Chapter Ii - Review of Literature: Equity Analysis

CHAPTER II - REVIEW OF LITERATURE
Equity Analysis
SECURITY ANALYSIS
Investment success is pretty much a matter of careful selection and timing of stock
purchases coupled with perfect matching to an individuals risk tolerance. In order to carry
out selection, timing and matching actions an investor must conduct deep security
analysis.
Investors purchase equity shares with two basic objectives;
1. To make capital profits by selling shares at higher prices.
. To earn dividend income.
These two factors are affected by a host of factors. !n investor has to carefully
understand and analy"e all these factors. There are basically two approaches to study
security prices and valuation i.e. fundamental analysis and technical analysis
The value of common stock is determined in large measure by the performance of the
firm that issued the stock. If the company is healthy and can demonstrate strength and
growth, the value of the stock will increase. #hen values increase then prices follow and
returns on an investment will increase. $owever, just to keep the savvy investor on their
toes, the mi% is complicated by the risk factors involved. &undamental analysis e%amines
all the dimensions of risk e%posure and the probabilities of return, and merges them with
broader economic analysis and greater industry analysis to formulate the valuation of a
stock.
Equity Analysis
FUNDAMENTAL ANALYSIS
&undamental analysis is a method of forecasting the future price movements of a
financial instrument based on economic, political, environmental and other relevant
factors and statistics that will affect the basic supply and demand of whatever underlies
the financial instrument. It is the study of economic, industry and company conditions
in an effort to determine the value of a company's stock. &undamental analysis
typically focuses on key statistics in company's financial statements to determine if the
stock price is correctly valued. The term simply refers to the analysis of the economic
well(being of a financial entity as opposed to only its price movements.
&undamental analysis is the cornerstone of investing. The basic philosophy underlying
the fundamental analysis is that if an investor invests re.1 in buying a share of a
company, how much e%pected returns from this investment he has.
The fundamental analysis is to appraise the intrinsic value of a security. It insists that
no one should purchase or sell a share on the basis of tips and rumors. The fundamental
approach calls upon the investors to make his buy or sell decision on the basis of a
detailed analysis of the information about the company, about the industry, and the
economy. It is also known as )top(down approach*. This approach attempts to study the
economic scenario, industry position and the company e%pectations and is also known
as economic-indus!"-com#$n" $##!o$c% &EIC $##!o$c%'(.
Equity Analysis
Thus the EIC $##!o$c% involves three steps+
1. ,conomic analysis
. Industry analysis
-. .ompany analysis
Equity Analysis
1. ECONOMIC ANALYSIS
The level of economic activity has an impact on investment in many ways. If the
economy grows rapidly, the industry can also be e%pected to show rapid growth and
vice versa. #hen the level of economic activity is low, stock prices are low, and when
the level of economic activity is high, stock prices are high reflecting the prosperous
outlook for sales and profits of the firms. The analysis of macro economic environment
is essential to understand the behavior of the stock prices.
The commonly analy"ed macro economic factors are as follows+
)!oss Domesic P!oduc &)DP'* /01 indicates the rate of growth of the economy. It
represents the aggregate value of the goods and services produced in the economy. It
consists of personal consumption e%penditure, gross private domestic investment and
government e%penditure on goods and services and net e%ports of goods and services.
The growth rate of economy points out the prospects for the industrial sector and the
return investors can e%pect from investment in shares. The higher growth rate is more
favorable to the stock market.
S$+in,s $nd in+esmen* It is obvious that growth requires investment which in turn
requires substantial amount of domestic savings. 2tock market is a channel through
which the savings are made available to the corporate bodies. 2avings are distributed
over various assets like equity shares, deposits, mutual funds, real estate and bullion.
The savings and investment patterns of the public affect the stock to a great e%tent.
Equity Analysis
In-.$ion* !long with the growth of /01, if the inflation rate also increases, then the
real growth would be very little. The effects of inflation on capital markets are
numerous. !n increase in the e%pected rate of inflation is e%pected to cause a nominal
rise in interest rates. !lso, it increases uncertainty of future business and investment
decisions. !s inflation increases, it results in e%tra costs to businesses, thereby
squee"ing their profit margins and leading to real declines in profitability.
Ine!es !$es* The interest rate affects the cost of financing to the firms. ! decrease in
interest rate implies lower cost of finance for firms and more profitability. 3ore money
is available at a lower interest rate for the brokers who are doing business with
borrowed money. !vailability of cheap funds encourages speculation and rise in the
price of shares.
T$/ s!ucu!e* ,very year in 3arch, the business community eagerly awaits the
/overnment's announcement regarding the ta% policy. .oncessions and incentives
given to a certain industry encourage investment in that particular industry. Ta% relief's
given to savings encourage savings. The type of ta% e%emption has impact on the
profitability of the industries.
In-!$s!ucu!e -$ci.iies* Infrastructure facilities are essential for the growth of
industrial and agricultural sector. ! wide network of communication system is a must
for the growth of the economy. 4egular supply of power without any power cut would
Equity Analysis
boost the production. 5anking and financial sectors also should be sound enough to
provide adequate support to the industry. /ood infrastructure facilities affect the stock
market favorably.
01 INDUSTRY ANALYSIS
!n industry is a group of firms that have similar technological structure of production
and produce similar products and Industry analysis is a type of business research that
focuses on the status of an industry or an industrial sector 6a broad industry
classification, like 7manufacturing78. Irrespective of specific economic situations, some
industries might be e%pected to perform better, and share prices in these industries may
not decline as much as in other industries. This identification of economic and industry
specific factors influencing share prices will help investors to identify the shares that fit
individual e%pectations
Indus!" Li-e C"c.e* The industry life cycle theory is generally attributed to 9ulius
/rodensky. The life cycle of the industry is separated into four well defined stages.
Pioneering stage: The prospective demand for the product is promising in this
stage and the technology of the product is low. The demand for the product
attracts many producers to produce the particular product. There would be
severe competition and only fittest companies survive this stage. The producers
try to develop brand name, differentiate the product and create a product image.
In this situation, it is difficult to select companies for investment because the
survival rate is unknown.
Equity Analysis
Rapid growth stage: This stage starts with the appearance of surviving firms
from the pioneering stage. The companies that have withstood the competition
grow strongly in market share and financial performance. The technology of the
production would have improved resulting in low cost of production and good
quality products. The companies have stable growth rate in this stage and they
declare dividend to the shareholders. It is advisable to invest in the shares of
these companies.
Maturity and stabilization stage: the growth rate tends to moderate and the rate
of growth would be more or less equal to the industrial growth rate or the gross
domestic product growth rate. 2ymptoms of obsolescence may appear in the
technology. To keep going, technological innovations in the production process
and products should be introduced. The investors have to closely monitor the
events that take place in the maturity stage of the industry.
Decline stage: demand for the particular product and the earnings of the
companies in the industry decline. It is better to avoid investing in the shares of
the low growth industry even in the boom period. Investment in the shares of
these types of companies leads to erosion of capital.
)!o2% o- %e indus!"* The historical performance of the industry in terms of growth
and profitability should be analy"ed. The past variability in return and growth in
reaction to macro economic factors provide an insight into the future.
Equity Analysis
N$u!e o- com#eiion* :ature of competition is an essential factor that determines the
demand for the particular product, its profitability and the price of the concerned
company scrips. The companies; ability to withstand the local as well as the
multinational competition counts much. If too many firms are present in the organi"ed
sector, the competition would be severe. The competition would lead to a decline in the
price of the product. The investor before investing in the scrip of a company should
analy"e the market share of the particular company;s product and should compare it
with the top five companies.
SWOT $n$."sis* 2#<T analysis represents the strength, weakness, opportunity and
threat for an industry. ,very investor should carry out a 2#<T analysis for the chosen
industry. Take for instance, increase in demand for the industry's product becomes its
strength, presence of numerous players in the market, i.e. competition becomes the
threat to a particular company. The progress in 4 = 0 in that industry is an opportunity
and entry of multinationals in the industry is a threat. In this way the factors are to be
arranged and analy"ed.
Equity Analysis
-. COMPANY ANALYSIS
In the company analysis the investor assimilates the several bits of information related
to the company and evaluates the present and future values of the stock. The risk and
return associated with the purchase of the stock is analy"ed to take better investment
decisions. The present and future values are affected by a number of factors.
Com#eii+e ed,e o- %e com#$n"* 3ajor industries in India are composed of
hundreds of individual companies. Though the number of companies is large, only few
companies control the major market share. The competitiveness of the company can be
studied with the help of the following;
Market share: The market share of the annual sales helps to determine a
company's relative competitive position within the industry. If the market share
is high, the company would be able to meet the competition successfully. The
companies in the market should be compared with like product groups
otherwise, the results will be misleading.
Growth of sales: The rapid growth in sales would keep the shareholder in a
better position than one with stagnant growth rate. Investors generally prefer
si"e and growth in sales because the larger si"e companies may be able to
withstand the business cycle rather than the company of smaller si"e.
Stability of sales: If a firm has stable sales revenue, it will have more stable
earnings. The fall in the market share indicates the declining trend of company,
Equity Analysis
even if the sales are stable. $ence the stability of sales should be compared with
its market share and the competitor's market share.
E$!nin,s o- %e com#$n"* 2ales alone do not increase the earnings but the costs and
e%penses of the company also influence the earnings. &urther, earnings do not always
increase with increase in sales. The company's sales might have increased but its
earnings per share may decline due to rise in costs. $ence, the investor should not only
depend on the sales, but should analy"e the earnings of the company.
Fin$nci$. $n$."sis* The best source of financial information about a company is its
own financial statements. This is a primary source of information for evaluating the
investment prospects in the particular company's stock. &inancial statement analysis is
the study of a company's financial statement from various viewpoints. The statement
gives the historical and current information about the company's operations. $istorical
financial statement helps to predict the future and the current information aids to
analy"e the present status of the company. The two main statements used in the analysis
are 5alance sheet and 1rofit and >oss !ccount.
The balance sheet is one of the financial statements that companies prepare every year
for their shareholders. It is like a financial snapshot, the company;s financial situation at
a moment in time. It is prepared at the year end, listing the company;s current assets and
liabilities. It helps to study the capital structure of the company. It is better for the
investor to avoid a company with e%cessive debt component in its capital structure.
Equity Analysis
&rom the balance sheet, liquidity position of the company can also be assessed with the
information on current assets and current liabilities.
R$io $n$."sis* 4atio is a relationship between two figures e%pressed mathematically.
&inancial ratios provide numerical relationship between two relevant financial data.
&inancial ratios are calculated from the balance sheet and profit and loss account. The
relationship can be either e%pressed as a percent or as a quotient. 4atios summari"e the
data for easy understanding, comparison and interpretations.
4atios for investment purposes can be classified into profitability ratios, turnover ratios,
and leverage ratios. 1rofitability ratios are the most popular ratios since investors prefer
to measure the present profit performance and use this information to forecast the future
strength of the company. The most often used profitability ratios are return on assets,
price earnings multiplier, price to book value, price to cash flow, and price to sales,
dividend yield, return on equity, present value of cash flows, and profit margins.
