A PROJECT REPORT

ON

“Various Factors Affecting Cost Of Capital”

By

Name

rollno

A REPORT SUBMITTED IN FULFILLMENT OF THE

REQUIREMENT OF A PGDM-HB-

Finance

Prin. L. N Welingkar Institute of Management

Development and Research Institute
 CERTIFICATE FROM THE GUIDE

This is to certify that the Project work titled “Various Factors Affecting Cost Of Capital

” is a confide work carried out by name Admission No. roll no a candidate for the /Post
Graduate Diploma examination of the Welingkar Institute of Management under my
guidance and direction.

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 UNDERTAKING BY CANDIDATE

I declare that project work entitled “Various Factors Affecting Cost Of Capital is my own work
conducted as part of my syllabus . I further declare that project work presented has been prepared
personally by me and it is not sourced from any outside agency. I understand that, any such malpractice
will have very serious consequence and my admission to the program will be cancelled without any refund
of fees.

I am also aware that, I may face legal action, if I follow such malpractice.

__________________________

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 ACKNOWLEDGEMENT

I am using this opportunity to express my gratitude to everyone who supported me throughout the course
of this PGDM project. I am thankful for their aspiring guidance, invaluably constructive criticism and
friendly advice during the project work. I am sincerely grateful to them for sharing their truthful and
illuminating views on a number of issues related to the project.

I express my warm thanks to for his support and guidance. I would like to express my deepest appreciation
to my guide.

Finally, I would like to recognize and thank my parents and friends for their undying support.

Thank you,

name
 Index

Sr no Topic Page no
1 Introduction to cost of capital 6
2 There things which are calculated 9
3 Factors affecting cost of capital 13
4 Fundamental factors affecting cost of capital 20
5 Introduction to tata 27
6 Company study 33
7 Performance of company during 2008-09 37
8 Latest auditors report 43
9 The financial ananalysis of tata motors 45
10 SWOT analysis 46
11 Learning experience 50
12 Methodology of the study 51
13 Analysis of data 58
14 Findings 59
15 Suggestions 60
16 Annexure 61
17 Conclusion 62
18 Bibliography 63
 Introduction to cost of capital

Cost of capital

In Economics and Accounting, the cost of capital is the cost of a company's funds (both debt and equity,
or, from an investor's point of view "the required rate of return on a portfolio company's existing
securities". It is used to evaluate new projects of a company. It is the minimum return that investors expect
for providing capital to the company, thus setting a benchmark that a new project has to meet.

Basic concept

For an investment to be worthwhile, the expected return on capital has to be higher than the cost of capital.
Given a number of competing investment opportunities, investors are expected to put their capital to work
in order to maximize the return. In other words, the cost of capital is the rate of return that capital could be
expected to earn in the best alternative investment of equivalent risk; this is the opportunity cost of capital.
If a project is of similar risk to a company's average business activities it is reasonable to use the
company's average cost of capital as a basis for the evaluation or cost of capital is a firm's cost of raising
funds. However, for projects outside the core business of the company, the current cost of capital may not
be the appropriate yardstick to use, as the risks of the businesses are not the same.

A company's securities typically include both debt and equity, one must therefore calculate both the cost of
debt and the cost of equity to determine a company's cost of capital. Importantly, both cost of debt and
equity must be forward looking, and reflect the expectations of risk and return in the future. This means,
for instance, that the past cost of debt is not a good indicator of the actual forward looking cost of debt.

Once cost of debt and cost of equity have been determined, their blend, the weighted average cost of
capital (WACC), can be calculated. This WACC can then be used as a discount rate for a project's
projected free cash flows to the firm.
Example

Suppose a company considers taking on a project or investment of some kind, for example installing a new
piece of machinery in one of their factories. Installing this new machinery will cost money; paying the
technicians to install the machinery, transporting the machinery, buying the parts and so on. This new
machinery is also expected to generate new profit (otherwise, assuming the company is interested in profit,
the company would not consider the project in the first place). So the company will finance the project
with two broad categories of finance: issuing debt, by taking out a loan or other debt instrument such as
a bond; and issuing per value, usually by issuing new mature.

The new debt-holders and shareholders who have decided to invest in the company to fund this new
machinery will expect a return on their investment: debt-holders require interest payments and
shareholders require dividends (or capital gains from selling the shares after their value increases). The
idea is that some of the profit generated by this new project will be used to repay the debt and satisfy the
new shareholders.

Suppose that one of the sources of finance for this new project was a bond (issued at par value) of
$200,000 with an interest rate of 5%. This means that the company would issue the bond to some willing
investor, who would give the $200,000 to the company which it could then use, for a specified period of
time (the term of the bond) to finance its project. The company would also make regular payments to the
investor of 5% of the original amount they invested ($10,000), at a yearly or monthly rate depending on the
specifics of the bond (these are called coupon payments). At the end of the lifetime of the bond (when the
bond mature), the company would return the $200,000 they borrowed.

Suppose the bond had a lifetime of ten years and coupon payments were made yearly. This means that the
investor would receive $10,000 every year for ten years, and then finally their $200,000 back at the end of
the ten years. From the investor's point of view, their investment of $200,000 would be regained at the end
of the ten years (entailing zero gain or loss), but they would have also gained from the coupon payments;
the $10,000 per year for ten years would amount to a net gain of $100,000 to the investor. This is the
amount that compensates the investor for taking the risk of investing in the company (since, if it happens
that the project fails completely and the company goes bankrupt, there is a chance that the investor does
not get their money back).
This net gain of $100,000 was paid by the company to the investor as a reward for investing their money in
the company. In essence, this is how much the company paid to borrow $200,000. It was the cost of raising
$200,000 of new capital. So to raise $200,000 the company had to pay $100,000 out of their profits; thus
we say that the cost of debt in this case was 50%.

Theoretically, if the company were to raise further capital by issuing more of the same bonds, the new
investors would also expect a 50% return on their investment (although in practice the required return
varies depending on the size of the investment, the lifetime of the loan, the risk of the project and so on).

The cost of equity follows the same principle: the investors expect a certain return from their investment,
and the company must pay this amount in order for the investors to be willing to invest in the company.
(Although the cost of equity is calculated differently since dividends, unlike interest payments, are not
necessarily a fixed payment or a legal requirement)
There things which are calculated

Cost of debt

When companies borrow funds from outside lenders, the interest paid on these funds is called the cost of
debt. The cost of debt is computed by taking the rate on a risk free bond whose duration matches the term
structure of the corporate debt, then adding a default premium. This default premium will rise as the
amount of debt increases (since, all other things being equal, the risk rises as the cost of debt rises). Since
in most cases debt expense is a deductible expense, the cost of debt is computed on an after-tax basis to
make it comparable with the cost of equity (earnings are taxed as well). Thus, for profitable firms, debt
is discounted by the tax rate. The formula can be written as

Kp =( Rf+credit risk rate)(1-T)},

Where T is the corporate tax rate and Rf is the risk free rate.
Cost of equity

The cost of equity is inferred by comparing the investment to other investments (comparable) with similar
risk profiles. It is commonly computed using the capital asset pricing model formula:

Cost of equity = Risk free rate of return + Premium expected for risk

Cost of equity = Risk free rate of return + Beta × (market rate of return – risk free rate of return)

Where Beta = sensitivity to movements in the relevant market. Thus in symbols we have

Es =Rf}+beta s(Rm-Rf)

Where:

Es is the expected return for a security;

Rf is the expected risk free return in that market (government bond yield);

Βs is the sensitivity to market risk for the security;

Rm is the historical return of thestock market ; and

(Rm – Rf) is the risk premium of market assets over risk free assets.

The risk free rate is the yield on long term bonds in the particular market, such as government bond.

An alternative to the estimation of the required return by the capital asset pricing model as above, is the use
of the Fama–French three-factor model.

Expected return

The expected return (or required rate of return for investors) can be calculated with the "divided
capitalization model",

Comments

The models state that investors will expect a return that is the Risk-free return plus the security's sensitivity
to Market risk (β) times the market risk premium.
The risk premium varies over time and place, but in some Developed countries during the twentieth
century it has averaged around 5% whereas in the emerging markets, it can be as high as 7%. The equity
market real Capital gain return has been about the same as annual real GDP growth. The Capital gain on
the Dow Jones Industrial Average have been 1.6% per year over the period 1910-2005. The dividends have
increased the total "real" return on average equity to the double, about 3.2%.

