata Motors, Hero Honda, Bajaj Auto, TVS
Motors and Mahindra & Mahindra Motors (M & M).
The research is based on four phases of analysis. The first phase of the research is
to analyze the financial strength of the companies through ratio analysis with
respect to the financial statements from the financial year 2002-2003 to the
financial year 2007-2008.
In the second phase, the market price of an equity share is estimated for the year
2008-2009. This is done on the basis of Price-Earnings model and Dividend
discount model.
In the third phase, sensitivity analysis is used to determine the market price of an
equity share due to the changes in macro economic factors like Beta, Market
Return and Risk free rate of return. Fluctuations in the market price are observed
by changing the values of the above mentioned macro economic factors.
Further under this phase, the correlation between the beta and the market price is
determined and a relationship between the beta factor and the market price is
observed with the help of line graph and column graph.
In the fourth and the final phase of analysis, in order to know how strong the
value of coefficient of correlation is between the beta factor and the market price,
statistical t-test is applied.
 Conceptual Study:
The study is based on the most widely used concept for security analysis viz.
Fundamental Analysis. A detailed description of this concept is given below:
Fundamental Analysis:
6
A method of evaluating a security by attempting to measure its
intrinsic value by examining related economic, financial and other
qualitative and quantitative factors. Fundamental analysts attempt to study
everything that can affect the security's value, including macroeconomic
factors (like the overall economy and industry conditions) and individually
specific factors (like the financial condition and management of companies).
The end goal of performing fundamental analysis is to produce a value
that an investor can compare with the security's current price in hopes of
figuring out what sort of position to take with that security (underpriced = buy,
overpriced = sell or short).
Fundamental analysis is about using real data to evaluate a security’s
value. Although most analysts use fundamental analysis to value stocks, this
method of valuation can be used for just about any type of security.
For example, an investor can perform fundamental analysis on a
bond's value by looking at economic factors, such as interest rates and the
overall state of the economy, and information about the bond issuer, such as
potential changes in credit ratings. For assessing stocks, this method uses
revenues, earnings, future growth, return on equity, profit margins and other
data to determine a company's underlying value and potential for future
growth. In terms of stocks, fundamental analysis focuses on the financial
statements of a company being evaluated.
One of the most famous and successful users of fundamental analysis
is the Oracle of Omaha, Warren Buffett, who has been well known for
successfully employing fundamental analysis to pick securities. His abilities
have turned him into a billionaire.
Fundamental analysis serves to answer questions, such as:

 Is the company’s revenue growing?
 Is it actually making a profit?
 Is it in a strong-enough position to beat out its competitors in the future?
 Is it able to repay its debts?
 Is management trying to "cook the books"?
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The various fundamental factors can be grouped into two categories:
quantitative and qualitative. In our context, quantitative fundamentals are
numeric, measurable characteristics about a business. The sources of
quantitative data are the financial statements of a company like Income
Statement, Cash flow Statement and the Balance Sheet. You can measure
revenue, profit, assets and more with great precision.
Turning to qualitative fundamentals, these are the less tangible
factors surrounding a business - things such as the quality of a company’s
board members and key executives, its brand-name recognition, patents or
proprietary technology.
1Statement of the problem:

The critical task is to analyze the equity stock of a few companies
coming under automobile industry. These is to be done by analyzing the
financial reports of the companies and arrive at a fair and rational decision as
to which stock would perform better in the market in financial year 2008-
2009.
Further, correlation analysis and statistical t-test are to be applied in order
to understand the relation between the market price of equity and some macro
economic factors like Beta, Market Return and Risk free Rate of Return.
Aims of the study:

 To determine the future market value of an equity.
 To determine the future earnings potential of the companies coming in
automobile industry.
2.2 Objectives of the study:

 To analyze the financial strength of a few automobile companies
through fundamental analysis.
 To estimate the value of equity for the Financial Year 2008-2009 and
to determine if there are any changes in market prices with respect to
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macro economic factors like Beta, Expected Market Return and Risk
free rate of return.
 To analyze the strength of value correlation between calculated beta
and fluctuated market prices.
Chapter 2
Literature Review
Introduction
Profile of Indian Automobile Industry:
One of the key industries propelling the Indian Economy today is the Automobile
Industry. As steel, petroleum and manufacturing industries are dependent on this
industry, it employs thousands of people directly or indirectly, and this industry grows
at around 18% p.a... This industry, therefore, has a key role to play in the economic
growth of India.
. Since, 1991 opening of the economy has changed the face of auto industry.
Today, it is amongst the main drivers of growth of Indian economy with an output
multiplier of 2.24(for every Re.1 invested, auto sector gives back Rs.2.24 to the
economy. An increase in the disposable income of the middle class coupled with low
EMI values and friendly government policies are what have made a difference to this
sector. With an annual contribution of 4% to the GDP and accounting for about 5% of
the total industrial output, this segment clearly stands out as a significant contributor
to the economic growth.
India is the expected to overtake China as the world's fastest growing car
market in terms of the number of units sold and the automotive industry is one of the
fastest growing manufacturing sectors in India. Because of its large market (India has
a population of 1.1 billion; the second largest in the world), a low base of car
ownership (7 per 1,000 people) and a surging economy, India has become a huge
attraction for car manufacturers around the world. Though several major foreign
automakers have their manufacturing bases in India, the Indian automobile market is
dominated by domestic companies. Maruti Suzuki is the largest passenger vehicle
company; Tata Motors is the largest commercial vehicle company while Hero Honda
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is the largest motorcycle company in India. Other major Indian automobile
manufacturers include Mahindra & Mahindra, TVS Motors and Bajaj Auto.
In order to give a boost to the auto industry, the government has taken several
initiatives. The government has reduced the Excise Tax on the exports of small cars,
excise duty on raw materials which is now between 5 to 7.5% as compared to
previous level of 10%. The thrust on infrastructure development has also supported
the auto industry to a significant level.
The economy of India is emerging. The following table shows the ranking of India
from 2002 to 2005:
Rank 2005 2004 2003 2002
1 China China China China

2 India Thailand Thailand Thailand
3 Thailand India USA USA
4 Vietnam Vietnam Vietnam Indonesia
5 USA USA India Vietnam
6 Russia Russia Indonesia India
7 Korea Indonesia Korea Korea
Therefore the above facts reflect that the automobile sector in India is one the most
promising sector in the future. The government of India is also supporting this sector
in order to make it a globally competitive industry. This automobile sector is therefore
considered to a ‘Sunrise Sector’ in India.
Empirical evidences
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Chapter 3
Research Methodology
3.1 Purpose of the study and data used
The critical task is to analyze the equity stock of a few companies

coming under automobile industry. These is to be done by analyzing the
financial reports of the companies and arrive at a fair and rational decision as
to which stock would perform better in the market in financial year 2008-
2009.
Further, correlation analysis and statistical t-test are to be applied in order
to understand the relation between the market price of equity and some macro
economic factors like Beta, Market Return and Risk free Rate of Return.
In order to conclude with the description of Fundamental Analysis, the

investors should focus on the following with respect to the financial statements
of a company:
 Financial reports are required by law and are published both quarterly
and annually.
 Management discussion and analysis (MD&A) gives investors a better
understanding of what the company does and usually points out some key
areas where it performed well.
 Audited financial reports have much more credibility than unaudited
ones.
 The balance sheet lists the assets, liabilities and shareholders' equity.
 For all balance sheets: Assets = Liabilities + Shareholders’ Equity. The
two sides must always equal each other (or balance each other).
 The income statement includes figures such as revenue, expenses,
earnings and earnings per share.
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 For a company, the top line is revenue while the bottom line is net
income.
 The income statement takes into account some non-cash items, such as
depreciation.
 The cash flow statement strips away all non-cash items and tells you
how much actual money the company generated.
 The cash flow statement is divided into three parts: cash from
operations, financing and investing.
 Always read the notes to the financial statements. They provide more
in-depth information on a wide range of figures reported in the three
financial statements.
Criticisms of Fundamental Analysis

The biggest criticisms of fundamental analysis come primarily from two groups:
proponents of technical analysis and believers of the “Efficient Market
Hypothesis”.
4 Hypothesis used:
 HO: There is no correlation between the variables i.e, the beta and the
market price. (Here, we assume that the relationship between the beta
and the market price is not strong).
 H1: There is a correlation between beta and market price. (Here, we
assume that the correlation between the beta and the market price is
strong).
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Chapter 4
Analysis and Discussion

Ratio Analysis:
Mahindra Bajaj
Tata Motors & Auto Hero TVS
Ratio Analysis of Automobile companies Ltd. Mahindra Ltd. Honda Motors
(From 1/4/2006 to 31/3/2007)
Ratios
1) Return on Equity: 27.85% 30.07% 22.36% 34.73% 8.22%
2) Book Value Per Share (given): 177.57 148.72 546.98 123.69 34.07
3) Earnings Per Share (given): 47.1 43.1 115.55 40.07 2.68
4) Dividend Payout Ratio (given): 31.85% 27.51% 34.62% 42.42% 31.72%
5) Dividend Per Share: 15.00135 11.85 40.00341 16.99 0.85
6) Compounded Annual Growth Rate of Sales

