fundamanetal analysis of automobile industry ( tata motors )

COMPANY TAKEN FOR ANALYSIS

FUNDAMENTAL ANALYSISAUTOMOBILE INDUSTRY

AICAR BUSINESS SCHOOL-BATCH 2010-12

FUNDAMENTAL ANALYSIS OF AUTOMOBILE INDUSTRY

Asian Institute of Communication & Research

(AICTE approved Management Institute)

Damat, Neral – 410 101 Taluka Karjat District Raigad

Maharashtra State, INDIA

CERTIFICATE

This is to certify that the Research Project titled __FUNDAMENTAL ANAYSIS OF

AUTOMOBILE INDUSTRY is a bonafide work carried out by Mr AMIT SHARMA_________

a student of Post Graduate Diploma in Management (PGDM) Semester III, Specialization

_____FINANCE _____ Enrolment No. ____________ in the year 2010

Director of the Institute

Examiner Examiner

Date:

Place:

1AICAR BUSINESS SCHOOL BATCH 2010-12


CERTIFICATE OF INTERNAL GUIDE

This is to certify that the Research Project titled FUNDAMENTAL ANALYSIS OF AUTOMOBILE

INDUSTRY is a bonafide work carried out by Mr AMIT SHARMA under my guidance and direction.

Signature of Guide:

Name:

Designature:

Date:

Place:


FUNDAMENTAL ANALYSIS OF AUTOMOBILE INDUSTRY Project on


AICTE approved PGDM Course (Specialization __FINANCE ___)

Submitted by:

AMIT SHARMA

PRN NO.______

Asian Institute of Communication & Research

Damat, Neral – 410 101 Maharashtra INDIA



ACKNOWLE DGEMENT

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 am greatly indebted to Mr. S.kutty and Mr. M.Guruprasad (Faculty at Aicar), my

Project Guide and 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.

SUBMITTED BY:

AMIT SHARMA

AICAR BUSINESS SCHOOL



TABLE OF CONTENT

S. NO. PARTICULARS PAGE NO.

Chapter 1. Introduction 6

Chapter 2. Objective and scope of the Project 10

Chapter 3. Profile of the Company 12

Chapter 4. Executive summary 15

Chapter.5 Economy Analysis Politico-Economic Analysis Political equation Foreign exchange and reserves Foreign debt and bal. of trade Inflation Interest rates Taxation GDP Timeline of Indian economy

17

17181922242629

31

Chapter.6 Industry Analysis Five force model Industrial life cycle SWOT analysis Industrial specific index

3334353738

Chapter.7 Company analysis Annual report Directors report Auditors report Financial statements Balance sheets P&L account Ratios and analysis Cash flows

39 41

41 46

47 47-49 51-53

56

Chapter.8 Limitations of study 57

Chapter.9 Recommendations and Suggestions 58-59

Bibliography 60



INTRODUCTION

Fundamental analysis of a business involves analysing its financial statements and health, its management and competitive advantages, and its competitors and markets. When applied to futures and forex, it focuses on the overall state of the economy, interest rates, production, earnings, and management. When analysing a stock, futures contract, or currency using fundamental analysis there are two basic approaches one can use; bottom up analysis and top down analysis. The term is used to distinguish such analysis from other types of investment analysis, such as quantitative analysis and technical analysis.

Fundamental analysis is performed on historical and present data, but with the goal of making financial forecasts. There are several possible objectives:

To conduct a company stock valuation and predict its probable price evolution, To make a projection on its business performance,

To evaluate its management and make internal business decisions,

To calculate its credit risk.

Two analytical models

When the objective of the analysis is to determine what stock to buy and at what price, there are two basic methodologies

1. Fundamental analysis maintains that markets may misprice a security in the short run but that the "correct" price will eventually be reached. Profits can be made by trading the mispriced security and then waiting for the market to recognize its "mistake" and reprice the security.

2. Technical analysis maintains that all information is reflected already in the stock price. Trends 'are your friend' and sentiment changes predate and predict trend changes. Investors' emotional responses to price movements lead to recognizable price chart patterns. Technical

analysis does not care what the 'value' of a stock is. Their price predictions are only extrapolations from historical price patterns.

Investors can use any or all of these different but somewhat complementary methods for stock picking. For example many fundamental investors use technicals for deciding entry and exit points. Many technical investors use fundamentals to limit their universe of possible stock to 'good' companies.

The choice of stock analysis is determined by the investor's belief in the different paradigms for "how the stock market works". See the discussions at efficient-market hypothesis, random walk hypothesis, capital asset pricing model, Fed model Theory of Equity Valuation, Market-based valuation, and Behavioural finance.


http://en.wikipedia.org/wiki/Financial_statements

http://en.wikipedia.org/wiki/Credit_risk

http://en.wikipedia.org/wiki/Stock_valuation

http://en.wikipedia.org/wiki/Forecasts

http://en.wikipedia.org/wiki/Technical_analysis

http://en.wikipedia.org/wiki/Quantitative_analysis

http://en.wikipedia.org/wiki/Investment_analysis

http://en.wikipedia.org/wiki/Investment_analysis

http://en.wikipedia.org/wiki/Foreign_exchange_market

http://en.wikipedia.org/wiki/Futures_contract

http://en.wikipedia.org/wiki/Markets

http://en.wikipedia.org/wiki/Competitors


Fundamental analysis includes:

1. Economic analysis

2. Industry analysis

3. Company analysis

On the basis of these three analyses the intrinsic value of the shares are determined. This is considered as the true value of the share. If the intrinsic value is higher than the market price it is recommended to buy the share. If it is equal to market price hold the share and if it is less than the market price sell the shares.

Factors Considered in Fundamental Analysis

Following are some of the factors that are considered during fundamental analysis:

Financials of the company

This involves the study of financial health of the company using the various financial reports, like the profit and loss account, the balance sheet, and the cash flow statements.

State and direction of domestic economy

This is a study of the country’s economy in which the company operates. If the economy is growing fast, the probability of the company growing fast is greater. Similarly, if the economy is facing a slow growth, the chances of the company growing fast are lesser.

State and direction of world economy

Since all the economies of the world are intertwined, any positive or negative development even in foreign economies has an implication on companies in other countries.


FUNDAMENTAL ANALYSIS OF AUTOMOBILE INDUSTRY This is especially true if the good or bad development is in a country that has lots of customers or suppliers of a company. Thus, fundamental analysis of a company also involves the study of the world economy.

Currency and commodity price movements

Most companies use commodities like coal, metals and crude oil as their inputs. Any change in the price of these commodities has an implication on the profitability of the company.

Similarly, any change in the exchange rate of currencies also has an impact on companies that import their raw materials or export their products.

Interest rate movements

Companies borrow money to invest for their expansions. Also, consumers borrow money to buy products. Thus, if the interest rates are high, the borrowing cost of the companies would increase. Also, consumers would borrow less resulting in lesser sales for the company.

Therefore, interest rates also have an impact on the profitability, and therefore, the stock price of the company.

The sector in which the company operates

Apart from the economy on the whole, the sector in which the company operates also needs to be considered. If the sector is not growing, the company’s profitability would be likely to fall in the future.

For example, let’s say you are studying a company that manufactures radios. Now, since the sector (Radios) is shrinking, the company would not be able to increase its profits even if the economy is booming.

Competition in the sector

If a company operates in a sector that has no competition, it can charge high prices and earn more profit. But if the company competes with many other companies for the products it sells, its pricing power would be limited, and therefore, the possibility to earn higher profits would also be limited.


http://www.raagvamdatt.com/index.php?module=pnEncyclopedia&func=display_term&id=75&vid=1



Entry barriers in the sector

An entry barrier is something that can prevent the entry of new competitors in a sector. This can be license cost (For example, in telecom), technology (Eg. in manufacture of LCD TVs), high capital requirement (E.g. In power generation), etc.

If a company operates in a sector that has high entry barriers, the possibility of new competition emerging in the future is less, and therefore, the company’s profitability would not get adversely affected.

On the contrary, if a company operates in a sector that has low or no entry barriers, new competition can come up fast, thus negatively impacting the company’s profitability.

The company’s investments and future expansion plans

If the company regularly invests its profits for expanding into new businesses or for creation of more capacity in the existing business, the chances of earning more profits in the future increase.

How the outcome of Fundamental Analysis is utilized

After studying all the basic factors affecting a company, the fundamental analyst comes up with the intrinsic value of the company’s shares. This is the “fair price” of the stock, and it is price that the stock should be ideally trading at.

Due to the imperfections in the market, the stock may not be trading at this price.If the market price of the stock is less than the intrinsic (or fair) value of the stock, the stock can be bought. The expectation would be that the stock would ultimately trade at its fair price, and thus, a profit can be made.

Similarly, if the current price of the stock is more than the intrinsic (or fair) value of the stock, the stock can be sold. Again, the expectation would be that the stock would ultimately trade at its fair price. Thus, a loss can be avoided.

Fundamental Analysis and Target Price

There is another way in which fundamental analysis can be used: many times, a fundamental analyst studies a company and the factors affecting it, and comes up with a price at which the stock should be trading in the future. This is called the “target price” of the stock.

Buy and sell decisions can be made comparing this target price with the prevailing price of the stock.


FUNDAMENTAL ANALYSIS OF AUTOMOBILE INDUSTRY Technical Analysis versus Fundamental Analysis: A quick comparison

Technical Analysis studies the past price and volume movements of the stock to predict its future price. The assumption is that stocks repeat the price patterns formed in the past. Fundamental Analysis considers the basic factors affecting a company, and predicts the price of a stock based on that.

Therefore, fundamental analysis is a much more reliable tool to calculate the future price of a company’s shares.

OBJE C TIVE O F THE P R OJECT

FUNDAMENTAL ANALYSIS OF AUTOMOBILE SECTOR

Primary Objective:

The primary objective of this study is to understand the concept of fundamental analysis. Fundamental analysis is performed on historical and present data, but with the goal of making financial forecasts. There are several possible objectives of this study:

o To Understand the factors affecting the fundamentals of a company,

o To conduct a company stock valuation and predict its probable price evolution,

o To make a projection on its business performance,

o To evaluate its management and make internal business decisions.

o To understand the financial health of a company,

o To understand the vision, mission and values of a company, which could affect its

performance in the future?

Secondary Objective:

The secondary objective of this project is deeply analysing our Indian Automobile Industry for investment purpose by monitoring the growth rate and performance on the basis of historical data.

The secondary objectives of the Project study are:





FUNDAMENTAL ANALYSIS OF AUTOMOBILE INDUSTRY Detailed analysis of Automobile industry which is gearing towards international standards

Analyse the impact of qualitative factors on industry’s and company’s prospects

Application of various Fundamental tools (like Financial and Non- financial statements).

