Fundamental And Technical Analysis Of Automobile Sector
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- Words: 2,179
- Pages: 82
By : Chitra Darshini Deepak Faizal
The automobile industry in India is the ninth largest in the world with an annual production of over 2.3 million units in 2008.[1] In 2009, India emerged as Asia's fourth largest exporter of automobiles, behind Japan, South Korea and Thailand.[2]
India ranks 1st in the global two-wheeler market India is the 4th biggest commercial vehicle market in the world India ranks 11th in the international passenger car market India ranks 5th pertaining to the number of bus and truck sold in the world India is the second largest tractor manufacturer in the world.
Fundamental
Analysis Technical Analysis
There is an intrinsic value of security. Which depends upon underlying economic (fundamental) factors. This intrinsic value can be determined by analyzing fundamental factors relating to Company, Industry and Economic. 3 steps of Fundamental Analysis Economy Analysis Industry Analysis Company Analysis
Economic
analysis is the analysis of forces operating the overall economy a country. Economic analysis is a process whereby strengths and weaknesses of an economy are analyzed. Economic analysis is important in order to understand exact condition of an economy.
India is 16th in the world in terms of nominal factory output The per capita Income is near about Rs38,000 more than 10 million people employed in this industry The market value of Automobile Industry is more than US$8 bl. and Contribution in Indian GDP is near about 5%
India ranks second worldwide in farm output. Agriculture and allied sectors like forestry and logging accounted for 16.6% of the GDP, employed 60% of the total workforce. Agro based economy Direct impact on industry Uncertainty of monsoon
In December 2008, overall production fell by 22 %. Passenger Vehicles segment registered negative growth. Total number of vehicles sold including passenger vehicles, commercial vehicles, twowheelers and three-wheelers in 2008-09 was 9.72 million as compared to 9.65 million in 2007-08.
The increase in the price of fuel and the steel due to inflation has led to a slower growth rate of the car industry in India. The effect of inflation has taken the rise in the price rate of the cars by 3-4% a fall of 8-9% in terms of turnover.
Negative
correlation Lower interest rates
In India FDI up to 100 percent, has been permitted under automatic route to this sector which has led to a turnover of USD 12 billion in the Indian auto industry and USD 3 billion in the auto parts industry. manufacturing costs in India are 25 to 30 per cent lower than their western counterparts FDI inflows in Automobile Industry 2008-09 was Rs.5,212 Cr an increase of 47.25% compare to 200708, while in April-May 2009 it was around Rs.497 Cr.
The Auto sector had a few pre-budget demands as they were going through a rough patch. The demands were: • Adoption of a uniform excise structure for all passenger and utility vehicles • Reduction of excise duty on two and three wheelers • Provision of benefits for hybrid technology • Offer liberal credit to the agricultural sector to enable purchase of tractors
The
budget proposals for the Auto sector were: • Excise duty on small cars reduced to 14 percent • Excise cut on two and three wheelers to 12 percent • Excise duty on buses and chassis cut from 16 percent to 12 percent • Excise duty on hybrid cars cut from 24 percent to 14percent • Custom duty on steel removed
Possible Impact – • Reduction in excise duty of petrol driven trucks and its chassis is a positive sign for the commercial vehicle industry as it would the cost of the petrol driven trucks and thereby improving the sales. • Retention of excise duty for two wheelers and small cars may enable more sales. • As service tax is imposed on rail and waterways freight charges, there is a possibility of increase transport of goods carried by roadways. • Finally, the cut in the excise and customs duties would create good improvement for the automobile sector.
Society
of Indian Automobile Manufacturers (SIAM), automobile sales (including passenger vehicles, commercial vehicles, two-wheelers and three-wheelers) in the overseas markets increased to 1.53 million units in 2008-09 from 1.23 million units in 2007-08. Export of passenger vehicles increased from 218,401 in 2007-08 to 335,739 units in 2008-09.