(from 31/03/2002 to 31/03/2007): 30% 24.08% 20.85% 17.20% 14.83%
7) CAGR of EPS (31/03/2002 to 31/03/2007): 51.80% 37.24% 17.53% 12.05% (-) 34.68%
8) CAGR of DPS (31/03/2002 to 31/03/2007): 39.15% 19.61% 30% 0% (-)37.61%
9) Sustainable Growth Rate (Avg of ROE*Avg of

Retention Ratio): 13.39% 12.76% 13.21% 24.26% 13.77%
10) Volatility of Return on Equity: 1.647 1.152 0.322 0.5848 1.15
11) Retrospective Price to Earnings Ratio: 15.45 18.1 20.99 17.09 22.23
12) Prospective Price to Earnings Ratio: 19.8 14.54 23.77 22.16 52.25
13) Price to Book Value Ratio (Retrospective): 4.09 5.245 4.43 5.539 1.75
Market Price Per Share at the beginning of the

year (i.e on 01/04/2006) 932.6 627.1 2746.85 888.3 140.05
Market Price Per Share at the end of the year

(i.e on 31/03/2007) 727.75 780.15 2425.45 685.15 59.6
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Inter-firm comparison with respect to above Ratios:
We observe that considering the Return on Equity, Hero Honda Motors stand at first
place followed by Mahindra & Mahindra and Tata Motors respectively.
Considering Book Value per share, Earnings Per share and Dividend Per Share,
Bajaj Auto Ltd. favors the most to the investors followed by Tata Motors, Mahindra &
Mahindra and Hero Honda Motors.
As far as Compounded Annual Growth Rate of Sales, Earnings Per share and
Dividend per Share are concerned, the performance of Tata Motors is better followed
by Mahindra and Mahindra and Bajaj Auto Ltd.
The figures of Volatility of Return on Equity reveal that the fluctuation with
respect to Return on Equity is at the least in Bajaj Auto Ltd. followed by Hero Honda
Motors and TVS Motors respectively.
Considering Market Price to Earnings per share ratio, TVS Motors perform
better as the Earnings per Share is greater followed by Tata Motors, Mahindra and
Mahindra Motors and Bajaj Auto Ltd. respectively.
The figures of Market Price per share reflect that Bajaj Auto Ltd. stand at the
top followed by Tata Motors and Mahindra and Mahindra.
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3.2 EPS Estimation for 2008:
TATA Motors
2008 (As per
Particulars 2007 CAGR) Remarks
Net Sales 27061.5 35179.98 by 30%

Cost Of Goods Sold 24359.5 31375.04 by 28.8%
Operating Expenses 24008 31131.17 by 29.67%
Non-operating Surplus 698.35 843.39 by 20.77%
PBIT 2941.69 4624.33 by 57.2%
Interest 368.51 360.03 by 2.3%
PBT 2573.18 4840.66 by 88.12%
Tax 476 1051.96 by 121%
PAT 1913.46 1855.29 by 3.04%

Number of Shares 40.62
EPS 47.1 45.67
Average Retention Ratio from 2002 to 2007 is 0.6891.

So the average Payout Ratio is 1-0.6891= 0.3109
Required Rate of Return (as per Capital Asset Pricing Method):

Ri = Rf + beta (Rm - Rf)
Ri = 9% + 0.9(8%)
Ri = 16.2%
Expected Growth Rate in Dividends (i.e Sustainable Growth Rate):

Avg Retention Ratio*Average Return On Equity
0.6891*19.581 = 13.391%
The PE Ratio as per Constant Growth Model:

Avg Payout Ratio/Ri - SGR= 11.06
So the Value Anchor (i.e the Expected Market Price per share):
Expected EPS * PE Ratio=505.11 Rs
Interpretation with respect to above calculations:
We observe that the EPS is expected to come down to 45.67 (i.e decrease by 3.03%).
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With the PE ratio standing at 11.06 the market price per share of Tata Motors is expected
to come down to 505.11 Rs in the financial year 2008-2009 (decrease by 30.59%)
compared to 727.75 Rs per share in the financial year 2007-2008.
EPS Estimation for 2008
Mahindra & Mahindra

2008 (As per
Net Sales 9581.36 11888.55 by 24.08%

Operating Expenses 8614.77 10716.77 by 24.40%
PBIT 1438.29 2141.03 by 48.86%
Interest 19.8 13.91 by 29.74%

PBT 1418.49 2514.13 by 77.24%
Tax 365.73 921.56 by 151.98%
PAT 1068.39 1706.53 by 59.73%
EPS 43.1 68.86


Ri = 9% + 0.9(8%)
Ri = 16.2%

20.17*0.633= 12.76%

Avg Payout Ratio/Ri - SGR=10.6686
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Expected EPS * PE Ratio=734.63 Rs
The EPS is expected to rise sharply to 68.86 Rs (increase by 59.76%) in the financial year
2008-2009 as compared to 43.1 Rs in the financial year 2007-2008. The Market Price per
share is expected to come down marginally to 734.63 Rs as compared to 780.15 Rs per share.
Bajaj Auto Ltd.

2008 (As per
Net Sales 9317.47 11260.16 by 20.85%

Cost Of Goods Sold 8187 9917.73 by 21.14%
PBIT 1732.89 2072.53 by 19.60%
Interest 5.34 5.85 by 9.57%
PBT 1727.55 2067.01 by 19.65%
Tax 489.59 595.83 by 21.70%
PAT 1237.96 1471.81 by 18.89%
EPS 115.55 137.42

Required Rate of Return (as per CAPM Method):

Ri = 9% + 0.9(8%)
Ri = 16.2%
17
Avg Retention Ratio*Average Return On Equity= 13.219%

Avg Payout Ratio/Ri – SGR =11.07
Expected EPS * PE Ratio= 1521.239 Rs
The Earnings per share is expected to increase to 137.42 Rs (i.e increase by 18.92%)
in the financial year 2008-2009 as compared to 115.55 Rs per share in the financial
year 2007-2008. The Market Price per share is expected to come down to 1521.23 Rs
in the financial year 2008-2009 (i.e decrease by 37.27%) as compared to Market price
per share of 2425.45 Rs in the financial year 2007-2008.
Hero Honda Motors
2008 (As per

Net Sales 9894.52 11596.377 by 17.2%

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PBIT 1247.71 1402.17 by 12.38%
Interest 1.61 1.63 by 1.28%
PBT 1246.1 1400.5 by 12.39%
Tax 375.81 419.25 by 11.56%
PAT 857.89 970.53 by 13.13%
EPS 40.07 45.39


Ri = Rf + beta (Rm -
Rf)
Ri = 9% + 0.9(8%)
Ri = 16.2%


Avg Payout Ratio/Ri - SGR= -7.0347
Expected EPS * PE Ratio= -319.3 Rs
Interpretation with respect to above calculations
The Market Price per share of Hero Honda Motors is negative because the difference
between the required rate of return (i.e Ri) and Sustainable Growth Rate is negative.
Hence it is not satisfying the condition that required rate of return should be greater
than sustainable growth rate. So the Model of arriving at the Price to Earnings Ratio
based on Constant Growth Model cannot be applied in case of Hero Honda Motors.
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TVS Motors Ltd.
Particulars 2007 2008 (As per CAGR) Remarks
3854.9
Net Sales 6 4426.65 by 14.83%
3653.7
Cost Of Goods Sold 6 4239.09 by16.02%
3654.6
Operating Expenses 8 4235.04 by15.88%
PBIT 133.2 140.92 by 5.8%
Interest 42.35 50.27 by 18.71%
PBT 90.85 92.61 by 1.94%
Tax 9.5 8.36 by 11.9%

PAT 66.6 69.47 by 4.31%
EPS 2.68 2.79


Ri = 9% + 0.9(8%)
Ri = 16.2%
Expected Growth Rate in Dividends (i.e Sustainable Growth

Rate):

Expected EPS * PE Ratio= 32.11
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The Earnings per share is expected to increase marginally to Rs 2.79 (i.e increase by
4.10%) in the financial year 2008-2009 as compared to 2.68 Rs per share in the
financial year 2007-2008. The Market Price per share is expected to come down to
32.11 Rs in the financial year 2008-2009 (i.e decrease by 46.12%) as compared to
Market price per share of 59.6 Rs in the financial year 2007-2008.
3.3Sensitivity Analysis:
TATA Motors Ltd.
Calculation of Market Price per share using actual values:

Ri = 9% + 0.9(8%)
Ri = 16.2%

Rate):
21
0.6891*19.581 = 13.391%
Average Payout ratio = 0.3109

Avg Payout Ratio/Ri – SGR = 11.06
Expected EPS * PE Ratio = 505.11Rs
Determination of Market Price of the Equity if there is a

decrease in Risk free rate of return (Rf) by 25 basis points:
Rf 0.0875
beta 0.9
Rm 0.17
Market risk pre 0.0825
Ri 0.16175
SGR= 13.39%

Market Price per share : 509.67 Rs
We observe that even if the banks would cut the interest rate by 25 basis points, the
investors would not be interested to invest more in Tata Motors. This is the reason of
why there is not much increase in the Market Price per share at 509.67 rs even after
Determination of Market Price if the Market the deduction in interest rate as

Return (i.e Rm) decreases by 10%: compared to 505.11 Rs using the
Rf 0.09 actual values.
Beta 0.9
Rm 0.153
Ri 0.1467
SGR= 13.39%
Interpretation with respect to
above calculations

