Analysis of Automobile Industry
Analysis of Automobile Industry
ON
ANALYSIS OF INDIAN AUTOMOBILE INDUSTRY
This report is submitted as partial fulfillment of the
requirement of PGDM programme of ITM Business School,
Siruseri, Chennai.
By
S. RAMPRASAD
Place:
Date:
_______________________
Signature of Company Guide
ACKNOWLEDGMENTS
I would like to express my gratitude to Dr. G.K.Sharma, Director, Institute
for Technology and Management Business School, Chennai for allowing me to
do my Summer Internship Project.
I am especially thankful to Mr. Bharat Munoth, Managing Director,
Munoth Financial Services Ltd., Chennai. I am highly indebted to Mr. Dipesh
Shah, Chief Executive and company project guide, who has provided me with
the necessary information and also for the support extended out to me in the
completion of this report and his valuable suggestion and comments on bringing
out this report in the best way possible.
I also thank Prof. Ravimohan, Institute for Technology and Management
Business School, Chennai who has supported me with his valuable insights into
the completion of the project.
I am grateful to all faculty members of Institute for Technology and
Management Business School, Chennai and who have helped me in the
successful completion of this project.
SYNOPSIS
The automobile industry, one of the core sectors, has undergone metamorphosis with the
advent of new business and manufacturing practices in the light of liberalization and
globalization. The sector seems to be optimistic of posting strong sales in the couple of years
in the view of a reasonable surge in demand. The Indian automobile market is gearing
towards international standards to meet the needs of the global automobile giants and become
a global hub. So investment in the stocks of the automobile industry is one of the attractive
options.
Investing in shares of a company is highly rewarding at the same time it is highly risky.
Moreover the Indian Stock market is highly volatile with large volumes being traded.
Analysis of stocks is highly helpful to reduce the risks and to make good money.
This project is aimed at analyzing the Indian automobile industry in the view of its
feasibility as an investment option. A detailed analysis of the Indian automobile industry is
covered in respect of past growth and performance. The fundamental analysis is done which
analyzes the economy in the broader sense and the industry is analyzed using Industry Life
Cycle, Porters Five Forces Model and SWOT Analysis.
Three companies namely Mahindra & Mahindra, Tata Motors and Ashok Leyland are
chosen and their financial and non-financial information are analyzed. The technical analysis
is also done for the stocks using some technical indicators.
Based on the analysis done the intrinsic value of the shares of the companies were found
out and their future price directions were determined.
Based on the analysis the future price directions are determined and recommendations are
given to make the project more meaningful.
CHAPTERISATION
TABLE OF CONTENTS
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Figure Title
India GDP Growth Rate
Industry Segmentation
Automobile Exports
M&M Shareholding Pattern
Debt-Equity Ratio of Mahindra & Mahindra
Return on Equity Ratio of Mahindra & Mahindra
Price Earnings Ratio of Mahindra & Mahindra
Dividend Per Share of Mahindra & Mahindra
Dividend Payout Ratio of Mahindra & Mahindra
Dividend Yield Ratio of Mahindra & Mahindra
Book Value Per Share of Mahindra & Mahindra
EMA of Mahindra & Mahindra
RSI of Mahindra & Mahindra
ROC of Mahindra & Mahindra
MACD of Mahindra & Mahindra
Tata Motors Shareholding Pattern
Debt-Equity Ratio of Tata Motors
Return on Equity Ratio of Tata Motors
Price Earnings Ratio of Tata Motors
Dividend Per Share of Tata Motors
Dividend Payout Ratio of Tata Motors
Dividend Yield Ratio of Tata Motors
Book Value Per Share of Tata Motors
EMA of Tata Motors
RSI of Tata Motors
ROC of Tata Motors
MACD of Tata Motors
Ashok Leyland Shareholding Pattern
Debt Equity Ratio of Ashok Leyland
Return on Equity of Ashok Leyland
Price Earnings Ratio of Ashok Leyland
Dividend Per Share of Ashok Leyland
Dividend Payout Ratio of Ashok Leyland
Dividend Yield Ratio of Ashok Leyland
Book Value Per Share of Ashok Leyland
EMA of Ashok Leyland
RSI of Ashok Leyland
ROC of Ashok Leyland
MACD of Ashok Leyland
EPS and Net Profit Margin of Mahindra & Mahindra
EPS and Net Profit Margin of Tata Motors
EPS and Net Profit Margin of Ashok Leyland
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Balance Sheet of Mahindra & Mahindra
Profit & Loss Account of Mahindra & Mahindra
Cash Flow Statement of Mahindra & Mahindra
Key Ratios of Mahindra & Mahindra
Balance Sheet of Tata Motors
Profit & Loss Account of Tata Motors
Cash Flow Statement of Tata Motors
Key Ratios of Tata Motors
Balance Sheet of Ashok Leyland
Profit & Loss Account of Ashok Leyland
Cash Flow Statement of Ashok Leyland
Key Ratios of Ashok Leyland
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Overview:
The automobile industry is one of the core industries in India and is optimistic of posting
good sales in the coming years. So, the investment in shares and securities of automobile
companies seems to be profitable.
Investing is one of the most crucial decisions that every earning individual has to make at
one point of the time or the other. One of alluring options available is the investment in the
shares and securities of companies. The investment in share market is highly rewarding but
highly risky.
The concept of analysis comes into picture when decision has to be made on choosing a
particular companys shares for investment. Analysis includes fundamental and technical
analysis. A proper analysis helps in reducing the risks on investment in the share markets less
risky and highly rewarding.
This project is aimed at finding the analyzing the securities of select companies in the
automobile industries and to assist investment decisions.
1.2.
Primary Objectives:
To analyze the Indian Automobile Industry
To analyze the performance of select companies in automobile industry (fundamental &
technical)
The research report can be used by the organization to assist the investors in making
investment decisions.
Secondary Objectives:
In order to accomplish the primary objectives the following secondary objectives are to be
accomplished:
To understand fundamental and technical analysis.
Scope:
The project covers the following:
Introduction to the Indian Automobile Industry
Introduction to fundamental and technical analysis
Fundamental analysis of the companies including the analysis of automobile industry
Technical analysis of the stocks of selected companies
Findings, Conclusions and Recommendations.
Limitations:
The analysis is fully based on secondary data and hence the accuracy of data is a major
concern.
Only three companies are selected for analysis because of time constraints.
Since the annual reports for 2009-10 are not available for the selected companies
fundamental analysis is done using the data available till 2009.
Analysis helps the investor in making investment decisions but not every investment is
entirely dependent on the analysis alone.
Some important concepts would have been left uncovered in the project due to lack of data
availability and the project has to be completed in a short span of time.
1.3.
Type of Study:
The project will be exploratory in the initial stage and the knowledge thus gained will be
used for further descriptive research.
Data:
The project is done using secondary data.
Sample Size:
3 automobile companies listed in the National Stock Exchange.
Sampling Design:
The companies for the project shall be selected using Convenience Random Sampling.
The Company:
Established in the year 1990 as a widely held public company, The Munoth Financial
Services Limited (MFSL) is the one on its growth pace among its peers. With a networth of
above Rs.10Cr the equity shares of the company are listed on the Bombay Stock Exchange
(BSE) & the Madras Stock Exchange (MSE).
With excellent infrastructure and a good research team the company has its operations
at Chennai and Bangaluru. The company provides diverse financial services to Institutional,
Corporate, Resident Indians and Non Resident Indian (NRI) customers. The company is also
planning to start online trading services soon.
2.2.
Vision:
To provide all the capital market services under one roof to institutional, corporate and retail
clients with prudence and integrity.
Values:
The Munoth Group is driven by the ethics and philosophies of their ancestors and values that
are built over the past 100 years.
Objectives:
2.3.
returns
To seamlessly work for the benefits of the customers
To provide effective and efficient service to their customers
Services:
Corporate Stock Brokers: MFSL is a corporate stock broker with National Stock Exchange
(NSE) and member of Madras Stock Exchange and Over The Counter Exchange of India
(OTCEI). It executes business in both cash segment and F&O Segment.
Mutual Funds Marketing: MFSL markets Mutual Funds for major companies like Reliance
Mutual Funds, Sundaram BNP Paribas Mutual, LIC Mutual Fund, SBI Mutual Fund, etc.
IPO Offering: The Primary Markets Division of the company markets all the IPOs.
Merchant Banking: MFSL is a Category I Merchant Banker offering services in areas of
issue management, Mergers & Acquisition, investment banking, advisory, re-structuring,
ESOPS, etc.
Portfolio Management Services: The Company provides portfolio management services to
resident and non-resident Indians. It offers both discretionary and non-discretionary services.
Depository Participants: MFSL is a Depository Participant with National Securities
Depository Limited (NSDL). It offers Services to resident Indian, non-resident Indians and
Corporates.
2.4.
Clients:
MFSL offers services to Institutional, Corporate, High Networth Individuals, Non
resident Indians and Resident Indian Customers. Its institutional clients in the cash segment
of stock broking include banks like Canara Bank, Indian Bank, Indian Overseas Bank,
General Insurance Corporation of India, United India Insurance Company Limited, etc.
The Company has been associated with over hundred initial public offerings, has
managed rights issue, open offer and ESOPs. The company has recently underwritten the
issues of Madras fertilizers Limited and has handled ESOP shares for Orchid Chemicals and
Pharmaceuticals Limited.
In 2009, more than 60 million motor vehicles, including cars and commercial
vehicles were produced worldwide equivalent to a global turnover of around 2 trillion.
The automobile industry is one of the fastest growing industries in India. The Indian
automobile industry is the seventh largest in the world with an annual production of over 2.6
million units in 2009.
Withstanding a growth rate of 18% per annum and an annual production of more than 2
million units, it may not be an exaggeration to say that this industry in the coming years will
soon touch a figure of 10 million units per year.
In 2009, India emerged as Asia's fourth largest exporter of automobiles, behind Japan,
South Korea and Thailand. By 2050, the country is expected to top the world in car volumes
with approximately 611 million vehicles on the nation's roads.
Equity analysis is used in order to find the true value of the securities and also to know
where the prices are moving. It covers many aspects including the calculating various
financial ratios and charts to extremely sophisticated indicators.
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Equity Analysis is broadly divided into fundamental and technical analysis. Technical
analysis looks at the price movement of a security and uses this data to predict its future price
movements. Fundamental analysis, on the other hand, looks at economic factors, known as
fundamentals.
The following are the major differences between fundamental and technical analysis:
Fundamental analysis focuses on what is ought to happen while technical analysis
focuses on what has already happened.
Fundamental analysis analyses the economic indicators and financial statements while
technical analysis makes use of the historic market data
Fundamental Analysis advocates that every security has an intrinsic value which is not
reflected by the market price while technical analysis advocates that market price
accounts for everything.
Fundamental Analysis uses tools like ratio analysis other valuation methods to find
the intrinsic value while Technical Analysis primarily depends on charts and technical
indicators.
Fundamental Analysis
Fundamental analysis is the study of a companys financial strength, based on historical
data; sector and industry position; management; dividend history; capitalization; and potential
for future growth. It is a stock valuation method that uses financial and economic analysis to
predict the movement of stock prices. The analysis attempts to find the intrinsic value of a
security that helps investors to make decisions.
