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2 |Page
INDEX
1. Executive Summary 3
1.1. Market Share of Automobile 3
1.2. Security Market Line 3
1.3. Capital Structure of three companies 4
2. Methodology 5
3. Tata Motors 5
3.1. Tata Motor Stock Price Chart
6
3.2. Characteristic line of Tata Motors
6
3.3. Analysis of Stock price
7
3.4. Net Present Value
7
4. Maruti Suzuki
8
4.1. Maruti Suzuki Stock Price Chart
8
4.2. Characteristic line of Maruti Suzuki
9
4.3. Analysis of Stock price
9
4.4. Net Present Value
10
5. Hindustan Motors
11
5.1. Hindustan Motor Stock Price Chart
11
5.2. Characteristic line of Hindustan Motor
12
5.3. Analysis of Stock price
12
3 |Page
5.4. Net Present Value
13
6. Observation
14
7. Inference
14
4 |Page
1. Executive Summary
This study analyses the risk and return pattern in the Indian auto industry. For this
purpose, 3 BSE listed companies were chosen, namely, Tata Motors, Maruti Suzuki and
Hindustan Motor.
Market Share of Auto industry has been shown below. Maruti Suzuki is market leader
and Hindustan Motor is the smallest player as per market share.
Risk free
rate 5.25%
Market
rate 9%
5 |Page
1.3 Capital Structure of three companies
Equity Cost of Cost of
Company Debt weight weight debt(ki) equity(ke) WACC
Maruti 0.07 0.93 2.51 15.90 14.91
Tata 0.53 0.47 3.99 24.28 13.60
Hindustan 0.74 0.26 7.7 0 5.69
6 |Page
2. Methodology
Risk Return Analysis of BSE 100 Companies have been done over a 6 year period
from January 2005 to October 2010. Monthly Adjusted Data has been taken as from
Prowess by CMIE.
For Risk free rate average 91 day Tbill rates have been taken from RBI website.
The analysis has been done on basis of Beta, Alpha, Total Risk ( Unsystematic and
Market Risk), Cost of Equity, Debt and Weighted Average cost of capital based on
debt equity ratio
3. Tata Motors
Tata Motors is India’s largest automobile company, with consolidated revenues of USD
20 billion in 2009-10. It is the leader in commercial vehicles and among the top three in
passenger vehicles. Tata Motors has products in the compact, midsize car and utility
vehicle segments. The company is the world's fourth largest truck manufacturer, the
world's second largest bus manufacturer, and employs 24,000 workers. Since first rolled
out in 1954, Tata Motors has produced and sold over 4 million vehicles in India.
7 |Page
3.1 Tata Motor Stock Price Chart
8 |Page
3.3 Analysis of Stock Price
11.43 241.1
2005 485.30 % 4862.33 653.00 411.90 0 0.14
241.2
2006 831.29 9.89% 5226.71 950.50 709.30 0 0.09
208.0
2007 748.30 6.39% 2773.62 877.75 669.75 0 0.07
Correlatio
n Covariance Beta
491651.1
0.53 8 1.40
WACC = 13.60%
Net Cash
flow(PAT+Depreciatio
Year n) NPV
2049.82 2647.44
2006
2007 2499.75 3067.50
9 |Page
2681.23 3126.08
2008
1891.09 2094.87
2009
3273.95 3445.83
2010
14381.73
10 | P a g e
4. Maruti Suzuki
Maruti Suzuki India Limited a partial subsidiary of Suzuki Motor Corporation of Japan, is
India's largest passenger car company, accounting for over 45% of the domestic car
market. The company offers a complete range of cars from entry level Maruti 800 and
Alto, to stylish hatchback Ritz, A star, Swift, Wagon-R, Estillo and sedans DZire, SX4
and Sports Utility vehicle Grand Vitara.
It was the first company in India to mass-produce and sell more than a million cars. It is
largely credited for having brought in an automobile revolution to India. It is the market
leader in India and on 17 September 2007, Maruti Udyog Limited was renamed Maruti
Suzuki India Limited. The company's headquarters are located in Delhi.
More than half the cars sold in India are Maruti Suzuki cars. The company is a
subsidiary of Suzuki Motor Corporation, Japan, which owns 54.2 per cent of Maruti
Suzuki. The rest is owned by public and financial institutions. It is listed on the Bombay
Stock Exchange and National Stock Exchange in India.
