Volume : 3 | Issue : 4 | April 2014 ISSN No 2277 - 8179

A Study on Fundamental Analysis

of Indian Automobile Industry with
Reference to the Selected Companies

Research Paper

Management
KEYWORDS : Fundamental analysis,
automobile sector, EPS, ROCE

Ms. Apurva A. Chauhan ASSISTANT PROFESSOR (Finance Specialisation), NARAN LALA SCHOOL OF

ABSTRACT

INDUSTRIAL MANAGEMENT & COMPUTER SCIENCE, BHAGWATI SANKUL, ERU CHAR

RASTA, NAVSARI-396450. GUJARAT STATE, INDIA

Fundamental analysis is the technique for finding the value of the stock which considers economy as a whole
then industry and then performance of the company for finding the value of its stock. It uses top to bottom
approach for finding the value of the stock. Fundamental analysis considers various factors such as development of the economy as
a whole, development in the industry, past performances of company, and future prospectus of the company for finding the value of
the stock of the company. The automobile industry is one of the key drivers of economic growth of the nation. Since the delicensing
of the sector in 1991, Indian automobile sector has come a long way. Today, almost every global auto major has set up their facilities
in the country. This paper attempts to study the fundamental analysis of Indian automobile industry with reference to the selected
companies.

INTRODUCTION:
Fundamental Analysis is the method of evaluation of stock of a
company by measuring the intrinsic value of the stock. Intrinsic
value is the actual value of a company or an asset based on the
underlying perception of its true value including all tangible and
intangible the aspects of the business. This value may or may
not be equal to the current market value of the stock of the company. For finding the intrinsic value, fundamental analysis uses
top to bottom approach which is also called as E-I-C (Economy,
Industry and Company analysis) approach. Firstly it studies the
macro economy i.e., overall health of economy as a whole and
industry trends, competitors performance. After that the next
step is to examine the financial data of the company.
If this intrinsic value of the stock is more than its current market
price, investor would prefer to purchase the stock because he
believes that the stock will perform better in future and it will
move towards intrinsic value. If intrinsic value of the stock is
less than the market price, then investor would prefer to sell the
stock because he believes that the price of the stock will fall in
future and it will come near to the intrinsic value.

LITERATURE REVIEW:
Hossein Khanifar (2012) studied the factors affecting investors decision by performing fundamental analysis. The analysis
is performed by studying economy, industry and then firm. The
population included in the study was broking firms at Tehram
Stock exchange. The study shows that EPS, profit margin, P/E
ratio, sales have highest importance in analysts decision followed by economy related factor and industry related factor.
Prof.Madhavi Dhole (2013) performed fundamental analytical study of four Automobile sector companies in Price movement of shares. The study concluded that investors are interested in predicting the future behavior of stock market. The study
concluded that the investor should look at the price movements
of the particular company over the years and then should go for
better portfolio. The future plans of the organization are also vital information for analysis. The study shows that speculative or
sentimental factors do play a role in price movement of shares.
But, it is only a short-term effect, in long term annual performance is sole factor which is responsible for price movement.
OBJECTIVES:
To study improvement in the level of economic activity in
India with the help of GDP growth rate.
To study the contribution of automobile industry in the development of economic situation of country.
To study the performance of automobile industry of India
with the help comparison of the performances of selected
companies i.e., Tata Motors Ltd and Maruti Suzuki India Ltd.

ECONOMIC ANALYSIS:
Price movement of the share and company performance has
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been influenced greatly by the level of economic activity. When

the level of economic activity is high, stock prices are also high
because it reflects the prosperous outlook for sales and profit
for the firm. Gross domestic product of the country is the indicator of the development of the economic activity in the country.
Chart 1 : GDP Growth Rate of India:

(Source: EXIM bank report on Indias macroeconomic Indicator)

It can be said from the above chart that after 2008-09 the GDP
growth rate of India has increased but after 2010-11 it is declining.

INDUSTRY ANALYSIS:
Although the economic position of the country is not satisfactory but it is important to study if there is any impact of declining economy on automobile industry or not. For that purpose,
production of automobile sector has been studied.
Chart 2: Total Production of Automobile Sector

(Source: Society of Indian Automobile Manufacturers Report)

It can be concluded from the above chart that the total production of all types of vehicle in automobile industry has been increasing in the time period of 2008-09 to 2012-13.