The fundamental information that is analyzed can include a company's financial reports,
and non-financial information such as estimates of the growth of demand for products sold by
the company, industry comparisons, and economy-wide changes, changes in government
policies etc.
The various steps involved in the fundamental analysis are:
1. Macroeconomic analysis, which involves considering the overall health of the
economy and its future.
2. Industry analysis, which involves the analysis of the industry in which the
company is operating.
3. Situational analysis of the company, studying their business model, management,
products and services, its current position, its future, etc.
4. Financial analysis of the company, which involves analyzing the financial
statements like balance sheets, income statements, cash flows and ratios.
5. Valuation, which attempts to find the intrinsic value of the securities of the
company.
The approach to fundamental analysis is often referred to as E-I-C Approach. The E-I-C
denotes the three parts of the fundamental analysis. The three distinctive parts of fundamental
analysis are:
1. Economic Analysis
2. Industry Analysis and
3. Company Analysis
4.1.
ECONOMIC ANALYSIS:
Economic analysis is the analysis of forces operating the overall economy a country. It is
a process whereby strengths and weaknesses of an economy are analyzed and is important in
order to understand exact condition of an economy. The various factors considered are:
The Economic Cycle
Countries go through the business or economic cycle and the stage of the cycle at
which a country is in has a direct impact both on industry and individual companies. It affects
investment decisions, employment, demand and the profitability of companies. It is very
important to determine the stage of the cycle into which the economy is passing through. The
four stages of economic cycle are depression, recovery, boom and recession.
BOOM
DISINVEST
RECESSION
RECOVERY
INVEST
DEPRESSION
Investors should attempt to determine the stage of the economic cycle the country is in.
They should invest at the end of a depression when the economy begins to recover, and at the
end of a recession. Investors should disinvest either just before or during the boom, or at the
worst, just after the boom. Investment and disinvestments made at these times will earn the
investor the greatest benefits.
4.2.
INDUSTRY ANALYSIS:
The importance of industry analysis is now dawning on the Indian investor as never
before. It is very important to analyze the health of an industry because no company is
operating in isolation. Analysis of an industry can be performed using the tools like:
Industry Life Cycle
The first step in industry is to determine the cycle it is in, or the stage of maturity of the
industry. All industries evolve through the following stages:
1.
2.
3.
4.
Introduction
Growth
Maturity
Decline
SWOT Analysis
SWOT analysis of an industry gives an investor the overall picture about the industry. A
scan of the internal and external environment is an important part of the strategic planning
process. Environmental factors internal to the firm usually can be classified as strengths (S)
or weaknesses (W), and those external to the firm can be classified as opportunities (O) or
threats (T). Such an analysis of the strategic environment is referred to as a SWOT analysis.
4.3.
COMPANY ANALYSIS:
Company analysis is the final stage of fundamental analysis. The economy analysis
provides the investor a broad outline of the prospects of growth in the economy. The industry
analysis helps the investor to select the industry in which investment would be rewarding.
Now he has to decide in which company he has to invest. Company analysis provides the
answer to this question.
In company analysis the investor tries to predict the future earnings of the company
because there is strong evidence that the earnings have a strong effect on the share prices. The
level, trend and safety of earnings of a company, however depend upon a number of factors
concerning the operations of the company.
The different issues regarding a company that should be examined are:
The Management
The Company
The Annual Report
Ratios
Cash flow
The Management:
Management is the most important factor that should be first looked into in a company.
The performance of a company is primarily dependant on the effectiveness of the
management.
Investors must check on the integrity of the managers, proven competence, rating among
its peers, its performance at the time of adversity, its depth of knowledge, innovation and
professionalism.
The Company:
It is most important to understand the company because ultimately the profitability
depends on the business it is into. Many factors are considered here including the products
and services, its competitors, competitive advantage, market position, policies, etc.
The Annual Report:
The annual report is the primary and most important source of information on a
company. By law, this is prepared every year and distributed to the shareholders. It contains
very important information relating to the performance of a company over a period of time.
The Annual Report is broken down into the following specific parts:
A) The Director's Report,
B) The Auditor's Report,
C) The Financial Statements, and
D) The Schedules and Notes to the Accounts.
A. The Directors Report
The Directors Report is a report submitted by the directors of a company to its shareholders,
advising them of the performance of the company under their stewardship. A Directors
Report is valuable and it gives information relating to the workings of a company, the
problems it faces, the direction it intends taking, and its future prospects.
B. The Auditor's Report
The auditor represents the shareholders and it is his duty to report to the shareholders and the
general public on the stewardship of the company by its directors. Auditors are required to
report whether the financial statements presented do, in fact, present a true and fair view of
the state of the company. The auditors are their representatives and that they are required by
law to point out if the financial statements are not true and fair. They are also required to
report any change, such as a change in accounting principles or the non provision of charges
that result in an increase or decrease in profits.
C. Financial Statements
The published financial statements of a company in an Annual Report consist of its
Balance Sheet as at the end of the accounting period detailing the financing condition of the
company at that date, and the Profit and Loss Account or Income Statement summarizing the
activities of the company for the accounting period.
Balance Sheet
The Balance Sheet details the financial position of a company on a particular date; of
the company's assets (that which the company owns), and liabilities (that which the company
owes), grouped logically under specific heads. It must however, be noted that the Balance
Sheet details the financial position on a particular day.
Cash Flows:
A statement of sources and uses begins with the profit for the year to which are added
the increases in liability accounts (sources) and from which are reduced the increases in asset
accounts (uses). The net result shows whether there has been an excess or deficit of funds and
how this was financed. Investors must examine a company's cash flow as it reveals exactly
where the money came from how it was utilized. Investors must be concerned if a company is
financing either its inventories or paying dividends from borrowings without real growth as
that shows deterioration.
Ratios:
A ratio is an arithmetical expression of relationship between two variables of the
financial statements. It helps in easy comparison. The comparison may be intra firm or inter
firm. A glance at the ratios of the company gives the complete information about the
company to an investor.
There are many ratios one can calculate and no single ratio can tell the complete story.
Ratios are generally classified as:
(A) Liquidity Ratios:
Liquidity ratios are the ratios which are used to measure the short term liquidity
position of a firm. Some of the commonly used liquidity ratios are Current Ratio,
Acid Test Ratio, Absolute Liquidity Ratio, etc.
(B) Solvency Ratios:
These are the ratios that are used to measure the long term solvency position of a
firm. These ratios are generally looked into by creditors of the companies. The
common solvency ratios are Debt Equity Ratio, Proprietory Ratio, Interest Coverage
Ratio, Fixed Charge Coverage Ratio, etc.
(C) Profitability Ratios:
The profitability ratios measure the overall profitability of a firm. Some of the
common profitability ratios are Gross Profit Ratio, Net Profit Ratio, Operating Profit
Ratio, Return on Equity, Return on Assets, Return on Investments, Return on Capital
Employed, etc.
(D) Activity Based Ratios:
Activity Ratios measures the efficiency of a firm. These ratios are also called as
performance ratios. Some of the commonly used ratios are Inventory Turnover ratio,
Debtors Turnover Ratio, Fixed Assets Turnover Ratio, etc.
(E) Market Based Ratios:
These ratios are usually calculated using the values in the financial statements and
the market value of the share. Some of the commonly used ratios are: Price Earnings
Ratio, Dividend Yield Ratio, Market Price to Book value Ratio, etc.
Some important ratios that are considered in this project are:
Net Profit Margin:- The Net Profit Margin measures the relationship between Net Profits
and Sales of a firm. This ratio is indicative of managements ability to operate the business
successfully and expresses the cost effectiveness of the organization.
A high net profit margin would ensure adequate return to the owners as well as enable the firm
to withstand adverse economic conditions like falling demand, rising costs, etc. while a low net
profit margin has the opposite implications.
Debt-Equity Ratio:- This ratio is used to find out the long term solvency position of the
firm.
Debt Equity Ratio=
This ratio serves of primary use to the creditors of the company. This ratio is also used by the
investors to know their claim in the company.
Return on Equity:- This ratio expresses the profitability of a firm in relation to the equity
shareholders funds.
Return on Equity=
This is the single most important ratio to judge whether the firm has earned satisfactory return
to the equity shareholders or not.
Earnings Per Share (EPS):- This ratio measures the profit available to the equity
shareholders on a per share basis, that is the amount they can get on every share held. It is the
most widely used ratio by investors.
Price Earnings (P/E) Ratio:- The P/E Ratio reflects the price currently paid by the investor
for each rupee of the reported EPS.
Market Price per share
Price Earnings Ratio=
Earnings Per Sahre
It measures the investors confidence in the firms future. The higher the ratio, the larger is the
investors confidence in the firms future.
Dividend Per Share (DPS):- This ratio shows the profits that are paid to equity shareholders
on a per share basis
Dividend Paid
Dividend Payout Ratio:- This ratio measures the relationship between the earnings
belonging to the equity shareholders and the dividends paid to them.
Dividend Paid
Profits belonging
Divid end Payout Ratio= Equity Shareholders Equity Shareholders x 100
If the Dividend Payout Ratio is subtracted from 100 it shows the Earnings Retention Ratio,
which shows the profits retained in the business.
Dividend Yield Ratio:- This ratio reflects the price paid by the investor for each rupee of the
dividend paid.
Dividend Yield Ratio=
This ratio is very significant from the point of view of those investors who are interested in
dividend income.
Book Value Per Share:- Book value per share represents the claim of the shareholders on a
per share basis. This ratio is sometimes used as a benchmark for comparison with the Market
price per share.
Book Value Per Share=
Net Worth
No . of Equity Shares Outstanding
Technical analysis is a security analysis technique that claims the ability to forecast the
future direction of prices through the study of past market data, primarily price and volume.
In its purest form, technical analysis considers only the actual price and volume behavior of
the market or instrument.
Technical analysis mainly seeks to predict the short term price travels. Technical analysts
do not attempt to measure a security's intrinsic value, but instead use charts and other tools to
identify patterns that can suggest future activity.
The basic assumptions of technical analysis are:
The market discounts everything: technical analysis assumes that, at any given
time, a stock's price reflects everything that has or could affect the company including fundamental factors. This only leaves the analysis of price movement for a
particular stock in the market.
Price moves in trends: In technical analysis, price movements are believed to follow
trends. This means that after a trend has been established, the future price movement
is more likely to be in the same direction as the trend than to be against it. Most
technical trading strategies are based on this assumption.
History tends repeats itself: Another important idea in technical analysis is that
history tends to repeat itself, mainly in terms of price movement. The repetitive nature
of price movements is attributed to market psychology; in other words, market
participants tend to provide a consistent reaction to similar market stimuli over time.
Technical analysis uses chart patterns to analyze market movements and understand
trends.
5.1. Price Charts
A chart is simply a graphical representation of a series of prices over a set time frame.
Technical analysis uses various kinds of charts to show the movement of prices over a period
of time. The charts that are most commonly used for technical analysis are:
Line Charts
Bar Charts and
Candlestick Charts
Line Chart:
Line Chart is the most common and simple charts as it considers only the closing prices
of the stocks and ignores other values such as open, close, etc. The line chart is drawn by
connecting the closing prices of a stock over a period of time. The above figure shows the
line chart for the Reliance Industries Limited for 3 months period (April to June 2010)
Bar Chart:
The chart is made up of a series of vertical lines and two small horizontal lines, one to the
left and another to the right. The vertical line represents the high and low for the trading
period, along with the small horizontal line on the left to show the open price and another on
the right side to show the closing price. The above figure shows the bar chart for Reliance
Industries Limited for 3 months period (April- June 2010).