SCOPE OF THE STUDY

Fundamental Analysis attempts to forecast the future value of a stock by analysing current and historical financial company strength. Analysts try to see if the stock price is over or under valued and what that means to its future. There are many financial tools used for this purpose.

It considers overall financial health, economic and political conditions, industry factors, marketing aspects, management quality, and future outlook of the company

The analysis attempts to ascertain whether stock is overpriced, under-priced, or priced in proportion to its market value. Fundamental analysis provides much of the data needed to forecast earnings and dividends.

Fundamental analysis tools include HORIZONTAL ANALYSIS, VERTICAL ANALYSIS, and ratio analysis , which give a relative measure of the operating performance and financial condition of the company.

Fundamental analysts attempt to study everything that can affect the security's value, including macroeconomic factors (like the overall economy and industry conditions) and company-specific factors (like financial condition and management).

The end goal of performing fundamental analysis is to produce a value that an investor can compare with the security's current price, with the aim of figuring out what sort of position to take with that security (under-priced = buy, overpriced = sell or short).


http://www.answers.com/topic/ratio-analysis-1


COMPANY PROFILE: (INTERNSHIP)

Introduction:

ABOUT RELIANCE SECURITIES

Reliance securities is a group company of Reliance Capital; one of India's leading and fastest

growing private sector financial services companies, ranking among the top 3 private sector

financial services and banking companies, in terms of net worth. Reliance Capital is a part of the

Reliance Anil Dhirubhai Ambani Group.

Reliance securities is a comprehensive electronic transaction platform offering a wide range of

asset classes. Its endeavor is to change the way India transacts in financial markets and avails

financial services. Reliance securities is a single window, enabling you to access, amongst others

in Equities, Equity & Commodities Derivatives, Mutual Funds, IPOs, Life & General Insurance

products, Offshore Investments, Money Transfer, Money Changing and Credit Cards.

Business Overview

Reliance Capital has interests in asset management and mutual funds, life and general insurance,

private equity and proprietary investments, stock broking, depository services, distribution of

financial products, consumer finance and other activities in financial services.

Reliance Mutual Fund is India’s no.1 Mutual Fund. Reliance Life Insurance is India’s fastest

growing life insurance company and among the top 5 private sector insurers. Reliance General


FUNDAMENTAL ANALYSIS OF AUTOMOBILE INDUSTRY Insurance is India’s fastest growing general insurance company and the top 3 private sector

insurers. Reliance securities which commenced commercial operations in April 2007 have over

300,000 customers and 4,300 outlets in more than 3,500 locations across India. Reliance

Consumer finance which commenced commercial operations in May 2007 has disbursed loans of

over Rs.3, 000 crores within 6 months of operations.

Reliance Capital has a net worth of Rs.5, 662 crores and total assets of Rs. 10,083 crores as of

September 30, 2010 and over 16,000 employees.

Products offered by Reliance securities

Reliance Capital has interests in asset management and mutual funds, life and general insurance,

private equity and proprietary investments, stock broking, depository services, distribution of

financial products, consumer finance and other activities in financial services.

It offers:

Demat account & Trading account

IPO

Mutual funds

Life insurance & General insurance

Forex

Gold coins

Portfolio Management Services

SWOT Analysis of Reliance

Strength

A wide geographic reach, growing clients, and a diversified portfolio of products and services.

Has a region-focused entrepreneurial management team leading 6,500 employees

Increasing clients in both equity and commodity trading


FUNDAMENTAL ANALYSIS OF AUTOMOBILE INDUSTRY Reliance securities , a Reliance capital ADA group company Recently achieved 1 million Demat account customers

Weakness

Proper execution and supportive economic environment will be necessary to implement the aggressive growth plans across the financial spectrum

Lack of customer care services

Opportunities

It works as a part of a reliance group which helps them to established strong relations with its clients.

Focus on minimizing investment risk by following rigorous valuation disciplines.

Various schemes run by the companies on the needs of the client investment in share market.

It is world cheapest stock broking organization so it can attract more customers.

Threat

Due to malfunctioning of reliance communication the brand name of reliance securities is

also affected.

As reliance securities is a new player in the market it has to face tough competition from

other player such as Religare, Kotak, Indiabulls, Anand Rathi, ICICI Direct, etc.

AIMS OF INTERNSHIP

To understand the Indian securities market

To understand the working of a securities firm

To understand the concepts involved in Indian equity markets like, F&O, CALL, PUT,

IPOS, and DEMAT ACCOUNT etc.

To understand the business model of reliance securities.

To understand the operational function of a company.



EXECU T IVE SUMMA R Y

The Indian Automobile Industry is manufacturing over 11 million vehicles and exporting about 1.5 million every year. The dominant products of the industry are two wheelers with a market share of over 75% and passenger cars with a market share of about 16%. Commercial vehicles and three wheelers share about 9% of the market between them. About 91% of the vehicles sold are used by households and only about 9% for commercial purposes. The industry has attained a turnover of more than USD 35 billion and provides direct and indirect employment to over 13 million people.

The supply chain of this industry in India is very similar to the supply chain of the automotive industry in Europe and America. This may present its own set of opportunities and threats. The order of the industry arises from the bottom of the supply chain i. e., from the consumers and goes through the automakers and climbs up until the third tier suppliers. However the products, as channelled in every traditional automotive industry, flow from the top of the supply chain to reach the consumers.

Interestingly, the level of trade exports in this sector in India has been medium and imports have been low. However, this is rapidly changing and both exports and imports are increasing. The demand determinants of the industry are factors like affordability, product innovation, infrastructure and price of fuel. Also, the basis of competition is the sector is high and increasing and the life cycle stage is growth. With a rapidly growing middle class, all the advantages of this sector in India are yet to be leveraged.

Note that, with a high cost of developing production facilities, limited accessibility to new technology and soaring competition, the barriers to enter the Indian Automotive sector are high and these barriers are study. On the other hand, India has a well-developed tax structure. The power to levy taxes and duties is distributed among the three tiers of Government. The cost structure of the industry is fairly traditional, but the profitability of motor vehicle manufacturers has been rising over the past five years. Major players, like Tata Motors and Maruti Suzuki have material cost of about 80% but are recording profits after tax of about 6% to 11%.


FUNDAMENTAL ANALYSIS OF AUTOMOBILE INDUSTRY The level of technology change in the Motor vehicle Industry has been high but, the rate of change in technology has been medium. Investment in the technology by the producers has been high. System-suppliers of integrated components and sub-systems have become the order of the day. However, further investment in new technologies will help the industry be more competitive. Over the past few years, the industry has been volatile. Currently, India’s increasing per capita disposable income which is expected to rise by 106% by 2015 and growth in exports is playing a major role in the rise and competitiveness of the industry.

Tata Motors is leading the commercial vehicle segment with a market share of about 64%. Maruti Suzuki is leading the passenger vehicle segment with a market share of 46%. Hyundai Motor India and Mahindra and Mahindra are focusing expanding their footprint in the overseas market. Hero Honda Motors is occupying over 41% and sharing 26% of the two wheeler market in India with Bajaj Auto. Bajaj Auto in itself is occupying about 58% of the three wheeler market.

Consumers are very important of the survival of the Motor Vehicle manufacturing industry. In 2008-09, customer sentiment dropped, which burned on the augmentation in demand of cars. Steel is the major input used by manufacturers and the rise in price of steel is putting a cost pressure on manufacturers and cost is getting transferred to the end consumer. The price of oil and petrol affect the driving habits of consumers and the type of car they buy.

The key to success in the industry is to improve labour productivity, labour flexibility, and capital efficiency. Having quality manpower, infrastructure improvements, and raw material availability also play a major role. Access to latest and most efficient technology and techniques will bring competitive advantage to the major players. Utilising manufacturing plants to optimum level and understanding implications from the government policies are the essentials in the Automotive Industry of India.

Both, Industry and Indian Government are obligated to intervene the Indian Automotive industry. The Indian government should facilitate infrastructure creation, create favourable and predictable business environment, attract investment and promote research and development. The role of Industry will primarily be in designing and manufacturing products of world-class quality establishing cost competitiveness and improving productivity in labour and in capital. With a combined effort, the Indian Automotive industry will emerge as the destination of choice in the world for design and manufacturing of automobiles.



A. ECONOMYEconomy analysis is the analysis of forces operating the overall economy of a country. Economy analysis is a process whereby strengths and weaknesses of an economy are analysed. Economy analysis is important in order to understand exact condition of an economy.

Politico-Economic Analysis

1. Political equation:

As in any part of the world, political influence is highly essential to start a business in India. Especially if you are planning to start a multibillion business, some sort of political patronage is an absolute necessity. Not only for safeguarding the interest of the company but even to begin the process of getting the required sanctions, one requires hold in the high echelons of politics and administrative circles. Indian society is highly plural. It is the biggest democracy in the world with multi party political system. In population, India is second to China, with nearly 1200 million people. This is the most important consumer market in the world. It is a fast developing world. India is the third largest economy in the world and second fast growing economy in Asia. It has the tremendous potential of development with huge intellectual human force. With all these advantages and the huge market potential, world super entrepreneurs are looking for business establishments in India. With the overcrowded population and the millions of hard working and qualified personals, India offers a very cheap work force to the world. Many have realized the business potential in India, started exploring the unique opportunities of investments.

During the last couple of decades, India has opened its market to world. It has absolutely become an open global market. Banking sector, Insurance sector and all fields of industrial and business are now open for multi-national investment. Of course there are many obstructions to cross. And mostly all issues can overcome and establish business if you have the political patronage. India has a plural political system. With numerous political parties, national level and state level, it is


FUNDAMENTAL ANALYSIS OF AUTOMOBILE INDUSTRY very difficult to get a consensus among all parties for starting any business. Also these political parties have patronage of many factors, caste, creed and ideologies.

2. Foreign exchange reserves:

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.

These are assets of the central bank held in different reserve currencies, mostly the US dollar, and to a lesser extent the euro, the UK pound, and the Japanese yen, and used to back its liabilities, e.g. the local currency issued, and the various bank reserves deposited with the central bank, by the government or financial institutions. The quantity of foreign exchange reserves can change as a central bank implements monetary policy. A central bank that implements a fixed exchange rate policy may face a situation where supply and demand would tend to push the value of the currency lower or higher (an increase in demand for the currency would tend to push its value higher, and a decrease lower). In a flexible exchange rate regime, these operations occur automatically, with the central bank clearing any excess demand or supply by purchasing or selling the foreign currency. To maintain the same exchange rate if there is increased demand, the central bank can issue more of the domestic currency and purchase the foreign currency, which will increase the sum of foreign reserves of that country.

