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THE INDIAN AUTO INDUSTRY: SMOOTH ROADS AHEAD Introduction: The Indian auto industry is firing from all cylinders and month after month auto companies are re porting record sales. The Indian auto industry, which was expected to become the seventh large st vehicle producing country in the world by 2016, has already achieved the milestone six years ahead of target. Such outperformance did not go unnoticed by the markets which led to the rerat ing of auto stocks. But the rising prices of commodities including crude oil and higher interest rat es (thanks to inflation) spoiled the party, as the auto stocks were hammered down close to their previous prices last year. But now the precipitous fall in commodities including crude will lead to the downward trend in infl ation, and interest rates till the last quarter of the calendar year. Also the crude prices are likely t o remain low for some more time due to a global slowdown. As a result, the auto stocks are pois ed to have a dream run in the coming quarters. An attempt has been made in the present research study to overview the performance of the aut o stocks based on current financial details. Exact Title of the Study: Performance study of fundamental financial facts and stock market variations of auto companies for the period between FY 2009-10 and 2010-11. Objective of the Study: The basic objective of the study is to analyze the fundamental performance indicators and stock performance factors of the auto companies for the purpose of enabling small investors to develo p investment interest in auto stocks. Research Methodology: The present study is completely based on published data and information, the sources of which are acknowledged wherever applicable and necessary. The exploration of most relevant informa tion for the purpose of fulfilling the objective and reaching valid conclusions in an underlying ide a and methodology of the present study. Limitations: The present study is restricted only to the performance evaluation of auto companies and that to o based on available fundamental financial facts and stock history. The data and information fou nd in published and electronic form is the base of analysis and interpolations of the study.

Discussion of the Topics:

- http://www.docx-to-doc-converter.com a. Sales Turnover of Auto stocks b. Net Profit and Earning Per Share (EPS) of Auto stocks c. Stock prices of Auto stocks The above mentioned topics are discussed at reasonable length with the help of three data table w hich are given hereafter in sequence in the purpose of addressing on the concerned issues at a str etch with maintaining proper relation of all the parameters and indicators mentioned in these tabl es.

Table 1. Sales of Auto companies for the year ended 31st March 2010 and 2011 Sr. No. Names of Auto compa Sales (Rs. in cr) nies 2009-2010 2010-2011 1. Bajaj Auto 11813 16452 2. Hero Motocorp 15861 19401 3. TVS Motors 4430 6289 4. Kinetic Engineering 49 91 5. LML 164 374 6. Maha. Scooters 4 6 7. Majestic Auto 128 149 8. Scooters India 129 159 9. Hind. Motor 580 702 10. Mahindra & Mahindra 18516 23494 11. Maruti Suzuki India 29623 37040 12. Ashok Leyland 7436 11407 13. Eicher Motors 379 442 14. Force Motors 1029 1573 15. SML Isuzu 717 885 16. Tata Motors 35564 48025 17. Escorts 2179 2763 18. HMT Ltd. 190 200 19. VST Tillers & Tractors 345 425 Absolute Cha Percentage Ch nge ange (%) (Rs. Cr) 4639 39.27 3540 22.32 1859 41.96 42 85.71 210 128.04 2 50.00 21 16.40 30 23.25 122 21.03 4978 26.88 7417 25.03 3971 53.40 63 16.62 544 52.86 168 23.43 12461 35.03 584 26.80 10 5.26 80 23.18

Source: Dalal Street Investment Journal (DSIJ),Aug15-28, 2011 and Aug. 16-29, 2010 Pg.39 and pg.44 Note: Absolute changes and percentage changes are further calculations based on data from DSIJ

- http://www.docx-to-doc-converter.com Table 2. Net profit and EPS of auto companies for year ended 31st March 2010 and 2011 Sr. No 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. Name of Auto companies
Bajaj Auto Hero Motocorp TVS Motors Kinetic Enginee ring LML Maha. Scooters Majestic Auto Scooters India Hind. Motor Mahindra & Ma hindra Maruti Suzuki I ndia Ashok Leyland Eicher Motors Force Motors SML Isuzu Tata Motors Escorts HMT Ltd. VST Tillers & Tractors