The current trends of the global automobile industry reveal that in the developed countries the automobile industries are stagnating as a result of drooping markets, whereas the automobile industry in the developing nations, have been consistently registering higher growth rates every passing year for their domestic flourishing domestic automobile markets
The automobile industry comprises of 4-wheelers 2-wheelers Auto cmponents(auto parts) Auto finance
Five Forces Model Industrial Life Cycle SWOT Analysis Industry Specific Index
Degree
of Rivalry Despite the high concentration ratio seen in the automotive sector, rivalry in the Indian auto sector is intense due to the entry of foreign companies in the market. The industry rivalry is extremely high with any being product being matched in a few months by the competitors
Threat
of Substitutes The threat of substitutes to the automotive industry is fairly mild. Numerous other forms of transportation are available, but none offer the utility, convenience, independence and value offered by automobiles
Barriers
to entry The barriers to enter automotive industry are substantial. For a new company, the startup capital required to establish manufacturing capacity to achieve minimum efficient scale is prohibitive
Supplier’s power
In the relationship between the industry and its suppliers, the power axis is tipped in industry’s favor. The industry is comprised of powerful buyers who are generally able to dictate their terms to the suppliers. Buyers’ Power In the relationship between the automotive industry and its ultimate consumers, the power axis is tipped in the consumers’ favor. This is due to the fairly standardized nature and the low switching costs associated with selecting from among competing brands.
The industrial life cycle is a term used for classifying industry vitality over time. Industry life cycle classification generally groups industries into one of four stages: Pioneering Growth Maturity Decline
In the growth phase, the product market has been established and there is at least some historical guide to ground demand estimates. The industry is growing rapidly, often at an accelerating rate of sales and earnings growth
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. SWOT analysis of the Indian automobile sector gives the following points:
Industry specific index also called as sectoral index are those indices, which represent a specific industry sector. All stocks in a sectoral index belong to that sector only. Hence an index like the BSE auto index is made of auto stocks. Sectoral Indices are very useful in tracking the movement and performance of particular sector
EPS measures the profit available to the equity shareholders per share, that is, the amount that they can get on every share held.
EPS
= Net income- Dividends on Preferredstock Average Outstanding shares
The
trend shows that Tata’s net profit margin is quite stable until it falls to 3.77 in 2009. While the net profit of India’s no.1 car manufacturer Maruti Suzuki shows a negative trend from 2007 onwards. But the future prospect for both the company’s profit is higher. Profit margins come down as recession hits economy badly hence sales get reduced and cost get increased very much.
Net
profit Ratio = (Net profit) × 100 (Net sales)
Both giants of Automobile industry shows positive trend in Sales Revenue over the past 5year. However recession brought hurdles but both companies have potential to grow in future as lots of products are still to add in their portfolio. Moreover increased demand in foreign market also seems to be a positive signal for better future.
The quick ratio is a very stringent measure of solvency. A general rule of thumb suggests that the quick ratio should be around 1.
A high debt to equity ratio suggests that a company has financed its growth mostly via debt.
Debt-Equity
Ratio= Total Debt Total Equity
The
current ratio is a convenient and reliable tool for measuring a company's level of liquidity. The ratio acts as an indication that the firm is able to generate funds to make all needed payments in the future; thus, the ratio indicates whether the firm is likely to be a going concern.
Tata
motors and Maruti Suzuki both the companies showed a positive trend in paying dividends till 2008, but the scenario changed in 2009 as both the company’s dividend per share fell. According to graph TATA’s dividend was much higher than that of Maruti, it always provided dividend of above 10 per share to its shareholders while maruti stick to below 5 per share, even though the fall in dividend in 2009, still both the companies are earning good profit. Dividend Per Share= Total amount of Dividend ShareOutstanding
Balance Sheets
Share
Holding Pattern for Quarter Ended 30-June-09
Mr. Ratan Tata Mr. N.A. Soonawala Mr. R. Gopalakrishnan Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr.
S.M. Palia S. Bhargava V. K. Jairath Ravi Kant J. J. Irani N. N. Wadia R.A. Mashelkar n Munjee Prakash M Telang
Chairman Director Director Director Director Director Vice Chairman Director Director Director Director Director
Mr. R. C. Bhargava Mr. Shinzo Hakanishi Mr. Manvinder Singh Banga Mr. Amal Ganguli Mr. D. S. Brar Mr. Keiichi Asai Mr. Osamu Suzuki Mr. Shuji Oishi Ms. Pallavi Shroff Mr. Kenichi Ayukawa Mr. Tsuneo Shashi
Chairman MD and CEO Director Director Director Director Director Director Director Director Director & Managing Executive Office (Production)
Maruti
Suzuki Products (CAR) Maruti Grand Vitara Diesel Maruti 02 Maruti SX4 Diesel Maruti Cervo Maruti Kizashi Maruti xl7 Maruti APV Maruti Jimny
Expected Launch December- 2009 December 2009 December 2009 December 2009 December 2009 March 2010 June 2010 July 2010
Car Tata Tata Tata Tata
Expected launch indica vista IGNIS Sept 2009 indigo vista Sept 2009 indicruz Nov 2009 prima Aug 2010
Technical
analysts track price movements and trading volumes in various securities to identify patterns in the price behavior of particular stocks, mutual funds, commodities, or options in specific market sectors or in the overall financial markets .
