FUNDAMENTAL & TECHNICAL ANALYSES IN

INDIAN AUTOMOBILE INDUSTRY

A Project Report

Submitted by

BHARATHAN.S
(Reg. No.18351018)

Submitted to Pondicherry University in partial fulfilment

of the requirements for the award of the Post Graduate Degree
in Master of Commerce (Business Finance).

Under the guidance of

[Link]
PROFESSOR
Department of Commerce
School of Management
Pondicherry Universit

1
 [Link]

Professor of Commerce,
Department of
Commerce, School of
Management, Pondicherry
University, Puducherry-
605 014.

………………………………………………………………………………………………………………………………………………………………………

CERTIFICATE

This is to certify that the project entitled “A STUDY ON ANALYSIS IN INDIAN

AUTOMOBILE INDUSTRIES” submitted to the Pondicherry University in partial fulfilment
of the requirement for the award of the degree of Master of Commerce (Business Finance) is a
record of original project work done by BHARATHAN.S(18351018) in the Department of
Commerce, Pondicherry University, under my supervision and guidance and that the project has
not formed the basis before for any degree/ diploma/fellowship or any other similar titles and it
represents an independent work done by the candidate.

Counter signed,

Dr. [Link] [Link]

(Head of the Department of Commerce) Department of commerce
(Guide and advisor)
Place: Puducherry
Date:

BHARATHAN.S
(18351018)

IInd Year [Link] (Business Finance),

Department of Commerce,
Pondicherry University,
Puducherry-605 014.

……………………………………………………………………………………………….

DECLARATION

I hereby declare that the project entitled “A STUDY ON PERFORMANCE IN INDIAN

AUTOMOBILE INDUSTRIES” submitted to the Pondicherry University in partial fulfilment of
the requirement for the award of the degree of “Master of Commerce (Business Finance)”is a
record of original project work done by me in the department of commerce, Pondicherry
University, under the supervision and guidance of [Link] and that the project has
not formed the basis before for any degree/ diploma/fellowship or any other similar titles.

Place: Puducherry

Date: (BHARATHAN.S )
 ACKNOWLEDGEMENT

First and foremost, I thank almighty who blessed me in all the ways to complete my
project report.

I extend my sincere gratitude to Dr. D. LAZAR, Professor and Head of the Department
of Commerce, Pondicherry University, for providing this wonderful opportunity to do this
project.

I would like to express my sincere gratitude to my guide Dr. P. NATARAJAN,

Professor, Department of Commerce, Pondicherry University, for his valuable guidance and
encouragement for the successful completion of this work. I would like to extend my gratitude to
my professors and faculty members.

I have great pleasure in expressing my sincere thanks to all those persons who have
encouraged and guided me directly or indirectly in completing my project work.

Last but not the least I wish to express my heartfelt thanks to my parents, classmates,
friends, relatives and all who helped me in the preparation of this project report.

Place: Puducherry

Date: (BHARATHAN. S)
 TABLE OF CONTENT
CHAPTER NO TITLE PAGE NO
INTRODUCTION
1 OBJECTIVES, SCOPE AND LIMITATIONS
6-12
REVIEW LITERATURE
METHODOLOGY DATA SOURCE AND
SAMPLE
CHAPTER SCHEME
2 A DESCRIPTION OFAUTOMOBILE
INDUSTRY
13-17
INDIAN AUTOMOBILE INDUSTRY
ANALYSIS
3 FUNDAMENTAL AND TECHNICAL AN
OVERVIEW
18-33
INDIAN ECONOMIC ANALYSIS
COMPANY ANALYSIS
INDUSTRY ANALYSIS
TECHNICAL ANALYSIS
4 DIAGNOSING INVESTMENT
PREFERENCE IN SELECTED
34-65
AUTOMOBILE COMPANIES
5 FINDINGS AND CONCLUSION
66-71
 CHAPTER 1

INTRODUCTION
1.1 INTRODUCTION

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 company’s 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 Fundamental analysis:

Fundamental analysis is the study of a company’s 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.

1.3 Technical analysis:

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
1.4 Review of literature:

Abhijeet Singh (2011) Tata Motors uses a customer relationship management and dealer

management system (CRM-DMS) which integrates one of the largest applications in the

automobile industry, linking more than 1200 dealers across [Link] DOS has helped Tata

Motors to improve its inventory management, tax calculation and pricing. This system has also

proved to be beneficial to dealers because it has reduced their working capital cost.

Arvind Saxena (2010) Director and Board member (marketing and sales), Hyundai Motor

India (HMIL) “No company in automobile sector can fight competition on price. Companies

need to have the right product, distribution, CRM and after sales service network to grow.

Biswajit Mahanty and Virupaxi Bagodi (2006) The success of two wheeler manufacturers in

India depends on the competitive advantage gained by them through after sales service and

providing and maintaining customer satisfaction in the face of rapid changes in technology is a

difficult task, which can be overcome by timely addition of capacity and upgrading of technical

manpower and focusing on the CRM programs.

