International Journal of Marketing, Sales and Brand Management Volume 1 Issue 2 A Fundamental Analysis of Indian Automobile Industry with Special Reference to Tata, Maruti & Mahindra & Mahindra Mukund S Assistant Professor Department of M.B.A Marian International Institute of Management, Kuttikkanam, Kerala Corresponding Author’s email: [email protected] DOI: http://doi.org/ 10.5281/zenodo.3626835 Abstract The intrinsic value or the real value of any stock should be known to the investor prior to the initiation of investment in the particular company. Therefore fundamental analysis can be used to find out the intrinsic value. Fundamental analysis is based on certain factors including industry, competition, operational efficiency, dividend policy, capital structure, ratios etc. Those factors tend to change according to the industry and economy. Indian automobile industry had witnessed a growth rate of 8 % during 2019-20. The fuel prices have played an important role in the growth of automobile industry when it comes to price sensitive consumers in India. This study has attempted to analyze the fundamental components of three Indian made automobiles by using various financial and statistical techniques. Maruti stands No. 1 in the segment followed by TATA. Keywords: Automobile Industry, Dividend policy, Fundamental analysis, Operational efficiency, Ratios. INTRODUCTION to sales. 2017-18 can be considered as Indian automobile industry is a lucrative their best time of sales. It marked a double industry which is currently one of the digit growth rate from 1st April 2017 to largest markets in the world with regards 31st March 2018. We have taken three 1 Page 1-9 © MANTECH PUBLICATIONS 2019. All Rights Reserved International Journal of Marketing, Sales and Brand Management Volume 1 Issue 2 Indian made automobile companies to studies. They have investigated how ascertain the positive momentum for the detailed financial statement data enter the stock for investing it in long term horizon. decisions of market makers by examining There are 10 automobile manufactures in how current changes in the fundamental India out of which 3 of them are Indian signals chosen can provide information. companies which we are analyzing. India Contextual factors such as prior earnings is expected to emerge as world‟s third news, industry membership, largest passenger vehicle market by 2021 macroeconomic conditions and country of (mckinsey.com). It is purely based on the incorporation that may influence this GDP (Gross Domestic Product) growth predictive ability are also investigated. rate of 7% annualized. Therefore, the Results indicate that the fundamental investment in shares of securities of signals are significant predictors of both automobile industries is a must in an short- and long-term future earnings investor‟s portfolio. changes. Research results provide evidence to support the use of fundamental REVIEW OF THE LITERATURE analysis. Rajiv Kumar Bhatt (2011) has made an attempt to analyze the impact of global Richard C. Grimm (2012) explores financial crisis on Indian Economy. The fundamental analysis to determine its paper is divided into three sections. In the application as an Austrian approach to first introductory section, the feature of common stock selection. The analysis recent global financial meltdown which supports the conclusion that fundamental talks about recession is discussed. Section security analysis can be practiced in a two deals with the impact of this crisis on manner consistent with traditional Indian economy and discusses how India Austrian views and is suitable as a came back to high growth. Conclusion and common stock selection method by those suggestions have been given in the third who wish to adhere to such views. He also sector. adds that a fundamentally strong stock will continue to earn maximum returns on the Dyna Sen et. al., (2012) have taken long run and those shall be accumulated by fundamental analysis research beyond the the investors during its cheap valuation in spatial and temporal bounds of previous 2 Page 1-9 © MANTECH PUBLICATIONS 2019. All Rights Reserved International Journal of Marketing, Sales and Brand Management Volume 1 Issue 2 the time of financial meltdown in the manufacturing of such vehicles. Therefore segment. it seems to be profitable to invest in such companies. Hemal Pandya and Hetal Pandya (2013) had done a Fundamental Analysis of both RESEARCH METHODOLOGY the companies is carried out and their DATA intrinsic value ranges are obtained from The data used for the study is exclusively the EIC Analysis of Tata motors and secondary in nature which comprises the Maruti Suzuki to help investor decisions. It following: laid down a conclusion that