Blackbook Project

8/10/2019 Blackbook Project

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Study on Fundamental Analysis in Equity Markets

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UNIT 1: INVESTMENTS

1.1 INTRODUCTION ON INVESTMENT

The concept of investment has many meanings. Investment is the employment of funds with the aim o

getting return on it. Investment involves putting money into an asset which is not necessarily marketable

order to enjoy a series of returns. The investor sacrifices some money today in anticipation of financial return

future. He indulges in a bit of speculation. There is an element of speculation involved in all investme

decisions. However, it does not mean that all investments are speculative by nature. Genuine investments a

carefully thought out decisions. On the other hand, speculative investments are not carefully thought o

decisions. They are based on tips and rumors. Savings of the people are invested in assets depending on the

risk and return.

There are two concepts of investment:

1) Economic Investment:The concept of economic investment means additions to the capital stock

the society. The capital stock of society is the goods which are used in the production of other good

The term investment implies the formation of new and productive capital in the form of ne

construction and procedures durable instrument such as plant and machinery. Inventories and huma

capital are also included in this concept. Thus, an investment, in economic terms, means an increase

building, equipment, and inventory.

2)

Financial Investment: This is an allocation of monetary resources to assets that are expected to yie

some gain or return over a given period of time. It is a general or extended sense of the term. It means a

exchange of financial claims such as shares and bonds, real estate, etc. Financial investment involv

contracts return on pieces of paper such as shares and debentures. People invest their funds in sharedebentures, fixed deposits, National Saving Certificate, Life Insurance policy, provident fund, etc. I

their view, investment is a commitment of funds to drive future income in the form of interes

dividends, rent, premium, pension benefits and appreciation of the value of their principal capital. I

primitive economics most investments are of the real variety where as in a modern economy mu

investment is of the financial variety.


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1.2 IMPORTANCE OF INVESTMENT

1)

Beating Inflation: In addition to making for uncomfortable sleeping, stuffing money under a mattre

does little to mitigate the impact of inflation over time. Putting money in a regular bank savings accou

won't help much either because of the typically minuscule interest rates. While placing money

investment vehicles, such as stocks and mutual funds, introduces an element of risk, one stand a muc

better chance of outpacing the inflation rate throughout a period of years.

2) Saving for Retirement: Depending solely on social security benefits as the source of retireme

income probably won't cut it unless one plans to subsist on a diet of rice and water. Unless the compan

offers a sizable pension plan, one will probably needs to start an investment program as early as possib

to ensure a comfortable retirement.

3) Putting Money to Work: If one has a job, he is undoubtedly familiar with the concept of working f

the money. Investing allows one to turn the tide by making your money work. Through the magic

compound interest, for example, accumulated interest actually earns additional money without yo

having to lift a finger. Consequently, your original investment can multiply greatly over time.

4) Financial Resource: Some investments can fulfill more than one financial purpose and serve as

valuable resource. For instance, when you purchase a home, it may appreciate in value and yield

handsome profit when you sell it. Additionally, as you make your monthly mortgage payments you bui

up equity, which is the amount of your ownership stake in the property.

5) Safety: Every investor expects to get back his capital on maturity without loss and without delay. Safe

is another aspect which an investors desire for his investments. It implies the certainty of return

capital without loss of money or time.


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1.3

INTRODUCTION ON INVESTMENT ANALYSIS

The starting point for investment analysis is the market data on the values of securities which describ

how they have performed in the past.

Investment analysis is the study of financial securities for the

purpose of successful investing.

This definition contains within it a number of important points. Firstly, there are the institutional fac

about financial securities: how to trade and what assets there are to trade. Secondly, there are analytical issue

involved in studying these securities: the calculation of risk and returns and the relationship between the tw

Then there is the question of what success means for an investor, and the investment strategies that ensure th

choices made are successful. Finally, there are the financial theories that are necessary to try to understand ho

the markets work and how the prices of assets are determined. It is clear that the more an investor understand

the less likely they are to make an expensive mistake. Note carefully that this is not saying that the moreyo

know, the more you will earn.


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UNIT 2: FUNDAMENTAL ANALYSIS

2.1 INTRODUCTION TO FUNDAMENTAL ANALYSIS

An investor can make more money if his investment decisions are based on actual movement of sha

price measured both in money and percentage terms. It is also very important to predict the future movemen

and also the true value of the securities.Equity analysis is used in order to find the true value of the securitie

and also to know where the prices are moving. It covers many including the calculating various financial ratio

and charts to extremely sophisticated indicators. Equity Analysis is broadly divided into fundamental an

technical analysis. Technical analysis looks at the price movement of a security and uses this data to predict i

future price movements. Fundamental analysis, on the other hand, looks at economic factor

known as fundamentals. The following are the major differences between fundamental and technical analysis

Characteristics Fundamental Analysis Technical Analysis

Definition

Fundamental analysis calculates

stock value using economic factors

Technical analysis uses the price

movement of security to predict

future price movements

Tool

Ratio analysis, cash flow statement

and fund flow statement.

Charts, graphs and diagrams.

Timehorizon Fundamental analysis gives us long

term approach.

Technical analysis gives us short

term approach.


