REPORT -Group-4-FM-Automobile Sector Analysis.doc

7/27/2019 REPORT -Group-4-FM-Automobile Sector Analysis.doc

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Indian AutomobileIndustry Financial

AnalysisFinancial Management - II Project

(Tata Motors, Mahindra & Mahindra Ltd. and Maruti Suzuki

India Ltd.)

Submitted By:-Amit Kumar (11BSPHH010090)Alisha Bajaj (11BSPHH010082)Amit Tiwari (11BSPHH010093)

Chhavi Balana (11BSPHH010240)Keshav Rao (11BSPHH011203)Manu Rajput (11BSPHH011078)

Nilanjan Majumdar (11BSPHH011133)

2012


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Table of Content

Introduction to Indian Automobile Industry

Company Wise Analysis

Maruti Suzuki India Ltd.

Tata Motors

Mahindra & Mahindra Ltd.

Bibliography

Appendix List


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Domestic car sales up 24.4% in MarchMahindra sales up 22% in Jan

PTI February 1, 2011

Maruti sells 1mn cars in 10 months

Tata Motors net jumps 102-fold Mail Today Bureau November 10, 2010

The Indian automobile industry is riding high, like never before. They say that history has an eerie habit ofrepeating itself. As far as the automobile industry is concerned, the monumental returns and the off-the-charts growth rates reported in India recently bear testimony to this adage. The events that unfolded inDetroit years ago seem to be repeating themselves today, in India. For the automobile industry, future inIndia seems like an evergreen pasture!

Overview of the Indian Automobile IndustryStarting its journey from the day when the first car rolled on the streets of Mumbai in 1898, the Indianautomobile industry has demonstrated a phenomenal growth to this day. Today, the Indian automobileindustry presents a galaxy of varieties and models meeting all possible expectations and globallyestablished industry standards. Some of the leading names echoing in the Indian automobile industryinclude Maruti Suzuki, Tata Motors, Mahindra and Mahindra, Hyundai Motors, Hero Honda and HindustanMotors in addition to a number of others.

During the early stages of its development, Indian automobile industry heavily depended on foreigntechnologies. However, over the years, the manufacturers in India have started using their own technologyevolved in the native soil. The thriving market place in the country has attracted a number of automobile

manufacturers including some of the reputed global leaders to set their foot in the soil looking forward toenhance their profile and prospects to new heights. Following a temporary setback on account of the globaleconomic recession, the Indian automobile market has once again picked up a remarkable momentumwitnessing a buoyant sale for the first time in its history in the month of September 2009. After theeconomic downturn and difficult market conditions in the automotive sector globally in 2008-09, during theyear, economies across the world (with a few exceptions) showed signs of recovery and growth. The Indianeconomy bounced back quickly and strongly growing at 7.2% in 2009-10. The automotive sector in Indiastarted the year steadily, gathered momentum in different segments in the second half of the year and endedthe year with a record growth and performance.

The automobile sector of India is the seventh largest in the world. In a year, the country manufactures about2.6 million cars making up an identifiable chunk in the worlds annual production of about 73 million carsin a year. The country is the largest manufacturer of motorcycles and the fifth largest producer ofcommercial vehicles. Industry experts have visualized an unbelievably huge increase in these figures overthe immediate future. The figures published by the Asia Economic Institute indicate that the Indianautomobile sector is set to emerge as the global leader by 2012. In the year 2009, India rose to be the fourthlargest exporter of automobiles following Japan, South Korea and Thailand. Experts state that in the year2050, India will top the car volumes of all the nations of the world with about 611 million cars running onits roads.

Scope of this study

Through this project we are attempting to study the capital financial aspects of 3 of the highly profitableIndian automotive companies. They are:

Maruti Suzuki India Limited

Tata Motors Limited

Mahindra & Mahindra Limited
http://businesstoday.intoday.in/story/domestic-car-sales-up-24.37percent-bikes-18.72percent-in-march/1/14622.htmlhttp://businesstoday.intoday.in/story/mahindra-and-mahindra-january-sales-up-22-per-cent-from-last-year/1/12880.htmlhttp://businesstoday.intoday.in/story/maruti-sells-one-million-cars-in-10-months/1/12739.htmlhttp://businesstoday.intoday.in/story/tata-motors-net-profit-jumps-102-fold/1/10175.htmlhttp://businesstoday.intoday.in/story/mahindra-and-mahindra-january-sales-up-22-per-cent-from-last-year/1/12880.htmlhttp://businesstoday.intoday.in/story/maruti-sells-one-million-cars-in-10-months/1/12739.htmlhttp://businesstoday.intoday.in/story/tata-motors-net-profit-jumps-102-fold/1/10175.htmlhttp://businesstoday.intoday.in/story/domestic-car-sales-up-24.37percent-bikes-18.72percent-in-march/1/14622.html