Candlestick Chart:
Similar to a bar chart the candlestick chart also shows all the information like high, low,
open and close prices of the stock the only difference being the way it is visually constructed.
Usually traders feel that candlestick charts are easy to read because it clearly shows the
relationship between the opening and closing prices of a security. If the closing price is more
than the opening price the candle is shaded white. Conversely the candle is shaded black if
the closing price is less than the opening price.
The above figure shows the Candlestick price chart of Reliance Industries Limited for a
period of 3 months (April- June 2010) and also the patterns of candle sticks.
5.2.
Volume:
Volume refers to the number of shares or contracts that are traded over a given period of
time. Usually a price chart is presented along with the volume which is represented by
volume bars. The higher the volume, the more active the security is. Volume is an important
aspect of technical analysis because it is used to confirm trends and chart patterns.
Any price movement up or down with relatively higher volume is seen as stronger and
more relevant move than a similar move with weak volume.
5.3.
Trends:
Trend refers to the direction in which a security or the market is moving. In technical
analysis, it is the movement of the highs and lows that constitutes a trend.
Trends are generally classified into:
Uptrend:
A trend is considered to be uptrend if each successive high and low is more than the high and
low of the previous day. This is also called as bullish trend. In other words in an uptrend the
prices makes a series of higher highs and higher lows.
Downtrend:
A trend is said to be downward if each successive high and low is lesser than that of the
previous day. Downward trend is also called as Bearish Trend. In other words in a downtrend
prices makes a series of lower highs and lower lows.
Sideways/ Horizontal Trend: A trend is considered to be sideways if there is small
changes in the highs and lows
.
To clearly show a trend a line is drawn in the price chart. This line is called as a trendline. An
upward trendline is drawn at the lows of an uptrend. A downward trendline is drawn at the
highs of a downtrend.
5.4.
Support: Support refers to the price level beyond which the prices will not fall. It is the level
at which buyers take control over the markets and prevents the price from falling further. In
the above figure we can see that the support level is established at Rs.30.30
Resistance: Resistance refers to the price level beyond which the prices will not go up. It is
the levels at which the sellers will take control over the market and prevents the price from
rising further. In the above figure we can see that the resistance is established at Rs.31.90.
Role Reversal:
Once a resistance or support level is broken, its role is reversed. If the price falls below a
support level, that level will become resistance. If the price rises above a resistance level, it
will often become support. In the above figure we can see that the Support at Rs.51 has
become the resistance level on a later stage.
5.5.
Technical indicators:
Technical indicators are mathematical formulas that, when applied to security prices,
clearly flash either buy or sell signals. Price data includes any combination of the open, high,
low or close over a period of time and most of the indicators use only the closing prices.
For analysis purposes, technical indicators are usually shown in a graphical form above or
below a security's price chart. Once shown in graphical form, an indicator can then be
compared with the corresponding price chart of the security. Sometimes indicators are plotted
on top of the price plot for a more direct comparison.
A technical indicator offers a different perspective from which to analyze the price action.
Some, such as moving averages, are derived from simple formulas and are relatively easy to
understand while some such as MACD uses complex formulas and are difficult to
understand.
Technical indicators offer many uses such as:
To confirm the trends
To generate Buy/Sell Signals
To predict the direction of future prices.
The technical indicators can be broadly classified into leading indicators and lagging
indicators. The leading indicators are those indicators which are designed to lead price
movements. The most common leading indicators are RSI and ROC.
Lagging indicators are those indicators which follow price action and are commonly
referred to as trend following indicators. Some of the most common lagging indicators are
Moving Averages and MACD.
Some of the most common technical indicators that are used in this project are:
1.
2.
3.
4.
Moving Averages
Moving Average Convergence Divergence (MACD)
Relative Strength Index (RSI)
Rate of Change (ROC)
1. Moving Averages:
The moving averages are the most common and widely used technical indicators
because of their simplicity. Moving averages are formed by calculating the average price of a
security over a period of time. Moving averages smooth the price data to form a trend
following indicator. They do not predict price direction, but rather define the current direction
with a lag. Moving averages form the building blocks for many other technical indicators
including MACD.
The most popular moving averages are:
i.
ii.
Simple Moving Average (SMA): A simple moving average is formed by computing the
average price of a security over a specific number of periods. Most moving averages are
based on the closing prices. A 5-day simple moving average is the five day sum of closing
prices divided by five. As its name implies, a moving average is an average that moves. Old
data is dropped as new data comes available. This causes the average to move along the time
scale.
In the above diagram the SMA (15) and EMA (15) are plotted where we can see that the
EMA responds faster to recent price changes than SMA.
The length of the moving average depends on the analytical objectives. Short moving
averages (5-20 periods) are best suited for short-term trends and trading. Chartists interested
in medium-term trends would opt for 20-60 period moving averages. Long-term investors
will prefer moving averages with 100 or more periods.
Uses of Moving Averages:
The direction of the moving average conveys important information about prices. A rising
moving average shows that prices are generally increasing. A falling moving average
indicates that prices, on average, are falling. A rising long-term moving average reflects a
long-term uptrend. A falling long-term moving average reflects a long-term downtrend.
Two moving averages can be used together to generate crossover signals. A bullish
crossover occurs when the shorter moving average crosses above the longer moving average.
This is also known as a golden cross. A bearish crossover occurs when the shorter moving
average crosses below the longer moving average. This is known as a dead cross.
Moving averages can also act as support in an uptrend and resistance in a downtrend. A shortterm uptrend might find support near the 20-day simple moving average. A long-term uptrend
might find support near the 200-day simple moving average.
MACD
is
the
12-day
Positive and Negative MACD: Positive MACD indicates that the 12-day EMA is above
the 26-day EMA i.e. when the MACD Histogram is positive. This means upside momentum
is increasing. On the other hand, Negative MACD indicates that the 12-day EMA is below
the 26-day EMA i.e. when the MACD Histogram is negative. This means downside
momentum is increasing.
First Average Gain = Total of Gains during the past 14 periods / 14.
The second, and subsequent, calculations are based on the prior averages and the current gain
loss:
RSI Signals:
The stock is considered to be overbought if RSI goes above 70. Since the stock is
overvalued, it is the right time to sell the stock and make profits
Conversely, a stock is considered to be oversold if RSI falls below 30. Since the stock
is undervalued, it is the right time to buy the stock.
A RSI reading above 50 is bullish as the average gains are more than the average
losses. On the other hand a reading below 50 is considered to be bearish.
A bearish divergence occurs when stock makes a higher high and the RSI makes a
lower high
A bullish divergence occurs when stocks makes a lower low while RSI makes a
higher low.
4. Rate of Change:
The Rate-of-Change (ROC) indicator, which is also referred to as simply Momentum, is a
pure momentum oscillator that measures the percent change in price from one period to the
next. The value of ROC oscillates around a central zero-point level. To calculate ROC a set
period is used to compare with todays price. The most popular periods used are 10, 12 and
25 days.
The figure above shows the prices and Rate of Change for a period of 7 months.
Calculation:
ROC = [(Close - Close n periods ago) / (Close n periods ago)] * 100
Where n=10, 12 or 25 days.
ROC Indicators:
ROC indicator which is at a high peak and starting to move down is an indication of a
sell signal, whereas an ROC at a low peak, but staring to move upward, is a buy
signal.
A movement toward the zero line indicates that the existing trend is losing
momentum.
ROC moving from above zero to below zero level is an indication of sell while ROC
moving from below zero to above zero level is an indication of buy.
In the Figure 1 we can see that Indias Gross Domestic Product (GDP) expanded 7.90%
over the last 4 quarters. Its diverse economy encompasses traditional village farming, modern
agriculture, handicrafts, a wide range of modern industries, and a multitude of services. The
economy has posted an average growth rate of more than 7% in the decade since 1997.
The Indian economy faced significant slowdown in growth momentum in 2008-09, driven
by a severe downturn in the global economy. The key shock to Indias growth has come from
external sources, largely by way of lower exports and a marked reduction in inflow of foreign
capital. The industrial sector has been the largest casualty of the marked slowdown in both
investment and imports, slowing from a growth rate of 8.5% in the year ended March 31,
2008 to around 6% in the year ended March 31, 2009. Even during the economic slowdown
some of the sectors including the automobile industry have recorded a positive growth while
many nations had experienced a negative growth rate.
The Figure 2 shows that the two wheelers enjoy a major share in the Indian Automobile
Industry constituting 76% of the industry. While the passenger vehicles constituting for 16%
and Commercial Vehicles and Three wheelers constituting 4% each. This shows that India has
a great potential in the passenger vehicles segment which includes cars and vans because
increasing standard of living makes people to switch from two wheelers to cars.
7.2.
The Indian automobile industry is floated with both domestic and international players
making it highly competitive. The fact is that almost 8 out of 10 global companies including
General Motors, BMW, etc. have their presence in India contributing 25% of the Countrys
production.
The top 10 companies in the Indian Automobile Industry are: Maruti Suzuki India Ltd.,
Hyundai Motor India Ltd., Tata Motors, Mahindra & Mahindra Ltd., Hero Honda Motors
Ltd., Bajaj Auto, General Motors Pvt. Ltd., Honda Siel Cars India Ltd., Toyota Kriloskar
Motor Pvt. Ltd., and Ashok Leyland respectively.
Many companies are present in more than one segment of the industry. For example Tata
Motors is present in HCVs, LCVs, MUVs and Passenger Cars.
7.3.
economy. In the last decade their share in the Indian economy is around 5% of GDP.
Economic progress is indicated by the amount of goods and services produced which give
the impetus for transportation and boost the sale of vehicles. Increase in automobile
production has a catalyst effect by indirectly increasing the demand for a number of raw
materials like steel, rubber, plastics, glass, paint, electronics and services. An interesting fact
is that the industry accounts for 7% of the total steel consumption.
Since transportation is the nerve center of every other industry, the well being of the
automobile industry is a good indicator of the health of the economy and every piece of
infrastructure development in the country stimulates the demand for automobiles.
Economic studies have shown that every truck manufactured creates anywhere between
eight to twelve jobs and a bus would create around seven, which would include salespeople,
drivers, mechanics, cleaners and servicing staff.
7.4.
Automobile Exports:
800000
600000
400000
200000
7.5.
10
20
09
-
09
20
08
-
08
20
07
-
07
20
06
-
06
20
05
-
20
04
-
20
03
-
04
05
7.6.
The automobile industry in India is in its growth stage at an accelerating rate of sales and
earnings growth. The industry is booming at a growth rate of around 18%. The demand for
automobiles in the country is rising continuously. Only one car is available per thousand
people in India which shows that the passenger vehicles segment has good prospects of
growth.
7.7.
1. Barrier to Entry: The barriers to enter automotive industry are substantial. For a new
company, the startup capital required to establish manufacturing capacity to achieve
minimum efficient scale is prohibitive. Although the barriers to new companies are
substantial, establishing companies are entering the new markets through strategic
partnerships or through buying out or merging with other companies. However, a
domestic company, with local knowledge and expertise, has the potential to compete
its home market against the global firms who are not well established there.
