FIRST CHAPTER

Introduction

Fundamental analysis is very helpful to the investor, which is reflected in the investment purpose.

Fundamental analysis consist of three parts, they are economic, industry and company.

Any investors who go to systematic investment, he/she would like to know, the complete scenario of the industry.

It is interesting to know the how the fundamental analysis helps to forecast the price of equity.

The fundamental analysis consists of three parts; they are economic, industry and company.

All the factors are involved in this analysis were identified and studied carefully to identify the factors in the existing environment. Economic analysis was a task to be studied as it affected the companys tax, and it will effect on the revenue of the industry. Also other factors are considered in the economic analysis. And it will interpret for the fundamental analysis.

Industry analysis was a challenging factor for the research of the fundamental analysis. All the sub-factors of the industry analysis were taken up from the secondary source to analyses the each factor with the industry. And was related those factors with the company. It also analyses the competitiveness of the each companys strength, like. Quality, services, cost of R/m, etc.

Company analysis is last factors of the fundamental analysis and it is one of the most important parts of the company. An approach was made to understand the existing company and its impact on companys market share and its performance.

Need and Scope of Study

NEED OF THE STUDY

Stock is ownership in a company, with each share of stock representing a tiny piece of ownership. The more shares you own, the more of the company you own. The more shares you own, the more dividends you earn when the company makes a profit. In the financial world, ownership is called Equity.

Stock/shares play a major role in acquiring capital to the business in return investors are paid dividends to the shares they own. The more shares you own the more dividends you receive. The role of equity analysis is to provide information to the market. An efficient market relies on information: a lack of information creates inefficiencies that result in stocks being misrepresented (over or under valued). This is valuable because it fills information gaps so that each individual investor does not need to analyze every stock there by making the markets more efficient

SCOPE OF THE STUDY

It gives information about the Economy Analysis (GDP and Inflation) its effect on Tata Motors Share price

It gives information about the Industry Analysis (Automobile Industry) its effect on Tata Motors Share Price It gives information about the Company Analysis (Financial Statements) its effect on Tata Motors Share Price It gives information on Competitors of Tata Motors in Automobile industry It will serve the Investor in taking Investment decision in Tata Motors

Objectives of the study

To study the functioning of equity shares in capital market. To know the factors that effects price of the shares To find out how the judgment is taken by the analyst on the basis of fundamental analysis of the company. To establish link between expected share price with the projected companys financial performance (2010-2011) To calculate a company's credit risk To make projection on its business performance and in the bad condition to improve the performance of company. To evaluate its management and make internal business decisions, To make the company's stock valuation and predict its probable price evolution. Investors may use fundamental analysis to determine future growth rates for buying high priced growth stocks

Research Methodology

Research methodology is a way to systematically solve the research problem. The research methodology using for find out the solution is analytical research methodology and some extend descriptive research methodology.

METHODOLOGY Research design or research methodology is the procedure of collecting, analyzing and interpreting the data to diagnose the problem and react to the opportunity in such way where the costs can be minimized and the desired level of accuracy can be achieved to arrive at a particular conclusion. The methodology used in the study for the completion of the project and the fulfillment of the project objectives

Data collection:

The study is mainly based on secondary data. This data was collected from news papers such as business line books, stock exchange official directory, companies annual reports in NSE and web sites. The research has selected Tata Motors limited in Automobile Industry for Fundamental Analysis. The selected script is listed in NSE and BSE.

Primary Data

To solve the problems on fundamental analysis on cement sector

Primary data collect by discussing with my guide and other staff member of the company Observation

Secondary Data

The sources of secondary data for solve the problems are

Company Annual Report Company Internal Data Internet-Websites Limitations of the study

Limitations are as follows:

In every project work there is some kind of limitations which affect the accuracy of work. Same in this project work some of the limitations are faced which are as following:

Timing for the research was very limited i.e. from 4pm to 6pm (only 2 hours) because from 9.00am to 3.30am I used to observe the live Stock Market. The scope of the study is limited to Indian markets only. The data collected is completely restricted to TATA Motors. Hence this analysis cannot be taken as universal to Automobile Industry. This study has been conducted purely to understand Equity analysis for investors. The study is restricted to three companies based on Fundamental analysis. Detailed study of the topic was not possible due to limited size of the project. There was a constraint with regard to time allocation for the research study i.e. for a period of 45 days. Suggestions and conclusions are based on the limited data of 2 years.

SECOND CHAPTER

PROFILE OF CAPITAL MARKET INDUSTRY

Stock Market
Stock market represents the secondary market where existing securities i.e., shares and debentures are traded. Stock exchange provides a securities share and debentures provide an organized mechanism for purchase and sale of securities. By the end of 2005 there are 23 stock exchanges in our country. Stock exchange provides a place where securities of different companies can be purchased and sold. Stock exchange is a body of persons, whether in corporate or not, formed with a view to help, regular and control the business of buying and selling of securities.

II.1 Function of Stock exchange

Ensure liquidity of capital Continuous market for securities The investor can evaluate the worth of their shares from the prices quoted at different

stock exchange for those securities Mobilizing surplus savings Helps in raising new capital Platform for public debt Cleaning house of business information

II.2 Speculators in stock exchange

BULL BEAR STAG LAME DUCK

BULL: A bull or tejiwala an operator who expect prices to raise in future, purchase the securities now and sells
them in the future at a higher price. A bull tends to throw his victims up in the air.

BEAR:

A bear or mandiwala expects price to fall in future and sells securities at present with a view to

purchase them at lower price in future, just bear presses their victim down to the ground.

STAG: A stag is a cautious speculator in the stock exchange. He applies for the share in new companies and
expects to sell them at a premium if he gets an allotment. He sells the shares before being called to pay the allotment money.

LAME DUCK: when a bear finds it difficult to fulfill his commitment, he is called struggling like a lame duck. II.3 Stock exchange in India
Bombay Stock Exchange - 1875

1.

