Portfolio-sujay And Vaidehi

Sri Sri Institute of Management Studies

AUTO TWO WHEELER INDUSTRY Hero Honda Motors Ltd TVS Motors Company Ltd Bajaj Auto Ltd 2009

Submited by Sujay Shetty Vaidehi Joshi

Project report submitted in partial fulfilment of the requirements for the course of Security and Portfolio Analysis as part of the Post Graduate Program in Management

Chapters 1 Brief Introduction and overview of the Industry------------------------------------------3 2 Industry and Company Analysis-----------------------------------------------------------4 2.1 Players in the two wheeler industry-------------------------------------------------------4 2.2Market Segmentation and Share of Firm in the Industry-------------------------------5 2.3Company Progress---------------------------------------------------------------------------7 2.4Financial Snapshots -------------------------------------------------------------------------7 2.4.1 Hero Honda-------------------------------------------------------------------------------- 7 2.4.2 TVS------------------------------------------------------------------------------------------8 2.4.3 Bajaj-----------------------------------------------------------------------------------------9 2.4.4 Share Holding patterns of the 3 companies--------------------------------------------9 2.5.1What is expected by the industry? ------------------------------------------------------12 2.5.2What is expected of the industry? ------------------------------------------------------12 2.6.1 Demand Drivers -------------------------------------------------------------------------12 2.6.2 Indian Auto Policy 2002---------------------------------------------------------------12 2.7 Porter’s Model-------------------------------------------------------------------------------13 2.8 SWOT Analysis-----------------------------------------------------------------------------14 2.9 Ratio Analysis-------------------------------------------------------------------------------15 3 Fundamental Analysis-----------------------------------------------------------------------19 3.1Economic Factors---------------------------------------------------------------------------19 4 Technical Analysis---------------------------------------------------------------------------22 4.1 Bajaj Auto Ltd------------------------------------------------------------------------------22 4.2 TVS Motor Ltd------------------------------------------------------------------------------23 4.2 Hero Honda Pvt Lt-------------------------------------------------------------------------24 5 Recommendations----------------------------------------------------------------------------25

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The Indian two-wheeler industry has come long way since its beginning in 1948 when Bajaj Auto started importing and selling Vespa Scooters in India. Over the time customer preferences have changed in favour of motorcycles and gearless bikes that score higher on technology, fuel economy and aesthetic appeal, at the expense of metal-bodied geared scooters and mopeds. These changes in customer preferences have had an impact on fortunes of the players. The players have either perished or have significantly lost market share, whereas new leaders have emerged. However currently, India is the second largest producer of two-wheelers in the world. It stands next only to China and Japan in terms of the number of two-wheelers produced and the sales of two-wheelers respectively. The demand and sale of the two wheelers have been affected by rising income levels, reducing excise duties, higher loan tenure and loan-to-value offered by the financing companies. Also the mounting traffic chaos and limited parking space has also increased the demand for two-wheelers from households that can afford or actually do own a car. The two wheeler industry has also been affected with increasing women working population, changing social philosophy and broad mindedness. Abundant and low cost labour coupled with local availability of raw materials like steel, aluminium and natural rubber has placed India amongst the low cost producing centres of two-wheelers. It anticipates buoyant growth in two-wheeler exports as well. The recent recession , slow down in the economy world wide and subdued macro economic scenario has caused poor consumer confidence level thus affecting the overall same of two wheels. However slow but steady penetration, rising income levels makes the long term outlook healthier. The post recession scenario shows increase in the sales of the auto two wheeler industry. In the FY 2009,the sales have risen by 5% from the FY 2008. Also the demand for 3 wheelers in rural India is slowly being replaced by two wheelers.