2. Threat of Substitutes: The threat of substitutes to the automotive industry is fairly
mild. Numerous other forms of transportation are available, but none offer the utility,
convenience, independence and value offered by automobiles. The switching cost
associated with using a different mode of transportation, may be high in terms of
personal time, convenience and utility.
3. Bargaining Power of Suppliers: In the relationship between the industry and its
suppliers, the power axis is tipped in industrys favor. The industry is comprised of
powerful buyers who are generally able to dictate their terms to the suppliers.
4. Bargaining Power of Customers: In the relationship between the automotive
industry and its ultimate consumers, the power axis is tipped in the consumers favor.
This is due to the fairly standardized nature and the low switching costs associated
with selecting from among competing brands.
5.
Rivalry among Competitors: Despite the high concentration ratio seen in the
automotive sector, rivalry in the Indian auto sector is intense due to the entry of
foreign companies in the market. The industry rivalry is extremely high with any
being product being matched in a few months by the competitors. This instinct of the
industry is primarily driven by technical capabilities acquired over years of gestation
under the technical collaboration with international players.
7.8.
SWOT Analysis:
Strengths:
Large Domestic Market: India has the largest domestic market which is not fully
exploited. In specific, the passenger vehicles segment has a bright scope in the
coming years.
Cost Advantage: India enjoys lower labor cost of $ 8 per hour of skilled labor while
the labor cost of other developed countries is around $ 20 per hour. The cost of
creating an automotive design is very economical in India ($60 per hour) when
compared to Europe and US (around $800 per hour)
Engineering Skills: India has a strong competitive advantage in design and
engineering skills when compared to other low cost economies. India is the ninth
Weaknesses:
Research & Development: Even though there is a development in R&D, Indian
R&D is not competitive with the other countries. The industry should improve its
R&D.
Infrastructure Facilities: India is lacking proper infrastructure facilities. Many
companies view that the cost advantages in India is being eroded because of its bad
infrastructure facilities.
Low Labor Productivity: The labor productivity in the country is low when
compared to the developed countries. This is mainly because of huge unskilled labor
force.
High Interest Costs: High interest costs and other overheads make the competition
unproductive.
Taxes: Various kinds of taxes push up the costs and hence companies are forced to
operate under low profit margins.
Opportunities:
Increasing Disposable Income: With the economy on a high growth path on a
secured long-term basis and with the consequent increase in disposable incomes of the
population at large, the Indian automotive industry is expected to provide significant
growth opportunities.
Vehicle Switchovers: Passenger Cars segment have a bright scope because people are
switching from two wheelers to Cars as a result of increased personal disposable
income and rising standards of living.
Infrastructure Development Stirs Demand: The increased investments in
infrastructure required to maintain the high growth of the Indian economy such as
the National Highway Development Programme with a huge budget - and the
increased goods movement in a fast growing economy would result in a high demand
for commercial vehicles.
Rising Rural Demand: There is a greater change in the rural consumers spending
pattern and demand levels because of increasing levels of disposable income.
Threats:
Integration of Indian Economy with Global Economy: With the growing
integration of the Indian economy with the Global economy, events around the world
have a direct or indirect impact on the Indian automobile industry. In particular,
Indian financial markets are highly integrated to global financial markets. As a result,
liquidity and availability of credit, an important facilitator for automobile and tractor
sales in the Indian market, will be impacted by conditions in the Global markets.
Pollution and Emission Controls: Stringent legislation on pollution and emission
requirements will increase the cost of the Companys products for the Automotive
Sector. Holding the price line could have an impact on profitability. Price increases on
the other hand could impact volumes.
Increased Competition: The entry of new players will result in ever increasing levels
of competition in all the segments of the automobile industry, resulting in intense
pressure on the profit margins of all participants
Sector
Automobile
CMP
Rs 627.35 (2.19%)
NIFTY
5312.5 (1.07%)
Mkt. Capn.
Rs. 35464.74 Cr
Face Value
Rs.5.00
BSE Code
500520
NSE Code
M&M
Promotors
Private Corporates
9%
26%
Foreign Investors
Institutions
8%
52 week
High/Low
General Public
32%
Rs.645.00/Rs.322.05
Key Points:
The company is one of the top Tractor selling brands in the world.
The company has a huge market share for its tractors and passenger cars.
The company is planning to invest Rs.250Cr. in Aerospace
The group is going to decide on bidding to acquire Korean SUV Maker Ssangyong
Motor by July.
The company is going to market many new variants in its motorcycle segment by the
end of the year.
The companys foray into the electronic vehicles segment is having a greater future
growth prospects.
The company plans to open 300 outlets in various parts of the country in the next 3
years.
The Mahindra Group:
The Mahindra & Mahindra, a company established in the year 1945 as a franchise for
assembling Jeeps now a US $7.1 billion Indian multinational employing over 1 lakh people
across the globe. The Mahindra Group today is an embodiment of global excellence and
enjoys a strong corporate brand image. The company enjoys a leadership position in utility
vehicles, tractors and information technology, with a significant and growing presence in
financial services, tourism, infrastructure development, trade and logistics.
The Management:
The Mahindra Group is being managed by eminent persons from various industries who
bring diverse experience and expertise to the Board. The present group is headed by Mr.
Keshub Mahindra as the Chairman and Mr. Anand G. Mahindra as the Vice Chairman
Managing Director.
Mahindra & Mahindra Limited:
The Mahindra & Mahindra Ltd., is in the automobile business which includes:
1.
Mahindra & Mahindras foray into the three wheeler segment with Alpha and Champion
has also made it a leader in its category.
The International Operations of the Automotive Sector focuses on the international
business. Mahindra Renault (MRPL) announced the launch of Logan, Indias first wide body
car, sporting a host of class-defying features at an aggressive price.
Mahindra Navistar Automotives Ltd. (MNAL), a joint venture between Mahindra &
Mahindra Limited and International Truck and Engine Corporation, will manufacture trucks
and buses for India and export markets. It will also provide component sourcing and
engineering services to International Truck and Engine Corporation.
M&M has a growing global footprint and has established itself in markets across the world
as one of the worlds most prestigious auto brands. The emphasis is now on establishing a
solid local presence in these countries as this was the key to long-term success and building
trust with the customer. With subsidiaries in South Africa, Europe and Australia and a strong
presence in over 15 countries, it aspires to be globally renowned in Utility vehicles.
The Mahindra Group entered into the two wheeler market by acquiring the assets of
Kinetic Motor Company Limited. The company has a partnership with Taiwans Sanyang
industry Company Limited which is a leading manufacturer of two wheelers. The company
has recently made an entry into the electric vehicles segment by acquiring a major stake in
Reva.
2.
Farm Equipments Sector: The Mahindra group's Farm Equipment Sector (FES) is amongst
the top three tractor brands in the world. It has won the Japan Quality Medal in 2007. It also
holds the distinction of being the first tractor company globally to win the Deming Application
Prize in 2003. FES is the first tractor company worldwide to win these honors. This shows the
strong focus of FES on Quality and Customer Satisfaction. Today, the domestic market share
of FES is around 42%. (Mahindra brand: 30% and Swaraj brand: 12%).
FES has a subsidiary agricultural tractor manufacturing company in India known as
Mahindra Gujarat Tractor Limited (MGTL).
The international operations of the Farm Equipment Sector are spread across six
continents and in around 25 countries. FES has state-of-the-art manufacturing plants in India
and China with a combined capacity to produce more than 1,70,000 tractors a year. Besides,
these plants there are assembly plants in USA and Australia. FES has more than 1000 dealers
world-wide.
In 2008, Mahindra acquired the majority stake in 3rd largest tractor company in China,
with forming a Joint Venture (JV) with Jiangsu Yueda Yancheng Tractor Manufacturing Co.
Ltd. (Yancheng Tractor), a leading Chinese tractor manufacturer.
8.2.
Balance Sheet:
(Table 1)
Mar ' 09
Mar ' 08
Mar ' 07
Mar ' 06
Mar ' 05
272.62
239.07
238.03
233.40
116.01
4,959.26
4,098.53
3,302.01
2,662.14
1,881.93
981.00
617.26
106.65
216.68
336.82
Unsecured loans
3,071.76
1,969.80
1,529.35
666.71
715.80
Total
9,284.64
6,924.66
5,176.05
3,778.92
3,050.56
4,893.89
3,552.64
3,180.57
2,859.25
2,676.51
12.09
12.47
12.86
13.33
14.32
2,326.29
1,841.68
1,639.12
1,510.27
1,335.56
Net block
2,555.51
1,698.49
1,528.59
1,335.65
1,326.63
646.73
649.94
329.72
205.46
133.93
5,786.41
4,215.06
2,237.46
1,669.09
1,189.79
5,081.20
3,816.41
3,916.94
2,805.04
2,356.41
4,797.76
3,468.77
2,854.20
2,254.37
1,980.58
283.44
347.64
1,062.74
550.66
375.83
Sources of funds
Owner's fund
Equity share capital
Uses of funds
Fixed assets
Gross block
Less : revaluation reserve
Capital work-in-progress
Investments
Net current assets
Mar ' 09
Mar ' 08
Mar ' 07
Mar ' 06
Mar ' 05
12.55
13.53
17.55
18.05
24.38
9,284.64
6,924.66
5,176.05
3,778.92
3,050.56
4,305.50
1,429.16
1,515.23
1,419.01
1,047.67
3,218.81
7,669.90
10,285.25
2,030.85
240.83
Contingent liabilities
1,220.39
985.35
1,008.27
946.36
758.14
2726.16
2390.73
2380.33
2334.00
1116.48
(Table 2)
Mar ' 09
Mar ' 08
Mar ' 07
Mar ' 06
Mar ' 05
13,125.98
11,310.37
9,921.34
8,136.59
6,594.69
9,365.00
7,814.71
6,930.76
5,782.01
4,655.24
174.05
164.68
134.00
111.90
100.65
1,024.61
853.65
666.15
551.78
464.25
Selling expenses
575.34
804.51
635.10
458.32
369.72
Administrative expenses
937.56
561.66
466.22
387.57
317.79
Expenses capitalized
-42.83
-46.49
-47.10
-26.53
-31.84
12,033.73
10,152.72
8,785.12
7,265.04
5,875.81
1,092.25
1,157.65
1,136.22
871.54
718.88
305.98
364.05
404.87
195.82
186.46
1,398.23
1,521.70
1,541.09
1,067.36
905.34
Financial expenses
134.12
87.59
19.80
26.96
30.24
Depreciation
291.51
238.66
209.59
200.01
184.05
0.59
0.33
0.28
0.15
Adjusted PBT
972.60
1,194.86
1,311.37
840.12
690.89
Tax charges
199.69
303.40
350.10
242.40
201.50
Adjusted PAT
772.91
891.46
961.28
597.72
489.39
63.87
211.91
126.30
259.38
23.28
4.07
-19.19
840.85
1,103.37
1,068.39
857.10
512.67
Income
Operating income
Expenses
Material consumed
Manufacturing expenses
Personnel expenses
Cost of sales
Operating profit
Other recurring income
Adjusted PBDIT
Mar ' 09
Mar ' 08
Mar ' 07
Mar ' 06
Mar ' 05
3,807.00
3,228.45
2,544.13
1,853.50
1,255.52
278.83
282.61
282.23
243.97
150.81
33.23
38.48
42.50
34.22
21.15
3,494.94
2,907.36
2,219.40
1,575.31
1,083.55
Preference dividend
Dividend tax
Retained earnings
(Table 3)
Particulars
Mar ' 09
Mar ' 08
Mar ' 07
Mar ' 06
Mar ' 05
1,026.20
1,241.57
1,315.69
889.49
700.62
1,631.30
825.83
1,168.95
686.90
379.21
-1,941.00
-2,075.08
-950.39
-502.66
-174.30
696.91
811.34
418.08
-89.78
192.45
387.21
-437.91
636.64
94.47
397.36
1,174.62
1,361.79
725.15
630.69
233.33
1,561.83
923.88
1,361.79
725.15
630.69
Financial Highlights:
On looking at the balance sheet (table 1) we can see that in 2009 the debts (both
secured and unsecured) have increased by more than 50 % when compared with the
previous year. There is also a huge increase in Fixed Assets and Investments when
compared with the figures of 2008.