Gordon Fullerton (2006), “Putting relationship in CRM”, that JEEP, a division of Daimler

Chrysler Automobile Company, has served a classic example of CRM program that provides a

considerable value to both the customers and the firm by developing a program exclusively for

jeep owners and fostered a community that is highly effectively committed to the product, the

brand and the customers.

Kevin Keller(2012) Caterpillar has become a leading firm by maximizing the total customer

value with the help of effective CRM , best after sales service in the industry and better trained

dealer. This allows the firm to command a premium price of 10% to 20% higher than

competitors such as Volvo, Komatsu etc.

Michael Cusumano, Steve Kahl and Fernaando Suarez (2008) in their research paper “A

theory of services in product industries”, has concluded that in many product oriented industries,

services have become increasingly important. In case of automobiles, many automakers generate

the vast majority of their profits from a service activity closely tied to their product activity. The

automobile industry overall generates a large portion of its profits from other product-related

service activities such as insurance and repairs. The authors argued that despite the seeming

importance of services, there is not much theory to help researchers or practitioners explain the

conditions under which services matter in product industries. The general view that emerges

from the services literature is that services tend to become important for manufacturing firms

once their industries reach a mature stage.

Milind Bade (2011) GM-Marketing, Bajaj Auto, has mentioned that Bajaj Auto Limited is

currently trying to move the industry from a commuter to a biker mindset and at present the

focus of the company is on keeping the sub brands and the mother brand different and the main

motive behind establishing individual brand is to create differentiation which would help Bajaj

auto, as an organization to develop relationship easily with its customers.

Mona J Fitzsimmons (2010) has concluded that the profitability of automobile manufacturers

depends on exploiting value added services for instance automobile manufacturers have
discovered that financing and after sales service can achieve significant profits.

Oyama (2012) Honda Motor wants to be number one in the Indian market and the company

wanted 30% of Honda’s global sales to come from Indian operations by 2020. HMSI have had

issues related to production in the past with most of its models having the longest waiting period

in the country, this reduced in Honda’s penetration in the rural market, which is less than a third

of Hero Moto Corp.

Pawan Chabra (2011) Nowadays every second bike sold in the premium segment is a pulsar

and this shows the dominance of Bajaj in the Indian market place, this was possible because the

company has been regularly making the alterations to make the motorbike look fresh at all times

and Bajaj today holds over 50% market in the premium segment (for FY 2010-2011) followed

by a distant second largest player Honda Motorcycle & scooter India with a 19% market share.

1.5 Objectives of the study:

1.5.1 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.

1.5.2 Secondary Objectives:

In order to accomplish the primary objectives the following secondary objectives are to be
accomplished:

 To understand fundamental and technical analysis.

 1.5.3 Scope:

The project covers the following:

 Introduction to the Indian Automobile Industry

 Introduction to fundamental and analysis
 Fundamental analysis of the companies including the analysis of automobile industry
 Technical analysis of the selected companies.
 Findings, Conclusions and Recommendations.

1.5.4 Limitations:

 The analysis is fully based on secondary data and hence the accuracy of data is a major
concern.

 Only five companies are selected for analysis because of time constraints.

 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.

1.5.5 Methodology, Data Sources and Samples:

 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.
 Sampling Design:

The companies for the project shall be selected using Convenience Random Sampling.

1.6 chapter scheme

This chapter explains detail about the introduction of the project and explains about the
analyses for those companies and objectives, scope, limitations and methodology and data
sources of the project, and also includes the review of literature of the project.
 CHAPTER 2

A DESCRIPTION OF AUTOMOBILE
INDUSTRY
The auto industry is the greatest engine of economic growth in the world. The global auto
industry is a 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, 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.

2.1 Indian automobile industry at global level:

 India ranks 2nd in 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 highly competitive. One company is present in more than one segment of the industry.

Contributing a major share to the GDP, employing more people the industry also supports
many other industries. More about the industry is explored into and is analyzed in the Analysis
Chapter under Industry Analysis.
2.2 Indian Automobile Industry Analysis

The automobile industry in India is one of the fastest growing industries, growing at a rate of
18% per annum. The industry is the seventh largest in the world by producing around 2.6 million
units in the year 2009.

This part explains in detail about the Indian Automobile Industry and analyzes the industry.

2.2.1 Segmentation of the industry:

segmented
The automobile industry can be broadly into Two Wheelers, Three Wheelers,
Passenger Vehicles and Commercial Vehicles. The Commercial Vehicles can be further divided
into Heavy Commercial Vehicles (HCVs) and Light Commercial Vehicles (LCVs). The
following diagram shows the composition of the major segments of the industry.

Industry Segmentation

Passenger
Two Wheelers Vehicles 16%
76%

Commercial
Vehicles 4%

Three Wheelers 4%

This 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.