22
Market Price per

Share (in Rs): 1108.86
We observe that when the Market Return decreases by 10% the Market Price per
share increases sharply to 1108.86 Rs (i.e increase by 100%) as compared to Market
Price per share of Rs 505.11 using the actual values.
This is because, if we consider the Constant Growth Model of determining the Market
Price of Equity where, Price of Equity (Po) = Expected Dividend (D1)
Cost of Equity (Ke)-Growth Rate (g)
When required market return (i.e Rm) comes down the Cost of Equity comes down
the value of the denominator comes down and hence the value of Price of Equity
increases which means increase in the Market Price per share.
Determination of Market Price with respect to fluctuations in the value of Beta:
Particulars Beta Expected Market Price
Decrease in Beta by 5% 0.855 589.14

Actual Beta 0.9 505.11
Increase in Beta by 5% 0.945 447.88
Correlation= -0.954884
Interpretation:
In the above table we observe that there is a negative correlation between

the beta factor and the market price of the Equity. The beta factor indicates
the risk involved in a security.
Under negative correlation between beta and market price, the beta value
at 1.08 indicates that as the index goes up by 1% the market price of the security will
go down by 1.08%. Hence the investors tend to buy the securities when the beta factor
is less as there would be less volatility, which leads to rise in market prices.
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This is also shown with the help of a Column graph below:
Relationship between Beta & Market Price
1200
Market Price of an Equity
1000
800
Series1
600
Series2
400
200
0
0.855 0.81 0.765 0.72 0.9 0.945 0.99 1.035 1.08
Beta Values
Determination of the values of Coefficient of Correlation and the value of t-test:
Regression Statistics
Multiple R 0.95488357
R Square 0.91180262
Observations 9
Standard
Coefficients Error t Stat P-value
Intercept 2220.782222 194.6546972 11.40882935 8.91812E-06
X Variable 1 -1824.755556 214.5028596 -8.506905498 6.14474E-05
24
Interpretation with respect to coefficient of correlation :
With the Coefficient so calculated, the market price of equity can be derived by
putting the appropriate value for x. The correlation calculations merely tell us if two
variables move together but they do not tell if the movement of one causes the
movement of other. The causal relationship can be known only by the knowledge of
the practicalities of the situation being studied.
Having established that a causal relationship does exist between the data, we can
examine how strong is the correlation by carrying out a significance test of the
correlation using a t-test. The t-test should be based on Hypothesis which are as
follows:
HO: There is no correlation between the variables i.e, the beta and the market price.
(Here, we assume that the relationship between the beta and the market price is
not strong).
H1: There is a correlation between beta and market price. (Here, we assume that the
correlation between the beta and the market price is strong)
The calculated value of t-test is -8.50691. The values of t from statistical tables
for 5 degrees of freedom are:
At the 95% level = 2.57
Therefore, we may conclude that as the calculated t value is lesser than the
values at 95% and 99% levels, hence there is no evidence of real correlation at
both the levels.
25
Sensitivity Analysis:
Mahindra & Mahindra

Required Rate of Return (as per Capital Asset Pricing

Method):
Ri = 9% + 0.9(8%)
Ri = 16.2%

20.17*0.633 = 12.76%

So the Value Anchor (i.e the Expected Market Price per share ):
Expected EPS * PE Ratio = 734.63 Rs
Determination of Market Price of the Equity if there is a decrease in Risk

free rate of return ( Rf) by 25 basis points:
Rf = 0.0875
Beta = 0.9
Rm = 0.17
Market risk premium = 0.0825
Ri = 0.16175
SGR = 12.76%
The PE Ratio as per Constant

Growth Model:
Expected EPS = 68.86 Rs
Market Price per share: 739.55 Rs
26
We observe that even if the banks would cut the interest rate by 25 basis points, the
investors would not be interested to invest more in Mahindra and Mahindra Motors.
This is the reason of why there is not much increase in the Market Price per share at
739.55 Rs even after the deduction in interest rate as compared to 734.63 Rs using the
actual values.
Determination of Market Price if the Market Return (i.e Rm) decreases by 10%:
Rf 0.09
Beta 0.9
Rm 0.153
Ri 0.1467
SGR= 12.76%

Expected EPS = 68.86 Rs

Market Price per share:1322.8 Rs
share increases sharply to 1322.8 Rs (i.e increase by 80.06%) as compared to Market
Price per share of Rs 734.63 using the actual values.
This is because, if we consider the Constant Growth Model of determining the Market
Price of Equity where, Price of Equity (Po) = Expected Dividend (D1)
due to which the value of the denominator comes down and hence the value of Price
of Equity increases which means increase in the Market Price per share.
Determination of Market Price with respect to fluctuations in the value of
Beta:
27

Interpretation:

the beta factor and the market price of the Equity. The beta factor
indicates the risk involved in a security.
at 1.08 indicates that as the index goes up by 1% the market price of the security
will go down by 1.08%. Hence the investors tend to buy the securities when the
This is also shown with the help of a Column graph below:
Relationship between Beta & Market Price
1400
Market Price of an Equity
1200
1000
800 Series1
600 Series2
400
200
0
0.855 0.81 0.765 0.72 0.9 0.945 0.99 1.035 1.08
Beta Values
28
R Square 0.942364113
Observations 9
Coefficients Standard Error t Stat P-value

Intercept 2591.014778 168.8556267 15.34456 1.20365E-06
X Variable 1 -1990.65333 186.0731609 -10.6982 1.36878E-05
With the Coefficient so calculated, the market price of equity can be derived by putting
the appropriate value for x. The correlation calculations merely tell us if two variables
move together but they do not tell if the movement of one causes the movement of
other. The causal relationship can be known only by the knowledge of the practicalities
of the situation being studied.
Having established that a causal relationship does exist between the data, we
can examine how strong is the correlation by carrying out a significance test of the
correlation using a t-test.
The t-test should be based on Hypothesis which are as follows:
not strong).
The calculated value of t-test is -10.6982. The values of t from statistical tables for
5 degrees of freedom are:
Therefore, we may conclude that as the calculated t value is lesser than the value
at 95% and 99% levels, hence there is no evidence of real correlation at both the
levels.
Interpretation with respect to Regression:
29
The correlation coefficient, ' r ', tells us if related two variables move together. Once we
know the relation is causal we may calculate the proportion of variation in the actual
values of ' Y ' (the dependent variable i.e the market price) that will result by changes in
the value of x (the independent variable i.e the beta factor). This may be done by
squaring the value of ' r '.
The value of r is 0.97. So r^2= 0.942 or 94.2%. This means that 94.2% of the
variations in market price may be predicted by changes in the beta value. So factors
other than beta influence
the market price to the extent of (100% - 94.2%) i.e., 5.8%.
Bajaj Auto Ltd.


Ri = 9% + 0.9(8%)
Ri = 16.2%

Rate):

Expected EPS * PE Ratio= 1521.239
Determination of Market Price of the Equity if there is a decrease in Risk free rate of
return (Rf) by 25 basis points:
Rf = 0.0875
Beta = 0.9
Rm = 0.17
Market Risk Premium = 0.0825
30
Ri = 0.16175
Sustainable Growth Rate = 13.22%

Avg Payout Ratio/Ri - SGR = 11.2
Expected EPS = 137.42
Market Price per share:

1539.1 Rs
We observe that even if the banks would cut the interest rate by 25 basis points,
the investors would not be interested to invest more in Bajaj Auto Ltd. This is the
reason of why there is not much increase in the Market Price per share at 1539.1 Rs
even after the deduction in interest rate as compared to 1521.23 Rs using the actual
values.
Determination of Market Price if the Market Return (i.e Rm)

decreases by 10%:
Rf 0.09
beta 0.9
Rm 0.153
Ri 0.1467
SGR= 13.22%

Expected EPS = 137.42
Market Price per

share: 3135.92
31
share increases sharply to 3135.92 Rs (i.e increase by 106.14%) as compared to
Market Price per share of Rs 1521.23 using the actual values.
This is because, if we consider the Constant Growth Model of determining the
Market Price of Equity where, Price of Equity (Po)= Expected Dividend (D1)
the value of the denominator comes down and hence the value of Price of Equity
increases which means increase in the Market Price per share.

Interpretation:

the beta factor and the market price of the Equity. The beta factor
indicates the risk involved in a security.
at 1.08 indicates that as the index goes up by 1% the market price of the security will go down by
1.08%. Hence the investors tend to buy the securities when the
beta factor is less as there would be less volatility, which leads to rise in
market prices.
This is also shown with the help of a line graph below:
32
Determination of the values of Coefficient of Correlation and the
value of t-test:
R Square 0.919900465
Observations 9
Standard
Intercept 6245.577667 509.6651905 12.25428 5.52E-06
X Variable 1 -5035.674074 561.6337155 -8.96612 4.37E-05

With the Coefficient so calculated, the market price of equity can be derived by
putting the appropriate value for x. The correlation calculations merely tell us if two
variables move together but they do not tell if the movement of one causes the
movement of other. The causal relationship can be known only by the knowledge of
33
the practicalities of the situation being studied.
Having established that a causal relationship does exist between the data,
we can examine how strong is the correlation by carrying out a significance test of the
correlation using a t-test
not strong.
Therefore, we may conclude that as the calculated t value is lesser than the values at
95% and 99% levels, hence there is no evidence of real correlation at both the levels.
Interpretation with respect to regression:

The correlation coefficient, ' r ', tells us if related two variables move together. Once
we know the relation is causal we may calculate the proportion of variation in the
actual values of ' Y ' (the dependent variable i.e the market price) that will result
by changes in the value of x (the independent variable i.e the beta factor). This may be
done by squaring the value of ' r'.
The value of r is 0.956. So r^2= 0.9199 or 91.99%. This means that 91.18% of the
other than beta influence the market price to the extent of (100% - 91.99%) i.e.,
8.01%.
Calculation of Market Price per share using actual values
Hero Honda Motors.