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Purpose Purpose of fundamental analysis is

investment

Purpose of technical analysis is

trade

Strategy Fundamental analysis tell you which

stock to buy

Technical analysis tells you at

which point of time to buy stock

Vision Fundamental analysis looks forward

as well as backward

Technical analysis looks

backward.

Fundamental Analysis

Fundamental analysis is the study of a companys financial strength, based on historical data; sector an

industry position; management; dividend history; capitalization and potential for future growth. It is a stoc

valuation method that uses financial and economic analysis to predict the movement of stock prices. Th

analysis attempts to fins the intrinsic value of a security that helps investors to make decisions. Th

fundamental information that is analyzed can include a company's financial reports, and no

financial information such as estimates of the growth of demand for products sold by the company, indust

comparison and economy-wide changes, changes in government policies etc. The various steps involved in th

fundamental analysis are:

1. Macroeconomic analysis: This involves considering the overall health of the economy and its future.

2. Industry analysis: This 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 service

its currentposition, its future, etc.

Table 2.1


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4. Financial analysis of the company: This involves analyzing the financial statements like balance sheet

income statements, cash flows and ratios.

5.

Valuation: This attempt to find the intrinsic value of the securities of the company. The approach to fundamental analysis

often referred to as E-I-C Approach. The E-I-C denotes the three parts of the fundamental analysis. The thre

distinctive parts of fundamental analysis are:

a) Economic Analysis

b) Industry Analysis

c) Company Analysis

2.2 ECONOMIC ANALYSIS

Economic analysis is the analysis of forces operating 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

which a countryis in has a direct impact both on industry and individual companies. It affects investmen

decisions, employment, demand and the profitability of companies. It is very important to determine th

stage of the cycle into which the economy is passing through. The four stages of economic cycle a

depression, recovery, boom and recession. Investors should attempt to determine the stage of th

economic cycle is in.They should invest at the end of a depression when the economy begins to recove

and at the end of a recession. Investors should disinvest either just before or during the boom, or at th

worst, just after the boom. Investment and disinvestments made at these times will earn the investor th

greatest benefits.


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The Political Equation: A stable political environment for steady, balanced growth. If a country

ruled by a stable government which takes decisions for the long-term development of the country,

Industry and companies will prosper.

Foreign Exchange Reserves: A country needs foreign exchange reserves to meet its commitments, pay f

its imports and service foreign debts. If the reserves are not managed properly it may pose foreig

exchange risks.

Foreign Debt and the Balance of Trade: Foreign debt, especially if it is very large, can be

tremendous burden on an economy. India pays around $ 5 billion a year in principal repayments an

interest payments.

Inflation: Inflation has an enormous effect in the economy. Within the country it erodespurchasin

power. As a consequence, demand falls. If the rate of inflation in the country from which a compan

imports is high then the cost of production in that country will automatically go up.

Interest Rates: A low interest rate stimulates investment and industry. Conversely, high interest rat

result in higher cost of production and lower consumption.

Taxation: The level of taxation in a country has a direct effect on the economy. If tax rates are low

people have more disposable income.

Government Policy: Government policy has a direct impact on the economy. A government that

perceived to be pro-industry will attract investment.


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2.3 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 maturit

of the industry. All industries evolve through the following stages:

1. Introduction

2. Growth

3. Maturity

4.

Decline

Porters Five Forces Model: There are competitive forces and it is these competitive forces th

determine the extent of the inflow of funds, the return on investment and the ability of companies

sustain these returns. Porter has identified five competitive forces that shape every industry and eve

market. The five forces identified by Porter are:

1. Threat of new entrants

2. Threat for substitutes

3.

Bargaining power of the customers

4. Bargaining power of the suppliers

5. Rivalry among competitors


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SWOT Analysis

SWOT analysis of an industry gives an investor the overall picture about the industry.A scan of th

internal and external environment is an important part of the strategic planning process. Environmental facto

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

as a SWOT analysis.

2.4 COMPANY ANALYSIS

Company analysis is the final stage of fundamental analysis. The economy analysis provides the invest

a broad outline of the prospects of growth in the economy. The industry helps investor to select the industry

which would be rewarding. Now he has to decide in which company he has to invest. Company analys

provides the answer to this question. In company analysis the investor tries to predict the future earnings of th

company because there is strong evidence that the earnings of a company, however depends upon a number

factors concerning the operations of the company. The different issues regarding a company that should b

examined are:

The Management: Management is the most important factor that should be first looked into in

company. The performance of a company is primarily dependant on the effectiveness of th

management. Investors must check on the integrity of the managers, proven competence, rating amon

its peers, its performance at the time of advertising, its depth of knowledge, innovation an

professionalism.

The Company: It is most important to understand the company because ultimately the profitabili

depends on the business it is into. Many factors are considered here including the products and serviceits competitors, competitive advantage, market position, policies, etc.


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The Annual Report:The annual report is the primary and most important source of information on

company. By law, this is prepared every year and distributed to the shareholders.It containsve

important information relating to the performance of a company over a period of time.The Annu

Report is broken down into the following specific parts:

A. The Directors Report: The Directors Report is a report submitted by the directors of a company to i

shareholders, advising them of the performance of the company. A directors report is valuable and

gives information relating to the workings of a company, the problems it faces, the direction it inten

taking and its future prospects.