Ahmadabad share & Stock Brokers Association Ltd.

- 1957

2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22.

Calcutta Stock Exchange association limited Delhi Stock Exchange Madras Stock Exchange Indore Stock brokers association Bangalore Stock Exchange Hyderabad Stock Exchange Cochin Stock Exchange Pune Stock Exchange U.P Stock Exchange association limited Ludhiana Stock Exchange association limited Jaipur Stock Exchange association limited Guwahati stock Exchange limited Mangalore Stock Exchange limited Magadha Stock exchange limited, Patna Bhubaneswar Stock Exchange association Ltd. Over the counter Exchange of India, Bombay Saurastra Kutch Stock Exchange limited Vadodara Stock Exchange limited Coimbatore Stock Exchange limited The Meerut Stock Exchange limited National Stock Exchange limited

- 1957 - 1957 - 1957 - 1958 - 1963 - 1963 - 1978 - 1982 - 1982 - 1983 - 1983 - 1984 - 1985 - 1986 - 1989 - 1989 - 1990 - 1991 - 1991 - 1991 - 1992

National Stock Exchange

The National stock exchange of India was established in 1994 by financial institutions and banks with IDBI as a nodal agency and is popularly known as NSE. The NSE has been conceived as a modal exchange with nationwide electronic screen based scrip less and floorless trading system in securities, which is both efficient and transparent and offers equal and nationwide access to investors.

National Stock Exchange Cash Segment

The National stock exchange operates mainly in two different segments:

1. 2.

Wholesale debt market, (WDM) Capital market (CM)

The wholesale debt market (WDM) is concerned with trading in instruments like Government Securities, PSU

bonds, unites 64 of UTI, CDs and CPs by corporate entities (like banks, institutions, brokerages). The Capital market (CM) is concerned with equity and corporate with equity and corporate debt instruments by both corporate equities and individuals. It will encourage high member with dealer network and short settlement cycles.

The Capital Market segment covers trading in equities, convertible debentures etc., retail and I trade in debt instruments like non- convertible debentures. Securities of medium and large companies with nationwide investor base, including securities traded on other Stock Exchange are traded on the NSE. The NSE market is a fully automated screen based trading environment. There no trading floor as is prevalent in the traditional stock exchanges. Nor do dealers use the telephone to arrange money market deals. Rather, the market operators with all market participants stationed at their officers and making use of computers terminals, to enter orders, to receive the current market status, the trades executed and other market related information. The identity of the trading member placing the order is not disclosed in the NSE computer trading system. By enabling trading members and participants to hide their identity, without fear of large orders influencing the price of the market. The system provides s complete transparency of trading operations. Investors can see prices of traded securities and known whether their order have been placed in to the system, the rate at which their deal has taken place, the counter party and the time at which the trade was executed.

The trading system provides enormous flexibility to trading members. When entering an order, a trading member can place various conditions on the order in terms of price, time or size. Orders are matched automatically by the exchange computer system. All orders received are stacked in price time priority. In the other words, the computer sorts orders as and when they are received in terms of the price of each security and the time at which orders are entered.

Indices of National Stock Exchanges

S & P NIFTY
S & P CNX Nifty is a well diversified 50 stock index accounting for 24 sectors of the economy. It is used for a varieties of purposes such as benchmarking fund portfolios, index based derivatives and index funds.

CNX NIFTY JUNIOR

The next rung of liquid securities after S&P CNX Nifty is the CNX Nifty junior. It may be useful to think of the SS&P CNX Nifty and the CNX Nifty junior as making up the 100 most liquid stocks in India. As with the S&P CNX Nifty, stocks in the CNX Nifty junior are filtered for liquidity, so they are the most liquid of the stocks excluded from the S & P CNX Nifty.

S&P CNX 500

The S&P CNX 500 is Indias first broad based benchmark of the Indian capital! Market for comparing portfolio returns. The S&P CNX 500 represents about 94% of total market capitalization and about 98% of the total turnover on the NSE.

S&P CNX Deft

Almost every institutional investor and off- shore fund enterprise with an equity exposure in the India would like to have an instrument for measuring returns on their equity investment in dollar terms. To facilitate this, a new index the S&P CNX Nifty has been developed.

CNX MIDCAP200

The medium capitalized segment of the stock market is being increasingly perceived as an attractive investment segment with high growth potential. The primary objective of the CNX madcap 200 index is to capture the movement and be a benchmark of the madcap segment of the market.

CNX IT SECTOR INDEX

Information technology (IT) industry has played a major role in the Indian economy during the last few years, a number of large, profitable Indian companies today belong to the IT sector and a great deal of investment interest is now focused on the IT sector. In order to have a good benchmark of the Indian IT sector, IISL developed the CNX IT sector index. Companies in this index are those that have more than 50% of their turnover from IT related activities like software development, hardware manufacture, vending, support and maintenance.

Evolution of Online Trading

Online Trading
Stock exchange maintains a mainframe computer which is connected through very small aperture terminal (VSAT) install at its office. This mainframe is heart of the online trading system and it keeps all the market data. Brokers offices have terminal at their premises, which are connected through VASTs/leased lines/modems. The brokers enter the order through his PC which runs order window NT/2000 and send signal to the satellite via VAST/leased line modem. The signal is directed to main frame computer at stock exchange via VAST.

Evolution
Online trading has become very popular in the last couple of years because of the convenience of ease and use. Numerous companies have gone, online to meet their customers enabling them to trade when they want

and how they want to. Online trading has basically replaced a phone call with the internet. Instead of interacting with brokers over the phone, the customer is clicking the mouse; not to mention that other option are still available, but at a cost. Online trading has given customers real-time access to account information, stock quotes, elaborate market researches and interactive trading. Further, online trading has led to additional features such as:

Limit/stop order - Order that can go unfilled, but there is an extra charge for this. Market Order Order can be filled at unexpected prices, but this type is much more risky, since you have to
buy stock ay the given price.

