FUNDAMENTAL

ANALYSIS OF
SELECTED COMPANIES
IN INDIAN
AUTOMOBILE INDUSTRY
(2010-2019)
 “FUNDAMENTAL ANALYSIS OF
SELECTED COMPANIES IN INDIAN
AUTOMOBILE INDUSTRY”

A PROJECT REPORT SUBMITTED TO

RAVENSHAW UNIVERSITY

In partial fulfillment of the requirements for award of the degree of

Master of Business Administration (MBA)

SUBMITTED BY:

MINI KUMARI BEHERA

Roll No: 18MBA006
MBA (2018-20)

UNDER THE SUPERVISION OF:

DR. KISHORE KUMAR DAS

Associate Professor & Head
Department of Business Administration
School of Commerce & Management

RAVENSHAW UNIVERSITY
CUTTACK – 753003
ODISHA, INDIA
 DEDICATION

Every challenging work needs self efforts as well as guidance of

elders especially those who are very close to our heart.

I dedicate my dissertation report to

my family members and relatives. A
special feeling of gratitude goes to
my beloved parents Mr. Narayana & Ms.
Kunjalata Behera, who have always
stressed the importance of education.
They not only gave me moral support,
but instilled in me a tireless work
ethic and persistent determination to
be whatever I wanted to be in life
without limitation. And also my
brother and sister who are pillars of
strength in my life.
DEPARTMENT OF BUSINESS ADMINISTRATION
RAVENSHAW UNIVERSITY

CUTTACK, ODISHA - 753003

DECLARATION

I, Mini Kumari Behera pursuing MBA bearing Roll No. 18MBA006 do

hereby declare that the work embodied in the project entitled
“Fundamental Analysis of Selected Companies in Indian Automobile
Industry” being submitted to the Department of Business
Administration, Ravenshaw University, Odisha in partial fulfillment of
the requirements for the award of Master of Business Administration
(MBA) is a bona fide research work carried out by me under the
supervision of Dr. Kishore Kumar Das , Department of Business
Administration, Ravenshaw University.

I further declare that the analysis presented in this project has

not been submitted elsewhere for the award of any other degree.

Place – Cuttack

Date – 03/06/20
DR. KISHORE KUMAR DAS
Ph.D, M.Phil, M.Com, MBA, LLB
Fellow – WBI, Australia, Associate – IIAS, Shimla
Associate Professor & Head
School of Management Studies
Ravenshaw University, Cuttack - 753003, Odisha
E-mail: drkkdasru@gmail.com

CERTIFICATE

This is to certify that the analysis described in this project entitled

“Fundamental Analysis of Selected Companies in Indian Automobile
Industry” being submitted by Ms. Mini Kumari Behera bearing University
Roll No: 18MBA006, Department of Business Administration, Ravenshaw
University, Cuttack, Odisha, in partial fulfillment for the award of Master of
Business Administration (MBA) is a record of an independent Project work
carried out by her under my guidance and supervision. Her work is
original. The contents of this project report, in full or part, have not been
submitted to any other university or institution for the award of any
degree.

I am pleased with her project work & I wish her a great success in future.

Place- Cuttack Dr. Kishore Kumar Das

Associate Professor & Head
Date-
Department of Business
Administration
Ravenshaw University, Cuttack
Odisha - 753003
 ACKNOWLEDGEMENT

Knowledge is our expression of experience gained in life,

choicest possessions that should be happily shared with
others. We believe that this training endeavor has prepared
us for taking on more innovation and challenging projects in
future.

Really it is very fine to have such a golden opportunity to

realize the feeling of gratitude imprisoned in my heart of
hearts.

With a deep sense of gratitude and respect, I thank my

supervisor Dr. Kishore Kumar Das , Department of Business
Administration, Ravenshaw University for his inestimable
guidance, valuable suggestions and constant encouragement
during the tenure of this report.

Finally and most importantly I sincerely acknowledge my

beloved parents and my family members with deep
appreciation for their indispensable aid, moral support,
encouragement, patience, compassion and love that served a
source of my inspiration, strength, determination and
enthusiasm at each and every front of my life to transfer my
dreams into reality.

I, once again thank to all those who have been connected

with my venture.
 EXECUTIVE SUMMARY

The major objective of the study is to understand performance & growth of

Indian Automobile Industry and suggest measures to investors to invest in
the most profitable company. Typically, fundamental analysis is used to
analyze the intrinsic or true value of stocks of different companies. This
fundamental analysis is mainly focused on three types of analysis; i.e
Economic analysis, Industry analysis, Company analysis. Different key
variables are considered over years for the above three types of analysis.

The project report entitled “Fundamental Analysis of Selected Companies

in Indian Automobile Industry” gives a multidimensional view of Indian
automobile sector and considered companies. All this had been done to get
a clear view of the interdependence of share prices with macroeconomic
factors, industry growth and financial performance of companies
.
This project contains year-wise comparison of key variables up to 2019.
The comparison with previous years and interpretation of changes over
years are shown in the project with corresponding graphs. After the
analysis the proposed hypotheses are tested and conclusions are made on
the basis of correlation among them.
 CONTENTS

Sl. No. CHAPTERS

INTRODUCTION
1.1 Backdrop of the Study
1.2 Scope of the Study
1
1.3 Research Gap
1.4 Objective of the Study
1.5 Research Methodology
1.6 Limitations
2 LITERATURE REVIEW

INDIAN AUTOMOBILE INDUSTRY

3.1 Introduction
3.2 Market Size
3
3.3 Investments
3.4 Government Initiatives
3.5 Achievements
3.6 Selected Companies
RESEARCH METHODOLOGY
4.1 Fundamental Analysis
4
4.2 Components
4.3 Approaches
4.4 Methodology

ANALYSIS & INTERPRETATION OF DATA

5 5.1 Economic Analysis
5.2 Industry Analysis
5.3 Company Analysis
6 TESTING OF HYPOTHEIS
7 EFFECT OF COVID-19
8 FINDINGS & CONCLUSION
 LIST OF TABLES

Table 1 Research Methodology

Table 2 Data on various macroeconomic factors

Table 3 EPS (Earning Per Share)

Table 4 Dividend Pay Out ratio

Table 5 Return On Investment

Table 6 Operating Profit Margin

Table 7 Book value/Share

Correlation – Macroeconomic indicators & Share

Table 8
prices
Correlation – Growth of automobile industry &
Table 9
Share prices
Correlation – Financial performance & Share
Table 10
Prices
CHAPTER – 1
INTRODUCTION
1.1 BACKDROP OF THE STUDY
The most important strength in today’s volatile financial market is information. Investors are
always confused on the information as to where to invest, when to invest and how much to
invest their money. Generally, information derives from market or some different sources.
To act on this information, analysts, experts, and researchers start researching whether the
information has positive or negative impact. At individual level, an investor can also do the
fundamental analysis, which will give him a better foundation for his investment decisions. If
investor will take decision based on wrong information, the losses incurred could be
tremendous and harmful and recovery of investment can take a lot of time or sometimes it
can be irrecoverable. Hence investors should spend a sizable amount of time for scrutinizing
financial position of company, shares of company and calculating estimations of same.

One can easily predict the future performance of certain company or industry based on
fundamental analysis by using financial statements. It is generally useful for long-term
investment. As quoted by John Forman, “Fundamental analysis is very powerful in terms of
determining long-term direction, but lacks short-term applicability.”

Fundamental analysis assesses the fair market value of equity shares by examining the
assets, earnings prospects, cash flow projections, and dividend potential. Fundamental
analysis differs from technical analysis that essentially relies on price and volume trends and
other market indicators to identify trading opportunities. Fundamental analysis of a
business involves analyzing its financial statements and health, its management and
competitive advantages, and its competitors and markets. Fundamental analysis is
performed on historical and present data, but with the goal of making financial forecasts.
Fundamental analysis helps in analyzing strategy, management, financial position and many
others readily and not-so-readily quantifiable numbers which will help to choose stocks that
will outperform in the market.

Indian stock market consists of a large number of companies of various sectors which
contribute in the development of the economy. And one such sector which has a huge share
in economic development of our country is Automobile sector. India’s Automobile market
has become 4th largest in the world in the year 2018. It also covers 7.5% share of our
country’s GDP (Gross Domestic Product). The automobile sector contributes around 49% of
country’s manufacturing GDP. This gradually increases the scope of investing in the
automobile industry. But due to recent slowdown confusion arises whether to invest in the
automobile sector or put your money elsewhere.

Hence, the researcher decided to carry out the Fundamental Analysis of selected companies
in Indian Automobile Industry as mentioned in the title. This study is sincere attempt to
understand, as to what are the opportunities in Indian Automobile sector from the point of
investing and to suggest investors about the companies for future investment in this sector.
1.2 SCOPE OF THE STUDY
The scope of the study are given in following heads-

 The research will help in knowing about the trends in the values of the stock prices
of the five major automobile companies in India.
 The direction of national economy can be predicted because economic activity
affects the corporate profit, investor attitudes and expectation and ultimately
security prices.
 The right time and right securities can be selected for the investment.
 The changes in stock price can be estimated by studying the forces operating in the
overall economy, as well as influences peculiar to industries and companies.