2.3Key Players in the industry:

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 Country’s
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.

2.4 Contribution to the GDP:

The automobile industry has emerged as the key contributor to the growth of the 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.
 2.5 The future of the industry:
 The Indian economy is 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.
 The industry is expected to grow to US$ 40 billion by 2015 from the current level of US$
7 billion and to contribute 10% of the nation’s 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 Chinese automobile industry has been able to give stiff competition to India in terms
of productivity, cost of manufacturing and technology.
 Again the present trend of excess manufacturing capability, reduced margins put
additional pressure on the industry.

2.6 Industrial Life Cycle:

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.
 Chapter 3

FUNDAMENTAL AND TECHNICAL

ANALYSIS AN OVERVIEW
An investor can make more money if his investment decisions are based on actual movement of
share price measured both in money and percentage terms. It is also very important to predict the
future movements and also the true value of the securities.

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.

EQUITY ANALYSIS

FUNDAMENTAL TECHNICAL
ANALYSIS ANALYSIS

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.
3.1 Fundamental Analysis

Fundamental analysis is the study of a company’s 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
3.2 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:

3.2.1 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

RECOVERY RECESSION

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.
3.3 The Political Equation

A stable political environment is necessary for steady, balanced growth. If a country is

ruled by a stable government which takes decisions for the long-term development of the
country, industry and companies will prosper.

3.3 Foreign Exchange Reserves

A country needs foreign exchange reserves to meet its commitments, pay for its imports
and service foreign debts. If the reserves are not managed properly it may pose foreign exchange
risks.

3.4 Foreign Debt and the Balance of Trade

Foreign debt, especially if it is very large, can be a tremendous burden on an economy.

India pays around $ 5 billion a year in principal repayments and interest payments.

3.5 Inflation

Inflation has an enormous effect in the economy. Within the country it erodes purchasing
power. As a consequence, demand falls. If the rate of inflation in the country from which a
company imports is high then the cost of production in that country will automatically go up.

3.6 Interest Rates

A low interest rate stimulates investment and industry. Conversely, high interest rates result
in higher cost of production and lower consumption.

3.7 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.

3.8 Government Policy

Government policy has a direct impact on the economy. A government that is perceived to
be pro-industry will attract investment.
3.9 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:

3.9.1 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. Introduction
2. Growth
3. Maturity
4. Decline
3.10 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.

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 country in the world
to design a vehicle on its own
  Competitive Auto Component Vendor Base: Competitive auto component vendor
base which helps to get the required auto components at competitive rates leading to
lower manufacturing costs.

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 consumer’s 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 Company’s 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

3.11 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

3.12 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.

3.13 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.

3.14 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 Director’s Report

The Director’s 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 Director’s 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.

3.15 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.

3.16 Profit & Loss Account

The Profit and Loss account summarizes the activities of a company during an
accounting period which may be a month, a quarter, six months, a year or longer, and the result
achieved by the company. It details the income earned by the company, its cost and the resulting
profit or loss. It is, in effect, the performance appraisal not only of the company but also of its
management- its competence, foresight and ability to lead.

3.17 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.

3.18 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.

3.19 INTRODUCTION TO TECHNICAL ANALYSIS

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.
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

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.

3.20 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.

3.21 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.

SUMMARY

This chapter explains in detail about the fundamental and technical analysis.
 CHAPTER 4

DIAGNOSING INVESTMENT
PREFERENCE ON SELECTD
AUTOMOBILE COMPANIES
Analysis of Bajaj automobile industry

4.1 Fundamental Analysis

Fundamental analysis is the study of a company’s 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.

4.2 Technical Analysis:

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

4.2.1 Relative Strength Index (RSI):

J. Welles Wilder developed the Relative Strength Index (RSI) and introduced it in the June
1978 article for Commodities magazine. RSI is an extremely popular momentum indicator.

RSI is a momentum oscillator that measures the speed and change of price movements. RSI
oscillates between zero and 100. The most popular is the 14 days RSI where the RSI is calculated
based on 14 days values. Traditionally the stock is considered to be overbought when RSI is
above 70 and oversold when RSI is below 30. Signals can also be generated by looking for
divergences and centerline crossovers.
Bajaj Auto is another important automobile manufacturing company in India. It is one of the
India's most trusted car manufacturers. It is an operative subsidy of the Bajaj Group. Bajaj Auto
happens to be the largest two and three wheeler manufacturer in India and also ranks in this field
across the globe. This automobile company was established on 2 November 1945. The company
was then known as M/s Bachraj Trading Corporation Private Limited. The company made a
modest beginning by importing and then selling two and three wheelers in India. Today Bajaj
Auto has become synonymous with two and three wheelers in the country. Some of its popular
two wheelers are; Pulsar 220DTS and Kawasaki Ninja 250R.

