For the partial fulfillment of post graduate diploma in management 2011-13 from
Regional College Of Management Autonomous Bhubaneshwar
Submitted by Aritra ghosh Regd no- 1101247117 PGDM II
We hereby declare that the work presented in this Project entitled “ Analysis of Indian Automobile Industry” submitted by ARITRA GHOSH in regional college of management autonomous, bhubaneshwar is an authentic record of our original work. And is purely an academic project used for the partial fulfillment of Post graduate diploma in management.
ARITRA GHOSH DATE:
The satisfaction and joy that accompanies the successful completion of a task is incomplete without mentioning the name of the person who extended his help and support in making it a success. I are greatly indebted to my faculties for extending their help and guiding me through the project and I would like to thank my Mentor for devoting his valuable time and efforts towards my project. i thank him for being a constant source of knowledge, inspiration and help during this period of making project.
Indian automobile industry
The first car ran on India's roads in 1897. Until the 1930s, cars were imported directly, but in very small numbers. An embryonic automotive industry emerged in India in the 1940s. Mahindra & Mahindra was established by two brothers as a trading company in 1945, and began assembly of Jeep CJ-3A utility vehicles. Following the independence, in 1947, the Government of India and the private sector launched efforts to create an automotive component manufacturing industry to supply to the automobile industry. However, the growth was relatively slow in the 1950s and 1960s due to nationalisation and the license raj which hampered the Indian private sector. Total restrictions for import of vehicles was set and after 1970 the automotive industry started to grow, but the growth was mainly driven by tractors, commercial vehicles and scooters. Cars were still a major luxury. Eventually multinational automakers, such as, though not limited to, Suzuki and Toyota of Japan and Hyundai of South Korea, were allowed to invest in the Indian market ultimately leading to the establishment of an automotive industry in India. A number of foreign firms also initiated joint ventures with Indian companies. As of 18 March, 2013 global brands such as Proton Holdings, PSA Group, and Geely Holding Group are shelving plans for India due to the global economic crisis
TABLE OF CONTENT
S.NO. PARTICULARS Chapter 1. Introduction Chapter 2. Objective of the Project Chapter 3. Analysis of Indian Automobile Industry Fundamental Analysis
i. Economy ii. Industry iii. Company- Financial & Non-Financial
i. ii. iii. iv. v. Share Price Analysis Moving Average Moving Average Crossover Bollinger Band M.A.C.D
The automotive industry in India is one of the larger markets in the world and had previously been one of the fastest growing globally, but is now seeing flat or negative growth rates. India's passenger car and commercial vehicle manufacturing industry is the sixth largest in the world, with an annual production of more than 3.9 million units in 2011. According to recent reports, India overtook Brazil and became the sixth largest passenger vehicle producer in the world (beating such old and new auto makers as Belgium, United Kingdom, Italy, Canada, Mexico, Russia, Spain, France, Brazil), grew 16 to 18 per cent to sell around three million units in the course of 2011-12. In 2009, India emerged as Asia's fourth largest exporter of passenger cars, behind Japan, South Korea, and Thailand. In 2010, India beat Thailand to become Asia's third largest exporter of passenger cars. As of 2010, India is home to 40 million passenger vehicles. More than 3.7 million automotive vehicles were produced in India in 2010 (an increase of 33.9%), making the country the second (after China) fastest growing automobile market in the world in that year. According to the Society of Indian Automobile Manufacturers, annual vehicle sales are projected to increase to 4 million by 2015, no longer 5 million as previously projected. The majority of India's car manufacturing industry is based around three clusters in the south, west and north. The southern cluster consisting of Chennai is the biggest with 35% of the revenue share. The western hub near Mumbai and Pune contributes to 33% of the market and the northern cluster around the National Capital Region contributes 32%. Chennai, with the India operations of Ford, Hyundai, Renault, Mitsubishi, Nissan, BMW, Hindustan Motors, Daimler, Caparo, and PSA Peugeot Citroën is about to begin their operations by 2014. Chennai accounts for 60% of the country's automotive exports. Gurgaon and Manesar in Haryana form the northern cluster where the country's largest car manufacturer, Maruti Suzuki, is based. The Chakan corridor near Pune, Maharashtra is the western cluster with companies like General Motors, Volkswagen, Skoda, Mahindra and Mahindra, Tata Motors, Mercedes Benz, Land Rover, Jaguar Cars, Fiat and Force Motors having assembly plants in the area. Nashik has a major base of Mahindra & Mahindra with a UV assembly unit and an Engine assembly unit. Aurangabad with Audi, Skoda and Volkswagen also forms part of the western cluster. Another emerging cluster is in the state of Gujarat with manufacturing facility of General Motors in Halol and further planned for Tata Nano at their plant in Sanand. Ford, Maruti Suzuki and Peugeot-Citroen plants are also set to come up in Gujarat. Kolkata with Hindustan Motors, Noida with Honda and Bangalore with Toyota are some of the other automotive manufacturing regions around the country.