1.3 RESEARCH GAP

The past literatures were basically focused on systematic studies of stocks with financial
factors and financial indicators, Study of stock market risk, Systematic and technical analysis
of stocks of companies, while some other aspects were not being mentioned earlier.

In this study researcher tries to bridge up some of the most significant research gaps of
earlier research as stated below :

 An attempt has been made to study the duration for which a particular factor affects
the automobile industry.
 An attempt has been made to study how factors like competition, demand & supply
and other macro economic factors affect the share price
 An attempt has been made to analyse whether the industry growth rate affects the
share price of every company equally or there are different results for different
companies.

1.4 OBJECTIVE OF THE STUDY

The objectives of the study are given in following heads-

 To study the fundamental analysis of selected automobile companies in order to

recommend for better investment decisions.
 To analyse the growth & financial performance of selected companies of Indian
automobile industry.
 To understand the economic indicators supporting Indian automobile.
 To analyse the role of company performance in price movement of shares.
1.5 RESEARCH METHODOLOGY
Research methodology is a way to systematically solve the research problem. It may be
understood as a science of studying how research is done scientifically. So, the research
methodology not only talks about the research methods but also considers the logic behind
the method used in the context of the research study.

The research will be theoretical as well as empirical in nature as it will be carried out with
specific objectives and utilizes the large number of data of selected automobile companies.
To study the Automobile sector stocks of the following automobile companies will be taken
into consideration:

1. Maruti Suzuki India Ltd

2. Tata Motors Ltd
3. Mahindra & Mahindra Ltd
4. Bajaj Auto Ltd
5. Eicher Motors

Tools & Techniques to be used

The following mathematical & statistical tools will be used for the study:
 Trend Analysis
 Correlation
 Comparative Analysis
 Ratio Analysis

Nature & sources of data

The research will be conducted using data that are mostly secondary in nature. The
secondary data will be collected from the following sources:

 Company data from company websites

 Economic data published by various government websites
 NSE and BSE websites
 Data related to industry and market from newspapers, magazines etc.
 Additional data from different websites like moneycontrol.com

Duration of the study

For the purpose of the study a period of last 10 years from April 2010 to April 2019 would be
taken into consideration.
1.6 LIMITATIONS
The limitations of the study are furnished below:

 The study takes into account only five automobile companies namely Maruti Suzuki
India Ltd, Tata Motors Ltd, Mahindra & Mahindra Ltd, Bajaj Auto Ltd and Eicher
Motors.
 Market forces are influenced by a number of factors which can not be quantified and
thus the research is limited to the numbers available.
 The analysis and interpretation are based on secondary data contained in the
published annual reports of various automobile companies.
 The measurements have been influenced by extreme values and may not show the
useful results to draw any inferences.

The remainder of this report proceeds as follows. A detailed literature review about this
topic is given in chapter 2. An overview of Indian Automobile Industry is given in chapter 3.
It includes a multidimensional view of the automobile sector and considers factors like
market size, investment, government initiatives, achievement etc.

Research Methodology of chapter 4 deals with the description of fundamental analysis, its
components & approaches, and tools and methods used for the analysis.

In chapter 5, Economic, Industry & Company analysis are performed by taking different
factors and the data obtained thereby are interpreted. Chapter 6 deals with the testing of
hypothesis.

Finally, considering the coronavirus pandemic a special chapter is added on effect of COVID-
19 in chapter 7, which deals with how the automobile sector is affected till now and what
the investors do in this situation. Lastly, Chapter 8 contains the findings of the analysis and
conclusion.
 CHAPTER – 2
LITERATURE REVIEW
The review of literature guides the researcher for getting better understanding of
methodology used, limitation of various available analysis techniques and tools. Besides
this, the review of empirical studies explores the avenues for future and present research
efforts related to the subject matter. In case of conflicting and unexpected results, the
researcher can take the advantage of those researches or their published works. A number
of research studies have been carried out on fundamental analysis by the researchers and
academicians in India and abroad. A review of these analyses is important in order to
develop an approach that can be employed in the context of this project report, which are
discussed below.

The beginning of Fundamental analysis for the share price estimation can be dated back to
Graham and Dodd (1934) in which the writers have debated the significance of the
fundamental factors in share price estimation. Theoretically, the value of a company, hence
its share price, is the sum of the present value of future cash flows discounted by the risk
adjusted discount rate. This conceptual valuation frame work is the spirit of the famous
dividend discount model developed by Gordon (1962). However, the dividend discount
model valuation includes the forecast of future dividend payment which is problematic due
to the variations in firm’s dividend strategy. Thus, the subsequent studies along this line of
literature searched for the cash flow that is unaffected by the dividend policy and can be
obtained from the financial statements.

Ou and Penman (1989) use financial statement analysis of income statement and balance
sheet ratios to estimate upcoming earnings. The principal motivation for this research is to
ascertain mispriced securities. However, these writers demonstrate that the information in
the earnings forecast indication is useful in generating unusual stock returns.

Jagadeesh and Titman (1993) found that over a period of three to twelve months, previous
winners on an average remain to outperform past losers by about one percent per month.

Lev and Thiagarajan (1993) used theoretical opinions to study their ratios. They prove that
the earnings forecast signs in variables like growth and gross profit ratio are incrementally
connected with contemporary stock returns and are important in predicting future earnings.

Joseph. D. Piotroski (2000) revealed whether a simple accounting based Fundamental

Analysis strategy, when applied to a wide portfolio of high Book to Market firms, can shift
the distribution of returns earned by an investor. The study shows that the mean returns
earned by a high Book to Market investor can be improved by at least 7.5% annually
through the selection of monetarily strong high Book to Market firms.

Pascal Nguyen (2003) exposed a simple financial score designed to capture short term
changes in firm’s operating efficiency, profitability and financial policy. The scores exhibit a
strong correlation with market adjusted returns in the Current fiscal period and the same
continues in the following period also.
Vashisht (2008) analyzed the determinants of competitiveness in the Indian auto industry.
The automobile sector is a key player in the global and Indian economy.

Rajiv Kumar Bhatt (2011) has analyzed the influence of recent global financial crisis on
Indian Economy. The paper is separated into three sections. In the first introductory section,
he has mentioned the features of recent global financial meltdown. Section two deals with
the impact of this crisis on Indian economy and argues how India came back to high growth.
Conclusion and suggestions have been given in the third section.

Fidlizan Muhammad, Mohad Yahya Mohadhussin & Azila Ab Razak (2012) made their
study on “Automobile Sales and Macroeconomic Variables: A Pooled Mean Group Analysis
for ASEAN Countries”, the objective of this paper is to analyze the impact of economic
variables on automobile sales in five ASEAN countries. Result from the test shows that GDP,
inflation, unemployment rate and loan rate have significant long term correlation with
automobile sales in these ASEAN countries. On the other hand, each country is influenced
by different variables in the short term period.

Dyna Sen et. Al. (2012) carried out fundamental analysis research beyond the spatial and
temporal bounds of previous studies. They have studied how detailed financial statement
data enter the decisions of market makers by inspecting how current changes in the
fundamental signals chosen can provide information on subsequent earnings changes. Using
global data from 1990 to 2000, they have extended the body of research using fundamental
indicators for prediction of future earnings changes. Contextual factors such as prior
earnings news, industry membership, macroeconomic conditions and country of
incorporation that may impact this predictive ability are also studied. Results show that the
fundamental signals are important forecasters of both short and long term future earnings
changes. Research results indication suggests to the use of fundamental analysis.

Ray (2012) examined the trends in capacity utilization in the Indian automobile sector at
aggregate level during post liberalized economic scenario and also attempts to estimate the
economic performance of Indian automobile industry in terms of capacity utilization at an
aggregate level.

Hossein Khanifar (2012) studied the factors affecting investors’ decision in Tehran Stock
Exchange. Principally, analysts use two types of fundamental and technical analyses in their
judgements. In present research, they have calculated the affecting factors on analysts’
decisions in the format of fundamental analysis. Such analysis is studied in three sectors: (1)
Economy / Market (2) Industry (3) Firm. This paper uses analytical approach to study
affecting factors on analysts’ decisions. Its arithmetical population contains analysts in
brokering companies at Tehran Stock Exchange. Based on the results, it was determined
that firm-related factors such as actual EPS, estimated EPS, profit margin, P/E ratio and sale
rate have the highest importance in analysts’ decisions followed by economy/market
related factors and industry-related factors.

Richard C. Grimm (2012) explores fundamental analysis to determine its application as an

Austrian approach to common stock selection. The Thymologic method and the category of
understanding are applied as frameworks for an Austrian approach and to evaluate
fundamental analysis as a process for common stock selection. The analysis supports the
conclusion that fundamental security analysis can be practiced in a manner consistent with
traditional Austrian views and is suitable as a common stock selection method by those who
wish to adhere to such views.