B. The Auditor's Report: The auditor represents the shareholders and it is his duty to report to th

shareholders and the general public on the stewardship of the company by its directors. Auditors ar

required to report whether the financial statements presented do, in fact, present a true and fair view

the state of the company. The auditors are their representatives and that they are required by law to poin

out if the financial statements are not true and fair. They are also required to report any change, such as

change in accounting principles or the non provision of chargesthat result in an increase or decrease

profits.

C. Financial Statements:The published financial statement of a company in an Annual Report consist

its Balance Sheet as at the end of the accounting period detailing the financing condition of thecompan

at that date, and the Profit and Loss Account or Income Statement summarizing the activities of th

company for the accounting period.

Balance Sheet: The Balance Sheet details the financial position of a company on a particular dat

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 detai

the financial position on a particular day.


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Profit & Loss Account: The Profit and Loss account summarizes the activities of a company during a

accounting periodwhich may be a month, a quarter, six months, a year or longer and the result achieve

by the company. It details the income earned by the company, its cost and the resulting profit or loss.

is, in effect, the performance appraisal not only of the company but also of its management- i

competence, foresight and ability to lead.

Cash Flows: A statement of sources and uses begins with the profit for the year to which are added th

increases in liability accounts (sources) and from which are reduced the increases in assets accoun

(uses.) The net result shows whether there has been an excess or deficit of funds and how this wa

financed. Investors must examine a company's cash flow as it reveals exactly where the money cam

from how it was utilized. Investors must be concerned if a company is financing either its inventories paying dividends from borrowings without real growth as that shows deterioration.

Ratios: A ratio is an arithmetic expression of relationship between two variables of the financi

statements. It helps in easy comparison may be intra firm or inter firm. A glance at the ratios of th

company gives the complete information about the Company to an investor. There are many ratios on

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 positio

of a firm. Some of the commonly used liquidity ratios are position of a firm. Some of the commonly use

liquidity ratios are Current 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, Proprietary Ratio, Interest Coverage Ratio, and Fixed charge Coverage Ratio, etc.

(C)Profitability Ratios:The profitability ratio measures 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 Investment, Return on Capital Employed, etc.


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(D) Activity Based Ratios: Activity Ratios measures the efficiency of a firm. These ratios are also called

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 themarket 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 of a firmThis ratio is indicative of management's ability to operate the business successfully and expresses th

cost effectiveness of the organization.

Net Profit Margin=Earnings after Interest and Tax Net Sales x 100

A high net profit margin would ensure adequate return to the owners as well as enable the firm

withstand adverse economic conditions like falling demand, rising costs, etc. while a low net profit margin h

the opposite implications.

Debt-Equity Ratio: This ratio is used to find out the long term solvency position of the firm.

Debt Equity Ratio=Long Term Debts Equity Funds

This ratio serves of primary use to the creditors of the company. This ratio is also used by the investo

to know their claim in the company.

Return on Equity: This ratio expresses the profitability of a firm in relation to the equityshareholder

funds.

Return on Equity=Net Profit after taxes-Preference Dividend Net worth x 100

This is the single most important ratio to judge whether the firm has earned satisfactory return to the equit

shareholders or not.


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Book Value Per Share: Book value per share represents the claim of the shareholders on a per sha

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

The Schedule and Notes to the Accounts: Schedules and notes to the accounts are found after th

financial statements in the annual report. The schedules detail pertinent information about the items of th

balance sheet and profit and loss account. The notes are even more important as they give very importa

information such as the accounting policies that the company has followed; the contingent liabilities of th

companies, etc. It is imperative that the schedules and notes to the accounts be read for a clearer understandin

of the companys financial condition.


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UNIT 3: CASE STUDY A COMPARATIVE ANALYSIS

3.1 INTRODUCTION TO INDIAN AUTOMOBILE INDUSTRY

The auto industry is the greatest engine of economic growth in the world. The global auto indust ry is

key sector of the economy for every major country in the world. The industry continues to grow

registering a 30 percent increase over the past decade. In 2009, more than 60 million motor vehicles; includin

cars and commercial vehicles were produced worldwide equivalent to a global turnover of around 2trillio

The automobile industry is one of the fastest growing industries in India. The Indian automobile industry is th

seventh largest in the world with an annual production of over 2.6million units in 2009. Withstanding a grow

rate of 18% per annum and an annual production of more than 2million units, it may not be an exaggeration

say that this industry in the coming years will soon touch a figure of 10 million units per year.

In 2009, India emerges 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.

Indian automobile industry at global level:

India ranks 2ndin the global two-wheeler market.

India is the second largest tractor manufacturer in the world.

India is the fifth largest commercial vehicle manufacturer in the world.

India ranks 5th pertaining to the number of bus and truck sold in the world.

The Indian Automobile industry is floated with both domestic and international players and is high

competitive. One company is present in more than one segment of the industry. Contributing a major share

the GDP, employing more people the industry also supports many other industries. More about the industry

explored into and is analyzed in the Analysis Chapter under Industry Analysis.