The sensitivity to market risk (β) is unique for each firm and depends on everything from management to
its business and Capital structure. This value cannot be known Ex ante (beforehand), but can be estimated
from Ex post (past) returns and past experience with similar firms.

Cost of retained earnings/cost of internal equity

Note that Retained earnings are a component of equity, and, therefore, the cost of retained earnings
(internal equity) is equal to the cost of equity as explained above. Dividends (earnings that are paid to
investors and not retained) are a component of the return on capital to equity holders, and influence the
cost of capital through that mechanism.

Cost of internal equity = [(next year's dividend per share/(current market price per share - Flotation cost +
growth rate of dividends)]
Weighted average cost of capital

The weighted cost of capital (WACC) is used in finance to measure a firm's cost of capital. WACC is not
dictated by management. Rather, it represents the minimum return that a company must earn on an existing
asset base to satisfy its creditors, owners, and other providers of capital, or they will invest elsewhere.

The total capital for a firm is the value of its equity (for a firm without outstanding Warrant and Option,
this is the same as the company's market capitalization) plus the cost of its debt (the cost of debt should be
continually updated as the cost of debt changes as a result of interest rate changes). Notice that the "equity"
in the Debt to equity ratio is the market value of all equity, not the Shareholders' equity on the balance
sheet. To calculate the firm's weighted cost of capital, we must first calculate the costs of the individual
financing sources: Cost of Debt, Cost of Preference Capital, and Cost of Equity Cap.

Calculation of WACC is an iterative procedure which requires estimation of the fair market value of equity
capital if the company is not listed. The Adjusted present value method (APV) is much easier to use in this
case as it separates the value of the project from the value of its financing program.
 Factors Affecting Cost of Capital

Cost of capital is the cost for a business but return for an investor. There are various factors that can affect
the cost of capital. Broadly, factors can be classified as ‘fundamental factors’ and ‘economic and other
factors’. Fundamental factors are market opportunities, capital provider’s preference, risk, and inflation.
Other factors include Federal Reserve policy, federal surplus and deficit, trade activity, foreign trade
surpluses and deficits, country risk and exchange rate risk.
When company wants to get any new fund from outside resource, it checks its cost of capital. Company
can get the new money through shares and debt. For getting debt, we have to pay cost of debt in the form
of interest payment. For getting equity or preference share capital, we have to pay dividend to
shareholders.

So, for making optimal model of cost of capital in which cost of capital will be minimum, we have to study
the factors affecting cost of capital. Following are the main factors which affects cost of capital.

1. Current Economic Conditions

If banks are growing, they can easily give loan at low rate of interest because they need to increase the sale
for stability of their products. At that time, company's cost of debt will decrease which is the part of
company's cost of capital. Not just bank but whole economic conditions should be ok for this. If there is
big recession in the market, no financial institute will decrease the rate of interest because they also have to
pay the return to their customers. It means, every loan providing company has also cost of capital. If there
will be stability in the market, cost of debt will decrease and cost of equity capital will increase.

Growing banks can give loans at the low rate of interest because their aims to increase the sale for stability
of their products. In this time company’s cost of debt will decrease which is the part of company's cost of
capital. During recession period no financial institution will decrease the rate of interest because they have
to pay the return to their customers. Every loan providing company has cost of capital. If there will be
stability in the market, cost of debt will decrease and cost of equity capital will increase.
2. Current Capital Structure

When we have studied optimal capital structure, we have to study the cost of capital because for
optimal capital structure, we need to calculate weighted average cost of capital. But if company did not
consider cost of capital as factor, we can include the study of current capital structure as the factor for cost
of capital. Current debt equity ratio will effect the cost of capital. If debt is more than share capital, we
have to pay more cost of debt. If share capital is more than debt, we have to pay cost of equity or pref.
Share capital.

Because of tax advantages on debt issuance, it will be cheaper to issue debt rather than new equity (this is
only true for profitable firms, tax breaks are available only to profitable firms). At some point, however,
the cost of issuing new debt will be greater than the cost of issuing new equity. This is because adding debt
increases the Default risk - and thus the Interest rate that the company must pay in order to borrow money.
By utilizing too much debt in its capital structure, this increased default risk can also drive up the costs for
other sources (such as retained earnings and preferred stock) as well. Management must identify the
"optimal mix" of financing – the Capital structure where the cost of capital is minimized so that the firm's
value can be maximized.

The Thomson Financial league tables show that global debt issuance exceeds equity issuance with a 90 to
10 margin.

The structure of capital should be determined considering the weighted average cost of capital.
3. Current Dividend Policy

Dividend policy is the policy a company uses to structure its dividend payout to shareholders. Some
researchers suggest that dividend policy may be irrelevant, in theory, because investors can sell a portion
of their shares or portfolio if they need funds.

Despite the suggestion that dividend policy is irrelevant, it is income for shareholders. Company leaders
are often the largest shareholders and have the most to gain from a generous dividend policy.

Every company has to make dividend policy. What amount of total earning, company is interested to pay
as dividend. For this, we have to study Price-Earning Ratio (Dividend/EPS). If Price earning ratio will
increase, cost of retained earning will decrease because we will less money which have retained and use
for promoting of business as source of fund.
Every company should make dividend policy. To calculate the dividend the company should study the
price earning ratio. If earning ratio will increase cost of retained earning will decrease because we will less
money which have retained and use for promoting of business as source of fund.
4. Getting of New Fund

A new fund offer (NFO) is the first subscription offering for any new fund offered by an investment
company. A new fund offer occurs when a fund is launched, allowing the firm to raise capital for
purchasing securities. Mutual funds are one of the most common new fund offerings marketed by an
investment company.

A new fund offer is similar to an initial public offering. Both represent attempts to raise capital to further
operations. New fund offers can be accompanied by aggressive marketing campaigns, created to entice
investors to purchase units in the fund. New fund offers often have the potential for significant gains after
beginning to trade publicly.

Company's new fund's requirement will also affect the cost of capital. If company needs $ 20 million
dollars immediately for business promotion, company will have to pay high rate of interest because with
this, risk of financial institution will increase. Every loan provider works with patience, he needs
to analyze the company before providing big loan. If he will give big loan immediately, it is sure, he will
get more return from company and company has to pay more cost of this. Except this, every time, when
company will go to market for getting fund, company company will get the money at new market rate. So,
company has also to follow new rate of cost of capital. It may increase or decrease company's current cost
of capital rate.
5. Financial and Investment Decisions

When we get new share capital or debt, we have to tell to fund providers about the usage of their fund. If
there is more risk in the investment, both shareholders and creditors will get high reward for this. So, our
financial and investment decisions will effect the cost of capital.
When a company gets a new share capital or debt the company should tell to fund providers about the
usage of their fund. Shareholders and creditors will get high retu8rn when there is more risk in the
investment. So the company financial and investment decisions will affect the cost of capital.

The Financing Decision is yet another crucial decision made by the financial manager relating to the
financing-mix of an organization. It is concerned with the borrowing and allocation of funds required for
the investment decisions.

The financing decision involves two sources from where the funds can be raised: using a company’s own
money, such as share capital, retained earnings or borrowing funds from the outside in the form debenture,
loan, bond, etc. The objective of financial decision is to maintain an optimum capital structure, i.e. A
proper mix of debt and equity, to ensure the trade-off between the risk and return to the shareholders.
6. Current Income Tax Rates

We know, we charge the interest before tax charges. When we earn money, we deduct our interest charges,
then we deduct tax charges. So, if tax rate will high, it will effect the cost of share capital because with
high tax charges, our net earn will decrease and it will decrease earning per share. So, we will give less
dividend to our shareholders.
Usually the company calculate the interest before the tax charges. When the company earn money first it
will deduct the interest charges then it will deduct the tax charges. So, if tax rate will high, it will affect the
cost of share capital because with high tax charges, our net earn will decrease and it will decrease earning
per share. So, the company will give less dividend to our shareholders.

A tax rate is the percentage at which an individual or corporation is taxed. The United States (both the
federal government and many of the states) uses a progressive tax rate system, in which the percentage of
tax charged increases as the amount of the person's or entity's taxable rate incime increases. A progressive
tax rate results in a higher dollar amount collected from taxpayers with greater incomes.