Accumulation
Public participation
Continuatio n
Excess Upstrea m
Correctio n
3.
The first tenet is that the market has three trends i.e.; Up trends Down trends Corrections The second tenet is that the trend have three phases i.e; Accumulation Public participation Excess The third tenet is that the market counts all news.
4.
The fourth is that the averages must confirm each other.
5.
The fifth tenet is that trends are confirmed by volume.
6.
The sixth tenet says that trends exist until definite signals prove that they have ended
1.
2.
Upstrea m
Primary trend
Deviation Reaction rally
SENSEX
AND TATA MOTORS
This Technical tool helps in telling that what would be the price band of share price in which it move in near future on the basis of past high and low levels made by a particular scrip. Resistance Level shows the price above which share price will not move in normal case on the other hand Support level shows the minimum share price which can be touched by share or crossing of this share will not be there in normal market condition
Resistance Level Rs.1425 approx.
Support level RS.1275 approx.
Resistance Level Rs.490 approx.
Support Level Rs.430 approx.
A
Moving Average is an indicator that shows the average value of a security's price over a period of time. The method of interpreting a moving average is to compare the relationship between a moving average of the security's price with the security's price itself.
A crossover occurs when a faster Moving Average crosses either above a slower Moving Average which is considered a bullish crossover or below which is considered a bearish crossover. M.A.C helps in telling buying opportunities when the shorter moving average crosses above the longer moving average and selling opportunities when the shorter moving average crosses below the longer moving average.
20 Periods MA
S
B
50 Periods MA
Buy
No Sell Position or Always Position of Buy
The automobile industry in India is the ninth largest in the world with an annual production of over 2.3 million units in 2008.[1] In 2009, India emerged as Asia's fourth largest exporter of automobiles, behind Japan, South Korea and Thailand.[2]
India ranks 1st in the global two-wheeler market India is the 4th biggest commercial vehicle market in the world India ranks 11th in the international passenger car market India ranks 5th pertaining to the number of bus and truck sold in the world India is the second largest tractor manufacturer in the world.
Fundamental
Analysis Technical Analysis
There is an intrinsic value of security. Which depends upon underlying economic (fundamental) factors. This intrinsic value can be determined by analyzing fundamental factors relating to Company, Industry and Economic. 3 steps of Fundamental Analysis Economy Analysis Industry Analysis Company Analysis
Economic
analysis is the analysis of forces operating the overall economy a country. Economic analysis is a process whereby strengths and weaknesses of an economy are analyzed. Economic analysis is important in order to understand exact condition of an economy.
India is 16th in the world in terms of nominal factory output The per capita Income is near about Rs38,000 more than 10 million people employed in this industry The market value of Automobile Industry is more than US$8 bl. and Contribution in Indian GDP is near about 5%
India ranks second worldwide in farm output. Agriculture and allied sectors like forestry and logging accounted for 16.6% of the GDP, employed 60% of the total workforce. Agro based economy Direct impact on industry Uncertainty of monsoon
In December 2008, overall production fell by 22 %. Passenger Vehicles segment registered negative growth. Total number of vehicles sold including passenger vehicles, commercial vehicles, twowheelers and three-wheelers in 2008-09 was 9.72 million as compared to 9.65 million in 2007-08.
The increase in the price of fuel and the steel due to inflation has led to a slower growth rate of the car industry in India. The effect of inflation has taken the rise in the price rate of the cars by 3-4% a fall of 8-9% in terms of turnover.