Cash Account Where funds have to be available prior to placing the order. Margin Account- Where order can be placed against stocks, to increase purchasing power.

Investors reason to trade online

They feel they have control over their account can make their own decisions and do not

have to give reasons their actions. They are independent They have a reason to participate in the market and learn about it. They fit it interesting, cheap, easy, fast and convenient. They are sure and confident. They have access to numerous tolls to invest, and can create their own portfolio.

Dematerialization
In order to trade electronically /share held in the physical form (share certificate) have to be dematerialized. Dematerialization is the process by which physical share converts certificates of an

investor to electronic form. De-mat is short form dematerialization. Depository is an organization where the securities of a share holders held are held in the

form of electronic account. Depository holds electronic custody of securities and also arranges for transfer of owner ship of securities on the settlement dates are traded and held in custody.

This facilitates faster, risk free and low cost settlement. Depository is much like a bank and performs many activities that are similar to bank the benefits of participation in a depository are:

Immediate transfer of securities. No stamp duty on transfer of securities. Elimination of risk associated with physical certificates such as bad delivery, fake securities etc. Reduction in paper work involved in transfer of securities. Reduction in transaction cost. Change in address recorded with depository participant (DP) gets registered with all companies in

with investor holds securities electronically elimination the need to correspond with each of them separately. Convenient method of consolidation of folios/ accounts.

National Securities Depository Limited

National securities depository limited (NSDL) is the first Indian depository and it was inaugurated in November 1996. NSDL was set up with and initial capital of US $28 million promoted by Industrial Development Bank of India (IDBI) unit trust of India (UTI) and national stock exchange of India Ltd (NSEIL) later state bank of India (SBI) also became a share holder.

Clearing corporation / clearing houses. NSDL is electronically linked to each of these business partners via a satellite links through very small aperture terminal (VSATs). The entire integrated system (including VSAT linked ups and the software are NSDL at each business partner end) has been named the NEST (National Electronics Settlement And Transfer) a system the investor interacts with the depository thoughts a depository participants of NSDL a DP can be bank, financial Institutions, custodian or a broker.

Trading system
NSE operates on the National exchange for automated reading (NEAT) system, a fully automated screen based trading system, which adopts the principle of an order driven market. NSE consciously opted in favor of an order driven system as opposed to a quote driven system. This has helped reduce jobbing spreads not only on NSE but in other exchange as well, thus reducing transaction costs.

Trading system market type

The NEAT system has four type of market. They are:

Normal Market
All order which are of regular lot size or multiples thereof are traded in the normal market.

Old lot market

All orders whose order size is less than the regular lot size are traded in the odd-lot market. An order is called an odd lot order if the order size is less than regular lot size. These orders do not have any special terms attributes attached to them. In an odd-lot market, both the price and quantity of both of orders (buy and sell) should exactly match for the trade to take place. Currently the odd lot market facility is used for the limited physical market as per the SEBI directives.

Auction market

In the auction market, the exchange on behalf of trading members for settlement related reasons initiates auctions. There are 3 participants in this market.

Initiator the party who initiates the auction process is called an initiator. Competitor the party who enters orders on the same side as of the initiator. Solicitor the party who enters orders on the opposite side as of the initiator.

Spot market
Settlement periods are same like normal market. These orders do not have any special terms attributes attached to them. Currently the spot market is not in use.

THIRD CHAPTER

BALAJI EQUITIES LIMITED

VISION STATEMENT

TO CREATE VALUABLE RELATIONSHIP AND PROVIDE THE BEST FINANCIAL SERVICES MOST PROFESSIONALLY

MISSION STATEMENT

TO WORK TOGETHER WITH INTEGRITY & MAKE OUR CUSTOMER FEEL VALUED

INTRODUCTION:

Balaji Equities Limited is one of the largest retail broking houses in Andhra Pradesh, providing the investors state of art services in capital markets in the State. The Group has memberships of Bombay Exchange Limited, National Stock of India Limited, Multi Commodity Exchange of India Limited, National Commodity and Derivatives Exchange Limited and is also a depository participant of NSDL and CDS(I)L, the depositories of the country. Their clients had contributed tremendously to their growth they recognize and applaud that, they value their relationship with the customers and for their convenience had all investing avenues under one roof. Balaji Equities believe that they were best positioned to venture into that activity as a Depository Participant. Today, It service over 1Lac customer accounts in this business spread across the state. It began with the vision and enterprise of a small group of practicing Chartered Accountants who founded the flagship company. They have utilized their experience and superlative expertise to go from strength to strengthto better their services, to provide new ones, to innovate, diversify and in the process, evolved Balaji Equities as one of APs premier integrated financial service enterprise. Thus over the last 10 years Balaji Equities has traveled the success route, towards building a reputation as an integrated financial services provider, offering a wide spectrum of services and they have made this journey by taking the route of quality service, path breaking innovations in service, versatility in service and finally totality in service. Their highly qualified manpower, cutting-edge technology, comprehensive infrastructure and total customer-focus has secured for them the position of an emerging financial services giant enjoying the confidence and support of an enviable clientele across diverse fields in the financial world. Their values and vision of attaining total competence in their servicing has served as the building block for creating a great financial enterprise, which stands solid on their fortresses of financial strength - their various companies. With the experience of years of holistic financial servicing behind them and years of complete expertise in the industry to look forward to, they have now emerged as a premier integrated financial services provider. And today, they can look

with pride at the fruits of their mastery and experience comprehensive financial services that are competently segregated to service and manage a diverse range of customer requirements.