SWOT Analysis of Indian Automobile Industry:

SWOT analysis involves study of industries strengths, weakness
and opportunities and threats available in market. The following diagram shows the SWOT analysis of automobile industry
in India.

Research Paper
Strengths:

Weaknesses:

Domestic Market is very

large
Government of India
provides monetary assistance
for manufacturing units
Labor cost is low in India.

Too many taxes levied by

government has increased the
cost of production
Some companies do not
make more investment in
Research and Development.
Threats:

Opportunities:

Demand from Rural India

is also rising continuously as
condition of roads in rural
area has also improved.

Rates of interest on
automobile loans are not
stable.
There is a lot of
competition in automobile
industry.

COMPANY ANALYSIS:
The third section of fundamental analysis deals with the analysis of the company. In present study, following companies have
been selected for further analysis.

1. Maruti Suzuki India Ltd

Maruti Suzuki India Limited was established in 1981. It is the
countrys largest passenger car manufacturing company. It is
Credited for bringing revolution in the automobile industry in
India. Some of Marutis most popular cars are: Alto, Gypsy, Omni,
Wagon R, Maruti 800, Versa, Zen, Esteem, Baleno and Swift.
2. Tata Motors Ltd:
Tata Motors is the largest automobile manufacturing companies
in India. It was Established in 1945. Tata Motors is a multinational automobile company with its headquarters in Mumbai.
This company manufactures compact medium sized utility vehicles. Over the last few decades it has stood as the undisputed
leader in the commercial vehicles segment. It is also the third
largest producer of passenger cars in India. Some of the well
known cars manufactured by Tata Motors are: Tata Indigo, Tata
Indica, Tata Sumo, Tata Indigo Marina and Tata safari.
The following aspects have been studied for company analysis.
a) Earnings Per Share (EPS)
b) Return on capital employed
c) Current ratio
Chart 3: EPS of Tata Motors and Maruti Suzuki:

(Source: Annual reports of Tata Motors and Maruti Suzuki)

The above chart represents Earning per share of Tata motors
and Maruti Suzuki. It can be seen that the EPS of Tata Motors has
increased in 2009-10 but after that it is continuously decreasing. Whereas the EPS of Maruti Suzuki has increased in 2009-10
after that it has decreased in consequently two years but after
that it has increased in 2012-13. As compared to Tata Motors
the performance of Maruti Suzuki is better in terms of Earning
per share in last five years time period.

Volume : 3 | Issue : 4 | April 2014 ISSN No 2277 - 8179

Chart 4: ROCE of Tata Motors and Maruti Suzuki:

(Source: Annual reports of Tata Motors and Maruti Suzuki)

The above chart represents the return on capital employed of
Tata Motors and Maruti Suzuki. It can be seen from the chart
that ROCE of Tata motors have increased in 2009-10 but in
2012-13 it has decreased. ROCE of Maruti Suzuki has increased
in 2009-10 after that it has declined in consecutive two years
and it has increased in 2012-13.
Chart 5: Chart showing current ratio of Tata motors and
Maruti Suzuki:

(Source: Annual reports of Tata Motors and Maruti Suzuki)

The above chart represents the current ratio of both the companies. Current ratio represents the amount which is available
to the company for paying its short term obligations. It can be
seen that the average current ratio of Tata motors is 0.5. It
means Tata motors have 0.5 current assets against liability of 1.
And the average current ratio of Maruti Suzuki during last five
years is 1.2 which means Maruti Suzuki have current assets of
1.2 against liability of 1 . It is clear from above information that
Maruti Suzuki is in a better position than Tata Motors in terms
of current ratio.

CONCLUSION:
Fundamental analysis is an important technique to find the
value of stock as it considers all past information about country,
industry and company. The present study reveals that although
the GDP of India is declining still the automobile sector is shining as there is continuous increase in the production of total no
of vehicles in the Industry. SWOT analysis presents that major
strength of Indian automobile industry is large domestic market and availability of cheap labour and raising demand from
rural areas of India is acting as the opportunity in expansion of
the market. Maruti Suzuki Indias performance is comparatively
better than Tata Motors Ltd in terms of earning per share, return on capital employed and current ratio. Fundamental analysis is helpful when the investing amount is huge and investment
is to be made for long time.

REFERENCE

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