Indian automotive companies
Maruti Suzuki is the largest Indian passenger vehicle manufacturer in the local market Maruti Swift in India. Maruti Suzuki is 54.2% owned by the Japanese Suzuki Motor Corporation Chinkara Motors: Beachster, Hammer, Roadster 1.8S, Rockster, Jeepster, Sailster Force Motors: One Hindustan Motors: Ambassador ICML: Rhino Rx Mahindra: Major, Bolero, Scorpio, Thar, Xylo, Verito, Genio, XUV500, Quanto. Premier Automobiles Limited: Sigma, RiO San Motors: Storm Maruti Suzuki (subsidiary of Japanese auto maker Suzuki) 800, Alto, Alto800, WagonR, Estilo, A-star, Ritz, Swift, Swift DZire, SX4, Omni, Eeco, Gypsy, Ertiga Tata Motors: Nano, Indica, Vista, Indigo, Manza, Indigo CS, Sumo, Grande, Venture, Safari, Xenon, Aria Jaguar Land Rover (subsidiary of Tata Motors) Land Rover Freelander 2
OBJECTIVE OF THE PROJECT
The objective of this project is deeply analyze our Indian Automobile Industry for investment purpose by monitoring the growth rate and performance on the basis of historical data. The main objectives of the Project study are:a) Detailed analysis of Automobile industry which is gearing towards international standards b) Analyze the impact of qualitative factors on industry’s and company’s prospects c) Comparative analysis of two tough competitors TATA Motors and Maruti Suzuki d) Application of various Technical Tools and Fundamental tools (like Financial and nonfinancial statements)
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 following two approaches: 1). Fundamental Analysis (E.I.C Approach) a. Economy b. Industry c. Company 2).Technical Analysis 1) FUNDAMENTAL ANALYSIS a). ECONOMY 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.
The per capita Income is near about Rs38,000 reflecting improvement in the living standards of an average Indian.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 slips 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 predicted it to be 6.5 per cent for FY 2009-10 Mr. Montek Singh (Planning Commission of India). Following is the graph showing a trend of Indian GDP trend in past 3 years. Contribution of various sectors to GDP
service agriculrure 57% 17% industry
All the major auto companies enjoyed the high growth ride till the mid 2008. But at the end of the year,industry had to face the hard truth and witnessed the fall in sales compared to last year. In December 2008, overall production fell by 22 % over the same month last year. Global recession has hit the Indian auto industry, India is strong and growing industry but the impact of recession is evident now on industry as sales & growth of automobile companies have declined. Passenger Vehicles segment registered negative growth. One of its supporting facts is that the sales in December 2008 for passenger vehicles fell by 13.86% over December 2007 Two Wheelers registered minor growth of 1.85 % during April – December 2008. However, Two Wheelers sales recorded 15.43 percent fall in December 2008 over the same month last year. Although the sector was hit by economic slowdown, overall production (passenger vehicles, commercial vehicles, two wheelers and three wheelers) increased from 10.85 million vehicles in 2007-08 to 11.17 million vehicles in 2008-09. Passenger vehicles increased marginally from 1.77 million to 1.83 million while two-wheelers increased from 8.02 million to 8.41 million. Total number of vehicles sold including passenger vehicles, commercial vehicles, two-wheelers and three-wheelers in 2008-09 was 9.72 million as compared to 9.65 million in 2007-08.