34
Ri = 9% + 0.9(8%)
Ri = 16.2%


Avg Payout Ratio/Ri – SGR = -7.0347
Expected EPS : 45.39
So the Value Anchor (i.e the Expected Market Price):

Expected EPS * PE Ratio = -319.3
The Market Price per share of Hero Honda Motors is negative because the
difference between the required rate of return (i.e Ri) and Sustainable Growth Rate
is negative. Hence it is not satisfying the condition that required rate of return
should be greater than sustainable growth rate.
So the Model of arriving at the Price to Earnings Ratio based on Constant Growth
Model cannot be applied in case of Hero Honda Motors. Therefore no further
interpretations are made in case of Hero Honda Motors Ltd.
Determination of Market Price of the Equity if there is a decrease in Rf by 25 basis points:
Rf 0.0875
beta 0.9
Rm 0.17
Ri 0.16175
SGR= 24.26%

Expected EPS : 45.39
Market Price: 509.67
Determination of Market Price if the Market Return (i.e Rm) decreases by

10%:
Rf 0.09
35
beta 0.9
Rm 0.153
Ri 0.1467
SGR= 13.39%
Market Price: 1108.86

Interpretation:
In the above table we observe that there is a negative correlation between the beta
factor and the market price of the Equity. The beta factor indicates the risk
involved in a security.
at 1.08 indicates that as the index goes up by 1% the market price of the security
will go down by 1.08%. Hence the investors tend to buy the securities when the
beta factor is less as there would be less volatility, which leads to rise in market
prices.
36
Multiple R 0.954884
R Square 0.911803
Observations 9
Coefficients Standard Error t Stat P-value
Intercept 2220.782222 194.6546972 11.40882935 8.91812E-06
X Variable 1 -1824.755556 214.5028596 -8.5069055 6.14474E-05
With the Coefficient so calculated, the market price of an equity can be derived by
putting the appropriate value for x.
The correlation calculations merely tell us if two variables move together but
they do not tell if the movement of one causes the movement of other. The causal
relationship can be known only by the knowledge of the practicalities of the situation
37
being studied.
. Having established that a causal relationship does exist between the
data, we can examine how strong is the Correlation by carrying out a significance
test of the correlation using a t-test.
not strong).
correlation between the beta and the market price is strong).
The calculated value of t-test is -8.506. The values of t from statistical tables for 5
degrees of freedom are:
at 95% and 99% levels, hence there is no evidence of real correlation at both the levels.
values of ' Y ' (the dependent variable i.e the market price) that will result by changes in
the value of x (the independent
variable i.e the beta factor). This may be done by squaring the value of ' r '.
The value of r is 0.954. So r^2= 0.9118 or 91.18%. This means that 91.18% of
the variations in market price may be predicted by changes in the beta value. So factors
other than beta influence the market price to the extent of (100% - 91.18%) i.e., 8.82%.
TVS Motors.
Calculation of Market Price per share using actual values

38
Ri = 9% + 0.9(8%)
Ri = 16.2%

Avg Retention Ratio*Average Return On Equity = 13.77%

Expected EPS: 2.79
So the Value Anchor (i.e the Expected Market Price):

Expected EPS * PE Ratio = 32.11
Determination of Market Price of the Equity if there is a

decrease in Rf by 25 basis points:
Rf 0.0875
Beta 0.9
Rm 0.17
Ri 0.16175
SGR= 13.77%

Expected EPS = 2.79
Market Price per share=

32.5 Rs
We observe that inspite of Risk free rate of return been reduced by 25 basis points the market price
TVS Motors is expected to come down to 32.5 rs per share in the financial year 2008-2009
(i.e decrease by 45.46%) as compared to market price of 59.6 in the beginning of financial year
2007-2008.
Hence, even though the banks reduce the interest rates by 0.25% the investors will not be
interested to invest their money in TVS Motors.
Determination of Market Price if the Market Return (i.e Rm) decreases by 10%:
39
Rf 0.09
beta 0.9
Rm 0.153
Ri 0.1467
SGR= 13.77%

Expected EPS = 2.79
Market Price: 86.71 Rs
We observe that when the Market Return decreases by 10% the Market Price per share
increases sharply to 86.71 Rs (i.e increase by 170.04%) as compared to Market Price per
share of Rs 32.11 using the actual values.
This is because, if we consider the Constant Growth Model of determining the
Market Price of Equity where, Price of Equity (Po)= Expected Dividend (D1)
When required market return (i.e Rm) comes down the Cost of Equity comes down the
value of the denominator comes down and hence the value of Price of Equity increases
which means increase in the Market Price per share.
Determination of Market Price with respect to fluctuations in the value of

Beta:

40
Interpretation:

the beta factor and the market price of the Equity. The beta factor indicates
the risk involved in a security.
at 1.08 indicates that as the index goes up by 1% the market price of the security will
go down by 1.08%. Hence the investors tend to buy the securities when the beta factor
is less as there would be less volatility, which leads to rise in market prices.
R Square 0.76016114
Observations 9
Standard
41
Intercept 152.7055556 24.77668512 6.163276274 0.000461502
X Variable 1 -128.6037037 27.3030648 -4.71022959 0.002182285
With the Coefficient so calculated, the market price of equity can be derived by putting
the appropriate value for x. The correlation calculations merely tell us if two variables
move together but they do not tell if the movement of one causes the movement of other.
The causal relationship can be known only by the knowledge of the
practicalities of the situation being studied. Having established that a causal relationship
does exist between the data, we can examine how strong is the correlation by carrying
out a significance test of the correlation using a t-test.
(Here, we assume that the relationship between the beta and the market price is not
strong).
correlation between the beta and the market price is strong).
at 95% and 99% levels, hence there is no evidence of real correlation at both the levels.

values of ' Y ' (the dependent variable i.e the market price) that will result by changes
in the value of x (the independent variable i.e the beta factor). This may be done by
squaring the value of ' r '.
The value of r is 0.872. So r^2= 0.760 or 76%. This means that 76% of the
other than beta influence the market price to the extent of (100% - 76%) i.e., 24%.
42
4.Findings of the study:
On the basis of the above analysis, the following the summary on findings:
 Considering the ratio analysis, Tata Motors, Bajaj Auto Ltd., and Mahindra
and Mahindra Motors perform better. Tata Motors and Bajaj Auto Ltd. top
the list as they go neck to neck in the various parameters like Compounded
Annual Growth Rate of Sales, EPS and Dividend per share.
 Considering the volatility of return on equity, Bajaj Auto looks to be less
risky with the value of 0.322 as compared to 0.5848 of Hero Honda Motors
and 1.15 of TVS Motors.
 The Price to Earnings Ratio looks more attractive in case of Tata Motors at
15.45 as compared to the ratios at 17.09 and 18.1 of Hero Honda and
Mahindra and Mahindra Motors respectively.
 The expected market price per share in the financial year 2008-2009 are
likely to be as follows:
Tata Motors=505.11 Rs, Mahindra and Mahindra=734.63 Rs, Bajaj
Auto=1521.239 Rs and TVS Motors =32.11 Rs.
 On the basis of sensitivity analysis using t-test, TVS Motors is the
least affected by the beta factor (i.e by 76%) and Mahindra and Mahindra
Motors is highly affected by the beta factor (i.e by 94.2%).
5.Conclusions and Suggestions:

On the basis of the above research study, the conclusions and suggestions are:
 The auto industry in India is a sunrise industry as