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2.1 Players in the Two Wheeler Industry There are many two-wheeler manufacturers in India. Major players in the 2-wheeler industry are Hero Honda Motors Ltd (HHML), Bajaj Auto Ltd (Bajaj Auto) and TVS Motor Company Ltd (TVS) The other key players in the two-wheeler industry are Kinetic Motor Company Ltd (KMCL), Kinetic Engineering Ltd (KEL), LML Ltd (LML), Yamaha Motors India Ltd (Yamaha), Majestic Auto Ltd (Majestic Auto), Royal Enfield Ltd (REL) and Honda Motorcycle & Scooter India (P) Ltd (HMSI). This counts to around 10 two-wheeler manufacturers in the country, they being Bajaj, Hero, Hero Honda, Honda, Indus, Kinetic, Royal Enfield, Suzuki, TVS, and Yamaha. The latest trend in the two-wheeler market is the introduction of electrically operated vehicles from a range of manufacturers such as Indus and Hero. These can be recharged from convenient household electrical points. The only disadvantage is speed, which is restricted to around 25 miles per hour. Currently, the motorcycle market is witnessing a demand for higher volume engines.

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2.2 Market Segmentation and Share of Firm in the Industry The composition of the industry consists of motorcycles, scooters and mopeds. Over the past decade, there has been a consumer preferential shift from mopeds to scooters and now motorcycles. On account of the shift, the motorcycle segment dominates the twowheeler industry with a market share of close to 80%. The motorcycle segment is further sub divided into 3 classes, starting from the entry/economy class (Rs 30,000 – Rs 40,000), executive class (Rs 40,000 –Rs 50,000) and the premium class (>Rs 50,000).

The motorcycle segment is primarily led by Hero Honda, the market shares are given below Hero Honda 59% Bajaj Auto

18%

HMSI

9%

TVS Motors

7%

Yamaha

5%

On the other hand the scooter segment is led by HMSI which has a dominant share of 63% followed by TVS Motors (16%) and Hero Honda (14%). When it comes to the moped segment, it is primarily dominated by TVS Motors with a market share of almost 100%.

Company wise market share of players -2008 JAN FEB MAR APRIL MAY JUNE JULY AUG SEPT OCT NOV HMSI 59% 63% 63% 57% 57% 59% 57% 55% 56% 57% 61% TVS 21% 17% 19% 23% 23% 22% 23% 24% 24% 21% 17% SMIPL 7% 7% 6% 7% 7% 8% 4% 8% KHML 11% 9% 8% 7% 10% 11% 12% 13% 12% 15% 14% KML 4% 4% 4% 4% 3% 0% 3% 0% 2% 3% 0% BAL 1% 1% 1% 1% 1% 1% 1% 1% 1% 2% 1%

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2.3 Company Progress The market leader Hero Honda registered a healthy growth of 12 % in its domestic sales whereas Bajaj Auto disappointed with its domestic sales plunging by 23% in FY09 over FY08. In October 2008, sales of TVS Motor came down to 117,101 Units from 129,614 Units in October 2007. Bajaj Auto Limited also witnessed a decrease of 34% in the sales of two-wheelers in October 2008 on a YOY basis. The industrial body, Society of Indian Automobile Manufacturers (SIAM), revealed that during 2007-2008, a total of 7,248,589 two-wheelers were sold in India. TVS Motors saw its domestic sales dropping marginally by 1.4 % in FY09, but in contrast, Honda Motorcycles and Scooters India (HMSI), a wholly owned subsidiary of Honda Motor Company, recorded a robust 16.5 % growth in domestic sales in India. Hero Honda has recently launched Karizma ZMR in its premium segment. One of the key pillars of winning strategy for Hero Honda has been to consistently keep introducing new, advanced products and maintaining a balanced product portfolio. The ZMR is set to further augment its steadily growing presence in the premium segment. The company will target youngsters within the age group of 18-24 years as its potential customers for this product. The new ZMR is the fifth model from Hero Honda in the premium segment. It currently sells Hunk, Achiever, CBZ Xtreme and Karizma. . Hero Honda has a network of more than 3500 strong and dedicated Authorized dealers. A network that has helped Hero Honda’s name and its promise of reliable quality to every part of the country. The second-largest motorcycle manufacturer in the country, Bajaj Auto, sold 183,051 units of motorcycles in the month of August this year, clocking a 4 per cent growth compared with the sales achieved in the same month last year. This is the first time in the current financial year of 2009-10 that the company’s two-wheeler sales have been positive.