$' Reu!n on Asses &ROA'
4<! is computed as the product of the net profit margin and the total asset turnover
ratios.
ROA 3 &Ne P!o-i4To$. income' / &To$. income4To$. Asses'
This ratio indicates the firm;s strategic success. .ompanies can have one of two
strategies+ cost leadership, or product differentiation. 4<! should be rising or keeping
pace with the company;s competitors if the company is successfully pursuing either of
Equity Analysis
these strategies, but how 4<! rises will depend on the company;s strategy. 4<!
should rise with a successful cost leadership strategy because the company's increasing
operating efficiency. !n e%ample is an increasing, total asset, turnover ratio as the
company e%pands into new markets, increasing its market share. The company may
achieve leadership by using its assets more efficiently. #ith a successful product
differentiation strategy, 4<! will rise because of a rising profit margin.
5' Reu!n on In+esmen &ROI'
4<I is the return on capital invested in business, i.e., if an investment 4s 1 crore in
men, machines, land and material is made to generate 4s. ? lakhs of net profit, then
the 4<I is ?@. The computation of return on investment is as follows+
Reu!n on In+esmen &ROI' 3 &Ne #!o-i4E6ui" in+esmens' / 788
!s this ratio reveals how well the resources of a firm are being used, higher the ratio,
better are the results. The return on shareholder's investment should be compared with
the return of other similar firms in the same industry. The inert(firm comparison of this
ratio determines whether the investments in the firm are attractive or not as the
investors would like to invest only where the return is higher.
c' Reu!n on E6ui"
4eturn on equity measures how much an equity shareholder;s investment is actually
earning. The return on equity tells the investor how much the invested rupee is earning
Equity Analysis
from the company. The higher the number, the better is the performance of the
company and suggests the usefulness of the projects the company has invested in.
The computation of return on equity is as follows+
Reu!n on e6ui" 3 &Ne #!o-i o o2ne!s4+$.ue o- %e s#eci-ic o2ne!9s
Con!i5uion o %e 5usiness' / 788
The ratio is more meaningful to the equity shareholders who are invested to know
profits earned by the company and those profits which can be made available to pay
dividend to them.
d' E$!nin,s #e! S%$!e &EPS8
This ratio determines what the company is earning for every share. &or many investors,
earnings are the most important tool. ,12 is calculated by dividing the earnings 6net
profit8 by the total number of equity shares.
The computation of ,12 is as follows+
E$!nin,s #e! s%$!e 3 Ne #!o-i4Num5e! o- s%$!es ous$ndin,
The ,12 is a good measure of profitability and when compared with ,12 of similar
other companies, it gives a view of the comparative earnings or earnings power of a
firm. ,12 calculated for a number of years indicates whether or not earning power of
the company has increased.
Equity Analysis
e' Di+idend #e! S%$!e &DPS'
The e%tent of payment of dividend to the shareholders is measured in the form of
dividend per share. The dividend per share gives the amount of cash flow from the
company to the owners and is calculated as follows+
Di+idend #e! s%$!e 3 To$. di+idend #$"men 4 Num5e! o- s%$!es ous$ndin,
The payment of dividend can have several interpretations to the shareholder. The
distribution of dividend could be thought of as the distribution of e%cess
profitsAabnormal profits by the company. <n the other hand, it could also be negatively
interpreted as lack of investment opportunities. In all, dividend payout gives the e%tent
of inflows to the shareholders from the company.
-' Di+idend P$"ou R$io
&rom the profits of each company a cash flow called dividend is distributed among its
shareholders. This is the continuous stream of cash flow to the owners of shares, apart
from the price differentials 6capital gains8 in the market. The return to the shareholders,
in the form of dividend, out of the company;s profit is measured through the payout
ratio. The payout ratio is computed as follows+
P$"ou R$io 3 &Di+idend #e! s%$!e 4 E$!nin,s #e! s%$!e' : 788
The percentage of payout ratio can also be used to compute the percentage of retained
earnings. The profits available for distribution are either paid as dividends or retained
Equity Analysis
internally for business growth opportunities. $ence, when dividends are not declared,
the entire profit is ploughed back into the business for its future investments.
,' Di+idend Yie.d
0ividend yield is computed by relating the dividend per share to the market price of the
share. The market place provides opportunities for the investor to buy the company;s
share at any point of time. The price at which the share has been bought from the
market is the actual cost of the investment to the shareholder. The market price is to be
taken as the cum(dividend price. 0ividend yield relates the actual cost to the cash flows
received from the company. The computation of dividend yield is as follows
Di+idend "ie.d 3 &Di+idend #e! s%$!e 4 M$!;e #!ice #e! s%$!e' : 788
$igh dividend yield ratios are usually interpreted as undervalued companies in the
market. The market price is a measure of future discounted values, while the dividend
per share is the present return from the investment. $ence, a high dividend yield
implies that the share has been under priced in the market. <n the other hand a low
dividend yield need not be interpreted as overvaluation of shares. ! company that does
not pay out dividends will not have a dividend yield and the real measure of the market
price will be in terms of earnings per share and not through the dividend payments.
Equity Analysis
%' P!ice4E$!nin,s R$io &P4E'
The 1A, multiplier or the price earnings ratio relates the current market price of the
share to the earnings per share. This is computed as follows+
P!ice4e$!nin,s !$io 3 Cu!!en m$!;e #!ice 4 E$!nin,s #e! s%$!e
This ratio is calculated to make an estimate of appreciation in the value of a share of a
company and is widely used by investors to decide whether or not to buy shares in a
particular company. 3any investors prefer to buy the company;s shares at a low 1A,
ratio since the general interpretation is that the market is undervaluing the share and
there will be a correction in the market price sooner or later. ! very high 1A, ratio on
the other hand implies that the company;s shares are overvalued and the investor can
benefit by selling the shares at this high market price.
i' De5-o-E6ui" R$io
0ebt(,quity ratio is used to measure the claims of outsiders and the owners against the
firm's assets.
De5-o-e6ui" !$io 3 Ouside!s Funds 4 S%$!e%o.de!s Funds
The debt(equity ratio is calculated to measure the e%tent to which debt financing has
been used in a business. It indicates the proportionate claims of owners and the
outsiders against the firm's assets. The purpose is to get an idea of the cushion available
to outsiders on the liquidation of the firm.
Equity Analysis
CHAPTER III - INDUSTRY PROFILE
Equity Analysis
FINANCIAL MAR<ETS
&inance is the pre(requisite for modern business and financial institutions play a vital
role in the economic system. It is through financial markets and institutions that the
financial system of an economy works. &inancial markets refer to the institutional
arrangements for dealing in financial assets and credit instruments of different types
such as currency, cheques, bank deposits, bills, bonds, equities, etc.
&inancial market is a broad term describing any marketplace where buyers and sellers
participate in the trade of assets such as equities, bonds, currencies and derivatives.
They are typically defined by having transparent pricing, basic regulations on trading,
costs and fees and market forces determining the prices of securities that trade.
/enerally, there is no specific place or location to indicate a financial market. #herever
a financial transaction takes place, it is deemed to have taken place in the financial
market. $ence financial markets are pervasive in nature since financial transactions are
themselves very pervasive throughout the economic system. &or instance, issue of
equity shares, granting of loan by term lending institutions, deposit of money into a
bank, purchase of debentures, sale of shares and so on.
In a nutshell, financial markets are the credit markets catering to the various needs of
the individuals, firms and institutions by facilitating buying and selling of financial
assets, claims and services.
Equity Analysis
CLASSIFICATION OF FINANCIAL MAR<ETS
Equity Analysis
Fin$nci$. m$!;es
O!,$ni=ed m$!;es Uno!,$ni=ed m$!;es
C$#i$. M$!;es Mone" M$!;es
Indus!i$. Secu!iies
M$!;e
)o+e!nmen
Secu!iies M$!;e
Lon,-e!m .o$n
m$!;e
P!im$!" M$!;e
Second$!" m$!;e
C$.. Mone" M$!;e
Comme!ci$. >i..
M$!;e
T!e$su!" >i.. M$!;e
Mone" Lende!s?
Indi,enuos >$n;e!s
C$#i$. M$!;e
The capital market is a market for financial assets which have a long or indefinite
maturity. /enerally, it deals with long term securities which have a period of above one
year. In the widest sense, it consists of a series of channels through which the savings
of the community are made available for industrial and commercial enterprises and
public authorities. !s a whole, capital market facilitates raising of capital.
The major functions performed by a capital market are+
1. 3obili"ation of financial resources on a nation(wide scale.
. 2ecuring the foreign capital and know(how to fill up deficit in the required
resources for economic growth at a faster rate.
-. ,ffective allocation of the mobili"ed financial resources, by directing the same
to projects yielding highest yield or to the projects needed to promote balanced
economic development.

.apital market consists of primary market and secondary market.
Primary market* 1rimary market is a market for new issues or new financial claims.
$ence it is also called as :ew Issue 3arket. It basically deals with those securities
which are issued to the public for the first time. The market, therefore, makes available
a new block of securities for public subscription. In other words, it deals with raising of
fresh capital by companies either for cash or for consideration other than cash. The best
e%ample could be Initial 1ublic <ffering 6I1<8 where a firm offers shares to the public
for the first time.
Equity Analysis
Secondary market: 2econdary market is a market where e%isting securities are traded.
In other words, securities which have already passed through new issue market are
traded in this market. /enerally, such securities are quoted in the stock e%change and it
provides a continuous and regular market for buying and selling of securities. This
market consists of all stock e%changes recogni"ed by the government of India.
Mone" M$!;e
3oney markets are the markets for short(term? highly liquid debt securities. 3oney
market securities are generally very safe investments which return relatively low
interest rate that is most appropriate for temporary cash storage or short term time
needs. It consists of a number of sub(markets which collectively constitute the money
market namely call money market, commercial bills market, acceptance market, and
Treasury bill market.
De!i+$i+es M$!;e
The derivatives market is the financial market for derivatives, financial instruments like
futures contracts or options, which are derived from other forms of assets. ! derivative
is a security whose price is dependent upon or derived from one or more underlying
assets. The derivative itself is merely a contract between two or more parties. Its value
is determined by fluctuations in the underlying asset. The most common underlying
assets include stocks, bonds, commodities, currencies, interest rates and market
inde%es. The important financial derivatives are the following+
Equity Analysis
Forwards: &orwards are the oldest of all the derivatives. ! forward contract
refers to an agreement between two parties to e%change an agreed quantity of an
asset for cash at a certain date in future at a predetermined price specified in that
agreement. The promised asset may be currency, commodity, instrument etc.
Futures: &uture contract is very similar to a forward contract in all respects
e%cepting the fact that it is completely a standardi"ed one. It is nothing but a
standardi"ed forward contract which is legally enforceable and always traded on
an organi"ed e%change.
ptions: ! financial derivative that represents a contract sold by one party
6option writer8 to another party 6option holder8. The contract offers the buyer
the right, but not the obligation, to buy 6call8 or sell 6put8 a security or other
financial asset at an agreed(upon price 6the strike price8 during a certain period
of time or on a specific date 6e%ercise date8. .all options give the option to buy
at certain price, so the buyer would want the stock to go up. 1ut options give the
option to sell at a certain price, so the buyer would want the stock to go down.