Negative
correlation Lower interest rates
In India FDI up to 100 percent, has been permitted under automatic route to this sector which has led to a turnover of USD 12 billion in the Indian auto industry and USD 3 billion in the auto parts industry. manufacturing costs in India are 25 to 30 per cent lower than their western counterparts FDI inflows in Automobile Industry 2008-09 was Rs.5,212 Cr an increase of 47.25% compare to 200708, while in April-May 2009 it was around Rs.497 Cr.
The Auto sector had a few pre-budget demands as they were going through a rough patch. The demands were: • Adoption of a uniform excise structure for all passenger and utility vehicles • Reduction of excise duty on two and three wheelers • Provision of benefits for hybrid technology • Offer liberal credit to the agricultural sector to enable purchase of tractors
The
budget proposals for the Auto sector were: • Excise duty on small cars reduced to 14 percent • Excise cut on two and three wheelers to 12 percent • Excise duty on buses and chassis cut from 16 percent to 12 percent • Excise duty on hybrid cars cut from 24 percent to 14percent • Custom duty on steel removed
Possible Impact – • Reduction in excise duty of petrol driven trucks and its chassis is a positive sign for the commercial vehicle industry as it would the cost of the petrol driven trucks and thereby improving the sales. • Retention of excise duty for two wheelers and small cars may enable more sales. • As service tax is imposed on rail and waterways freight charges, there is a possibility of increase transport of goods carried by roadways. • Finally, the cut in the excise and customs duties would create good improvement for the automobile sector.
Society
of Indian Automobile Manufacturers (SIAM), automobile sales (including passenger vehicles, commercial vehicles, two-wheelers and three-wheelers) in the overseas markets increased to 1.53 million units in 2008-09 from 1.23 million units in 2007-08. Export of passenger vehicles increased from 218,401 in 2007-08 to 335,739 units in 2008-09.
The current trends of the global automobile industry reveal that in the developed countries the automobile industries are stagnating as a result of drooping markets, whereas the automobile industry in the developing nations, have been consistently registering higher growth rates every passing year for their domestic flourishing domestic automobile markets
The automobile industry comprises of 4-wheelers 2-wheelers Auto cmponents(auto parts) Auto finance
Five Forces Model Industrial Life Cycle SWOT Analysis Industry Specific Index
Degree
of Rivalry Despite the high concentration ratio seen in the automotive sector, rivalry in the Indian auto sector is intense due to the entry of foreign companies in the market. The industry rivalry is extremely high with any being product being matched in a few months by the competitors
Threat
of Substitutes The threat of substitutes to the automotive industry is fairly mild. Numerous other forms of transportation are available, but none offer the utility, convenience, independence and value offered by automobiles
Barriers
to entry The barriers to enter automotive industry are substantial. For a new company, the startup capital required to establish manufacturing capacity to achieve minimum efficient scale is prohibitive
Supplier’s power
In the relationship between the industry and its suppliers, the power axis is tipped in industry’s favor. The industry is comprised of powerful buyers who are generally able to dictate their terms to the suppliers. Buyers’ Power In the relationship between the automotive industry and its ultimate consumers, the power axis is tipped in the consumers’ favor. This is due to the fairly standardized nature and the low switching costs associated with selecting from among competing brands.
The industrial life cycle is a term used for classifying industry vitality over time. Industry life cycle classification generally groups industries into one of four stages: Pioneering Growth Maturity Decline
In the growth phase, the product market has been established and there is at least some historical guide to ground demand estimates. The industry is growing rapidly, often at an accelerating rate of sales and earnings growth
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. SWOT analysis of the Indian automobile sector gives the following points:
Industry specific index also called as sectoral index are those indices, which represent a specific industry sector. All stocks in a sectoral index belong to that sector only. Hence an index like the BSE auto index is made of auto stocks. Sectoral Indices are very useful in tracking the movement and performance of particular sector
EPS measures the profit available to the equity shareholders per share, that is, the amount that they can get on every share held.
EPS
= Net income- Dividends on Preferredstock Average Outstanding shares
The
trend shows that Tata’s net profit margin is quite stable until it falls to 3.77 in 2009. While the net profit of India’s no.1 car manufacturer Maruti Suzuki shows a negative trend from 2007 onwards. But the future prospect for both the company’s profit is higher. Profit margins come down as recession hits economy badly hence sales get reduced and cost get increased very much.