To help build and maintain the infrastructures used in a country, the government usually taxes its residents.
The tax collected is used for the betterment of the nation, of society, and of all living in it. In the U.S. and
many other countries around the world, a tax rate is applied to some form of money received by a taxpayer.
The money could be income earned from wages or salary, investment income (dividends, interest), capital
gains from investments, profits made from goods or services rendered, etc. The percentage of the
taxpayer’s earnings or money is taken and remitted to the government.
7. Breakpoint of Marginal Cost of Capital

Marginal cost of capital is the cost raising one more unit of capital. Its breakpoint will affect the cost of
capital. Before studying, how marginal cost of capital affects current cost of capital, we have to understand
the breakpoint of marginal cost of capital

Break Point = Amount of Capital at which Sources Cost of Capital Changes/Proportion of New Capital
Raised from the Source

Break point is the total amount of new investments that can be financed and the new capital that can be
raised before a jump in marginal cost of capital is expected. It is the point at which the marginal cost of
capital curve breaks out from its flat trend.

The break point can be worked out by dividing the retained earnings for the period by the weight of the
retained earnings in the target capital structure. The retained earnings in a period equals the product of net
income for the period and the retention rate (also called plow-back rate), which equals 1 minus the
dividend payout ratio.

The following equation can be used to calculate the break point:

NI × (1 - DPR)
Break Point =
We

Where NI is the net income for the period, DPR is the dividend payout ratio, i.e. The dividends declared
dividend by net income and We is the weight of retained earnings in the target capital structure.
FUNDAMENTAL FACTORS AFFECTING COST OF CAPITAL

1. MARKET OPPORTUNITY

Unquestionably, most fundamental price deciding factor for anything in this world is the law of demand-
supply. Cost of capital is also not away from this fundamental law. When the demand for capital increases,
the cost of capital also increases and vice versa. The demand is influenced greatly by the available market
opportunities. If there are a lot of production opportunities in the market, more and more entrepreneurs will
explore those opportunities to create profitable ventures. Entrepreneurs, then, would require capital to
implement their business ideas. So, cost of capital is directly related to the market opportunities available
in the market.

They are newly identified demand that a firm can exploit since it is not being satisfied by the competitors.
The business can capitalize on this new opportunity or favorable condition and can satisfy this increasing
demand for a product by a demographic group. The company should identify its potential customers, their
specific needs that need to be met, market size, and its capacity to gain market share.

A market analysis is generally done to identify the market opportunity. The market analysis researches
about the attractiveness and dynamics of a market in an industry. SWOT analysis is generally done to see
the market opportunity.
 2. CAPITAL PROVIDER’S PREFERENCES

An individual who has some additional funds has two straight choices – save money or consume it. It is
completely a personal choice but to a great extent, it is impacted by the culture of a society. For example,
Japanese people are more bent towards saving compared to the US. Another important factor that
determines the utility of capital is the interest rate or returns available to their funds. Naturally higher
returns would enforce higher savings.

Preference shares are those shares which carry certain special or priority rights. Firstly, dividend at a fixed
rate is payable on these shares before any dividend is paid on equity shares.

Secondly, at the time of winding up of the company, capital is repaid to preference shareholders prior to
the return of equity capital. Preference shares do not carry voting rights. However, holders of preference
shares may claim voting rights if the dividends are not paid for two years or more on cumulative
preference shares and three years or more on non-cumulative preference shares.
 3. RISK

‘High-risk high-return’ principle works here too. If the venture where investment is required has a high
level of risk, the return required by the investor would also be very high to compensate the risk. On the
other hand, the businessman taking up the venture may not opt for a too high cost of capital because it may
put the viability of the overall project at stake. So, this is how risk plays a key role deciding the capital
transactions in the market.

The chief way that market risk affects cost of capital is through its effect on the cost of equity. Companies
finance operations and expansion projects with either equity or debt capital. Debt capital is raised by
borrowing funds through various channels, primarily through acquiring loans or credit card financing.
Equity financing is raised by selling shares of common or preferred stock.

A company's total cost of capital includes both the funds required to pay interest on debt funding and the
dividends on equity funding. The cost of equity funding is determined by estimating the average return on
investment that could be expected based on returns generated by the wider market. Therefore, because
market risk directly affects the cost of equity funding, it also directly affects the total cost of capital.
 4. INFLATION
All capital providers try to invest in a manner that maximizes returns. The lower benchmark for investing
has always been the inflation. At the minimum, an investment should beat the inflation and there should be
some real income. Real income is nothing but the actual return less inflation. In simple words, you invested
money which could buy you a particular basket of things a year ago. After a year when your investment is
matured and you receive money, you would at least expect that money should be able to buy that same
basket of things. If the matured money falls short of buying you the same basket, you have diminished the
value of your money in last one year. If the money is more than just buying that basket, you have earned
real income on your investment.

Inflation is a quantitative measure of the rate at which the average price level of a basket of selected goods
and services in an economy increases over a period of time. It is the constant rise in the general level of
prices where a unit of currency buys less than it did in prior periods. Often expressed as a percentage,
inflation indicates a decrease in the purchasing power of a nation’s currency.

As prices rise, a single unit of currency loses value as it buys fewer goods and services. This loss of
purchasing power impacts the general cost of living for the common public which ultimately leads to a
deceleration in economic growth. The consensus view among economists is that sustained inflation occurs
when a nation's money supply growth outpaces economic growth.

ECONOMIC AND OTHER FACTORS AFFECTING COST OF CAPITAL

FEDERAL RESERVE POLICY

All federal banks have got the power to influence the economy. US Federal Reserve Board simple
purchases the treasury securities, normally held by banks, to boost the economy. Let’s understand how it
works. When the ‘Federal Reserve Board’ buys the Treasury securities from the banks, the banks
accumulate a lot of loanable funds with it. Now, the banks with a higher supply of funds would start
offering loans at lower interest rates. This reduction in interest rates will encourage industrialists to start
more and more ventures and that, in turn, will create job opportunities, overall demand in the market etc.
Although, there is a flip side of this policy that it will increase the inflation in the longer run. This is how
federal policies have a great impact on the cost of capital.
Monetary policy in the United States comprises the Federal Reserve's actions and communications to
promote maximum employment, stable prices, and moderate long-term interest rates--the three economic
goals the Congress has instructed the Federal Reserve to pursue.

The Federal Reserve conducts the nation's monetary policy by managing the level of short-term interest
rates and influencing the overall availability and cost of credit in the economy. Monetary policy directly
affects short-term interest rates; it indirectly affects longer-term interest rates, currency exchange rates, and
prices of equities and other assets and thus wealth. Through these channels, monetary policy influences
household spending, business investment, production, employment, and inflation in the United States.

FEDERAL BUDGET DEFICIT OR SURPLUS

Federal budget deficit and surplus also have a role to play in deciding the cost of capital in the market. In a
surplus situation, Fed would buy Treasury securities from the market and that will reduce the interest rates.
On the contrary, in a deficit situation, Fed would sell Treasury securities or mint money. Minting money
would increase the money supply in the market along with an expectation of higher inflation and that leads
to increasing the cost of money. Similarly, selling Treasury securities to banks will reduce the loanable
funds with banks and they increase the cost of funds.

A budget deficit occurs when expenses exceed revenue and indicate the financial health of a country. The
government generally uses the term budget deficit when referring to spending rather than businesses or
individuals. Accrued deficits form national debt.

In cases where a budget deficit is identified, current expenses exceed the amount of income received
through standard operations. A nation wishing to correct its budget deficit may need to cut back on certain
expenditures, increase revenue-generating activities, or employ a combination of the two.

TRADE ACTIVITY

Economic boom and recession also play a very important role in determining the cost of capital by
impacting the interest rates in the market.

Trade is a basic economic concept involving the buying and selling of goods and services, with
compensation paid by a buyer to a seller, or the exchange of goods or services between parties. Trade can
take place within an economy between producers and consumers. International trade allows countries to
expand markets for both goods and services that otherwise may not have been available to it. It is the
reason why an American consumer can pick between a Japanese, German or American car. As a result of
international trade, the market contains greater competition and therefore more competitive prices, which
brings a cheaper product home to the consumer.