Despite of negative inflation these days (-.21% on 22-Aug-09) we saw an increasing trend of sales in auto sector. A moderate amount of inflation is important for the proper growth of an economy like India because it attracts more private investment. The fall in wholesale prices from a year earlier is mainly due to a statistical base effect and doesn’t suggest contraction in demand, the Reserve Bank of India said few week back, while revising its inflation forecast for the FY through March to around 5% from 4%. In last FY despite of skyrocketing oil prices (crude oil price has already up to $130 compared to $20 per barrel five years back), Indian automobile Industry was not as much affected and experts think that Indian automobile industry will continue to grow this year despite all obstacles- oil price hike, higher interest rates. However, the effect of inflation has affected every sector which is related to car manufacturing and production. The increase in the price of fuel and the steel due to inflation has led to a slower growth rate of the car industry in India. The effect of inflation has taken the rise in the price rate of the cars by 3-4% which in turn suffices the need to meet the rise in price of the raw materials to buildna car. The car market and the car industry witnessed a fall of 8-9%.
FDI’s In India FDI up to 100 percent, has been permitted under automatic route to this sector, which has led to a turnover of USD 12 billion in the Indian auto industry and USD 3 billion in the auto parts industry. India enjoys a cost advantage with respect to casting and forging as manufacturing costs in India are 25 to 30 per cent lower than their western counterparts the Investment Commission has set a target of attracting foreign investment worth US$ 5 billion for the next seven years to increase India's share in the global auto components market from the existing 0.9 per cent to 2.5 per cent by 2015. FDI inflows in Automobile Industry 2008-09 was Rs.5,212 Cr an increase of 47.25% compare to 2007-08, while in April-May 2009 it was around Rs.497 Cr.
India holds the third largest stock of reserves among the emerging market economies after China and Russia. The overall approach to the management of India's foreign exchange reserves in recent years reflects the changing composition of the balance of payments and the 'liquidity risks associated with different types of flows and other requirements. Taking these factors into account, India's foreign exchange reserves continued to be at a comfortable level and consistent with the rate of growth, the share of external sector in the economy and the size of risk-adjusted capital flows. Following is the table shows the trend of foreign reserves held by central bank in last FY. Reserves came down cause of recession all over the world however India still able to maintain its reserves hence a minor fall was seen compare to all other country which shows great strength in long-term for Indian Economy. Increase in Exports specially from auto industry shows an expectations of huge income from western countries and new $200 bl. target for exports by 2011 helps in increasing.
INDIAN AUTOMOBILE INDUSTRY 1 FCA (Foreign Currency Assets): FCAs are maintained as a multicurrency portfolio comprising ajor currencies, such as, US dollar, Euro, Pound sterling, Japanese yen, etc. and is valued in terms of US dollars. 2. SDR (Special Drawing Rights): Values in SDR have been indicated in parentheses. 3. Gold: Physical stock has remained unchanged at approximately 357 tonnes. 4. RTP refers to the Reserve Tranche Position in the IMF.
EXPORT India's automobile exports have grown consistently and reached $4.5 billion in 2009, with United Kingdom being India's largest export market followed by Italy, Germany, Netherlands and South Africa. India's automobile exports are expected to cross $12 billion by 2014. According to New York Times, India's strong engineering base and expertise in the manufacturing of low-cost, fuel-efficient cars has resulted in the expansion of manufacturing facilities of several automobile companies like Hyundai, Nissan, Toyota, Volkswagen and Maruti Suzuki. In 2008, South Korean multinational Hyundai Motors alone exported 240,000 cars made in India. Nissan Motors plans to export 250,000 vehicles manufactured in its India plant by 2011.Similarly, US automobile company, General Motors announced its plans to export about 50,000 cars manufactured in India by 2011. In September 2009, Ford Motors announced its plans to set up a plant in India with an annual capacity of 250,000 cars for US$500 million. The cars will be manufactured both for the Indian market and for export. The company said that the plant was a part of its plan to make India the hub for its global production business. Fiat Motors also announced that it would source more than US$1 billion worth auto components from India. A Tata Safari on display in Poznan, Poland. In July 2010, The Economic Times reported that PSA Peugeot Citroën was planning to re-enter the Indian market and open a production plant in Andhra Pradesh with an annual capacity of 100,000 vehicles, investing EUR 700M in the