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Growth Rate (CAGR) of 8-9 per cent in the next five years making India a high-potential market fo

international brands such as Kubota, Case New Holland, AGCO, Same DeutzFahr and John Deere, according

JD Power Asia Pacific's maiden pilot study on the Indian tractor market.The cumulative foreign dire

investment (FDI) inflows into the Indian automobile industry during the period April 2000 -May 2014 w

recorded at US$ 9,885.21 million, according to data published by Department of Industrial Policy an

Promotion (DIPP).

3.4 KEY PLAYERS IN INDUSTRY

The Indian automobile industry is floated with both domestic and international players making it high

competitive. The fact is that almost 8 out of 10 global companies including General Motors, BMW, etc. hav

their presence in India contributing 25% of the Country's production. The top 10 companies in the India

Automobile Industry are: Maruti Suzuki India ltd., Toyota Kriloskar Motors Pvt. Ltd. and Ashok Leylan

respectively. Many companies are present in more than one segment of the industry. For example Tata Motors

present in HCVs, LCVs, MUVs and Passenger Cars.

3.5 CONTRIBUTION TO GDP

The automobile industry has emerged as the key contributor to the growth of the economy. In the la

decade their share in the Indian economy is around 5% of GDP. Economic progress is indicated by the amou

of goods and services produced which give the impetus for transportation and boost the sale of vehicle

Increase in automobile production has a catalyst effect by indirectly increasing the demand for a number of ra

materials like steel, rubber, plastics, glass, paint, electronics and services. An interesting fact is that th

industry accounts for 7% of the total steel consumption. Since transportation is the nerve center of eve

industry, the well being of the automobile industry is a good indicator of the health of the economy and ever

piece of infrastructure development in the country stimulates the demand for automobiles.Economic studi

have shown that every truck manufactured creates anywhere between eight to twelve jobs and a bus wou

create around seven, which would include sales people, drivers, mechanics, cleaners and servicing staff.

3.6 AUTOMOBILE EXPORTS


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According to Society of Indian Automobile Manufacturers (SIAM), automobile exports increased b

17.90% from 1.53 million units in 2008-2009 to 1.80 million units 2009-2010. At a time when many majo

global auto markets witnessed declines, the automobile exports from the country registering a robust 33.23

growth in the last fiscal.

3.7 FUTURE OF THE INDUSTRY

The Indian economy is on a high growth path on a secured long-term basis and with the consequen

increase in disposable incomes of the population at large, the Indian automotive industry is expected

provide significant growth opportunities.

The industry is expected to grow to US $ 40 billion by 2015 from the current level of US$ 7 billion an

to contribute 10% of the nations GDP.

By 2016 the automobile industry is expected to contribute 35% of the Industry GDP.

The greatest challenge and competition would be from the Chinese automobile industry. The Chine

automobile industry has been able to give stiff competition to India in terms of productivity, cost

manufacturing and technology.

Again the present trend of excess manufacturing capability, reduced margins put additional pressure o

the industry.

3.8 INDUSTRIAL LIFE CYCLE

The automobile industry in India is in its growth stage at an accelerating rate of sales and earning

growth. The industry is booming at a growth rate of around 18%. The demand for automobiles in the country

rising continuously. only one car is available per thousand in India which shows that the passenger vehicl

segment has good prospects of growth.

3.9 PORTERS FIVE FORCES ANALYSIS

1. Barrier to Entry:The barriers to enter automotive industry are substantial. For a new company, the startu

capital required to establish manufacturing capacity to achieve minimum efficient scale is prohibitive. Althoug


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the barriers to new companies are substantial, establishing companies are entering the new markets to ne

markets through strategic partnerships or through buying out or merging with other companies. However,

domestic company, with local knowledge and expertise, has the potential to compete its home market again

the global firms who are not well established there.

2. Threat of Substitutes: The threat of substitutes to automotive industry is fairly mild. Numerous other form

of transportations are available, but none offer the utility, convenience, independence and value offered b

automobiles. The switching cost associated with using a different mode of transportation, maybe high in term

of personal time, convenience and utility.

3. Bargaining Power of Suppliers: In the relationship between the industry and its suppliers, the power axis

tipped in industry's favor.The industry is comprised of powerful buyers who are generally able to dictatheir terms to the suppliers.

4.Bargaining Power of Customers: In the relationship between the automotive industry and its ultima

consumers, the power axis is tipped in the consumer's favor. This is due to the fairly standardized nature and th

low switching costs associates with selecting from among competing brands.

5.Rivalry among Competitors: Despite the high concentration ratio seen in the automotive sector, rivalry

the Indian auto sector is intense due to the entry of foreign companies in the market. The industry rivalry

extremely high with any being product being matched in a few months by the competitors. This instinct of th

industry is primarily driven by technical collaboration with international players.

3.10 SWOT ANALYSIS

Strength:


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Increasing Disposable Income: With the economy on a high growth path on a secured long-term bas

and with the consequent increase in disposable incomes of the population at large, the India

automotive industry is expected to provide growth opportunities.

Vehicle Switchovers: Passenger car segment have a bright scope because people are switching fro

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 require

maintaining the high growth of the Indian economy- such as the National Highway Developme

Programme with a huge budget and the increased goods movement in a fast growing econom

would result in a h igh demand for commercial vehicles.

Rising Rural Demand: There is a greater change in the rural consumer's spending pattern and deman

levels because of increasing levels of disposable income.