The market leader Hero Honda registered a healthy growth of 12 % in its domestic sales whereas Bajaj Auto disappointed with its domestic sales plunging by 23% in FY09 over FY08. Likewise, TVS Motors saw its domestic sales dropping marginally by 1.4 % in FY09

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2.4 Financial Snapshots 2.4.1Hero Honda Motor Pvt Ltd Financial Snapshot (Rs.in millions) Mkt. Cap P/E Div EPS (TTM) Book Value Debt Equity Ratio Return On Networth Current Ratio Quick Ratio NET Sales Profit

September 2009 40594.40 8189.80

317033.86 17.62 1000.00 90.13 190.33 0.02 33.72 0.46 0.31 June 2009 38224.40 6980.60

March 2009 34225.20 6029.50

December 2008 28812.70 4693.30

2.4.2 TVS MOTORS Pvt Ltd Financial Snapshot (Rs.in millions) Mkt. Cap P/E Div EPS (TTM) Book Value Debt Equity Ratio Return On Networth Current Ratio Quick Ratio NET Sales Profit

September 2009 11298.67 494.42

13694.39 22.88 70.00 2.52 34.23 1.11 4.21 1.15 0.68 June 2009 9886.97 457.99

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March 2009 9227.20 369.62

December 2008 8687.13 253.95

2.4.3 Bajaj Motors Pvt ltd Financial Snapshot (Rs.in millions) Mkt. Cap P/E Div EPS (TTM) Book Value Debt Equity Ratio Return On Networth Current Ratio Quick Ratio NET Sales Profit

September 2009 28875.10 6582.40

209465.55 17.39 220.00 83.26 129.23 0.84 38.92 0.92 0.73 June 2009 23384.70 4725.90

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March 2009 18834.10 3035.50

December 2008 21031.00 3347.00

2.4.4 Shareholdings of the comapnies Hero Honda Share holding Share holding pattern as on : 30/09/2009 30/06/2009 31/03/2009 Face value 2.00 2.00 2.00 No. Of % No. Of % Shares Holding Shares Holding Promoter's holding 57830555 28.96 57831555 28.96 Indian Promoters 51918750 26.00 51918750 26.00 Foreign Promoters 109749305 54.96 109750305 54.96 Sub total Non promoter's holding Institutional investors 4.28 8357937 4.19 Banks Fin. Inst. and 8552615 Insurance 56940905 28.52 57028389 28.56 FII's 73315092 36.71 73408301 36.76 Sub total Other investors 869300 0.44 878992 0.44 Private Corporate Bodies 0.10 177481 0.09 NRI's/OCB's/Foreign 192913 Others 1267625 0.63 1303422 0.65 Others 2329838 1.17 2359895 1.18 Sub total 14293265 7.16 14168999 7.10 General public 199687500 100.00 199687500 100.00 Grand total

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No. Of Shares

% Holding

57833555 28.96 51918750 26.00 109752305 54.96

9676369

4.85

53983362 73090280

27.03 36.60

1169640

0.59

181115

0.09

1601142 2951897 13893018 199687500

0.80 1.48 6.96 100.00

TVS Motor Pvt Ltd Share Holding as on : Face Value

30 Sep 2009

30 Jun 2009

31 Mar 2009

1.00

1.00

1.00

No. Of % Shares Holding

Indian Promoters Sub Total

No. Of % Shares Holding

PROMOTER'S HOLDING 143,587,893 60.45 143,587,893 143,587,893 60.45 143,587,893

No. Of % Shares Holding

60.45 136,341,393 60.45 136,341,393

57.40 57.40

NON PROMOTER'S HOLDING Institutional Investors Mutual Funds and UTI Banks Fin. Inst. and Insurance FII's Sub Total Private Corporate Bodies NRI's/OCB's/Foreign Others Sub Total General Public GRAND TOTAL

7,849,626

3.30

4,528,368

1.91

4,070,226

1.71

23,067,685

9.71

22,947,609

9.66

22,955,109

9.66

3.83 11,028,475 16.84 38,504,452 Other Investors

4.64 16.21

5,145,185 32,170,520

2.17 13.54

9,088,868 40,006,179

11,479,698

4.83

12,478,853

5.25

23,100,372

9.72

862,491

0.36

983,035

0.41

1,132,802

0.48

12,342,189 41,607,296

5.20 17.52

13,461,888 41,989,324

5.67 17.68

24,233,174 44,798,470

10.20 18.86

237,543,557 100.00 237,543,557 100.00 237,543,557 100.00

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Bajaj Auto Company Share holding Share holding pattern as on : 30/09/2009 30/06/2009 31/03/2009 Face value 10.00 10.00 10.00 No. Of Shares