the MSIL Final Accounts of the companies (Maruti Suzuki India Limited) had made (2018-19, 2019-20) its investors rich since the EPS NSE India Website Money Control.com OBJECTIVES To analyze the financial performance TOOLS for DATA ANALYSIS of the selected 3 automobile Mean manufacturing companies Standard Deviation To analyze the profitability of those Financial Ratios companies DATA ANALYSIS & SCOPE OF THE STUDY INTERPRETATION The scope of this study is to analyze the Net profit margin financial performance of three Indian Net Profit margin talks about how much a Automobile manufacturers.. Indian company could earn all direct & indirect Automobile Industry is one of the expenses for every rupee of revenue. The important components which contribute table shows a consistency in terms on Net for the growth of GDP (Gross Domestic Profit margin for Mahindra & Mahindra Product). It has undergone changes due to since the standard deviation is less. Tata various reasons including new technology Motors has shown a considerable increase & safety rules. It is also known to us that in its net profit margin which indicates its the emergence of Electronic vehicles is growth potential by way of widening its also paving a way towards the passenger car portfolio 3 Page 1-9 © MANTECH PUBLICATIONS 2019. All Rights Reserved International Journal of Marketing, Sales and Brand Management Volume 1 Issue 2 Table 1 Net profit margin Year Tata Motors Maruti Suzuki Mahindra & Mahindra 2015 -13.05 7.42 8.52 2016 -0.14 9.32 7.83 2017 -5.48 10.80 8.27 2018 -1.75 9.68 8.94 2019 2.91 8.71 8.94 Mean -3.5 9.2 8.5 Std. Deviation 6.14 1.25 0.47 Fig. 1 Net Profit Margin RETURN ON EQUITY Maruti Suzuki has earned a decent average The Return on Equity measures how well a ROE of 17.7 in the past five years. Tata company is generating returns from its Motors has performed the lowest but common stock. This measure is used by improving. investors to take decisions regarding investment in a particular company. 4 Page 1-9 © MANTECH PUBLICATIONS 2019. All Rights Reserved International Journal of Marketing, Sales and Brand Management Volume 1 Issue 2 Table 2 Return on equity Year Tata Motors Maruti Suzuki Mahindra & Mahindra 2015 -31.93 15.65 17.25 2016 -0.26 17.95 14.29 2017 -11.48 20.17 13.60 2018 -5.13 18.49 14.37 2019 9.11 16.25 14.01 Mean -7.94 17.70 14.70 Std. Deviation 15.38 1.81 1.45 Fig. 2 Return on Equity ASSET TURNOVER RATIO Suzuki is consistently performing well. Asset Turn Over ratio is another Mahindra and Mahindra is consistent & profitability ratio that measures a Tata motors‟ Asset turnover ratio has been company's ability to generate sales from its considerably increasing in the last two assets. It is calculated by comparing net years – 2017-19 sales with average total assets. Maruti 5 Page 1-9 © MANTECH PUBLICATIONS 2019. All Rights Reserved International Journal of Marketing, Sales and Brand Management Volume 1 Issue 2 Table 3 Asset turnover ratio Year Tata Motors Maruti Suzuki Mahindra & Mahindra 2015 72.67 148.93 118.21 2016 75.59 137.19 115.14 2017 75.26 132.74 110.22 2018 99.35 134.34 102.67 2019 113.61 136.68 101.74 Mean 87.3 137.98 109.60 Std. Deviation 18.26 6.38 7.33 Fig. 3 Asset Turnover Ratio RETURN ON CAPITAL EMPLOYED maximum for Maruti Suzuki (21.24) and ROCE measures the returns generated by least for Tata Motors. But we can see a the capital employed by the firm. The spike in ROCE for Tata motors from 2018 capital here refers to Share holders‟ equity to 2019 (A whopping 6 percent high) & long term borrowings. The ROCE is 6 Page 1-9 © MANTECH PUBLICATIONS 2019. All Rights Reserved International Journal of Marketing, Sales and Brand Management Volume 1 Issue 2 Table 4 Return on capital employed Year Tata Motors Maruti Suzuki Mahindra & Mahindra 2015 -16.02 15 13.85 2016 5.31 17.35 12.49 2017 -1.19 26.42 14.28 2018 5.04 25.83 16.95 2019 11.57 21.6 16.86 Mean 0.942 21.24 14.87 Std. Deviation 10.50 5.05 1.96 Fig. 4 Return on Capital Employed SUGGESTIONS 2. Maruti, Mahindra & Mahindra are 1. We have compared the various consistently performing well in a profitability ratios to understand the slower growth rate financial performance of those 3 companies 7 Page 1-9 © MANTECH PUBLICATIONS 2019. All Rights Reserved International Journal of Marketing, Sales and Brand Management Volume 1 Issue 2 3. Tata Motors was a poor performer Mahindra and Mahindra is consistent in its from 2015-2017 but still it caught up sales from 2015-2018 but saw a sea saw in the years 2018, 2019 ride in 2019 due to reduced demand for its products. 4. An investor can accumulate Tata motors at this juncture of cheaper Tata motors‟ return on equity as well as valuations return on capital employed has been increased tremendously.