other major companies like Oil and Petrol, Steel Industry rely
heavily on the auto sector. Hence there is a significant impact of
auto industry on the Indian Economy.
 With the favorable economic conditions like GDP
growth, improving standard of living of the Indian population, the auto industry in
India aims to become a world class industry by 2015.
 The fluctuations in auto industry with respect to
government policies are less as compared to petroleum, oil and IT industry. So the
auto sector is less risky compared to the above mentioned industries.
 With the introduction of Nano Car, the profits of the
Tata Motors are likely to rise significantly in the financial year
2008-2009. Moreover the Tata’s are looking forward to acquire the two
recognized brands in Car i.e Jaguar and Land Rover from Ford Motors,
this reflects good sign of expansion plans of Tata Motors.
 Continuous up gradation of the products is the main
reason for the success of Bajaj Auto.Bajaj Auto Ltd. by making the best use of the
technology are able to lead the two wheeler market in India. Hence Bajaj Auto can
be referred as a good stock for investments.
 The performance of TVS Motors and Hero Honda
Motors is moderate from past few years. These companies in order to
compete with Bajaj Auto have to come up with new products using the state-of-art
technology.
 From the above findings and conclusions if an
investor is looking towards auto industry then his maximum investments should be
in Tata Motors, Bajaj Auto, and Mahindra and Mahindra Motors as these
companies look strong in terms of fundamentals.
 The investors have to be careful if they are looking to
invest in Hero Honda Motors and TVS Motors.
44
ANNEXURE
The financial statements of companies from 2002 to 2007 used for the study are
as follows:
Financial Overview of TATA MOTORS
200703 200603 200503 200403 200303 200203
SOURCES OF FUNDS :
Share Capital 385.41 382.87 361.79 353 319.83 319.82
Reserves Total 6484.34 5154.2 3749.6 3236.77 2277.33 2145.24
Total Shareholders Funds 6869.75 5537.07 4111.39 3589.77 2597.16 2465.06
Secured Loans 2022.04 822.76 489.81 942.65 1037.32 1344.78
Unsecured Loans 1987.1 2114.08 2005.61 317.12 420.99 960.18
Total Debt 4009.14 2936.84 2495.42 1259.77 1458.31 2304.96
Total Liabilities 10878.89 8473.91 6606.81 4849.54 4055.47 4770.02
APPLICATION OF FUNDS :
Gross Block 8775.8 7971.55 6611.95 5985.4 5888.99 5769.5
Less : Accumulated
Depreciation 4894.54 4401.51 3454.28 3023.69 2713.07 2431.72
Less:Impairment of Assets 0 0 0 0 0 0
Net Block 3881.26 3570.04 3157.67 2961.71 3175.92 3337.78
Lease Adjustment 0 0 0 0 0 0
Capital Work in Progress 2513.32 951.19 538.84 286.09 192.15 140.56
Investments 2477 2015.15 2912.06 3056.77 1271.8 1189.92
Current Assets, Loans &
Advances
Inventories 2500.95 2012.24 1601.36 1147.44 1159.29 987.51
Sundry Debtors 782.18 716.6 798.58 614.99 946.1 785.62
Cash and Bank 826.76 1119.43 2005.04 770.49 245.35 326.63
Loans and Advances 6031.93 5639.54 2681.05 1162.78 631.27 595.87
Total Current Assets 10141.82 9487.81 7086.03 3695.7 2982.01 2695.63
Less : Current Liabilities and
Provisions
Current Liabilities 5993.45 5726.82 5414.61 4228.13 3175.26 2528.81
Provisions 1364.32 1215.04 1126.06 430.64 315.91 160.06
Total Current Liabilities 7357.77 6941.86 6540.67 4658.77 3491.17 2688.87
Net Current Assets 2784.05 2545.95 545.36 -963.07 -509.16 6.76
Miscellaneous Expenses not
written off 10.09 14.12 18.16 22.19 30.06 0
Deferred Tax Assets 176.6 150.75 102.69 135.06 548 708.17
Deferred Tax Liability 963.43 773.29 667.97 649.21 653.3 613.17
Net Deferred Tax -786.83 -622.54 -565.28 -514.15 -105.3 95
Total Assets 10878.89 8473.91 6606.81 4849.54 4055.47 4770.02
Contingent Liabilities 2527.78 1558.65 1102.68 839.45 914.05 1434.07

Balance Sheet of Tata Motors from 31/03/2002 to 31/03/2007
45
200703 200603 200503 200403 200303 200203
SOURCES OF FUNDS :
Share Capital 385.41 382.87 361.79 353 319.83 319.82
Reserves Total 6484.34 5154.2 3749.6 3236.77 2277.33 2145.24
Secured Loans 2022.04 822.76 489.81 942.65 1037.32 1344.78
Unsecured Loans 1987.1 2114.08 2005.61 317.12 420.99 960.18
Total Debt 4009.14 2936.84 2495.42 1259.77 1458.31 2304.96
Gross Block 8775.8 7971.55 6611.95 5985.4 5888.99 5769.5
Less : Accumulated
Depreciation 4894.54 4401.51 3454.28 3023.69 2713.07 2431.72
Net Block 3881.26 3570.04 3157.67 2961.71 3175.92 3337.78
Investments 2477 2015.15 2912.06 3056.77 1271.8 1189.92
Advances
Inventories 2500.95 2012.24 1601.36 1147.44 1159.29 987.51
Sundry Debtors 782.18 716.6 798.58 614.99 946.1 785.62
Cash and Bank 826.76 1119.43 2005.04 770.49 245.35 326.63
Provisions
Provisions 1364.32 1215.04 1126.06 430.64 315.91 160.06
Net Current Assets 2784.05 2545.95 545.36 -963.07 -509.16 6.76
written off 10.09 14.12 18.16 22.19 30.06 0
Deferred Tax Assets 176.6 150.75 102.69 135.06 548 708.17
Net Deferred Tax -786.83 -622.54 -565.28 -514.15 -105.3 95
Total Assets 10878.89 8473.91 6606.81 4849.54 4055.47 4770.02
Profit & Loss Account of Tata Motors from 31/03/2002 to 31/03/2007

INCOME : 200703 200603 200503 200403 200303 200203
Sales Turnover 31486.97 23673.43 20152.03 15165.85 10585.43 8676.86
Excise Duty 4425.44 3380.13 3063.44 2270.3 1743.79 1389.29
Net Sales 27061.53 20293.3 17088.59 12895.55 8841.64 7287.57
Other Income 698.35 693.92 560.29 427.79 323.65 271.67
Stock Adjustments 349.68 256.91 144 -141.98 119.74 -49.03
Total Income 28109.56 21244.13 17792.88 13181.36 9285.03 7510.21

EXPENDITURE :
Raw Materials 19374.93 14263.86 11929.48 8341.39 5699.58 4716.47
46
Power & Fuel Cost 327.41 258.51 237.81 214.52 193.51 184.78
Employee Cost 1361.2 1141.48 1037.93 879.49 720.37 716.07
Other Manufacturing
Expenses 1618.68 1251.02 1017.11 722.95 510.39 639.15
Selling and Administration
Expenses 1325.82 985.74 795.03 645.73 606.25 290.12
Miscellaneous Expenses 1150.59 784.56 673.78 644.75 529.6 447.23
Less: Pre-operative
Expenses Capitalised 577.05 308.85 218.13 144.89 156.46 144.63
Total Expenditure 24581.58 18376.32 15473.01 11303.94 8103.24 6849.19
Operating Profit 3527.98 2867.81 2319.87 1877.42 1181.79 661.02

Interest 368.51 293.49 217.81 202.48 309.29 415.55
Gross Profit 3159.47 2574.32 2102.06 1674.94 872.5 245.47
Depreciation 586.29 520.94 450.16 382.6 362.13 354.68
Profit Before Tax 2573.18 2053.38 1651.9 1292.34 510.37 -109.21
Tax 476 363.35 363.82 96 19.71 0
Fringe Benefit tax 6.5 19 0 0 0 0
Deferred Tax 177.22 142.15 51.13 386 190.55 -55.48
Reported Net Profit 1913.46 1528.88 1236.95 810.34 300.11 -53.73
Extraordinary Items 36.39 145.42 24.77 -29.95 4.94 -45.46
Adjusted Net Profit 1877.07 1383.46 1212.18 840.29 295.17 -8.27
Adjst. below Net Profit 0 0 0 0 0 0
P & L Balance brought
forward 776.76 585.6 365.8 123.71 0 0
Statutory Appropriations 0 0 0 0 0 0
Appropriations 1676.39 1337.72 1017.15 568.25 176.4 -53.73
P & L Balance carried
down 1013.83 776.76 585.6 365.8 123.71 0
Dividend 578.07 497.94 452.19 282.11 127.91 0
Preference Dividend 0 19.94 0 0 0 0
Equity Dividend % 150 130 125 80 40 0
Earnings Per Share-Unit
Curr 47.1 37.59 32.44 21.93 8.87 0
Book Value-Unit Curr 177.57 143.93 113.64 101.69 81.2 77.08
Financial Overview of Mahindra and Mahindra Motors from 31/03/02 to
31/03/07
200703 200603 200503 200403 200303 200203

Equity Paid Up 238.03 233.4 111.65 116.01 116.01 116.01
Networth 3540.05 2895.54 1972.21 1760.15 1554.32 1487.9
Capital Employed 5176.05 3778.92 3024.83 2489.96 2694.17 2864.97
Gross Block 3216.83 2872.19 2685.39 2505.98 2421.31 2051.92
Net Working Capital ( Incl. Def.
Tax) 1062.73 550.67 350.1 -7.55 341.6 543.73
Current Assets ( Incl. Def. Tax) 3916.94 2792.7 2338.59 1554.42 1673.78 1808.13
Current Liabilities and
Provisions ( Incl. Def. Tax) 2854.21 2242.03 1988.49 1561.97 1332.18 1264.4
Total Assets/Liabilities (excl
Reval & W.off) 8012.71 6002.9 4988.94 4042.29 3986.63 4129.37
Gross Sales 10892.01 9082.3 7564.07 5828.46 4450.18 3933.19
Net Sales 9581.36 7945.8 6509.25 4873.03 3665.17 3256.75
Other Income 881.62 652.65 310.28 263.05 233.27 96.54
Value Of Output 9587.77 8049 6683.3 4894.46 3641.59 3192.34
47
Cost of Production 8007.97 6792.36 5606.33 4101.5 3160.64 2697.66
Selling Cost 632.51 456.44 367.11 288.05 194.88 199.33
PBIDT 1647.88 1326.47 928.46 680.32 478.38 336.11
PBDT 1628.08 1299.51 898.22 603.39 362.48 220.47
PBIT 1438.29 1126.46 744.41 515.12 312.94 196.73
PBT 1418.49 1099.5 714.17 438.19 197.04 81.09
PAT 1068.39 857.1 512.67 348.54 145.54 102.69
CP 1277.98 1057.11 696.72 513.74 310.98 242.07
Revenue earnings in forex 712.87 508.08 339.06 228.42 214.07 122.43
Revenue expenses in forex 223.24 203.41 150.95 115.54 105.69 65.6
Capital earnings in forex 0 0 0 0 0 0
Capital expenses in forex 82.72 29.07 42.06 3.11 24.96 27.06
Book Value (Unit Curr) 148.72 124.06 176.64 151.72 133.98 128.26
Market Capitalisation 19142.54 15106.84 5767.44 5389.24 1154.3 1317.87
CEPS (annualised) (Unit Curr) 51.9 43.83 60.51 43.13 26.1 20.87
EPS (annualised) (Unit Curr) 43.1 35.26 44.02 28.89 11.84 8.85
Dividend (annualised%) 115 100 130 90 55 50
Payout (%) 27.51 29.65 30.68 31.15 46.45 54.74
Cash Flow From Operating
Activities 1168.95 686.9 414.04 737.87 543.78 91.44
Cash Flow From Investing
Activities -950.39 -502.66 -209.13 -104.33 -54.59 -144.04
Cash Flow From Financing
Activities 418.08 -89.78 192.45 -643.93 -438.39 99.75
Balance Sheet of Mahindra and Mahindra Motors from 31/03/2002 to 31/03/2007