Net Profit (Rs.in cr) 2009-10 2010-11

1702 3339

Absolute c hange
1637

% chan ge
96.22

EPS (Rs) 09-10 10-11

118 115.4

Absolute change -2.6 -15.5 0.4

% chan ge -2.2 -13.83 10.81

2232 88 2.3 -51.6 8.4 20.8 -28 -51.1 2088 2498 424 37 60 21.5 2240 89.7 -55.8 42.3

1927.9 192.6 -10.9 -99.5 21.7 7.1 -17 0.8 2662.1 2288.6 631.3 75.4 58.6 36.6 1811.8 137.6 -79.6 46.2

-304.1 104.6

-13.62 118.86

112 3.7 3 7.4 20 -6.5 -3.2 36 86.4 3.2 14 46 14.8 39.3 8.8 -0.7 49

96.5 4.1

158.33

574.1 -209.4 207.3 38.4 -1.4 15.1 -428.2 47.9 -23.8 3.9

27.49 -8.38 48.89 103.78 -2.33 70.23 -19.11 53.40 -42.65 9.21

19 6.8 -4 0 43.4 79.2 2.4 28 44.5 25.3 28.4 13 -1 53.5

156.75 -66.66 -38.46 7.4 -7.2 -0.8 14 -1.5 10.5 -10.9 4.2 -0.3 4.5 20.55 -8.33 -25 100 -3.26 70.94 -27.73 47.72 -42.85 8.41

Source: Dalal Street Investment Journal (DSIJ),Aug15-28, 2011 and Aug. 16-29, 2010 Pg.39 and pg.44 Note: Absolute changes and percentage changes are further calculations based on data from DSIJ

Table 3.

- http://www.docx-to-doc-converter.com Stock price variations in the recent past (from 6/8/2010 and 5/8/2011)

Sr. No. Names of Auto compa nies 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19.

Stock price (Rs.)

(On 6/8/2010) (On 5/8/2011) Bajaj Auto 2710.85 1400.30 Hero Motocorp 1840.65 1784 TVS Motors 135.15 52.30 Kinetic Engineering 92.95 114.65 LML 11.98 10.50 Maha. Scooters 352.30 329.90 Majestic Auto 130.05 75.20 Scooters India 40.55 38.50 Hind. Motor 25.10 16.50 Mahindra & Mahindra 649.35 655 Maruti Suzuki India 1221.20 1193.15 Ashok Leyland 71.10 24.50 Eicher Motors 999.40 1351.90 Force Motors 417.90 676.20 SML Isuzu 314.50 361.45 Tata Motors 894.35 889.50 Escorts 192.60 88.05 HMT Ltd. 78.00 52.30 VST Tillers & Tractors 534.15 507.40

Absolute Cha nge (Rs.) -1310.55 -56.65 -82.50 21.7 -1.48 -22.4 -54.85 -2.05 -8.6 5.65 -28.05 -46.60 352.5 258.3 46.95 -4.85 -104.55 -25.7 -26.75

Percentage Ch ange (%) -48.34 -3.07 -61.30 23.34 -12.35 -6.35 -42.17 -5.05 -34.26 0.87 -2.29 -65.63 35.27 61.81 14.92 -0.54 -54.28 -32.94 -5

Source: Dalal Street Investment Journal (DSIJ),Aug15-28, 2011 and Aug. 16-29, 2010 Pg.39 and pg.44 Note: Absolute changes and percentage changes are further calculations based on data from DSIJ

Sales Turnover Performance of Auto stocks:

- http://www.docx-to-doc-converter.com The auto companies have shown outstanding performance this year as compared to the last year, by showing tremendous increase in their sales turnover. The factors which helped to gain this mo mentum were definitely on improvement in customer sentiments due to the revival in the econom y where the GDP grew at a rate of 8.5% in FY 11 as against 7.4% in FY 10.This helped to increa se employment levels and personal disposable incomes that influenced this growth. The figures e xhibited in Table1. will make the facts more clear. As shown in Table 1., all the concerned auto companies have shown fabulous growth in the sales turnover which comes to an average growth rate of 30.15% p.a. To mention specifically, Ashok Leyland has achieved a sales growth of 53 percent, LML sales growth of 128.04 percent, Force motors 52.86 percent, whereas Bajaj Auto, TVS motors have recorded a sales growth of more tha n 35 percent, whereas many others have shown more than 20 percent. The only auto company sh owing the growth rate below 10 percent is HMT. Thus, as far as the actual trade performance is c oncerned, these auto companies have shown tremendous flair for growth. In this global scenario, due to a slowdown, the prices of the commodities including crude oil are likely to remain low which will help the government battle the inflationary monster. As a result, t he RBIs hawkish action on account of higher inflation in the recent past may start reversing the hike in interest rates, thus creating a demand for the automobile industry. Thus, autos are expecte d and will continue to show better performance over a long period of time in future. Hence, as far as sales turnover as a fundamental performance indicator is concerned, investors sh ould consider investing in auto stocks.

