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CHAPTER I
1.1 INTRODUCTION OF THE STUDY
India is a developing country. Nowadays many people are interested to invest in financial markets especially on equities to get high returns, and to save tax in honest way. Equities are playing a major role in contribution of capital to the business from the beginning. Since the introduction of shares concept, large numbers of investors are showing interest to invest in stock market. In an industry plagued with skepticism and a stock market increasingly difficult to predict and contend with, if one looks hard enough there may still be a genuine aid for the Day Trader and Short Term Investor. The price of a security represents a consensus. It is the price at which one person agrees to buy and another agrees to sell. The price at which an investor is willing to buy or sell depends primarily on his expectations. If he expects the security's price to rise, he will buy it; if the investor expects the price to fall, he will sell it. These simple statements are the cause of a major challenge in forecasting security prices, because they refer to human expectations. As we all know firsthand, humans expectations are neither easily quantifiable nor predictable. If prices are based on investor expectations, then knowing what a security should sell for (i.e., fundamental analysis) becomes less important than knowing what other investors expect it to sell for. That's not to say that knowing what a security should sell for isn't important--it is. But there is usually a fairly strong consensus of a stock's future earnings that the average investor cannot disprove Fundamental analysis and technical analysis can co-exist in peace and complement each other. Since all the investors in the stock market want to make the maximum profits possible, they just cannot afford to ignore either fundamental or technical analysis.
1.2 COMPANY PROFILE
The company analysis undertaken in the study is conducted as comparative analysis among three companies as follows: 1.) Tata motors ltd 2.) Maruthi Suzuki ltd 3.) Bajaj auto ltd 1.2.1 TATA MOTORS LTD Tata Motors was established in 1945 as Tata Engineering and Locomotive Co. Ltd. to manufacture locomotives and other engineering products. It is India's largest automobile company, with standalone revenues of Rs. 25,660.79 crores (USD 5. billion) in 2008–09. It is the leader in commercial vehicles in each segment, and among the top three in passenger vehicles with winning products in the compact, midsize car and utility vehicle segments. The company is the world's fourth largest truck manufacturer, and the world's second largest bus manufacturer. The company's 23,000 employees are guided by the vision to be 'best in the manner in which they operate best in the products they deliver and best in their value system and ethics.' Tata Motors, the first company from India's engineering sector to be listed in the New York Stock Exchange (September 2004), has also emerged as an international automobile company.
1.2.2 MARUTHI SUZUKI LTD
Maruti Suzuki India Limited (MSIL), formerly known as MarutiUdyog Limited, a subsidiary of Suzuki Motor Corporation of Japan, is India's largest passenger car company, accounting for over 50 per cent of the domestic car market. MarutiUdyog Limited was incorporated in 1981 under the provisions of Indian Companies Act 1956 and the government of India selected Suzuki Motor Corporation as the joint venture partner for the company. In 1982 a JV was signed between Government of India and Suzuki Motor Corporation. It was in 1983 that the India’s first affordable car, Maruti 800, a 796 cc hatch back was launched as the company went into production in a record time of 13 month. More than half the number of cars sold in India wear a Maruti Suzuki badge. They are a subsidiary of Suzuki Motor Corporation Japan. The company offer full range of cars– from entry level Maruti 800 & Alto to stylish hatchback Ritz, A star, Swift, Wagon R, Estillo and sedans DZire, SX4 and Sports Utility vehicle Grand Vitara. Maruti Suzuki's Shareholding Pattern PromotersHolding Pattern: 54.21% Description Percent of Share (%) Promoters 54. Individuals 2. Institutions 15. FII 21. Govt. 0. Others 6.