4.3 Bajaj company is analysed by apply 7 ratios are as below

 Current ratio
 Return on capital employed ratio
 Asset turnover ratio
 Working capital turnover ratio
 Return on equity ratio
 Return on asset ratio
 Net profit margin ratio
4.4 FUNDAMENTAL ANALYSIS OF KEY RATIOS

Current ratio:

The current ratio is a liquidity ratio that measures a company's ability to pay short-term
obligations or those due within one year. It tells investors and analysts how a company can
maximize the current assets on its balance sheet to satisfy its current debt and other payments.

Particulars 2018 2017 2016 2015 2014

9235.63
Current asset 9391.37 4725.25 9526.27 5616.63

Current liabilities 4111.29 3212.58 2780.99 4476.79 4730.24

Current ratio 2.246407 2.923311 1.699125 2.127924 1.187388

3.5
3
2.5
2
1.5
1
0.5
0

1 2 3 4 5

From the above table there is a decrease in the current ratio of Bajaj company during the period
of 5 years. It has decreased from 2.24 to 1.87%. The ideal current ratio is 2. So it should improve
its current ratio.
Return on capital employed ratio:

Return on capital employed (ROCE) is a financial ratio that measures a company's profitability
and the efficiency with which its capital is used. In other words, the ratio measures how well a
company is generating profits from its capital. The ROCE ratio is considered an important
profitability ratio and is used often by investors when screening for suitable investment
candidates

PARTICULARS 2018 2017 2016 2015 2014

EBIT 5814.57 5335.63 5547.32 4425.08 4632.05

Capital 19708.20 17602.31 13705.51 11085.53 10017.36

employed

ROCE 0.295033 0.30312 0.404751 0.399176 0.462402

0.5
0.45
0.4
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0

1 2 3 4 5

From the above table the return on capital employed ratio has been increased from 0.29 to 0.46.
It is a ratio to find out whether a company is truly profitable or not. If ROCE is more it states that
the company has utilized its capital well.
Asset Turnover ratio:

The asset turnover ratio measures the value of a company's sales or revenues relative to the value
of its assets. The asset turnover ratio can be used as an indicator of the efficiency with which a
company is using its assets to generate revenue

Particulars 2018 2017 2016 2015 2014

Revenue 26512.17 22988.65 23660.11 22194.43 20855.92

Total asset 23819.49 20814.89 16486.50 15562.32 14747.60

Asset turnover ratio 1.113045 1.104433 1.43612 1.426165 1.41419

1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0

1 2 3 4 5

From the above table the asset turnover of Bajaj company has been increased from 1.11 to 1.41.
the ratio should be low; if the ratio is low the company profit will be high. here the Bajaj
company ratio is increased during period of study it means it is having low profits.
Working capital turnover ratio:
Working capital turnover is a ratio that measures how efficiently a company is using its working
capital to support a given level of sales. Also referred to as net sales to working capital, work
capital turnover shows the relationship between the funds used to finance a company's operations
and the revenues a company generates as a result

Particulars 2018 2017 2016 2015 2014

Revenue 26512.17 22988.65 23660.11 22194.43 20855.92
Working 19708.20 17602.31 13705.51 11085.53 10017.36
capital
WCT ratio 1.345235 1.306002 1.726321 2.002108 2.081978

2.5

1.5

0.5

0
1 2 3 4 5

From the above table the WCT ratio has been increased during the period of the study. It is
increased from 1.34 to 2.08%. it measures how efficiently a firm is using its working capital to
produce sales.
Return on equity ratio

The return on equity ratio is profitability ratio used for measuring the return that an organisation
earns on shareholders equity. It’s a mixed ratio which means it uses one element from the
income statement and the other from the balance.

Particulars 2018 2017 2016 2015 2014

Net income 24700.30 21373.52 22151.71 21103.93 19717.64
Total equity 289.37 289.37 289.37 289.37 289.37
ROE Ratio 85.35888 73.86225 76.5551 72.93061 68.13989

90
80
70
60
50
40
30
20
10
0

1 2 3 4 5

From the above table the ROE of bajaj company is decreased from 85 to 68%. The roe should be
high. It measures how a company uses its investments to generate earnings and growth.
Return on asset ratio

Return on assets (ROA) is an indicator of how profitable a company is relative to its total assets.
ROA gives a manager, investor, or analyst an idea as to how efficient a company's management
is at using its assets to generate earnings. Return on assets is displayed as a percentage.