During 2007-08, Maruti Suzuki sold 764,842 cars, of which 53,024 were exported. In all,
over six million Maruti Suzuki cars are on Indian roads since the first car was rolled out
on 14 December 1983.
Coefficient of
Year Mean S. D. Variance Min Max Range variation
8.67%
2005 499.51 5348.72 406.35 636.50 230.15 0.15
10.19%
2006 863.36 6945.97 734.85 981.20 246.35 0.10
11 | P a g e
8.02%
2007 895.56 10634.57 743.10 1073.55 330.45 0.12
9.77%
2008 683.54 15657.98 520.10 867.20 347.10 0.18
13.10%
2009 1166.63 153192.55 571.00 1698.90 1127.90 0.34
10.49%
2010 1359.56 11223.12 1198.15 1490.45 292.30 0.08
WACC = 14.91%
12 | P a g e
5. Hindustan Motors Ltd.
It is the producer of the Ambassador car, widely used as a taxicab and as a government
limousine. This car is based on the Morris Oxford, a British car that dates back to 1954.
One of the original three car manufacturers in India, founded in 1942 by Mr. B.M. Birla,
it was a leader in car sales until the 1980s, when the industry was opened up from
protection. Manoj Jha is the Managing Director. It began in Port Okha near Gujarat, and
in 1948, moved to West Bengal. The Place is now Called Hindmotor.
Hindustan and General Motors have had several tie-ups in the post independence era
to produce Bedford Trucks, Vauxhall Motors(1980 to 1990), Allison Transmissions and
off-road equipment. In 1994, GM and Hindustan (C K Birla) formed a 50-50 joint
venture, General Motors India to make Opel Astra cars. GM bought out the Halol,
Gujarat plant from Hindustan in 1999.
13 | P a g e
12.88%
2010 22.96 3.78 25.30 19.55 5.75 0.08
WACC = 5.69%
Net Cash
flow(PAT+Depreciation
Year ) NPV
-
122.167517
-94.59 2
2006
-
87.1503400
-71.02 5
2007
-
68.0660273
-58.38 9
2008
-
47.6113636
-42.98 3
2009
-38.85 -40.889625
2010
-
365.884873
3
14 | P a g e
6. Observation
7. Inference
From the observation table we see that the cost of debt of Hindustan Motors is 0%. This
is because Hindustan Motors doesn’t give any dividend. Also the cost of debt of
Hindustan Motors is higher compared to that of the other two companies as well as that
of the market. This means that Hindustan Motors finds it difficult to raise money from the
market because investors are not ready to invest on it as they do not expect good
returns.
Beta analysis
An asset with a Beta of zero means that its returns change independently of changes in
the market's returns. A positive beta means that the asset's returns generally follow the
market's returns, in the sense that they both tend to be above their respective averages
together, or both tend to be below their respective averages together. A negative beta
means that the asset's returns generally move opposite the market's returns: one will
tend to be above its average when the other is below its average.
15 | P a g e
Beta of Tata motor and Hindustan motors is more than one meaning that their stock
prices respond more to the market prices than Maruti Suzuki. Thus, non-diversifiable
risk of Tata motors and Hindustan motors is more than Maruti Suzuki
From investor’s point of view, Maruti Suzuki is the best investment as it gives highest
returns and Hindustan Motors is the least preferable investment.
Cost of debt should be as low as possible from company’s perspective. So, Maruti
Suzuki is the best possible option and Hindustan Motors is the least preferred one.