200703 200603 200503 200403 200303 200203
SOURCES OF FUNDS :
Share Capital 238.03 233.4 111.65 116.01 116.01 116.01
Reserves Total 3314.88 2675.47 1874.88 1659.02 1453.82 1388.01
Secured Loans 106.65 216.67 336.82 485.23 924.16 1155.1
Unsecured Loans 1529.35 666.71 715.8 244.58 215.69 221.97
Total Debt 1636 883.38 1052.62 729.81 1139.85 1377.07
Gross Block 3229.69 2885.52 2699.71 2520.86 2436.82 2068.04
Less : Accumulated
Depreciation 1639.12 1510.26 1335.56 1167.67 1023.04 879.54
Net Block 1590.57 1375.26 1364.15 1353.19 1413.78 1188.5
Investments 2237.46 1669.08 1189.79 1111.15 862.27 800.13
Advances
Inventories 878.48 878.74 759.97 500.13 457.05 469.34
Sundry Debtors 700.89 637.97 511.53 400.48 517.08 647.78
48
Cash and Bank 1326.07 730.31 623.98 233.32 240.87 190.59
Provisions
Provisions 715.43 530.8 499.7 319.38 203.3 217.24
Net Current Assets 1082.51 697.42 539.85 195.7 518.7 681.63
Miscellaneous Expenses
not written off 17.55 18.05 24.38 9.64 39.72 0
Deferred Tax Assets 168.77 43.64 39.03 29.48 60.3 75.76
Net Deferred Tax -19.78 -146.75 -189.75 -203.25 -177.1 -137.9
Total Assets 5188.91 3792.25 3039.15 2504.84 2709.68 2881.09
Profit & Loss Account of Tata Motors from 31/03/2002 to 31/03/2007

200703 200603 200503 200403 200303 200203
(12) (12) (12) (12) (12) (12)
INCOME :
Sales Turnover 10892.01 9082.3 7564.07 5828.46 4450.18 3933.19
Excise Duty 1310.65 1136.5 1054.82 955.43 785.01 676.44
Net Sales 9581.36 7945.8 6509.25 4873.03 3665.17 3256.75
Other Income 881.62 652.65 310.28 263.05 233.27 96.54
Stock Adjustments 6.41 103.2 174.05 21.43 -23.58 -64.41
Total Income 10469.39 8701.65 6993.58 5157.51 3874.86 3288.88
EXPENDITURE :
Raw Materials 6858.32 5816.97 4776.69 3374.3 2476.64 2052.82
Power & Fuel Cost 65.19 57.46 52.64 45.64 44.01 40.83
Employee Cost 660.11 544.99 457.41 412.43 378.03 367.2
Other Manufacturing
Expenses 186.86 156.65 134.45 99.95 86.44 81.13
Expenses 844.29 633.83 417.6 332.63 233.92 235.2
Less: Pre-operative
Expenses Capitalised 47.1 26.53 31.84 15.78 19.17 17.49

Interest 19.8 26.96 30.24 76.93 115.9 115.64
Gross Profit 1628.08 1299.51 898.22 603.39 362.48 220.47
Depreciation 209.59 200.01 184.05 165.2 165.44 139.38
Profit Before Tax 1418.49 1099.5 714.17 438.19 197.04 81.09
Tax 365.73 285.4 215 63.5 12.3 3.6
Fringe Benefit tax 0 0 0 0 0 0
Deferred Tax -15.63 -43 -13.5 26.15 39.2 -25.2
Reported Net Profit 1068.39 857.1 512.67 348.54 145.54 102.69
Extraordinary Items 93.42 174.87 8.96 24.39 1.68 -14.84
49
Adjusted Net Profit 974.97 682.23 503.71 324.15 143.86 117.53
Adjst. below Net Profit 0 0 0 0 0 -5.77
forward 1475.74 996.4 742.84 423.94 333.06 334.1
Appropriations 419.06 377.76 259.11 29.64 54.66 97.96
down 2125.07 1475.74 996.4 742.84 423.94 333.06
Dividend 282.23 243.97 150.81 104.41 63.81 56.21
Preference Dividend 0 0 0 0 0 0
Equity Dividend % 115 100 130 90 55 50
Curr 43.1 35.26 44.02 28.89 11.84 8.85
Financial Overview of Bajaj Auto from 31/03/02 to 31/03/07
200703 200603 200503 200403 200303 200203

Equity Paid Up 101.18 101.18 101.18 101.18 101.18 101.18
Networth 5534.32 4770.73 4134.35 3693.62 3240.6 2865.77
Gross Block 3178.54 2894.22 2747.68 2710.66 2632.86 2548.93
Net Working Capital ( Incl. Def.
Tax) -588.3 -776.27 -344.13 -395.85 42.03 144.7
Current Liabilities and Provisions (
Incl. Def. Tax) 4517.25 3734.97 3006.77 2565.11 2181.16 1890.59
Total Assets/Liabilities (excl Reval
& W.off) 11677 9972.85 8368.11 7264.45 6261.98 5382.46
Gross Sales 10639.14 8569.81 6566.54 5444.87 4774.48 4146.75
Net Sales 9317.47 7488.11 5747.56 4764.21 4173.68 3614.5
Other Income 751.71 617.24 573.88 488.71 296.53 372.95
Value Of Output 9316.57 7537.12 5736.46 4774.8 4206.25 3584.1
Selling Cost 479.19 337.91 337.5 311.38 277.52 237.43
PBIDT 1923.15 1771.53 1272.12 1140.89 960.54 887.49
PBDT 1917.81 1771.19 1271.45 1139.95 959.42 884.11
PBIT 1732.89 1580.53 1086.75 961 789.38 707.79
PBT 1727.55 1580.19 1086.08 960.06 788.26 704.41
PAT 1237.96 1101.63 766.81 731.51 538.42 521.09
CP 1428.22 1292.63 952.18 911.4 709.58 700.79
Payout (%) 34.62 38.74 34.59 36.18 27.23 27.19
Activities 681.73 1072.62 455.49 837.21 573.38 660.67
Activities -429.99 -1087.54 -395.32 -811.09 -640.95 -686.81
Cash Flow From Financing -250.35 -11.68 -30.85 23.23 72.39 30
50
Activities
Balance Sheet of Bajaj Auto from 31/03/2002 to 31/03/2007