PARTICULARS 2018 2017 2016 2015 2014

EBIT 5814.57 5335.63 5547.32 4425.08 4632.05
Total assets 23819.49 20814.89 16486.50 15562.32 14747.60
ROA Ratio 0.2411 0.256337 0.336477 0.284346 0.314088

0.4

0.35

0.3

0.25

0.2

0.15

0.1

0.05
1 2 3 4 5
0

From the above table the return on assets of bajaj company has been increased from 0.24 to
0.31%. the return on assets ratio of a company should be high. It means the firm is able to utilize
its resources well in generating income.
Net profit margin ratio

The net profit margin is equal to how much net income or profit is generated as a percentage of
revenue. Net profit margin is the ratio of net profits to revenues for a company or business
segment. Net profit margin is typically expressed as a percentage but can also be represented in
decimal form. The net profit margin illustrates how much of each dollar in revenue collected by
a company translates into profit.

Particulars 2018 2017 2016 2015 2014

Net income 24700.30 21373.52 22151.71 21103.93 19717.64
Total revenue 26512.17 22988.65 23660.11 22194.43 20855.92
NPM Ratio 0.931659 0.929742 0.936247 0.950866 0.945422

0.955

0.95

0.945

0.94

0.935

0.93

0.925

0.92
1 2 3 4 5
0.915

From the above table the net profit ratio of Bajaj firm is increased from 0.93 to 0.94%. it
measures how well a company manages its expenses relative to its net sales. The net profit ratio
should be high .
4.6 Technical analysis

4.6.1 Relative strength index

In December 2017 it is at downward point below 70 then is a trend averseal then in February
2018 RSI 70 there is also trend reverseal as it was peak February 2018 RSI was 30 up to that
trend is downward then it goes up. May RSI above to trend reverseal again. Then june RSI
below 70 trend reverseal on September RSI again 70 on October 2018 RSI below 20 then price
reverseal during September there is fall in stock market we cannot use RSI.

summary

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 RSE are
moving closer and the stock is highly volatile. So there is strong upward momentum, but the
prices may fall very soon but will rise again.
Analysisnof ashok Leyland

4.7 Fundamental Analysis

Fundamental analysis is the study of a company’s 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.

4.8 Technical Analysis:

4.8.1 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

4.8.2 Relative Strength Index (RSI):

J. Welles Wilder developed the Relative Strength Index (RSI) and introduced it in the June
1978 article for Commodities magazine. RSI is an extremely popular momentum indicator.

RSI is a momentum oscillator that measures the speed and change of price movements. RSI
oscillates between zero and 100. The most popular is the 14 days RSI where the RSI is calculated
based on 14 days values. Traditionally the stock is considered to be overbought when RSI is
above 70 and oversold when RSI is below 30. Signals can also be generated by looking for
divergences and centerline crossovers.

4.9 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.

Products:

The company manufactures and markets Buses, Trucks, Engines and Defence Purpose
Vehicles. It caters to both domestic and international markets.

4.10 Ashok Leyland company is analysed by apply 7 ratios are as below

 Current ratio
 Return on capital employed ratio
 Asset turnover ratio
 Working capital turnover ratio
 Return on equity ratio
 Return on asset ratio
 Net profit margin ratio
4.11 FUNDAMENTALS ANALYSIS OF KEY RATIOS

Current ratio

The current ratio is a liquidity ratio that measures a company's ability to pay short-term
obligations or those due within one year. It tells investors and analysts how a company can
maximize the current assets on its balance sheet to satisfy its current debt and other payable.

Particulars 2018 2017 2016 2015 2014

7869.81
Current asset 5977.12 5180.95 4693.00 3855.44

Current liabilities 8246.98 6421.75 4890.15 5035.52 4586.60

Current ratio 0.95426568 0.9307619 1.0594599 0.9319792 0.8405878

1.2
1
0.8
0.6
0.4
0.2
0

1 2 3 4 5

From the above table there is a decrease in the current ratio of Bajaj company during the period
of 5 years. It has decreased from 0.95 to 0.84%. The ideal current ratio is 2. So it should improve
its current ratio.
Return on capital employed ratio

Return on capital employed (ROCE) is a financial ratio that measures a company's profitability
and the efficiency with which its capital is used. In other words, the ratio measures how well a
company is generating profits from its capital. The ROCE ratio is considered an important
profitability ratio and is used often by investors when screening for suitable investment
candidates.

PARTICULARS 2018 2017 2016 2015 2014

EBIT 2242.89 1665.63 1636.71 341.26 596.88

Capital 8339.10 7618.32 7883.57 8275.97 8221.40

employed

ROCE 0.26896068 0.2186217 0.207610258 0.041235 0.0726008

0.3
0.25
0.2
0.15
0.1
0.05
0
-0.05
-0.1
5
1 2 3 4

From the above table the return on capital employed ratio has been decreased from 0.26 to 0.072
It is a ratio to find out whether a company is truly profitable or not. If ROC is more it states that
the company has utilized its capital well.
Asset turnover ratio

The asset turnover ratio measures the value of a company's sales or revenues relative to the value
of its assets. The asset turnover ratio can be used as an indicator of the efficiency with which a
company is using its assets to generate revenue.