(Source: rbi.org.in)

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. Above 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 especially from auto industry shows an expectation of huge income from western countries and new $200 bl. target for exports by 2011 helps in increasing.


http://en.wikipedia.org/wiki/Financial_institutions

http://en.wikipedia.org/wiki/Government

http://en.wikipedia.org/wiki/Deposit_account

http://en.wikipedia.org/wiki/Bank_reserves

http://en.wikipedia.org/wiki/Liabilities

http://en.wikipedia.org/wiki/Japanese_yen

http://en.wikipedia.org/wiki/Pound_sterling

http://en.wikipedia.org/wiki/Euro

http://en.wikipedia.org/wiki/United_States_dollar

http://en.wikipedia.org/wiki/Reserve_currency

http://en.wikipedia.org/wiki/Central_bank

http://en.wikipedia.org/wiki/Asset


(Source: rbi.org.in) NOTE:

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.

External Liabilities vis-à-vis Foreign Exchange Reserves

The accretion of foreign exchange reserves needs to be seen in the light of total external liabilities of the country. India’s International Investment Position (IIP), which is a summary record of the stock of country’s external financial assets and liabilities as at end of September 2010 was negative at US$ 211.1 billion, implying that our external liabilities are more than the external assets. The net IIP as at end September 2008 and 2009 was US$ (-) 81.1 billion and US$ (-) 103.4 billion respectively.

Management of Gold Reserves

The Reserve Bank held 557.75 tonnes of gold forming about 7.0 per cent of the total foreign exchange reserves in value terms as on September 30, 2010. Of these, 265.49 tonnes are held abroad (65.49 tonnes since 1991 and further 200 tonnes since November 2009) in deposits / safe custody with the Bank of England and the Bank for International Settlements.

3. Foreign debt and balance of trade:

As per the standard practice, India's external debt statistics for the quarters ending March and June are released by the Reserve Bank of India and those for the quarters ending September and December by the Ministry of Finance, Government of India. The external debt data are released with a lag of one quarter

Major Highlights


FUNDAMENTAL ANALYSIS OF AUTOMOBILE INDUSTRY (i) India’s external debt, as at end-March 2010, was placed at US $ 261.4 billion (18.9 per cent of GDP) recording an increase of US $ 36.9 billion or 16.5 per cent over the end-March 2009 level on account of significant increase in IMF liabilities due to additional allocations of SDR, commercial borrowings, NRI deposits and short-term trade credits.

(ii) Excluding the valuation effects due to depreciation of US dollar against other major international currencies and Indian Rupee, the stock of external debt has increased by US$ 30.4 billion over the stock as at end-March 2009.

(iii) The share of commercial borrowings stood highest at 27.2 per cent as at end-March 2010 followed by short-term debt (20.1 per cent), NRI deposits (18.4 per cent) and multilateral debt (16.3 per cent).

(iv) The debt service ratio increased to 5.5 per cent during 2009-10 as compared to 4.6 per cent during 2008-09.

(v) Based on residual maturity, short-term debt accounted for 41.2 per cent of the total external debt as at end-March 2010. Whereas the share of short-term debt, by original maturity, was 20.1 per cent of the total external debt stock.

(vi) The ratio of short-term debt to foreign exchange reserves at 18.8 per cent as at end- March 2010 was higher compared to 17.2 per cent as at end-March 2009.

(vii) The US dollar accounted for 58.2 per cent of the total external debt stock as at end-March 2010 followed by Indian rupee (13.8 per cent).

(viii) India’s foreign exchange reserves provided a cover of 106.7 per cent to the external debt stock at the end of March 2010 as compared with 112.2 per cent as at end-March 2009.

Stock of India’s External Debt as at end-March 2009

(Source: rbi.org.in) Currency Composition

The currency composition of India’s external debt is generally disseminated in terms of major foreign currencies such as US dollar, Japanese Yen, Euro, Pound Sterling, Special Drawing Rights (SDR) and the domestic currency i.e., Indian Rupee



(Source: rbi.org.in)

Exports

Society of Indian Automobile Manufacturers (SIAM), automobile sales (including passenger vehicles, commercial vehicles, two-wheelers and three-wheelers) in the overseas markets increased to 1.53 million units in 2008-09 from 1.23 million units in 2007-08. Export of passenger vehicles increased from 218,401 in 2007-08 to 335,739 units in 2008-09.

There is a continuous increase in the export of automobiles since the financial year 2002-03, except for the decline in the export of commercial vehicles in the financial year 2008-09, which may be attributed to the global economic recession.

Despite recession, the Indian automobile market continues to perform better than most of the other industries in the economy in coming future; more and more MNC’s coming in India to setup their ventures which clearly shows the scope of expansion.Current Scenario of Automobile Industry in Economy


FUNDAMENTAL ANALYSIS OF AUTOMOBILE INDUSTRY With the latest available data Indian Automobile Industry is expected to grow at 9%-10% in near future, Two wheeler segment sales grew up by 12.8% with the modest 2.6% growth rate, under this segment the market leader Hero Honda registered growth of 12% in its domestic sales whereas Bajaj Auto disappointed as sales plunging by 23%, on the other hand car sales has been grew up by a healthy 22.7% in last February and Commercial Vehicles reported slower sales. It is assumed that in coming festive season to meet demand, carmakers g o i n g t o p r o d u c e 70000units/month more over the average 1.3lac/month with help of 5000 new hands. (Source: Economic Times)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. Source: Economic Times

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. Source: Economic Times (3/09/09)

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.

4. Inflation:

Inflation always has a negative effect on the car market. The development of the car market comes to a standstill when there is inflation in the market. The effect of inflation on car market is not at all encouraging and it badly affects every sector, which is associated with vehicle production and manufacturing. The hike in the rate of steel and fuel has resulted in a slower rate of development of the Indian automotive industry. One of the major effects of inflation is that the manufacturing of Indian cars has been hindered to a significant extent.

It has also been witnessed that major Indian vehicle manufacturers such as Tata Motors, Mahindra and Mahindra, Hyundai, Maruti Suzuki, and Honda Siel Motors are attempting their best to improve their manufacturing and sales of the vehicles amidst the situation where the stock


FUNDAMENTAL ANALYSIS OF AUTOMOBILE INDUSTRY market is showing a sluggish growth. It has also been seen because of inflation that sales of particular vehicles are being stimulated by the discounted rates that the car manufacturers are providing to the customers. Some of the vehicle makers have even resorted to offering exchange offers to the customers and some have launched competitive car financing rates. The effect of inflation has resulted in the hike of vehicle prices to the extent of 3%-4%, which sequentially is adequate for the necessity of meeting the hike of rates of raw materials for making an automobile.

The effect of inflation on car market has not only badly impacted the manufacturing and sales of Indian vehicles but also the vehicle dealers, employees, and vehicle financers. Surveys and studies have resulted in the conclusion that the vehicle market and the vehicle manufacturing industry in India experienced 8-9% slump due to inflation.

The effect of inflation on vehicle manufacturers have consequently affected the vehicle dealers in a manner where they are being forced to thrust the sales curve upward and maintain a high volume of profit. In this arrangement, the vehicle financers are compelled by both vehicle dealers and vehicle manufacturers to offer the customers a 100% financial assistance by lowering the interest rate of the loan.

On the whole, it has been observed that the car market in India (both passenger car market and commercial vehicles market) has witnessed a slump with the inflation badly hitting nearly every sector to which the Indian automobile market is closely associated.

Inflation and Asian countries

Recession

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.


FUNDAMENTAL ANALYSIS OF AUTOMOBILE INDUSTRY 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 per cent 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. Business Analysts reported that Indian car market had recorded a continuous growth of about 17.2% over the last few years but this year the recession has brought the growth to about 7-8%. Be it Tata Motors or Maruti Suzuki or even Mercedes-Benz, the car market has gone down to a tremendously negative terrain.

Tata has reported that its profit fell from 34.1 per cent to 3.47 billion rupees because of the slower growth in the industrial production. Further, the company has also recorded a 20% decline in the sales as compared to last year.

Maruti Suzuki reported a 7% decline in sales due to rising cost of the materials and a falling rupee value. Even Mahindra & Mahindra, the India's largest suv and tractor manufacturer, is not immunized, showing profit fall of 20.6%.

5. Business Loan Interest Rates:

Business loans are something no business can do without. To set up a business or to expand a running business or to launch a new product, business loans are of utmost importance. Here is providing you information on Business Loan Interest Rates. Businesses that use credits to finance their business expenditure generally do well and earn good profits. Business loans help in achieving effective budget management. Business loans can be availed through various sources. Banks and other financial institutions provide business loan. Various government programs are also there to give economic support to start-up businesses. If a new business manages to get a significant amount of business loan from a bank, it can easily establish its presence in the market. Credit financing from a renowned institution gives the business, good business reputation. So, credit financing is always encouraged rather than compromising on the financial need of the business and starting it with very low investment in an unprofessional manner.

Business Loan Interests are certainly the figures about which the borrowers need to be concerned the most. To repay a business loan, a borrower has to interest along with the principal amount. These interest payments compensate the lenders for the rising prices and serve like a reward for temporarily giving up their ability to spend. The business men also agree to pay interests on their


FUNDAMENTAL ANALYSIS OF AUTOMOBILE INDUSTRY business loans because using loans they can buy equipment’s and inventories which will in turn generate higher amount of profits.

Interest rates associated with business loan vary in most of the cases. The factors which mainly lead to this variation are different degrees of risk involved with the loan, different durations of the loan, Tax Considerations of the loan and diverse characteristics of the loan.

If a business loan involves higher risk, interest rate will be higher and if the loan is low risk, interest rate will be comparatively lower. If the business loan is business mortgage loan then it has lesser risk associated with it as in business mortgage loans there is always Collateral. Collateral is a property of the borrower which can be seized by the lender if the borrower fails to repay the loan.

The longer is the term of repaying the loan; interest rates tend to be higher. In longer period inflation might accelerate resulting in reducing the purchasing power of the repayment of the loan. So, interest rates of long term loan are generally than that of the short term loans. Interest payments on some business loan have tax advantages. Interests on Business loans taken from the govt. have the benefit of tax exemption up to a certain limit. So, the business loans from govt. come with lower interest rates.

As far as the business loan interest rates are concerned, they vary generously as we have earlier said. However, we can get an idea about the business loan interest rates. Loans taken for Business Purchase, with a term 6 to 84 months, have interest rates variable from 8.25% to 10.25%. Interest rates on loans, taken for Business Refinance with 6 to 84 months term period; vary from 8.25% to 10.25%. Business Loans taken for the purpose of purchasing equipment and furniture for the business, generally having 12 to 60 months loan term period comes up with interest rates varying from 8.25% to10.25%.

Impact of recent hike on interest rates on Indian automobile industry

The rising interest rates will increase the cost of ownership of passenger and commercial vehicles at a time when the domestic automobile industry is already seeing a distinct slowdown. The only silver lining perhaps may be the two-wheelers segment, which may be the last to be affected, say experts.