16 | P a g e
Appendix-A (Tata Motors)
1. Stock Prices
17 | P a g e
Oct-06 827.95 12961.9 -3.96% 4.07%
18 | P a g e
Jan-09 149.65 9424.24 -5.91% -2.31%
2. Balance sheet
Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06
Sources of funds
Owner's fund
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Share application money - - - - -
14,208.5
Reserves & surplus 5 11,855.15 7,428.45 6,458.39 5,127.81
Loan funds
Secured loans 7,742.60 5,251.65 2,461.99 2,022.04 822.76
31,405.0 10,852.9
Total 6 25,534.76 14,094.51 4 8,447.52
Uses of funds
Fixed assets
18,416.8
Gross block 1 13,905.17 10,830.83 8,775.80 7,971.55
11,179.2
Net block 6 7,620.20 5,361.80 3,855.31 3,543.65
22,336.9
Investments 0 12,968.13 4,910.27 2,477.00 2,015.15
19,672.7
Less : current liabilities & provisions 3 12,846.21 12,029.80 8,321.20 7,888.65
31,405.0 10,852.9
Total 6 25,534.76 14,094.51 4 8,447.52
Notes:
21,991.9
Book value of unquoted investments 3 12,358.84 4,145.82 2,117.86 1,648.57
20 | P a g e
Contingent liabilities 3,708.33 5,433.07 5,590.83 5,196.07 2,185.63
1. Stock Prices
Closing Price Index Closing
Maruti Suzuki Change in Change in
Year India Ltd. B S E Sensex Maruti BSE
Jan-05 451.95 6555.94
Feb-05 473.15 6713.86 4.69% 2.41%
Mar-05 420.8 6492.82 -11.06% -3.29%
Apr-05 406.35 6154.44 -3.43% -5.21%
May-05 466.25 6715.11 14.74% 9.11%
Jun-05 465.1 7193.85 -0.25% 7.13%
Jul-05 482.1 7635.42 3.66% 6.14%
Aug-05 471 7805.43 -2.30% 2.23%
Sep-05 558.3 8634.48 18.54% 10.62%
Oct-05 549.7 7892.32 -1.54% -8.60%
Nov-05 612.9 8788.81 11.50% 11.36%
Dec-05 636.5 9397.93 3.85% 6.93%
Jan-06 756.85 9919.89 18.91% 5.55%
Feb-06 822.6 10370.24 8.69% 4.54%
Mar-06 874.35 11279.96 6.29% 8.77%
Apr-06 924.1 12042.56 5.69% 6.76%
May-06 734.85 10398.61 -20.48% -13.65%
Jun-06 797.6 10609.25 8.54% 2.03%
Jul-06 786.5 10743.88 -1.39% 1.27%
Aug-06 861.4 11699.05 9.52% 8.89%
Sep-06 981.2 12454.42 13.91% 6.46%
Oct-06 968.55 12961.9 -1.29% 4.07%
Nov-06 924.95 13696.31 -4.50% 5.67%
Dec-06 927.35 13786.91 0.26% 0.66%
Jan-07 936.6 14090.92 1.00% 2.21%
Feb-07 839.7 12938.09 -10.35% -8.18%
Mar-07 819.7 13072.1 -2.38% 1.04%
Apr-07 803.1 13872.37 -2.03% 6.12%
May-07 817.65 14544.46 1.81% 4.84%
Jun-07 743.1 14650.51 -9.12% 0.73%
Jul-07 843.15 15550.99 13.46% 6.15%
21 | P a g e
Aug-07 868.2 15318.6 2.97% -1.49%
Sep-07 999.55 17291.1 15.13% 12.88%
Oct-07 1073.55 19837.99 7.40% 14.73%
Nov-07 1012.35 19363.19 -5.70% -2.39%
Dec-07 990.05 20286.99 -2.20% 4.77%
Jan-08 848.7 17648.71 -14.28% -13.00%
Feb-08 867.2 17578.72 2.18% -0.40%
Mar-08 829.55 15644.44 -4.34% -11.00%
Apr-08 741.9 17287.31 -10.57% 10.50%
May-08 764.5 16415.57 3.05% -5.04%
Jun-08 617.75 13461.6 -19.20% -17.99%
Jul-08 574.9 14355.75 -6.94% 6.64%
Aug-08 650.4 14564.53 13.13% 1.45%
Sep-08 687.15 12860.43 5.65% -11.70%
Oct-08 564.45 9788.06 -17.86% -23.89%
Nov-08 535.85 9092.72 -5.07% -7.10%
Dec-08 520.1 9647.31 -2.94% 6.10%
Jan-09 571 9424.24 9.79% -2.31%
Feb-09 677.6 8891.61 18.67% -5.65%
Mar-09 775.1 9708.5 14.39% 9.19%
Apr-09 815.7 11403.25 5.24% 17.46%