Venkates C K, Dr. Ganesh L (2012) revealed out that investors can create a stronger value
portfolio by using simple historical financial performance. They used ‘F Score’ Model for the
same.

Prof. Madhavi Dhole (2013) performed fundamental analytical study of four Automobile
sector companies in Price movement of shares. The study concluded that the investor
should look at the price movements of the particular company over the years and then
should go for better portfolio.

Hemal Pandya and Hetal Pandya (2013) carried out Fundamental Analysis of companies (
Tata Motors and Maruti Suzuki) and their intrinsic value ranges are obtained from the EIC
Analysis to help investor decisions.

The work by Mahipat Ranawat and Rajnish Tiwari (2013) traces the evolution of the
automotive industry from its beginning to the present day and identifies the important
policies made by Indian government.

The research paper by A. Dharmaraj and Dr. N. Kathirvel (2013) analysed the financial
performance of selected Indian automobile companies and appreciate the increasing
growth rate and the performance it has shown in the recent past.

Chauhan (2014) performed fundamental analysis with reference to selected automobile

companies and concluded that though there is a decline in the GDP growth rate of India
(2008-09 to 2012-13), the automobile sector still managed to shine.
 CHAPTER – 3
Indian automobile
industry
Fig 1 : Indian Automobile Industry- Info graphic
(Source – www.ibef.org)
3.1 INTRODUCTION
India became the fourth largest auto market in 2019 with sales increasing 8.3 per cent year-
on-year to 3.99 million units. It was the seventh largest manufacturer of commercial
vehicles in 2019.

The Two Wheelers segment dominates the market in terms of volume owing to a growing
middle class and a young population. Moreover, the growing interest of the companies in
exploring the rural markets further aided the growth of the sector.

India is also a prominent auto exporter and has strong export growth expectations for near
future. Automobile exports grew 14.50 per cent during FY19. It is expected to grow at a
CAGR of 3.05 per cent during 2016-2026. In addition, several initiatives by the Government
of India and the major automobile players in the Indian market are expected to make India a
leader in the two-wheeler and four-wheeler market in the world by 2020.

3.2 MARKET SIZE

Overall domestic automobile sales increased at 6.71 per cent CAGR between FY13-19 with
26,27 million vehicles getting sold in FY19. Domestic automobile production increased at
6.96 per cent CAGR between FY13-19 with 30.92 million vehicles manufactured in the
country in FY19.

In FY19, year-on-year growth in domestic sales among all categories was recorded in
commercial vehicles at 17.55 per cent followed by 10.27 per cent year-on-year growth in
the sales of three-wheelers.

Automobile exports grew 14.50 per cent year-on-year during FY19, while during April-
December 2019, overall export increased by 3.9 per cent.

Premium motorbike sales in India recorded seven-fold jump in domestic sales reaching
13,982 units during April-September 2019. The sale of luxury cars stood between 15,000 to
17,000 in first six months of 2019.

Sales of electric two-wheelers are estimated to have crossed 55,000 vehicles in 2017-18.

3.3 INVESTMENTS
In order to keep up with the growing demand, several auto makers have started investing
heavily in various segments of the industry during the last few months. The industry has
attracted Foreign Direct Investment (FDI) worth US$ 23.89 billion during the period April
2000 to December 2019, according to data released by Department for Promotion of
Industry and Internal Trade (DPIIT0.
Some of the recent/planned investments and developments in the automobile sector in
India are as follows:
 In January 2020, Tata AutoComp Systems, the auto-component arm of the Tata
Group entered a joint venture with Beijing-based Prestolite Electric to enter the
electric vehicle (EV) components market.
 In December 2019, Force Motors planned to invest Rs 600 crore in order to develop
two new models over the next two years.
 In December 2019, Morris Garages (MG), a British automobile brand announced
plans to invest Rs 3,000 crore more into India.
 Audi India plans to launch nine all-new models including Sedans and SUVs along with
futuristic e-tron electric vehicle (EV) by the end to 2019.
 MG Motor India to launch MG ZS EV electric SUV in early 2020 and plan to launch
affordable EV in next 3-4 years.
 BYD-Olectra, Tata Motors, Ashok Leyland to supply 5,500 electric buses for different
state departments.
 Premium motorbike sales in India recorded seven-fold jump in domestic sales
reaching 13,982 units during April-September 2019. The sale of luxury cars stood
between 15,000 to 17,000 in first six months of 2019.
 In 2019, automobile manufacturers invested US$ 501 million in India’s auto-tech
companies start-ups, according to Venture intelligence.
 For self-driving and robotic technology start-ups, Toyota plans to invest US$ 100
million.
 Ashok Leyland has planned a capital expenditure of Rs 1,000 crore to launch 20-25
new models across various commercial vehicle categories.
 Hyundai is planning to invest US$ 1 billion in India by 2020. SAIC Motor has also
announced to invest US$ 310 million in India.
 Mercedes Benz has increased the manufacturing capacity of its Chakan Plant to
20,000 units per year, highest for any luxury car manufacturing in India.

3.4 GOVERNMENT INITIATIVES

The Government of India encourages foreign investment in the automobile sector and
allows 100 per cent FDI under the automatic route.

Some of the recent initiatives taken by the Government of India are –

 Under Union Budget 2019-2020, government announced to provide additional
income tax deduction of Rs 1.5 lakh on the interest paid on the loans taken to
purchase EVs.
 The government aims to develop India as a global manufacturing centre and an R&D
hub.
  Under NATRiP, the Government of India is planning to set an R&D centre at a total
cost of US$ 388.5 million to enable the industry to be on par with global standards.
 The Ministry of Heavy Industries, Government of India has shortlisted 11 cities in the
country for introduction of electric vehicles (EVs) in their public transport system
under the FAME (Faster Adoption and Manufacturing of (Hybrid) and Electric
Vehicles in India) scheme. The government will also set up incubation centre for
start-ups working in electric vehicles space.
 In February 2019, the Government of India approved the FAME-II scheme with a
fund requirement of Rs 10,000 crore for FY20-22.

3.5 ACHIEVEMENTS
Following are the achievements of the government in the past four years:

 Investment flows into electric vehicle start-ups in 2019 increased nearly 170 per cent
to reach US$ 397 million.
 On 29th July 2019, Inter-ministerial has sanctioned 5,645 electric buses for 65 cities.
 NATRIP’s proposal for “Grant-In-Aid for test facility infrastructure for Electric Vehicle
(EV) performance Certification from NATRIP Implementation Society” under FAME
Scheme which had been approved by Project Implementation and Sanctioning
Committee (PISC) on 3rd January 2019.
 Number of vehicles supported under FAME Scheme increased from5,197 in June
2015 to 192,451 in March 2018. During 2017-18, 47,912 two-wheelers, 2202 three-
wheelers, 185 four-wheelers and 10 light commercial vehicles were supported under
FAME scheme.
 Under National Automotive Testing and R&D Infrastructure Project (NATRIP),
following testing and research centres have been established in the country since
2015
 International Centre for Automotive Technology (ICAT), Manesar
 National Institute for Automotive Inspection, Maintenance & Training
(NIAIMT), Silchar
 National Automotive Testing Tracks (NATRAX), Indore
 Automotive Research Association of India (ARAI), Pune
 Global Automotive Research Centre (GARC), Chennai
 SAMARTH Udyog – Industry 4.0 centres : ‘Demo cum experience’ centres are being
set up in the country for promoting smart and advanced manufacturing helping
SMEs to implememt Industry 4.0 (automation and data exchange in manufacturing
technology).
3.6 SELECTED COMPANIES
The following five automobile companies are selected for fundamental analysis.

1. Tata Motors

Tata Motors was established in 1945 under the Tata Group. It is among the world’s leading
manufacturers of automobiles with around 81,090 employee strength. It was the market
leader in commercial vehicle segment with about 45.1 per cent market share in FY19. It is
present in segments like cars and utility vehicles, trucks and buses, and Defence. The
company has extended its presence internationally through entering into joint ventures (JV)
like the strategic alliance with Fiat and Marcopolo. Tata Motors is present in about 175
countries with research and development (R&D) centres in UK, Italy, India and South Korea.

2. Maruti Suzuki India Ltd.

Maruti Suzui India Limited, subsidiary of Suzuki Motor Corporation, Japan, is India’s biggest
car maker with more than 49.8 per cent market share in the passenger vehicles segment in
April-August 2019. The company recorded its highest ever sale in FY19 of about 1,862,449
units. It crossed the 20 million sales milestones of its cars in India in last 37 years in 2019.
During April 2019-January 2020, total sales stood at 1,332,395 units.

3. Mahindra & Mahindra Limited

Mahindra & Mahindra Limited is an Indian multinational vehicle manufacturing corporation

headquartered in Mumbai, India. It is one of the largest vehicle manufacturers by
production in India and the largest manufacturer of tractors in the world with 41,673
employees. It is present in segments like SUVs, saloon cars, pickups, lightweight commercial
vehicles, heavyweight commercial vehicles, two wheeled motorcycles and tractors. Its
global subsidiaries include Mahindra Europe S.r.l. based in Italy, Mahindra USA Inc.,
Mahindra South Africa and Mahindra (China) Tractor Co. Ltd.