“The rate hike will be negative for the auto industry as it would put pressure on banks to further increase base lending rates. Not just the small car buyers, who are more sensitive to rate hikes, but even those upgrading to bigger cars will get affected,” said Shashank Srivastava, chief general manager of marketing at Maruti Suzuki India. Sales of Maruti Suzuki’s small car have dropped three per cent year on year in May 2011 to 61,048 units. The drop is the first in nearly three years. “Seventy per cent of passenger cars and over 90 per cent of commercial vehicles are bought through financing,” said an analyst with Pinc Research.

Experts said that the two-wheeler segment will not be affected due to rise in interest rates, as the cost of ownership is low and sales of two-wheelers are driven by usability and not discretionary factors as is the case with passenger cars. “The 4-wheeler segment will be impacted the most as it is more of a discretionary spends. Since this is marriage season, the two-wheelers may not be


FUNDAMENTAL ANALYSIS OF AUTOMOBILE INDUSTRY affected. One still cannot rule out the impact on two-wheelers with lag of one to two months,” Kevin D’Sa, CFO at Bajaj Auto told Financial Chronicle.The domestic automobile industry has started feeling the jitters of an interest rate hike and petrol price hike in first two months of this financial year (2011-12). The industry will be impacted further if the diesel prices are de-regulated, feel industry observers. “It’s a double-whammy for the auto sector, which is already seeing an impact from high petrol prices. Customers may shift preference to lower-end cars in view of higher interest rates. The market is expecting more rate hikes to cool inflation by September, which may further hurt consumers,” said Adithya Bhat, managing director at Protiviti Consulting.The analyst further said that the commercial vehicles segment is primarily driven by freight and during the monsoon fewer goods are transported. The growth in this segment is expected to be slow till the festive season, said the Pinc research analyst. C Ramakrishnan, CFO at Tata Motors said, “There will be some immediate impact on demand particularly on consumer side of the business rather than the industrial one, but we expect this to be managed over time. We are continuously evaluating our debt portfolio to optimise the costs of our borrowings. In this context using foreign currency borrowings is likelihood.”Tata Motors commercial vehicles volumes have declined from 44,601 units in March 2011 to 34,044 units in May 2011. However, on year-on-year basis, the sales have gone up by 22.61 per cent in May 2011. Tata Motors passenger vehicles sales have declined by 9.26 per cent year on year to 22,718 units in May 2011.Ramesh G Iyer, MD, Mahindra and Mahindra Financial Services said, “The hike in interest rates was already anticipated and factored in by us in the last round of rate hikes we did. Though the personal mobility segment of the passenger car industry has slowed down, the commercial vehicles segment is not yet impacted as the hike in costs can be passed on in the form of higher freight rates and passenger fares.”Passenger vehicle sales that rose 29 per cent in 2010-11, against the year ago slowed to 14 per cent In April 2010 and eight per cent in May. The drop to single digits occurred for the first time in two years.

6. Taxation:

India has a well-developed tax structure. The power to levy taxes and duties is distributed among the three tiers of Government, in accordance with the provisions of the Indian Constitution. The main taxes/duties that the Union Government is empowered to levy are:- Income Tax (except tax on agricultural income, which the State Governments can levy), Customs duties, Central Excise and Sales Tax and Service Tax. The principal taxes levied by the State Governments are:- Sales Tax (tax on intra-State sale of goods), Stamp Duty (duty on transfer of property), State Excise (duty on manufacture of alcohol), Land Revenue (levy on land used for agricultural/non-agricultural purposes), Duty on Entertainment and Tax on Professions & Callings. The Local Bodies are empowered to levy tax on properties (buildings, etc.), Octroi (tax on entry of goods for use/consumption within areas of the Local Bodies), Tax on Markets and Tax/User Charges for utilities.

Excise Duty

Central Excise duty is an indirect tax levied on those automobiles which are manufactured in India and are meant for home consumption. The taxable event is 'manufacture' and the liability of central excise duty arises as soon as the automobiles are manufactured. It is a tax on manufacturing, which is paid by a manufacturer, who passes its incidence on to the customers.


FUNDAMENTAL ANALYSIS OF AUTOMOBILE INDUSTRY Types of Excise Duties

Basic Excise Duty: This is the duty liveable under First Schedule to the Central Excise Tariff Act, 1985 at the rates mentioned in the said Schedule.

Special Excise Duty: This is the duty liveable under Second Schedule to the Central Excise Tariff Act, 1985 at the rates mentioned in the said Schedule. At present this is liveable on very few items.

National Calamity Contingent Duty (NCCD): Normally known as NCCD. This duty is levied as per section 136 of the Finance Act, 2001, as a surcharge on specified goods.

Excise Duties and Cesses Liveable under Miscellaneous Act: On certain specified goods, in addition to the aforesaid duties, prescribed rate of excise duty and cess is also liveable.

Education Cess on excisable goods is levied in addition to any other duties of excise chargeable on such goods, under the Central Excise Act, 1944 or any other law for the time being in force.

MODVAT and CENVAT

Taxation of inputs, like raw materials, components and other intermediaries has a number of limitations. In production process, raw material passes through various processes stages till a final product emerges. Thus, output of the first manufacturer becomes input for second manufacturer and so on. When the inputs are used in the manufacture of product À', the cost of the final product increases not only on account of the cost of the inputs, but also on account of the duty paid on such inputs. As the duty on the final product is on ad valorem basis and the final cost of product À' includes the cost of inputs, inclusive of the duty paid, duty charged on product À' meant doubly taxing raw materials. In other words, the tax burden goes on increasing as raw material and final product passes from one stage to other because, each subsequent purchaser has to pay tax again and again on the material which has already suffered tax. This is called cascading effect or double taxation.

This very often distorted the production structure and did not allow the correct assessment of the tax incidence. Therefore, the Government tried to remove these defects of the Central Excise System by progressively relieving inputs from excise and countervailing duties. An ideal system to realize this objective would have been to adopt value added taxation (VAT). However, on account of some practical difficulties it was not possible to fully adopt the value added taxation.

Hence, Government evolved a new scheme, `MODVAT' (Modified Value Added Tax). MODVAT Scheme which essentially follows VAT Scheme of taxation. i.e. if a manufacturer A purchases certain components(raw materials) from another manufacturer B for use in its product. B would have paid excise duty on components manufactured by it and would have recovered that excise duty in its sales price from A. Now, A has to pay excise duty on product manufactured by it as well as bear the excise duty paid by the supplier of raw material B. Under the MODVAT scheme, an Original Equipment Manufacturer can take credit of excise duty paid by First Tier and Second Tier suppliers. It amounts to excise duty only on additions in value by each manufacturer at each stage.


FUNDAMENTAL ANALYSIS OF AUTOMOBILE INDUSTRY MODVAT Scheme ensures the revenue of the same order and at same time the price of the final product could be lower. Apart from reducing the costs through elimination of cascade effect, and bringing in greater rationalization in tax structure and also bringing in certainty in the amount of tax liveable on the final product, this scheme will help the consumer to understand precisely the impact of taxation on the cost of any product.

Subsequently, MODVAT scheme was restructured into CENVAT (Central Value Added Tax) scheme. A new set of rules 57AA to 57AK , under The CENVAT Credit Rules, 2004, were framed and whatever restrictions were there in MODVAT Scheme were put to an end and comparatively, a free hand was given to the assesses.

Under the CENVAT Scheme, a manufacturer of final product or provider of taxable service shall be allowed to take credit of duty of excise as well as of service tax paid on any input received in the factory or any input service received by manufacturer of final product. Inputs include goods used in the manufacture of capital goods which are further used in the factory of the manufacturer.

Customs Duty

Customs Duty (Import duty and Export tax) is a type of indirect tax levied on goods imported into India as well as on goods exported from India. Taxable event is import into or export from India. In India, the basic law for levy and collection of customs duty is Customs Act 1962. It provides for levy and collection of duty on imports and exports, import/export procedures, prohibitions on importation and exportation of goods, penalties, offences, etc.

Export duties are levied occasionally to mop up excess profitability in international prices of goods in respect of which domestic prices may be low at the given time. But the sweep of import duties is quite wide.

Service Tax

Service tax is a tax levied on services rendered by a person and the responsibility of payment of the tax is cast on the service provider. It is an indirect tax as it can be recovered from the service receiver by the service provider in course of his business transactions. Service Tax was introduced in India in 1994 by Chapter V of the Finance Act, 1994. It was imposed on an initial set of three services in 1994 and the scope of the service tax has since been expanded continuously by subsequent Finance Acts. The Finance Act extends the levy of service tax to the whole of India, except the State of Jammu & Kashmir.

(Source: National Information Centre) 7. Government Policies

The Indian Automobile Industry plays a major role in the economic scenario of the country. The automobile sector in India, record sales of more than one million passenger cars per year. The percentage of automobile exports has risen significantly during the last few years. The government policies on Indian automobile industry have been framed in order to aid in the expansion of the automobiles sector in India.


FUNDAMENTAL ANALYSIS OF AUTOMOBILE INDUSTRY During the early stages, the automobile industry was not accorded much importance by the Indian Government. However, the attitude changed during the 1990's. A number of reforms were initiated in 1991. Liberal policies affected during this period, proved to be beneficial to the automobile industry. The fiscal measures, tax reliefs and reforms in equity regulations and foreign exchange led to significant growth in the automobile sector. A reduction in the percentage of tariffs imposed on exports and a change in the banking policies was instrumental in the expansion and growth of the banking sector.

Prior to the mid 1990's, the Indian automobile sector comprised of indigenous companies. The automobile market in India was however, opened up to foreign investors in 1996. International names like Ford, Hyundai, Toyota, Volvo, Daimler Chrysler and GM Honda were thus, able to make their foray into the Indian automobile sector. Furthermore, the auto emission rules issued by the government in recent years ensured that the vehicles manufactured in India, catered to international standards. At present, the automobiles sector contributes 4 % to the GDP. About 9.7 million automobiles were manufactured in 2005-2006. Export figures had crossed the magic figure of one billion during 2003-2004.

A reduction in the tariff imposed on car exports has been effected by the Indian government. There has also been a removal of the minimum capital investment required from new investors. The new policy is also in favour of reduction in excise duty for small automobiles and low emission and multi utility cars. The tariff policy is also to be reviewed on a regular basis in order to affect a balance between domestic industry and international trade. There has also been a proposal for tax relaxation on investment of more than Rs.500 Crore.

The government has recently proposed for an infrastructure that will provide one stop clearance for any kind of proposal for foreign direct investment in the automotive sector. This will include the local clearance system also for the same purpose. There are also plans for imposing a 100 % tax deduction on export profits. The government has also proposed for a concession in import duty for the establishment of new manufacturing units and industrial holdings.