1.2.3 BAJAJAUTOLTD
Bajaj Auto is a $2.3 billion company founded in 1926. It is world’s fourth largest two– and three–wheeler manufacturer. Bajaj Auto has three plants in all, two at Waluj and Chakan in Maharashtra and one plant at Pant Nagar in Uttaranchal. The company is into manufacturing of motorcycles, scooters and three–wheelers. In India, Bajaj Auto has a distribution network of 485 dealers and over 1,600 authorised services centres. It has 171 exclusive dealers for the three–wheeler segment .It has total 3750 rural outlets in rural areas. The Bajaj brand is well–known across several countries in Latin America, Africa, Middle East, South and South East Asia. It has a distribution network in 50 countries with a dominant presence in Sri Lanka, Colombia, Bangladesh, Mexico, Central America, Peru and Egypt. It has technical tie up with Kawasaki Heavy Industries of Japan to manufacture latest models in the two–wheeler space. Bajaj Auto has launched brands like Boxer, Caliber, Wind125, Pulsar and many more. It has also launched India's first real cruiser bike, Kawasaki Bajaj Eliminator. Bajaj Auto's has in all three plants, two at Waluj and Chakan in Maharashtra and one plant at Pant Nagar in Uttranchal, western India. Waluj – Bajaj range of motorcycles and three–wheelers Chakan – Bajaj range of motorcycles Pant Nagar – Bajaj range of motorcycle Bajaj Auto's Shareholding Pattern
To start any business capital plays major role. Capital can be acquired in two ways by issuing shares or by taking debt from financial institutions or borrowing money from financial institutions. The owners of the company have to pay regular interest and principal amount at the end. Stock is ownership in a company, with each share of stock representing a tiny piece of ownership. The more shares you own, the more of the company you own. The more shares you own, the more dividends you earn when the company makes a profit. In the financial world, ownership is called “Equity”. Advantages of selling stock: A company can raise more capital than it could borrow. A company does not have to make periodic interest payments to creditors. A company does not have to make principal payments Stock/shares play a major role in acquiring capital to the business in return investors are paid dividends to the shares they own. The more shares you own the more dividends you receive. The role of equity analysis is to provide information to the market. An efficient market relies on information: a lack of information creates inefficiencies that result in stocks being misrepresented (over or under valued). This is valuable because it fills information gaps so that each individual investor does not need to analyze every stock thereby making the markets more efficient.
1.4OBJECTIVES OF THE STUDY
The objective of this project is to deeply analyze our Indian Automobile Industry for investment purpose by monitoring the growth rate and performance on the basis of historical data. The main objectives of the Project study are: Analyze the impact of qualitative factors on industry’s and company’s prospects Comparative analysis of three tough competitors TATA Motors, MaruthiSuzuki and Bajaj auto through fundamental analysis. Suggesting as to which company’s shares would be best for an investor to invest.
1.5STATEMENT OF THE PROBLEM
Research design or research methodology is the procedure of collecting, analyzing and interpreting the data to diagnose the problem and react to the opportunity in such a way where the costs can be minimized and the desired level of accuracy can be achieved to arrive at a particular conclusion. The methodology used in the study for the completion of the project and the fulfillment of the project objectives. The sample of the stocks for the purpose of collecting secondary data has been selected on the basis of Random Sampling. The stocks are chosen in an unbiased manner and each stock is chosen independent of the other stocks chosen. The stocks are chosen from the automobile sector. The sample size for the number of stocks is taken as 3 for fundamental analysis of stocks as fundamental analysis is very exhaustive and requires detailed study. The present study is descriptive study. The analysis is based on Secondary data collected from various organizational databases, websites, newspapers and other necessary official records, books & magazines. Monthly closing prices have been taken for technical analysis purpose from year 2009 to 2013. Statistical measures like mean, deviation, correlation moving averages have been used to find out the conclusion. Besides Tables & Charts are used to present and analyze data. The aim of this research is to know the financial performance of the companies and the industry as a whole. Stock market has been the focus of study for many of the researches and this research based on the secondary data would try and find out the trends prevailing in the automobile industries. The companies taken into consideration for the research are: - Maruti Suzuki India Ltd - Tata Motors Limited - Bajaj Auto Ltd.
1.7PERIOD OF THE STUDY
The period of study is confined five years that is from financial year 2012-2013 to 2016-2017 as that study period is considerably long and is enough to comprise the changes in equity market.
1.8LIMITATIONS OF THE STUDY
This study has been conducted purely to understand Equity analysis for investors. The study is restricted to three companies based on Fundamental analysis. The study is limited to the companies having equities. Detailed study of the topic was not possible due to limited size of the project. Suggestions and conclusions are based on the limited data of five years .
1.9 CHAPTER SCHEME
2. REVIEW OF LITERATURE
A literature review is a text of a scholarly paper, which includes the current knowledge including substantive findings, as well as theoretical and methodological contributions to a particular topic. Literature reviews are secondary sources, and do not report new or original experimental work. Most often associated with academic-oriented literature, such reviews are found in academic journals, and are not to be confused with book reviews that may also appear in the same publication. Literature reviews are a basis for research in nearly every academic field. A narrow-scope literature review may be included as part of a peer-reviewed journal article presenting new research, serving to situate the current study within the body of the relevant literature and to provide context for the reader. In such a case, the review usually precedes the methodology and results sections of the work. Producing a literature review may also be part of graduate and post-graduate student work, including in the preparation of a thesis, dissertation, or a journal article. Literature reviews are also common in a research proposal or prospectus.