4. Eicher Motors Limited

It is an Indian manufacturer of motorcycles and commercial vehicles. Eicher is the parent

company of Royal Enfield, a manufacturer of middleweight motorcycles. In addition to
motorcycles, Eicher has a joint venture with Sweden’s Volvo Trucks-Volvo Eicher
Commercial Vehicles Limited (VECV). The Eicher Group has diversified business interests in
design and development, manufacturing, and local and international marketing of trucks,
buses, motorcycles, automotive gears, and components.
5. Bajaj Auto Ltd.

Bajaj Auto is the world’s fourth-largest manufacturer of motorcycles and the second-largest
in India. It is the world’s largest three-wheeler manufacturer and accounts for almost 84% of
India’s three-wheeler exports. It is present in segments like motorcycles, scooters and auto
rickshaws with a total of 10,000 employees as of 2019. The Bajaj brand is well-known across
several countries in Latin America, Africa, Middle East, South and South East Asia. Bajaj Auto
exports to more than 70 countries and a significant share of revenues come from exports.
 CHAPTER – 4
RESEARCH
METHODOLOGY
4.1 FUNDAMENTAL ANALYSIS
Sometimes in the stock market, either the stocks are undervalued or overvalued. To identify
these types of stocks, the investor has to estimate its intrinsic or true value. The process of
estimating the intrinsic value of a security in order to decide where to invest, is called
Fundamental analysis.

In other words, Fundamental analysis, in accounting and finance is the analysis of a

business’s financial performance, financial health, competitors and market. It also considers
the overall state of the economy and factors including interest rates, production, earnings,
employment, GDP, housing, manufacturing and management. Basically, fundamental
analysis is performed on historical and present data, but with the goal of making financial
forecasts.
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 and/or to
calculate its credit risk;
 To find out the intrinsic value of the share.

4.2 COMPONENTS OF FUNDAMENTAL ANALYSIS

Fundamental analysis is of three components as shown in the figure below.

FUNDAMENTAL ANALYSIS
U
ECONOMIC ANALYSIS N
(AUTOMOBILE) INDUSTRY ANALYSIS E
GDP M
Government
P
COMPANY ANALYSIS
L
POLICIES O
Y
M
INFLATION E
Competition
N
T

P O L I T I C A L I N S T A B I L I T Y

Fig 2 : Fundamental Analysis

1. Economic Analysis:

In this process of fundamental analysis different macro-economic variables are studied and
at the end the overall economy of the country is interpreted. The objective of economic
analysis is to know the current economic status of the country.

Factors of economic analysis include GDP, Interest rate, Infrastructure, Budget, Political
stability, Agriculture & monsoon, Tax structure, unemployment rate, natural calamities etc.

2. Industry Analysis:

Industry is also called sector, which is nothing but a set of homogeneous companies.
Different industries in India that perform really well are Banking, IT, Pharmaceutical,
Automotive, Textile industry etc. In industry analysis, all characteristics of an industry are
examined in order to know the pros and cons of investing in that particular industry.

Factors of industry analysis include Government guidelines or restrictions of the company,

availability of raw material, competition, demand and supply gap, technology used etc.

3. Company Analysis:

It is the last stage of fundamental analysis in which all the financial aspects like balance
sheet, profit and loss account, some important ratios and some important financial terms
are evaluated one after another. This helps to know the financial health and overall
performance of the company as well as its profitability. The objective of company analysis is
mainly to decide whether to invest in a particular company is profitable or not.

Factors of industry analysis include balance sheet, profit and loss account, key ratios like
current ratio, quick ratio, earning per share (EPS), price/earning (P/E) ratio etc.

4.3 APPROCHES OF FUNDAMENTAL ANALYSIS

Fundamental analysis can be done in following two ways:

1. Top-down Approach

In this we study each aspect in following order; i.e analysis takes a broader view of the
economy, starting with the entire market before narrowing down into a sector, industry and
finally a specific company.

Economy > Industry > Company

2. Bottom up Approach

In this we study each aspect in following order; i.e analysis starts with a specific stock and
widens out to consider all the factors that impact its price.

Company > Industry > Economy

The intrinsic value of the shares is determined based upon these three analyses; i.e
Economic analysis, Industry analysis and Company analysis. It is this value that is considered
the true value of the share. If the intrinsic value is higher than the market price, buying the
share is recommended. If it is equal to market price, it is recommended to hold the share
and if it is less than the market price, then one should sell the shares.
4.4 METHODOLOGY (Table 1 : Research Methodology)
Sr.
No. Particulars Details

1. Type of data Secondary data

2. Universe / Population Companies in Automobile Sector

Balance sheet, Stock market, Relevant

3. Sources of data
websites

4. Nature of Source of Data Quantitative & Qualitative

5. Sample Size Five Indian Automobile companies

1. Tata Motors Ltd

2. Mahindra & Mahindra Ltd
Name of the Companies selected for
6. 3. Maruti Suzuki India Ltd
study
4. Eicher Motors
5. Bajaj Auto Ltd

7. Sampling Methodology Purposive Sampling

 GDP
 Inflation rate
8. Key variables of Economic Analysis  Unemployment rate
 Dollar rate
 Bank rate

 Porter’s five force model

 Government Policies
9. Key variables of Industry Analysis  Industry Life Cycle
 SWOT analysis
 Sales Volume

 Earning Per Share (EPS)

 Dividend Payout Ratio
10. Key variables of Company Analysis  Return On Equity (ROE)
 Operating Profit Margin
 Book Value / Share

11. Time Period From 2010-11 to 2018-19

 Arithmetic Mean (Average)

12. Statistical Tools  Standard Deviation (SD)
 Pearson Correlation
 CHAPTER – 5
ANALYSIS &
INTERPRETATION OF
DATA
 5.1 ECONOMIC ANALYSIS
This is the first step of Fundamental Analysis. For Economic Analysis five factors i.e, GDP,
Inflation rate, Unemployment rate, Dollar rate, Bank rate are taken into consideration as
shown in the table below:

Factors/Years 2011 2012 2013 2014 2015 2016 2017 2018 2019

GGDP Value 1823.0 1827.6 1856.7 2039.1 2103.5 2289.7 2652.2 2718.7 2935.5
5 4 2 3 9 5 5 3 7
Trend 100 100.25 101.84 111.85 115.38 125.59 145.48 149.13 161.02

Inflation rate Value 9.5 10 9.4 5.8 4.9 4.5 3.6 3.43 3.44

Trend 100 105.26 98.94 61.05 51.57 47.36 37.89 36.10 36.21
Unemployment Value 2.52 2.69 2.82 2.77 2.78 2.73 2.56 2.55 2.55
rate
Trend 100 106.74 111.90 109.92 110.31 108.33 101.58 101.19 101.19
Dollar rate Value 55.39 57.15 54.73 59.44 62.30 66.56 68.82 70.85 73.16

Trend 100 103.17 98.80 107.31 112.47 120.16 124.24 127.91 132.08

Bank rate Value 6.00 9.00 8.75 9.00 7.75 6.75 6.25 6.75 5.40
Trend 100 150 145.83 150 129.16 112.5 104.16 112.5 90

Table 2: Data on various macroeconomic factors over years

DATA INTERPRETATION :

1. GDP (GROSS DOMESTIC PRODUCT)

GDP

2011 2012 2013 2014 2015 2016 2017 2018

YEARS
GDP is the total monetary or market value of all the finished goods and services produced
within a country’s borders in a specific time period. As a broad measure of overall domestic
production, it functions as a comprehensive scorecard of the country’s economic health.

From the graph, one can know that India’s GDP has shown a continuous trend over past
years. In fact, from 2014 to 2018, India was the world’s fastest growing major economy. In
the year 2011 it was 1823.05 billion USD and it has increased to 2935.57 billion USD in the
year 2019. It is the world’s fifth-largest economy by nominal GDP. This ever-increasing GDP
is a very good indicator of market growth and it attracts the investors to invest in the
country.

2. INFLATION RATE

Inflation rate

2011 2012 2013 2014 2015 2016 2017 2018 2019

Inflation is a quantitative measure of the rate at which the average price level of a basket of
selected goods and services in an economy increases over a period of time. It is the constant
rise in the general level of prices where a unit of currency buys less than it did in prior
periods. Often expressed as a percentage, inflation indicates a decrease in the purchasing
power of a nation’s currency.

Inflation rates in India are usually quoted as changes in the Wholesale Price Index (WPI), for
all commodities. Inflation rate in India was 3.44 in 2019. This represents a modest reduction
from the previous annual figure of 9.5 for 2011. This medium ranged inflation growth rate is
a good sign in stock market.
3. UNEMPLOYMENT RATE

Unemployment rate

2011 2012 2013 2014 2015 2016 2017 2018 2019

Unemployment, according to the Organisation for Economic Co-operation and Development

(OECD), is when persons above a specified age are not in paid employment or self-
employment and are currently available for work during the reference period.
Unemployment is measured by the unemployment rate as the number of people who are
unemployed as a percentage of the labour force (the total number of people employed plus
unemployed).