operation. PSA's intention to utilise this production facility for export purposes however remains unclear as of December 2010. In 2009 India (0.23m) surpassed China (0.16m) as Asia's fourth largest exporter of cars after Japan (1.77m), Korea (1.12m) and Thailand (0.26m) by allowing foreign carmakers 100% ownership of factories in India, which China does not allow. The Maruti Ertiga, a model exported by Maruti Suzuki India. In recent years, India has emerged as a leading center for the manufacture of small cars. Hyundai, the biggest exporter from the country, now ships more than 250,000 cars annually from India. Apart from Maruti Exports' shipments to Suzuki's other markets, Maruti Suzuki also manufactures small cars for Nissan, which sells them in Europe. Nissan will also export small cars from its new Indian assembly line. Tata Motors exports its passenger vehicles to Asian and African markets, and is in preparation to launch electric vehicles in Europe in 2010. The firm is
also planning to launch an electric version of its low-cost car the Tata Nano in Europe and in the U.S. Mahindra & Mahindra is preparing to introduce its pickup trucks and small SUV models in the U.S. market. Bajaj Auto is designing a low-cost car for Renault Nissan Automotive India, which will market the product worldwide. Renault Nissan may also join domestic commercial vehicle manufacturer Ashok Leyland in another small car project. While the possibilities are impressive, there are challenges that could thwart future growth of the Indian automobile industry. Since the demand for automobiles in recent years is directly linked to overall economic expansion and rising personal incomes, industry growth will slow if the economy weakens.
Indian Automobile Industry at Global level:
· India ranks 1st in the global two-wheeler market · India is the 4th biggest commercial vehicle market in the world · India ranks 11th in the international passenger car market · India ranks 5th pertaining to the number of bus and truck sold in the world · India is the second largest tractor manufacturer in the world. Volkswagen, Toyota, Nissan & Ford plan new cars to cash in on fastest-growing compact car section of car market in India. Sales of different Auto Companies speed up even before festive season Maruti by 29%, TATA by 11%,Skoda Auto 33%, Hero Honda 33%, Mahindra 42%, Yamaha 63% etc. It is expected that the Automobile Industry in India would be the 7th largest automobile market within the year 2016.
Projected Growth rate in Automobile Industry
· Passenger vehicle sales in the country will grow at a CAGR of 12 per cent to touch 3.75 million units by 2014. · The domestic two-wheeler sales will grow at a CAGR of 8.8% by 2014 at 11.3 million units. · To emerge as the destination of choice in the world for design and manufacture of automobiles and auto components with output reaching a level of US$ 145 billion accounting for more than 10% of the GDP and providing additional employment to 25 million people by 2016.
Manufacturing facilities in india
Gujarat Passenger Vehicles General Motors India Private Limited Chevrolet Sales India Private Limited – Halo Tata Motors – Sanand Commercial Vehicles Asia Motor Works AMW – Bhuj Haryana Two wheelers Hero MotoCorp – Dharuhera, Gurgaon India Yamaha Motor – Faridabad Honda – Manesar Suzuki – Gurgaon Passenger Vehicles Maruti Suzuki – Gurgaon, Manesar
Two wheelers TVS Motors – Nalagarh Passenger Vehicles International Cars & Motors Limited – Amb Commercial Vehicles TAFE Tractors – Parwanoo
Jharkhand Commercial Vehicles Tata Motors – Jamshedpur Karnataka Two wheelers TVS Motor – Mysore Honda Motorcycle & Scooter India Pvt. Ltd. - Narsapura Passenger Vehicles Mahindra REVA Electric Vehicles – Bangalore Toyota Kirloskar Motor Private Limited – Bidadi Commercial Vehicles Scania Commercial Vehicles India Private Limited – Bangalore TAFE Tractors – Doddaballapur Tata Motors – Dharwad Volvo Buses India Private Limited – Hoskote
Maharashtra Two wheelers Bajaj Auto – Waluj Aurangabad, Chakan\ KTM Sportmotorcycles – Chakan Vespa Scooters – Baramati Pune Kinetic Engineering – Ahmednagar, Pune Passenger Vehicles Mahindra & Mahindra Automotive Division – Nashik, Chakan Ssangyong Motor Company – Chakan Tata Motors Limited Tata Motors – Pimpri Chinchwad Jaguar Cars and Land Rover – Pune Mercedes-Benz Passenger Cars – Chakan Fiat Automobiles – Ranjangaon Pune Volkswagen Group Sales India Private Limited Volkswagen – Chakan Audi AG – Aurangabad Škoda Auto – Aurangabad
Chinkara Motors – Karlekhind Alibag Premier Automobiles Limited – Pimpri Chinchwad Commercial Vehicles Ashok Leyland – Bhandara Bajaj Auto – Waluj Aurangabad Force Motors – Pune Mahindra Navistar – Chakan MAN Trucks India – Akurdi Pune Mercedes-Benz Buses India – Chakan Piaggio Vehicles – Baramati Pune Premier Automobiles Limited – Pimpri Chinchwad