(1) Dr. S. Krishnaprabha and Mr. M. Vijayakumar (2015) conducted a study on Risk and Return Analysis of Selected Stocks in India. Risk and return analysis play an important role in the decision-making process of most of the investors. Long term investors were able to take advantage of the market as it less volatile. As there is less fluctuation in the shares when compared to the market as well as its prices, the long-term investors are able to predict when the share will raise. The majority of Information Technology, Fast Moving Consumer Goods, Pharmaceutical Sectors give more return while compared to Banking and Automobile sector. (In International Journal of Scientific Research and Management, Vol. /3, Issue/4, Page/2550-2554) (2) The work by MahipatRanawat and RajnishTiwari (2013) traces the evolution of the automobile industry from its beginning to the present day and identifies the important policies made by the Indian government. They also studies the influence of important policies on the development of the industry. (In Influence Of Government Policies On Industry Development: The Case of India’s Automotive Industry, Working Paper No. 57) (3) As per a report by KPMG (Becker, 2013) , the Indian automobile is poised to start an exciting phase of growth. A number of action points have also been given in the survey report which gives ideas to the automakers as to how to capitalize on the emerging scenarios in the future. (In The Indian Automobile Industry, KPMG, and Page 1-31)
ANALYSIS OF AUTOMOBILE INDUSTRY
Over a period of more than two decades the Indian Automobile industry has been driving its own growth through phases.With comparatively higher rate of economic growth rate index against that of great global powers, India has become a hub of domestic and exports business. The automobile sector has been contributing its share to the shining economic performance of India in the recent years. To understand this industry for the purpose of investment we need to analyze it by the following approach: Fundamental Analysis (E.I.C Approach) a. Economy analysis b. Industry analysis c. Company analysis Fundamental Analysis Fundamental analysis is the study of economic, industry and company conditions in an effort to determine the value of a company s stock. Fundamental analysis typically focuses on key statistics in company s financial statements to determine if the stock price is correctly valued. Most fundamental information focuses on economic, industry and company statistics. The typical approach to analyzing a company involves three basic steps:
- Determine the condition of the general economy.
- Determine the condition of the industry.
- Determine the condition of the company.
3.1 ECONOMY ANALYSIS
Economic analysis is the analysis of forces operating the overall economy a country. Economic analysis is a process whereby strengths and weaknesses of an economy are
analyzed. Economic analysis is important in order to understand exact condition of an economy.
3.1.1 GDP and Automobile Industry
In absolute terms, India is 16th in the world in terms of nominal factory output. The service sector is growing rapidly in the past few years. This is the pie- chart showing contributions of different sectors in Indian economy. Today, automobile sector in India is one of the key sectors of the economy in terms of the employment. Directly and indirectly it employs more than 10 million people and if we add the number of people employed in the auto-component and auto ancillary industry then the number goes even higher. 2017 2016 2015 2014 2013 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00% 13.86% 12.97% 10.65% 9.99% 11.52%
GDP
GDP SOURCE: WWW.ECONOMICTIMES.COM
3.1.2 INFLATION
The rise in inflation will have adverse impact on the industry that will not only see interest rates getting further hardened but also a drop in demand due to the squeeze in purchasing power. The effect of inflation has affected every sector which is related to
Some of the recent/planned investments and developments in the automobile sector in India are as follows: The only electric automaker in India, Mahindra and Mahindra Ltd, has partnered with Uber for deploying its electric sedan e-Verito and hatchback e2o Plus on Uber platforms in New Delhi and Hyderabad. Vedanta Resources Ply is planning to invest around US$ 9 billion in India and create more than a million direct or indirect jobs in the country. 2017 2016 2015 2014 2013 0 500 1000 1500 2000 2500 3000
1517.28 1537.
FDI
FDI SOURCE: WWW.ECONOMICTIMES.COM
3.1.4 EXPORTS
Despite recession, the Indian automobile market continues to perform better than most of the other industries in the economy in coming future; more and more MNC’s coming in India to setup their ventures which clearly shows the scope of expansion Exports of cars, utility vehicles, commercial vehicles and two-wheelers have grown every year since 2000. In the financial year that ended in March, Indian factories
exported a record 3.5 million vehicles which, according to industry figures, was 15% more than what they managed a year back. This compares with domestic sales of just above 2.6 million units during the same period, up 5% from a year ago. Exports have helped automobile companies mitigate risks from the cyclical demand in home and overseas markets. The tepid demand in the local market in the last three years saw a renewed exports thrust by automobile firms, particularly those that saw a sharp decline in domestic volumes. 2017 2016 2015 2014 2013 $0. $500,000. $1,000,000. $1,500,000. $2,000,000. $2,500,000. $3,000,000. $3,500,000. $4,000,000. $2,898,907. $3,110,584. $3,573,346.00 $3,643,494.00^ $3,478,268.
EXPORTS
EXPORTS SOURCE: WWW.ECONOMICTIMES.COM
3.2 INDUSTRY ANALYSIS