The Indian government is also urging the state governments to ensure continuous power supply to the automotive manufacturing units as well as granting them with the preferred plots of land. Captive Generation for the automobile sector has also been proposed. The auto policy of the Indian government also includes the promotion of vehicles which are run on alternative energy resources. Talks are also on for extensive research, development and designing facilities that would affect modernization in the automotive sector.

The policies adopted by the Indian government for the growth and development of the automobile sector, has led to a large number of foreign investments. It has also given rise to an increased sales rate for two wheelers and other automobiles. India is also becoming the ultimate outsourcing destination for global automobile companies like Ford, Mitsubishi, Toyota, Hyundai etc.

7. GDP a nd Aut o m obile 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).

The market value of Automobile Industry is more than US$8 bl. and Contribution in Indian GDP is near about 5% and will be double by 2016. The automotive industry in India grew at a computed annual growth rate (CAGR) of 11.5 per cent over the past five years, but growth rate in last FY2008-09 was only 0.7% with passenger car sales shows 1.31% growth while Commercial Vehicles segment slumped 21.7%.

Following is the graph showing a trend of Indian GDP trend in past 3 year



FDI’S

In India FDI up to 100 per cent, 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.

TIMELINE OF INDIAN ECONOMYColonial period

East India Company

1793 o Cornwallis' Permanent Settlement Instituted in Bengal

1820

o China was the world's largest economy followed by the UK and India. Industrial revolution in the UK catapulted the nation to the top league of Europe for the first time ever. During this period, British foreign and economic policies began treating India as an unequal partner for the first time.[8]

1850

o The gross domestic product of India in 1850 was estimated at about 40 per cent that of China. British cotton exports reach 30 per cent of the Indian market by 1850.[9]

British Raj

1868


http://en.wikipedia.org/wiki/Timeline_of_the_economy_of_India#cite_note-8

http://en.wikipedia.org/wiki/Timeline_of_the_economy_of_India#cite_note-7

http://en.wikipedia.org/wiki/Industrial_revolution

http://en.wikipedia.org/wiki/Industrial_revolution

http://en.wikipedia.org/wiki/Permanent_Settlement

FUNDAMENTAL ANALYSIS OF AUTOMOBILE INDUSTRY o First estimation of India's national income by Dadabhai Naoroji

1870

o India's economy had a 12.2% share of world income under the British Empire.

1913

o India's economy had a 7.6% share of world income under the British Empire.

1943

o Famine of Bengal

Post-Independence period

Nehruvian era

1952 o India's economy had a 3.8% share of world income.

1973

o India's economy was $494.8 billion, which accounted for a 3.1% share of world income.

[1980–1991

Virtually Closed.

1991–present

1991 o Economic liberalisation was initiated by Indian Prime minister P. V. Narasimha Rao and his finance minister Manmohan Singh in response to a macroeconomic crisis.

INDIA’S GDP GROWTH RATE AFTER LPG


http://en.wikipedia.org/wiki/Manmohan_Singh

http://en.wikipedia.org/wiki/P._V._Narasimha_Rao

http://en.wikipedia.org/wiki/Narasimha_Rao#Economic_reforms

http://en.wikipedia.org/wiki/Bengal_famine_of_1943

http://en.wikipedia.org/wiki/British_Empire

http://en.wikipedia.org/wiki/Dadabhai_Naoroji

http://en.wikipedia.org/wiki/National_income


2010

o India's economy is $4.002 trillion which accounts for a ~6.0% share of world income, the fourth largest in the world in terms of real GDP.

o In the following years, these features of the economy have changed dramatically. The share of agriculture in GDP has dropped sharply from 40% to 17% in the three decades from 1979 to 2009. Alongside this decline of agriculture to 17%, there has been a new rise of private corporate investment. All the way till the early 1980s, this stayed below 5%. In this period, the fluctuations in corporate investment would have had little to do with overall macroeconomic conditions.

After 1980, private corporate investment has achieved big values. It has also been strongly linked to business cycle conditions. The two great expansions in India – the mid-1990s and the post-2002 – were each associated with very large expansions of private corporate investment.

B.IN D UST R Y A NA L YSIS 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 centres to emerging developing countries.

In 2011, estimated rate of growth of India Auto industry is going to be 8% .The Indian automobile sector is far from being saturated, leaving ample opportunity for volume growth.

SEGMENTATION OF INDIAN 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


http://en.wikipedia.org/wiki/Real_versus_nominal_value_(economics)

FUNDAMENTAL ANALYSIS OF AUTOMOBILE INDUSTRY segmentation that how much each sector comprises of whole Indian Automobile Industry.

I ndustri a l A na l y sis of a n y indust r y can be done based on the following headings:

1. Five Forces Model2. Industrial Life Cycle3. SWOT Analysis4. Industry Specific Index BSE auto index

1. Five Forces Model

A). Barriers to entry

Barriers to entry in this industry is high

These barriers are study

The cost of developing high volume production facilities. The ability to gain access to technology of major global operators.

The relatively high competition between established domestic companies and foreign companies.

The automobile manufacturing sector is characterised by a high cyclical growth patterns, high fixed cost and break-even point levels, and an excessive number of participants. Barriers to entry into automobile manufacturing activity are formidable. For a new company, the start-up capital required to establish manufacturing capacity to achieve minimum efficient scale is prohibitive.


FUNDAMENTAL ANALYSIS OF AUTOMOBILE INDUSTRY 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.

Some of the barriers that need to be overcome by a new entrant include: the cost of developing high volume production facilities, in order to benefit from economies of scale; and the ability to gain access to technology of major operators, as the present incumbents include some of the largest multinationals, that have considerable claims to new technology. The relative large size of domestic market, together with high competition, has already seen significant rationalisation of this industry.

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.

B). Threat of Su b s t itutes

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.

C). Bargaining power of buyers In the relationship between the automotive industry and its ultimate consumers, the power axis is tipped in the consumers’ favour. This is due to the fairly standardized nature and the low switching costs associated with selecting from among competing brands.

D). Bargaining power of suppliers

In the relationship between the industry and its suppliers, the power axis is tipped in industry’s favour. The industry is comprised of powerful buyers who are generally able to dictate their terms to the suppliers.

E). Rivalry among competitors Competition in this industry is high Competition in this industry is increasing

Automotive industry is a volume driven industry and certain critical mass is a pre-requisite for attracting the much needed investment in research and development and new product design and development. Research and development investment is needed for innovations which is the lifeline for achieving and retaining competitiveness in the industry. This competitiveness in turn depends on the capacity and the speed of the industry to innovate and upgrade. The most important indices of competitiveness are productivity of both labour and capital.

The concept of attaining competitiveness on the basis of low cost and abundant labour, favourable exchange rates, low interest rates and concessional duty structure is becoming


FUNDAMENTAL ANALYSIS OF AUTOMOBILE INDUSTRY inadequate and therefore, not sustainable. A greater emphasis is required on the development of the factors like innovation which can ensure competitiveness on a long-term basis.

India with a rapidly growing middle class (450 million in 2007 as per NCAER Report), market oriented stable economy, availability of trained manpower at competitive cost, fairly well-developed credit and financing facilities and local availability of almost all the raw materials at a competitive cost has emerged as one of the favourite investment destinations for the automotive manufacturers. These advantages need to be leveraged in a manner to attain the twin objective of ensuring availability of best quality product at lower cost to the consumers on the one hand and developing and assimilating the latest technology in the industry on the other hand.

As per Automotive Mission Plan 2006-2016 (2008), the Indian Government recognises its role as a catalyst and facilitator to encourage the companies to move to higher level of competitive performance. The Indian Government wants to create a policy environment to help companies gain competitive advantage. The government aims that with its policies its encourage growth, promote domestic competition and stimulate innovation.

(Source: Department of Heavy Industry & Public Enterprises Government of India)

2. Industrial Life C y cle

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 per cent. Passenger Cars grew by 11.79 per cent, Utility Vehicles by 10.57 per cent and Multi- Purpose Vehicles by 21.39 per cent in this period. The Commercial Vehicles segment grew marginally at 4.07 per cent. While Medium & Heavy Commercial Vehicles declined by 1.66 per cent, light Commercial Vehicles recorded a growth of 12.29 per cent. Three Wheelers sales fell by 9.71 per cent with sales of Goods Carriers declining drastically by 20.49 per cent and Passenger Carriers declined by 2.13 per cent during April- March 2008 compared to the Two Wheelers registered a negative growth rate of 7.92 % during this period, with motorcycles and electric two wheelers segments declining by 11.90 per cent 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


FUNDAMENTAL ANALYSIS OF AUTOMOBILE INDUSTRY 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.

Life Cycle Reasons

The market for manufacturing motor vehicles is consistently increasing. The products manufactured by this industry are profitable.

Companies have been consistently opening new plats and employing over the past five years.

Japanese and European manufacturers of motor vehicles have entered the market.

Industry value added has been rising, along with the rise in GDP.

Life Cycle Analysis

General improvement in availability of trained manpower and good infrastructure is required for sustainable growth of the industry. Keeping this in view, the Indian Government has launched a unique initiative of National Automotive Testing and R&D Infrastructure Project (NATRIP) to provide specialised facilities for Testing, Certification and Homologation to the industry. A similar initiative is required for creating specialised institutions in automotive sector for education, training and development.

The auto industry has grown in the clusters of interconnected companies which are linked by commonalities and complementarities. The major clusters are in and around Manesar in North, Pune in West, Chennai in South, Jamshedpur-Kolkata in East and Indore in Central India. The Government is planning to create a National Level Specialises Education and Training Institute for Automotive Sector and to enhance the transportation, communication and export infrastructure facilities.

The contribution of automotive sector in the GDP of India is expected to double by 2016 through major spotlight on export of small cars, Multi-Utility Vehicles, Two and Three wheelers.

(Source: Department of Heavy Industry & Public Enterprises Government of India)


FUNDAMENTAL ANALYSIS OF AUTOMOBILE INDUSTRY 3.) 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:

StrengthsLarge domestic market Sustainable labour Cost advantage Competitive autoComponent vendor baseGovernment incentives for manufacturing plantsStrong engineering skills in design etc.

Weaknesses

Low labour productivityHigh interest costs and high overheads make the production uncompetitiveVarious 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 levelCut in excise dutiesRising rural demand

Threats

Rising input costs

Rising interest rates

Cut throat competition

4.) Industry Specific Index

Industry specific index also called as sectorial index are those indices, which represent a specific industry sector. All stocks in a sectorial index belong to that sector only. Hence an index like the BSE auto index is made of auto stocks. Sectorial 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- last five years

C.COMPANY-TATA MOTORS

Tata Motors is India’s largest automobile company, with consolidated revenues of Indian Rupee symbol.svg9, 274 crore (US$2.07 billion) in 2010–11. It is the leader in commercial vehicles and among the top three in passenger vehicles. Tata Motors has products in the compact, midsize car and utility vehicle segments. The company is the world's fourth largest truck manufacturer, the world's second largest bus manufacturer, and employs 50,000 workers. Since first rolled out in


FUNDAMENTAL ANALYSIS OF AUTOMOBILE INDUSTRY 1954, Tata Motors has produced and sold over 4 million vehicles in India.