Trade broadly refers to transactions ranging in complexity from the exchange of baseball cards between
collectors to multinational policies setting protocols for imports and exports between countries. Regardless
of the complexity of the transaction, trading is facilitated through three primary types of exchanges.

Trading globally between nations gives consumers and countries the opportunity to be exposed to goods
and services not available in their own countries. Almost every kind of product can be found on the
international market: food, clothes, spare parts, oil, jewelry, wine, stocks, currencies, and water. Services
are also traded: tourism, banking, consulting and transportation. A product that is sold to the global market
is an export, and a product that is bought from the global market is an import. Imports and exports are
accounted for in a country's current account in the balance of payments.

FOREIGN TRADE SURPLUSES OR DEFICITS

A foreign trade deficit creates a need for borrowing from other countries. Borrower countries will have
their own opportunity cost of capital based on the interest rates available with other countries. Higher the
borrowings and higher will be the interest rates. That will impact the capital market.

COUNTRY RISK

Country risk is the risk associated with political, social, economic environment of a country. To understand
with an example, assume a country has trends of suddenly changing the tax rates, regulations relating to
trade and commerce etc. An international investor would resist investing in that country because their
policy can put any business at stake suddenly. This will reduce the flow of international capital in the
country and thereby increase the cost of capital.
 EXCHANGE RATE RISK
Investment in countries other than the home country has a bearing of exchange rate risk on them. The real
return of an investor depends on two factors.

1. The performance of the investment in the foreign country and

2. The performance of the currency of that country in comparison to home currency.
At the time of maturity of the investment, if the home currency weakens, the net realization in home
currency would also be reduced. That can affect an investor’s decision of investing in other countries,
especially whose currency rates fluctuate a lot
 INTRODUCTION TO TATA

“A promise is promise and I kept my promise”- this is the historical statement which Mr. RATAN TATA
said when he launched his ambitious TATA NANO; the people’s car in India on 23 rd march 2009. Tata
has always given value products in the Indian Car Market whether it is path breaking recently launched
TATA NANO or TATA INDICA (which created great brand into the car industry in the diesel segment).

Not only is the passenger car, even into the heavy vehicle segment TATA is the only sole leader in India.

TATA has created its brand value not only in India but even outside India it has created its brand by
acquiring Jaguar-Land Rover, Corus Steel during 2007-08.

TATA has been named among top 10 brand companies by Fortune Magazine in the year 2008. It has got
into top 100 companies in the survey of Standard & Poor Mody’s research in the year 2008. Being into
most valued brand in world the consumer satisfaction to its customers is very important for TATAS and
thus they are continuously working into this area where their objective is to provide best products with full
value of the money of their customers.

The TATA INDICA VISTA has been one of those products you just cannot ignore. While it got media
coverage around the world, the reactions, though mixed, flowed easily. On the one hand there has been
pride in the “World’s mid size small car” tag, as a great achievement for Indian industry.

The “World’s mid size small Car” tag has been well received with the hope that a whole new category of
people can look to buy a car now.

STUDY OF THE INDUSTRY

a) Historical Background In India there are 100 people per vehicle, while this figure is 82 in China. It is
expected that Indian automobile industry will achieve mass motorization status by 2014.

Since the first car rolled out on the streets of Mumbai (then Bombay) in 1898, the Automobile Industry of
India has come a long way. During its early stages the auto industry was overlooked by the then
Government and the policies were also not favorable. The liberalization policy and various tax reliefs by
the Govt. of India in recent years has made remarkable impacts on Indian Automobile Industry. Indian auto
industry, which is currently growing at the pace of around 18 % per annum, has become a hot destination
for global auto pla

yers like Volvo, General Motors and Ford.

A well developed transportation system plays a key role in the development of an economy, and India is no
exception to it. With the growth of transportation system the Automotive Industry of India is also growing
at rapid speed, occupying an important place on the 'canvas' of Indian economy.

Today Indian automotive industry is fully capable of producing various kinds of vehicles and can be
divided into 03 broad categories : Cars, two-wheelers and heavy vehicles.

• The first automobile in India rolled in 1897 in Bombay.

• India is being recognized as potential emerging auto market.

• Foreign players are adding to their investments in Indian auto industry.

• Within two-wheelers, motorcycles contribute 80% of the segment size.

• Unlike the USA, the Indian passenger vehicle market is dominated by cars (79%).

• Tata Motors dominates over 60% of the Indian commercial vehicle market.

• 2/3rd of auto component production is consumed directly by OEMs.

• India is the largest three-wheeler market in the world.

• India is the largest two-wheeler manufacturer in the world.

• India is the second largest tractor manufacturer in the world.

• India is the fifth largest commercial vehicle manufacturer in the world.

• The number one global motorcycle manufacturer is in India.

• India is the fourth largest car market in Asia - recently crossed the 1 million mark.

40% of the three-wheelers are used as goods transport purpose. Piaggio holds 40% of the market share.
Among the passenger transport, Bajaj is the leader by making 68% of the three-wheelers. Cars dominate
the passenger vehicle market by 79%. Maruti Suzuki has 52% share in passenger cars and is a complete
monopoly in multi purpose vehicles. In utility vehicles Mahindra holds 42% share.
In commercial vehicle, Tata Motors dominates the market with more than 60% share. Tata Motors is also
the world's fifth largest medium & heavy commercial vehicle manufacturer.

b) Current Scenario

The growth of the Indian middle class along with the growth of the economy over the past few years has
attracted global auto majors to the Indian market. Moreover, India provides trained manpower at
competitive costs making India a favoured global manufacturing hub. The attractiveness of the Indian
markets on one hand and the stagnation of the auto sector in markets such as Europe, US and Japan on the
other have resulted in shifting of new capacities and flow of capital to the Indian automobile industry.
According to the International Yearbook of Industrial Statistics 2008 released by United Nations Industrial
Development Organisation (UNIDO), India ranks 12th in the list of the world’s top 15 automakers.

Indian OEMs Come of Age

Indian original equipment manufacturers (OEMs) are making their mark today with Tata and Mahindra &
Mahindra as leading Indian OEMs emerging on the global scene. With increasing competition from the
global players, Indian OEMs have upgraded their technology and are manufacturing superior-designed
vehicles.

'Frugal Engineering' has become the hallmark of the Indian automotive industry, with Indian OEMs
leveraging the Indian lead in cost-effectiveness and a highly-skilled human resource pool to bring down
the product development cost. Additionally, competencies of their suppliers have also helped to lessen
costs and manufacturing time. In fact, global OEMs are now looking at benefiting from the India
advantage by using India-based design and development centres. Tata Ace, Indica and Nano, and
Mahindra's Scorpio are examples of products developed by Indian OEMs after painstaking market research
about the specific needs of the Indian consumer.

Production

Although the sector was hit by economic slowdown, overall production (passenger vehicles, commercial
vehicles, two wheelers and three wheelers) increased from 10.85 million vehicles in 2007-08 to 11.17
million vehicles in 2008-09. Passenger vehicles increased marginally from 1.77 million to 1.83 million
while two-wheelers increased from 8.02 million to 8.41 million.

In recent times, India has emerged as one of the favourite investment destinations for automotive
manufacturers.
• Volvo Buses India is eyeing 35 per cent growth in domestic sales this year at 550-600 units as against
around 440 units sold in 2008.

• Toyota Kirloskar Motor Pvt Ltd (TKML), the Indian subsidiary of Japan’s Toyota Motor Corp, is
increasing its investment by US$ 164.8 million at its manufacturing site near Bangalore, to touch US$
824.32 million by 2016.

• French carmaker, Renault, has completely recast its plans for India as part of a new, aggressive approach
that will see it producing cars in its Chennai plant by 2011.

• Hyundai has made India its global hub for manufacturing small cars. It will invest US$ 1 billion in its
second plant in Chennai by 2013. In addition, it is also investing US$ 40 million in its research and
development (R&D) facility in Hyderabad.

• General Motors has so far invested about US$ 1 billion into its Indian operations.

• Mercedes-Benz will invest about US$ 64. 21 million in its plant at Chakan near Pune.