In India the unemployment rate was 2.52 in the year 2011. It became highest i.e, 2.82 in the
year 2013. After 2015, this rate is reduced gradually and over past two years i.e, in the years
2018 and 2019 it has a constant value of 2.55. This decreasing slope of unemployment rate
is a good financial indicator of country’s financial health.

4. DOLLAR RATE

Dollar rate

2011 2012 2013 2014 2015 2016 2017 2018 2019

The U.S. dollar, which is sometimes called the greenback, is first and foremost in the world
of forex trading, as it is easily the most traded currency on the planet. The Indian rupee is
the official currency of the Republic of India. The exchange rate for the Indian rupee (INR)
against the United States Dollar (USD) is known as Dollar rate of Indian Rupee.

The Indian rupee is issued and controlled by the Reserve Bank of India (RBI). During past
years i.e, from the year 2011 to 2019 the value of Indian rupee has ranged from 1USD =
55.39 INR to 1USD = 73.16 INR. The strengthening dollar rate is a major concern not only for
investors but also for Indian government and central bank.

5. BANK RATE

Bank rate

2011 2012 2013 2014 2015 2016 2017 2018 2019

Bank rate is the rate charged by the central bank for lending funds to commercial banks.
Bank rates influence lending rates of commercial banks. Higher bank rate will translate to
higher lending rates by the banks. In order to curb liquidity, the central bank can resort to
raising the bank rate and vice versa.

As seen from the table, the bank rates were the highest i.e, 9 during the years 2012 and
2014. After that, from the year 2015 to 2018 it fluctuates between 7.75 and 6.75. In the
year 2019, the bank rate has reached at the lowest value i.e, 5.40. Lower bank rates tend to
positively affect earnings and stock prices.
5.2 INDUSTRY ANALYSIS
Industry analysis is a part of fundamental analysis which is performed after doing economic
analysis. It helps in understanding some of the major aspects of a specific industry to help
investors in making investment decisions.

In industry we will emphasise on Porter’s five forces model, Government guidelines,

Industry Life Cycle, SWOT analysis and Sales volume of Automobile sector for previous
years.

1. PORTER’S FIVE FORCES MODEL :

Michael Porter designed 5 forces model to determine the structure of any industry. He had
come up with a number of vital framework, but the most renowned one among managers
making strategic decisions is the “Porter’s five forces model”. Industry depends upon the 5
factors as shown in the diagram below :

Threat of
New
Entrants

Rivalry
among Threat of
existing Substitute
firms
Five
Forces
Model

Bargaining Bargaining
power of Power of
Suppliers Buyers

Fig 3 : Porter’s five forces model

Now discussing every factor in reference with our research paper :

(I) Threat of new entrants :

As per the report of IBEF (India Brand Equity Foundation), automobile export is expected to
increase at a CAGR of 3.05% during 2016-2026. Also several initiatives, taken by the
government of India and major players in automobile industry, are expected to make India a
leader of two wheeler and four wheeler vehicles in the world by 2025. So these many
opportunities provide firms with high returns and big profits due to which new entrants may
get attracted towards automotive sector. The restrictions may be due to :

 Patents requirement and other rights

 Government policy
 Capital requirement
 Economies of scale

(II) Threat of substitute:

Substitute product refers to the product which has the ability to satisfy the customers’
demand by using different technology. A firm producing substitute of a product will give
tough competition to the other firms in the market. Currently in automobile sector, one
biggest threat of substitute for petroleum vehicles is came out to be of EV (Electric Vehicle).

(III) Bargaining power of supplier:

Suppliers refer to the firms which are engaged in providing input to the industry. The
bargaining power of suppliers in automobile industry is very weak (low) because all the
suppliers are more or less same in terms of input availability and its price offering which
decreases their power.

(IV) Bargaining power of buyers:

Buyers refer to the final consumer who will finally purchase the good for their consumption.
Bargaining power of buyers mean potential of the buyer to decrease the price of the
product or services charged by the firm. Different buyers are:

 Individual buyer (single vehicles for personal use )

 Government agencies and corporations (fleets of vehicle for commercial use)

The bargaining power of buyers is high because individual buyer in automobile market can
easily switch to some other brand if he finds the current availing brand to be more
expensive. Also government agencies and corporations are in position to bargain for lower
price of vehicle.
(V) Rivalry among existing firms:

Rivalry refers to the firms who are in competition for capturing market share in that
particular industry. These firms possess a strong threat to profitability. If talking about the
current rivalry, there are some companies like Tata Motors, Mahindra & Mahindra, Maruti
Suzuki, Eicher Motors, Bajaj-Auto who are giving cut throat competition to each other.

2. GOVERNMENT POLICIES AND INITIATIVES

Industry analysis also takes into consideration all those initiatives taken by Government of
India for the development and growth of the industry, Recent initiatives taken by the
Government are –

 The Indian government aims to make India as a global manufacturing centre and a
Research and Development hub.
 Under NATRIP, the Indian Government planned to set up Research and Development
centres which cost 388.5 US million dollars to make the industry operate with the
global standard.
 The government of India also planned to set up incubation centre for assisting start-
ups working in electric vehicles space.
 Some of the major initiatives taken by government of India are:
 National Mission For Electric Mobility 2020
 Automotive Mission Plan 2026
 Make in India
 Electric Vehicle (EV) Mission 2030

3. INDUSTRY LIFE CYCLE:

Start-up – At this stage, customers are unfamiliar with the features and performance of a
new product due to which its demand remains limited.

Growth – As the product starts gaining popularity among customers, it comes out from the
start-up stage and enters in the growth stage. Innovation, invention and improvement in
product lead to continuous growth, leading to huge profit.

Maturity – Companies in the industry try to operate collectively to tackle with the industry
competition and maintain profitability by adopting various strategies.

Decline – Companies decide to focus on their most profitable product lines and stop the
production of out trended product or services in order to survive in the industry. One last
option at this stage, for those who have lost everything in their business and have no
believe to survive, is divestment.
4. INDUSTRY SWOT ANALYSIS:

SWOT analysis is a marketing term which means a study undertaken to know strength,
weakness, opportunity and threat of an industry or organization.

Strengths of automobile industry:

Automobile industry has growth prospect in future as automobile provides people ease of
living, working and travelling in a better way than ever before. Automobile is now no more a
luxury product but a necessity which provide growth opportunity to the industry.

 Technology advancement – With the passage of time, automobile industry is coming

up with new innovative features and technologies to stay in the race.. A very recent
example is of EV (Electric Vehicle).
 Rising demand – Automobile is an industry where demand is continuously increasing
because of its comfort and status. Rising demand led the sale of domestic
automobile to increase by 7.01 per cent in CAGR between financial years 2013-18
with around 24.97 million vehicles being sold in FY18.

Weaknesses of automobile industry:

Weakness refers to the characteristics of an industry which plays a negative role and put the
firm or industry at disadvantageous position.

 Bargaining power of consumers – The bargaining power of buyers is high in

automobile industry because individual buyer can easily switch to some other brand
if he finds the current availing brand to be more expensive.
 Entry barriers for new firms – Due to the increasing demands and opportunities and
profits attached with the automobile industry, new entrants are getting attracted
towards this industry.
 Government interference – The government of India levied certain regulations like
excise duty, entry barriers of outside vehicles in the state, price volatility of fuel etc.

Opportunities of automobile industry:

Opportunity refers to the positive element in an industrial environment which can enhance
its performance and provide competitive edge in the market.

 Introduction of EVs (Electric Vehicles) – Electric vehicles refers to the vehicle that
works without using fuel. It works electronically to move on the roads without using
fuel. This helps in protecting environment and saving fuel.
 Government’s expectation and initiatives – If talking about automotive industry,
government has taken several initiatives with the expectation to make India a leader
of two wheeler and four wheeler vehicles in the world by 2020.
  High prospect of rising demand – Automotives are in heavy demand because it
becomes a status symbol for the customers. As per the data, the sale of domestic
automobile has increased by 7.01 per cent in CAGR between financial years 2013-18
with around 24.97 million vehicles being sold in FY18.

Threats in automobile industry:

It refers to the elements of organization’s or industry’s external environment which hinder

its performance and possess challenges in the market to survive.

 Intense competition – In automobile industry, competition is running at its peak.

Increasing demand of vehicles and introduction of EVs has invited many companies
to provide tough competition in the industry.
 Mission Electric Vehicles – Electric Vehicle though is a good opportunity for the
companies brings with it certain challenges during its initial stage.