Threats:

Integration of Indian Economy with Global Economy: With the growing integration econom

events around the world have a direct or indirect impact on the Indian automobile industry. In particula

Indian financial markets are highly integrated to global financial markets. As a result, liquidity an

availability of credit, an important facilitator for automobile and tractor sales in the Indian market, w

be impacted by conditions in the Global markets.

Pollution and Emission Controls: Stringent legislation on pollution and emission requirements w

increase the cost of the Company's products for the Automotive Sector.Holding the price line couhave 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

all the segments of the automobile industry, resulting in intense pressure on the profit margins of a

participants.


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The Company is going to market many new variants in its motorcycle segment by the end of the year.

The Company's 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.

Key Points of Tata Motors:

Tata Motors among Indias most Trusted Brand in cars

Tata Motors wins award at the Bangkok International Motor Expo

Tata MotorsInvestor Relations ranked first in India

Tata Motors bags National Award for Excellence in Cost Management

Tata Motors is 'Commercial Vehicle Manufacturer of the Year'

Key Points of Ashok Leyland:

The company is the 2nd largest manufacturer of commercial vehicles in India, the 4th large

manufacturer of buses in the world and the 16th largest manufacturer of trucks globally.

Over 70 million passengers use our buses to get to their destinations every day while over 700,00

trucks keep the wheels of economies moving.

Headquartered in Chennai, India, our manufacturing footprint spreads across the globe with 8 plantincluding one at Ras Al Khaimah (UAE).

Our Joint Venture partners include Nissan Motor Company (Japan) for Light Commercial Vehicle

John Deere (USA) for Construction Equipment, Continental AG (Germany) for Automotive Infotroni

and the Alteams Group for the manufacture of high-press die-casting extruded aluminum componen

for the automotive and telecommunications sectors.

The Mahindra Group:

The Mahindra & Mahindra, a company established in the year 1945 as a franchise for assembling Jeep

now a US $7.1 billion Indian multinational employing over 1lakh people across the globe. The Mahindra Grou

today is an embodiment of global excellence and enjoys a strong corporate brand image. The company enjoys

leadership position in utility vehicles, tractors and information technology, with a significant and growin

presence in financial services, tourism, infrastructure development, trade and logistics.


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The Tata Group:

Started in the year 1868 as a private firm, today the Tata group is India's largest conglomerate wi

revenues of $70.8 billion in the financial year ending March 31, 2009. Its 28 publicly listed companies have

combined market capitalization which is one of the highest among all business houses in India and a sharehold

base of over 3.5 million. Group companies export products and services to over 85 countries and hav

operations in 80 countries. The Tata Group includes 88 companies ranging from consumer products, hotels

steel, energy, IT sector, telecom, finance, automobiles, chemicals, retail, etc.

The Hinduja Group:

The Hinduja Group established in the 1914 is one of the largest groups in the country which now has i

global presence in 30 countries across various fields like Automotives (Ashok Leyland), Energy & Oil (GuOil), IT/ITES (HMT IT), Banking and Financial Services (Hinduja Bank, Geneva), Media & Entertainment an

Infrastructure.

The Management of M&M:

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. Anand Mahindra as the Chairman

and Managing Director.

The Management of Tata Motors:

Mr. Cyrus Mistry is the Non-Executive Director and Chairman.

Mr. Nusli N. Wadia and Dr. Raghunath A. Mashelkar isNon-Executive, Independent Directors.

The Management of Ashok Leyland:

Mr. Dheeraj G. Hinduja is the Chairman

Mr. Vinod K. Dasariis the Managing Director

Mr. R. Seshasayee is the Non-Executive Vice Chairman

Mahindra & Mahindra Limited:

The Mahindra & Mahindra Ltd. is in the automobile business which includes:


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The Automotive Sector continues to be a leader in the utility vehicle segment with a diverse portfolio th

includes mass transport as well as new generation vehicles. Mahindra & Mahindra's foray into the thr

wheelers segment with Alpha and Champion has also made it a leader in its category. The Internation

Operations of the Automotive Sector focuses on the international business. Mahindra Renault (MRPL

announced the launch oflogin, India's first wide body car, sporting a host of class-defying features at a

aggressive price. Mahindra Navistar Automotives Ltd. (MNAL), a joint venture between Mahindra & Mahind

Limited and International Truck and Engine Corporation.

1. Automotive Sector:The Mahindra Group's Automotive Sector is in the business of manufacturing an

marketing utility vehicles, including three- wheelers. It is the market leader in utility vehicles in India since i

inception, and currently accounts for about a half of India's market for utility vehicles. Over the years, the Grou

has developed a large product portfolio catering to a diverse customer base spanning rural and semi-urbacustomers, defense requirements and luxurious urban utility vehicles. The Group exports its products to sever

countries in Europe, Africa, South America, South Asia and the Middle East.