Business Operations

Balaji Equities Ltd (Balaji Equities), a stock broking company, was established in 2000. The Company is promoted by Mr. J.Sekhara Rao, CHAIRMAN, a Masters in Business Management and Administration and Mr. Kota Srinivasa Rao, MANAGING DIRECTOR a Post Graduate in Science. The professional management and research teams of BALAJI EQUITIES LIMITED have a rich experience in the capital markets. The company has memberships in NSE and BSE in cash and derivative market segments. Balaji Equities also operates in currency futures. The company is a premier financial service provider with varied interests in equities, derivatives and, insurance, IPO, mutual fund, research services, online trading etc. Balaji Equities is also affiliated to CDSL to provide demat services to its clients. The company facilitates trading in commodities through Balaji Commodity Futures Pvt Ltd which is a registered trading-cum-clearing member of MCX. Balaji Equities primarily caters to retail and HNI clients.

 Balaji Equities is one of the fastest growing companies of India, involved in the equities, derivatives and commodity broking business and is spreading its web of satisfied clients, sub brokers and franchise across the far corners of Hyderabad, Vijayawada, Guntur, Vishakhapatnam and other centres. Balaji Equities is a member of the BSE-WEBX, an Online Trading arm of the BSE providing internet based trading to its high networth clients. It has a network of four branches, 110 employees, 12 sub-brokers and 180 terminals. The company generates most of its revenue through trading in equities. It operates with a network of around 80 offices in 35 cities having major presence in Hyderabad, Vijayawada and Guntur. As on Dec 31, 2010 the company had 110 employees and 45 sub-brokers.

MANAGEMENT

Chief Executive Officer Directors Compliance Officer

: : :

A M Jallipalli J S Rao, G B Rao M S Kishore

Business Focus

The focus of the business is the Customer Customer service, Customer education, Customer support, Customer relations and last but not the least Customer acquisition. Trade execution transparency, timely settlements, risk monitoring and superior service shall have topmost priority, in the best interests of all concerned. PRODUCTS & SERVICES

Trading (Equities, Derivatives, Commodities)

Distribution of financial products Demat Services Others

MARKET SEGMENTS

Equity Cash Equity Derivatives Commodity Currency Futures

Terminals in MAJOR CITIES

Balaji Equities Limited flows freely towards attaining diverse goals of the customer through varied services. Creating a plethora of opportunities for the customer by opening up investment vistas is backed by research-based advisory services. Here, growth knows no limits and success recognizes no boundaries. Helping the customer create waves in his portfolio and empowering the investor completely is the ultimate goal. Hyderabad Vijayawada Guntur Other Cities Amalapuram Avanigadda Bapatla Bhimavaram Challapaly Chintalpudi Chittor 1 1 1 1 1 1 1 40 40 15

Cumbum Darsi Dohne Eluru Giddaluru Gudivada Hanumakonda1 Huzur nagar JaggaiahPeta 1 Jangareddy gudem Kanigiri Khammam Machilipatnam 1 Miryalaguda Mylavaram Narsaraopet Nellore Nizamabad Palakol Ponnuru Rajahmundry Sathupally Tadepalligudem Tenali Vinukonda Visakhapatnam 1

1 1 1 1 1 1

1 1 1

1 1 1

1 1 1 1 1 1 1 1 1

Wyra

Broking Services

We offer trading on a vast platform; National Stock Exchange, Bombay Stock Exchange, MCX & NCDEX. More importantly, we make trading safe to the maximum possible extent, by accounting for several risk factors and planning accordingly. We are assisted in this task by our in-depth research, constant feedback and sound advisory facilities. Our highly skilled research team, comprising of technical analysts as well as fundamental specialists, secure resultoriented information on market trends, market analysis and market predictions. To empower the investor further we have made serious efforts to ensure that our research calls are disseminated systematically to all our stock broking clients through various delivery channels like email, chat, SMS, phone calls etc.

Depository Participants

The onset of the technology revolution in financial services Industry saw the emergence of Balaji Equities as an electronic custodian registered with National Securities Depository Ltd (NSDL) and Central Securities Depository Ltd (CSDL). Balaji Equities set standards enabling further comfort to the investor by promoting paperless trading across the country and emerged as the Depository Participants in the AP in terms of customer serviced. Offering a wide trading platform with a dual membership at both NSDL and CDSL, we are a powerful medium for trading and settlement of dematerialized Shares. We have established live DPMs, Internet access to accounts and an easier transaction process in order to offer more convenience to individual and corporate investors. A team of professional and the latest technological expertise allocated exclusively to our demat division including technological enhancements like SPEED-e; make our response time quick and our delivery impeccable.

Investment Products

The paradigm shift from pure selling to knowledge based selling drives the business today. With our wide portfolio offerings, we occupy all segments in the retail financial services industry. Our Investment Products include IPO, Insurance and Mutual funds.

Initial Public Offering (IPO) Also referred to simply as a 'public offering', an IPO is the first sale of stock by a private company to the public. An IPO is a way for a company to raise money from investors for its future projects and get listed on the Stock Exchange. From an investor's point of view, an IPO provides a chance to buy stocks directly from the company at the price of their choice (In book build IPO's). Although an IPO offers more control over the price at which the investor is willing to buy the stock, it is no less risky than buying a stock in the market. From a company's prospective, the single most important use of an IPO is the provision of funds. IPOs provide capital for the companys future growth or for paying its previous borrowings and allow the company's stock to be traded publicly in the Stock Market. Balaji Equities offers distribution and collection services of various schemes of all major fund houses and IPOs through its network of branches across India. We assure you a hassle free and pleasant transaction experience when you invest in IPOs through us.

Mutual Funds

Balaji Equities are registered with AMFI as an approved distributor of Mutual Funds. We assure you a hassle free and pleasant transaction experience when you invest in Mutual Funds through us. Shortly the company will be providing you with the facility of online investment in Mutual Funds. We have an in-house Research Department that provides research analysis of Mutual Funds. We proactively offer timely guidance to our clients so that they can take informed decisions. At Balaji Equities, Customer care is utmost important. We assist you in managing your finances by providing various investment options ranging from Bonds to Equity.