Swaps: It is yet another e%citing trading instrument. Infact, it is the combination
of forwards by two counterparties. It is arranged to reap the benefits arising
from the fluctuations in the market B either currency market or interest rate
market or any other market for that matter.
Equity Analysis
Fo!ei,n E/c%$n,e M$!;e
It is a market in which participants are able to buy, sell, e%change and speculate on
currencies. &oreign e%change markets are made up of banks, commercial companies,
central banks, investment management firms, hedge funds, and retail fore% brokers and
investors. The fore% market is considered to be the largest financial market in the
world. It is a worldwide decentrali"ed over(the(counter financial market for the trading
of currencies. 5ecause the currency markets are large and liquid, they are believed to be
the most efficient financial markets. It is important to reali"e that the foreign e%change
market is not a single e%change, but is constructed of a global network of computers
that connects participants from all parts of the world.
Commodiies M$!;e
It is a physical or virtual marketplace for buying, selling and trading raw or primary
products. &or investors; purposes there are currently about ?C major commodity
markets worldwide that facilitate investment trade in nearly 1CC primary
commodities. .ommodities are split into two types+ hard and soft commodities. $ard
commodities are typically natural resources that must be mined or e%tracted 6gold,
rubber, oil, etc.8, whereas soft commodities are agricultural products or livestock 6corn,
wheat, coffee, sugar, soybeans, pork, etc.8
Equity Analysis
INDIAN FINANCIAL MAR<ETS
India &inancial market is one of the oldest in the world and is considered to be the
fastest growing and best among all the markets of the emerging economies.
The history of Indian capital markets dates back CC years toward the end of the
1Dth century when India was under the rule of the ,ast India .ompany. The
development of the capital market in India concentrated around 3umbai where
no less than CC to ?C securities brokers were active during the second half of
the 1Eth century.
The financial market in India today is more developed than many other sectors because
it was organi"ed long before with the securities e%changes of 3umbai,
!hmadabad and Folkata were established as early as the 1Eth century.
5y the early 1EGCs the total number of securities e%changes in India rose to eight,
including 3umbai, !hmadabad and Folkata apart from 3adras, Fanpur, 0elhi,
5angalore and 1une. Today there are 1 regional securities e%changes in India
in addition to the centrali"ed :2, 6:ational 2tock ,%change8 and <T.,I 6<ver
the .ounter ,%change of India8.
$owever the stock markets in India remained stagnant due to stringent controls on the
market economy that allowed only a handful of monopolies to dominate their
respective sectors. The corporate sector wasn;t allowed into many industry segments,
which were dominated by the state controlled public sector resulting in stagnation of
Equity Analysis
the economy right up to the early 1EECs. Thereafter when the Indian economy began
liberali"ing and the controls began to be dismantled or eased out; the securities markets
witnessed a flurry of I1<'s that were launched. This resulted in many new companies
across different industry segments to come up with newer products and services.
! remarkable feature of the growth of the Indian economy in recent years has been the
role played by its securities markets in assisting and fuelling that growth with money
rose within the economy. This was in marked contrast to the initial phase of growth in
many of the fast growing economies of ,ast !sia that witnessed huge doses of &0I
6&oreign 0irect Investment8 spurring growth in their initial days of market decontrol.
0uring this phase in India much of the organi"ed sector has been affected by high
growth as the financial markets played an all(inclusive role in sustaining financial
resource mobili"ation. 3any 12Hs 61ublic 2ector Hndertakings8 that decided to offload
part of their equity were also helped by the well(organi"ed securities market in India.
The launch of the :2, 6:ational 2tock ,%change8 and the <T.,I 6<ver the .ounter
,%change of India8 during the mid 1EECs by the government of India was meant to
usher in an easier and more transparent form of trading in securities. The :2, was
conceived as the market for trading in the securities of companies from the large(scale
sector and the <T.,I for those from the small(scale sector. #hile the :2, has not just
done well to grow and evolve into the virtual backbone of capital markets in India the
<T.,I struggled and is yet to show any sign of growth and development. The
integration of IT into the capital market infrastructure has been particularly smooth in
Equity Analysis
India due to the country's world class IT industry. This has pushed up the operational
efficiency of the Indian stock market to global standards and as a result the country has
been able to capitali"e on its high growth and attract foreign capital like never before.
The regulating authority for capital markets in India is the 2,5I 62ecurities and
,%change 5oard of India8. 2,5I came into prominence in the 1EECs after the capital
markets e%perienced some turbulence. It had to take drastic measures to plug many
loopholes that were e%ploited by certain market forces to advance their vested interests.
!fter this initial phase of struggle 2,5I has grown in strength as the regulator of
India's capital markets and as one of the country's most important institutions.
Equity Analysis
FINANCIAL MAR<ET RE)ULATIONS
4egulations are an absolute necessity in the face of the growing importance of capital
markets throughout the world. The development of a market economy is dependent on
the development of the capital market. The regulation of a capital market involves the
regulation of securities; these rules enable the capital market to function more
efficiently and impartially.
! well regulated market has the potential to encourage additional investors to partake,
and contribute in, furthering the development of the economy. The chief capital market
regulatory authority is 2ecurities and ,%change 5oard of India 62,5I8.
SE>I is the regulator for the securities market in India. It is the ape% body to develop
and regulate the stock market in India It was formed officially by the /overnment of
India in 1EE with 2,5I !ct 1EE being passed by the Indian 1arliament. .haired by .
5 5have, 2,5I is headquartered in the popular business district of 5andra(Furla
comple% in 3umbai, and has :orthern, ,astern, 2outhern and #estern regional offices
in :ew 0elhi, Folkata, .hennai and !hmedabad. In place of /overnment .ontrol, a
statutory and autonomous regulatory board with defined responsibilities, to cover both
development = regulation of the market, and independent powers has been set up.
T%e 5$sic o5@eci+es o- %e >o$!d 2e!e ideni-ied $s*
to protect the interests of investors in securities;
to promote the development of 2ecurities 3arket;
to regulate the securities market and
Equity Analysis
&or matters connected therewith or incidental thereto.
2ince its inception 2,5I has been working targeting the securities and is attending to
the fulfillment of its objectives with commendable "eal and de%terity. The
improvements in the securities markets like capitali"ation requirements, margining,
establishment of clearing corporations etc. reduced the risk of credit and also reduced
the market.
2,5I has introduced the comprehensive regulatory measures, prescribed registration
norms, the eligibility criteria, the code of obligations and the code of conduct for
different intermediaries like, bankers to issue, merchant bankers, brokers and sub(
brokers, registrars, portfolio managers, credit rating agencies, underwriters and others.
It has framed bye(laws, risk identification and risk management systems for .learing
houses of stock e%changes, surveillance system etc. which has made dealing in
securities both safe and transparent to the end investor.
!nother significant event is the approval of trading in stock indices 6like 2=1 .:I
:ifty = 2ense%8 in CCC. ! market Inde% is a convenient and effective product because
of the following reasons+
It acts as a barometer for market behavior;
It is used to benchmark portfolio performance;
It is used in derivative instruments like inde% futures and inde% options;
It can be used for passive fund management as in case of Inde% &unds.
Equity Analysis
Two broad approaches of 2,5I is to integrate the securities market at the national level,
and also to diversify the trading products, so that there is an increase in number of
traders including banks, financial institutions, insurance companies, mutual funds,
primary dealers etc. to transact through the ,%changes. In this conte%t the introduction
of derivatives trading through Indian 2tock ,%changes permitted by 2,5I in CCC !0
is a real landmark.
2,5I has enjoyed success as a regulator by pushing systemic reforms aggressively and
successively 6e.g. the quick movement towards making the markets electronic and
paperless rolling settlement on TJ bases8. 2,5I has been active in setting up the
regulations as required under law.
STOC< EACHAN)ES IN INDIA
2tock ,%changes are an organi"ed marketplace, either corporation or mutual
organi"ation, where members of the organi"ation gather to trade company stocks or
other securities. The members may act either as agents for their customers, or as
principals for their own accounts.
!s per the 2ecurities .ontracts 4egulation !ct, 1E?G a stock e%change is an
association, organi"ation or body of individuals whether incorporated or not,
established for the purpose of assisting, regulating and controlling business in buying,
selling and dealing in securities.
Equity Analysis
2tock e%changes facilitate for the issue and redemption of securities and other financial
instruments including the payment of income and dividends. The record keeping is
central but trade is linked to such physical place because modern markets are
computeri"ed. The trade on an e%change is only by members and stock broker do have
a seat on the e%change.
Lis o- Soc; E/c%$n,es in Indi$
5ombay 2tock ,%change
:ational 2tock ,%change
<T. ,%change of India
Re,ion$. Soc; E/c%$n,es
1. !hmedabad
. 5angalore
-. 5hubaneswar
K. .alcutta
?. .ochin
G. .oimbatore
L. 0elhi
D. /uwahati
E. $yderabad
1C. 9aipur
11. >udhiana
1. 3adhya 1radesh
1-. 3adras
1K. 3agadh
1?. 3angalore
1G. 3eerut
1L. 1une
1D. 2aurashtra Futch
1E. Httar 1radesh
C. Madodara
Equity Analysis
>OM>AY STOC< EACHAN)E
! very common name for all traders in the stock market, 52,, stands for 5ombay
2tock ,%change. It is the oldest market not only in the country, but also in !sia. In
the early days, 52, was known as 7The :ative 2hare = 2tock 5rokers !ssociation.7
It was established in the year 1DL? and became the first stock e%change in the country
to be recogni"ed by the government. In 1E?G, 52, obtained a permanent recognition
from the /overnment of India under the 2ecurities .ontracts 64egulation8 !ct, 1E?G.
In the past and even now, it plays a pivotal role in the development of the country;s
capital market. This is recogni"ed worldwide and its inde%, 2,:2,I, is also tracked
worldwide. ,arlier it was an !ssociation of 1ersons 6!<18, but now it is a
demutualised and corporatised entity incorporated under the provisions of the
.ompanies !ct, 1E?G, pursuant to the 52, 6.orporatisation and 0emutuali"ation8
2cheme, CC? notified by the 2ecurities and ,%change 5oard of India 62,5I8.
>SE Vision
The vision of the 5ombay 2tock ,%change is to 7,merge as the premier Indian stock
e%change by establishing global benchmarks.7
>SE M$n$,emen
5ombay 2tock ,%change is managed professionally by 5oard of 0irectors. It
comprises of eminent professionals, representatives of Trading 3embers and the
3anaging 0irector. The 5oard is an inclusive one and is shaped to benefit from the
market intermediaries participation.
The 5oard e%ercises complete control and formulates larger policy issues. The day(
to(day operations of 52, are managed by the 3anaging 0irector and its school of
professional as a management team.
>SE Ne2o!;
The ,%change reaches physically to K1L cities and towns in the country. The
framework of it has been designed to safeguard market integrity and to operate with
transparency. It provides an efficient market for the trading in equity, debt
instruments and derivatives. Its online trading system, popularly known as 5<>T, is a
proprietary system and it is 52 LLEE((CC certified. The 5<>T network was
e%panded, nationwide, in 1EEL. The surveillance and clearing = settlement functions
of the ,%change are I2< ECC1+CCC certified.