The Automotive Sector continues to be a leader in the utility vehicle segment with a diverse portfol

that includes mass transport as well as new generation vehicles. Mahindra & Mahindra's foray into the thr

wheelers segment with Alpha and Champion has also made it a leader in its category. The Internation

Operations of the Automotive Sector focuses on the international business. Mahindra Renault (MRPL

announced the launch of login, India's first wide body car, sporting a host of class-defying features at a

aggressive price. Mahindra Navistar Automotives Ltd. (MNAL), a joint venture between Mahindra & Mahind

Limited and International Truck and Engine Corporation, will manufacture trucks and buses for Ind

and export market. It will also provide component sourcing and engineering services to Internation

Truck and Engine Corporation. M&M has a growing global footprint and has established itself in markets acro

the world as one of the worlds most prestigious auto brands. The emphasis is now on establishing a solid loc

presence in these countries as his was the key to long-term success and building trust with the customer. Wi

subsidiaries in South Africa, Europe and Australia and a strong presence in over 15 countries, it aspires to b

globally renowned in Utility vehicles. The Mahindra Group entered into the two wheeler market by acquirin

the assets of Kinetic Motor Company Limited. The company has a partnership with Taiwn's Sanyang indust

Company Limited which is a leading manufacturer of two wheelers. The company has recently made an ent

into the electric vehicles segment by acquiring a major stake in Reva.


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2. Farm EquipmentsSector: The Mahindra group's Farm Equipment Sector (FES) is amongst the to

three tractor brands in the world. It has won the Japan Quality Medal in 2007. It also holds the distinction o

being the first tractor company globally to win the Deming Application Price in 2003. FES is the first tract

company worldwide to win these honors. This shows the strong focus of FES on Quality and Custom

Satisfaction. Today, the domestic market share of FES is around 42%. (Mahindra brand: 30% and Swaraj bran

12%). FES has a subsidiary agricultural tractor manufacturing company in India known as Mahindra Gujar

Tractor Ltd. (MGTL). The international operations of the Farm Equipments Sectors are spread across s

continents and in around 25 countries. FES has state-of -the-art manufacturing plants in India and China with

combined capacity to produce more than 1,70,000 tractor a year. Besides, these plants there are assembly plan

in USA and Australia. FES has more than 1000 dealers world-wide. In 2008, Mahindra acquired the majorit

stake in 3rd largest tractor company in China, with forming a Joint Venture (JV) with Jiangsu Yueda Yanchen

Tractor Manufacturing Company Ltd. (Yancheng Tractor), a leading Chinese tractor manufacturer.

ANALYSIS OF FINANCIAL INFORMATION OF M&M COMPANY

Balance sheet

(Rs cror

PARTICULARS MAR '13 MAR '12 MAR '11 MAR '10

Net worth 14,658.92 12,171.09 10,313.39 7,830.23

Liabilities 17,885.99 15,345.31 12,634.49 10,710.38

Investments 11,833.46 10,310.46 8,925.63 6,398.02

Assets 17,885.99 15,345.31 12,634.49 10,710.38

Profit loss account

(Rs cror


Income 41,168.26 33,024.91 24,214.12 18,825.11

Expenditure 35,819.17 28,680.13 20,208.16 15,523.22

Net Profit 3,352.82 2,878.89 2,662.10 2,087.75

Table 3.3

Table 3.2


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Financial highlights

On looking at the balance sheet we can see that the net worth, investments, assets, liabilities have bee

increasing rapidly since march 2010.

On looking at the profit and loss statement we can see that the company is constantly gaining profi

since March 2010.

Analysis Of Key Ratios


Net profit margin (%) 9.11 8.7 8.90 11.14

Debt equity ratio 0.22 0.22 0.26 0.22

Earnings per share Rs 61.2 54.61 46.89 43.36

Dividend per share 14 13 12.50 11.50

Dividend payout ratio 22.94 26.57 30.17 30.15

Book value per share Rs 272.63 238.75 198.23 167.99

Debt equity ratio:The Debt-Equity Ratio is the ratio between outsider funds and owner's funds. A Deb

Equity ratio of 1:2 represents high safety margin to the creditors.

Dividend per share:This ratio shows the earnings that are distributed to the equity shareholders on a p

share basis. We can see that company has declared higher dividends.

Dividend payout ratio: This ratio shows the percentage of profits earned that are distributed

dividends to equity shareholders. We can see that dividend per share is decreasing.

Table 3.4


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Book value per share: This ratio shows the claim of the shareholders on a per share basis. This rat

shows the worth of a share according to the books. We can see that this ratio is constantly increasing.

ANALYSIS OF FINANCIAL INFORMATION OF TATA MOTORS LTD

Balance sheet

(Rs cror


Net worth 19,134.84 19,626.01 20,013.30 14,803.78

Liabilities 33,403.53 30,637.64 34,651.49 31,429.69

Investments 19,934.39 20,493.55 22,624.21 22,336.90

Assets 33,403.53 30,637.64 34,651.49 31,429.69

Profit loss account

(Rs cror


Income 46,571.65 54,919.24 47,718.51 37,200.78

Expenditure 43,191.34 50,752.85 42,777.52 31,947.09

Net Profit 301.81 1,242.23 1,811.82 2,240.08

FINANCIAL HIGHLIGHTS

On looking at the balance sheet we can see that net worth, investments, assets, liabilities are declining.

On looking at the Profit and Loss statement we can see that the income is decreasing in March 2013 a

compared to March 2012.