COMPETITORS

Competition leads to improvement and helps to provide quality service. In the same line the competitors of Balaji Equities make the company strive for excellence and also maintain the

consistency in its operations and services and won many awards for its excellence and outstanding performance.

ICICI Securities HSBC Investments Religear India Infoline Karvy Motilal Oswal

SWOT ANALYSIS

STRENGTHS

Balaji Equities is a customer centric company which provides long term values according to their needs. The major strengths of Balaji Equities are as follows: Brand Logo Innovations in the industry Reliability Value Service Robust technology Exceptional research Large presence

Balaji Equities were the first to introduce various innovative products and services which now have become the industry standards.

WEAKNESS

No weakness is seen in analysis.

OPPORTUNITIES

Balaji Equities is registered with National Security Depository Limited (NSDL) which is a DP provider and this is an advantage for Balaji Equities but in this the DP charges are more but

Balaji Equities also has an opportunity to register with Central Depository Service Limited (CDSL) which is also again a DP provider but the main advantage is the DP charges here are less from which the Balaji Equities can gain an advantage.

THREATS

Balaji Equities operates with strict rules as per the regulations laid by SEBI like an a/c opening takes a long process under Balaji Equities where as other brokering houses open it with pan card as witness and few signatures from the client and the client can start trading but Balaji Equities goes as per SEBI rules and this makes Balaji Equities lose its clients to competitors which may be a threat to the company.

Fundamental Analysis This is a method of analyzing the value of a companys stock price by studying the financial data of the company. It considers the companys earnings and expenses, profit, assets and liabilities, management experience and industry dynamics. In other words it focuses on the business and tries to work out what the stock price should be. An investor using Fundamental Analysis to make investment decisions will rely heavily on the following sources of information: Company Balance Sheet Income (Profit and Loss) Statement Annual report Newspapers Company announcements Industry news. All fundamental analysis starts at a companys Financial Statement. While it is true that this statement contains a vast array of figures for our purposes we can narrow down the important numbers and in a relatively short time frame have an idea of how a company is traveling. At the very least we will have to look at a companys Income Statement (Profit and Loss Statement) and Balance Sheet. These can be found in the companys

annual report, company website under investor information, or at the market they are listed on. Before we get started on the data a few words of caution about fundamental analysis. Using fundamental analysis your basic objective is to come up with a fair value for a companys stock. If the current stock price is under your valuation then it is a buy signal, if the price is over then it is a sell signal. In other words you have arrived at what you think is the intrinsic value of a companys stock. Sounds straight forward right? However, the market price may bear no relation to the intrinsic value you have arrived at. The market price is made up of your intrinsic value but it also considers extrinsic factors like political and economic factors, market sentiment, future conditions and many other hard to quantify factors. Therefore, even though your fundamental analysis may indicate a stock is undervalued the market may not agree and continue to mark down the value of the stock. In this case the extrinsic factors outweigh the intrinsic factors and you may be better to delay purchase of the stock until the market better appreciates the value of the stock you consider undervalued. Often in these circumstances the analyst is tempted to blame the market for getting it wrong however, it pays to remember that the market price is always right as it reflects the price that buyer and sellers can agree on. Fundamental Analysis Definition Fundamental analysis is a stock valuation method that uses financial and economic analysis to predict the movement of stock prices. General Strategy To a fundamentalist, the market price of a stock tends to move towards it's real value or intrinsic value. If the intrinsic/real value of a stock is above the current market price, the investor would purchase the stock because he knows that the stock price would rise and move towards its intrinsic or real value If the intrinsic value of a stock was below the market price, the investor would sell the stock because he knows that the stock price is going to fall and come closer to its intrinsic value. Fundamental analysis refers to the study of the core underlying elements that influence the economy of a particular entity. It is a method of study that attempts to predict price action and market trends by analyzing economic indicators, government policy and societal factors (to name just a few elements) within a business cycle framework. I. ECONOMIC ANALYSIS:

POLITICO-ECONOMIC ANALYSIS: No industry or company can exist in isolation. It may have splendid managers and a tremendous product. However, its sales and its costs are affected by factors, some of which are beyond its control - the world economy, price inflation, taxes and a host of others. It is important, therefore, to have an appreciation of the politico-economic factors that affect an industry and a company. The political equation: A stable political environment is necessary for steady, balanced growth. If a country is ruled by a stable government which takes decisions for the long-term development of the country, industry and companies will prosper. Foreign Exchange Reserves: A country needs foreign exchange reserves to meet its commitments, pay for its imports and service foreign debts. Foreign Exchange Risk: This is a real risk and one must be cognizant of the effect of a revaluation or devaluation of the currency either in the home country or in the country the company deals in.

Restrictive Practices: Restrictive practices or cartels imposed by countries can affect companies and industries. crystallizing the exposure. Foreign Debt and the Balance of Trade: Foreign debt, especially if it is very large, can be a tremendous burden on an economy. India pays around $ 5 billion a year in principal repayments and interest payments. Inflation: Inflation has an enormous effect in the economy. Within the country it erodes purchasing power. As a consequence, demand falls. If the rate of inflation in the country from which a company imports is high then the cost of production in that country will automatically go up. The Threat of Nationalization: The threat of nationalization is a real threat in many countries the fear that a company may become nationalized. Interest Rates: A low interest rate stimulates investment and industry. Conversely, high interest rates result in higher cost of production and lower consumption. Taxation: The level of taxation in a country has a direct effect on the economy. If tax rates are low, people have more disposable income. Government Policy: Government policy has a direct impact on the economy. A government that is perceived to be pro industry will attract investment. THE ECONOMIC CYCLE: It affects investment decisions, employment, demand and the profitability of companies.