On looking at the income statement (table 2) we can see that the sales revenue has
increased when compared with the previous year but there is a fall in the operating
profits which is mainly because of increase in the cost of materials. As a result there is
a decrease in the Net Profits also.
On looking at the cash flow statements (table 3) we can say that the company has got
better cash flows when compared to the previous year (2008) which is mainly because
of increase in the income from operating activities.
8.3.
To better understand the financial position of the firm the following ratios are considered:
(Table 4)
Ratios
2008-09
2007-08
2006-07
2005-06
2004-05
6.22
9.45
10.34
10.28
7.56
0.83
0.62
0.53
0.40
0.60
16.03
25.51
30.33
29.78
25.97
30.69
46.15
44.88
36.72
45.92
22.52
10.58
16.11
16.93
12.14
10.00
11.50
11.50
10.00
13.00
32.58
24.92
25.62
27.23
28.31
1.45
2.35
1.59
1.61
2.33
191.45
180.87
147.98
123.29
176.77
(figure 5)
0.9
0.83
0.8
0.7
0.6
0.6
0.5
0.62
0.53
0.4
0.4
0.3
0.2
0.1
0
2004-05
2005-06
2006-07
2007-08
2008-09
Inference: The Debt-Equity Ratio is the ratio between outsider funds and owners funds. A
Debt-Equity ratio of 1:2 represents high safety margin to the creditors. In the figure 5 we can
see that the Debt-Equity Ratio is increasing since 2005-06 which means that the debt is
increasingly used for every rupee of own funds.
2. Return on Equity:
(figure 6)
35
30
29.78
30.33
25.97
25.51
25
Return on Equity (%)
20
16.03
15
10
2004-05 2005-06 2006-07 2007-08 2008-09
Inference: The Return on Equity Ratio measures the returns on the equity funds employed by
the business. The figure 6 shows that the company made lesser and lesser returns on the
equity funds employed in the business since 2006-07.
3. Price Earnings Ratio:
(figure 7)
25
20
15
12.14
22.52
16.93
16.11
10.58
10
5
0
2004-05 2005-06 2006-07 2007-08 2008-09
Inference: This ratio brings out the relationship between the current prices and the EPS. It
shows the amount an investor is willing to pay per rupee of the earnings of the company. In
the figure 7 we can see that in the year 2009 the investor is ready to pay Rs.22.52 per rupee of
earnings. There is a rise in P/E ratio in spite of a fall in the EPS.
(figure 8)
14
13
11.5
12
11.5
10
10
10
6
2004-05 2005-06 2006-07 2007-08 2008-09
Inference: This ratio shows the earnings that are distributed to the equity shareholders on a
per share basis. The figure 8 above shows that the company has declared less dividends in
2009 when compared with the previous years of 2007-08 and 2006-07.
5. Dividend Payout Ratio:
(figure 9)
35
32.58
30
28.31
27.23
25.62
25
24.92
20
2004-05 2005-06 2006-07 2007-08 2008-09
Inference: This ratio shows the percentage of profits earned that are distributed as dividends
to equity shareholders. In the figure 9 we can see that the company has been declaring lesser
and lesser percentage of earnings as dividends till 2007-08. In the year 2008-09 the company
declared the highest percentage of the earnings as dividends.
6. Dividend Yield Ratio:
(figure 10)
2.35
2.5
2.33
2
1.61
1.59
1.45
1.5
0.5
0
2004-05 2005-06 2006-07 2007-08 2008-09
Inference: This ratio compares the dividends and the Market Prices of the shares. This ratio
shows what the investor gains if he buys the shares for the Market Price. In the figure 10 can
see that the Dividend Yield Ratio is not moving with the DPS ratio because the dividend yield
ratio also compares the Market Price. The Dividend Yield Ratio will be very low in spite of
high DPS if the Market Prices of the shares are very high.
7. Book Value Per Share:
(figure 11)
200
191.45
180.87
176.77
180
160
147.98
140
123.29
120
100
2004-05 2005-06 2006-07 2007-08 2008-09
Inference: This ratio shows the claim of the shareholders on a per share basis. This ratio
shows the worth of a share according to the books. From the figure 11 we can see that the
Book value per share is increasing since 2005-06.
8.4.
1. Moving Averages:
Exponential Moving Average (EMA)
(figure 12)
In the above chart two smoothing curves are drawn along with the price curve. EMA 20
represents the 20 day exponential moving average (fast moving average) while EMA 100
represents the 50 day exponential moving average (slow moving average). The purpose of
this chart is to identify the price trend and to identify trading signals.
Trend Identification: The moving averages are used to find the trend of the stock.
The direction of moving average is used to find the trend. If the moving average is
rising, the trend is considered Up. If the moving averages are falling the trend is
considered to be Down.
Price location. The location of the price relative to the moving
average can be used to determine the basic trend. If the price is
above the moving average, the trend is considered up. If the price is
below the moving average, the trend is considered down.
The third technique for trend identification is based on the location
of the slow moving average relative to the fast moving
average. If the fast moving average is above the slow moving
average, the trend is considered up. If the fast moving average is
below the slow moving average, the trend is considered down.
Trading Signals: Two moving averages are used to find the trading signals.
A BUY signal is generated if the faster moving average crosses above the slower
moving averages.
A SELL signal is generated if the faster moving average crosses below the slower
moving average.
Inference:
From the figure 12 we can see that:
Both the EMA 20 and EMA 50 are rising
The price is located above both the moving averages
The EMA 20 (fast moving average) is above the EMA 50 (slow moving average)
Hence the trend of Mahindra & Mahindra is considered Upward or Bullish.
The following trading signals were identified in the chart:
SELL signals were identified during the Mid February and Mid April periods when
the EMA 20 crossed below the EMA 50. We can also notice that the prices fell during
these signals were generated
BUY signals were identified during the beginning of March, beginning of May and
end of May when EMA 20 crossed above EMA 50. We can also find that the prices
rose during the period when the signals were identified.
As these signals identified late these signals can be used in the future period if the
trend repeats.
(figure 13)
In the above chart the price line and the 14 day RSI line are plotted. The RSI line shown at
the bottom of the chart is used to identify the overbought and over sold situations. If RSI
crosses above 70 level the stock is considered to be oversold and so there are chances for
trend reversal. If the RSI falls below 30 level the stock is considered to be oversold and hence
undervalued. So there are chances for a trend reversal. An RSI between 50 and 70 is
considered bullish while below 50 is considered to be bearish.
Inference: The various overbought and oversold conditions in the figure 13 are identified
using and marks respectively.
In the figure we can also see that the RSI level is above 50 and is also rising. This shows that
there is a bullish momentum.
(figure 14)
The rate of change is a pure momentum oscillator which shows the rate of change in
prices of the stock over a fixed period of time. In the above chart the price line is shown at
the top and 10 days Rate of Change is shown at the bottom.
The ROC value oscillates above and below zero levels which shows the percentage
change in the price. These values are also used to find the overbought and oversold
conditions. Generally the ROC value above 10 is considered to be overbought and below 10
is considered to be oversold. An ROC value above zero or moving from below to above zero
level is considered to be bullish. It is considered bearish when the ROC value goes below
zero or when it moves from above zero to below zero level.
Inference: From the figure 14 we can see that the ROC value is increasing after touching the
zero value. Hence the momentum is considered bullish.
(figure 15)
The price curve and the MACD curve (red line) are plotted on the figure 15. The MACD
chart is plotted along with the MACD signal line (blue line) and MACD histogram (black
shaded region). The chart is plotted to identify the strongest momentum i.e. bullish or bearish.
This can be identified using signal line crossovers and centerline crossovers.
Signal line crossovers: It is considered bullish if the MACD line crosses above the
signal line (its nine day EMA). If the converse happens it is considered bearish
Centerline Crossovers: It is considered bullish if MACD crosses above the centerline.
If the converse happens the momentum is considered bearish.
MACD indicator is highly volatile and hence it is always considered along with other
indicators.
Inference:
The various Bullish and bearish signals are identified in the figure 15 using
and
marks respectively.
In the above chart we can see that at the end of June the MACD curve is below its
signal line. Even though the MACD shows a bearish crossover we can see that the
MACD is above zero line and the price is in increasing since many days and has
established a support.
Sector
Automobile
CMP
NIFTY
5312.50(+1.07%)
Mkt. Capn.
Rs. 44332.71 Cr
Promotors
9%
Private Corporates
FIIs/NRIs
37%
29%
Face Value
Rs.1.00
BSE Code
500570
NSE Code
TATAMOTORS
52 week High/Low
Rs.882.70/Rs.254.10
Institutions
General Public1%
24%
Key Points:
The company is considering raising Rs25bn via equity or FCCB to trim debt pile.
The Company is planning to launch Nano in Thailand.
The company is about launch four new variants of its LCVs.
The company is going to increase the production of Nano Cars by this year.
Jaguar Land Rover (JLR), a Tata Motors company, is planning to set up a national
Started in the year 1868 as a private trading firm, today the Tata Group is the Indias
largest conglomerate with revenues of $70.8 bn in the financial year ending March 31, 2009.
Its 28 publicly listed companies have a combined market capitalization which is one of the
highest among all business houses in India and a shareholder base of over 3.5 million. Group
companies export products and services to over 85 countries and have operations in over 80
countries.
The Tata Group includes 88 companies ranging from consumer products, hotels to steel,
energy, IT sector, Telecom, finance, automobiles, chemicals, retail, etc.
The Company:
Tata Motors Limited is India's largest automobile company, with consolidated revenues of
Rs. 92,519 crores (USD 20 billion) in 2009-10. It is the leader in commercial vehicles in each
segment, and among the top three in passenger vehicles with winning products in the
compact, midsize car and utility vehicle segments. The company is the world's fourth largest
truck manufacturer, and the world's second largest bus manufacturer.
Tata Motors, the first company from India's engineering sector to be listed in the New
York Stock Exchange (September 2004), has also emerged as an international automobile
company. Through subsidiaries and associate companies, Tata Motors has operations in the
UK, South Korea, Thailand and Spain. Among them is Jaguar Land Rover, a business
comprising the two iconic British brands that was acquired in 2008. In 2004, it acquired the
Daewoo Commercial Vehicles Company, South Korea's second largest truck maker.
The company's commercial and passenger vehicles are already being marketed in several
countries in Europe, Africa, the Middle East, South East Asia, South Asia and South America.