Indian Promoters Sub total

Banks Fin. Inst. and Insurance FII's Sub total Private Corporate Bodies NRI's/OCB's/Foreign Others Others Sub total General public Grand total

% No. Of % No. Of Holding Shares Holding Shares Promoter's holding 71786036 49.62 71786036 49.62 71786036 71786036 49.62 71786036 49.62 71786036 Non promoter's holding Institutional investors 4814099

3.33

23808308 34903706

6884224

% Holding 49.62 49.62

4.76

9440543

6.52

16.46 23701669 24.12 34366378 Other investors

16.38 23.75

19980919 34348009

13.81 23.74

12215699

8.44

12897907

8.91

12899841

8.92

624229

0.43

650537

0.45

650072

0.45

167710 13007622 24986130 144683494

0.12 8.99 17.27 100.00

176775 13725203 24805877 144683494

0.12 9.49 17.14 100.00

181775 13731672 24817777 144683494

0.13 9.49 17.15 100.00

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2.5.1 What is expected by the industry? The industry expects to reduce interest rates on auto loans and credit availability on two wheeler loans. The lack of finance and high interest rates limits the growth in both the two wheeler industry. It also expects to retain the existing excise duty on two wheelers at 8%. The reduction in the excise duty to 8% enabled the revival of the two wheeler industry. Thus retention of the same will provide support for two wheeler industry to continue to grow. If the customs duty on steel, aluminium etc is raised, then it will be negative for the auto industry in general. 2.5.2 What is expected of the Industry? Motorcycle sales will perform positively in future, exceeding 10 Million units by 201213.Value of auto component exports is likely to attain a double digit figure in 201213.Turnover of the Indian auto component industry is forecasted to surpass US$ 50 Billion in 2014-15.

2.6.1 Factors that drive the demand of Two Wheelers •

Inadequate public transportation system, especially in the rural and semi urban areas.

•

Easy Availability of finance and credit.

•

Availability of fuel efficient and low – maintenance models.

•

Price difference between two wheelers and passenger cars.

2.6.2 Indian Auto Policy 2002

The Government of India approved a comprehensive automotive policy in March 2002, the main proposals of which are as under: Foreign direct investment : Automatic approval is proposed to be granted to foreign equity investment up to 100% for manufacture of automobiles and components. Import tariff : Import tariffs are proposed to be fixed at a level such that they facilitate the development of manufacturing capabilities as opposed to mere assembly. Incentives for R&D : The weighted average tax deduction under the Income Tax Act, 1961 for automotive companies is proposed to be increased from current level of 125% (The

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weighted average deduction for R&D was increased to 150% in the Union Budget 2004-05). Further, the policy proposes to include vehicle manufacturers for a rebate on the applicable excise duty for every 1% of the gross turnover of the company expended during the year on R&D.

Environmental aspects : Adequate fiscal incentives are proposed to promote the use of lowemission auto fuel technology (in line with the Auto Fuel Policy). The auto policy states the Government's intent to align domestic policy with the international practice of imposing higher road tax on old vehicles so as to discourage their use.

2.7 PORTER’S MODEL

Barriers to entry Below are the points which play Key roles for new entrants: •Economies of scale/capital investment • Cost & resource disadvantage (patents, locked-in partnerships with suppliers/customers) •Learning & experience curves •Brand preferences & loyalty •Access to distribution channels •Regulatory prices •Tariffs & international trade restrictions • Industry attractiveness (growth/profitability On account of the fragmentation of the industry, competition would prevail, but new entrants are unlikely to survive this cycle.

Bargaining Power of Suppliers The suppliers enjoy bargaining power in the case of high end and premium segment of bikes. The customers also have specific demands catering to the segment and brand.

Bargaining Power of Purchaser There is a high bargaining power of purchasers in the Auto industry in general sector. It doesnot exist in the niche market if bikes though.

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The purchasers in the general sector can bargain discounts, offers and credit as there are other players offering similar products.