May-09 1021.55 14625.25 25.24% 28.26%
Jun-09 1065.45 14493.84 4.30% -0.90%
Jul-09 1413.25 15670.31 32.64% 8.12%
Aug-09 1436.65 15666.64 1.66% -0.02%
Sep-09 1698.9 17126.84 18.25% 9.32%
Oct-09 1403 15896.28 -17.42% -7.18%
Nov-09 1561.7 16926.22 11.31% 6.48%
Dec-09 1559.65 17464.81 -0.13% 3.18%
Jan-10 1390.1 16357.96 -10.87% -6.34%
Feb-10 1463.55 16429.55 5.28% 0.44%
Mar-10 1416.15 17527.77 -3.24% 6.68%
Apr-10 1279.75 17558.71 -9.63% 0.18%
May-10 1236.95 16944.63 -3.34% -3.50%
Jun-10 1423.6 17700.9 15.09% 4.46%
Jul-10 1198.15 17868.29 -15.84% 0.95%
Aug-10 1255.9 17971.12 4.82% 0.58%
Sep-10 1440.95 20069.12 14.73% 11.67%
Oct-10 1490.45 20168.89 3.44% 0.50%
22 | P a g e
2. Balance sheet
Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06
Sources of funds
Owner's fund
Equity share capital 144.5 144.5 144.5 144.5 144.5
Share application money - - - - -
Preference share capital - - - - -
11,690.6
Reserves & surplus 0 9,200.40 8,270.90 6,709.40 5,308.10
Loan funds
Secured loans 26.5 0.1 0.1 63.5 71.7
Unsecured loans 794.9 698.8 900.1 567.3 -
12,656.5 10,043.8
Total 0 0 9,315.60 7,484.70 5,524.30
Uses of funds
Fixed assets
10,406.7
Gross block 0 8,720.60 7,285.30 6,146.80 4,954.60
Less : revaluation reserve - - - - -
Less : accumulated
depreciation 5,382.00 4,649.80 3,988.80 3,487.10 3,259.40
Net block 5,024.70 4,070.80 3,296.50 2,659.70 1,695.20
Capital work-in-progress 387.6 861.3 736.3 238.9 92
Investments 7,176.60 3,173.30 5,180.70 3,409.20 2,051.20
Net current assets
Current assets, loans &
advances 3,856.00 5,570.00 3,190.50 3,956.00 3,870.70
Less : current liabilities &
provisions 3,788.40 3,631.60 3,088.40 2,779.10 2,184.80
Total net current assets 67.6 1,938.40 102.1 1,176.90 1,685.90
Miscellaneous expenses not
written - - - - -
12,656.5 10,043.8
Total 0 0 9,315.60 7,484.70 5,524.30
Notes:
Book value of unquoted
investments 11.1 3,162.20 5,169.60 3,398.10 2,040.10
Market value of quoted
investments 215.1 108.7 219.5 270.4 289.8
Contingent liabilities 3,657.20 1,901.70 2,734.20 2,094.60 1,289.70
Number of equity
sharesoutstanding (Lacs) 2889.1 2889.1 2889.1 2889.1 2889.1
23 | P a g e
Appendix-C (Hindustan Motors)
1. Stock Prices
Adjusted
Closing Price Index Closing
Hindustan BSE Change in Change in
Year Motors Ltd. Sensex Hindustan BSE
Jan-05 23.55 6555.94
Feb-05 31.55 6713.86 33.97% 2.41%
Mar-05 32.95 6492.82 4.44% -3.29%
Apr-05 27.9 6154.44 -15.33% -5.21%
May-
05 31.35 6715.11 12.37% 9.11%
Jun-05 32.1 7193.85 2.39% 7.13%
Jul-05 35.95 7635.42 11.99% 6.14%
Aug-05 45.05 7805.43 25.31% 2.23%
Sep-05 38.95 8634.48 -13.54% 10.62%
Oct-05 28.25 7892.32 -27.47% -8.60%
Nov-05 33.1 8788.81 17.17% 11.36%
Dec-05 30.2 9397.93 -8.76% 6.93%
Jan-06 33 9919.89 9.27% 5.55%
Feb-06 35.6 10370.24 7.88% 4.54%
Mar-06 39.9 11279.96 12.08% 8.77%
Apr-06 55.05 12042.56 37.97% 6.76%
May-
06 37.05 10398.61 -32.70% -13.65%
Jun-06 30.5 10609.25 -17.68% 2.03%
Jul-06 32.4 10743.88 6.23% 1.27%
Aug-06 38.9 11699.05 20.06% 8.89%
Sep-06 41 12454.42 5.40% 6.46%
Oct-06 37.4 12961.9 -8.78% 4.07%
Nov-06 38.15 13696.31 2.01% 5.67%