The four stages of an economic cycle are: Depression At the time of depression, demand is low and falling. Inflation is high and so are interest rates. Companies, crippled by high borrowing and falling sales, are forced to curtail production, close down plants built at times of higher demand, and let workers go. Recovery During this phase, the economy begins to recover. Investment begins anew and the demand grows. Companies begin to post profits. Conspicuous spending begins once again. Boom In the boom phase, demand reaches an all time high. Investment is also high. Interest rates are low. Gradually as time goes on, supply begins to exceed the demand. Prices that had been rising begin to stabilize and even fall. There is an increase in demand. Then as the boom period matures prices begin to rise again. Recession The economy slowly begins to downturn. Demand starts falling. Interest rates and inflation are high. Companies start finding it difficult to sell their goods. The economy slowly begins to downturn.

II. INDUSTRY ANALYSIS

INDUSTRY ANALYSIS includes, but is not limited to: a. Definition of the industry; b. Industry Life Cycle - growth, maturity or decline; c. Industry History - how old is the industry; d. In-depth historical financial performance ratio analysis; e. Industry Trends - cyclical or seasonal, increased competition etc.; f. Industry Influential Factors - does economy, government, or competition effect industry; g. Primary Competitors along with entry risk and barriers to entry; and,

h. Projected Industry Sales - total sales in the industry.

Porter five forces analysis

Porter's Five Forces is a framework for industry analysis and business strategy development formed by Michael E. Porter of Harvard Business School in 1979. It draws upon Industrial Organization (IO) economics to derive five forces that determine the competitive intensity and therefore attractiveness of a market. 1. The threat of the entry of new competitors Profitable markets that yield high returns will attract new firms. This results in many new entrants, which eventually will decrease profitability for all firms in the industry. Unless the entry of new firms can be blocked by incumbents, the abnormal profit rate will tend towards zero (perfect competition). The existence of barriers to entry (patents, rights, etc.) The most attractive segment is one in which entry barriers are high and exit barriers are low. Few new firms can enter and non-performing firms can exit easily. Economies of product differences Brand equity Switching costs or sunk costs Capital requirements Access to distribution Customer loyalty to established brands Absolute cost Industry profitability; the more profitable the industry the more attractive it will be to new competitors

2. The threat of substitute products or services The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives: Buyer propensity to substitute

Relative price performance of substitute Buyer switching costs Perceived level of product differentiation Number of substitute products available in the market Ease of substitution. Information-based products are more prone to substitution, as online product can easily replace material product. Substandard product Quality depreciation

3. The bargaining power of customers (buyers) The bargaining power of customers is also described as the market of outputs: the ability of customers to put the firm under pressure, which also affects the customer's sensitivity to price changes. Buyer concentration to firm concentration ratio Degree of dependency upon existing channels of distribution Bargaining leverage, particularly in industries with high fixed costs Buyer volume Buyer switching costs relative to firm switching costs Buyer information availability Ability to backward integrate Availability of existing substitute products Buyer price sensitivity Differential advantage (uniqueness) of industry products

4. The bargaining power of suppliers

The bargaining power of suppliers is also described as the market of inputs. Suppliers of raw materials, components, labor, and services (such as expertise) to the firm can be a source of power over the firm, when there are few substitutes. Suppliers may refuse to work with the firm, or, e.g., charge excessively high prices for unique resources. Supplier switching costs relative to firm switching costs Degree of differentiation of inputs Impact of inputs on cost or differentiation Presence of substitute inputs Strength of distribution channel Supplier concentration to firm concentration ratio Employee solidarity (e.g. labor unions) Supplier competition - ability to forward vertically integrate and cut out the BUYER Ex. If you are making biscuits and there is only one person who sells flour, you have no alternative but to buy it from him.

5. The intensity of competitive rivalry For most industries, the intensity of competitive rivalry is the major determinant of the competitiveness of the industry. Sustainable competitive advantage through innovation Competition between online and offline companies; click-and-mortar -v- slags on a bridge[citation needed] Level of advertising expense Powerful competitive strategy

III. COMPANY ANALYSIS At the final stage of fundamental analysis, the investor analyzes the company. Company analysis is a study of variables that influence the future of a firm both qualitatively and quantitatively. It is a method of assessing the competitive

position of a firm, its earning and profitability, the efficiency with which it operates, its financial position and its future with respect to earning of its shareholders. The fundamental nature of the analysis is that each share of a company has an intrinsic value which is dependent on the company's financial performance. If the market value of a share is lower than intrinsic value as evaluated by fundamental analysis, then the share is supposed to be undervalued. The basic approach is analysed through the financial statements of an organisation. Before making investment decision, the business plan of the company, management, annual report, financial statements, cash flow and ratios are to be examined for better returns. In fundamental analysis, companies should be compared against other companies in the same sector. For example, a software company (Infosys Technologies) should be compared with a software company (Wipro), not to a bank (ICICI Bank).

This analysis has two thrusts: How has the company performed vis--vis other similar companies? How has the company performed in comparison to earlier years?

It is imperative that one completes the politico economic analysis and the industry analysis before a company is analyzed because the company's performance at a period of time is to an extent a reflection of the economy, the political situation and the industry. What does one look at when analyzing a company? The different issues regarding a company that should be examined are: The Management The Company The Annual Report Ratios Cash flow

THE MANAGEMENT: The single most important factor one should consider when investing in a company and one often never considered is its management. In India management can be broadly divided in two types: Family Management Professional Management