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We have analyzed data including the long term and short term debts, debt-equity ratio, earnings per share,profit before tax etc. We have also graphically represented the data. For the study data for the last 5 yearshave been used (2006 2010). Data was gathered from the balance sheets, annual reports, chairmansreport, profit & loss account etc. of the respective companies. We performed regression analysis betweenDividend payout Ratio (DPR), as a Dependent Variable and Net Sales, PAT, Market Capitalization, Cashand Capital Expenditure as Independent Variable

Maruti Suzuki India LimitedMarket Capitalisation: 36402.67 Cores

Maruti Suzuki India Limited is a passenger car company. The company is engaged in the business of

manufacturing, purchase and sale of motor vehicles and spare parts. The other activities of the company

include facilitation of pre-owned car sales, fleet management and car financing. The company is a

subsidiary of Suzuki Motor Corporation, Japan. The company has a portfolio of 13 brands and over 150

variants.

41.16

54.0759.91

42.18

86.45

0

20

40

60

80

100

2006 2007 2008 2009 2010

Earnings Per Share


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Analysis

The gross revenue of the Company for the year (2010 2011) was Rs. 301,198 million as against Rs.

214,538 million in the previous year showing growth of 40%. Sales of vehicles in the domestic market

increased to 870,790 as compared to 722,144 in the previous year showing a growth of 21%. Exports of

vehicles grew at an impressive rate of 111% from 70,023 to 147,575 in the current year. The overall

growth was 29%.Earnings before depreciation, interest, tax and amortization (EBDITA) stood at Rs. 44,510

million against Rs. 24,333 million in the previous year. Profit before tax (PBT) stood at Rs. 35,925 million

against Rs. 16,758 million in the previous year and profit after tax (PAT) stood at Rs. 24,976 million

against Rs. 12,187 million in the previous year. The board recommends a dividend of Rs. 6.00 per equity

share of Rs. 5.00 each for the year ended 31st March 2010 amountingtoRs.1733 million.

Foreign

Promoters

56%

Banks and

Fin.

Institutes

FII's

21%

Private

Coporate

Bodies

6%Others

0%

General

Public

3%

Share Holding Pattern

Maruti Suzuki, the leader in the passenger car segment has seen volatility in the mix of debt and equity

capital of company over the last 5 years. Sales of the company have increased continuously during the last

decade. Its effect can be seen from the rise in Profit before Interest and Tax Margin (PBT). There is a fall in

PBT in the last year because of a rise in operating expense of the company. Most of the funding

requirements of the company were done by the internal accruals which were created through continuous

profits. Maruti Suzuki will maintain its strong business and financial risk profiles on the back of the healthy

cash generation and good liquidity. The company is expected to sustain its dominant position in the

domestic passenger car segment, given its large product portfolio. Marutis financial risk profile is an also

expected to remain comfortable, with incremental capital expenditure being funded entirely through internal

sources. Though the company has a history of dependence on the internal funds, it has capability of raising

debt if required for funding. Seeing to its good debt equity, there is a chance for the company to acquiredebt for funds required for investment opportunity. Interest coverage ratio is also to be paid on borrowed

amount.

Dividend Policy:-

Coefficients Standard Error t Stat P-value

Intercept 27.18954231 47.61340458 0.571048 0.607942

Net Sales -0.001111595 0.007579286 -0.14666 0.8927

PAT 0.024125231 0.026073196 0.925289 0.423063

Market Capitalisation -0.00191163 0.001451035 -1.31743 0.279277Capital Expenses -0.000132206 0.002844661 -0.04648 0.965852

Cash and Cash Equivalents 0.004445775 0.010836391 0.410263 0.709153


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Here DPR has negative relationship with 3 of the 5 variables taken which are Net sales, MarketCapitalization and Capital expenses and has positive relationship with rest two variables that are PATand Cash available to the firm. But here we can see that the coefficients are very small and the factors areless significant. PAT is somewhat significant which changes DPR by .024% if changed by 1%.

From the graph we can conclude that DPS for the company changes with EPS for it, as EPS raises DPSrises and vice-versa. Though the change in DPS is very minor and relatively if we see then it is almostconstant, it follows EPS pattern. Over past 15 years, EPS has reduced at a CAGR of around 10%, and alsothe pay-out ratio remains almost constant between 5% and 10%. From 2000 to 2004, it first becomes zeroand then touches highest value of around 40% and then again comes back to 8% level. Except for these 4years, it remains constant for the rest of the years.

Tata Motors LimitedMarket Capitalisation: 78185.92 Crores

Tata Motors Ltd is a multinational automotive corporation headquartered in Mumbai, India. The Company

continues to be amongst the top three players in the passenger vehicle market which has over 25 players.

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 24,000

workers.