Royal Enfield – Chennai Passenger Vehicles BMW India – Chennai Ford India Private Limited – Maraimalai Nagar Hyundai Motor India Limited – Sriperumbudur Mitsubishi – Tiruvallur Renault Nissan Automotive India Private Limited Nissan Motor India Private Limited – Oragadam Renault India Private Limited – Oragadam Commercial Vehicles Ashok Leyland – Ennore, Hosur BharatBenz – Oragadam Kamaz Vectra Motors – Hosur TAFE Tractors – Chennai TVS Motors – Hosur Uttar Pradesh Commercial Vehicles Ashok Leyland – Pantnagar Tata Motors – Lucknow Two Wheeleers India Yamaha Motor – Greater Noida Passenger Vehicles Honda Siel Cars India – Greater Noida
b.) INDUSTRY ANALYSIS (AUTOMOBILE) The current trends of the global automobile industry reveal that in the developed countries the automobile industries are stagnating as a result of drooping markets, whereas the automobile industry in the developing nations, have been consistently registering higher growth rates every passing year for their domestic flourishing domestic automobile markets. Being one of the fastest growing sectors in the world its dynamic growth phases are explained by the nature of competition, Product Life Cycle and consumer demand. The industry is at the crossroads with global mergers and relocation of production centers to emerging developing countries. In 2009, 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.
3.60% 3.95% 15.96% two wheeler passenger vehicle 76.49% three wheeler commercial vehicle
Industrial Analysis of any industry can be done based on the following headings:
1. Five Forces Model 2. BCG Matrix 3. Industrial Life Cycle 4. SWOT Analysis 5. Industry Specific Index 1.) Five Forces Model Michael Porter identifies five forces that influence an industry. These forces are · Degree of Rivalry Despite the high concentration ratio seen in the automotive sector, rivalry in the Indian auto sector is intense due to the entry of foreign companies in the market. The industry rivalry is extremely high with any being product being matched in a few months by the competitors. This instinct of the industry is primarily driven by technical capabilities acquired over years of gestation under the technical collaboration with international players.
· Threat of Substitutes The threat of substitutes to the automotive industry is fairly mild. Numerous other forms of transportation are available, but none offer the utility, convenience, independence and value offered by automobiles. The switching cost associated with using a different mode of transportation, may be high in terms of personal time, convenience and utility. · Barriers to entry The barriers to enter automotive industry are substantial. For a new company, the startup capital required to establish manufacturing capacity to achieve minimum efficient scale is prohibitive. Although the barriers to new companies are substantial, establishing companies are entering the new markets through strategic partnerships or through buying out or merging with other companies. However, a domestic company, with local knowledge and expertise, has the potential to compete its home market against the global firms who are not well established there. · Supplier’s power In the relationship between the industry and its suppliers, the power axis is tipped in industry’s favor. The industry is comprised of powerful buyers who are generally able to dictate their terms to the suppliers. · Buyers’ Power
In the relationship between the automotive industry and its ultimate consumers, the power axis is tipped in the consumers’ favor. This is due to the fairly standardized nature and the low switching costs associated with selecting from among competing brands. 2.) BCG Matrix In an economy, different industries are present and different industries have different growth rate as compared to the growth of the economy. In an economy, there are a number of major industries and they all occupy different positions in the BCG matrix according to their growth and contribution towards the economy. In the Indian economy, some of the major sectors are FMCG, automobiles, banking and insurance, steel, telecom, software, pharmacology and retail sectors and these can be placed in the different positions in the matrix as shown below: 3.) Industrial Life Cycle The industrial life cycle is a term used for classifying industry vitality 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. In the growth phase, the product market has been established and there is at least some historical guide to ground demand estimates. 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 cumulative growth of the Passenger Vehicles segment during April 2007 – March 2008 was 12.17 percent. Passenger Cars grew by 11.79 percent, Utility Vehicles by 10.57 percent and Multi Purpose Vehicles by 21.39 percent in this period. The Commercial Vehicles segment grew marginally at 4.07 percent. While Medium & Heavy Commercial Vehicles declined by 1.66 percent, Light Commercial Vehicles recorded a growth of 12.29 percent. Three Wheelers sales fell by 9.71 percent with sales of Goods Carriers declining drastically by 20.49 percent and Passenger Carriers declined by 2.13 percent during April- March 2008 compared to the last year. Two Wheelers registered a negative growth rate of 7.92 % during this period, with motorcycles and electric two wheelers segments declining by 11.90 percent and 44.93% respect. However, Scooters and Mopeds segment grew by 11.64% and 16.63% respect.