Domestic Market

Sales of cars and commercial vehicles have been impacted due to global economic slowdown. However, in
spite of that there has been a marginal increase in the number of vehicles sold in 2008-09 as compared to
2007-08. Total number of vehicles sold including passenger vehicles, commercial vehicles, two-wheelers
and three-wheelers in 2008-09 was 9.72 million as compared to 9.65 million in 2007-08. According to an
Ernst & Young analysis, passenger vehicle sales in the country will grow at a CAGR of 12 per cent to
touch 3.75 million units by 2014 as against 1.89 million units at the end of 2008-09. While domestic
market is expected to contribute 2.75 million units to the total tally, the remaining 1 million units would
contribute towards exports. Likewise, as per estimates by CARE Research, the domestic two-wheeler sales
will grow at a CAGR of 8.8 per cent by 2014 at 11.3 million units vis-a-vis 7.43 million units in 2008-09.
Honda Siel Cars India (HSCI), the Indian subsidiary of the Japanese giant Honda Motor Co, said that its
sales will register double digit growth in the current financial year. The company expects its total sales to
be around 60,000-65,000 units during the current year, up from 55,250 cars sold in 2008-09.

Exports

According to the 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 growth in export was led by
Hyundai Motor India, followed by others such as MSIL, Mahindra Renault, Fiat India Automobiles,
General Motors India and Honda Siel Cars India.

Policy

In order to make India a power to reckon with in the automotive sector the government launched the
Automotive Mission Plan (AMP) 2006-2016. The vision of the AMP is "to emerge as the destination of
choice in the world for design and manufacture of automobiles and auto components with output reaching
a level of US$ 145 billion accounting for more than 10 per cent of the GDP and providing additional
employment to 25 million people by 2016." As per the AMP, it is estimated that the total turnover of the
automotive industry in India would be in the order of US$ 122 billion-159 billion in 2016. It is expected
that in real terms, India would continue to enjoy its eminent position of being the largest tractor and three-
wheeler manufacturers in the world and the world's second largest twowheeler manufacturer. By 2016,
India will emerge as the world's seventh largest car producer (as compared to the eleventh largest
currently) and retain the fourth largest position in world truck manufacturing sector. Further, by 2016, the
automotive sector would double its contribution to the country's GDP from current levels of five per cent
to 10 per cent.

Industry Analysis

Even as recession-hit international automobile majors are struggling to maintain sustainable sales
figures,car exports from India surged by a remarkable 57 per cent year-on-year in the recently-ended. Led
by Hyundai Motor India Ltd and Maruti Suzuki India Ltd, India-based car makers shipped a record number
of vehicles, mainly to Europe. Exports grew to 331,539 cars from 211,112 a year earlier. Exports had
grown by a comparatively meagre 8.9 per cent in the previous year (2007-08), according to figures
released by the the Society of Indian Automobile Manufacturers. The country's largest exporter, Hyundai
managed an export growth rate of 63 per sent at 235,345 units, compared with 144,440 units in the year-
ago period. Domestic market leader Maruti Suzuki was a distant second, registering 32.58 per cent growth
in overseas sales at 68,834 units. Maruti and Hyundai launched new models in the past year, including
Maruti's A-Star and Hyundai's i20, targeted at the European market, which is cited as one reason for the
robust export numbers. The weakness of the rupee, which fell more than 20 per cent against the dollar in
the just-ended fiscal year, also helped by making Indian cars cheaper abroad. Export growth was also
robust in the two-wheeler category, which registered 22.50 per cent rise at 1004,174 units as against
819,713 units in the previous financial year. However, with the global economy slowing, demand from
Europe may not hold up, analysts said. Meanwhile, lending rates in India are at nearly five-year highs as
banks, worried about bad loans, hold back from financing vehicle purchases."The main concerns are
availability of finance, which includes liquidity, and high interest rates. Domestic car sales in the year
ended 31 March grew by a mere 1.3 per cent from a year earlier to 1.21 million cars from 1.2 million in the
previous year. Local car sales had climbed 12 per cent in the previous fiscal year. Domestic sales of trucks
and buses fell 22 per cent to 384,122 vehicles from 490,494. Motorcycle sales grew 1.2 per cent to 5.83
million, while scooters gained 9.1 per cent at 1.14 million. Industry executives and analysts expect
measures taken by government authorities to spur lending while the introduction of new models could
slightly boost domestic vehicle sales this year.

Passenger vehicle sales remained practically flat, recording a mere 0.13 percent growth over the previous
year. Within this segment, passenger cars and multi-purpose vehicles grew by just 1.31 percent and 5.69
percent respectively during 2008-09. However, sales of utility vehicles actually declined 7.94 percent.
During the month of March itself, passenger vehicle sales dropped 1.15 percent over the same period last
year. The segment that was hardest hit by the slowdown was commercial vehicles, with truck and bus sales
dropping a massive 21.69 percent during 2008-09 over the same period last year. Medium and heavy
commercial vehicles declined by an even larger 33.16 percent, while the decline was less severe for light
commercial vehicles, which dropped 7.10 percent. In March 2009, commercial vehicle sales fell a
substantial 26.22 percent compared to March 2008, with medium and heavy CVs dropping 43.40 percent
and LCVs falling just 0.17 percent. Also, medium and heavy buses grew by a marginal 0.57 percent and
light buses dropped 6.72 percent. Three-wheeler sales fell by 4.13 percent during the previous fiscal year,
while passenger carriers grew a solid 14.36 percent during 2008-09. Goods carriers declined a massive
37.52 percent due to the slowdown in economic activity. In March this year, three-wheeler sales actually
grew by 11.40 percent over the same month last year.
 COMPANY STUDY

a) HISTORY OF TATA MOTORS

1) Company’s profile

The Company was incorporated on 1st September 1945 at Mumbai to manufacture diesel vehicles for
commercial use, excavators, industrial shunter, dumpers, heavy forgings and machine tools. The
commercial diesel vehicles which were known `Tata Mercedes Benz' (TMB) are now called `Tata' vehicles
after the expiry of the collaboration agreement with Daimler-Benz AG, West Germany. The company also
used to manufacture pulp and paper making machinery. In 1960 the company's name, which was Tata
Locomotive & Engineering Company Ltd. was changed to Tata Engineering & Locomotive Company Ltd.
In the year 1987 the company undertook to set up a new forge shop, a high output foundry line, a new
paint shop as well as augmentation of engine and gearbox manufacturing facilities, all at Jamshedpur

In 1991 During the year the company entered into a collaborative agreement with an internationally
renowned engine research and development organisation to jointly develop higher horsepower, fuel
efficient diesel and petrol engines to meet the future requirements of the company. The last quarter saw the
company launching two new passenger vehicles, the SIERRA and the ESTATE totally designed and
manufactured in India. The company acquired a BIFR company, M/s Noduron Founders

Maharashtra Ltd. The total cost for Telco worked out to Rs.18 crores as against setting up of similar
critical castings foundry. During the year company launched a new earth moving equipment TWK-3036
Tata Front End Wheel Loader. Two new models in the

EX series of hydraulic excavators were launched. A 10 tonne pick and carry articulated crane, designed
and developed in-house was also introducedDuring the year company entered into an agreement with
Nachi-Fujikoshi Corporation, Japan to manufacture arc and spot welding robots suitable for automobile
manufacturing applications. During the year, company undertook to set up a joint venture with Asian Glass
Co. Ltd., Japan to manufacture float glass to be used as wind shields for automobiles. ACC along with Tata
Exports Ltd., participated in the joint venture. The joint venture named as Floathlass India Ltd., the
Company would have a stake of 16.33%. Tata Cummins Ltd., Mercedes-Benz (India) Ltd., Tata Holset
Ltd., Tata Precision Industires, Singapore and Nita Company Ltd., are the joint Ventures of the Company
Taking advantage of the broad banding policy announced by the Government of India, the Company
entered into a collaboration agreement with Honda Motor Co. Ltd., Japan, for the manufacture of their
`ACCORD' model of cars in India.

On 22nd April, an agreement was entered into between Daimler-Benz AG and Mercedes Benz AG,
Germany to setup a joint venture company Mercedez-Benz India to manufacture `E' class paneyer cans and
engines in India.

During the year 1995 a new double pick-up and Army Version of various Telco Vehicles were developed.
A new petro engine and turbo diesel engine, an up-graded 709 LCV, new sports utility vehicle Safari
expected to be launched shortly. A 25 tonne 6 X 2 truck and a bus with cummins engine were launched.