It has franchisee/joint venture assembly operations in Kenya, Bangladesh, Ukraine, Russia,
Senegal and South Africa.
In January 2008, Tata Motors unveiled its People's Car, the Tata Nano, which India and
the world have been looking forward to. The Tata Nano has been subsequently launched, as
planned, in India in March 2009. A development, which signifies a first for the global
automobile industry, the Nano brings the comfort and safety of a car within the reach of
thousands of families. The standard version has been priced at Rs.100,000 (excluding VAT
and transportation cost).
Products:
The company produces passenger vehicles, utility vehicles, trucks, commercial passenger
vehicles, defence vehicles.
The Management:
Mr. Ratan N Tata, Chairman
Mr. PM Telang, Managing Director-India Operations
9.2.
1. Balance Sheet:
(table 5)
Mar ' 09
Mar ' 08
Mar ' 07
Mar ' 06
Mar ' 05
514.05
385.54
385.41
382.87
361.79
11,855.15
7,428.45
6,458.39
5,127.81
3,749.60
Secured loans
5,251.65
2,461.99
2,022.04
822.76
489.81
Unsecured loans
7,913.91
3,818.53
1,987.10
2,114.08
2,005.61
25,534.76
14,094.51
10,852.94
8,447.52
6,606.81
13,905.17
10,830.83
8,775.80
7,971.55
6,611.95
25.07
25.51
25.95
26.39
6,259.90
5,443.52
4,894.54
4,401.51
3,454.28
Net block
7,620.20
5,361.80
3,855.31
3,543.65
3,157.67
Capital work-in-progress
6,954.04
5,064.96
2,513.32
951.19
538.84
12,968.13
4,910.27
2,477.00
2,015.15
2,912.06
10,836.58
10,781.23
10,318.42
9,812.06
7,248.88
12,846.21
12,029.80
8,321.20
7,888.65
7,268.80
-2,009.63
-1,248.57
1,997.22
1,923.41
-19.92
2.02
6.05
10.09
14.12
18.16
25,534.76
14,094.51
10,852.94
8,447.52
6,606.81
12,358.84
4,145.82
2,117.86
1,648.57
2,480.15
558.32
2,530.55
1,323.08
1,550.00
1,260.05
Contingent liabilities
5,433.07
5,590.83
5,196.07
2,185.63
1,450.32
5140.08
3855.04
3853.74
3828.34
3617.52
Sources of funds
Owner's fund
Equity share capital
Total
Uses of funds
Fixed assets
Gross block
Less : revaluation reserve
Investments
Net current assets
(table 6)
Mar ' 09
Mar ' 08
Mar ' 07
Mar ' 06
Mar ' 05
25,660.67
28,767.91
26,664.25
20,088.63
17,199.17
19,039.41
20,931.81
19,529.88
14,376.11
12,101.28
Manufacturing expenses
1,171.59
1,230.14
1,200.36
929.82
830.45
Personnel expenses
1,551.39
1,544.57
1,367.83
1,143.13
1,039.34
Selling expenses
1,224.15
1,179.48
1,068.56
759.54
598.75
Administrative expenses
1,867.05
1,982.79
1,488.16
1,042.52
911.73
-916.02
-1,131.40
-577.05
-308.85
-282.43
23,937.57
25,737.39
24,077.74
17,942.27
15,199.12
1,723.10
3,030.52
2,586.51
2,146.36
2,000.05
841.54
359.42
887.23
685.18
399.94
2,564.64
3,389.94
3,473.74
2,831.54
2,399.99
Financial expenses
704.92
471.56
455.75
350.24
234.30
Depreciation
874.54
652.31
586.29
520.94
450.16
51.17
64.35
85.02
73.78
67.12
Adjusted PBT
934.01
2,201.72
2,346.68
1,886.58
1,648.41
12.50
547.55
660.37
524.93
415.50
921.51
1,654.17
1,686.31
1,361.65
1,232.91
Nonrecurring items
79.75
374.75
227.15
167.23
4.04
15.29
-0.07
-1.54
1,016.55
2,028.92
1,913.39
1,528.88
1,235.41
2,399.62
3,042.75
2,690.15
2,094.54
1,601.21
311.61
578.43
578.07
497.94
452.19
34.09
81.25
98.25
69.84
63.42
2,053.92
2,383.07
2,013.83
1,526.76
1,085.60
Income
Operating income
Expenses
Material consumed
Expenses capitalized
Cost of sales
Operating profit
Other recurring income
Adjusted PBDIT
Tax charges
Adjusted PAT
Equity dividend
Preference dividend
Dividend tax
Retained earnings
(table 7)
Mar ' 09
Mar ' 08
Mar ' 07
Mar ' 06
Mar ' 05
1,001.26
2,028.92
1,913.46
1,528.88
1,236.95
1,295.02
6,174.50
2,210.13
-221.03
1,249.82
-10,644.67
-5,721.86
-2,805.10
-1.06
-956.57
8,104.70
1,132.46
303.58
-855.27
940.67
-1,244.95
1,585.10
-291.39
-1,077.36
1,233.92
2,386.77
806.21
1,118.15
2,196.79
771.12
1,141.82
2,391.31
826.76
1,119.43
2,005.04
Financial Highlights:
On looking at the balance sheet (table 5) we can see that in the year 2008-09 there is a
huge increase of above 100% in loan funds when compared to the year 2007-08.
At the same time there is also a huge increase in the investments and a marginal
increase in the fixed assets when compared with the year 2007-08.
On looking at the Profit & Loss Account (table 6) we can see that there is a decrease
in the sales revenue and increase in the cost of goods sold. This has mainly lead to the
lower profits for the year 2008-09.
We can also find some increase in the financial expenses due to huge borrowings.
On looking at the Cash Flow Statements (table 7) we can see that the company has got
a better cash flows when compared to the previous year in spite of very less generated
from operating activities and a heavy outflow on investment activities. This is because
of high amounts of cash is generated from financing activities.
9.3.
To better understand the financial position of the firm the following ratios are considered: (table 8)
Ratios
2008-09
2007-08
2006-07
2005-06
2004-05
3.77
6.96
6.94
7.35
7.02
0.49
0.49
0.31
0.41
0.59
8.09
25.98
28.00
27.81
30.21
19.48
52.63
49.65
39.94
34.19
14.93
8.09
13.50
19.90
12.44
6.00
15.00
15.00
13.00
12.50
30.80
28.50
30.21
32.55
36.56
2.06
3.52
2.24
1.63
2.94
240.60
202.70
177.33
143.58
113.15
(figure 17)
0.7
0.59
0.6
0.49
0.5
0.4
0.49
0.41
0.31
0.3
0.2
0.1
0
2004-05 2005-06 2006-07 2007-08 2008-09
Inference: The Debt-Equity Ratio is the ratio between outsider funds and owners funds. A
Debt-Equity ratio of 1:2 represents high safety margin to the creditors. In the figure 17 we
can see that the Debt-Equity Ratio for the years 2007-08 and 2008-09 is 0.49 which means
Rs.0.49 of debt is used with every rupee of own funds. The ratio of 1:2 for the last two years
shows high safety margin and low claim for the creditors.
2. Return on Equity:
35
30.21
30
27.81
(figure 18)
28
25.98
25
20
Return on Equity (%)
15
8.09
10
5
0
2004-05 2005-06 2006-07 2007-08 2008-09
Inference: The Return on Equity Ratio measures the returns on the equity funds employed by
the business. The figure 18 shows that the returns for the equity funds are very low in 200809 when compared to all the other years.
3. Price Earnings Ratio:
(figure 19)
25
20
15
12.44
10
19.9
14.93
13.5
8.09
5
0
2004-05 2005-06 2006-07 2007-08 2008-09
Inference: This ratio brings out the relationship between the current prices and the EPS. It
shows the amount an investor is willing to pay per rupee of the earnings of the company,
from the figure 19 we can see that in the year 2009 the investor is ready to pay Rs.14.93 per
rupee of earnings.
16
14
12.5
15
(figure 20)
15
13
12
Dividend Per Share
(DPS) (Rs.)
10
8
6
6
4
2004-05 2005-06 2006-07 2007-08 2008-09
Inference: This ratio shows the earnings that are distributed to the equity shareholders on a
per share basis. The figure 20 shows that the company has declared lower dividends in 2009
when compared with all other years.
5. Dividend Payout Ratio:
(figure 21)
40
36.56
35
32.55
30.8
30.21
30
28.5
25
20
2004-05 2005-06 2006-07 2007-08 2008-09
Inference: This ratio shows the percentage of profits earned that are distributed as dividends
to equity shareholders. In the figure 21 we can see that the company has been declaring lesser
and lesser percentage of earnings as dividends till 2007-08. Again in the year 2008-09 the
company declared the high percentage of earnings as dividends. This means that the company
has retained lesser profits in 2008-09.
6. Dividend Yield Ratio:
(figure 22)
4
3.52
3.5
3 2.94
2.5
2.24
2
1.5
2.06
1.63
1
2004-05 2005-06 2006-07 2007-08 2008-09
Inference: This ratio compares the dividends and the Market Prices of the shares. This ratio
shows what the investor gains if he buys the shares for the Market Price. In the figure 22 we
can see that the Dividend Yield Ratio is not moving with the DPS ratio because the dividend
yield ratio also compares the Market Price. In 2009 the dividend yield ratio is very low only
because of very low DPS.
7. Book Value Per Share:
(figure 23)
300
250
240.6
202.7
200
150
113.15
177.33
143.58
100
50
0
2004-05 2005-06 2006-07 2007-08 2008-09
Inference: This ratio shows the claim of the shareholders on a per share basis. This ratio
shows the worth of a share according to the books. From the above graph we can see that the
Book value per share is continuously increasing since 2004-05.
9.4.
(figure 24)
In the above chart two smoothing curves are drawn along with the price curve. EMA 20
represents the 20 day exponential moving average (fast moving average) while EMA 100
represents the 50 day exponential moving average (slow moving average). The purpose of
this chart is to identify the price trend and to identify trading signals.
Trend Identification: The moving averages are used to find the trend of the stock.
The direction of moving average is used to find the trend. If the moving average is
rising, the trend is considered Up. If the moving averages are falling the trend is
considered to be Down.
Price location. The location of the price relative to the moving
average can be used to determine the basic trend. If the price is
above the moving average, the trend is considered up. If the price is
below the moving average, the trend is considered down.
The third technique for trend identification is based on the location
of the slow moving average relative to the fast moving
average. If the fast moving average is above the slow moving
average, the trend is considered up. If the fast moving average is
below the slow moving average, the trend is considered down.
Trading Signals: Two moving averages are used to find the trading signals.
A BUY signal is generated if the faster moving average crosses above the slower
moving averages.
A SELL signal is generated if the faster moving average crosses below the slower
moving average.
SELL signals were identified during February and May where the EMA 20 crosses
below the EMA 50.
BUY signals were identified in the beginning of March and at the end of June.
The SELL and BUY signals are shown with and respectively.
(figure 25)
In the above chart (figure 25) the price line and the 14 day RSI line are plotted. The RSI
line shown at the bottom of the chart is used to identify the overbought and over sold
situations. If RSI crosses above 70 level the stock is considered to be oversold and so there
are chances for trend reversal. If the RSI falls below 30 level the stock is considered to be
oversold and hence undervalued. So there are chances for a trend reversal. An RSI between
50 and 70 is considered bullish while below 50 is considered to be bearish.