>SE F$cs
52, as a brand is synonymous with capital markets in India. The 52, 2,:2,I is
the benchmark equity inde% that reflects the robustness of the economy and finance. It
was the B
&irst in India to introduce ,quity 0erivatives
&irst in India to launch a &ree &loat Inde%
&irst in India to launch H2N version of 52, 2ense%
&irst in India to launch ,%change ,nabled Internet Trading 1latform
&irst in India to obtain I2< certification for 2urveillance, .learing =
2ettlement
;52, <n(>ine Trading 2ystem' 65<>T8 has been awarded the globally
recogni"ed the Information 2ecurity 3anagement 2ystem standard
52LLEE(+CC.
&irst to have an e%clusive facility for financial training
3oved from <pen <utcry to ,lectronic Trading within just ?C days
!S" with its long history of capital market de#elopment is fully geared to continue
its contributions to further the growth of the securities markets of the country$ thus
helping %ndia increases its sphere of influence in international financial markets&
NATIONAL STOC< EACHAN)E OF INDIA
LIMITED
The :ational 2tock ,%change of India >imited has genesis in the report of the $igh
1owered 2tudy /roup on ,stablishment of :ew 2tock ,%changes, which
recommended promotion of a :ational 2tock ,%change by financial institutions 6&I's8
to provide access to investors from all across the country on an equal footing. 5ased
on the recommendations, :2, was promoted by leading &inancial Institutions at the
behest of the /overnment of India and was incorporated in :ovember 1EE as a ta%(
paying company unlike other stock ,%change in the country.
<n its recognition as a stock e%change under the 2ecurities .ontracts 64egulation8
!ct, 1E?G in !pril 1EE-, :2, commenced operations in the #holesale 0ebt 3arket
6#038 segment in 9une 1EEK. The .apital 3arket 6,quities8 segment commenced
operations in :ovember 1EEK and operations in 0erivatives segment commenced in
9une CCC.
NSE )ROUP
N$ion$. Secu!iies C.e$!in, Co!#o!$ion Ld1 &NSCCL'
It is a wholly owned subsidiary, which was incorporated in !ugust 1EE? and
commenced clearing operations in !pril 1EEG. It was formed to build confidence in
clearing and settlement of securities, to promote and maintain the short and consistent
settlement cycles, to provide a counter(party risk guarantee and to operate a tight risk
containment system.
NSE1IT Ld1
It is also a wholly owned subsidiary of :2, and is its IT arm. This arm of the :2, is
uniquely positioned to provide products, services and solutions for the securities
industry. :2,.IT primarily focuses on in the area of trading, broker front(end and
back(office, clearing and settlement, web(based, insurance, etc. !long with this, it
also provides consultancy and implementation services in 0ata #arehousing,
5usiness .ontinuity 1lans, 2ite 3aintenance and 5ackups, 2tratus 3ainframe
&acility 3anagement, 4eal Time 3arket !nalysis = &inancial :ews.
Indi$ Inde/ Se!+ices B P!oducs Ld1 &IISL'
It is a joint venture between :2, and .4I2I> >td. to provide a variety of indices and
inde% related services and products for the Indian .apital markets. It was set up in
3ay 1EED. II2> has a consulting and licensing agreement with the 2tandard and
1oor;s 62=18, world;s leading provider of investible equity indices, for co(branding
equity indices.

N$ion$. Secu!iies De#osio!" Ld1 &NSDL'
:2, joined hands with I05I and HTI to promote demateriali"ation of securities. This
step was taken to solve problems related to trading in physical securities. It
commenced operations in :ovember 1EEG.
NSE F$cs
It uses satellite communication technology to energi"e participation from
around KCC cities in India.
:2, can handle up to 1 million trades per day.
It is one of the largest interactive M2!T based stock e%changes in the world.
The :2,( network is the largest private wide area network in India and the
first e%tended .( 5and M2!T network in the world.
1resently more than ECCC users are trading on the real time(online :2,
application.
Today, :2, is one of the largest e%changes in the world and still forging ahead. !t
:2,, we are constantly working towards creating a more transparent, vibrant and
innovative capital market.
OVER THE COUNTER EACHAN)E OF INDIA
<T.,I was incorporated in 1EEC as a section ? company under the companies !ct
1E?G and is recogni"ed as a stock e%change under section K of the securities .ontracts
4egulation !ct, 1E?G. The e%change was set up to aid enterprising promotes in
raising finance for new projects in a cost effective manner and to provide investors
with a transparent and efficient mode of trading 3odeled along the lines of the
:!20!O market of H2!, <T.,I introduced many novel concepts to the Indian
capital markets such as screen(based nationwide trading, sponsorship of companies,
market making and scrip less trading. !s a measure of success of these efforts, the
,%change today has 11? listings and has assisted in providing capital for enterprises
that have gone on to build successful brands for themselves like MI1 !dvanta, 2onora
Tiles = 5rilliant mineral water, etc.
Need -o! OTCEI*
2tudies by :!22.<3, software technology parks of India, the venture capitals funds
and the government's IT tasks &orce, as well as rising interest in IT, 1harmaceutical,
5iotechnology and 3edia shares have repeatedly emphasi"ed the need for a national
stock market for innovation and high growth companies.
Innovative companies are critical to developing economics like India, which is
undergoing a major technological revolution. #ith their abilities to generate
employment opportunities and contribute to the economy, it is essential that these
companies not only e%pand e%isting operations but also set up new units. The key
issue for these companies is raising timely, cost effective and long term capital to
sustain their operations and enhance growth. 2uch companies, particularly those that
have been in operation for a short time, are unable to raise funds through the
traditional financing methods, because they have not yet been evaluated by the
financial world.
CHAPTER IV - COMPANY PROFILE
INDIA INFOLINE LIMITED
India Infoline is a one(stop financial services shop, most respected for quality of its
information, personali"ed service and cutting(edge technology.
Vision
<ur vision is to be the most respected company in the financial services space.
Indi$ In-o.ine )!ou#
The India Infoline group, comprising the holding company, India Infoline >imited
and its wholly(owned subsidiaries, include the entire financial services space with
offerings ranging from ,quity research, ,quities and derivatives trading,
.ommodities trading, 1ortfolio 3anagement 2ervices, 3utual &unds, >ife Insurance,
&i%ed deposits, /oI bonds and other small savings instruments to loan products and
Investment banking.
India Infoline also owns and manages the websites www.indiainfoline.com and
www.?paisa.com. The company has a network of over 1CC business locations
6branches and sub(brokers8 spread across more than K?C cities and towns. The group
caters to appro%imately a million customers.
&ounded in 1EE? by 3r. :irmal 9ain 6.hairman and 3anaging 0irector8 as an
independent business research and information provider, the company gradually
evolved into a one(stop financial services solutions provider.
India Infoline received registration for a housing finance company from the :ational
$ousing 5ank and received the P&astest growing ,quity 5roking $ouse ( >arge
firms' in India by 0un = 5radstreet in CCE. It also received the Insurance broking
license from I40!; received the venture capital license; received in principle
approval to sponsor a mutual fund; received P5est broker( India' award from &inance
!sia; P3ost Improved 5rokerage( India' award from !sia money.
COMPANY STRUCTURE
India Infoline >imited is listed on both the leading stock e%changes in India, vi". the
2tock ,%change, 3umbai 652,8 and the :ational 2tock ,%change 6:2,8 and is also
a member of both the e%changes. It is engaged in the businesses of ,quities broking,
#ealth !dvisory 2ervices and 1ortfolio 3anagement 2ervices. It offers broking
services in the .ash and 0erivatives segments of the :2, as well as the .ash
segment of the 52,. It is registered with :20> as well as .02> as a depository
participant, providing a one(stop solution for clients trading in the equities market. It
has recently launched its Investment banking and Institutional 5roking business.
! 2,5I authori"ed 1ortfolio 3anager; it offers 1ortfolio 3anagement 2ervices to
clients. These services are offered to clients as different schemes, which are based on
differing investment strategies made to reflect the varied risk(return preferences of
clients.
Indi$ In-o.ine Medi$ $nd Rese$!c% Se!+ices Limied
The services represent a strong support that drives the broking, commodities, mutual
fund and portfolio management services businesses. It undertakes equities research
which is acknowledged by none other than &orbes as ;5est of the #eb; and ;Qa must
read for investors in !sia;. India Infoline;s research is available not just over the
internet but also on international wire services like 5loomberg 6.ode+ II>>8,
Thomson &irst .all and Internet 2ecurities where India Infoline is amongst the most
read Indian brokers.
Indi$ In-o.ine Commodiies Limied1
India Infoline .ommodities 1vt >imited is engaged in the business of commodities
broking. Their e%perience in securities broking empowered them with the requisite
skills and technologies to allow them to offer commodities broking as a contra(
cyclical alternative to equities broking. It enjoys memberships with the 3.I and
:.0,I, two leading Indian commodities e%changes, and recently acquired
membership of 0/.I. It has a multi(channel delivery model, making it among the
select few to offer online as well as offline trading facilities.
Indi$ In-o.ine M$!;ein, B Se!+ices
India Infoline 3arketing and 2ervices >imited is the holding company of India
Infoline Insurance 2ervices >imited and India Infoline Insurance 5rokers >imited.
India Infoline Insurance 2ervices >imited is a registered .orporate !gent with
the Insurance 4egulatory and 0evelopment !uthority 6I40!8. It is the largest
.orporate !gent for I.I.I 1rudential >ife Insurance .o >imited, which is
India;s largest private >ife Insurance .ompany. India Infoline was the first
corporate agent to get licensed by I40! in early CC1.
India Infoline Insurance 5rokers >imited India Infoline Insurance 5rokers
>imited is a newly formed subsidiary which will carry out the business of
Insurance broking.
Indi$ In-o.ine In+esmen Se!+ices Limied
.onsolidated shareholdings of all the subsidiary companies engaged in loans and
financing activities under one subsidiary. 4ecently, <rient /lobal, a 2ingapore(based
investment institution invested H20 LG.L million for a .?@ stake in India Infoline
Investment 2ervices. This will help focused e%pansion and capital raising in the said
subsidiaries for various lending businesses like loans against securities, 23,
financing, distribution of retail loan products, consumer finance business and housing
finance business. India Infoline Investment 2ervices 1rivate >imited consists of the
following step(down subsidiaries.
India Infoline 0istribution .ompany >imited 6distribution of retail loan
products8
3oneyline .redit >imited 6consumer finance8
India Infoline $ousing &inance >imited 6housing finance8
IIFL &Asi$' P!i+$e Limied
II&> 6!sia8 1rivate >imited is wholly owned subsidiary which has been incorporated
in 2ingapore to pursue financial sector activities in other !sian markets. &urther to
obtaining the necessary regulatory approvals, the company has been initially
capitali"ed at 1 million 2ingapore dollars.