Tata Engineering and Locomotive Company (TELCO), has acquired a second hand paint shop, machine
line and cylinders from the Australian unit of the Japanese auto giant, Nissan. TELCO is believed to have
picked up the unit for Rs. 70 crore. The total cost of import duty would be Rs 100 crore. During the year a
machine tool division was expanded so as to double its machine building capacity and significantly reduce
production times.

The Company has launched "TATA SAFARI" in its Multi utility vehicle segment. Tata Holset's turbo
charger plant inaugurated on November 25, 1996.

In 1997, the Tata Engineering and Locomotive Company Ltd. (TELCO) has emerged as numero uno in the
Review 200 survey conducted by the Far Eastern Economic Review in association with Citi Bank. The
Company introduced a 9-tonne vehicle which was well received in the market. A 40 tonne tractor trailer
powered by a Tata Cummins Engineering was introduced. The Company developed a low floor bus chassis
to meet the specific needs of urban transport. The Company signed a new agreement with Hitachi for
manufacture of upgraded versions of existing range of excavators.

The year 1998- Tata Engineering and Locomotive Company Ltd (Telco) announced a tie-up with Tata
Finance Ltd and ANZ Grindlays Banks as the official financiers for its small car "Indica" to be launched in
December. Tata Engineering Locomotive Company Ltd (Telco) sold its construction equipment business
into a new subsidiary company, Telco Construction Equipment Company Ltd. The Company in its small
car segment has launched "Tata Indica" which evoked an overwhelming response in the Indian market. A
new range of cummins engine powered vehicle which include a tonne and a 40 tonne articulated truck and
two variants of buses.
To make substantial improvement in the quality of bus bodies available with TATA vehicles, the Company
encouraged collaboration between Fuji Heavy Industries of Japan and the Automobile Corporation of Goa.
The new project undertakes production of bodies on TATA chassis, conforming to the most exacting
international standards. Concorde Motors Ltd., a Joint Venture between Tata Engineering and Jardine

International Motors (Mauritius) Ltd. was appointed as dealer for the Company's passenger cars in several
cities across the country, in Feb 1998. The year 1999-Telco became the first Indian manufacturer to offer
commercial vehicles meeting euro-I emission norms, a year before they are due to be introduced in the
country. It is proposed to make TCECL a one-stop shop for construction equipment and earthmoving
machinery. In Oct 1999, the Company won the National award for R&D Efforts in Development of
Indigenous Technology in the Mechanical Engineering Industries Sector instituted by Department of
Scientific and Industrial Research, Ministry of Science and Technology for the year 1999. SKF Bearings
India Ltd has signed an agreement with Telco to supply hub bearings for its latest model Tata Indica.

2000 saw the Company working towards introducing two new petrol-driven variants of its small car Indica,
powered by a multi-point fuel injection engine. The Company launched the Indica 2000, the Euro II
Complaint, 75 BHP multi-point fuel injection (MPFI) version of Indica. The Company has won the
National Technology Award for indigenous development and commercialization of the Tata Indica car.
The Company has launched its new hi-tech Indica 2000 car with MPFI petro engine in Guwahati.

Tata Engineering & Locomotive Co. is renamed as Tata Engineering Ltd. It replaced its three-shift
production line with a one-shift daily schedule starting from 26th June. In the same year FICCI-SEDF-
Businessworld-Compaq award for social responsiveness was awarded to the company. The Central
Pollution Control Board for Environmental Technology award has been presented to Tata Engineering in
recognition of its contribution towards efforts to conserve the environment. TATA Engineering on
September 10 announced the addition of MPFI petrol version to the Indica V2 range.

In year 2002 Foreign Institutional Investors (FII) hike stake in the company to 13.34% Launches six new
products in light, medium and heavy vehicles segments on Jan 15 during Auto Expo . Announces financial
restructuring . Displays its Tata Sedan car at the Geneva Motor Show . Indica adjudged top selling B-
segment car in 2002.Launches two new motorsport cars (The Zero and Double Zero Pace cars). High Court
Approves Tata Engineering's Financial Restructuring. Tata Engg, BPCL tie up to market co-branded
lubricants.Tata Steel's investment in Tata Engineering has been hiked to Rs 117.98 crore over the last year.
Telco names Sedan as Tata
Indigo.Unveils 'EX' series of medium and heavy commercial vehicles. Indica sales cross two-lakh mark
.Collaborates with Nippon-Arcelor for technical knowhow on CR steel. Receives Teri's (The Energy and
Resources Institute) CoRE-BCSD (Corporate roundtable on development of strategies for sustainable
development and environment-business council for sustainable development) corporate social
responsibility (CSR) awards for '01-02. Unleashes Safari's petrol version; priced at Rs 9.35 lakh.

The year 2003- Tata Unveils CityRover .Tata Motors Ltd signed a binding Memorandum of Understanding
(MoU) with Deawoo Commercial Vehicle Company Ltd (DWCV), Korea for the acquisition of this
company. It introduces Tata SFC 407 EX Turbo Light Commercial Vehicle (LCV). The Company changed
from 'TELCO ' to 'TATAMOTORS' w.e.f December 24, 2003. In the same year Tata Safari ranks No 1 in
MUV/SUV segment.
PERFORMANCE OF COMPANY DURING 2008-09

Company Performance in Domestic CV Segment

Q4 FY08- Q4 FY07- Change FY08-09 FY07-08 change

09 08
M/HCVs 17,971 43,882 (59.0)% 86,704 112,440 (22.9)%

LCVs 31,575 38,686 (18.4)% 108,488 102,873 5.5%

Total CVs 49,546 82,568 (40.0)% 195,192 215,313 (9.3)%

Impacted by severe liquidity crunch and slowing economy CV domestic sales volumes
decreased by 40% y-o-y to 49,546 units in Q4FY2008-09 as compared to 82,568 units in
Q4FY2007-08.

CV market share increased by 420 basis point at 67.0% for the quarter; from 62.8% in Q4FY2007

CV industry registered a substantial volume decline of 43.9% during Q4FY2008-09. In a

challenging environment of non-availability of vehicle financing, high interest rates and, lower
industrial growth and contraction of freight traffic, MHCV market recorded a decline of 61.3% y-o-y
during the quarter and LCV’s declined by 24.3%. Truck market recorded a decline in sales in
Q4FY2008-09 over corresponding period of last year. The industry volumes in the MHCV truck
segment declined by 65.2% yo-y, while industry volumes in the LCV truck segment declined by
31.7% y-o-y during Q4FY2008-09

Passenger Vehicle Segment Q4 FY200809 Q4 FY200708

Change FY200809

FY200708

change

Small Car 25,273 31,643 -20.1% 74,829 100,110 -25.3% Entry Mid-size Car 9,765 5,746 69.9%
36,453 20,059 81.7% UV 6138 11,269 -45.5% 27,821 30,967 -10.2% Fiat 1,011 626 61.5% 3,404
2,339 45.5% Total PV 42,187 49,284 -14.4% 142,507 153,475 -7.1%
Passenger Vehicle Market Shares (India)

Q4 FY2008-09 Q4 FY2007-08 FY2008-09 FY2007-08 Small Car 12.6% 13.6% 11.8% 15.2%
Entry-level Mid-size Car 29.6% 29.9% 34.3% 30.4% UV 15.8% 18.6% 17.3% 18.2% Total PV
13.2% 12.9% 13.2% 13.9%
Porter's five forces analysis is a framework for the industry analysis and business strategy .It uses concepts
developed in Industrial Organization economics to derive five forces, which determine the competitive
intensity and therefore attractiveness of a market.

The Five Forces:

1.The threat of substitute products-As we know the Indian customers choices range from mileage, pick-
up, power steering to various other things so substitute is very important aspect in this industry as other
product available in the market may act as the substitute to the brands own existing product.

2.The threat of t5he entry of new competitors-New completion from the new entrant or from existing
company is also highly potent force which a company must have to take care of for its market share and
growth.

3.The intensity of competitive rivalry-The very effective way of putting competitor out of track is
pitching new vibrant products in the market so a company must be aware of this tactics by its rival
company so that it can cater the effect.