200703 200603 200503 200403 200303 200203
SOURCES OF FUNDS :
Share Capital 101.18 101.18 101.18 101.18 101.18 101.18
Reserves Total 5433.14 4669.55 4033.17 3592.44 3139.42 2764.59
Secured Loans 22.46 0.02 0 0 53.91 31.83
Unsecured Loans 1602.97 1467.13 1226.99 1005.72 786.31 594.27
Total Debt 1625.43 1467.15 1226.99 1005.72 840.22 626.1
APPLICATION OF
FUNDS :
Gross Block 3178.54 2894.22 2747.68 2710.66 2632.86 2548.93
Less : Accumulated
Depreciation 1922.44 1778.72 1628.64 1496.68 1345.47 1189.29
Less:Impairment of
Assets 0 0 0 0 0 0
Net Block 1256.1 1115.5 1119.04 1213.98 1287.39 1359.64
Lease Adjustment 17.5 17.5 17.5 17.5 17.5 17.5
Investments 6447.53 5856.97 4560.58 3855.44 2729.89 1966.07
Advances
Inventories 309.7 272.93 224.17 202.56 207.98 179.1
Sundry Debtors 529.83 301.55 176.35 133.95 167.04 198.17
Cash and Bank 83.48 82.09 108.69 79.37 30.03 25.2
Less : Current Liabilities
and Provisions
Provisions 2833.79 2315.89 2008.9 1653.47 1485.79 1199.6
Net Current Assets -514.13 -688.69 -204.23 -273.03 214.44 335.27
not written off 0 0 0 0 0 0
Net Deferred Tax -74.17 -87.58 -139.9 -122.82 -172.41 -190.57
Total Assets 7159.75 6237.88 5361.34 4699.34 4080.82 3491.87
51
Profit & Loss Account of Bajaj Auto from 31/03/2003 to 31/03/2007
Mar Mar Mar Mar Mar
Particulars
07(12) 06(12) 05(12) 04(12) 03(12)
INCOME :
Sales Turnover + 10,639.14 8,569.81 6,566.54 5,444.87 4,774.48
Excise Duty 1,321.67 1,081.70 818.98 680.66 600.80
Net Sales 9,317.47 7,488.11 5,747.56 4,764.21 4,173.68
Other Income + 751.71 617.24 573.88 488.71 296.53
Stock Adjustments + -0.90 49.01 -11.10 10.59 32.57
Total Income 10,068.28 8,154.36 6,310.34 5,263.51 4,502.78
EXPENDITURE :
Raw Materials + 6,892.30 5,372.39 4,077.24 3,192.47 2,709.78
Power & Fuel Cost+ 79.34 59.09 54.79 62.51 61.12
Employee Cost + 340.09 296.77 298.08 264.02 283.84
Other Manufacturing Expenses + 169.73 151.51 121.27 102.29 97.77
Selling and Administration Expenses + 549.80 410.41 392.45 348.42 307.43
Miscellaneous Expenses + 145.92 117.47 114.22 176.73 102.81
Less: Pre-operative Expenses
32.05 24.81 19.83 23.82 20.51
Capitalised+
Total Expenditure 8,145.13 6,382.83 5,038.22 4,122.62 3,542.24
Operating Profit 1,923.15 1,771.53 1,272.12 1,140.89 960.54
Interest + 5.34 0.34 0.67 0.94 1.12
Gross Profit 1,917.81 1,771.19 1,271.45 1,139.95 959.42
Depreciation+ 190.26 191.00 185.37 179.89 171.16
Profit Before Tax 1,727.55 1,580.19 1,086.08 960.06 788.26
Tax+ 503.00 518.00 338.00 278.14 268.00
Deferred Tax+ -13.41 -39.44 -18.73 -49.59 -18.16
Reported Net Profit 1,237.96 1,101.63 766.81 731.51 538.42
Extraordinary Items + 150.56 57.93 65.36 30.30 -18.20
Adjusted Net Profit 1,087.40 1,043.70 701.45 701.21 556.62
Adjst. below Net Profit + -0.86 21.64 -37.65 6.88 -3.78
P & L Balance brought forward 0.00 0.00 0.00 0.00 0.00
Statutory Appropriations + 0.00 0.00 0.00 0.00 0.00
Appropriations + 1,237.10 1,123.27 729.16 738.39 534.64
P & L Balance carried down 0.00 0.00 0.00 0.00 0.00
Dividend 404.73 404.74 252.96 252.96 141.66
Preference Dividend 0.00 0.00 0.00 0.00 0.00
Equity Dividend % 400.00 400.00 250.00 250.00 140.00
Earnings Per Share-Unit Curr 115.55 103.27 72.28 69.09 51.42
Book Value-Unit Curr 546.98 471.51 408.61 365.05 320.28
Financial Overview of Hero Honda Motors from 31/03/02 to 31/03/07
200703 200603 200503 200403 200303 200203

Equity Paid Up 39.94 39.94 39.94 39.94 39.94 39.94
Networth 2470.06 2009.33 1493.38 1138.81 861.03 685.76
Gross Block 1800.63 1471.97 1104.19 916.91 786.29 704.52
52
Net Working Capital ( Incl.
Def. Tax) -694.09 -860.34 -1046.84 -840.4 -715.45 -424.53
Current Assets ( Incl. Def.
Tax) 914.65 822.56 555.16 509.67 477.4 526.65
Current Liabilities and
Provisions ( Incl. Def. Tax) 1608.74 1682.9 1602 1350.07 1192.85 951.18
Total Assets/Liabilities (excl
Reval & W.off) 4243.97 3878.01 3297.14 2663.58 2187.46 1743.16
Gross Sales 11542.04 10086.16 8596.81 6747.35 5101.71 4465.43
Net Sales 9894.52 8711.26 7418.59 5831.02 5097.56 4462.65
Other Income 234.07 167.6 149.42 180.86 108.15 85.17
Value Of Output 9897.72 8726.23 7433.54 5809.43 5118.64 4456.84
Selling Cost 507.1 404.46 316.69 248.74 245.93 179.12
PBIDT 1387.49 1529.78 1308.56 1147.51 949.68 746.9
PBDT 1385.88 1526.86 1306.63 1145.79 947.95 745.39
PBIT 1247.71 1415.16 1219.18 1074.18 886.29 695.89
PBT 1246.1 1412.24 1217.25 1072.46 884.56 694.38
PAT 857.89 971.34 810.47 728.32 580.76 462.93
CP 997.67 1085.96 899.85 801.65 644.15 513.94
CEPS (annualised) (Unit
Curr) 47.07 51.57 42.23 37.58 29.95 25.23
EPS (annualised) (Unit
Curr) 40.07 45.84 37.75 33.91 26.78 22.67
Payout (%) 42.42 43.63 52.97 58.98 67.22 74.98
Activities 625.05 936.08 746.83 972.93 619.01 653.79
Activities -273.13 -323.49 -562.85 -376.38 -484.67 -466.55
Cash Flow From Financing
Activities -474.34 -471.23 -203.51 -583.63 -218.94 -123.46
Balance Sheet of Hero Honda Motors from 31/03/2002 to 31/03/2007

200703 200603 200503 200403 200303 200203
SOURCES OF FUNDS :
Share Capital 39.94 39.94 39.94 39.94 39.94 39.94
Reserves Total 2430.12 1969.39 1453.44 1098.87 821.09 645.82
Secured Loans 0 0 0 0 0 0
Unsecured Loans 165.17 185.78 201.76 174.7 134.28 116.44
Total Debt 165.17 185.78 201.76 174.7 134.28 116.44
Gross Block 1800.63 1471.97 1104.19 916.91 786.29 704.52
53
Less : Accumulated
Depreciation 635.1 522.6 429.71 345.79 278.42 223.47
Net Block 1165.53 949.37 674.48 571.12 507.87 481.05
Investments 1973.87 2061.89 2026.65 1565.1 1193 725.77
Advances
Inventories 275.58 226.55 204.26 188.2 200.92 178.36
Sundry Debtors 335.25 158.66 89.55 43.8 141.49 99.72
Cash and Bank 35.78 158.72 17.6 37.12 24.33 108.96
Provisions
Provisions 437.24 489.92 484.71 256.19 434.17 266.39
Net Current Assets -565.89 -741.56 -945.94 -751.06 -639.18 -353.87
not written off 0 0 0 0 0.7 10.22
Net Deferred Tax -128.2 -118.78 -100.9 -89.34 -76.27 -70.66
Total Assets 2635.23 2195.11 1695.14 1313.51 995.31 802.2
Contingent Liabilities 20.24 6.07 0 0.61 0 8.41
Profit & Loss Account of Hero Honda Motors from 31/03/2002 to 31/03/2007
INCOME : 200703 200603 200503 200403 200303 200203
Sales Turnover 11542.04 10086.16 8596.81 6747.35 5101.71 4465.43
Excise Duty 1647.52 1374.9 1178.22 916.33 4.15 2.78
Net Sales 9894.52 8711.26 7418.59 5831.02 5097.56 4462.65
Other Income 234.07 167.6 149.42 180.86 108.15 85.17
Stock Adjustments 3.2 14.97 14.95 -21.59 21.08 -5.81
Total Income 10131.79 8893.83 7582.96 5990.29 5226.79 4542.01
EXPENDITURE :
Raw Materials 7176.47 6067.27 5214.57 4009.02 3491.85 3092.62
Power & Fuel Cost 52.45 46.65 32.88 29.75 25.82 25.61
Employee Cost 299.03 259.47 215.29 185.95 163.97 168.64
Other Manufacturing
Expenses 97.16 93.56 75.84 59.24 50.18 49.79
Selling and
Administration Expenses 875.02 731.4 562.81 419.75 391.02 273.77
Miscellaneous
Expenses 244.17 165.7 173.01 139.07 154.27 184.68
Less: Pre-operative
Expenses Capitalised 0 0 0 0 0 0
54
Interest 1.61 2.92 1.93 1.72 1.73 1.51
Gross Profit 1385.88 1526.86 1306.63 1145.79 947.95 745.39
Depreciation 139.78 114.62 89.38 73.33 63.39 51.01
Tax 375.81 415.85 395.22 331.07 298.19 217.48
Fringe Benefit tax 2.98 7.17 0 0 0 0
Deferred Tax 9.42 17.88 11.56 13.07 5.61 13.97
Reported Net Profit 857.89 971.34 810.47 728.32 580.76 462.93
Extraordinary Items 80.78 74.79 64.71 77.31 45.38 18.87
Adjst. below Net Profit 0 0 0 0 0 0
forward 1224.05 808.1 538.53 335.75 220.48 154.22
Appropriations 487.16 555.39 540.9 525.54 465.49 396.67
down 1594.78 1224.05 808.1 538.53 335.75 220.48
Dividend 339.47 399.38 399.38 399.38 359.44 339.49
Equity Dividend % 850 1000 1000 1000 900 850
Curr 40.07 45.84 37.75 33.91 26.78 22.67
Financial Overview of TVS Motors from 31/03/02 to 31/03/07
200703 200603 200503 200403 200303 200203