Analysis

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 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, 505 crores in 2008-09).

The Profit before Tax of Rs.2, 830 crores and Profit after Tax of Rs.2, 240 crores also grew significantly

over the previous year by 179.1% and 123.7% respectively. The borrowings of the Company as on March31, 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,


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2% Coupon Non-Convertible Debentures (NCDs) with premium on redemption and Rs.200 crores from the

issue of 9.95% Secured NCDs.


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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 loan facility in October 2009 fromcertain 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 will further consider suitable steps to de-leverage and hence de-risk the

balance sheet from volatility and has also taken and will continue to implement suitable steps for raising

long term resources to match the Companys fund requirement and to optimize its loan maturity profile.

In the Last 5 years the debt equity ratio of Tata Motors is has remained around 0.8 which is near to the

industry average of debt to equity. Company has been making huge amount of profits and thus have

sufficient surplus and reserves for funding the requirements of the company. Major proportion of the

liquidity requirement of the company is met internally with the accumulated reserves and surplus. With a

good interest coverage ratio in last 4 years except for the year ended on March 2009, company has been

able to raise the debt easily from the market. There has been significant rise in the debt during the year 2008

because of TATA-Jaguar dealers of the company was around 52 at the end of the year March 2008 when

the Debt-to-equity ratio was 0.7. EPS has decreased during the last year because of fall in sales and also the

equity capital has increased with the right issue. During last year company has also raised fund through

issue of debentures. Company is not in a healthy position to raise debt from the company because currently

the interest coverage ratio is less than 2 which means that company has higher proportion of its profit to be

distributed as interest.

Dividend Policy:Coefficients Standard Error t Stat P-value

Intercept 54.15414003 20.79038896 2.604768008 0.028514374

Net Sales -0.002894046 0.003726561 -0.776599613 0.457318855

PAT 0.020974534 0.039960898 0.524876444 0.612351511

Market Capitalisation -0.000367615 0.002107089 -0.174465671 0.865361036

Capital Expenses -0.007132883 0.013314882 -0.535707584 0.605144369

Cash and Cash Equivalents -0.002792638 0.022675438 -0.123156953 0.904689256

It can again be seen that the influence of Cash and cash Equivalents, Market Capitalization and CapitalExpenditure is negative and is also very insignificant. And the Net Sales also impact negatively with avery minute coefficient of 0.002. There is a positive correlation between PAT and DPR, the coefficientof 0.02 implies that a 1% change in Pat would lead to 0.02% change in DPR, both negatively and

positively.


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TATA Motors60

50

40

30DPS

20EPS

10

0

For TATA Motors, if we look at EPS and DPS figures, from the graph we can get that the DPS followsEPS. If EPS increases, company increases the DPS offered to the shareholders. Though the increase isvery small but still it is clearly visible. Moreover if the EPS falls then DPS also falls. We can see from

the graph that there are very high fluctuations in the EPS for the company though over years it has afterfluctuation come again to same level it was in 1995,with a minute fall at -1.41% CAGR. But as aconsequence, dividend pay-out also shows very wide variations in the value over the years between 0%to around 110%. The average pay-out ratio for the company over the years has been around 38%. It canalso be inferred that The Company pays same proportion of EPS as Dividends or it follows a Hybrid

policy of fixed proportion as dividend with extra dividend in case of increasing profits.

DPR120

100

80

60

40 DPR

20

0

Mahindra & Mahindra LimitedMarket Capitalisation: 43195.89crores

Mahindra & Mahindra Limited is the flagship company of the Mahindra Group, a multinational

conglomerate based in Mumbai, India. Mahindra & Mahindra is a major automobile manufacturer of utility

vehicles, passenger cars, pickups, commercial vehicles, and two wheelers. Its tractors are sold on six

continents it has acquired plants in China and the United Kingdom, and has three assembly plants in the

USA. M&M has partnerships with international companies like Renault SA, France and International Truck

and Engine Corporation, USA.


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Analysis

The Automotive Divisions of M&M have clocked one of their best performances reflecting in substantial

growth in the net income of the Company by 40.7% to Rs.18, 801 crores in the year under review from

Rs.13, 364 crores in the Financial Year 2009.The Profit for the year before Depreciation, Interest,

Exceptional items and Taxation was Rs.3, 154.59 crores as against Rs. 1,362.9 crores in the previous year,

an increase of 131.45%. Profit after tax was Rs.2, 087.75 crores as against Rs.836.78 crores in the previous

year clocking an increase of 149.50%.

The company recommended a dividend of Rs.8.75 per Ordinary (Equity) Share and also a Special Dividend

of Rs.0.75 per Ordinary (Equity) Share aggregating Rs.9.50 per Ordinary (Equity) Share of the face value

of Rs.5 each. M&M recorded total sales of 2, 36,759 vehicles and 45,360 three-wheelers as compared to 1,

61,882 vehicles and 44,806 three-wheelers in the previous year registering a growth of 46.3% and 1.2% in

vehicles sales and three-wheeler sales respectively.