4.The bargaining power of customers-Another important aspect for a car orauto company where they
have to manage the pricing control of their product to spurt the sales in the market.

5.The bargaining power of suppliers- The distribution channel is very important in country like India
where the demand is highly different with all across its dimension so, supply is very much required in the
industry for a company.
Organization structure

The Board: No separate office is maintained for the Non-Executive Chairman. Being the Group
Chairman, the Company does not reimburse expenses incurred by the Non-Executive Chairman for
maintenance of a separate Chairman’s office.
No specific tenure has been specified for the Independent Directors. Mr Setna and Mr S A Naik,
Independent directors, have tenures, in the aggregate, exceeding a period of nine years.
Remuneration Committee: Details are given under the heading ‘Remuneration Committee’.

Shareholder Rights: A half yearly declaration of financial performance, including summary of significant
events in the last six months, is sent to all the shareholders. The Financial Results are also put up on the
Company’s website, besides being available on the SEBI’s website www.sebiedifar.nic

Audit Qualifications: During the year under review, there was no audit qualification in the Company’s
financial statements. The Company continues to adopt best practices to ensure a regime of unqualified
financial statements.

Training of Board Members: The Directors interact with the management in a very free and open manner
on information that may be required by them on orientation and factory visits. The independent Directors
are encouraged to attend training programmes that may be of relevance and interest to the Directors in
discharging their responsibilities to the Company’s stakeholders under the emerging business environment.

Mechanism for evaluation of non-executive Board members: The performance evaluation of non-
executive members is done by the Board annually based on criteria of attendance and contributions at
Board/ Committee Meetings as also role played/ contributions other than at Meetings.

Whistle Blower Mechanism: The Audit Committee had, at its Meeting held on August 9, 2004, framed a
Whistle-Blower Policy and the same was reviewed and amended by the Audit Committee on January
19,2009. The Policy provides a formal mechanism for all employees of the Company to approach the
Management of the Company (Audit Committee in case where the concern involves the Senior
Management) and make protective disclosures to the Management about unethical behaviour, actual or
suspected fraud or violation of the Company’s Code of Conduct or ethics policy. The Whistle Blower
Policy is an extension of the Tata Code of Conduct, which requires every employee to promptly report to
the Management any actual or possible violation of the Code or an event he becomes aware of that could
affect the business or reputation of the Company. Company
Latest Auditors Report

Annual results in details

Mar ' 09 Mar ' 07 Mar ' 06 Mar ' 05 Mar ' 04
Other income 925.97 245.19 289.11 166.09 58.90
Stock adjustment 238.04 -349.68 -256.91 -144.00 141.98
Raw material 16,218.62 19,374.93 14,263.86 11,929.48 8,341.39
Power and fuel - - - - -
Employee expenses 1,551.39 1,367.83 1,143.13 1,039.34 882.49
Excise - 4,349.45 3,401.92 3,063.44 2,270.30
Admin and selling expenses - - - - -
Research and development - - - - -
Expenses
Expenses capitalized -916.02 - - - -
Other expenses 6,867.49 3,913.46 2,946.21 2,490.34 2,027.20
Mar ' 09 Mar ' 07 Mar ' 06 Mar ' 05 Mar ' 04
Provisions made - - - - -
Depreciation 874.54 586.29 520.94 450.16 382.60
Taxation 12.50 659.72 524.50 414.95 482.00
Net profit / loss 1,001.26 1,913.46 1,528.88 1,236.95 810.34
Extra ordinary item -65.26 -1.35 5.65 -13.85 -52.86
Prior year adjustments - - - - -
Equity capital 514.05 385.41 382.87 361.79 356.83
Equity dividend rate - - - - -
Agg.of non-prom. shares (Lacs) 2031.75 2142.52 2539.98 2447.18 2352.40
Agg.of non promotoHolding 45.17 55.60 66.35 67.65 66.65
(%)
OPM (%) 6.63 10.13 10.44 10.27 11.81
GPM (%) 7.35 9.84 10.57 10.25 11.11
NPM (%) 3.77 5.96 6.29 5.99 5.21
 THE FINANCIAL ANANALYSIS OF TATA MOTORS

In the October-December quarter of the Financial Year 2008-09, the automotive sector in India suffered
severe contraction in demand, arising from major financial and other market upheavals. This exacerbated
the lack of liquidity and unavailability of consumer finance. This, along with contraction in freight
movement in many segments of the industry, led to a massive drop in the M&HCV segment demand. High
interest rates and peak commodity prices also affected the industry and the supply chain. The overall CV
industry declined by 43.9% while TML’s Commercial vehicle business declined by 40.0% supported by a
diversified product portfolio. Consequently Tata Motors gained substantial market share both in MHCV
and LCV segments. While the passenger vehicle industry declined by 16.5% affected by high interest rate
and restricted credit availability, TML’s Passenger vehicle business declined by a lower 14.4%. The rate of
decline was arrested due to encouraging response to new products introduced – Indigo CS and Indica
Vista. Going ahead ramping up of the capacity of Indica Vista would help the company to arrest decline in
small car market share. The export volumes of the Company registered a decline of 44.9%% during FY09,
due to global economic slowdown and credit crunch, especially in prime markets which witnessed adverse
impact on automotive demand. Tata Motors celebrated the 10th anniversary of the launch of the Indica on
December 30, 2008. To mark this milestone, a 10th Anniversary Limited Edition Indica Vista was
launched. In the first decade, close to 940,000 Indicas had been produced and the platform has spawned off
close to 1.2 million vehicles. The Indica has remained a bestseller throughout in the industry figuring in the
top 3 selling list of cars for most of the years. It achieved a peak sale of 144,690 in 2006-07 and the new
generation Indica Vista was launched in August this year to a continuing pull even in today’s depressed
market conditions.
 SWOT ANALYSIS

STRENGTH:

1. Strong Presence in the Marketplace:-Tata Motors is the only company in India with a broad based
presence across the industry, in all segments of the commercial vehicles market – heavy and
medium commercial vehicles, light commercial vehicles, pick-ups, sub one-tonne mini-trucks - and
key segments - compact, midsize car and utility vehicle segments - of the passenger vehicles market.

2. Unique Understanding of Customer Need:- With 50 years’ presence in the automotive business,
Tata Motors understands customer needs and develops products that meet their needs. To consider a
few examples, as early as 1980s, the company launched Light Commercial Vehicles, amidst
Japanese competition, in which it today strongly leads. In the 1990s, anticipating the need for an
affordable family car, it launched the now famous Tata Indica, which occupies a leading position
among compact cars.

3. Skill Base Developed Over the Last 40 Years:-Tata Motors is also very well-placed on technology
capability. The company had set up its Engineering Research Centre as early as 1966.With 1400
scientists and engineers and state-of-the-art development, testing and validation facilities, it is this
technology capability which has, allowed Tata Motors, over the decades, to offer indigenously
developed products. This strength has been accentuated, with the inclusion of TMETC,TDCV and
Hispano Carrocera in the R&D network, besides several other specialist external agencies.The
company no longer needs to develop every necessity itself. Today it just has to manage the process
of product creation, drawing upon already available R&D and skills from different sources.

4. People Strength:- The company’s key strength is its people.The over 22,000 employees comprise a
very broad talent base, with the required skills in every aspect of the industry.With increasing
international initiatives by the company, this talent base is now getting enriched with the necessary
competencies to respond to meet world-class standards of quality and cost. The company will
achieve this by developing and marketing relevant products, on its existing platforms and new ones,
 which delight consumers in every market they are introduced in.

5. Tata Motors’ linkages in Europe through Subsidiary Companies:- In October 2005,Tata

Technologies Ltd, a 100 per cent subsidiary of Tata Motors, acquired a 94.3 per cent stake in
INCAT International Limited. INCAT is a supplier of engineering & design, product lifecycle
management and product-centric IT services to the automotive, aerospace and durable goods
industries.

6. Tata Motors R&D in Europe:- Deepening its engagement with the European R&D space, in
September 2005,Tata Motors set up the Tata Motors European Technical Centre, a 100 per cent
subsidiary, in the UK. It is engaged in design engineering and development of products for the
automotive industry.Working synergistically,TMETC provides the company with design
engineering support and development services, complementing and strengthening the company’s
skill sets and providing European standards of delivery to the company’s passenger vehicles.