Equity Paid Up 23.75 23.75 23.75 23.75 23.1 23.1
Networth 809.27 766.12 678.83 574.95 422.95 323.39
1132.5
Gross Block 1483.01 1378.41 1287.22 7 806.51 672.16
Net Working Capital ( Incl. Def. Tax) 36.64 -80.29 -144.66 -151.14 -75.75 36.33
Current Liabilities and Provisions
( Incl. Def. Tax) 823.95 754.41 671.93 597.65 530.41 377.39
Total Assets/Liabilities (excl Reval & 1278.7
W.off) 2208.24 1839.77 1473.14 1 1075.25 867.42
3260.0
Gross Sales 4473.44 3731.75 3321.25 1 3111.28 2213.59
2820.2
Net Sales 3854.96 3234.96 2875.91 1 2704.53 1930.48
Other Income 85.34 80.72 88.22 45.3 29.28 19.99
2812.4
Value Of Output 3817.24 3295.66 2879.09 4 2744.35 1933.75
2163.9
Cost of Production 3240 2735.9 2306.85 6 2150.14 1577.22
Selling Cost 413.76 353.41 341.74 328.91 268.3 159.78
PBIDT 220.8 283.35 298.41 304.72 292.29 149.7
PBDT 178.45 262.36 290.08 294.42 281.05 131.74
PBIT 133.2 189.44 208.78 224.83 212.38 100.48
PBT 90.85 168.45 200.45 214.53 201.14 82.52
PAT 66.6 117 137.57 138.49 127.95 53.91
CP 154.2 210.91 227.2 218.38 207.86 103.13
55
Book Value (Unit Curr) 34.07 32.26 28.58 24.21 183.1 140
1988.9
Market Capitalisation 1415.5 3326.19 1638.75 1 945.95 897.9
Payout (%) 31.72 27.41 23.16 23.4 22.02 40.14
Cash Flow From Operating Activities 120.09 105.49 275.44 256.98 291.97 217.78
Cash Flow From Investing Activities -228.84 -297 -241.46 -342.18 -215.94 -31.18
Cash Flow From Financing Activities 170.96 141.99 27.29 16.77 -56.31 -98.96
Balance Sheet of TVS Motors from 31/03/2002 to 31/03/2007

200703 200603 200503 200403 200303 200203
SOURCES OF FUNDS :
Share Capital 23.75 23.75 23.75 23.75 23.1 23.1
Reserves Total 785.52 742.37 655.08 551.2 399.85 300.29
Secured Loans 446.16 308.61 175.01 37.5 41.03 91.11
Unsecured Loans 187.4 76.43 11.83 81.51 80.86 75.83
Total Debt 633.56 385.04 186.84 119.01 121.89 166.94
Gross Block 1483.01 1378.41 1287.22 1132.57 806.51 672.16
Less : Accumulated Depreciation 685.93 611.63 523.64 437.91 302.03 244.54
Net Block 797.08 766.78 763.58 694.66 504.48 427.62
Investments 344.74 344.19 175.39 128.02 87.92 14.39
Advances
Inventories 396.56 357.9 233.23 216.66 214.07 148.79
Sundry Debtors 111.4 58.19 39.56 51.9 52.21 86.52
Cash and Bank 86.56 24.35 73.87 18 82.46 74.27
Provisions
Provisions 49.73 62.44 55.61 43.11 33.07 8.99
Net Current Assets 195.65 68.72 3.85 -28.09 7.07 112.11
written off 58.54 65.8 64.46 12.9 0 0.3
56
Net Deferred Tax -159.01 -149.01 -148.51 -123.05 -82.82 -75.78
Total Assets 1442.83 1151.16 865.67 693.96 544.84 490.33
Profit & Loss Account of TVS Motors from 31/03/2002 to 31/03/2007

INCOME : 200703 200603 200503 200403 200303 200203
Sales Turnover 4473.44 3731.75 3321.25 3260.01 3111.28 2213.59
Excise Duty 618.48 496.79 445.34 439.8 406.75 283.11
Net Sales 3854.96 3234.96 2875.91 2820.21 2704.53 1930.48
Other Income 85.34 80.72 88.22 45.3 29.28 19.99
Stock Adjustments -37.72 60.7 3.18 -7.77 39.82 3.27
Total Income 3902.58 3376.38 2967.31 2857.74 2773.63 1953.74
EXPENDITURE :
Raw Materials 2865.65 2381.79 1984.6 1847.4 1898.5 1399.09
Power & Fuel Cost 43.1 36.47 27.41 29.34 20.85 15.44
Employee Cost 171.39 155.2 139.73 132.68 101.67 74.42
Other Manufacturing
Expenses 72.03 63.58 64.97 69.25 44.43 34.87
Expenses 502.51 446.94 390.35 392.66 332.19 224.26
Less: Pre-operative
Expenses Capitalised 0 0 0 0 0 0

Interest 42.35 20.99 8.33 10.3 11.24 17.96
Gross Profit 178.45 262.36 290.08 294.42 281.05 131.74
Depreciation 87.6 93.91 89.63 79.89 79.91 49.22
Tax 9.5 45 37.42 54.96 66.15 17.89
Fringe Benefit tax 4.75 5.95 0 0 0 0
Deferred Tax 10 0.5 25.46 21.08 7.04 10.72
Reported Net Profit 66.6 117 137.57 138.49 127.95 53.91
Extraordinary Items 6.44 13.26 27.12 0.48 3.35 -0.43
Adjst. below Net Profit -0.32 5.5 1.42 6.03 1.4 0.04
forward 35.5 38.21 34.43 32.63 23.17 20.33
Appropriations 72.69 125.21 135.21 142.72 119.89 51.11
P & L Balance carried down 29.09 35.5 38.21 34.43 32.63 23.17
Dividend 20.19 30.88 30.89 31.41 27.72 20.79
Equity Dividend % 85 130 130 130 120 90
Earnings Per Share-Unit 2.68 4.74 5.61 5.65 54.49 22.42
57
Curr
Book Value-Unit Curr 34.07 32.26 28.58 24.21 183.1 140
Bibliography:
 Investment Analysis and Portfolio Management by Prasanna Chandra.
 www.investopedia.com
 www.capitaline.com
 www.siam.com
58

Haresh Swargam: Title: Fundamental Analysis On Leading Automobile Sector in India

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Haresh Swargam: Title: Fundamental Analysis On Leading Automobile Sector in India

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Haresh swargam

INTERNATIONAL BANKING AND FINANCE

STUDENT NUMBER: @00230766

Title: Fundamental analysis on leading automobile sector in India

A dissertation submitted in partial fulfilment of the requirements of the

Salford Business School

I haresh swargam declare that “ fundamental analysis on leading automobile

My dissertation would have not been so successful without the proper

Fundamental analysis serves to answer questions, such as:

1Statement of the problem:

Aims of the study:

2.2 Objectives of the study:

Rank 2005 2004 2003 2002

1 China China China China

7 Korea Indonesia Korea Korea

3.1 Purpose of the study and data used

The critical task is to analyze the equity stock of a few companies

In order to conclude with the description of Fundamental Analysis, the

Criticisms of Fundamental Analysis

Analysis and Discussion

1) Return on Equity: 27.85% 30.07% 22.36% 34.73% 8.22%

3) Earnings Per Share (given): 47.1 43.1 115.55 40.07 2.68

4) Dividend Payout Ratio (given): 31.85% 27.51% 34.62% 42.42% 31.72%

5) Dividend Per Share: 15.00135 11.85 40.00341 16.99 0.85

6) Compounded Annual Growth Rate of Sales

8) CAGR of DPS (31/03/2002 to 31/03/2007): 39.15% 19.61% 30% 0% (-)37.61%

9) Sustainable Growth Rate (Avg of ROE*Avg of

10) Volatility of Return on Equity: 1.647 1.152 0.322 0.5848 1.15

Market Price Per Share at the beginning of the

Market Price Per Share at the end of the year

Net Sales 27061.5 35179.98 by 30%

PAT 1913.46 1855.29 by 3.04%

Average Retention Ratio from 2002 to 2007 is 0.6891.

Required Rate of Return (as per Capital Asset Pricing Method):

Expected Growth Rate in Dividends (i.e Sustainable Growth Rate):

The PE Ratio as per Constant Growth Model:

Interpretation with respect to above calculations:

EPS Estimation for 2008

Mahindra & Mahindra

Net Sales 9581.36 11888.55 by 24.08%

Interest 19.8 13.91 by 29.74%

Average Retention Ratio from 2002 to 2007 is 0.6330.

Required Rate of Return (as per Capital Asset Pricing Method):

Expected Growth Rate in Dividends (i.e Sustainable Growth Rate):

The PE Ratio as per Constant Growth Model:

Interpretation with respect to above calculations:

EPS Estimation for 2008

Bajaj Auto Ltd.

Net Sales 9317.47 11260.16 by 20.85%

Average Retention Ratio from 2002 to 2007 is 0.6690.

Required Rate of Return (as per CAPM Method):

The PE Ratio as per Constant Growth Model:

Interpretation with respect to above calculations:

EPS Estimation for 2008

Hero Honda Motors

2008 (As per

Net Sales 9894.52 11596.377 by 17.2%

Average Retention Ratio from 2002 to 2007 is 0.433.

Required Rate of Return (as per Capital Asset Pricing Method):

Expected Growth Rate in Dividends (i.e Sustainable Growth Rate):

The PE Ratio as per Constant Growth Model:

EPS Estimation for 2008