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. As the product matures, growth slows as penetration reaches practical limits. Companies began to focus on market share rather than growth. Industry demand tends to follow the overall economy, but the scope of growth of the automobile sector is very much possible in India due to the increasing income of the middle class and their income as well as standard of living. 4.) 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: Strengths · Large domestic market · Sustainable labor cost advantage · Competitive auto component vendor base · Government incentives for manufacturing plants · Strong engineering skills in design etc 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 Opportunities · Commercial vehicles: SC ban on overloading · Heavy thrust on mining and construction activity · Increase in the income level · Cut in excise duties · Rising rural demand Threats · Rising input costs · Rising interest rates · Cut throat competition 5.) Industry Specific Index Industry specific index also called as sectoral index are those indices, which represent a specific industry sector. All stocks in a sectoral index belong to that sector only. Hence an index like the BSE auto index is made of auto stocks. Sectoral Indices are very useful in tracking the movement and performance of particular sector. BSE Auto Index comprises all the major auto stocks in the BSE 500 Index.
· BSE AUTO Index 5 Year Chart
Above is the Indian Auto Industry Index(BSE) shows the up’s and down’s over the period of 5 years.
Intially in 2003 when major giants got listed on stock exchange TATA Motors, Maruti Suzuki, etc. Indian auto industry start picking up growth slowly in the first end of 1st quarter index reaches to its highest in his history. Than we saw a steady fall in the index and in the mid 2006 reaches to years lowest point it again start booming and than year on year we saw a up and down movement in the index as lots of new players came in Indian market with foreign colaboration but when 2008 came with global slowdown it brings the demand of automobile so low that index reaches to its lowest in past 5year . Most of the company even shut down their manufacturing units for more than a week, production came down because of less demand in the economy. Also no further launches were made in mid or late 2008 and postponed to next year. We have also saw a fall in FDI’s in automobile Industry. But in the beginning of 2009 right from 1st quarter auto industry again start regaining and we saw a tremondous growth in auto industry which never seen before not in india but all over the world. The demand of 2 and 4 Wheelers start increasing rapidly which also force auto industry to employ more workers to meet demand and within the 2nd quarter of FY2009-10 Auto index reaches to its highest ever crossed mark of 6000. And this growth of industry will be carry further as festive season still to come, so there is a lot of scope to growth in this industry. c.) COMPANY ANALYSIS (Maruti Suzuki & TATA Motors) The company analysis shows the longterm strenght of the company that what is the financial Position of the company in the market where it stand among its competitors and who are the key drivers of the company, what is 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. Profile of Maruti Suzuki Maruti Suzuki is one of India's leading automobile manufacturers and the market leader in the car segment, both in terms of volume of vehicles sold and revenue earned. Until recently, 18.28% of the company was owned by the Indian government, and 54.2% by Suzuki of Japan. As of May 10, 2007, Govt. of India sold its complete share to Indian financial institutions. With this, Govt. of India no longer has stake in Maruti Udyog. The turnover for the fiscal 2008-09 stood at Rs. 203,583 Million & Profit After Tax at Rs. 12,187ml.Maruti Suzuki India Ltd. has sold a total of 84,808 vehicles in August 2009, an increase of 41.6%, compared to 59,908 vehicles in the same period of 2008. The company's domestic sales in August 2009 increased 29.3% to 69,961 vehicles, compared to 54,113 vehicles in August 2008. Total passenger car sales in August 2009 increased 30.5% to 69,629 units, compared to 53,351 units in August 2008 The company's exports increased 156.2% to 14,847 units, compared to 5,795 units in August 2008. Profile of Maruti Suzuki