IIFL MANA)EMENT
THE MANA)EMENT TEAM
M!1 Ni!m$. C$in? C%$i!m$n B M$n$,in, Di!eco!
:irmal 9ain, 35! 6II3, !hmadabad8 and a .hartered and .ost !ccountant, founded
India's leading financial services company India Infoline >td. in 1EE?,
providing globally acclaimed financial services in equities and
commodities broking, life insurance and mutual funds distribution, among others.
M!1 R Ven;$$!$m$n? E/ecui+e Di!eco!
4 Menkataraman, co(promoter and ,%ecutive 0irector of India
Infoline >td., is a 5. Tech 6,lectronics and ,lectrical .ommunications
,ngineering, IIT Fharagpur8 and an 35! 6II3 5angalore8. $e joined
the India Infoline board in 9uly 1EEE.
THE >OARD OF DIRECTORS
!part from :irmal 9ain and 4 Menkataraman, the 5oard of 0irectors of India Infoline
>td. comprises:
M!1 Ni.es% Vi;$mse"? Inde#enden Di!eco!
3r. Mikamsey, 5oard member since &ebruary CC? ( a practicing .hartered
!ccountant and partner 6Fhimji Funverji = .o., .hartered
!ccountants8, a member firm of $>5 International, headed the audit
department till 1EEC and thereafter also handles financial services, consultancy,
investigations, mergers and acquisitions, valuations etc
M! S$ P$. <%$$!? Non E/ecui+e Di!eco!
3r 2at 1al Fhattar, ( 5oard member since !pril CC1 ( 1residential .ouncil of
3inority 4ights member, .hairman of the 5oard of Trustee of
2ingapore 5usiness &ederation, is also a life trustee of 2I:0!, a non
profit body, helping the under(privileged Indians in 2ingapore. $e joined the India
Infoline board in !pril CC1.
M! <!$ni Sin%$? Inde#enden Di!eco!
3r. Franti 2inha R 5oard member since 9anuary CC? R completed
his masters from the !gra Hniversity and started his career as a .lass I
officer with >ife Insurance .orporation of India.
M! A!un <1 Pu!+$!? Inde#enden Di!eco!
3r. !.F. 1urvar B 5oard member since 3arch CCD B completed his
3asters degree in commerce from !llahabad Hniversity in 1EGG and a
diploma in 5usiness !dministration in 1EGL.
PRODUCTS B SERVICES
E6uiies
India Infoline provided the prospect of researched investing to its clients, which was
hitherto restricted only to the institutions. 4esearch for the retail investor did not e%ist
prior to India Infoline. India Infoline leveraged technology to bring the convenience
of trading to the investor's location of preference 6residence or office8 through
computeri"ed access. India Infoline made it possible for clients to view transaction
costs and ledger updates in real time. The .ompany is among the few financial
intermediaries in India to offer a complement of online and offline broking. The
.ompanies network of branches also allows customers to place orders on phone or
visit our branches for trading.
Commodiies
India Infoline's e%tension into commodities trading reconciles its strategic intent to
emerge as a one stop solutions financial intermediary. Its e%perience in securities
broking has empowered it with requisite skills and technologies. The .ompanies
commodities business provides a contra(cyclical alternative to equities broking. The
.ompany was among the first to offer the facility of commodities trading in India's
young commodities market 6the 3.I commenced operations in CC-8. !verage
monthly turnover on the commodity e%changes increased from 4s C.-K bn to 4s
C.C bn.
Insu!$nce
!n entry into this segment helped complete the client;s product basket; concurrently,
it graduated the .ompany into a one stop retail financial solutions provider. To ensure
ma%imum reach to customers across India, it has employed a multi pronged approach
and reaches out to customers via our :etwork, 0irect and !ffiliate channels. India
Infoline was the first corporate in India to get the agency license in early CC1.
In+es On.ine
India Infoline has made investing in 3utual funds and primary market so effortless.
<nly registration is needed. :o paperwork no queues and :o registration
charges. India Infoline offers a host of mutual fund choices under one roof,
backed by in(depth research and advice from research house and tools configured
as investor friendly.
We$.% M$n$,emen
The key to achieving a successful Investment 1ortfolio is to have a carefully planned
financial strategy based on a thorough understanding of the client;s investment
needs and risk appetite. The II&> 1rivate #ealth 3anagement Team of financial
e%perts will recommend an appropriate financial strategy to effectively meet
customer's investment requirements.
Asse M$n$,emen
India Infoline is a leading pan(India mutual fund distribution house associated with
leading asset management companies. It operates primarily in the retail segment
leveraging its e%isting distribution network to reach prospective clients. It has
received the in(principle approval to set up a mutual fund.
Po!-o.io M$n$,emen
II&> 1ortfolio 3anagement 2ervice is a product wherein an equity investment
portfolio is created to suit the investment objectives of a client. India Infoline
invests the client's resources into stocks from different sectors, depending on
client's risk(return profile. This service is particularly advisable for investors who
cannot afford to give time or don;t have that e%pertise for day(to(day
management of their equity portfolio.
Ne2s.ee!s
!s a subscriber to the 0aily 3arket 2trategy, client's get research reports of India
Infoline research team on a priority basis. The Indiainfoline #eekly :ewsletter is
the flashback for the week gone by. ! weekly outlook coupled with the best of
the web stories from Indiainfoline and links to important investment ideas,
>eader 2peak and features is delivered in the client's inbo% every &riday evening.
CHAPTER V
DATA ANALYSIS B INTERPRETATIONS
ANALYSIS OF AUTOMO>ILE INDUSTRY
<ver a period of more than two decades the Indian !utomobile industry has been
driving its own growth through phases. #ith comparatively higher rate of economic
growth rate inde% against that of great global powers, India has become a hub of
domestic and e%ports 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 analy"e it by the
following approach+
Fund$men$. An$."sis 6,.I.. !pproach8
a. ,conomy analysis
b. Industry analysis
c. .ompany analysis
Fund$men$. An$."sis
&undamental analysis is the study of economic, industry and company conditions in
an effort to determine the value of a company s stock. &undamental analysis typically
focuses on key statistics in company s financial statements to determine if the stock
price is correctly valued.
3ost fundamental information focuses on economic, industry and company statistics.
The typical approach to analy"ing a company involves three basic steps+
1. 0etermine the condition of the general economy.
. 0etermine the condition of the industry.
-. 0etermine the condition of the company.
71 ECONOMY ANALYSIS
,conomic analysis is the analysis of forces operating the overall economy a country.
,conomic analysis is a process whereby strengths and weaknesses of an economy are
analy"ed. ,conomic analysis is important in order to understand e%act condition of an
economy.
)DP $nd Auomo5i.e Indus!"
In absolute terms, India is 1Gth in the world in
terms of nominal factory output. The service
sector is growing rapidly in the past few years.
This is the pie( chart showing contributions of
different sectors in Indian economy.
Today, automobile sector in India is one of the key sectors of the economy in terms of
the employment. 0irectly and indirectly it employs more than 1C million people and
if we add the number of people employed in the auto(component and auto ancillary
industry then the number goes even higher.
!s the world economy slipped into recession hitting the demand hard and the banking
sector takes conservative approach towards lending to corporate sector, the /01
growth has downgraded it to L.1 per cent for CCD(CE and it has increased to D.G@ in
C1C by overcoming the setbacks of recession.
Recession
!uto industry in India had been hit hard by ongoing global financial recession. 5ut it
is in a good shape now. 3uch of this optimism resulted from renewed interest being
shown in India auto industry by reputed overseas car makers. :issan 3otors which is
a well known 9apanese car making company regarded India automobile market as a
global car manufacturing hub for future and invested huge amount in our market.
There are some other automobile companies of world who have shown interest in
India auto market. 3ajor names among these are /eneral 3otors, 2koda !uto and
3ercedes(5en". These companies have major plans lined up for India auto industry.
These are few signs of the revolutioni"ed auto industry after recession.
In-.$ion
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 squee"e in
purchasing power. The effect of inflation has affected every sector which is related to
car manufacturing and production. The increase in the price of fuel and the steel due
to inflation has led to a slower growth rate of the car industry in India.
Fo!ei,n Di!ec In+esmen
The automobile sector in the Indian industry is one of the high performing sectors of
the Indian economy. This has contributed largely in making India a prime destination
for many international players in the automobile industry who wish to set up their
businesses in India. !utomatic approval for foreign equity investment up to 1CC per
cent of manufacture of automobiles and component is permitted.
E/#o!s
0espite recession, the Indian automobile market continues to perform better than
most of the other industries in the economy in coming future; more and more 3:.'s
coming in India to setup their ventures which clearly shows the scope of e%pansion.
0uring !pril(9anuary C1C, overall automobile e%ports registered a growth rate of
1-.K percent.
01 INDUSTRY ANALYSIS 6!HT<3<5I>,8
The automobile industry in India is the ninth largest in the world with an annual
production of over .- million units in CCD. In CCE, India emerged as !sia;s fourth
largest e%porter of automobiles, behind 9apan, 2outh Forea and Thailand. The
!utomobile Industry is one of the fastest growing sectors in India. The increase in the
demand for cars, and other vehicles, powered by the increase in the income is the
primary growth driver of the automobile industry in India. In CCE, estimated rate of
growth of India !uto industry is going to be E@ .The Indian automobile sector is far
from being saturated, leaving ample opportunity for volume growth.
Se,men$ion o- Auomo5i.e Indus!"
The automobile industry comprises of $eavy
vehicles 6trucks, buses, tempos, tractors8;
passenger cars; Two(wheelers; .ommercial
Mehicles; and Three(wheelers. &ollowing is the
segmentation that how much each sector
comprises of whole Indian !utomobile Industry.
Indus!" .i-e c"c.e
The industrial life cycle is a term used for classifying industry life over time. Industry
life cycle classification generally groups industries into one of four stages+ pioneer,
growth, maturity and decline. In the pioneer phase, the product has not been widely
accepted or adopted. 5usiness strategies are developing, and there is high risk of
failure. $owever, successful companies can grow at e%traordinary rates. The Indian
automobile sector has passed this stage quite successfully. The industry is growing
rapidly, often at an accelerating rate of sales and earnings growth. Indian !utomotive
Industry is booming with a growth rate of around 1? @ annually. The growth rate of
the automobile industry in India is greater than the /01 growth rate of the economy,
so the automobile sector can be very well be said to be in the growth phase.
S2o $n$."sis*
! scan of the internal and e%ternal environment is an important part of the strategic
planning process. ,nvironmental factors internal to the firm usually can be classified
as strengths 628 or weaknesses 6#8, and those e%ternal to the firm can be classified as
opportunities 6<8 or threats 6T8. 2uch an analysis of the strategic environment is
referred to as a 2#<T analysis. 2#<T analysis of the Indian automobile sector gives
the following points+
'& Strengths
>arge domestic market
2ustainable labor cost advantage
.ompetitive auto component vendor base
/overnment incentives for manufacturing plants
2trong engineering skills in design etc
(& )eaknesses
>ow labor productivity
$igh interest costs and high overheads make the production uncompetitive
Marious forms of ta%es push up the cost of production
>ow investment in 4esearch and 0evelopment
Infrastructure bottleneck
*& pportunities
Increasing challenges in consumer demands, technology development, and
globali"ation.