Net
profit Ratio = (Net profit) × 100 (Net sales)
Both giants of Automobile industry shows positive trend in Sales Revenue over the past 5year. However recession brought hurdles but both companies have potential to grow in future as lots of products are still to add in their portfolio. Moreover increased demand in foreign market also seems to be a positive signal for better future.
The quick ratio is a very stringent measure of solvency. A general rule of thumb suggests that the quick ratio should be around 1.
A high debt to equity ratio suggests that a company has financed its growth mostly via debt.
Debt-Equity
Ratio= Total Debt Total Equity
The
current ratio is a convenient and reliable tool for measuring a company's level of liquidity. The ratio acts as an indication that the firm is able to generate funds to make all needed payments in the future; thus, the ratio indicates whether the firm is likely to be a going concern.
Tata
motors and Maruti Suzuki both the companies showed a positive trend in paying dividends till 2008, but the scenario changed in 2009 as both the company’s dividend per share fell. According to graph TATA’s dividend was much higher than that of Maruti, it always provided dividend of above 10 per share to its shareholders while maruti stick to below 5 per share, even though the fall in dividend in 2009, still both the companies are earning good profit. Dividend Per Share= Total amount of Dividend ShareOutstanding
Balance Sheets
Share
Holding Pattern for Quarter Ended 30-June-09
Mr. Ratan Tata Mr. N.A. Soonawala Mr. R. Gopalakrishnan Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr.
S.M. Palia S. Bhargava V. K. Jairath Ravi Kant J. J. Irani N. N. Wadia R.A. Mashelkar n Munjee Prakash M Telang
Chairman Director Director Director Director Director Vice Chairman Director Director Director Director Director
Mr. R. C. Bhargava Mr. Shinzo Hakanishi Mr. Manvinder Singh Banga Mr. Amal Ganguli Mr. D. S. Brar Mr. Keiichi Asai Mr. Osamu Suzuki Mr. Shuji Oishi Ms. Pallavi Shroff Mr. Kenichi Ayukawa Mr. Tsuneo Shashi
Chairman MD and CEO Director Director Director Director Director Director Director Director Director & Managing Executive Office (Production)
Maruti
Suzuki Products (CAR) Maruti Grand Vitara Diesel Maruti 02 Maruti SX4 Diesel Maruti Cervo Maruti Kizashi Maruti xl7 Maruti APV Maruti Jimny
Expected Launch December- 2009 December 2009 December 2009 December 2009 December 2009 March 2010 June 2010 July 2010
Car Tata Tata Tata Tata
Expected launch indica vista IGNIS Sept 2009 indigo vista Sept 2009 indicruz Nov 2009 prima Aug 2010
Technical
analysts track price movements and trading volumes in various securities to identify patterns in the price behavior of particular stocks, mutual funds, commodities, or options in specific market sectors or in the overall financial markets .
Accumulation
Public participation
Continuatio n
Excess Upstrea m
Correctio n
3.
The first tenet is that the market has three trends i.e.; Up trends Down trends Corrections The second tenet is that the trend have three phases i.e; Accumulation Public participation Excess The third tenet is that the market counts all news.
4.
The fourth is that the averages must confirm each other.
5.
The fifth tenet is that trends are confirmed by volume.
6.
The sixth tenet says that trends exist until definite signals prove that they have ended
1.
2.
Upstrea m
Primary trend
Deviation Reaction rally
SENSEX
AND TATA MOTORS
This Technical tool helps in telling that what would be the price band of share price in which it move in near future on the basis of past high and low levels made by a particular scrip. Resistance Level shows the price above which share price will not move in normal case on the other hand Support level shows the minimum share price which can be touched by share or crossing of this share will not be there in normal market condition
Resistance Level Rs.1425 approx.
Support level RS.1275 approx.
Resistance Level Rs.490 approx.
Support Level Rs.430 approx.
A
Moving Average is an indicator that shows the average value of a security's price over a period of time. The method of interpreting a moving average is to compare the relationship between a moving average of the security's price with the security's price itself.
A crossover occurs when a faster Moving Average crosses either above a slower Moving Average which is considered a bullish crossover or below which is considered a bearish crossover. M.A.C helps in telling buying opportunities when the shorter moving average crosses above the longer moving average and selling opportunities when the shorter moving average crosses below the longer moving average.
20 Periods MA
S
B
50 Periods MA
Buy
No Sell Position or Always Position of Buy
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