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Even while financing its on-going modernisation and growth initiatives, it was ensured that the Company

had abundant liquidity. It did not need to tap the capital market and in fact used its strong liquidity at its

disposal to repay foreign currency loans aggregating USD 94.5 million without the need for refinancing. As

was reported in the previous year's Director's Report, the Company had, in July, 2008, issued 9.25% p.a.

Unsecured Fully and Compulsorily Convertible Debentures (FCD), each FCD having a face value of Rs.

745 and convertible into one Equity Share of Rs. 10 each in the Company at a price of Rs. 745 per Share. In

January, 2010, in accordance with the terms of the issue, the FCDs were converted into Equity Shares of the

Company and your Company allotted 93,95,974 Ordinary (Equity) Shares of Rs.10 each, adding Rs. 700

crores to its Net Worth.

During the year under review, your Company allotted:

1) 10, 00,000 Ordinary (Equity) Shares of Rs.10 each to the Trustees of Mahindra & Mahindra Employees'

Stock: Option Trust; and2) 93, 95,974 Ordinary (Equity) Shares of Rs.10 each to Golboot Holdings Limited upon compulsory

conversion of 93, 95,974 fully and Compulsorily Convertible; Debentures.

M&M follows a prudent financial policy and aims to maintain optimum financial gearing at all times. The

Company's total Debt to Equity Ratio was 0.37 as at 31st March, 2010.

During the year, CRISIL reaffirmed its rating of AA and revised its rating outlook to AA/ Stable from

AA/Negative for M&M's Long Term Facilities under Basel II. During the year, ICRA also reaffirmed its

rating of LAA+ for the Company and also revised its rating outlook from LAA+/Negative to LAA+/Stable

and CARE has maintained a Long Term Rating of CARE AA+.

Dividend Policy:-Coefficients Standard Error t Stat P-value

Intercept 16.04399974 9.056412444 1.771562 0.110235

Net Sales 0.014448566 0.004348738 3.322473 0.008905

PAT -0.214895432 0.063807001 -3.3679 0.008285

Market Capitalisation 0.006718136 0.002596839 2.587044 0.029355

Cash and Cash Equivalents -0.013344862 0.013078338 -1.02038 0.334192

Capital Expenditure 0.000790042 0.000726109 1.088048 0.304851

Here out of the five factors that we have taken, PAT and cash available to the firm are the factors whichare negatively related to DPR and other factors, net sales, market capitalization and capital expenditureare the parameters which are having positive relationship with DPR. Also among these five parameters,

Net sales, PAT and Market capitalization are the significant factors which really impact the DPR and resttwo factors are relatively less significant. By changing Net sales, PAT and Market capitalization by 1%,


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change in DPR is .014%, -.21% and .006% respectively. Rest two factors are relatively less significantaccording to their p-values.

For this company, the dividend has been constant till the year 2003, after that from 2003 to 2009; it hasgrown a bit but that growth is also very small so relatively we can assume the company to be a constantdividend company. The EPS for the company increases gradually, except a downfall in the year 2000-01due to global recession. Otherwise it shows increasing trend. Due to this relatively stable EPS, it also hasstable DPR. It remains within a specified limit of 25% to 35% over the past 15 years except for two threeyears during 2000-01 in which global meltdown affects the world markets. During that period, DPR goesup to 55% from 30%. If we talk about EPS, in the past 15 years, it increases at a CAGR of around 3% andits average pay-out for 15 years comes out to be roughly 32%.

Bibliography

1. InFinancial Analytics http://www.infinancialsanalytics.com

2. Moneycontrol.com http://www.moneycontrol.com

3. Money.rediff.com http://money.rediff.com/

4. Utvmoney.mangopeople.com http://utvmoney.mangopeople.com/5.Capitaline Databases

6. Business Today Magazine http://businesstoday.intoday.in/

7. Investopedia.com http://www.investopedia.com/

8.Prowess Client Application

Appendix

Excel Files Used:-

1.Forecasting Mahindra & Mahindra
http://money.rediff.com/http://utvmoney.mangopeople.com/http://businesstoday.intoday.in/http://www.investopedia.com/http://money.rediff.com/http://utvmoney.mangopeople.com/http://businesstoday.intoday.in/http://www.investopedia.com/


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2.Forecasting Tata Motors

3.Forecasting Maruti Suzuki

4.Maruti Suzuki

5.Tata Motors

6.Mahindra & Mahindra

7.Indian Automobile Industry Analysis

Other Files:-

1.Dividend Data Sheet (PDF Document)

Documents

REPORT -Group-4-FM-Automobile Sector Analysis.doc