Particulars 2018 2017 2016 2015 2014

Revenue 26437.67 20276.40 19054.92 13626.65 10009.95

Total asset 16586.08 14040.07 12773.75 13311.49 12808.00

Asset turnover ratio 1.59396735 1.4441808 1.4917248 1.0281892 0.7815389

1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0

1 2 3 4 5

From the above table the asset turnover of Ashok leyland company has been decreased from
1.5to 0.78. The ratio should be low; if the ratio is low the company profit will be high. here the
Ashok Leyland company ratio is decreased during period of study it means it is having high
profits
Working capital turnover ratio

Working capital turnover is a ratio that measures how efficiently a company is using its working
capital to support a given level of sales. Also referred to as net sales to working capital, work
capital turnover shows the relationship between the funds used to finance a company's operations
and the revenues a company generates as a result.

Particulars 2018 2017 2016 2015 2014

Revenue 26437.67 20276.40 19054.92 13686.65 10009.95
Working 8339.10 7618.32 7883.57 8275.97 8221.40
capital
WCT ratio 3.17032653 2.661537 2.417042025 1.653782 1.2175481

3.5

2.5

1.5

0.5

0
1 2 3 4 5

From the above table the WCT ratio has been decreased during the period of the study. It is
increased from 3.17 to 1.21%. It measures how efficiently a firm is using its working capital to
produce sales.
Return on equity ratio

The return on equity ratio is profitability ratio used for measuring the return that an organisation
earns on shareholders equity. It’s a mixed ratio which means it uses one element from the
income statement and the other from the balance sheet.

Particulars 2018 2017 2016 2015 2014

Net income 25533.79 19741.58 18560.77 13311.14 9735.73
Total equity 292.71 284.59 284.59 284.59 284.59
ROE Ratio 87.2323802 69.368495 65.21933308 46.77302 36.59086

90
80
70
60
50
40
30
20
10
0

1 2 3 4 5

From the above table the ROE of Ashok leyland company is decreased from 85 to 36%. The
ROE should be high. It measures how a company uses its investments to generate earnings and
growth.
Return on asset ratio

Return on assets (ROA) is an indicator of how profitable a company is relative to its total assets.
ROA gives a manager, investor, or analyst an idea as to how efficient a company's management
is at using its assets to generate earnings. Return on assets is displayed as a percentage.

PARTICULARS 2018 2017 2016 2015 2014

EBIT 2242.89 1665.53 1636.71 341.26 596.88
Total assets 16586.08 14040.07 12773.75 13311.49 12808.00
ROA Ratio 0.13522725 0.116269 0.128130737 0.0256365 0.0466021

0.15

0.1

0.05

0
1 2 3 4 5

-0.05

-0.1

From the above table the return on assets of Ashok Leyland company has been decreased from
0.13 to 0.04%. the return on assets ratio of a company should be high. It means the firm is able
to utilize its resources well in generating income.
Net profit margin ratio

The net profit margin is equal to how much net income or profit is generated as a percentage of
revenue. Net profit margin is the ratio of net profits to revenues for a company or business
segment. Net profit margin is typically expressed as a percentage but can also be represented in
decimal form. The net profit margin illustrates how much of each dollar in revenue collected by
a company translates into profit.

Particulars 2018 2017 2016 2015 2014

Net income 25533.79 19741.58 18560.77 13311.14 9735.73
Total revenue 26437.67 20276.40 19054.92 13686.65 100009.95
NPM Ratio 0.9651019 0.9736235 0.974067065 0.9725638 0.726053

0.976

0.974

0.972

0.97

0.968

0.966

0.964

0.962
1 2 3 4 5
0.96

From the above table the net profit ratio of Ashok leyland firm is decreased from 0.96 to 0.72%.
it measures how well a company manages its expenses relative to its net sales. The net profit
ratio should be high.
4.12 Technical analysis

4.13 Relative strength index:

In December 2017 it is at peak point above 70 then is a trend reverseal then in February 2018
RSI 70 there is downward so trend averseal February 2018 RSI was 30 up to that trend is
downward then it goes up. May RSI above to trend reverseal again. Then june RSI below 70
trend averseal on September RSI again 70 on October 2018 RSI below 20 then price reverseal
during September there is fall in stock market we cannot use RSI.

Summary:

From the fundamental analysis we can conclude that the company is strong in fundamentals and
prices are expected to rise in the [Link] the technical analysis we can see that the RSE are
rising. We can also notice that RSI also show bullish momentum. So, we can conclude that the
prices will rise in the short term.
 Analysis of Mahindra and Mahindra

4.14 Fundamental Analysis

Fundamental analysis is the study of a company’s 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.

4.15 Technical Analysis:

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

Relative Strength Index (RSI):

J. Welles Wilder developed the Relative Strength Index (RSI) and introduced it in the June
1978 article for Commodities magazine. RSI is an extremely popular momentum indicator.