Established in 1945, when the company began manufacturing locomotives, the company manufactured its first commercial vehicle in 1954 in collaboration with Daimler-Benz AG, which ended in 1969.Tata Motors is a dual-listed company traded on both the Bombay Stock Exchange, as well as on the New York Stock Exchange. Tata Motors in 2005 was ranked among the top 10 corporations in India with an annual revenue exceeding INR 320 billion. In 2010, Tata Motors surpassed Reliance to win the coveted title of 'India's most valuable brand' in an annual survey conducted by Brand Finance and The Economic Times.

Tata Motors has auto manufacturing and assembly plants in Jamshedpur, Pantnagar, Lucknow, Ahmedabad, Sanand, Dharwad and Pune in India, as well as in Argentina, South Africa and Thailand.It 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.

Acquisitions

In 2004 Tata Motors acquired Daewoo's truck manufacturing unit, now known as Tata

Daewoo Commercial Vehicle, in South Korea

In 2005, Tata Motors acquired 21% of Aragonese Hispano Carrocera giving it controlling

rights of the company.


http://en.wikipedia.org/wiki/Hispano_Carrocera

http://en.wikipedia.org/wiki/Arag%C3%B3n

http://en.wikipedia.org/wiki/Tata_Daewoo_Commercial_Vehicle

http://en.wikipedia.org/wiki/Tata_Daewoo_Commercial_Vehicle

FUNDAMENTAL ANALYSIS OF AUTOMOBILE INDUSTRY In 2007, formed a joint venture with Marcopolo of Brazil and introduced low-floor buses in

the Indian Market.

In 2008, Tata Motors acquired British Jaguar Land Rover (JLR), which includes the Daimler

and Lanchester brand names.

In 2010, Tata Motors acquired 80% stake in Italy-based design and engineering company

Trilix for a consideration of €1.85 million. The acquisition is in line with the company’s

objective to enhance its styling/design capabilities to global standards.

Management - Tata Motors

Name DesignationRatan N Tata Chairman / Chair PersonCarl-Peter Forster Managing Director & Group CEON N Wadia DirectorR A Mashelkar DirectorN Munjee DirectorR Sen Director

Name DesignationRavi Kant Vice ChairmanP M Telang Managing DirectorS M Palia DirectorS Bhargava DirectorV K Jairath DirectorRalf Speth Director

1. ANNUAL REPORT

A.DIRECTOR’S REPORT

The Directors present their Sixty-Fifth Annual Report and the Audited Statement of Accounts for the year ended March 31, 2010.

FINANCIAL PERFORMANCE SUMMARY (TATA MOTORS)

(Rs. in crores)

Company Tata Motors’ Group


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2009-10 2008-09 2009-10 2008-09

FINANCIAL RESULTS

(i) Gross Revenue 38,364.10 28,568.21 95,567.42 74,093.31

(ii) Net Revenue (Excluding excise duty) 35,593.05 25,629.73 92,519.25 70,880.95

(iii) Total Expenditure 31,414.77 23,877.29 83,905.09 68,684.45

(iv) Operating Profit 4,178.28 1,752.44 8,614.16 2,196.50

(v) Other Income 1,853.45 925.97 1,793.12 798.96

(vi) Profit before Interest, Depreciation, Amortization, Exceptionalitems & Tax 6,031.73 2,678.41 10,407.28 2,995.46

(vii) Interest and Discounting Charges (Net) 1,103.84 673.68 2,239.71 1,930.90

(viii) Cash Profit 4,927.89 2,004.73 8,167.57 1,064.56

(ix) Depreciation, Amortisation & Product Development Expenses 1177.90 925.71 4385.33 2854.52

(x) Profit / (Loss) for The year before Exceptional Items & Tax 3,749.99 1,079.02 3,782.24 (1,789.96)

(xi) Exceptional items 920.45 65.26 259.60 339.29

(xii) Profit / (Loss) Before Tax 2,829.54 1,013.76 3,522.64 (2,129.25)



(xiii) Tax Expense 589.46 12.50 1,005.75 335.75

(xiv) Profit / (Loss) After Tax 2,240.08 1,001.26 2,516.89 (2,465.00)

(xv) Share of Minority Interest and Share of Profit/ (Loss)In respect of investments In associate companies - - 54.17 (40.25)

(xvi) Profit / (Loss) For the year 2,240.08 1,001.26 2,571.06 (2,505.25)

(xvii) Balance Brought Forward from Previous Year 1,685.99 1,383.07 (1,553.66) 1,764.12

(xviii) Credit taken for Dividend Distribution Tax For Previous Year - 15.29 - -

(xix) Amount Available For Appropriations 3,926.07 2,399.62 1,017.40 (741.13)

B APPROPRIATIONS

(a) Debenture Redemption Reserve 500.00 267.80 500.00 267.80

(b) General Reserve 500.00 100.13 520.32 138.20

(c) Other Reserves - - 13.08 41.95

(d) Dividend (including tax) 991.94 345.70 1,001.85 364.58


FUNDAMENTAL ANALYSIS OF AUTOMOBILE INDUSTRY (e) Balance carried to Balance Sheet 1,934.13 1,685.99 (1,017.85) (1,553.66)

DIVIDEND

Considering the Company’s financial performance, the Directors have recommended a dividend of Rs.15/- per share on the increased capital of506,381,356 Ordinary Shares of Rs.10/- each (previous year- Rs.6/- per, share) and Rs.15.50 per share on 64,176,560 ‘A’ Ordinary Shares of Rs.10/- each (previous year- Rs 6.50 per share) and any further Ordinary Shares and/or ‘A’ Ordinary Shares that may be allotted by the Company prior to August 12, 2010 (being the book closure date for the purpose of the said dividend entitlement) for 2009-10. The said dividend, if approved by the Members, would involve a cash outflow of Rs.991.94 crores (previous year - Rs.345.70 crores) resulting in a pay-out of 44% of the unconsolidated profits of the Company.

OPERATING RESULTS AND PROFITS

After the economic downturn and difficult market conditions in the automotive sector globally in 2008-09, during the year, economies across the world (with a few exceptions) showed signs of recovery and growth. The Indian economy bounced back quickly and strongly growing at 7.2% in 2009-10. The automotive sector in India started the year steadily, gathered momentum in different segments in the second half of the year and ended the year with a record growth and performance.

The Tata Motors’ Group turnover was Rs.95, 567 crores, a growth of 29% over previous year contributed mainly by market recovery, improved realization and successful launch of new products. Consolidated Profit before Tax was Rs.3, 523 crores (Loss of Rs.2, 129 crores in 2008-09) and Consolidated Profit for the year was Rs.2, 571 crores (Loss of Rs.2, 505crores in 2008-09).

The performance of the Company and its subsidiaries is elaborated in the Management Discussion and Analysis Report which forms a part of this Annual Report. A snapshot is given below.

VEHICLE SALES AND MARKET SHARES

The Company recorded a sale of 633,862 vehicles in 2009-10, a growth of 34% over previous year (472,885 vehicles) in the domestic market in India, representing a 25.5% share in the industry (improving from 24.4% share in the previous year).

- The Light Commercial Vehicle (LCV) sales recorded a spectacular growth of 45.4% in FY 2009-10. While this was largely aided by the growth in the small commercial vehicles, the rest of the segment also grew handsomely. The competition in the small commercial vehicle range increased resulting in a 0.5% loss in the domestic market share reducing it to 64.8%. The Company’s sales increased by 44.2% to 218,681 LCVs. The Company launched new variants on the Ace platform, Ace EX, Super Ace and the 407 Pickup which are expected to help in gaining volumes.


FUNDAMENTAL ANALYSIS OF AUTOMOBILE INDUSTRY - In the Small Car segment, increase in market share to 13.3% (as against 12.7%, in the previous year), with the growing sales of Indica Vista, sales of the Nano and the Fiat Punto;

- Commencement of sales of Nano in July 2009 and completing deliveries of 30,763 cars to the customers and commencement of trial production in the Sanand plant.

- The Company sold 225 Jaguar and Land Rover vehicles through its exclusive dealerships in India in the first year of the sales of the Jaguar Land Rover brands.

Tata Motors’ Group sales were 880,396 vehicles across its entire range of products and markets. The key highlights were:

- The Company has sold 667,971 vehicles.

- In South Korea, Tata Daewoo Commercial Vehicle Company Limited (TDCV) successfully launched the new premium truck platform – Prima; TDCV sales were stagnant at 9,011 vehicles in Korea and international markets as compared to 9,137 vehicles in the previous year.

- In Thailand, Tata Motors (Thailand) Limited saw a very good response to the CNG version of the Tata Pick-up vehicle – Xenon.

HUMAN RESOURCES & INDUSTRIAL RELATIONS Industrial Relations were cordial at all locations. In a challenging environment and business conditions, the support from the workforce and unions was positive throughout. The key highlights in the human resources and industrial relations were:- - The Company’s plant at Uttarakhand was conferred with the prestigious Golden Peacock Award for Safety Environment and the National Award for energy conservation by the Ministry of Power. The Pune plant received the Frost and Sullivan Green leader award for 2009 in the automotive sector. The Jamshedpur plant obtained a revised and updated certification under SA 8000 – a global social accountability standard for working conditions, certifying labour practices at the facilities including those of suppliers. Towards organizational health and safety, the plants at Jamshedpur, Pune, Uttarakhand and Lucknow are certified under OHSAS 18001. The communication on progress during 2009-10 was submitted to the United Nations Global Compact. The Company has also submitted GRI report for 2008-09 based on G3 Guidelines of sustainability reporting framework. The Company also undertook several initiatives, includingOn-line tools for performance improvement, employee development and training.

FINANCE

The borrowings of the Company as on March 31, 2010 stood at Rs.16, 625.91 crores (previous year Rs.13, 165.56 crores). The key highlights were:- - In 2009-10, the Company raised Rs.4,200 crores from the issue of Secured, Rated, Credit Enhanced, Listed, 2% Coupon Non-Convertible Debentures (NCDs) with premium on redemption and Rs.200crores from the issue of 9.95% Secured NCDs.