5. SALES VOLUME :

Years/ Segments Domestic Sales Export Total Production

2010-11 1,70,83,968 28,76,310 1,98,96,487

2011-12 1,73,61,769 29,37,905 2,03,82,026
2012-13 1,77,93,701 28,98,907 2,06,47,611
2013-14 1,84,23,223 31,10,584 2,15,00,165
2014-15 1,97,24,371 35,73,346 2,33,58,047
2015-16 2,04,68,971 36,43,494 2,40,16,068
2016-17 2,18,62,128 34,78,268 2,53,29,383
2017-18 2,49,72,788 40,40,172 2,90,73,892
2018-19 2,51,36,659 42,76,948 2,99,43,759

The table above shows the sales volumes in the Indian automobile sector over the years.
The increase has been positive and increasing every year and this is an encouraging sign for
the automobile producers of India. Both exports and domestic sales have increased over the
years. The people are getting richer and willing to spend their money on the commercial
vehicles, thus the industry is flourishing.
5.3 COMPANY ANALYSIS
Company analysis is a part of fundamental analysis which is performed after doing Industry
analysis. It helps in understanding the financial performance, health and profitability of a
specific company to help investors in making investment decisions.

Five key variables are used to perform company analysis; i.e EPS (Earning Per Share),
Dividend Payout Ratio, Return On Equity (ROE), Operating Profit Margin, Book value/share.

1. EPS (Earning Per Share)

Earning per share or EPS is an important financial measure, which indicates the profitability
of a company. It is the portion of a company’s profit that is allocated to every individual
share of the stock. It is calculated by dividing the company’s net income with its total
number of outstanding shares. The higher the EPS of a company, the better is itas
profitability.

Table 3: EPS (Earning Per Share) of five companies (in Rs.)

Maruti
Years/ Tata Motors Mahindra & Eicher Bajaj
Suzuki India
Companies Ltd. Mahindra Ltd. Motors Auto Ltd.
Ltd.
2010-11 31.05 82.46 53.46 70.13 119.40
2011-12 42.58 58.19 53.18 114.48 105.21
2012-13 31.02 81.74 69.51 120.11 108.30
2013-14 43.51 94.44 79.06 145.84 116.80
2014-15 43.44 126.04 53.12 227.22 104.56
2015-16 34.25 181.98 56.77 493.07 140.30
2016-17 21.94 248.64 34.16 613.12 141.00
2017-18 26.46 260.88 69.20 719.69 145.80
2018-19 -84.89 253.28 48.91 807.76 170.30

Mean 21.04 154.18 57.48 367.93 127.96

SD 40.46 82.82 13.32 290.78 22.6

Interpretation:

From the above table it is seen that Eicher Motors has the highest EPS; i.e Rs. 367.93
followed by Maruti Suzuki India Ltd with Rs. 154.18 and Bajaj Auto Ltd with Rs. 127.96.
However, if we consider the standard deviation then Eicher motors again has the highest
value; i.e 290.78 and Mahindra & Mahindra has the lowest value; i.e 13.32. Though Eicher
Motors has highest EPS value, it is somehow risky to invest in there because of its high
deviation.

2. Dividend Payout Ratio

The dividend payout ratio is the amount of dividends paid to stockholders relative to the
amount of total net income of a company. The amount that is not paid out in dividends to
stockholders is held by the company for growth. The amount that is kept by the company is
called retained earnings. Investors are particularly interested in the dividend payout ratio
because they want to know if companies are paying out a reasonable portion of net income
to investors. It is calculated by dividing total dividend by the net income of the company.

Table 4: Dividend Payout ratio of five companies (%)

Maruti
Years/ Tata Motors Mahindra & Eicher Bajaj
Suzuki India
Companies Ltd. Mahindra Ltd. Motors Auto Ltd.
Ltd.
2010-11 13.74 9.46 22.92 15.68 33.50
2011-12 9.47 13.25 24.54 13.98 42.75
2012-13 6.52 10.10 19.47 13.07 41.56
2013-14 4.63 12.70 18.47 12.93 42.80
2014-15 0.00 19.83 23.75 13.54 47.81
2015-16 0.00 13.74 24.60 34.99 71.25
2016-17 0.00 14.07 20.92 0.00 3.54
2017-18 0.00 28.75 11.29 16.71 37.72
2018-19 0.00 31.59 17.63 13.61 35.23
Mean 3.82 17.05 20.39 14.94 39.57
SD 5.14 8.03 4.3 8.95 17.52
Interpretation:

From the above table it is seen that Bajaj Auto Ltd. has the highest dividend payout ratio; i.e
39.57% followed by Mahindra & Mahindra Ltd with 20.39% and Maruti Suzuki India Ltd
with 17.05%. However, if we consider the standard deviation then Bajaj Auto Ltd again has
the highest value; i.e 17.52, hence it is not advisable to invest in the respected company.

3. Return On Equity (ROE)

The Return On Equity ratio essentially measures the rate of return that the owners of
common stock of a company receive on their shareholdings. Return on equity signifies how
good the company is in generating returns on the investment it received from its
shareholders. It is calculated by dividing Net Income of the company by Shareholder’s
Equity. Investors generally prefer firms with higher ROEs.

Table 5: Return On Equity of five companies (%)

Maruti
Years/ Tata Motors Mahindra & Eicher Bajaj
Suzuki India
Companies Ltd. Mahindra Ltd. Motors Auto Ltd.
Ltd.

2010-11 48.73 16.50 21.57 15.33 71.86

2011-12 40.88 10.76 18.73 20.67 50.07
2012-13 26.31 12.87 20.55 18.47 38.84
2013-14 21.33 13.27 20.03 19.16 33.24
2014-15 24.86 15.65 12.14 24.45 27.26
2015-16 14.66 17.95 11.88 36.62 28.96
2016-17 12.83 20.25 12.43 31.18 22.84
2017-18 9.41 18.51 20.42 27.87 20.65
2018-19 -47.90 16.24 13.29 24.69 21.20

Mean 16.79 15.78 16.78 24.27 34.99

SD 27.47 3.02 4.2 6.76 16.75

Interpretation:

From the above table it is seen that Bajaj Auto Ltd has the highest Return On Equity; i.e
34.99% followed by Eicher Motors with 24.27% and Tata Motors with 16.79%. However, if
we consider standard deviation then Bajaj Auto Ltd has SD of 16.75 where as if we see
Eicher motors has second highest ROE value with a low standard deviation; i.e 6.76. Hence
Eicher motors is less riskier than Bajaj Auto Ltd.

4. Operating Profit Margin

Operating Profit Margin is the profitability ratio which is used to determine the percentage
of the profit which the company generates from its operations before deducting the taxes
and the interest. It is calculated by dividing the operating profit of the company by its net
sales. A company’s operating profit margin tells us how well the company’s operations
contribute to its profitability. A company with a substantial profit margin ratio makes more
money on each rupee of sales than a company with a narrow profit margin.

Table 6: operating profit margin of five companies (%)

Maruti
Years/ Tata Motors Mahindra & Eicher Bajaj
Suzuki India
Companies Ltd. Mahindra Ltd. Motors Auto Ltd.
Ltd.
2010-11 13.77 9.90 16.55 8.43 19.22
2011-12 13.46 6.99 12.42 10.36 18.93
2012-13 13.00 9.76 13.26 8.59 18.35
2013-14 14.96 11.70 13.67 10.47 20.61
2014-15 14.93 13.47 12.22 12.75 19.03
2015-16 14.87 25.19 18.27 35.67 25.44
2016-17 10.97 15.21 12.81 30.90 20.30
2017-18 11.71 15.11 14.36 31.31 19.17
2018-19 8.16 12.78 14.52 29.63 16.45

Mean 12.87 13.35 14.23 19.79 19.72

SD 2.26 5.18 2.01 11.65 2.45

Interpretation:

From the above table it is seen that Eicher Motors has the highest Operating profit margin;
i.e 19.79% followed by Bajaj Auto Limited with 19.72% and Mahindra & Mahindra with
14.23%. However, if we consider standard deviation then Eicher Motors has SD of 11.65
where as if we see Bajaj has second highest ROE value with a low standard deviation; i.e
2.45. Hence investment in Bajaj Auto Ltd is more profitable than Eicher Motors.

5. Book Value/Share

The book value per share is a ratio that weighs stockholders’ total equity against the
number of shares outstanding. In other words, this measures a company’s total assets,
minus its total liabilities, on a per-share basis. Generally, the book value per share is used by
investors to determine whether a share is fairly valued.