$eavy thrust on mining and construction activity
Increase in the income level
.ut in e%cise duties
K. T%!e$s
Ignorance of 4esearch = development
4ising interest rates
.ut throat competition
D1 COMPANY ANALYSIS
The company analysis shows the long(term strenght of the company that what is the
financial position of the company in the market, where it stands among its
competitors and who are the key drivers of the company, what are the future plans of
the company, what are the policies of government towards the company and how the
stake of the company divested among different groups of people.
$ere, I have taken three companies namely T!T! 3otors, 3aruti 2u"uki and
3ahindra and 3ahindra for the purpose of fundamental analysis.
Tata 3otors >imited is India;s largest automobile company, with consolidated
revenues of 4s. E,?1E crores 6H20 C billion8 in CCE(1C. It is the leader in
commercial vehicles in each segment, and among the top three in passenger vehicles
with winning products in the compact, midsi"e car and utility vehicle segments. The
company is the world;s fourth largest truck manufacturer, and the world;s second
largest bus manufacturer.
3aruti 2u"uki is a subsidiary of 2u"uki 3otor .orporation 9apan. 3ore than half the
numbers of cars sold in India wear 3aruti 2u"uki badge. They offer a full range of
cars B from entry level 3aruti DCC = !lto to stylish hatchback 4it", ! star, 2wift,
#agon 4, ,stillo and sedans 0"ire, 2IK and 2ports Htility Mehicle /rand Mitara.
2ince inception, it has produced and sold over L.? million vehicles in India and
e%ported over ?CC,CCC units to ,urope and other countries. Its turnover for the fiscal
CCD(CE stood at 4s. C-,?D- 3illion = 1rofit after Ta% at 4s. 1,1DL 3illion.
The 3ahindra /roup's !utomotive 2ector is in the business of manufacturing and
marketing utility vehicles and light commercial vehicles, including three(wheelers. It
is the market leader in utility vehicles in India since inception, and currently accounts
for about half of India's market for utility vehicles. The !utomotive 2ector continues
to be a leader in the utility vehicle segment with a diverse portfolio that includes mass
transport as well as new generation vehicles like 2corpio, 5olero and the recently
launched Iylo.

TATA MOTORS - >$.$nce s%ee
>$.$nce S%ee o- T$$
Moo!s
Mar '05 Mar '06 Mar '07 Mar '08 Mar '09
Sources of funds
Total Share Capital 361.79 382.87 385.41 385.54 514.05
Equity 2hare .apital 361.79 382.87 385.41 385.54 514.05
Share Applicatio !oey 0.00 0.00 0.00 0.00 0.00
"e#er$e# 3%749.60 5%127.81 6%458.39 7%428.45 11%855.15
"e$aluatio "e#er$e# 0.00 26.39 25.95 25.51 25.07
Networth 4,111.39 5,537.07 6,869.75 7,839.50 12,394.27
Secure& 'oa# 489.81 822.76 2%022.04 2%461.99 5%251.65
(#ecure& 'oa# 2%005.61 2%114.08 1%987.10 3%818.53 7%913.91
Tota !e"t 2,495.42 2,936.84 4,009.14 6,280.52 13,165.56
Tota #$a"$$t$es 6,606.81 8,473.91 10,878.89 14,120.02 25,559.83
%&&$cat$on of funds
)ro## *loc+ 6%611.95 7%971.55 8%775.80 10%830.83 13%905.17
'e##: Accu,. -epreciatio 3%454.28 4%401.51 4%894.54 5%443.52 6%259.90
Net 'oc( 3,157.67 3,570.04 3,881.26 5,387.31 7,645.27
Capital .or+ i /ro0re## 538.84 951.19 2%513.32 5%064.96 6%954.04
)n*est+ents 2,912.06 2,015.15 2,477.00 4,910.27 12,968.13
1$etorie# 1%601.36 2%012.24 2%500.95 2%421.83 2%229.81
Su&ry -e2tor# 811.32 715.78 782.18 1%130.73 1%555.20
Ca#h a& *a+ *alace 345.26 327.66 535.78 750.14 638.17
Total Curret A##et# 2%757.94 3%055.68 3%818.91 4%302.70 4%423.18
'oa# a& A&$ace# 2%831.16 5%964.61 6%208.53 4%831.36 5%909.75
3i4e& -epo#it# 1%659.78 791.77 290.98 1%647.17 503.65
Total CA% 'oa# 5 A&$ace# 7%248.88 9%812.06 10%318.42 10%781.23 10%836.58
-e66ere& Cre&it 0.00 0.00 0.00 0.00 0.00
Curret 'ia2ilitie# 6%142.74 6%673.61 6%956.88 10%040.37 10%968.95
/ro$i#io# 1%126.06 1%215.04 1%364.32 1%989.43 1%877.26
Total C' 5 /ro$i#io# 7%268.80 7%888.65 8%321.20 12%029.80 12%846.21
Net ,urrent %ssets -19.92 1,923.41 1,997.22 -1,248.57 -2,009.63
Tota %ssets 6,606.81 8,473.91 10,878.89 14,120.02 25,559.83
Coti0et 'ia2ilitie# 1%450.32 2%185.63 5%196.07 5%590.83 5%433.07
*oo+ 7alue 8"#9 113.65 143.94 177.59 202.70 240.64
TATA MOTORS E P!o-i B Loss $ccoun
P!o-i B Loss $ccoun o- T$$
Moo!s
)nco+e
Sale# Turo$er 20%262.61 23%490.55 31%089.69 33%123.54 28%538.20
E4ci#e -uty 3%063.44 3%401.92 4%425.44 4%355.63 2%877.53
:et Sale# 17%199.17 20%088.63 26%664.25 28%767.91 25%660.67
<ther Income 403.98 852.41 1%114.38 734.17 921.29
Stoc+ A&;u#t,et# 144.00 256.91 349.68 <40.48 <238.04
Tota )nco+e 17,747.15 21,197.95 28,128.31 29,461.60 26,343.92
./&end$ture
"a= !aterial# 12%245.28 14%633.02 19%879.56 20%891.33 18%801.37
/o=er 5 3uel Co#t 237.81 258.51 327.41 325.19 304.94
E,ployee Co#t 1%039.34 1%143.13 1%367.83 1%544.57 1%551.39
>ther !au6acturi0 E4pe#e# 592.64 671.31 872.95 904.95 866.65
Selli0 a& A&,i E4pe#e# 890.21 1%061.07 1%505.23 2%197.49 1%652.31
!i#cellaeou# E4pe#e# 620.27 740.99 1%051.49 964.78 1%438.89
/reoperati$e E4p Capitali#e& <282.43 <308.85 <577.05 <1%131.40 <916.02
Total E4pe#e# 15%343.12 18%199.18 24%427.42 25%696.91 23%699.53
0&erat$n1 2rof$t 2,000.05 2,146.36 2,586.51 3,030.52 1,723.10
/*-1T 2%404.03 2%998.77 3%700.89 3%764.69 2%644.39
1tere#t 234.30 350.24 455.75 471.56 704.92
/*-T 2%169.73 2%648.53 3%245.14 3%293.13 1%939.47
-epreciatio 450.16 520.94 586.29 652.31 874.54
>ther .ritte >66 67.12 73.78 85.02 64.35 51.17
/ro6it *e6ore Ta4 1%652.45 2%053.81 2%573.83 2%576.47 1%013.76
E4tra<or&iary ite,# <1.54 0.00 <0.07 0.00 15.29
/*T 8/o#t E4tra<or& 1te,#9 1%650.91 2%053.81 2%573.76 2%576.47 1%029.05
Ta4 415.50 524.93 660.37 547.55 12.50
3e&orted Net 2rof$t 1,236.95 1,528.88 1,913.46 2,028.92 1,001.26
Total 7alue A&&itio 3%097.84 3%566.16 4%547.86 4%805.58 4%898.16
/re6erece -i$i&e& 0.00 0.00 0.00 0.00 0.00
Equity -i$i&e& 452.19 497.94 578.07 578.43 311.61
Corporate -i$i&e& Ta4 63.42 69.84 98.25 81.25 34.09
2er share data 4annua$sed5
Share# i i##ue 8la+h#9 3%617.52 3%828.34 3%853.74 3%855.04 5%140.08
.arn$n1 2er Share 43s5 34.19 39.94 49.65 52.63 19.48
Equity -i$i&e& 8?9 125.00 130.00 150.00 150.00 60.00
*oo+ 7alue 8"#9 113.65 143.94 177.59 202.70 240.64
MARUTI SUFU<I E >$.$nce S%ee
>$.$nce S%ee o- M$!ui
Su=u;i Indi$
Sources 0f 6unds
"e#er$e# 4%234.30 5%308.10 6%709.40 8%270.90 9%200.40
"e$aluatio "e#er$e# 0.00 0.00 0.00 0.00 0.00
Networth 4,378.80 5,452.60 6,853.90 8,415.40 9,344.90
Secure& 'oa# 307.60 71.70 63.50 0.10 0.10
(#ecure& 'oa# 0.00 0.00 567.30 900.10 698.80
Tota !e"t 307.60 71.70 630.80 900.20 698.90
Tota #$a"$$t$es 4,686.40 5,524.30 7,484.70 9,315.60 10,043.80
%&&$cat$on 0f 6unds
)ro## *loc+ 5%053.10 4%954.60 6%146.80 7%285.30 8%720.60
Net 'oc( 1,873.70 1,695.20 2,659.70 3,296.50 4,070.80
Capital .or+ i /ro0re## 42.10 92.00 238.90 736.30 861.30
)n*est+ents 1,516.60 2,051.20 3,409.20 5,180.70 3,173.30
1$etorie# 666.60 881.20 713.20 1%038.00 902.30
Su&ry -e2tor# 599.50 654.80 747.40 655.50 918.90
Ca#h a& *a+ *alace 79.40 51.60 114.80 324.00 239.00
Total Curret A##et# 1%345.50 1%587.60 1%575.40 2%017.50 2%060.20
'oa# a& A&$ace# 801.90 933.10 1%072.60 1%173.00 1%809.80
3i4e& -epo#it# 950.00 1%350.00 1%308.00 0.00 1%700.00
Total CA% 'oa# 5 A&$ace# 3%097.40 3%870.70 3%956.00 3%190.50 5%570.00
-e66ere& Cre&it 0.00 0.00 0.00 0.00 0.00
Curret 'ia2ilitie# 1%454.20 1%704.80 2%288.60 2%718.90 3%250.90
/ro$i#io# 389.20 480.00 490.50 369.50 380.70
Total C' 5 /ro$i#io# 1%843.40 2%184.80 2%779.10 3%088.40 3%631.60