Net Profit and EPS of Auto companies: It can be specifically observed that the profitability of autos is improving inline with their respect ive sales turnover. The average of percentage growth rate in net profit is 34 % as against 30 aver age percentage growth rate in sales turnover, which seems to be very positive scenario. The incre asing profitability is not only good news for the shareholders but also it is an opportunity for pros pective small investors. To mention specifically, Maha scooters has shown a growth of 158.33 percent in Net Profit, as c ompared to last year, TVS motors 118.86 percent, Eicher Motors 103.78 percent, Bajaj Auto 96. 22 percent and SML Isuzu 70.23 percent and many others have shown a growth of 20 percent. T he companies like Tata Motors, Hero Motocorp, Maruti Suzuki India have shown a negative gro wth of 19.11 percent, 13.62 percent and 8.38 percent respectively, thanks to rising input prices (c ommodity prices) in last one year. The average EPS growth rate of auto companies for the last one year is 12 percent. To mention s pecifically, although the profits of the companies like Bajaj Auto, Ashok Leyland and TVS moto

- http://www.docx-to-doc-converter.com rs have increased by a good percentage, the same is not reflected in their respective EPS,the reas on being these companies have given 1:1 bonuses which in turn has diluted their earnings. The c ompanies which have reported a good percentage increase in their EPS are Maha Scooters, Eiche r Motors, SML Isuzu, Escorts with 157.76 percent, 100 percent, 70.94 percent, 47.72 percent res pectively, which in turn have helped their respective shareholders money(except Maha scooters and Escorts) to appreciate more as compared to the other auto stocks .The companies showing ne gative EPS growth over the last one year are Bajaj Auto, Hero Motocorp , Majestic Auto, Maruti Suzuki India, Ashok Leyland, Tata Motors, Force Motors and HMT L The rising input prices and interest rates have affected the margins of the companies to some exte nt, but thanks to the falling commodity prices including crude oil, which will result into low inpu t prices, the margins are expected to be better in the coming quarters. As the margins are going to be better, it will result into higher profits and hence higher EPS resulting into good appreciation f or the shareholders money. Hence, the investors should think seriously of investing in auto comp anies. Stock Prices of Auto Companies: As per Table 3. the stock prices of all the concerned auto companies have not shown that much g ood performance. Eicher motors, SML Isuzu and Force Motors have shown a 35.27 percent, 14.9 2 percent and 61.81 percent in their share prices as these companies have shown a good growth i n their EPS. The companies like Bajaj Auto, TVS Motors and Ashok Leyland have shown a nega tive growth of 48.34 percent, 61.30 percent and 65.63 percent in their respective share prices, but one should not forget that these companies have given 1:1 bonuses hence taking that into account, these companies have shown 3.31 percent, negative 22.59 percent, negative 30.34 percent in thei r respective share prices. Hence, almost all the companies share prices have gone down below th eir August 2010 positions and thus provide a greater margin of safety to the new shareholders. T he demand for the auto companies has reduced because of rising interest rates scenario, but going forward as the inflation will cool down, the interest rates will come down thus will create a dema nd for the auto industry, which will result in upward movement in the share prices. Thus, it will help investor maximize their wealth by investing in selected auto companies with go od profitability and with low shareprices.

Conclusion: The analysis of the basic financial information and growth indicators of auto companies from the view point of investors reveals that the investment in auto companies is beneficial and safer. By

- http://www.docx-to-doc-converter.com applying their proper investment intelligence, they can generate enough capital gains for their w ealth maximization. Suggestions: The investors can further analyze other important factors such as P/E ratio, Net Profit to Sales rat io, Ebitda / Entreprise Value etc. before actual decisions. Investors should follow the concept of r upee cost averaging (buying in small lots) to bring down their costs of investing. Investors can al so invest in these companies through mutual fund mode by investing in sector specific fund conc entrating on automobiles sector through .Ultimately, any stock investment is subject to market ris k hence investors must take due care before investing.

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