Table 7: Book Value/Share of five companies (%)

Maruti
Years/ Tata Motors Mahindra & Eicher Bajaj
Suzuki India
Companies Ltd. Mahindra Ltd. Motors Auto Ltd.
Ltd.
2010-11 302.23 495.11 316.90 708.82 166.14
2011-12 105.13 542.37 360.16 863.57 210.18
2012-13 119.01 630.41 427.63 1,001.24 278.72
2013-14 205.04 712.21 491.70 1,144.65 351.36
2014-15 176.06 805.69 536.84 1,328.75 383.43
2015-16 233.77 1014.25 599.35 1,345.03 484.51
2016-17 172.30 1,228.16 666.23 1,964.38 617.09
2017-18 282.54 1,409.78 414.50 2,578.90 705.85
2018-19 178.74 1,559.92 444.37 3,269.33 802.91
Mean 197.20 933.10 473.07 1,578.29 444.46
SD 66.81 389.7 112.43 859.83 223.73

Interpretation:
From the above table it is seen that Eicher Motors has the highest Book value/share; i.e
1578.29% followed by Maruti Suzuki India Ltd with 933.10% and Mahindra & Mahindra
with 473.07%. However, if we consider the standard deviation then Eicher Motors again has
the highest value; i.e 859.83, hence it is not advisable to invest in the respected company.
 CHAPTER – 6
TESTING OF HYPOTHESIS
6.1 MACROECONOMIC FACTORS AND SHARE PRICE OF
SELECTED COMPANIES

H01 : There is no significant relation between macroeconomic factors and

automobile sector share price.

Table : Correlation analysis – Macroeconomic indicators and share price of selected companies

Inflation Unemployment
Companies/Factors GDP Dollar rate Bank rate
rate rate

Tata Motors Ltd. -0.267 -0.079 0.711 -0.193 0.509

Maruti Suzuki
0.922 -0.913 -0.431 0.921 -0.573
India Ltd.

Mahindra &
-0.463 0.024 0.833 -0.327 0.660
Mahindra Ltd.

Eicher Motors 0.865 -0.962 -0.273 0.896 -0.491

Bajaj Auto Ltd. 0.889 -0.890 -0.291 0.900 -0.447

In the above table pearson correlation coefficient is used to know the relationship between
the macroeconomic indicators and share price of selected five companies. As we can see
that no value of pearson correlation coefficient is zero; i.e there are some relations between
the share prices and macroeconomic indicators. This relationship is either positive or
negative.
If we consider the GDP, three companies show positive relations with this; i.e with increase
in GDP year by year, the share prices of the companies is also increasing. However, all
companies except Mahindra & Mahindra show negative relationship with inflation rate; i.e
the decrease in inflation rate over years increases the share prices. Similarly for increasing
dollar rate, share prices of most companies show a positive relation. While considering
Unemployment rate and Bank rate, these two factors are frequently fluctuating over years,
hence the share prices of different companies also show different relationships with these
two factors.
Conclusion:
Macroeconomic factors like GDP and dollar rate shows a positive relation whereas Inflation
rate negative relation with share prices. Again relationship between share prices with
factors like Unemployment rate and Bank rate are different for different company which
depends on their financial structure. Hence the proposed hypothesis is rejected. Thus, There
is a relation between macroeconomic factors and automobile sector share price.
6.2 AUTOMOBILE INDUSTRY GROWTH AND SHARE PRICE OF
SELECTED COMPANIES

H03 : The growth of automobile industry has no impact on the share prices of
automobile companies.

Table 9 : Correlation analysis – Growth of automobile industry and share price of selected companies

% Growth / 2010- 2011- 2012- 2014- 2015- 2016- 2017- 2018-

2013-14
Years 11 12 13 15 16 17 18 19
Total
2.01 2.44 1.30 4.13 8.64 2.82 5.47 14.78 2.99
Production

Sales -10.98 -17.26 42.38 19.61 16.04 -8.05 24.60 14.78 -12.26
Tata Motors
Ltd. Share
- 74.95 20.39 31.65 -21.03 20.62 -8.5 -60.01 7.21
price

Sales -3.71 -5.83 1.96 -1.12 6.66 -59.36 5.31 6.86 2.38
Maruti
Suzuki India Share
- 62.26 18.38 88.78 38.8 15.09 82.9 -23.27 -1.31
Ltd. price

Sales -14.83 -16.85 59.01 18.29 12.9 -18.07 19.03 27.69 1.96
Mahindra &
Mahindra Share
- 36.64 1.35 30.74 3.07 -6.88 36.61 7.02 -33.87
Ltd. price

Sales -16.23 -21.41 38.15 11.87 12.70 -19.64 23.78 11.29 -9.27
Eicher
Share
Motors - 95.37 71.2 202.96 11.81 29.35 39.16 -23.67 -2.78
price

Sales -9.46 -14.98 43.60 15.39 17.59 -15.71 28.84 15.97 1.36
Bajaj Auto
Share
Ltd. - 33.92 10.34 27.3 4.09 -3.96 26.65 18.4 17.09
price
Conclusion:

From the above table it can be concluded that whenever there is a positive growth rate in
the automobile sector, the sales as well as the share prices of each company show similar
trend with little deviation and vice-versa. Hence the proposed hypothesis is rejected. Thus
The growth of automobile industry has significant impact on the share prices of automobile
companies.

6.3 FINANCIAL PERFORMANCE AND SHARE PRICE OF SELECTED

COMPANIES

H03 : There is no significant impact of financial performance of a company on

market price of its share.

Table 10 : Correlation analysis – Financial performance and share price of selected companies

Return
EPS Dividend Operating Book Avg. Rank Avg. Rank
Company / On
(Earning Payout Profit Value / for Financial for Share
Rank Equity
Per Share) Ratio Margin Share performance prices
(ROE)
Tata Motors
5 5 3 5 5 5 5
Ltd.
Maruti Suzuki
2 3 5 4 2 3 3
India Ltd.
Mahindra &
Mahindra 4 2 4 3 4 4 4
Ltd.
Eicher Motors 1 4 2 1 1 1 1
Bajaj Auto
3 1 1 2 3 2 2
Ltd.

The ranks for different financial variables are taken on the basis of their mean value as
obtained in chapter 5. The average rank for financial performance indicates the average
value of ranks from financial variables of different companies. For obtaining average rank
for share prices, the companies are ranked according to their share prices year by year and
then the final average rank for each company is calculated.

Conclusion:

It is clearly seen from above table that the average rank for financial performance is totally
coinciding with the average rank for share prices. So there must be some relation between
them. Hence the proposed hypothesis is rejected. Thus, There is significant impact of
financial performance of a company on market price of its share.
 CHAPTER – 7
EFFECT OF COVID-19
This chapter is added specifically for the purpose of suggesting investors about the
investment opportunities during the coronavirus pandemic. It also shows the impact of
COVID-19 on Indian Automobile Industry and the road ahead. This chapter also deals with
suggesting investors about normal investing patterns during this type of crisis.

Impact of COVID-19 on Indian Automobile Industry:

India has grown into a peel of global carmakers and a few indigenous players, but with the
impact of corona virus on car market, they are facing severe contraction and uncertainties
over the ongoing corona virus syndrome. With a shrinking customer base and shift
preference to the digital world, the India Automotive Industry will be altered forever.

1. Weak economy leading to weak customer base

In the Indian market, the life of customers revolves around pure economics. Discounts have
been the flavour of the Indian automotive market forever. They are standard and peak
during festivals. More than 40 percent of the total vehicle sales occur during the festive
seasons across India.

So in the times of the coronavirus pandemic, there’s much at stake for the sector. The
purchase done by potential customers would surely be downsized. So a larger number of
customers would be looking at smaller cars with lower price points, leading to downgrade in
the purchase and buying decisions. On a larger scale, it could lead to return of the ‘entry-
level cars’. Indian customers would be looking at affordable mobility with safer means to
travel. The cost would supersede brands and categories across the market.

2. Changes in potential customer

Indian market thrives on a differentiated segment of customers. These are the ones who
drive demand and bring huge incremental sales and growth. It’s the class of businessmen,
traders, entrepreneurs or the rural markets, which normally drive sales.

However, in today’s scenario, this is the class that is the worst affected set of customers
looking for conserving their resources. According to market experts amid the scenario as
most businesses facing a downturn and huge uncertainty over the future may force many of
these potent customers to face tough times making any purchase decision difficult to
transact.

3. Customers prefer segment leader in the times of crisis

History depicts that in tough times or crises it’s the segment leader that thrives over other
brands and companies. There are no regular rules of laws to the market to establish this, but
the confidence and the trust top brands and market leaders invoke as most customers are
risk-averse and prefer to stick with them.
In the past it’s the segment leaders like Hero MotoCorp in two-wheelers, Maruti Suzuki for
passenger vehicles and Tata Motors in the commercial vehicle segment have gained in the
historical crisis situation. Be it the ASEAN financial crisis in 1997 or the Lehman Brothers
crisis in 2008, these segment leaders gained on consumer belief as their buying decision
went in favour of forever brands.

According to market experts, time is again for history to repeat itself. Amid the impact of
corona virus on car market, it’s the segment leader’s time again to gain.

4. Work From Home will be a new normal

One of the major aftermath of the ongoing corona virus crisis would be the prominence of
Work From Home (WFH) culture that will impact the mobility psyche of both individuals and
companies. The mobility and commuting needs of the companies would go down as
companies evaluate their need for WFH and their manpower requirements.

While the need for personal and infection-free safer transport will drive demand for new
cars and two-wheelers, the WFH concept would definitely curtail public transport. This
could ideally decrease the use and needs of vehicles on road and ultimately lead to lower
sales and pruned demand.