Net ,urrent %ssets 1,254.00 1,685.90 1,176.90 102.10 1,938.40
!i#cellaeou# E4pe#e# 0.00 0.00 0.00 0.00 0.00
Tota %ssets 4,686.40 5,524.30 7,484.70 9,315.60 10,043.80
Coti0et 'ia2ilitie# 893.60 1%289.70 2%094.60 2%734.20 1%901.70
*oo+ 7alue 8"#9 151.56 188.73 237.23 291.28 323.45
MARUTI SUFU<I E P!o-i B Loss $ccoun
P!o-i B Loss $ccoun o-
M$!ui Su=u;i
)nco+e
Sale# Turo$er 13%458.20 14%898.80 17%358.40 21%200.40 23%381.50
E4ci#e -uty 2%411.90 2%700.90 2%552.00 3%133.60 2%652.10
:et Sale# 11%046.30 12%197.90 14%806.40 18%066.80 20%729.40
<ther Income 187.50 184.40 338.10 494.00 491.70
Stoc+ A&;u#t,et# 141.70 199.70 <200.70 336.30 <356.60
Tota )nco+e 11,375.50 12,582.00 14,943.80 18,897.10 20,864.50
./&end$ture
"a= !aterial# 8%650.20 9%423.40 10%863.00 13%958.30 15%983.20
/o=er 5 3uel Co#t 58.10 57.20 97.40 147.30 193.60
E,ployee Co#t 196.00 228.70 288.40 356.20 471.10
Selli0 a& A&,i E4pe#e# 374.27 349.51 483.26 521.48 751.06
!i#cellaeou# E4pe#e# 121.73 145.39 239.44 287.62 303.44
/reoperati$e E4p Capitali@e& <22.40 <6.70 <14.30 <19.80 <22.30
Total E4pe#e# 9%593.60 10%499.90 12%349.60 15%774.40 18%396.20
0&erat$n1 2rof$t 1,594.40 1,897.70 2,256.10 2,628.70 1,976.60
/*-1T 1%781.90 2%082.10 2%594.20 3%122.70 2%468.30
1tere#t 36.00 20.40 37.60 59.60 51.00
/*-T 1%745.90 2%061.70 2%556.60 3%063.10 2%417.30
-epreciatio 456.80 285.40 271.40 568.20 706.50
>ther .ritte >66 16.30 0.00 0.00 0.00 0.00
/ro6it *e6ore Ta4 1%272.80 1%776.30 2%285.20 2%494.90 1%710.80
E4tra<or&iary ite,# 51.40 5.40 33.40 76.60 37.90
/*T 8/o#t E4tra<or& 1te,#9 1%324.20 1%781.70 2%318.60 2%571.50 1%748.70
Ta4 446.50 560.90 705.30 763.30 457.10
3e&orted Net 2rof$t 853.60 1,189.10 1,562.00 1,730.80 1,218.70
Total 7alue A&&itio 943.40 1%076.50 1%486.60 1%816.10 2%413.00
/re6erece -i$i&e& 0.00 0.00 0.00 0.00 0.00
Equity -i$i&e& 57.80 101.10 130.00 144.50 101.10
Corporate -i$i&e& Ta4 8.20 14.20 21.90 24.80 17.20
2er share data 4annua$7ed5
Share# i i##ue 8la+h#9 2%889.10 2%889.10 2%889.10 2%889.10 2%889.10
.arn$n1 2er Share 43s5 29.55 41.16 54.07 59.91 42.18
Equity -i$i&e& 8?9 40.00 70.00 90.00 100.00 70.00
*oo+ 7alue 8"#9 151.56 188.73 237.23 291.28 323.45
MAHINDRA B MAHINDRA E >$.$nce S%ee
>$.$nce S%ee o-
M$%ind!$ $nd M$%ind!$
Sources 0f 6unds
/re6erece Share Capital 0.00 0.00 0.00 0.00 0.00
"e#er$e# 1%881.93 2%662.14 3%302.01 4%098.53 4%959.26
"e$aluatio "e#er$e# 14.32 13.33 12.86 12.47 12.09
Networth 2,012.26 2,908.87 3,552.90 4,350.07 5,243.97
Secure& 'oa# 336.82 216.68 106.65 617.26 981.00
(#ecure& 'oa# 715.80 666.71 1%529.35 1%969.80 3%071.76
Tota !e"t 1,052.62 883.39 1,636.00 2,587.06 4,052.76
Tota #$a"$$t$es 3,064.88 3,792.26 5,188.90 6,937.13 9,296.73
%&&$cat$on 0f 6unds
)ro## *loc+ 2%676.51 2%859.25 3%180.57 3%552.64 4%893.89
Net 'oc( 1,340.95 1,348.98 1,541.45 1,710.96 2,567.60
Capital .or+ i /ro0re## 133.93 205.46 329.72 649.94 646.73
)n*est+ents 1,189.79 1,669.09 2,237.46 4,215.06 5,786.41
1$etorie# 759.83 878.74 878.48 1%084.11 1%060.67
Su&ry -e2tor# 511.53 637.97 700.89 1%004.88 1%043.65
Ca#h a& *a+ *alace 198.07 258.39 415.89 310.58 635.61
Total Curret A##et# 1%469.43 1%775.10 1%995.26 2%399.57 2%739.93
'oa# a& A&$ace# 461.07 558.02 1%011.50 866.19 1%402.45
3i4e& -epo#it# 425.91 471.92 910.18 550.65 938.82
Total CA% 'oa# 5 A&$ace# 2%356.41 2%805.04 3%916.94 3%816.41 5%081.20
-e66ere& Cre&it 0.00 0.00 0.00 0.00 0.00
Curret 'ia2ilitie# 1%480.87 1%711.23 2%138.77 2%525.31 3%520.20
/ro$i#io# 499.71 543.14 715.43 943.46 1%277.56
Total C' 5 /ro$i#io# 1%980.58 2%254.37 2%854.20 3%468.77 4%797.76
Net ,urrent %ssets 375.83 550.67 1,062.74 347.64 283.44
!i#cellaeou# E4pe#e# 24.38 18.05 17.55 13.53 12.55
Tota %ssets 3,064.88 3,792.25 5,188.92 6,937.13 9,296.73
Coti0et 'ia2ilitie# 758.14 946.36 1%008.27 985.35 1%220.39
*oo+ 7alue 8"#9 178.95 124.06 148.72 181.43 191.91

MAHINDRA B MAHINDRA E P!o-i B Loss $ccoun
P!o-i B Loss $ccoun o-
M$%ind!$ $nd M$%ind!$
)nco+e
Sale# Turo$er 7%649.51 9%273.09 11%231.99 12%894.94 14%713.03
E4ci#e -uty 1%054.82 1%136.50 1%310.65 1%584.57 1%587.05
:et Sale# 6%594.69 8%136.59 9%921.34 11%310.37 13%125.98
>ther 1co,e 209.74 455.20 531.17 575.96 369.85
Stoc+ A&;u#t,et# 174.05 103.20 6.41 149.11 <156.29
Tota )nco+e 6,978.48 8,694.99 10,458.92 12,035.44 13,339.54
./&end$ture
"a= !aterial# 4%829.29 5%885.21 6%937.16 7%963.82 9%208.71
/o=er 5 3uel Co#t 52.64 57.46 65.19 91.33 98.69
E,ployee Co#t 464.25 551.78 666.15 853.65 1%024.61
Selli0 a& A&,i E4pe#e# 545.57 667.99 891.29 1%108.33 954.83
!i#cellaeou# E4pe#e# 141.95 177.89 210.03 257.84 558.07
/reoperati$e E4p Capitali@e& <31.84 <26.53 <47.10 <46.49 <42.83
Total E4pe#e# 6%049.87 7%368.24 8%791.52 10%301.83 11%877.44
0&erat$n1 2rof$t 718.87 871.55 1,136.23 1,157.65 1,092.25
/*-1T 928.61 1%326.75 1%667.40 1%733.61 1%462.10
1tere#t 30.24 26.96 19.80 87.59 134.12
/*-T 898.37 1%299.79 1%647.60 1%646.02 1%327.98
-epreciatio 184.05 200.01 209.59 238.66 291.51
>ther .ritte >66 0.15 0.28 0.33 0.59 0.00
/ro6it *e6ore Ta4 714.17 1%099.50 1%437.68 1%406.77 1%036.47
E4tra<or&iary ite,# 0.00 0.00 <19.19 0.00 4.07
/*T 8/o#t E4tra<or& 1te,#9 714.17 1%099.50 1%418.49 1%406.77 1%040.54
Ta4 201.50 242.40 350.10 303.40 199.69
3e&orted Net 2rof$t 512.67 857.10 1,068.39 1,103.37 836.78
Total 7alue A&&itio 1%220.58 1%483.04 1%854.37 2%338.01 2%668.73
/re6erece -i$i&e& 0.00 0.00 0.00 0.00 0.00
Equity -i$i&e& 150.81 243.97 282.23 282.61 278.83
Corporate -i$i&e& Ta4 21.15 34.22 42.50 38.48 33.23
2er share data 4annua$7ed5
Share# i i##ue 8la+h#9 1%116.48 2%334.00 2%380.33 2%390.73 2%726.16
.arn$n1 2er Share 43s5 45.92 36.72 44.88 46.15 30.69
Equity -i$i&e& 8?9 130.00 100.00 115.00 115.00 100.00
*oo+ 7alue 8"#9 178.95 124.06 148.72 181.43 191.91
RATIO ANALYSIS OF TATA MOTORS? MARUTI SUFU<I AND
MAHINDRA B MAHINDRA
EARNIN)S PER SHARE
.%3N)N8S 2.3 S9%3.
:.%3S Mar'05 Mar'06 Mar'07 Mar'08 Mar'09
TATA 34.19 39.94 49.65 52.63 19.48
!A"(T1 29.55 41.16 54.07 59.91 42.18
!AA1:-"A 45.92 36.72 44.88 46.15 30.69
.%3N)N8S 2.3 S9%3.
0
10
20
30
40
50
60
70
!arB05 !arB06 !arB07 !arB08 !arB09
:.%3S
3
s
TATA
!A"(T1
!AA1:-"A
Ine!#!e$ions
,12 measures the profit available to the equity shareholders per share, that is, the
amount that they can get on every share held. Till CCD T!T! and 3aruti had a
rising ,12 but in CCE both of them fall and the effect is more on Tata motors
because of the slump in domestic and international markets and sharp fall in sales and
net profits which resulted in low ,12. 3ahindra is not much affected as its sales have
increased from the previous year. 5ut as trend shows 3ahindra motors has potential
so a shareholder can e%pect better in future.
SALES
S%#.S
TATA 20%262.61 23%490.55 31%089.69 33%123.54 28%538.20
!A"(T1 13%458.20 14%898.80 17%358.40 21%200.40 23%381.50
!AA1:-"A 7%649.51 9%273.09 11%231.99 12%894.94 14%713.03
S%#.S
0.00
5%000.00
10%000.00
15%000.00
20%000.00
25%000.00
30%000.00
35%000.00
:.%3S
3
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s
TATA
!A"(T1
!AA1:-"A
Ine!#!e$ions
3aruti and 3ahindra show a positive trend in sales over the past five years. Though
slowdown in the economy brought hurdles but these companies have potential to
grow in future as lots of products are still to add in their portfolio. 3oreover
increased demand in foreign market also seems to be a positive signal for better
future. T!T! has witnessed a decline in sales of each segment. 3aruti and 3ahindra
are going swiftly.