- In a challenging financial market environment, the Company successfully rolled over in May 2009, the bridge finance it had obtained for acquisition of the Jaguar Land Rover business for a period of 18 months, till December 2010. Subsequently, the Company was able to prepay this


FUNDAMENTAL ANALYSIS OF AUTOMOBILE INDUSTRY loan facility in October 2009 from certain divestments, improved cash generation from operations and also through fund raised, US$ 375 million from the issue of Global Depository Receipts and US$ 375 million from issue of Foreign Currency Convertible Notes.

- The Company also sold 20% stake in Telco Construction Equipment Company Limited (Telcon), in favour of Hitachi Construction Machinery Co. Ltd. (Hitachi) for a consideration of Rs.1,152.51 crores (net of expenses) resulting in the Company’s shareholding being reduced to 40% (on consolidated basis).

NEW PRODUCT, TECHNOLOGY AND ENVIRONMENT - FRIENDLY INITIATIVES

Product Development

- The new range of buses (based on the Prima platform with bodies being made by Tata Marcopolo displayed at the Delhi Auto Expo in January 2010) have been launched. Tata Hispano has developed a new Intercity Coach the Xerus and a new Suburban Bus, the Intea and is working on developing a range of other buses.

- In small commercial vehicles, the Ace platform is being exploited to introduce variants to address various market segments. The Ace EX and Super Ace have been launched and the Company will introduce the multi-purpose vehicle, Venture, the passenger vehicle variant, Magic Iris and the micro-truck Ace Zip.

- Variants of the Nano, to suit specific needs of the domestic and international markets are being developed. Increased thrust is being made to explore opportunities for launch of the Indica Vista and the Indigo Manza in various international markets.

- In July 2009, Jaguar Land Rover launched to the world, the beginnings of its response to Environmental and C02 challenges with more compact and efficient vehicles. The New XJ launched in early 2010-11, featuresthe next generation Jaguars aerospace-inspired aluminium body architecture enhanced power train with ultra-efficient petrol and diesel engine variants, highest standards of personal luxury and specifications, amongst which is its instrument cluster with a 12" thin film transistor (TFT) screen. The Range Rover Evoque, a new more compact product, with class leading C02 performance and technology is under development. The product will showcase technology features including Park-for-you and Magna-ride to deliver outstanding Chassis dynamics, whilst also showcasing increased use of Aluminium and composites for exterior body panels to reduce weight.

Development of Environment-friendly Technologies

As a responsible automobile manufacturer, Tata Motors Group aims to develop vehicles and technologies to reduce the carbon footprint by developing vehicles running on alternative fuels and hybrids such as:

Development of a complete range of CNG vehicles including Ace, Magic, Xenon, Winger, Indigo and also trucks and buses. Over 2200 CNG fuelled buses were supplied to Delhi Transport Corporation. Tata Motors (Thailand) Limited was the first OEM to offer a factory fitted CNG variant of the Xenon pickup in the Thai market. Tata Daewoo Commercial


FUNDAMENTAL ANALYSIS OF AUTOMOBILE INDUSTRY Vehicle Co. Ltd. (TDCV) pioneered the development and introduction of the first Liquefied Natural Gas (LNG) tractor trailer and the LPG MCV truck in the South Korean market.

The Company is simultaneously working to introduce a range of technologies, which will help in reducing fuel consumption on its petrol and diesel powered vehicles such as improved fuel injection systems, electric power steering, radial tyres for commercial vehicles, low resistance tyres, automatic transmissions and weight reduction of components.

B.AUDITOR’S REPORT

1. We have audited the attached Balance Sheet of TATA MOTORS LIMITED (“the Company”) as at March 31, 2010, the Profit and Loss Account and the Cash Flow Statement of the Company for the year ended on that date, both annexed thereto. These financial statements are the responsibility of the Company’s Management. Our responsibility is to express an opinion on these financial statements based on our audit.

2. We conducted our audit in accordance with the auditing standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and the disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by the Management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

3. As required by the Companies (Auditor’s Report) Order, 2003 (CARO) issued by the Central Government in terms of Section 227(4A) of the Companies Act, 1956, we enclose in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order.

4. Further to our comments in the Annexure referred to in paragraph 3 above, we report as follows:

(a) We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit;

(b) In our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books;

(c) The Balance Sheet, the Profit and Loss Account and the Cash Flow Statement dealt with by this report are in agreement with the books of account;

(d) In our opinion, the Balance Sheet, the Profit and Loss Account and the Cash Flow Statement dealt with by this report are in compliance with the Accounting Standards referred to in Section 211(3C) of the Companies Act, 1956;

(e) in our opinion and to the best of our information and according to the explanations given to us, the said accounts give the information required by the Companies Act, 1956 in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India:


FUNDAMENTAL ANALYSIS OF AUTOMOBILE INDUSTRY (i) In the case of the Balance Sheet, of the state of affairs of the Company as at March 31, 2010;

(ii) In the case of the Profit and Loss Account, of the profit of the Company for the year ended on that date; and

(iii) In the case of the Cash Flow Statement, of the cash flows of the Company for the year ended on that date.

5. On the basis of the written representations received from the Directors as on March 31, 2010 taken on record by the Board of Directors, none of the Directors is disqualified as on March 31, 2010 from being appointed as a director in terms of Section 274(1) (g) of the Companies Act,

1956.

FINANCIAL STATEMENTS

BALANCE SHEET

Mar ' 11 Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07

Sources of funds

Owner's fund

Equity share capital 634.65 570.60 514.05 385.54 385.41

Share application money 3.06 - - - -

Preference share capital - - - - -

Reserves & surplus 19,375.59 14,208.55 11,855.15 7,428.45 6,458.39

Loan funds

Secured loans 7,766.05 7,742.60 5,251.65 2,461.99 2,022.04

Unsecured loans 8,132.70 8,883.31 7,913.91 3,818.53 1,987.10

Total 35,912.05 31,405.06 25,534.76 14,094.51 10,852.94

Uses of funds

Fixed assets

Gross block 21,883.32 18,416.81 13,905.17 10,830.83 8,775.80




Less : revaluation reserve - 24.63 25.07 25.51 25.95

Less : accumulated depreciation 8,466.25 7,212.92 6,259.90 5,443.52 4,894.54

Net block 13,417.07 11,179.26 7,620.20 5,361.80 3,855.31

Capital work-in-progress 4,058.56 5,232.15 6,954.04 5,064.96 2,513.32

Investments 22,624.21 22,336.90 12,968.13 4,910.27 2,477.00

Net current assets

Current assets, loans & advances 14,090.61 12,329.48 10,836.58 10,781.23 10,318.42

Less : current liabilities & provisions 18,278.40 19,672.73 12,846.21 12,029.80 8,321.20

Total net current assets -4,187.79 -7,343.25 -2,009.63 -1,248.57 1,997.22

Miscellaneous expenses not written - - 2.02 6.05 10.09

Total 35,912.05 31,405.06 25,534.76 14,094.51 10,852.94

Notes:

Book value of unquoted investments 22,275.15 21,991.93 12,358.84 4,145.82 2,117.86

Market value of quoted investments 379.16 345.53 558.32 2,530.55 1,323.08

Contingent liabilities 4,798.83 3,708.33 5,433.07 5,590.83 5,196.07

Number of equity shares outstanding (Lacks) 6346.14 5705.58 5140.08 3855.04 3853.74

(Rs crore)

PROFIT AND LOSS A/C




Income

Operating income 48,025.34 35,373.29 25,660.67 28,767.91 26,664.25

Expenses

Material consumed 34,692.83 24,759.49 19,039.41 20,931.81 19,529.88

Manufacturing expenses 2,147.35 1,652.22 1,171.59 1,230.14 1,200.36

Personnel expenses 2,294.02 1,836.13 1,551.39 1,544.57 1,367.83

Selling expenses - 1,583.24 1,224.15 1,179.48 1,068.56

Administrative expenses 4,119.83 2,249.92 1,867.05 1,982.79 1,488.16

Expenses capitalised - -740.54 -916.02 -1,131.40 -577.05

Cost of sales 43,254.03 31,340.46 23,937.57 25,737.39 24,077.74

Operating profit 4,771.31 4,032.83 1,723.10 3,030.52 2,586.51

Other recurring income 183.26 402.27 841.54 359.42 887.23

Adjusted PBDIT 4,954.57 4,435.10 2,564.64 3,389.94 3,473.74

Financial expenses 1,143.99 1,246.25 704.92 471.56 455.75

Depreciation 1,360.77 1,033.87 874.54 652.31 586.29

Other write offs 106.17 144.03 51.17 64.35 85.02

Adjusted PBT 2,343.64 2,010.95 934.01 2,201.72 2,346.68

Tax charges 384.70 589.46 12.50 547.55 660.37

Adjusted PAT 1,958.94 1,421.49 921.51 1,654.17 1,686.31




Nonrecurring items -147.12 818.59 79.75 374.75 227.15

Other non-cash adjustments - - 15.29 - -0.07

Reported net profit 1,811.82 2,240.08 1,016.55 2,028.92 1,913.39

Earnings before appropriation 3,745.95 3,926.07 2,399.62 3,042.75 2,690.15

Equity dividend 1,274.23 859.05 311.61 578.43 578.07

Preference dividend - - - - -

Dividend tax 192.80 132.89 34.09 81.25 98.25

Retained earnings 2,278.92 2,934.13 2,053.92 2,383.07 2,013.83

KEY RATIOS

Attribute Mar'08 Mar'09 Mar'09 Mar'10 Mar'11

Per share ratios

Adjusted EPS (Rs) 42.91 17.93 17.93 24.91 30.87

Adjusted cash EPS (Rs) 61.50 35.94 35.94 45.56 53.98

Reported EPS (Rs) 52.63 19.48 19.48 39.26 28.55




Reported cash EPS (Rs) 71.22 37.49 37.49 59.91 51.67

Dividend per share 15.00 6.00 6.00 15.00 20.00

Operating profit per share (Rs) 78.61 33.52 33.52 70.68 75.18

Book value (excl rev res) per share (Rs) 202.54 240.60 240.60 259.03 315.31

Book value (incl rev res) per share (Rs.) 203.20 241.09 241.09 259.46 315.31

Net operating income per share (Rs) 746.24 499.23 499.23 619.98 756.76

Free reserves per share (Rs) 182.38 217.77 217.77 229.67 -

Profitability ratios

Operating margin (%) 10.53 6.71 6.71 11.40 9.93

Gross profit margin (%) 8.26 3.30 3.30 8.47 7.10

Net profit margin (%) 6.96 3.77 3.77 6.26 3.75

Adjusted cash margin (%) 8.13 6.97 6.97 7.26 7.10

Adjusted return on net worth (%) 21.18 7.45 7.45 9.61 9.78

Reported return on net worth (%) 25.98 8.09 8.09 15.15 9.05

Return on long term funds (%) 22.85 8.89 8.89 12.26 9.71




Leverage ratios

Long term debt / Equity 0.49 0.49 0.49 0.79 0.79

Total debt/equity 0.80 1.06 1.06 1.12 0.79

Owners fund as % of total source 55.43 48.44 48.44 47.05 55.72

Fixed assets turnover ratio 2.69 1.88 1.88 1.95 2.19

Liquidity ratios

Current ratio 0.89 0.84 0.84 0.62 0.77

Current ratio (inc.st loans) 0.64 0.43 0.43 0.44 0.77

Quick ratio 0.66 0.58 0.58 0.43 0.55

Inventory turnover ratio 14.44 13.47 13.47 13.50 13.40

Pay-out ratios

Dividend pay-out ratio (net profit) 32.51 34.52 34.52 44.28 80.96

Dividend pay-out ratio (cash profit) 24.02 17.94 17.94 29.02 44.74

Earning retention ratio 60.13 62.49 62.49 30.22 25.12

Cash earnings retention ratio 72.18 81.29 81.29 61.84 57.18




Coverage ratios

Adjusted cash flow time total debt 2.65 7.13 7.13 6.40 4.64

Financial charges coverage ratio 7.19 3.64 3.64 3.56 4.33

Fin. charges cov.ratio (post tax) 6.82 3.73 3.73 3.74 3.87

RATIO ANALYSIS

Sr.No. Ratios Formula

Year EndedMar10

Year ended Mar11

Explanation

1. Current ratioCurrent Assets/

Current Liabilities0.62 0.77

Higher the current ratio better is the situation and the ideal value is 2:1. Tata Motors’ current ratio is less than 1 which indicates more liabilities than assets.