THE COMPANY: An aspect not necessarily examined during an analysis of fundamentals is the company. A company may have made losses consecutively for two years or more and one may not wish to touch its shares - yet it may be a good company and worth purchasing into. There are several factors one should look at. 1. How a company is perceived by its competitors? One of the key factors to ascertain is how a company is perceived by its competitors. It is held in high regard. Its management may be known for its maturity, vision, competence and aggressiveness. The investor must ascertain the reason and then determine whether the reason will continue into the foreseeable future. 2. Whether the company is the market leader in its products or in its segment Another aspect that should be ascertained is whether the company is the market leader in its products or in its segment. When you invest in market leaders, the risk is less. The shares of market leaders do not fall as quickly as those of other companies. There is a magic to their name that would make individuals prefer to buy their products as opposed to others. 3. Company Policies The policy a company follows is also important. What are its plans for growth? What is its vision? Every company has a life. If it is allowed to live a normal life it will grow up to a point and then begin to level out and eventually die. It is at the point of leveling out that it must be given new life. This can give it renewed vigor and a new lease of life. 4. Labour Relations Labour relations are extremely important. A company that has motivated, industrious work force has high productivity and practically no disruption of work. On the other

hand, a company that has bad industrial relations will lose several hundred man days as a consequence of strikes and go slows. 5. Where the company is located and where its factories are? One must also consider where the companies Plants and Factories are located. THE ANNUAL REPORT: The primary and most important source of information about a company is its Annual Report. By law, this is prepared every year and distributed to the shareholders. Annual Reports are usually very well presented. A tremendous amount of data is given about the performance of a company over a period of time. The Annual Report is broken down into the following specific parts: A) The Director's Report, B) The Auditor's Report, C) The Financial Statements, and D) The Schedules and Notes to the Accounts. A. The Directors Report The Directors Report is a report submitted by the directors of a company to its shareholders, advising them of the performance of the company under their stewardship. 1. It enunciates the opinion of the directors on the state of the economy and the political situation vis--vis the company. 2. Explains the performance and the financial results of the company in the period under review. This is an extremely important part. The results and operations of the various separate divisions are usually detailed and investors can determine the reasons for their good or bad performance. 3. The Directors Report details the company's plans for modernization, expansion and diversification. Without these, a company will remain static and eventually decline. 4. Discusses the profit earned in the period under review and the dividend recommended by the directors. This paragraph should normally be read with some skepticism, as the directors will always argue that the performance was satisfactory.If adverse economic conditions are usually at fault.

5. Elaborates on the directors' views of the company's prospects in the future.6. Discusses plans for new acquisition and investments. An investor must intelligently evaluate the issues raised in a Directors Report. Industry conditions and the management's knowledge of the business must be considered. B. The Auditor's Report The auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors. Auditors are required to report whether the financial statements presented do, in fact, present a true and fair view of the state of the company. Investors must remember that the auditors are their representatives and that they are required by law to point out if the financial statements are not true and fair.

C. Financial Statements The published financial statements of a company in an Annual Report consist of its Balance Sheet as at the end of the accounting period detailing the financing condition of the company at that date, and the Profit and Loss Account or Income Statement summarizing the activities of the company for the accounting period. BALANCE SHEET The Balance Sheet details the financial position of a company on a particular date; of the company's assets (that which the company owns), and liabilities (that which the company owes), grouped logically under specific heads. It must however, be noted that the Balance Sheet details the financial position on a particular day and that the position can be materially different on the next day or the day after. PROFIT AND LOSS ACCOUNT The Profit and Loss account summarizes the activities of a company during an accounting period which may be a month, a quarter, six months, a year or longer, and the result achieved by the company. It details the income earned by the company, its cost and the resulting profit or loss. It is, in effect, the performance appraisal not only of the company but also of its management- its competence, foresight and ability to lead. RESERVES After deduction of all expenses, including taxes, the net profits of a company are split into two parts dividends and reserves

Dividend is that portion of a companys profits which is distributed to its shareholders, whereas reserves are the portion that the company retains and gets added to its reserves. The figures for reserves and reserves of any company can be obtained by a cursory glance at its balance sheet and profit and loss account. Reserves are important because it not only increases the reserves of a company but also provides the company with funds required for its growth and expansion. All growth companies maintain a high level of reserves. So if you are looking for a growth company to invest in, you should examine its reserves figures. Companies that have no intention of expanding are unlikely to plough back a large portion of their profits. Reserves constitute the accumulated retained profits of a company. It is important to compare the size of a companys reserves with the size of its equity capital. This will indicate whether the company is in a position to issue bonus shares. Reserves belong to the shareholders. This is why reserves are often referred to as shareholders funds. Therefore, any addition to the reserves of a company will normally lead to a corresponding an increase in the price of your shares. The higher the reserves, the greater will be the value of your shareholding. Retained profits (reserves) may not come to you in the form of cash, but they benefit you by pushing up the price of your shares. RATIOS Ratios express mathematically the relationship between performance figures and/or assets/liabilities in a form that can be easily understood and interpreted. No single ratio tells the complete story Ratios can be broken down into four broad categories: (A) Profit and Loss Ratios These show the relationship between two items or groups of items in a profit and loss account or income statement. The more common of these ratios are: 1. Sales to cost of goods sold. 2. Selling expenses to sales.

3. Net profit to sales and 4. Gross profit to sales. (B) Balance Sheet Ratios These deal with the relationship in the balance sheet such as : 1. Share holders equity to borrowed funds. 2. Current assets to current liabilities. 3. Liabilities to net worth. 4. Debt to assets and 5. Liabilities to assets. (C) Balance Sheet and Profit and Loss Account Ratios. These relate an item on the balance sheet to another in the profit and loss account such as: 1. Earnings to shareholder's funds. 2. Net income to assets employed. 3. Sales to stock. 4. Sales to debtors and 5. Cost of goods sold to creditors. (D) Financial Statements and Market Ratios These are normally known as market ratios and are arrived at by relative financial figures to market prices: 1. Market value to earnings and 2. Book value to market value. (a) Market value (b) Earnings (c) Profitability (d) Liquidity

(e) Leverage (f) Debt Service Capacity (g) Asset Management/Efficiency (h) Margins.