DIVIDEND PER SHARE
!);)!.N! 2.3 S9%3.
CEA"S !arB05 !arB06 !arB07 !arB08 !arB09
TATA 12.5 13 15 15 6
!A"(T1 2 3.5 4.5 5 3.5
!AA1:-"A 13 10 11.5 11.5 10
!);)!.N! 2.3 S9%3.
0
5
10
15
20
:.%3S
3
s
TATA
!A"(T1
!AA1:-"A
Ine!#!e$ions
Tata motors and 3aruti 2u"uki both the companies showed a positive trend in paying
dividends till CCD, but the scenario changed in CCE as both the company's dividend
per share fell. !ccording to graph Tata's dividend has fallen drastically while 3aruti
stick to below ? per share. 3ahindra has made a slight reduction from rs.11.? per
share in CCD to rs.1C per share this year. Therefore 3ahindra would be the best
option for an investor.
RETURN ON INVESTMENT &ROI'
3eturn on )n*est+ent
TATA 30.09 27.74 27.96 25.98 8.09
!A"(T1 19.49 21.81 22.79 20.56 13.04
!AA1:-"A 25.66 29.6 30.18 25.51 16.03
3.T<3N 0N )N;.STM.NT
0
5
10
15
20
25
30
35
:.%3S
=
TATA
!A"(T1
!AA1:-"A
Ine!#!e$ions
4<I is one of the most important ratios used for measuring the overall efficiency of a
firm and determines whether the investments in the firms are attractive or not.
!ccording the graph, 4<I of T!T! has declined to a large e%tent in CCE, making it
a quite risky investment. 3aruti's 4<I has also declined but 3ahindra's 4<I is
showing a higher rate compared to T!T! and 3aruti in CCE. !s the investors would
like to invest only where the return is higher, 3ahindra would be attractive for
investment.
DIVIDEND PAYOUT RATIO
!);)!.N! 2%:0<T 3%T)0
TATA 41.68 37.13 35.34 32.51 34.52
!A"(T1 7.73 9.69 9.72 9.78 9.7
!AA1:-"A 33.54 32.45 30.39 29.1 37.29
!);)!.N! 2%:0<T 3%T)0
0
10
20
30
40
50
:.%3S
=
TATA
!A"(T1
!AA1:-"A
Ine!#!e$ions
0ividend payout ratio is the percentage of earnings paid to shareholders in dividends.
It provides an idea to an investor of how well earnings support the dividend
payments. 3aruti has maintained a stable payout ratio. 5oth T!T! and 3ahindra
have increased their payout ratio in which 3ahindra shows a higher payout ratio.
PRICE-EARNIN)S RATIO &P4E RATIO'
23),.-.%3N)N8S 3%T)0
TATA 19.09 22.5 14.9 3.02 40.6
!A"(T1 21.5 22.5 18.3 8.6 36.9
!AA1:-"A 11.1 24.6 19.1 5.9 35.2
23),. .%3N)N8S 3%T)0
0
10
20
30
40
50
:.%3S
=
TATA
!A"(T1
!AA1:-"A
Ine!#!e$ions
This ratio is widely used by investors to decide whether or not to buy shares in a
particular company. !s per the graph, in CCD, the 1A, ratio of the three companies
was the lowest compared to the previous years. T!T! has the highest 1A, ratio in
CCE which indicates that it is overvalued, so the investors can benefit by selling the
shares. !n investor can go for 3ahindra as its 1A, ratio is the lowest in CCE which
indicates that it is undervalued and there is a scope for growth in the future.
CHAPTER VI
FINDIN)S? SU))ESTIONS B CONCLUSION
FINDIN)S
&rom the data analysis and interpretations of the ratios of three companies' vi". Tata
3otors, 3aruti 2u"uki and 3ahindra and 3ahindra, the following findings have been
given+
The three companies were performing well till CCD with a positive trend in
the earnings per share. 5ut there was a downward trend in CCE. ,specially,
T!T! has witnessed a steep fall in the year CCE.
The sales trend has been upward and positive in case of all the three
companies. The sales growth looks positive but in the year CCE, T!T!'s
sales have declined whereas 3aruti and 3ahindra have maintained the same
upward positive trend.
In case of dividend per share, there were fluctuations during the period CC?(
CCE. 0ue to recession, the dividends per share have declined in all the three
companies. Tata's dividend has fallen drastically while 3aruti stick to below
? per share. 3ahindra has made a slight reduction from rs.11.? per share in
CCD to rs.1C per share this year.
The return on investment has been fluctuating since CC? and the year CCE
witnessed low returns in case of all the companies amongst which T!T! has
the least rate of return. .ompared to the three companies, 3ahindra has the
highest 4<I in CCE.
3aruti had a stable dividend payout ratio since CC?. T!T! and 3ahindra
have increased their payout ratio in which 3ahindra shows a higher payout
ratio.
The three companies have witnessed a low price earnings ratio in CCD
compared to the previous years. 5ut the ratio increased in CCE in three
companies. T!T! has the highest 1A, ratio in CCE which indicates that it is
overvalued and 3ahindra's 1A, ratio is the lowest in CCE which indicates
that it is undervalued and there is a scope for growth in the future.
5y analy"ing the current trend of Indian ,conomy and !utomobile Industry I have
found that being a developing economy there is lot of scope for growth and this
industry still has to cross many levels so there are huge opportunities to invest in and
this is being proved as more and more foreign companies are setting up there ventures
in India.
Increase in income level, increase in consumer demand, technology development,
globali"ation, foreign investments are few of the opportunities which the industry has
to e%plore for developing the economy.

SU))ESTIONS
5y analy"ing the automobile industry with the help of fundamental analysis, it has
been revealed that this industry has a lot of potential to grow. 2o recommending
investing in !utomobile industry with no doubt is going to be a good and smart
option because this industry is booming like never before not only in India but all
over the world.
The three giants of Indian !utomobile industry vi". T!T! 3otors, 3aruti 2u"uki
and 3ahindra and 3ahindra have outperformed in the industry.
&rom the company analysis, we can know that 3ahindra would be a better
option for an investor compared to T!T! and 3aruti. In view of the slump in
the domestic and international market, T!T! has recorded a slowdown in
sales and income level. Its ,arnings per share has also declined drastically. It
has reduced its dividend per share from rs.1? in the previous year to rs.G in
CCE. The return on investment is also very low. In view of all these, T!T!
is not a better option for an investor.
The global turmoil in financial markets has affected 3aruti also. The
company is maintaining a stable position. Its sales have grown over past five
years. Inspite of the general economic slowdown, the sales of 3aruti 2u"uki
increased from 4s 1CC .rore to 4s --D1 .rore. !s it is maintaining a
stable position, it can be recommended that for now 3aruti share price shows
that it's a time to hold the position or buy more shares as there is scope of
further rise in share prices.
0espite the challenging business environment, 3ahindra has maintained its
upward sales level. Its 4eturn on Investment is much higher compared to
T!T! and 3aruti. The dividend per share is rs.1C which is higher amongst
the three companies. The company has potential to grow. It would be the best
option for the investor.
Investing in 3aruti 2u"uki for long time could be a good option whereas in
T!T! motors there is a chance of getting correction, as it already went on
high side in a very short period of time and is e%periencing a downfall from
CCD.
$olding the shares for long time could be a wrong step and at this point of
time those who invested earlier can book their profits. !s 3ahindra's shares
are undervalued, the investor can buy these shares. This is because a relatively
lower 1A, would save investors from paying a very high price that does not
justify the value of an investment.
Fe2 Su,,esions -o! Ri,% Soc; Se.ecion(
There are three factors which an investor must consider for selecting the right stocks.
>usiness+ !n investor must look into what kind of business the company is
doing, visibility of the business, its past track record, capital needs of the
company for e%pansion etc.
>$.$nce S%ee+ The investor must focus on its key financial ratios such as
earnings per share, price(earning ratio; debt(equity ratio, dividends per share
etc and he must also check whether the company is generating cash flows.
>$!,$inin,+ This is the most important factor which shows the true worth of
the company. !n investor needs to choose valuation parameters which suit its
business.
In+esmen !u.es
Invest for long term in equity markets
!lign your thought process with the business cycle of the company.
2et the purpose for investment.
>ong term goals should be the objective of equity investment.
0isciplined investment during market volatility helps attains profits.
1lanning, Fnowledge and 0iscipline are very crucial for investment.
CONCLUSION
The !utomobile industry in India is the seventh largest in the world with an annual
production of over .G million units in CCE. In CCE, India emerged as !sia;s fourth
largest e%porter of automobiles, behind 9apan, 2outh Forea and Thailand.
The collapse in market place witnessed unprecedented turbulence in the wake of
global financial meltdown. ! runaway inflation touching a high point of 1@ early in
the year, the tight monetary policies followed by the authorities for most of the year
to control inflation with the consequent high interest rates and weak consumer
demand, have collectively had a devastating effect on the automotive sector.
3aruti 2u"uki India >T0. company has a trend of growth from till CCD.0uring the
financial year CCD(CE the there is downfall in the growth of the company. The main
reason behind this downfall is because of the global recession. The downfall of net
profit during the financial year CCD(CE is E.G@ over the financial year CCL(CCD.
T!T! 3otors, which was trying to consolidate its leadership position in the market,
also had to face the impact of global meltdown. !mid the crippling economic crisis,
Tata purchased 5ritain's 9aguar >and 4over 69>48 from &ord 3otor .ompany.
!cquiring 9>4 saddled Tata with some tough losses. 0ividends and earnings remain
low.
Inspite of it being a tough year for all the companies across the globe and in India,
3ahindra has given a satisfactory performance. !t present its shares are undervalued
giving it a potential for growth.
/lobal recession had a dampener effect on the growth of automobile industry but it
was a short term phenomenon. The industry is bouncing back. <ne factor favoring
this point is that India has become a hot destination for companies of diverse nature to
invest in. .ut throat competition among top companies, lots of new car and vehicle
model launches at regular intervals keeps the Indian auto sector moving.
! continuous effort at cost cutting and improving productivity will help the
companies in making reasonable profits despite the impact of higher commodity
prices and weaker rupee.
+he analysis gi#es an optimistic #iew about the industry and its growth which
recommends the in#estors to keep a good watch on the ma,or players to benefit in
terms of returns on their in#estments&
>I>LIO)RAPHY
Te/ >oo;s
2ecurity !nalysis and 1ortfolio 3anagement by 1unithavathy 1andian, Mikas
1ublications.
2ecurity analysis and portfolio management by M.!. !vadhani
&inancial 3arkets and 2ervices by /ordon and :atarajan, $imalaya
1ublications.
&inancial 3anagement by 2hashi F /upta and 4. F 2harma, Falyani
1ublications.
Ne2s#$#e!s
,conomic times
5usiness line
We5sies
www.nseindia.com
www.bseindia.com
www.investopedia.com
www.moneycontrol.com
www.indiainfoline.com
www.sebi.gov.in
www.tatamotors.com
www.marutisuzuki.com
www.mahindra.com
www.yahoofinance.com
CN>C TV7G E The Informed Investor* supported by 2,5I and presented by
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