FUNDAMENTAL ANALYSIS OF INDIAN AUTOMOBILE INDUSTRY “A STUDY OF SELECT COMPANIES"

Abstract

Research is essential to collect facts and statistics about a company's customers, employees and competitors. On the basis of these numbers, companies are able to make better managerial decisions. A good research mechanism is essential, irrespective of the size of the company and its client base. Research is imperative for staying competitive in the market. The attempt in this research is to do fundamental analysis and equity valuation of three major automobile companies in Indian Automobile Industry – Maruti Suzuki Ltd, Tata Motors Ltd, Mahindra & Mahindra Ltd. Financial statement analysis has traditionally been seen as part of the fundamental analysis required for equity valuation, but the analysis has typically been ad hoc. Drawing on recent research on accounting-based valuation, this study outlines a financial statement analysis for use in equity valuation. Standard profitability analysis is incorporated, and extended, and is complemented with an analysis of growth. The perspective is one of forecasting payoffs to equities. So, financial statement analysis is presented as a matter of pro forma analysis of the future, with forecasted ratios viewed as building blocks of forecasts of payoffs. The analysis of current financial statements is then seen as a matter of identifying current ratios as predictors of the future ratios that determine equity payoffs. The financial statement analysis is hierarchical, with ratios lower in the ordering identified as finer information about those higher up. To provide historical benchmarks for forecasting, typical values for ratios are documented for the period 2012-2016. The price per share of each company has been estimated and the suggestion given to investors according to the results derived from this study. Share prices of all three automobile companies considered in this study are overvalued on Indian stock exchanges like NSE and BSE thus holds SELL signal according to this study. But, as Indian Automobile Industry is growing at a pace and Behavioral Investing with investor’s sentiments play a huge role in driving the stock prices, this study recommends SELL to Maruti Suzuki Ltd and HOLD signal to Tata Motors Ltd and Mahindra & Mahindra Ltd.