7. Engineering:-The Tata group has a robust presence in engineering, with operations in automobiles
and auto components and a variety of other engineering products and services.

8. Materials:- The Tata group is among the global leaders in this business sector, with operations in
steel and composites.

9. Services: The Tata group has widespread interests in the hospitality business, as also in insurance,
realty and financial and other services.

10. Energy: The Tata group is a significant player in power generation and is also involved in the oil
and gas segment.
 11. Chemicals: The Tata group is one of the largest producers of soda ash in the world. Additionally, it
has interests in fertilisers and in the pharmaceuticals business.

WEAKNESS:

1. The current financial situation of its recently acquired firms like “Corus” and “Land Rover-Jaguar”
is very big headache for the company and it should be back to the track in the near future.

2. The high ratio of debt equity ratio is also weakness of the company.

3. The small car segment is still not good for the company due to “maruti-suzuki” so, it need to tap
this section also.

4. The CV segment is becoming highly competitive by new player like Volvo,and rival M &M are
coming with new products to cater the TATA in the market as the rural area has given thumps up to
M&M during this year.

OPPURTUNITIES:

1. India’s huge geographic spread- This is one aspect where the company is looking for and its
diversified range of cars suits very much this area of car or say auto industry in country.

2. Easier finance schemes- The current fiscal stimulus and easy loan will surely guide the company
to post good sales as the current trend shows the cars sales has been boosted by easy loan norms in
the country.

3. Replacement of aging four wheelers- One of very important reason where the car industry and
commercial vehicle can take advantage in coming days.

4. Increasing Road Development, Golden Quadrilateral-as we all know the infrastructure will
surely boost the auto industry as it is directly related to the this industry and the government policy
 in spending the money ion infrastructure will create good demand.

5. Increasing dispensable income of rural agri sector-Some how this year the rural demand was
very enthusiastic than the urban market which drive the auto industry so, the development of rural
infrastructure and condition will create handsome demand from the rural area.

6. Higher GDP growth-With standing tall during the slowdown our economy has shown the industry
that demands will gain momentum in near future very soon.

7. Increasing disposable income with the service sector-As the consumers have money in their
hand definitely there will be demand from their side so, this is also very good opportunity for this
sector.

8. Graduating from Two wheeler to Four wheeler-The dream of “NANO” will boost demand for
four wheeler in the auto industry.

THREAT:

1. Indian is lacking in proper infrastructure this is slowing the pace of growth of auto industry

2. Global crisis- this really hurts the Indian growing industry and not only the auto but tyre industry
went for toss.

3. High competition from foreign players-As the giants like GM, Audi, MERC etc are trying to
capture the high segment market it is one of the very effective threat to the company.
 LEARNING EXPERIENCE

The training has helped me a lot in understanding the realities of the outside world. I also came to know
the real meaning of the word marketing. There are both positive and negative experiences of the training,
some of which are :

 Real experience of the corporate world which helped me a lot in understanding how really a
corporate world functions.

 Learned how to deal with the customers.

 It helped me in improving my communication skill, presentation skill and how to behave in front of
corporate executives.

 I can relate the theories, which I learned in college with practical experience.

 Learning different things like how to coordinate with team members and management.

 Learning many things regarding marketing strategies.

 Learning how to maintain balance in personal and professional life

 METHODOLOGY OF THE STUDY

Method of Analysis:

An analytical research was carried out to gain insight and proper understanding of the market. This was
done through the questionnaire and personal interaction with the managers and supervisors of industries.
This was followed by comparative study analysis. Several graph and tables were prepared for better
analysis of the market.

Research Instruments:

The research was based on the collection of primary data. Since product is new to the Allahabad market
secondary data is not advised.

Primary Data:

 Primary data was collected through a structured questionnaire.

 Personal interaction with the company managers and supervisors.
 Interaction with industry experts in Allahabad.
 ANALYSIS OF DATA

Sale according to survey

VISTA AQUA 9 30%

VISTA AURA 8 26.67%

VISTA TERRA 6 20%

OTHERS 7 23.33%

30 100%

TOTAL
Sample of 30 customers, according to their income

Salary No. of people

>1lakh 5

1lakh-3lakh 17

3-lakh-5lakh 6

< 5lakh 2
Car customers

No. of people

First time user 13

More than once 17

customer satisfacton from tata cars.

Customer Satisfaction No. of people

Satisfied 11

Not satisfied 19
Tele media creates a brand appeal.

T.V. ads appeal No. of people

Yes 7

No 23
Tata Passenger Cars, Creating brand value.

Brand value NO. OF PEOPLE

Yes 15

No 5
Factors affecting buying of customers

Features No. of people

Power steering 4

Mileage 9

Price 15

Others 2
 FINDINGS

1) TATA MOTORS, is number three in passenger car market after maruti-suzuki &
hyundai.

1) Majority of the customers see TATA MOTORS with savings.

2) Most of the customers spend large sum of money

3) Out of the samples, people are highly convinced that TATA MOTORS will yield
them better results

4) As the sales of Maruti grows as well as Hundai’s santro is still doing well in mid
size and small size segment so the INDICA VISTA may be a good options for the
company in this term for sustaining sales in long run as well as in the current
situations.
5) Product will have a gradual progress. Because most industries would wait for the
response about the product from other Company.

6) Customers were educated by me, about fuel efficient cars by TATA MOTORS
 SUGGESTIONS

Based on the findings from the analysis the following suggestions could be made:

Demo of the product should be made available to Customers, since most of the
purchase decisions are based on it.

Technical details should be made available to the customers in the most accurate
numerical form.

The Indica has remained a bestseller throughout in the industry figuring in the top
3 selling list of cars for most of the years.

The distribution channel should be more efficient to cater the demand during
peak seasons like during dassraa, diwali etc .

The city like Allahabad is mostly dominated by the working class like people employed in
high court, AG office( accountant general office) and government school employees who
this year are getting more pay due to the recommendations made by the sixth pay
commission so , the sales for mid size car can be enhanced in this scenario.
 ANNEXURE

QUESTIONNAIRE

1. WHAT IS YOUR SALARY?

< 1 LAC 1 LAKH -3 LAKH 3LAKH-5LAKH < 5LAKH

2. WHICH VEHICLE DO YOU OWN?

3. DID YOU RIDE SOME OTHER VEHICLE BEFORE THIS?

YES NO

4. WHAT IS YOUR EXPERIENCE FROM THE PREVOIUS VEHICLE?

SATISFIED NOT SATISFIED

5. WHICH IS THE MOST ESSENTIAL THING YOU PREFER WHILE BYING

VEHICLE?
PRICE MILEAGE POWER STEERING OTHERS

6. DOES TV AD APPEAL YOU?

YES NO

7. DO YOU LIKE TV PROGRAMMES ON CAR?

YES NO

8. DOES BRAND VALUE AFFECT YOUR DECISION ON BUYING

VEHICLE?
YES NO
 CONCLUSION

The study was conducted to measure Cost of capital is the cost for a business but return for an
investor. There are various factors that can affect the cost of capital. Broadly, factors can be
classified as ‘fundamental factors’ and ‘economic and other factors’. Fundamental factors are
market opportunities, capital provider’s preference, risk, and inflation. Other factors include
Federal Reserve policy, federal surplus and deficit, trade activity, foreign trade surpluses and
deficits, country risk and exchange rate risk.
In Economics and Accounting, the cost of capital is the cost of a company's funds (both debt
and equity, or, from an investor's point of view "the required rate of return on a portfolio
company's existing securities".
Other factors include Federal Reserve policy, federal surplus and deficit, trade activity, foreign
trade surpluses and deficits, country risk and exchange rate risk.
When company wants to get any new fund from outside resource, it checks its cost of capital.
Company can get the new money through shares and debt. For getting debt, we have to pay cost
of debt in the form of interest payment. For getting equity or preference share capital, we have to
pay dividend to shareholders.
 BIBLIOGRAPHY

BOOKS:

 KOTLER PHILIP AND ARMSTRONG, GARY MARKETING

MANAGEMENT
 MARKETING RESEARCH by R Nandagopal & K Arul Rajan

MAGAZINES:

 MONEY TODAY
 BUSSINESS WORLD
 OUTLOOK PROFIT
 INDIA TODAY