RSI is a momentum oscillator that measures the speed and change of price movements. RSI
oscillates between zero and 100. The most popular is the 14 days RSI where the RSI is calculated
based on 14 days values. Traditionally the stock is considered to be overbought when RSI is
above 70 and oversold when RSI is below 30. Signals can also be generated by looking for
divergences and centerline crossovers. Mahindra & Mahindra Limited:

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

1. Automotive Sector: The Mahindra Group’s Automotive Sector is in the business of

manufacturing and marketing utility vehicles and light commercial vehicles, including three-
wheelers. It is the market leader in utility vehicles in India since its inception, and currently
accounts for about a half of India’s market for utility vehicles. Over the years, the Group has
developed a large product portfolio catering to a diverse customer base spanning rural and semi-
urban customers, defense requirements and luxurious urban utility vehicles.

The Group exports its products to several 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 portfolio that includes mass transport as well as new generation vehicles.

Mahindra & Mahindra’s 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, India’s 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 world’s 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 Taiwan’s 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.

Mahindra & Mahindra company is analysed by apply 7 ratios are as below

 Current ratio
 Return on capital employed ratio
 Asset turnover ratio
 Working capital turnover ratio
 Return on equity ratio
 Return on asset ratio
 Net profit margin ratio
4.16 FUNDAMENTAL ALYSIS OF KEY RATIOS

Current ratio

The current ratio is a liquidity ratio that measures a company's ability to pay short-term
obligations or those due within one year. It tells investors and analysts how a company can
maximize the current assets on its balance sheet to satisfy its current debt and other payable

Particulars 2018 2017 2016 2015 2014

16474.47
Current asset 12608.00 11635.68 10128.21 11288.92

Current liabilities 13323.21 9634.05 9844.32 8974.27 766.79

Current ratio 1.0236524081 1.30869 1.1816889 1.12858316 1.2876914

1.35
1.3
1.25
1.2
1.15
1.1
1.05
1

1 2 3 4 5

From the above table there is a increase in the current ratio of Bajaj company during the period
of 5 years. It has decreased from 1.02 to 1.28%. The ideal current ratio is 2. So it should improve
its current ratio.
Return on capital employed ratio

Return on capital employed (ROCE) is a financial ratio that measures a company's profitability
and the efficiency with which its capital is used. In other words, the ratio measures how well a
company is generating profits from its capital. The ROCE ratio is considered an important
profitability ratio and is used often by investors when screening for suitable investment
candidates.

PARTICULARS 2018 2017 2016 2015 2014

EBIT 5668.76 4174.15 4215.72 3833.7 4316.64

Capital 34093.54 30334.27 25655.25 23970.60 22521.86

employed

ROCE 0.16627075 0.1376055092 1.11196889 1.1285316 1.2876914

0.25

0.2

0.15

0.1

0.05

0
1 2 3 4 5

From the above table the return on capital employed ratio has been increased from 0.166 to
1.28% It is a ratio to find out whether a company is truly profitable or not. If ROCE is more it
states that the company has utilized its capital well
Asset Turnover ratio

The asset turnover ratio measures the value of a company's sales or revenues relative to the value
of its assets. The asset turnover ratio can be used as an indicator of the efficiency with which a
company is using its assets to generate revenue.

Particulars 2018 2017 2016 2015 2014

Revenue 49721.91 45398.96 41725.00 39794.36 41226.49

Total asset 47416.75 3968.32 35499.57 32994.87 31288.65

Asset turnover ratio 1.04861488 1.135873 1.17536635 1.20790769 1.317618

1.4

1.2

0.8

0.6

0.4

0.2
1 2 3 4 5
0

From the above table the asset turnover of M&M company has been increased from 1.04to
1.31%. The ratio should be low; if the ratio is low the company profit will be high. here the
M&M company ratio is increased during period of study it means it is having less profits
Working capital turnover ratio

Working capital turnover is a ratio that measures how efficiently a company is using its working
capital to support a given level of sales. Also referred to as net sales to working capital, work
capital turnover shows the relationship between the funds used to finance a company's operations
and the revenues a company generates as a result.

Particulars 2018 2017 2016 2015 2014

Revenue 49721.91 45398.96 41725.00 39794.36 41226.49
Working 34093.54 30334.27 25655.25 23970.60 22521.86
capital
WCT ratio 1.458396811 1.496622797 1.62637277 1.660132 1.83021

2
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0

1 2 3 4 5

From the above table the WCT ratio has been increased during the period of the study. It is
increased from 1.45 to 1.83%. It measures how efficiently a firm is using its working capital to
produce sales.
Return on equity ratio

The return on equity ratio is profitability ratio used for measuring the return that an organisation
earns on shareholders equity. It’s a mixed ratio which means it uses one element from the
income statement and the other from the balance sheet.