An a l y s i s o f K ey Ra t i o s :


Table 3.5

Table 3.6


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Dividend per share 2.00 4.00 20.00 15.00



Debt Equity Ratio: The Debt-Equity Ratio is the ratio between outsider funds and owner's funds.

Debt-Equity ratio of 1:2 represents high safety margin to the creditors. In the table we can see that th

Debt-Equity Ratio for the years 2014 is 0.75 which means Rs. 0.75 of debt is used with every rupee

own funds.

Dividend Per Share (DPS): This ratio shows the earnings that are distributed to the equi

shareholders on a per share basis. The table shows that the company has declared lower dividends

2014when compared with all other years.

Dividend Payout Ratio: This ratio shows the percentage of profits earned that are distributed

dividends to equity shareholders. The highest of all was in March 2012 and it became the lowest

March 2014.

Book value per share: This ratio shows the claim of the shareholders on a per share basis. This rat

shows the worth of a share according to the books. From the above table we can see that the Book valu

per share is continuously decreasing.

ANALYSIS OF FINANCIAL INFORMATION OF ASHOK LEYLAND

Balance sheet (Rs crore)

PARTICULARS MAR '13 MAR '12 MAR '11 MAR '10Net worth 4,455.11 4,211.77 3,962.96 3,656.30

Liabilities 7,959.93 6,607.30 6,621.15 5,936.75

Investments 2,337.63 1,534.48 1,230.00 326.15

Table 3.7


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Assets 7,959.92 6,607.32 6,621.14 5,936.76

Profit loss account (Rs crore)


Income 12,561.13 13,526.30 11,623.29 7,777.37

Expenditure 11,332.75 12,228.27 10,365.13 6,926.63

Net Profit 433.71 565.98 631.30 423.67

Financial Highlights

On looking at the balance sheet we can see that net worth, investments, assets, liabilities are increasing

On looking at the Profit and Loss statement we can see that the income as well as the net profit

decreasing in March 2013 as compared to March 2012.

An a l y s i s o f K ey Ra t i o s :





Dividend per share 0.60 0.60 2.00 1.50



Table 3.8

Table 3.9


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UNIT 4: CONCLUSION

4.1 CONCLUSION

From the analysis and the findings I, conclude the following:

Fundamental analysis is the technique for finding the value of the stock which considers economy as

wholethen industry and then performance of the company for finding the value of its stock. It uses top t

bottomapproach for finding the value of the stock. Fundamental analysis considers various factors such

development of the economy as a whole, development in the industry, past performances of company, an

future prospectus of the company for finding the value of the stock of the company. The automobile industry

one of the key drivers of economic growth of the nation. Since the delicensing of the sector in 1991, India

automobile sector has come a long way. Today, almost every global auto major has set up their facilitiesin th

country.

Indian Automobile industry:

The industry has recovered from the global slowdown and started to make good returns and the indust

is expected to grow in the future years. So investment in the automobile companies is good for lon

term.

At present the industry is enjoying a growth rate of 14-17% per annum, with domestic sales growth

12.8%. The growth rate is predicted to double by 2015.

As it is seen, the total sales of passenger vehicles - cars, utility vehicles and multi-utility vehicles - in th

year 2005 reached the mark of 1.06 million. The current growth rate indicates that by 2012 India wi

overtake Germany and Japan in sales volumes.

Financing schemes have become an important factor in the growth of automobile sales. More and mo

financial schemes are coming up with easy installment plans to lure the customers.

Mahindra & Mahindra Ltd:

From the fundamental analysis I, conclude that the company is strong in its

fundamentals and has a good future value.


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Tata Motors Ltd:

From the fundamental analysis we can conclude that the company is weak in its fundamentalsand has

hope for a future growth.

Ashok Leyland Ltd:

From the fundamental analysis we can conclude thatthe company is strong in fundamentals and pric

are expected to rise in the future.

A fundamental analysis is all about getting an understanding of a company, the health of its business and i

future prospects. It includes reading and analyzing annual reports and financial statements to get a

understanding of the company's comparative advantages, competitors and its market environment.

fundamental analysis, the investor examines the financials of a company, along with any factors which mainfluence the demand and supply. Fundamental investors believe that if a company has a stable foundation,

most likely holds promise for healthy, long-term growth.

The underlying assumption is that share prices fluctuate due to investors mood swings and that once th

storm has settled; the market is bound to right itself. To make a profit therefore, fundamental investors set the

sights on strong companies and buy when the stock appears to be undervalued.

In fundamental analysis, the investor starts his exploration of a company by paying close attention to th

financial statements. How much money the company makes, spends or owes are all contributing factors whic

must be taken into account. There are three statements of importance which you must look into whi

undertaking a fundamental analysis. They are the balance sheet, income statement and financial ratios.

In fundamental analysis, the focus is on long-term investments. Studying the financials of a company no

only takes time, but for the basics to be reflected in the outcome it is also a long-winded process. Wi

fundamental analysis the goal is to wait for the company to reach its intrinsic worth, which it might take

number of years to attain.

Fundamental analysis generates praise for the ease of process. The data is not only easy to obtain, but it

fairly simple for an investment beginner to understand the basics through the financial records. Anoth

advantage is that a fundamental analyst subscribes to value investing, which ensures he profits by buying a

undervalued stock. More importantly fundamental analysis makes it easier to tell when alarm bells are ringin

and its time to pull out of your shares.