Rivalry amongst existing firms There is a bulging competition with foreign players but only in the niche market. In the domestic market though Hero Honda is leading player in bike segment, there exists competition to capture the market. However the target customers differ in some cases.

Substitute threat The industry faces threat of substitutes from better local transport like buses, local trains and metros. Cheaper four wheelers coming up can also be a threat to the industry.

2.8 SWOT Analysis

1) Strengths The auto industry has an advantage that the industry cannot die in next 10 years atleast. It is a convenient mode of transport which is the main feature a consumer demands for currently. The auto two wheeler comes in latest styles, trends and are available in all price range.

2) Weakness The industry is immediately affected by changes in price of the Raw Materials like steel and aluminium. It is also negatively affected by hike in the prices of petrol and diesel. The change in the custom duties, excise duties and taxes affect the auto two wheeler industry. India lacks latest technology. India is behind with consideration of technology.

3) Opportunities There is booming demand from the target audience of girls and women. The rural and semi urban areas have shown demand for two wheelers. With economy booming in the rural India, the industry is target the rural market. The regional areas with poor transportation facilities has high demand for two wheeler which is an opportunity.

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4) Threats The Nano – a one lakh rupee car has been seen as a threat to the two wheeler industry. However the running and maintenance cost and the convenience given the Indian roads are difficult to replace. Electric Bikes being environmental friendly and cost effective can be a threat, but it can be considered as a part of the industry. Better infrastructure and metros can be considered as substitute threats.

2.9 RATIO ANALYSIS

LIQUIDITY RATIOS 1) Current Ratio 2005

2006

2007

2008

2009

Hero Honda

0.35

0.49

0.57

0.48

0.46

TVS

0.78

0.89

1.04

1.07

1.15

0.79

0.84

0.88

0.84

Bajaj

The industry norm does not believe in 2:1 ratio for current ratio as cash is one of the prime part of the current assets. Hero Honda and TVS shows a ratio of 0.60:1 on an average which has been the industry norm. However TVS has high current ratio. 2) Acid Test Ratio Hero Honda

0.22

0.35

0.4

0.32

0.31

TVS

0.41

0.39

0.52

0.47

0.68

0.69

0.76

0.64

0.73

Bajaj

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TURNOVER RATIOS 1) Inventory Turnover Ratio Hero Honda

36.57

38.74

36.25

42.82

47.53

TVS

12.69

11.06

11.86

9.61

13.31

34.14

36.88

29.33

28.64

Bajaj

The stock turnover ratio is having a positive trend for Hero Honda. However For Bajaj it has reduced may be because of the recent demerger of the company.

2) Receivables Turnover Ratio Hero Honda TVS

111.41

70.26

40.11

32.7

55.1

66.53

69.76

45.46

32.31

27.25

--

22.66

21.93

27.45

Bajaj

3) Fixed Asset Turnover Ratio Hero Honda TVS

12.32

11.41

9.54

5.89

5.34

3.91

2.35

2.6

1.8

1.97

2.62

2.96

2.95

2.6

Bajaj

4) Total Asset Turnover Ratio Hero Honda

4.54

4.2

3.99

3.52

3.36

TVS

3.32

2.81

2.67

2.16

2.14

1.21

1.32

3.02

2.53

Bajaj

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LEVERAGE RATIO

1) Debt Equity Ratio Hero Honda

0.14

0.09

0.07

0.04

0.02

TVS

0.28

0.5

0.78

0.81

1.11

0.31

0.29

0.84

0.84

Bajaj

The debt component has reduced for Hero Honda. However has risen for Bajaj and has completely risen for TVS .

INTEREST COVERAGE RATIOS

1) Gross Profit Margin Hero Honda

16.4

16.35

12.85

11.67

12.75

TVS

9.74

3.49

1.35

-1.53

0.49

14.37

12.09

10.32

11.06

Bajaj

The gross profit margin has overall reduced over the years for all the three companies. 2) Net Profit Margin Hero Honda TVS

10.85

11.06

8.58

9.27

10.3

4.64

3.55

1.69

0.96

0.82

13.86

12.66

8.32

7.4

Bajaj

3) Return on Investment Hero Honda

67.12

60.31

43.48

41.57

43.33

TVS

23.81

14.87

8.66

1.08

5.37

23.32

20.9

39.71

32.75

Bajaj

The return on investment of Hero Honda and bajaj is considerable high and good. The ROI is drastically reducing is case of TVS.