Tata Motors Limited is India’s largest automobile company, reported gross revenue (stand-alone) of Rs.28599.27 crores (2007-08: Rs.33093.93 crores) in 2008-09, a year marked by severe demand contraction in the automobile industry. Revenues (net of excise) for the year were Rs. 25660.79 crores compared to Rs.28739.41 crores in 2007-08, a decline of 10.7%. The Profit before Tax was Rs.1013.76 crores compared to Rs.2576.47 crores in 2007-08, a decline of 60.7%. The Profit after Tax for the year was Rs.1001.26 crores compared to Rs.2028.92 crores, a decline of 50.7%. 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. Following is the financial and Non-Financial analysis of Maruti Suzuki & TATA Motors.
· Financial Analysis 1. Financial Statements RATIO ANALYSIS OF TATA MOTORS AND MARUTI SUZUKI
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 both the companies had a rising EPS but in 2009 both of them fall and the effect more on Tata motors as they bought two brands Ford Motors and fall in sales results in low EPS. But as trend shows TATA motors have potential so an shareholder expect better in future.
EPS = Net income- Dividends on Preferred stock
Average Outstanding shares The trend shows that Tata’s net profit margin is quite stable until it falls to 3.77 in 2009. While the net profit of India’s no.1 car manufacturer Maruti Suzuki shows a negative trend from 2007 onwards. But the future prospect for both the company’s profit is higher. Profit margins come down as recession hits economy badly hence sales get reduced and cost get increased very much. Net profit Ratio = (Net profit) × 100(Net sales)
Both giants of Automobil industry shows positive trend in Sales Revenue over the past 5year. However recession brought hurdles but both companies have potential to grow in future as lots of products still to add in their portfolio. Moreover increased demand in foreign market also seems to be a positive signal for better future. The quick ratio is a very stringent measure of solvency. A general rule of thumb suggests that the quick ratio should be around 1. Maruti is always showing a positive trend as its ratio is always greater than 1 except in 2008, while TATA motors was doing good till 2007, but the performance decreased from 2008 onwards as shortage of cash was there and current liabilities and provision increased by Rs800Cr. A high debt to equity ratio suggests that a company has financed its growth mostly via debt. We see that the debt –equity ratio of TATA motors is very high compared to that of Maruti. It means that a lot of debt is used by TATA’s to finance its increased operations. Sometimes the cost of the debt financing may outweigh the return that the company generates on the debt through investment and business activities and can lead to bankruptcy. Maruti is going very swiftly in this field. Debt-Equity Ratio= Total Debt Total Equity The current ratio is a convenient and reliable tool for measuring a company's level of liquidity. The ratio acts as an indication that the firm is able to generate funds to make all needed payments in the future; thus, the ratio indicates whether the firm is likely to be a going concern. Both the companies possess a good ratio but the ratio which is close to 2 is desirable, so we see in graph that Maruti has more strong liquidity than TATA Motors as its current ratio is always greater than 1. Maruti is more successful in paying off its liabilities. Expansion plans of TATA brought down its cash & Bank Balance and increase of outside liabilities. 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. According to graph TATA’s dividend was much higher than that of Maruti, it always provided dividend of above 10 per share to its shareholders while maruti stick to below 5 per share, even though the fall in dividend in 2009, still both the companies are earning good profit. Dividend Per Share= Total amount of Dividend Share Outstanding
Government Policies Towards Indian Automobile Industry
Automobile industry in India also received an unintended boost from stringent government auto emission regulations over the past few years. This ensured that vehicles produced in India conformed to the standards of the developed world. Though it has an advantage in India, thanks to low costs and government policies it soon faces stiff competition from it multinational competitors all eyeing for a share in the ever growing Indian auto sector. The policies adopted by Government will increase competition in domestic market, motivate many foreign commercial vehicle manufactures to set up shops in India, whom will make India as a production hub and export to nearest market. · Bring in a minimum foreign equity of US $ 50 Million if a joint venture involved majority foreign equity ownership