2. Liquid ratioLiquid assets/liquid

liabilities0.43 0.55

A higher liquid ratio indicates that there are sufficient assets available with the organization which can be converted in the form of cash almost immediately to pay off those liabilities which are to be paid off almost immediately.

3.Fixed Assets turnover ratio

Net sales/ fixed assets 1.95 2.19

It indicates the capability of organization to achieve maximum sales with the minimum investment in fixed assets. Higher the ratio, the better.

4. Current assets turnover ratio

Net sales/ current assets

6.68 5.4 It indicates the capability of organization to achieve maximum sales with the minimum investment in current


FUNDAMENTAL ANALYSIS OF AUTOMOBILE INDUSTRY assets. Higher the ratio, the better.

5.Working capital

turnover ratio

Net sales/ working capital

5.68 3.68

It indicates the capability of organization to achieve maximum sales with the minimum investment in working capital. Higher the ratio, the better.

6.Inventory/

Stock turnover ratio

Net sales/Closing inventory

3.52 4.60

It indicates the capability of organization to achieve maximum sales with the minimum investment in inventory. Higher the ratio, the better.

7.Capital

turnover ratioSales/capital

employed1.12 0.79

It indicates the efficiency of the organization with which the capital employed is being utilized. Higher the ratio, the better.

8.Proprietary

ratioFixed assets/ owners’

fund0.54 0.60

Both these figures indicate that the owners’ funds are exceeding the fixed assets which indicate that a part of owners’ funds is invested in the current assets also.

9.

Fixed Assets/Capital

employed ratio

Fixed assets*100/capital

employed32% 26%

A low value of this ratio in both cases indicates that a major portion of the long term funds are invested in current assets as compared to fixed assets.

10.Interest

Coverage ratio

Profits before interest and taxes/ Interest

charges3.56 4.33

A high ratio as indicted by the 2 figures is favorable as it indicates the protection available to the lenders of long term capital in the form of funds available to pay the interest charges.

11.Debt service

Coverage ratio

(Net profit after taxes + Depreciation + Interest on term

loans)/(Interest on term loans +

Installments of term loans

0.47 0.35

It gives indication about the capability of Tata Motors to meet the obligations of long term borrowing. A very low value of ratio means insufficient earning capacity of organization to meet the obligations of long term borrowing.

12.Gross profit

ratioGross profit*100/net

sales8.47 7.1

A low value shown by the 2 figures indicates that this organization is not able to produce or purchase at a low cost. It can be increased by either adjusting the sales price or production cost or by increasing volume of products having high gross profit margin.



13.Net profit

ratio(Net profit after

taxes) * 100/net sales 6.26% 3.75%

It indicates that portion of sales available to the owner after considering all types of expenses and costs. The lower figures alongside indicate lower profitability of the business.

14.Operating

ratio

(Manufacturing cost of goods sold+

operating expenses)*100/Net

sales

11.40% 9.93%

A high ratio as seen alongside indicates that only a small margin of sales is available to meet the expenses in the form of interest, dividend and other non-operating expenses. A lower value is generally desirable.

15.Return on

AssetNet profit * 100

/assets36.13% 26.87%

It measures profitability of investments in the firm. Higher value is preferred which is not the case as per figures shown.

16.Return on

capital employed

(Net profit + Interest on long term

sources)/capital employed

0.73 0.57

It measures profitability of capital employed in the firm. Higher value is preferred and the situation of Mar08 was much better than Mar09.

17.Return on

Shareholders’ funds

Net profit after taxes * 100/ Total

shareholders’ funds0.14 0.08

It measures if the firm has earned sufficient returns for its shareholders or not. Higher the ratio, the better the situation which is not the case for Tata Motors in both the years.

18.Earnings per

share

(Net profit after taxes- preference

dividend)/ Number of equity shares outstanding

59.91 51.67It measures the profits available to the equity shareholders on a per share basis.

19.Capital to

non-current assets ratio

Owners’ equity/ Non-current assets

3.51 4.22

A higher capital to non-current assets ratio indicates that it is easier to meet the business' debt and creditor commitments.

20.Fixed costs to

total assetsFixed costs/ Total

assets1.09 1.06

An increase in the fixed costs to total assets ratio may indicate higher fixed charges, possibly resulting in greater instability in operations and earnings.

(Rs crore)

Cash flow




Profit before tax 1,811.82 2,240.08 1,001.26 2,028.92 1,913.46

Net cash flow-operating activity 1,505.56 6,586.03 1,295.02 6,174.50 2,210.13

Net cash used in investing activity -2,521.88 -11,848.29 -10,644.67 -5,721.86 -2,805.10

Net cash used in fin. activity 1,648.42 5,348.49 8,104.70 1,132.46 303.58

Net Inc./Dec. in cash and equivalent 632.10 86.23 -1,244.95 1,585.10 -291.39

Cash and equivalent begin of year 720.04 630.04 2,386.77 806.21 1,118.15

Cash and equivalent end of year 1,352.14 716.27 1,141.82 2,391.31 826.76

MOVEMENT IN TATA MOTOR’S SHARE,BSE AND AUTO INDEX OVER THE LAST FIVE YEARS

LEARNINGS FROM THE GRAPH



Tata motor’s share has given about 50% return

It’s has increased more than its benchmark index i.e. BSE and BSE-AUTO INDEX

At the time of recession its fall was less than the BSE AUTO INDEX

It follows the movement of BSE INDEX

LIMITATIONS OF THE STUDY (FA)

The main disadvantage for this study is that if used on its own, fundamental analysis (FA) doesn't take into consideration the "herd mentality" phenomenon. In the long run, the price per share (PPS) of companies is driven by their earnings, i.e. the profit they're yielding. In the short term, the momentum can be quite influential on the PPS: I'm sure you've noticed that some stocks are considered market darlings and, to a certain degree, it doesn't matter what their quarterly results are; people keep on buying. The same applies for companies that, all of a sudden, fall out of favour for whatever reason, genuine or not. They keep getting hammered regardless of the results the company pumps out, until one day it reverses... FA doesn't consider this irrational behaviour.

Fundamental analysis may offer excellent insights, but it can be extraordinarily time- consuming. Time-consuming models often produce valuations that are contradictory to the current price prevailing on Wall Street. When this happens, the analyst basically claims that the whole street has got it wrong. This is not to say that there are not misunderstood companies out there, but it is quite brash to imply that the market price, and hence Wall Street, is wrong.

Valuation techniques vary depending on the industry group and specifics of each company. For this reason, a different technique and model is required for different industries and different companies. This can get quite time-consuming, which can limit the amount of research that can be performed.

Fair value is based on assumptions. Any changes to growth or multiplier assumptions can greatly alter the ultimate valuation. Fundamental analysts are generally aware of this and use sensitivity analysis to present a base-case valuation, a best-case valuation and a worse- case valuation. However, even on a worst-case valuation, most models are almost always bullish, the only question is how much so.

The majority of the information that goes into the analysis comes from the company itself.

Too many economic indicators and extensive macroeconomic data can confuse novice investors.



It is beneficial only for long-term investments.

CONCLUSION

After the economic downturn and difficult market conditions in the automotive sector globally in 2008-09, during the year, economies across the world (with a few exceptions) showed signs of recovery and growth. The Indian economy bounced back quickly and strongly growing at 7.2% in 2009-10. The automotive sector in India started the year steadily, gathered momentum in different segments in the second half of the year and ended the year with a record growth and performance. Indian Automobile Industry is in the growth phase and the expected growth rate is 9-10% for FY2010-11 compares 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 manufacturers 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. 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 analysing 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.

Now taking TATA motors into consideration we can say the the company is performing very well it’s fundamentals tells us that it has great potential for growth it has good future ventures which could boosts it’s sales and profits .Its current financial data tells it has got a very strong financial position .The Tata Motors’ Group turnover was Rs.95, 567 crores, a growth of 29% over previous year contributed mainly by market recovery, improved realization and successful


FUNDAMENTAL ANALYSIS OF AUTOMOBILE INDUSTRY launch of new products.

SOME KEY POINTS:

The Company’s sales increased by 44.2% to 218,681 LCVs in FY year 10-11. The Company launched new variants on the Ace platform, Ace EX, Super Ace and the 407 Pickup which are expected to help in gaining volumes. That shows that it is doing well in this sector as well.

Commencement of sales of Nano in July 2009 and completing deliveries of 30,763 cars to the customers and commencement of trial production in the Sanand plant this helped the company to raise the sales figures.

Acquisitions of land rover and jaguar helped TATA to enter into a premium sector in India this will help TATA to compete with the players like BMW and Mercedes Benz.

A strong product portfolio, successful launch of new products and variants, extensive efforts in marketing and finance enablement for customers and leadership in market research and penetration, contributed to the significant improvement in overall performance

Reco mm endatio n s By analysing the industry on various parameters with the help of implementing Fundamental 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. 50% return in a period of just 3 months while others l ike 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 2010-11 prove that even in the period of recession the overall sales went up is sufficient to support to this fact. Through fundamental analysis of TATA Motors and the industry it can be recommended that for now TATA 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 TATA motors for long time could be a good option whereas in stocks like M&M 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.

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fundamanetal analysis of automobile industry ( tata motors )