Particulars 2018 2017 2016 2015 2014

Net income 1036.36 1345.46 849.93 848.94 717.99
Total equity 594.97 296.81 296.32 295.7 295.16
ROE Ratio 1.74186338 4.53306 2.86828249 2.4325451 2.87095029

5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0

1 2 3 4 5

From the above table the ROE of M&M company is increased from 1.74 to 2.87%. The ROE
should be high. It measures how a company uses its investments to generate earnings and
growth.
Return on asset ratio

Return on assets (ROA) is an indicator of how profitable a company is relative to its total assets.
ROA gives a manager, investor, or analyst an idea as to how efficient a company's management
is at using its assets to generate earnings. Return on assets is displayed as a percentage.

PARTICULARS 2018 2017 2016 2015 2014

EBIT 5668.76 4174.15 4215.72 383.17 4316.64
Total assets 47416.75 39968.32 35449.57 32994.87 31288065
ROA Ratio 0.1195518 0.104436464 0.11875411 0.11635104 0.1379618

0.16

0.14

0.12

0.1

0.08

0.06

0.04

0.02
1 2 3 4 5
0

From the above table the return on assets of M&M company has been increased from 0.11 to
0.13%. The return on assets ratio of a company should be high. It means the firm is able to
utilize its resources well in generating income.
Net profit margin ratio

The net profit margin is equal to how much net income or profit is generated as a percentage of
revenue. Net profit margin is the ratio of net profits to revenues for a company or business
segment. Net profit margin is typically expressed as a percentage but can also be represented in
decimal form. The net profit margin illustrates how much of each dollar in revenue collected by
a company translates into profit.

Particulars 2018 2017 2016 2015 2014

Net income 1036.6 1345.46 849.93 848.94 717.99
Total revenue 49721.91 45398.96 41725.00 39794.36 41226.49
NPM Ratio 0.020843125 0.02968632 0.0203698 0.02133317 0.0174157

0.035

0.03

0.025

0.02

0.015

0.01

0.005

0
1 2 3 4 5

From the above table the net profit ratio of M&M firm is increased from 0.02 to 0.017%. it
measures how well a company manages its expenses relative to its net sales. The net profit ratio
should be high.
4.17 Technical analysis

Relative strength index:

In December 2017 it is at peak point above 70 then is a trend reverseal then in February 2018
RSI 70 there is also trend reverseal February 2018 RSI was 30 up to that trend is downward then
it goes up. May RSI above to trend reverseal again. Then june RSI above 70 trend reverseal on
September RSI again 70 on October 2018 RSI below 20 then price reverseal during September
there is fall in stock market we cannot use RSI.

Summary

From the fundamental analysis we can conclude that the company is strong in its fundamentals
and has a good future [Link] the technical analysis we can conclude that the prices are in
uptrend even though the RSE shows a bearish signal the prices are expected to rise in the near
future
Need

These analyses or made to find out which company is better to make an investments.
 Chapter 5

Findings and conclusion

5.1 Findings

5.1.1 Mahindra & Mahindra Ltd:

Fundamental Analysis:

 Net profits had recorded almost 100% growth after a fall in 2017-18. These show that
the company has recovered from the global slowdown and started to grow again.
 The higher P/E Ratio 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 30 and 70 are rising and indicates that the trend is bullish
 The RSI is rising and above 50 level which indicates an upward momentum
 It indicates an upward momentum that is bullish.

5.1.2 Bajaj Ltd:

Fundamental analysis

 From the above table the net profit ratio of Bajaj firm is increased and it measures how
well a company manages its expenses relative to its net sales. The net profit ratio should
be high
 There is also a rise in the Net Profit Margin which shows a sign of recovery.
 The Share is continuously increasing which shows that the value of shares are increasing
and the rising ROE shows increasing investor confidence.

Technical Analysis:
  From we can see that the EMA 30 and EMA 70 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 we can see that the RSI is rising and it is above 70. This shows that the bullish
momentum is stronger.
 This shows that there is a bullish momentum

5.1.3 Ashok Leyland Ltd:

Fundamental analysis

 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 we can see that the investor confidence has
increased i.e. P/E Ratio
 The company has also got a lot of projects from the government which ensures stable returns
for a few years.

Technical Analysis:

 We can see that both the EMA 30 and EMA 70 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 RSI is above 70 level and is rising. This shows that there is a strong bullish
momentum.
5.2 The Indian Automobile Industry:

From the analysis we can find that:

 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.

5.7 Suggestions

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

Long term Investment BUY

Short Term Investment BUY

Tata Motors Ltd Stocks:

Mode of Investment Recommendation

Long term Investment BUY

Short Term Investment 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

Long term Investment BUY

Short Term Investment BUY

5.8 CONCLUSION

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 RSE shows a bearish signal the prices are expected to rise in the near future.

Bajaj 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 RSE
are moving closer and the stock is highly volatile. 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 RSE are rising. We can also notice that
RSI also show bullish momentum. So, we can conclude that the prices will rise in the
short term.