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EARNING PER SHARE Hero Honda TVS

40.59

48.64

42.96

48.47

64.19

5.79

4.93

2.8

1.34

1.35

108.87

122.35

52.25

45.37

Bajaj

One can clearly see how the earning per share of Hero Honda is better. It is increasing because of the profits and equity of the company. MARKET SHARE Hero Honda TVS Bajaj

507

819.1

611

635.05

896

65

118.6

53

32.05

18.6

559.9

905

660.05

700

1075

P/E RATIO Hero Honda

12.49076 16.84005 14.22253 13.10192 13.95856

TVS

11.22625

Bajaj

24.0568 18.92857 23.91791 13.77778 8.312666 5.394769 13.39713 23.69407

Bajaj has high price earning ratio as the market share of the company is good .The P/E ratio of Hero Honda is on steady increase. In the case of TVS one can observe that trend does not exist in the company. It has uneven Ratio in the years. BOOK VALUE Hero Honda

74.79

100.62

123.7

149.55

190.33

TVS

28.58

32.25

34.07

34.59

35.2

471.49

546.96

109.73

129.23

Bajaj

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3 Fundamental Analysis 3.1 Economic Factors


Gross national product – In FY 2006- 2007, Auto two wheeler Industry contributed to 5% to the country’s GDP. As the GNP of the country develops the industry benefits. In has been seen that the industry is affected directed with the trend in the GNP. As the nation sees a positive GNP, the two auto wheeler also shows a positive scenario. It is one of the key indicators of the progress of the industry.




Price level and inflation - The limited credit availability and the inflation factor could prove to be decisive. If a country faces a situation of inflation then the industry is immediately negatively affected as the major customers of the two wheeler industry are the youth and lower and middle income groups who are immediately affected by inflation.




Agriculture and monsoon – Agriculture and monsoon is one of the main aspects which affected every other industry in the country. The auto two wheeler industry is immediately affected which is directly correlated with the trend and scenario of agriculture and monsoon in the country.




Fiscal and monetary framework - Of late, cheaper petrol, comparatively lower interest rates and the excise duty cut due to the stimulus packages have brought in some relief for this disturbed industry.




Budget and its composition - . If the customs duty on steel, aluminium etc is raised, then it will be negative for the auto industry in general




Magnitude of budget surplus/deficit – With Budget surplus one can expect more expenditure on infrastructure, there by better transport facilities and thus reducing demand for auto two wheeler.




Level of internal and external debt -, the economic uncertainty in the market, during this festive season, triggered the higher rates of interest and credit crunch, thereby ceiling the sales.

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CRR and SLR – The CRR and SLR changes the interest rates. The change in the interest rates affects the two wheeler customers immediately.




Money supply –Inadequacy of retail finance is caused due to lack of adequate supply of money in the market. Due to which the interest rates by banks are increased affecting the consumers invariably.




Interest rate structure and credit policy - , interest rates are likely to decline, but even then, the market conditions are not expected to get better before January 2010.




Natural calamity – Any kind of natural calamity affects the sales and industry negatively




Future projection of the economy - The Two-wheeler industry is known for its inherent cyclical feature with 18 months of growth followed by 18 months of degrowth.




Labour capital ratio – With increasing technological up gradation, the labour capital ratio has reduced.




Markup, profit margin and selling price. – The selling price affects the industry in general largely. As the price is one of the major determinants of the demand.




Advertising & promotional programme. – With so much competition the advertising and marketing strategies helps build the brand thereby helping the sales.




R&D expenses –the life cycle of products getting shorter, the ability to offer new models to meet fast changing customer preferences has become imperative. In this context, the ability to deliver newer products calls for sound technological backing and this has become one of the critical differentiating factor among companies in the domestic market. Thus, the players have increased their focus on research and development with some having indigenously developed new models as well as improved technologies to cater to the domestic market. On the two-wheeler industry front, since most manufacturers have a technology tie-up with a foreign major, the incentive to do R&D with the Indian counterpart has increased. For adopting new technologies companies need to invest high. 20

• With major auto companies spending sizeable amount on product development and in-house R&D expenditure in recent times, deduction of 150% on excise duty exemption to the end consumers allowed on the same will encourage further R&D investments.