Dec-06 34 13786.91 -10.88% 0.66%
Jan-07 40.75 14090.92 19.85% 2.21%
Feb-07 40.6 12938.09 -0.37% -8.18%
Mar-07 33.9 13072.1 -16.50% 1.04%
Apr-07 32.35 13872.37 -4.57% 6.12%
May-
07 32.85 14544.46 1.55% 4.84%
Jun-07 31.35 14650.51 -4.57% 0.73%
Jul-07 30.9 15550.99 -1.44% 6.15%
Aug-07 31.2 15318.6 0.97% -1.49%
24 | P a g e
Sep-07 35.75 17291.1 14.58% 12.88%
Oct-07 32.45 19837.99 -9.23% 14.73%
Nov-07 40.95 19363.19 26.19% -2.39%
Dec-07 61.05 20286.99 49.08% 4.77%
Jan-08 47.6 17648.71 -22.03% -13.00%
Feb-08 39.15 17578.72 -17.75% -0.40%
Mar-08 32.2 15644.44 -17.75% -11.00%
Apr-08 35.55 17287.31 10.40% 10.50%
May-
08 30.05 16415.57 -15.47% -5.04%
Jun-08 23.05 13461.6 -23.29% -17.99%
Jul-08 24.9 14355.75 8.03% 6.64%
Aug-08 24.45 14564.53 -1.81% 1.45%
Sep-08 18.65 12860.43 -23.72% -11.70%
Oct-08 10.6 9788.06 -43.16% -23.89%
Nov-08 10.29 9092.72 -2.92% -7.10%
Dec-08 13.08 9647.31 27.11% 6.10%
Jan-09 12.37 9424.24 -5.43% -2.31%
Feb-09 11.26 8891.61 -8.97% -5.65%
Mar-09 13.17 9708.5 16.96% 9.19%
Apr-09 16.23 11403.25 23.23% 17.46%
May-
09 23.15 14625.25 42.64% 28.26%
Jun-09 19.7 14493.84 -14.90% -0.90%
Jul-09 20.95 15670.31 6.35% 8.12%
Aug-09 22.85 15666.64 9.07% -0.02%
Sep-09 24.1 17126.84 5.47% 9.32%
Oct-09 20 15896.28 -17.01% -7.18%
Nov-09 23.25 16926.22 16.25% 6.48%
Dec-09 23.65 17464.81 1.72% 3.18%
Jan-10 22.1 16357.96 -6.55% -6.34%
Feb-10 20.8 16429.55 -5.88% 0.44%
Mar-10 20.95 17527.77 0.72% 6.68%
Apr-10 25.3 17558.71 20.76% 0.18%
May-
10 19.55 16944.63 -22.73% -3.50%
Jun-10 23.8 17700.9 21.74% 4.46%
Jul-10 24.3 17868.29 2.10% 0.95%
Aug-10 24.15 17971.12 -0.62% 0.58%
Sep-10 24.3 20069.12 0.62% 11.67%
Oct-10 24.3 20168.89 0.00% 0.50%
25 | P a g e
2. Balance sheet
Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06
Sources of funds
Owner's fund
Equity share capital 161.26 161.26 161.26 161.26 161.26
Share application money - - - - -
Preference share capital - - - - -
Reserves & surplus -128.92 -77.82 -38.96 -69.8 -83.1
Loan funds
Secured loans 39.07 57.63 78.95 123.21 116.02
Unsecured loans 56.77 71.39 47.14 64.31 43.49
Total 128.18 212.46 248.38 278.97 237.67
Uses of funds
Fixed assets
Gross block 480.14 481.25 486.02 487.3 479.53
Less : revaluation reserve 7.83 8.85 9.88 11.93 13.08
Less : accumulated depreciation 341.27 327.25 321.78 301.63 280.28
Net block 131.04 145.15 154.37 173.74 186.17
Capital work-in-progress 5.89 5.56 5.9 3.17 0.78
Investments 69.44 70.17 71.8 70.61 70.25
Net current assets
Current assets, loans & advances 187.44 143.85 191.84 254.18 196.33
Less : current liabilities & provisions 265.63 165.29 184.73 222.94 218.2
Total net current assets -78.19 -21.44 7.11 31.25 -21.87
Miscellaneous expenses not written - 13.03 9.21 0.2 2.34
Total 128.18 212.46 248.38 278.97 237.67
Notes:
Book value of unquoted investments 69.44 69.43 71.06 69.88 69.52
Market value of quoted investments - 1.41 1.75 1.77 5.05
Contingent liabilities 182.24 154.6 163.67 46.67 190.32
Number of equity sharesoutstanding (Lacs) 1611.72 1611.72 1611.72 1611.72 1611.72
26 | P a g e