Inference: The various overbought and oversold conditions in the above chart are identified
using and marks respectively.
In the figure 25 we can also see that the RSI level is above 50 and is also rising. This shows
that there is a bullish momentum.
(figure 26)
The rate of change is a pure momentum oscillator which shows the rate of change in
prices of the stock over a fixed period of time. In the above chart the price line is shown at
the top and 10 days Rate of Change is shown at the bottom.
The ROC value oscillates above and below zero levels which shows the percentage
change in the price. These values are also used to find the overbought and oversold
conditions. Generally the ROC value above 10 is considered to be overbought and below 10
is considered to be oversold. An ROC value above zero or moving from below to above zero
level is considered to be bullish. It is considered bearish when the ROC value goes below
zero or when it moves from above zero to below zero level.
Inference: From the above chart (figure 26) we can see that the ROC value is in falling
below the zero level. Hence the momentum is considered bearish.
(figure 27)
The price curve and the MACD curve (red line) are plotted on the above chart. The
MACD chart is plotted along with the MACD signal line (blue line) and MACD histogram
(black shaded region). The chart is plotted to identify the strongest momentum i.e. bullish or
bearish. This can be identified using signal line crossovers and centerline crossovers.
Signal line crossovers: It is considered bullish if the MACD line crosses above the
signal line (its nine day EMA). If the converse happens it is considered bearish
Centerline Crossovers: It is considered bullish if MACD crosses above the centerline.
If the converse happens the momentum is considered bearish.
MACD indicator is highly volatile and hence it is always considered along with other
indicators.
Inference:
The various Bullish and bearish signals are identified on the chart using and marks
respectively.
In the above chart (figure 27) we can see that at the end of June the MACD curve is
above its signal line. So there is a bullish signal crossover.
Sector
Automobile
CMP
Rs 63.75 (-0.16%)
NIFTY
5312.50 (+1.07%)
Mkt. Capn.
Rs. 44759.22Cr
Face Value
Rs.1.00
BSE Code
500477
NSE Code
ASHOKLEY
52 week High/Low
Rs.70.70/Rs.28.10
Promotors
17%
Private Corporates
FIIs/NRIs
36%
26%
Institutions
General Public4%
17%
Investment Arguments:
The NHAI has awarded projects worth Rs.9000Cr to the company.
Backed by increase in industrial activity and improvement in availability of finance,
CV volumes have witnessed a robust growth in the past few months.
Going ahead we can expect the momentum to be continued as impetus by government
to improve the road infrastructure which will propel demand for goods and services.
We can expect a 15% growth in volumes for FY11 and FY12.
The impact of higher raw material costs is expected to be set off by operational
leverage.
The company has also established its presence in the northern and western regions of
the country.
The Company:
The Ashok Leyland was setup in the year 1948 in the name of Ashok Motors, a company
for assembling Austin Cars. Since then Ashok Leyland has been a major presence in India's
commercial vehicle industry with a tradition of technological leadership, achieved through
tie-ups with international technology leaders and through vigorous in-house R&D.
Ashok Leyland vehicles have built a reputation for reliability and ruggedness. In the
populous Indian metros, four out of the five State Transport Undertaking (STU) buses come
from Ashok Leyland. Some of them like the double-decker and vestibule buses are unique
models from Ashok Leyland, tailor-made for high-density routes.
Ashok Leyland has seven manufacturing plants - the mother plant at Ennore near
Chennai, three plants at Hosur (called Hosur I and Hosur II, along with a Press shop), the
assembly plants at Alwar, Bhandara and state-of-the-art facility at Pantnagar.
Ashok Leyland reached a major milestone in 1993 when it became the first in India's
automobile history to win the ISO 9002 certification. It has also become the first Indian auto
company to receive the latest ISO/TS 16949 Corporate Certification (in July 2006) which is
specific to the auto industry.
The NHAI awarded contracts worth 9000crores to the company of which 27% belongs to
South.
The Management:
R J Shahaney, Chairman
D G Hinduja, Co-Chairman
R Seshassayee, Managing Director
Associate Companies:
Joint Ventures:
Nissan Motor Company: To develop, manufacture and distribute LCVs. The JV will
launch products by 2011.
John Deere: To manufacture and market Construction Equipments. The JV will start
production by the end of 2010.
Automotive Infotronics: To develop, design and adopt Infotronics products to use in
Ashok Leyland and also to other customers.
Ashley Alteams: To produce High Pressure Dye Casting used in telecom and
automotive sectors.
Products:
The company manufactures and markets Buses, Trucks, Engines and Defence Purpose
Vehicles. It caters to both domestic and international markets.
(table 9)
--------------------------Rupees in Cr.-----------------------
Particulars
Mar ' 09
Mar ' 08
Mar ' 07
Mar ' 06
Mar ' 05
133.03
133.03
132.39
122.16
118.93
1,976.00
1,993.57
1,739.23
1,266.35
1,024.35
304.41
190.24
360.22
184.69
263.50
Unsecured loans
1,657.57
697.26
280.18
507.24
616.91
Total
4,071.01
3,014.10
2,512.02
2,080.44
2,023.69
Gross block
4,953.27
2,942.44
2,620.20
2,138.50
2,002.25
1,364.86
22.38
22.95
23.96
24.59
1,554.16
1,416.89
1,313.16
1,195.23
1,108.40
Net block
2,034.25
1,503.17
1,284.09
919.31
869.26
Capital work-in-progress
1,043.19
661.08
407.70
198.32
85.16
263.56
609.90
221.09
368.18
229.19
3,195.69
2,759.38
2,544.92
2,183.13
2,161.15
2,475.37
2,541.72
1,970.20
1,595.81
1,340.40
720.33
217.66
574.72
587.32
820.75
9.69
22.29
24.42
7.31
19.33
4,071.01
3,014.10
2,512.02
2,080.44
2,023.69
101.69
365.07
43.22
56.28
54.49
193.98
391.84
281.39
469.80
354.36
Contingent liabilities
754.37
1,783.97
1,129.49
946.29
699.23
Sources of funds
Shareholders Funds
Equity share capital
Application of funds
Fixed assets
Investments
Net current assets
--------------------------Rupees in Cr.----------------------Particulars
Number of equity shares outstanding (Lacs)
Mar ' 09
Mar ' 08
Mar ' 07
Mar ' 06
Mar ' 05
13303.38
13303.38
13238.70
12215.87
11892.94
(table 10)
---------------------------Rupees in Cr.-----------------------
Particulars
Mar ' 09
Mar ' 08
Mar ' 07
Mar ' 06
Mar ' 05
6,051.63
7,972.52
7,358.88
5,359.94
4,269.36
4,553.31
5,855.39
5,521.20
3,897.38
3,084.49
88.72
102.76
87.13
74.69
78.23
Personnel expenses
566.26
616.17
480.70
403.89
354.05
Selling expenses
316.57
194.63
170.70
117.30
76.01
Administrative expenses
64.91
399.76
413.10
326.71
254.24
Expenses capitalized
-8.20
-0.67
-0.13
-0.41
-0.81
5,581.57
7,168.04
6,672.71
4,819.56
3,846.20
470.06
804.48
686.18
540.38
423.15
62.80
70.30
63.19
42.76
43.72
Adjusted PBDIT
532.86
874.78
749.37
583.14
466.88
Financial expenses
154.27
83.63
31.82
38.37
30.40
Depreciation
178.41
177.36
150.57
126.01
121.36
0.49
0.30
0.31
0.30
Adjusted PBT
200.17
613.30
566.67
418.45
314.81
18.45
168.84
163.22
124.98
83.60
181.72
444.46
403.45
293.47
231.21
Nonrecurring items
8.27
24.85
37.83
33.85
28.05
0.26
2.96
190.25
469.31
444.25
327.32
259.26
692.53
831.00
674.62
505.73
393.19
Equity dividend
133.03
199.77
198.58
159.79
118.93
22.61
33.95
27.85
22.41
16.91
Income
Operating income
Expenses
Material consumed
Manufacturing expenses
Cost of sales
Operating profit
Other recurring income
Tax charges
Adjusted PAT
Preference dividend
Dividend tax
---------------------------Rupees in Cr.----------------------Particulars
Retained earnings
Mar ' 09
Mar ' 08
Mar ' 07
Mar ' 06
Mar ' 05
536.89
597.27
448.19
323.54
257.35
Particulars
(table
Mar ' 09
Mar ' 08
Mar ' 07
Mar ' 06
Mar ' 05
208.45
638.15
604.51
452.30
355.01
-525.58
1,065.69
499.95
322.02
447.35
-664.18
-809.68
-749.69
-133.59
-155.45
459.18
364.52
-289.38
-257.60
280.38
-730.58
620.53
-539.12
-69.17
572.28
815.73
195.20
850.32
919.49
348.19
85.15
815.73
311.21
850.32
920.47
Financial Highlights:
On looking at the balance sheet we can see that there is an increase in the fixed assets.
The loan funds has increased and there is also a fall in the value of investments
On looking at the profit and loss account we can see that the sales revenue fell by
almost 25% when compared to the sales figures of 2007-09. As a result the profits
have also reduced.
On looking at the Cash Flow Statement we can see that the cash flows of the company
are better when compared to the previous year in spite of cash lost in operating and
investing activities. This is because the company has generated inflows by financing
activities.
2008-09
2007-08
2006-07
2005-06
2004-05
3.10
5.83
5.94
6.05
6.29
0.93
0.41
0.25
0.24
0.38
9.05
22.30
23.88
23.69
24.14
1.43
3.53
3.33
2.68
2.28
57.28
14.11
15.41
20.77
10.39
1.00
1.50
1.50
1.20
1.00
69.93
42.49
45.04
44.78
43.86
1.22
3.01
2.92
2.15
4.22
2.40
15.82
13.95
11.31
9.45
(figure 29)
1
0.93
0.8
0.6
0.41
0.38
0.4
0.24
0.25
0.2
0
2004- 05 2005-06 2006-07 2007-08 2008-09
Inference: The Debt-Equity Ratio is the ratio between outsider funds and owners funds. A
Debt-Equity ratio of 1:2 represents high safety margin to the creditors. In the above graph
(figure 29) we can see that the Debt-Equity Ratio for the years 2005-09 is in rising trend
which means more and more amount of debt is used with every rupee of own funds.
2. Return on Equity:
(figure 30)
30
24.14
25
23.69
23.88
22.3
20
15
10
5
0
2004- 052005-06 2006-07 2007-08 2008-09
Inference: The Return on Equity Ratio measures the returns on the equity funds employed by
the business. The above graph (figure 30) shows that the returns for the equity funds are very
low in 2008-09 when compared to all the other years.
3. Price Earnings Ratio (P/E):
(figure 31)
70
60
57.28
50
40
30
20.77
20
10.39
10
15.41
14.11
0
2004-05 2005-06 2006-07 2007-08 2008-09
Inference: This ratio brings out the relationship between the current prices and the EPS. It
shows the amount an investor is willing to pay per rupee of the earnings of the company,
from the above chart (figure 31) we can see that in the year 2009 the investor is ready to pay
Rs.57.28 per rupee of earnings.