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Fundamental analysis can be valuable, but it should be approached with caution. If you are reading researc

written by a sell-side analyst, it is important to be familiar with the analyst behind the report. We all hav

personal biases, and every analyst has some sort of bias. There is nothing wrong with this, and the research ca

still be of great value. Learn what the ratings mean and the track record of an analyst before jumping off th

deep end. Corporate statements and press releases offer good information, but they should be read with

healthy degree of skepticism to separate the facts from the spin. Press releases don't happen by accident; the

are an important PR tool for companies. Investors should become skilled readers to weed out the importa

information and ignore the hype.

Warren Buffett once said, Price is what you pay. Value is what you get.

For beginning investors, this advice certainly applies to choosing a first stock. Owning a stock mea

you own part of a business and some experienced investors argue that you should examine the value of th

business itself in order to determine the true value short and long term of the stock youre considering. Th

research is known as fundamental analysis. During this process, you evaluate a companys financial recor

through per-share value calculations. Methods of business valuation differ between investors. What works for

standard economist may not work for a market practitioner, and what works for these two professions may n

work for someone looking for just a basic tutorial on investing in stocks.

Investing in your first stock can be an exhilarating and rewarding experience. It can also be a majo

learning experience (particularly if you dont research thoroughly beforehand). And even if it doesnt g

flawlessly the first time around, remember this final piece of Warren Buffett wisdom: Should you find yourse

in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energ

devoted to patching leaks. Fundamental analysis is a powerful tool in the hands of an investor who

resourceful, well-funded, analytically minded, long-term oriented and very patient.

Criticisms of Fundamental Analysis

There are two common arguments against fundamental analysis. The first comes from those who follo

the efficient market hypothesis and believe that stock prices already reflect all that is known. As a result th

believe it is impossible to outsmart the market and identify mispriced stocks using publicly availab


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information. This would be true if human emotions were not a factor in market fluctuations and grou

intelligence was allowed to take effect.

The second argument against fundamental analysis is simply a matter of practically. The following is

quote from a fundamental analyst who I have a lot of respect for. It is a prime example of the vague conclusiothat even the best in the business often arrive at:

How that will play out exactly, how long it will take and what the road map along the way might look

like is difficult to say, due to the many permutations of how events might interact. Bill Flekenstein

There are so many different variables with regard to how a stock or the economy is going to perform

the future: there are economic factors, environmental factors, completion, currency fluctuations, changes

technology, the possibility that the information you have is not true or accurate etc. For this reason many peop

say that it is (almost) impossible to use fundamental analysis to forecast the impact of all these different facto

and make money as a result.

Does fundamental analysis work?

After doing much research into the subject I have come to the undeniable conclusion that fundament

analysis does work. In fact most of the worlds top investors with a long track record of market beatin

performance are fundamental analysts. Rather than try to quantify why it works I have put together some of thtop Fundamental Analysts of all time

Views of well-known investors in fundamental analysis:

Warren Buffett, The most famous and successful investor in the world, Buffett is a value investor wh

looks for exceptional companies at reasonable prices.

Philip Fisher, Was an advocate of investing for the long term in high quality, high growth companie

He looked to the strength of the management and the characteristics of the business.

Benjamin Graham, One of the founders of value investing he looked for companies with stron

balance sheets, little debt, above average profit margins and good cash flow.

Peter Lynch, Only invests for the long term and undergoes a depth of due diligence into th

fundamentals of a company before investing that few can match.
http://etfhq.com/blog/2010/03/02/trading-psychology/http://etfhq.com/blog/2010/03/23/trading-psychology-group-intelligence/http://etfhq.com/blog/2010/03/23/trading-psychology-group-intelligence/http://etfhq.com/blog/2010/03/23/trading-psychology-group-intelligence/http://etfhq.com/blog/2010/03/23/trading-psychology-group-intelligence/http://etfhq.com/blog/2010/03/02/trading-psychology/


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Bill Miller, A value investor but not in the typical sense. Miller thinks that any company can be

value stock simply by trading below its intrinsic value. He attributes his success to extensiv

fundamental analysis.

William J. ONeil, Agrowth investor who looks for stocks with the greatest potential for large pric

increases within a short period if purchase.

Suggestions:

1. Before going to invest, an investor should have clear and adequate knowledge of capital market.

2. It is better to go for Long term Investment rather than the Short term Investment. Because it is less risky an

also provides sufficient return.

3. The investors should know the value of money.

4. Practically, stock market activities are very risky. So, investors should be careful while investing.

5. In case of half knowledge about stock market is very dangerous. So, whenever a person wants to invest

stock market he should take necessary tips from the experts or Technical Analysts.


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4.2 REFERENCE

BIBLIOGRAPHY:

Guide to Indian stock market

Equity markets 2Vipul Prakashan

Regulation of securities market - Vipul Prakashan

WEBILOGRAPHY:

www.mahindra.com

www.tatamotors.com

www.ashokleyland.com

www.investopedia.com

www.markets.com

www.money.rediff.com

www.moneycontrol.com

www.stockcharts.com

www.trading-system-design.com

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