· Automatic approval for foreign equity investment upto 100% of manufacture of automobiles and component is permitted · FIIs including overseas corporate bodies (OCBs) and NRIs are permitted to invest up to 49 per cent of the paid-up equity capital of the investee company, subject to approval of the board of directors and of the members by way of a special resolution. . · Investments in making auto parts by a foreign vehicle maker will also be considered a part of the minimum foreign investment made by it in an auto-making subsidiary in India. The move is aimed at helping India emerge as a hub for global manufacturing and sourcing for auto parts. · Specific component of excise duty applicable to large cars and utility vehicles will be reduced to 15,000 rupees per vehicle from 20,000 rupees earlier. · The Proposal by the Govt. to set up an expert group to advise on a viable and sustainable system of pricing petroleum products, as this will surely had an impact on the Automobile Industry. · The announced reduction on the basic customs on bio-diesel is great news for all companies working on environmental saving technologies.
Indian Automobile Industry is in the growth phase and the expected growth rate is 9-10% for FY2009-10 compare to last year growth rate which was just 0.7% and the above facts and figures in our study also support this truth. Indian Automobile has a lot of scope for both two wheelers and four wheelers due to development in infrastructure of the country and especially the rural sector in which demand of two wheeler has increased even in recession. According to Indian Statistical Organization the per capita income (Rs.38000) is increasing and national income at the rate of 14.4% which shows potential to buy vehicle in auto industry. The growth rate of Indian Automobile is so fast that by 2016 Indian Industry will be world 7 largest manufacturer in all sections. The Indian auto market is still untapped the majority of the people in country don’t own a four wheeler and all the major auto companies are trying to increase their sales by several moves. Like TATA has launch NANO the people’s car and now TATA motors is also planning to come
out with an electric car as well as hybrid car, moreover in two wheeler segment many companies like Mahindra and Mahindra grow even more than expectations. From the Technical Analysis of both companies we come to know that the share price of Maruti will move in the band of Rs.1275 to Rs.1425 and that of TATA Motors will move in the range of Rs. 430 to Rs. 490 if certain correction made in the market. We have also come to know that share price movement of TATA Motors is just according to the movement of SENSEX, whenever there is a negative sentiment in the market regarding TATA Motors there is a steep fall in the stock price of TATA Motors but we have seen quick recovery in its share prices to regain its primary trend E.g as we seen in last 3-4 months TATA recovers approx.90% after downfall. By analyzing the current trend of Indian Economy and Automobile Industry we can say that being a developing economy there is lot of scope for growth and this industry still have to cross many levels so there is huge opportunities to invest in and this is proving as more and more foreign Companies setting up there ventures in India.
By analyzing the industry on various parameters with the help of implementing Fundamental and Technical tools we came to know that this industry has a lot of potential to grow in future. So recommending to invest in Automobile Industry have 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 around the world. The returns which came out of this industry were very impressive recently, as if we take an example of TATA motors it gives approx 90% return in a period of just 3 months while Maruti Suzuki shows always a buy and hold position because there is possibility of growth in future, same situation is in two wheeler segment with market leader Hero-Honda a debt free company also have bright future ahead. The numbers which came out in the end of financial year 2009 prove that even in the period of recession the overall sales went up is sufficient to support to this fact. Through Technical analysis of TATA Motors and Maruti 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 in further rise in share prices until and unless any negative reaction or sentiments comes in the Economy. 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 so holding the shares for long time could be a wrong step, so at this point of time those who invested earlier can book their profit or new investors can buy now and sell with in short period of time by earning profit in short period of time.
BIBLIOGRAPHY www.bseindia.com www.googlefinance.com www.yahoofinance.com www.google.co.in www.moneycontrol.com www.worldfact.com www.rbi.org.in FDI statistic government of India India Central Statistical Organization Economic Times