(figure 32)
1.8
1.6
1.5
1.5
1.4
1.2
1.2
1
1
0.8
0.6
2004-05 2005-06 2006-07 2007-08 2008-09
Inference: This ratio shows the earnings that are distributed to the equity shareholders on a
per share basis. The graph above (figure 32) shows that the company has been declaring
higher dividends during 2004-07. But in the year 2008-09 the company declared less
dividend of Re.1 per share because of reduced profits.
5. Dividend Payout Ratio:
(figure 33)
80
69.93
70
60
50
43.86
44.78
45.04
42.49
40
30
20
2004-05 2005-06 2006-07 2007-08 2008-09
Inference: This ratio shows the percentage of profits earned that are distributed as dividends
to equity shareholders. From the above graph (figure 33) we can see that the company has
been declaring higher percentage of profits as dividends except for the year 2007-08.
6. Dividend Yield Ratio:
(figure 34)
4.22
4.5
4
3.5
2.92
3
2.5
3.01
2.15
2
1.22
1.5
1
0.5
0
2004-05 2005-06 2006-07 2007-08 2008-09
Inference: This ratio compares the dividends and the Market Prices of the shares. This ratio
shows what the investor gains if he buys the shares for the Market Price. In the above chart
(figure 34) we can see that the Dividend Yield Ratio is not moving with the DPS ratio
because the dividend yield ratio also compares the Market Price. In 2009 the dividend yield
ratio is very low because of low DPS and high Market Price.
7. Book Value Per Share:
18
15.82
16
13.95
14
12
9.45
10
(figure 35)
11.31
Book Value Per Share
(Rs.)
8
6
4
2.4
2
0
2004-05 2005-06 2006-07 2007-08 2008-09
Inference: This ratio shows the claim of the shareholders on a per share basis. This ratio
shows the worth of a share according to the books. From the above graph (figure 35) we can
see that the Book Value Per Share was increasing till 2007-08 and it fell to its all time low in
2008-09 which is not healthy.
(figure 36)
In the above chart two (figure 36) smoothing curves are drawn along with the price curve.
EMA 20 represents the 20 day exponential moving average (fast moving average) while
EMA 100 represents the 50 day exponential moving average (slow moving average). The
purpose of this chart is to identify the price trend and to identify trading signals.
Trend Identification: The moving averages are used to find the trend of the stock.
The direction of moving average is used to find the trend. If the moving average is
rising, the trend is considered Up. If the moving averages are falling the trend is
considered to be Down.
Price location. The location of the price relative to the moving
average can be used to determine the basic trend. If the price is
above the moving average, the trend is considered up. If the price is
below the moving average, the trend is considered down.
The third technique for trend identification is based on the location
of the slow moving average relative to the fast moving
(figure 37)
In the above chart (figure 37) the price line and the 14 day RSI line are plotted. The RSI
line shown at the bottom of the chart is used to identify the overbought and over sold
situations. If RSI crosses above 70 level the stock is considered to be oversold and so there
are chances for trend reversal. If the RSI falls below 30 level the stock is considered to be
oversold and hence undervalued. So there are chances for a trend reversal. An RSI between
50 and 70 is considered bullish while below 50 is considered to be bearish.
Inference: The various overbought and oversold conditions in the above chart are identified
using and marks respectively.
In the above chart (figure 37) we can also see that the RSI level is above 50 and is also rising.
This shows that there is a bullish momentum.
(figure 38)
The rate of change is a pure momentum oscillator which shows the rate of change in
prices of the stock over a fixed period of time. In the above chart the price line is shown at
the top and 10 days Rate of Change is shown at the bottom.
The ROC value oscillates above and below zero levels which shows the percentage
change in the price. These values are also used to find the overbought and oversold
conditions. Generally the ROC value above 10 is considered to be overbought and below 10
is considered to be oversold. An ROC value above zero or moving from below to above zero
level is considered to be bullish. It is considered bearish when the ROC value goes below
zero or when it moves from above zero to below zero level.
Inference: From the above chart (figure 38) we can see that the ROC value is rising from
below to above zero level. Hence the momentum is considered bullish.
(figure 39)
The price curve and the MACD curve (red line) are plotted on the above chart. The
MACD chart is plotted along with the MACD signal line (blue line) and MACD histogram
(black shaded region). The chart is plotted to identify the strongest momentum i.e. bullish or
bearish. This can be identified using signal line crossovers and centerline crossovers.
Signal line crossovers: It is considered bullish if the MACD line crosses above the
signal line (its nine day EMA). If the converse happens it is considered bearish
Centerline Crossovers: It is considered bullish if MACD crosses above the centerline.
If the converse happens the momentum is considered bearish.
MACD indicator is highly volatile and hence it is always considered along with other
indicators.
Inference:
The various Bullish and bearish signals are identified on the chart using and marks
respectively.
In the above chart (figure 39) we can see that at the end of June the MACD curve is
above its signal line. So the momentum is considered Bullish.
11. FINDINGS
(figure 40)
60
50
40
EPS
30
20
10
10
09
20
09
-
08
20
08
-
07
20
07
-
20
06
-
20
05
-
06
8
7
6
5
4
3
2
1
0
Net Profit
Margin (%)
20
05
20 -06
06
20 -07
07
20 -08
08
20 -09
09
-1
0
EPS
From the above charts (figure 40) we can see that the EPS has increased considerably
in the 2009 and the net profits had recorded almost 100% growth after a fall in 200809. These show that the company has recovered from the global slowdown and started
to grow again.
The higher P/E Ratio (figure 7) shows that the investors confidence level is more
The company is a global leader in tractors and has also entered into the electronic
vehicles segment which has a bright scope in the future.
Technical Analysis:
Based on the analysis using technical indicators we can see that:
The EMA 20 and 50 are rising and indicates that the trend is bullish (figure 12)
The RSI is rising and above 50 level which indicates an upward momentum (figure 13
The ROC is above zero and rising (figure 14) which also indicates an upward
momentum.
The MACD shows a bearish signal crossover (figure 15) and is located above the zero
level. We can also see that the price is increasing since few days and has established a
support level. The price is still above the support level.
(figure 41)
EPS
60
50
40
30
20
10
0
Net Profit
Margin (%)
4
2
20
05
20 06
06
20 07
07
20 08
08
20 09
09
-1
0
07
20
07
-0
8
20
08
-0
9
20
09
-1
0
20
06
-
20
05
-
06
From the above charts (figure 41) we can see that EPS was continuously rising till
2007-08 and during the year 2008-09 the EPS was very low because of global
slowdown and acquisition of Jaguar Landrover. But in the year 2009-10 the company
again started to post more EPS.
There is also a rise in the Net Profit Margin which shows a sign of recovery.
The Book Value Per Share (figure 23) is continuously increasing which shows that the
value of shares are increasing and the rising P/E Ratio (figure 19) shows increasing
investor confidence.
Technical Analysis:
From (figure 24) we can see that the EMA 20 and EMA 50 are increasing which
shows that the current trend is upward. We can also notice that both the EMA are
moving closely which shows that the stock is highly volatile
From (figure 25) we can see that the RSI is rising and it is above 50. This shows that
the bullish momentum is stronger
In (figure 26) we can see that the ROC has gone below -10 many times which shows
that the stock is highly volatile. At the end of June we can see that the ROC is below
zero which indicates a bearish momentum.
In (figure 27) we can see that the MACD is above its signal line which shows a
bullish momentum. We can also see that the MACD is moving close to its signal line.
This is also an indicator of high volatility.
(figure 42)
4
3.5
3
2.5
2
1.5
1
0.5
0
20
05
-0
6
20
06
-0
7
20
07
-0
8
20
08
-0
9
20
09
-1
0
EPS
7
6
5
4
3
2
1
0
Net Profit
Margin (%)
20
05
-0
6
20
06
-0
7
20
07
-0
8
20
08
-0
9
20
09
-1
0
EPS
From the above chart (figure 42) we can see that the EPS was very low during the year
2008-09 and it has increased in the year 2009-10. Likewise the net profit margin also rose
from the previous year. This shows that the company has recovered from the slowdown
and is back to normal.
In spite of falling Book Value Per Share (figure 35) we can see that the investor
confidence has increased i.e. P/E Ratio (figure 31)
The company has also got a lot of projects from the government which ensures stable
returns for a few years.
Technical Analysis:
In the figure 36 we can see that both the EMA 20 and EMA 50 are rising. The
difference between them is also high. This shows that the prices are making new highs
and hence the trend is considered upward.
The figure 37 shows that the RSI is above 50 level and is rising. This shows that there
is a strong bullish momentum.
The figure 38 shows that the ROC is above zero and is rising. This also shows that the
momentum is bullish
In the figure 39 we can see that MACD is above the signal line and there is a bullish
signal line crossover. We can also notice that the MACD is moving close to its signal
line.
The Indian Automobile Industry is growing at the rate of 18% per annum and
contributes around 5% to the GDP. It is expected to contribute to around 10% of GDP
in the future.
India is one of the largest manufacturer and a largest exporter.
The competitive advantage is the low cost of labor.
There is a huge domestic market for automobiles in India.
So the Indian Automobile Industry is expected to grow in the future.
The industry suffered from profitability during the slow down but has started to report
profits.
India is enjoying a global position in the global automobile market.
The automobile exports are continuously increasing.
Many global automobile companies are established in the country.
12. CONCLUSIONS
From the analysis and the findings we can conclude the following:
Indian Automobile industry: The industry has recovered from the global slowdown and
started to make good returns and the industry is expected to grow in the future years. So
investment in the automobile companies is good for long term.
Mahindra & Mahindra Ltd:
From the fundamental analysis we can conclude that the company is strong in its
fundamentals and has a good future value.
From the technical analysis we can conclude that the prices are in uptrend even
though the MACD shows a bearish signal line crossover because the MACD is above
zero. So the prices are expected to rise in the near future.
Tata Motors Ltd:
From the fundamental analysis we can conclude that the company is strong in its
fundamentals and has a good future value.
From the technical analysis we can conclude that the prices are in uptrend and since
EMAs are moving closer and the stock is highly volatile. The ROC is negative which
shows a bearish signal. But we can see that the MACD is above its signal line. So
there is strong upward momentum, but the prices may fall very soon but will rise
again.
Ashok Leyland:
From the fundamental analysis we can conclude that the company is strong in
fundamentals and prices are expected to rise in the future.
From the technical analysis we can see that the EMAs are rising. We can also notice
that the MACD, ROC and RSI also show bullish momentum. So, we can conclude
that the prices will rise in the short term.
13. Recommendations
Fundamental Analysis is used for making long term investment decisions while Technical
Analysis is used for making short term investment decisions. Based on the fundamental and
technical analysis and conclusions drawn the following investment recommendations are
made to the investors:
Mahindra & Mahindra Ltd Stocks:
Mode of Investment
Recommendation
BUY
BUY
Recommendation
BUY
HOLD/SELL
The investor has to wait till the target price is reached or as soon as the EMA 20 and EMA 50
converge to make a crossover.
Ashok Leyland Ltd Stocks:
Mode of Investment
Recommendation
BUY
BUY
14. REFERENCES
KHAN M Y, JAIN P K., 2010. Management Accounting. New Delhi: Tata McGraw Hill
Education Private Limited.
GREWAL T S., 2005. Analysis of Financial Statements. New Delhi: Sultan Chand & Sons
(P) Ltd.
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