Automakers are gearing up for the eventuality. They would craft new strategies to tackle the
emergence of WFH as they bring new vehicles to suit people preferences for safer transport.

5. Increase in the business of used cars

Impact of coronavirus on car market is visible with the buoyancy in the used car market
even as the new car sales have slumped. Largely customers looking for more affordable
means of transport with lower cash outflow and employment uncertainties would have a
psyche to avoid buying new cars when a used car is a cheaper option. So, the market is
bound to thrive.

Already the used car market has grown to over 40-lakh units transacted in FY20, which is
almost 40 percent higher than the new car sales. But the rush for used cars is expected to
swell in the coming months as customers looking for personalised mobility in a safer
environment would propel demand.

6. Impact of Online sales on Brick & Mortar form of business

Digitally generated leads and sales would gain prominence and the capital-intensive brick &
morta dealerships would be under severe pressure. The countrywide lockdown has sealed
the fate of over 25,000 brick and mortar dealerships selling two-wheelers to tractor-trailers
across India and generating sales revenues in excess of $100 billion every year.
According to sources in the industry, auto dealership business is already under severe
pressure. Probably more than 300 outlets succumbled to rising costs and dwindling
profitability last year. Already under strain from heavy rentals, rising overhead and
manpower costs, the brick and mortar dealerships would take the digital route to reach
customers and convert leads into actual sales.

While almost five percent of the total dealerships in the business might not be able to
withstand the fiscal shock and eventually close down, it’s the online, virtual reality or
digitally generated sales leads that would become a new norm to convince customers to buy
new vehicles. And all new cars would surely come with a heavy dose of disinfectant.

7. Slow down of Startups

The steady stream of investments that has kept the Startups going would be the worst to
hit. Many of the new Startups in the mobility business would face severe challenges in the
months to come.

Be it app-based ride-hailing companies or the electric two-wheeler developers many would

be dried of funding needs. In fact, the government’s emphasis on the sale of a larger
percentage of EVs on the road by 2030 has propelled investment in around 100 Startups
right from personal mobility to three-wheeler to electric cars.

According to a global survey done by startupanz.com, almost 42 percent of the Startups

globally are in the red zone, which means they have less than three months of runway. The
biggest pressure would on scores of mobility Startups in India that are likely to lost favour of
both investors and customers.

Investment in time of COVID-19

In the past months amid coronavirus pandemic, we have seen a large fall in the equity
markets around the world. Many market experts say that like many other crisis this too will
pass and come to an end, but most important for investors to keep in mind the ongoing
trend of investment during this crisis period. The following points will help the investors to
take investment decisions during this pandemic.

 Volatility is a part of share markets. Economy downfall, single-digit GDP numbers,

high inflation, bad IIP numbers are all waiting at the doors to knock and make the
situation worse. But investors should not panic. Keep calm and take the decision one
by one.
 For long term investors this is a good time to buy high valuation stocks at low levels.
But they should follow some criteria before buying any stocks. One is the stock
should be at Zero Debt. Second, it has to be high-profit margin stock. Third, the
company should have all the inherent capacity to face the bottom and then give a
big surge. Fundamentally strong stocks are what people should look after at current
situation.

 It becomes extremely important for the investors to re-shuffle the portfolio

according to the current situation. It would also be advisable to have 10-15% of
portfolio’s allocation in the gold as an asset class. Gold is negatively correlated to
equities. It performs exceptionally well during stock market crashes.

 Equity investors can turn their portfolio allocation towards large cap and multi cap
stocks.

 Sector leaders with relatively stronger balance sheets, higher earnings visibility,
strong cash flows, and management with a good track record should be preferred.

 In the bond space, it would be advisable to have exposure in Corporate Bond funds /
Banking & PSU Debt Fund which are comparatively safer as challenges to the
economy is expected to increase only in near future.

 This is the prudent time to increase exposure in equity in a staggered manner.

Empirical evidence testifies to the fact that investing during market crashes, can
generate super-normal returns over the long term.

 In India, nearly 40% of the economy from the supply side and closer to 90% of the
economy from the demand side would get affected by it and would lead to a
potential of a 100 bps slowdown in GDP growth. This, along with the material change
in CPI inflation outlook on the back of crash in oil and food prices, has increased the
policy space for rate cuts by RBI. This will impact the banking and financial sector
badly. So investors should avoid banking stocks as well as NBFCs, financial sector
stocks for now.

 Those stocks which are giving no profit from the time those were added to the
portfolio, should be sold as soon as possible. Low margin profit stocks should be
sold.
  Pharma and healthcare stocks will definitely get some benefit after COVID-19 relief
after things will get normal. Healthcare sector will get a boost by the Government in
the future as well. So one can buy stocks like Dr Reddy, Abott India, Lal Path labs,
Cadila, Biocon, Lupin for long term.

 One can buy blue chip companies like TCS, Infosys, RIL at low levels. Avoid FMCG,
metal sector.

 One should redeem some of their fixed income investments to make fresh lumpsum
investments in equity funds or top up their existing equity investments. Doing so
would allow the investors to buy more units at lower NAVs and thereby, reduce their
average investment cost. This would help them in creating bigger corpus when the
market recovers, and thereby help them to reach their financial goals sooner.

 Lastly Investment should be done in staggered manner and liquidity should be

maintained during this volatile time.

Investment in Automobile Industry in India during COVID-19

The coronavirus pandemic and the subsequent lockdown put the brakes on the growth of
the Indian automobile industry. The industry, which moves in sync with the country’s
economy, has been fraught by idle capacity, low demand, and high cost of production.

Axis Securities, in a recent note, said vehicle sales in May plunged 70-90 percent, excluding
the tractor segment, for all original equipment manufacturers (OEMs) even as there was a
gradual opening of plants and dealerships. Passenger vehicles market leader Maruti Suzuki
reported an 86 percent tumble in total sales in May.

However, this does not imply a doomsday scenario for the automobile industry. Indians are
still interested in owning a car, but the manner in which they will go about purchasing may
be different. There is no doubt that the automobile industry will face a severe impact for
quite some time. But, analysts and carmakers remain hopeful.

For investors, it is not the best time to invest in Indian automobile industry. Pharmaceutical
sector can be seen as a good opportunity for those who want to invest during this
pandemic. For those investors who already invested in automobile sector are advised to
diversify their portfolio.
 CHAPTER – 8
FINDINGS & CONCLUSION
India will be the world’s fourth-largest passenger-vehicle market by 2021. It took India
around seven years to increase its annual production to four million vehicles from three
million. However, the next milestone – five million – is expected in less than five years. The
automobile industry is supported by various factors such as availability of skilled labour at
low cost, robust R&D centres and low-cost steel production. The industry also provides
great opportunities for investment and direct and indirect employment to skilled and
unskilled labour. Thus Indian automotive industry (including component manufacturing) is
expected to reach Rs 16.16-18.18 trillion by 2026.

FINDINGS
 Investing in Indian Automobile Industry is found to be profitable.
 It is found that Eicher Motors is the most beneficial company for investment among
the other four selected companies taken for analysis.
 There is a significant relation between macroeconomic factors and automobile sector
share prices.
 Some macroeconomic factors like GDP and Bank rate really support in increasing share
price of companies.
 Some factors like slowdown in economy, liquidity crisis, and introduction of new policy
or policy changes have short term impact on the automobile sector in India.
 Factors relating to Environment & Safety regulations, Growth in shared mobility and
strict regulations by government have long term effect on Indian Automobile Industry.
 There is a significant impact of financial performance of a company on market price of
its share.
 A number of variables must be chosen while performing the financial analysis of the
companies together with standard deviation.
 The growth of automobile industry has significant impact on the share prices of
automobile companies.
 With change in different variables, the share prices of different companies also
deviates, but this deviation is not uniform among all the companies in the industry.
Some companies may show positive correlation, while others may show negative
correlation with respect to a particular variable.
  It is not advisable to invest in automobile sector during crisis situation like the COVID-
19 pandemic.

CONCLUSION
The automotive industry deploys a long supply chain. It has to source a large amount of
materials varying from steel to non-ferrous metals, plastics, and electronics. The supply
chain must be robust to ensure seamless production on daily basis. Most of the vehicle
makers have either own bases for the supply of materials or have suppliers based in China.
These have been seriously affected by the coronavirus crisis. As supply chains around the
world are disrupted, the full impact is yet to be felt.

According to the fundamental analysis it is profitable to invest in Indian Automobile Sector.

However, it is not feasible to follow during this type of crisis situation. Hence the detailed
analysis of impact of coronavirus on automobile sector and investment pattern as given in
chapter 7 must be considered. After the effect of COVID-19 pandemic is gone and when the
companies of Automobile industry will again start to revive and grow, at that time this
fundamental analysis will be beneficial to the investors in helping them to take decisions
about putting their money in right industry and in right company. It is also advised to use
technical analysis together with fundamental analysis for the best decision making about
investment.
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