Technology transfer to the Indian two-wheeler industry took place mainly through: licensing and technical collaboration




Exports being one of the thrust areas for some Indian two-wheeler companies, the Indian original equipment manufacturers (OEMs) have realised the need to upgrade their technical capabilities. These relate to three main areas: fuel economy, environmental compliance, and performance. In India, because of the cost-sensitive nature of the market, fuel efficiency had been an interest area for manufacturers.

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4 TECHNICAL ANALYSIS 52 weeks high and low Bajaj Auto

1,432.25 -8.75 (-0.61%) BSE : Oct 28, 15:56 Open High Low

1,435.95Vol 1,458.7552 Wk 1,420.0052 Wk

31,620 1,665.00 294.65

1,431.00 -16.75 (-1.16%) NSE : Oct 28, 16:09 Open High Low

1,440.00Vol 1,457.0052 Wk 1,422.2552 Wk

93,414 1,665.00 262.00

TVS

1,432.25 -8.75 (-0.61%) BSE : Oct 28, 15:56 Open High Low

1,435.95Vol 1,458.7552 Wk 1,420.0052 Wk

31,620 1,665.00 294.65

1,431.00 -16.75 (-1.16%) NSE : Oct 28, 16:09 Open High Low

1,440.00Vol 1,457.0052 Wk 1,422.2552 Wk

93,414 1,665.00 262.00

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HEROHONDA 1,538.00 -34.75 (-2.21%) BSE : Oct 29, 10:58 Open High Low

1,555.00Vol 1,575.0052 Wk 1,534.0052 Wk

9,129 1,780.00 734.00

1,539.45 -34.10 (-2.17%) NSE : Oct 29, 10:59 Open High Low

1,560.00Vol 1,589.0052 Wk 1,535.0052 Wk

59,331 1,774.70 632.50

4.1 Bajaj Auto Limited

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The graph covers period of two years of Bajaj Auto Company. The RSI has reached around 52% which is still high. The RSI shows that the company is reaching the overbought territory and the stock is high. At this stage the stock prices are likely to fall. It is still high for a short term investor to invest in it. Initially till early months of 2009, the company was in oversold territory. The recommendation is to hold the stock for sometime.As it is likely to rise with recent steps taken by the company.

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4.2 TVS Motor

The RSI is around 65% which is high. It is approaching the overbought area. The RSI is moving with the Simple moving average and the volumes. The Bollinger graph shows the area the stock of moving. This is time sell the stock as the prices are likely to fall in the near future. The RSI and simple moving average is moving with the volumes which is around 2.155 millions.

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4.3 Hero Honda

The RSI is around 42% which is relatively low and shows that the stock is approaching the oversold territory. This is the time one can invest in the company .The RSI is also in line with The Simple moving average of the company. This is the perfect time to buy the stocks as the prices are likely o rise and the prospects of the company are good.

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5 Recommendations The industry had outperformed the broader market in the latter half of FY06. FY07 was a period of consolidation with the big players capturing a larger market share among their niche segments. Thereon it continued to under perform the broader market with the exception of Q3FY09. BSE Auto Index has seen a fall of >30% in the last quarter and has hit an all time low of 2444 points which has not been seen in the past 4 years. We believe the industry is ready to pick up from a lower base, which keeps its downside capped. Sale volumes of the industry would continue to replicate a seasonal trend. Though the sale volumes have witnessed a decline for more than a year, its revival would be a slow and steady process, which would be delayed on account of the unfavorable macro economic conditions and depressed consumer sentiments. We are positive on the sector, as it is a cash flow positive industry with the top 3 major players having a strong foothold. Both HHML and BAL have sufficient amount of cash on their books and are already near completion in regards to their capex cycle of 18 months. On account of the fragmentation of the industry, competition would prevail, but new entrants are unlikely to survive this cycle. We expect a slow cyclical reversal to begin from FY10. We recommend a Buy Hero Honda, Hold on Bajaj Auto and Reduce on TVS Motors.

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