A Study on Fundamental Analysis of Select Automobile Companies

INTRODUCTION

Fundamental analysis is used to calculate the true intrinsic value of a share and to find opportunities where that share value differs from its current market price. In order to do this, fundamental analysis looks at economic factors, known as fundamentals. These fundamentals are mainly found in the company‘s financial reports, as well as reports about various macro-economic indicators and variables. Fundamental approach is also known as E – I – C approach. Researchers have found that stock price changes can be attributed to the various factors. E – Economic analysis (30 – 35%) I – Industrial analysis (16 – 20%) C – Company analysis (30 – 35%) Other factors (15 – 25%) Based on the above evidence, a commonly advocated procedure of fundamental analysis, which is a three steps examination, calls for: Understanding the macroeconomic environment and developments. Analysing the prospects of the industry to which the firm belongs. Assessing the projected performance of the company.

• To understand the macroeconomic variables this makes an impact on the company progress. • To study the various trends, opportunities, challenges of the industry in which the company operates. • To identify with the various policies of the company this makes an impact on the financial narration of the company. • To find the inherent value of the select automobile companies stock viz., Mahindra & Mahindra, Ashok Leyland, Tata motors, and Force motors and evaluate with market value of the study.

Exploratory: the study is exploratory since the same is based on secondary sources accordance to the performance one of four companies is derived from ratio analysis is selected for the valuation

1) The primary assumption of Fundamental Analysis is that the price on the stock market may not fully reflect a stock‘s ―real‖ value. 2) The second major assumption of Fundamental Analysis is that in the long run, the stock market will reflect the intrinsic value.

Majority of the data used for the study has been collected from secondary sources like Company Annual Reports, NSE India, Journals etc.

Four companies are selected from the automobile sector because they have registered large performance together in domestic and foreign market (Ashok Leyland, Tata motors, Mahindra & Mahindra and Force motors and therefore finance data is collected from 2015-19 (5 year‘s data)

The study has been done on the basis of 4 companies from the automobile sector. for this reason results cannot be generalized to other companies in the same sector. Long-term investment. Need another tools to know the entry point Since fundamental analysis is based on the past data, all the results cannot be taken as full proof to take future decisions. If a stock looks financially healthy and is relatively cheap compared to its peers, that doesn't mean that it will always rise in value.

Viswantha & Viswa study on Intrinsic value Estimation through Fundamental Analysis examined stock prices changes can be attributed to the various factors, such as Economy-wide factors:30-35%; Industry factors:15-20%; Company factors:30-35%; Other factors:15-25%. The researcher in this study is company by using two principle methods dividend discount model and the earnings multiplier. Baresa & Bogdan study on stock valuation by using Fundamental analysis examined future and present data in order to estimate the fair stock market value and to predict future value. It usually begins by analyzing the macroeconomic environment, analyzing sectors and then financial statements in order to determine the real value of the company. Garg & Karla study on impact of macroeconomic factors on Indian Stock Market investigated the impact of macroeconomic variables and concluded that the govt. and the policy makers need to make strategies and policies that complement with macroeconomic framework and further support the Indian stock market.

The following part examines the financial ratios of select automobile companies in the study. In this section, four categories of financial ratios are considered for analysis viz., Liquidity Ratios, Activity Ratios, Solvency Ratios, Profitability Ratios, Growth rates.

As per the analysis MAHINDRA &MAHINDRA stands out to be the best among the four sample companies, because M&M has convincing Profitability ratios with 1st position even having less growth in sales among the peer, the company is enjoying considerable profits even though the average collection period is more but this is offset with less inventory holding period among the peer companies.

PROCESS OF ANALYSIS:

When compared with the various ratios during the year 2018. M&M has maintained consistency its

M&M had a less sales growth during the study period, but it could maintain a steady growth in terms of profitability. M&M having less operating expenses when compared to the peer companies that‘s why it is achieving more growth in profitability ratios. When the performance was compared with industry average, it indicates that M&M in case of many ratios, it had maintained above the industry average. This is an indication of less risk for the investors. When compared with ideal ratio, especially the ratios which are below the industry average, it shows that the performance is either on par or above the ideal ratio. Hence investors can be assured of less risk in their investment. Based on the ratio analysis, M&M selected for conducting fundamental analysis.

recorded at 4 %. The CAGR in EPS was recorded at 12.00 % over the study period. The CAGR in dividend per share is 13.00%, as the company doesn‘t have stable dividend policy. But from the past 5 years‘ company is giving on an average 230 % dividend Book value per share grew at the CAGR of 3 % over the study period. The net worth of the company grew at the CAGR of 1% over the study period

Growing steel price and other inputs has the major concern for the company from its margins point of view. So company may have control over the steel prices. As the company is active in the overseas markets, an appreciation of Rupee against the foreign currencies, especially dollar would adversely affect the profit margin of the company. Discounts, special editions and festival based offers may be manoeuvred to boost the sales of the company. Various new products launches have helped retain customer focus on the new auto market, so the company may focus on this particular aspect. Another trend that would have been in the near future is rise in the EVs and HEVs vehicle sales. With infrastructure facilities increasing more people may prefer the EVs and Government also might be supporting through subsidies and tax reduction etc. for EVs and hence the company may try to specialize in that particular segment.

The most important strength in today‘s volatile financial market is information. Investors always confused on the information as to where to invest, when to invest and how much to invest their money. From the above Value anchor and value range, the following decision rules can be considered. If the share price is Less than Rs.815.526; Buy the stock of M&M Between Rs.815.526 to Rs.996.75; Hold the stock of M&M More than Rs.996.75; sell the stock of M&M

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MMS, PhD, Research Guide & HOD Research centre P.E. Society‘s Institute of Management and Career Development Nigdi, Pune -44 E drkarmadkar@gmail.com