The major ratios to look before Buying a Share: 1. Book value per share You will come across this term very often in investment discussions. Book value per share indicates what each share of a company is worth according to the companys books of accounts. The companys books of account maintain a record of what the company owns (assets), and what it owes to its creditors (liabilities). If you subtract the total liabilities of a company from its total assets, then what is left belongs to the shareholders, called the shareholders funds. If you divide shareholders funds by the total number of equity shares issued by the company, the figure that you get will be the book value per share. Book Value per share = Shareholders funds / Total number of equity shares issued The figure for shareholders funds can also be obtained by adding the equity capital and reserves of the company. Book value is a historical record based on the original prices at which assets of the company were originally purchased. It doesnt reflect the current market value of the companys assets. Therefore, book value per share has limited usage as a tool for evaluating the market value or price of a companys shares. It can, at best, give you a rough idea of what a companys shares should at least be worth. The market prices of shares are generally much higher than what their book values indicate. Therefore, if you come across a share whose market price is around its book

value, the chances are that it is under-priced. This is one way in which the book value per share ratio can prove useful to you while assessing whether a particular share is over- or under-priced. 2. Earnings per share (EPS) EPS is a well-known and widely used investment ratio. It is calculated as: Earnings Per Share (EPS) = Profit After Tax / Total number of equity shares issued This ratio gives the earnings of a company on a per share basis. In order to get a clear idea of what this ratio signifies, let us assume that you possess 100 shares with a face value of Rs 10 each in XYZ Ltd. Suppose the earnings per share of XYZ Ltd. is Rs 6 per share and the dividend declared by it is 20 per cent, or Rs 2 per share. This means that each share of XYZ Ltd. earns Rs 6 every year, even though you receive only Rs 2 out of it as dividend. The remaining amount, Rs 4 per share, constitutes the ploughback or retained earnings. If you had bought these shares at par, it would mean a 60 per cent return on your investment, out of which you would receive 20 per cent as dividend and 40 per cent would be the ploughback. This ploughback of 40 per cent would benefit you by pushing up the market price of your shares. Ideally speaking, your shares should appreciate by 40 per cent from Rs 10 to Rs 14 per share. This illustration serves to drive home a basic investment lesson. You should evaluate your investment returns not on the basis of the dividend you receive, but on the basis of the earnings per share. Earnings per share is the true indicator of the returns on your share investments. Suppose you had bought shares in XYZ Ltd at double their face value, i.e. at Rs 20 per share. Then an EPS of Rs 6 per share would mean a 30 per cent return on your investment, of which 10 per cent (Rs 2 per share) is dividend, and 20 per cent (Rs 4 per share) the ploughback. Under ideal conditions, ploughback should push up the price of your shares by 20 per cent, i.e. from Rs 20 to 24 per share. Therefore, irrespective of what price you buy a particular companys shares at its EPS will provide you with an invaluable tool for calculating the returns on your investment. 3. Price earnings ratio (P/E) The price earnings ratio (P/E) expresses the relationship between the market price of a companys share and its earnings per share: Price/Earnings Ratio (P/E) = Price of the share / Earnings per share

This ratio indicates the extent to which earnings of a share are covered by its price. If P/E is 5, it means that the price of a share is 5 times its earnings. In other words, the companys EPS remaining constant, it will take you approximately five years through dividends plus capital appreciation to recover the cost of buying the share. The lower the P/E, lesser the time it will take for you to recover your investment. P/E ratio is a reflection of the markets opinion of the earnings capacity and future business prospects of a company. Companies which enjoy the confidence of investors and have a higher market standing usually command high P/E ratios. For example, blue chip companies often have P/E ratios that are as high as 20 to 60. However, most other companies in India have P/E ratios ranging between 5 and 20. On the face of it, it would seem that companies with low P/E ratios would offer the most attractive investment opportunities. This is not always true. Companies with high current earnings but dim future prospects often have low P/E ratios. Obviously such companies are not good investments, notwithstanding their P/E ratios. As an investor your primary concern is with the future prospects of a company and not so much with its present performance. This is the main reason why companies with low current earnings but bright future prospects usually command high P/E ratios. To a great extent, the present price of a share, discounts, i.e. anticipates, its future earnings. All this may seem very perplexing to you because it leaves the basic question unanswered: How does one use the P/E ratio for making sound investment decisions? The answer lies in utilising the P/E ratio in conjunction with your assessment of the future earnings and growth prospects of a company. You have to judge the extent to which its P/E ratio reflects the companys future prospects. If it is low compared to the future prospects of a company, then the companys shares are good for investment. Therefore, even if you come across a company with a high P/E ratio of 25 or 30 dont summarily reject it because even this level of P/E ratio may actually be low if the company is poised for meteoric future growth. On the other hand, a low P/E ratio of 4 or 5 may actually be high if your assessment of the companys future indicates sharply declining sales and large losses. 4. Dividend and yield There are many investors who buy shares with the objective of earning a regular income from their investment. Their primary concern is with the amount that a company

gives as dividends capital appreciation being only a secondary consideration. For such investors, dividends obviously play a crucial role in their investment calculations. It is illogical to draw a distinction between capital appreciation and dividends. Money is money it doesnt really matter whether it comes from capital appreciation or from dividends. A wise investor is primarily concerned with the total returns on his investment he doesnt really care whether these returns come from capital appreciation or dividends, or through varying combinations of both. In fact, investors in high tax brackets prefer to get most of their returns through long-term capital appreciation because of tax considerations. Companies that give high dividends not only have a poor growth record but often also poor future growth prospects. If a company distributes the bulk of its earnings in the form of dividends, there will not be enough ploughback for financing future growth.

On the other hand, high growth companies generally have a poor dividend record. This is because such companies use only a relatively small proportion of their earnings to pay dividends. In the long run, however, high growth companies not only offer steep capital appreciation but also end up paying higher dividends. On the whole, therefore, you are likely to get much higher total returns on your investment if you invest for capital appreciation rather than for dividends. In short, it all boils down to whether you are prepared to sacrifice a part of your immediate dividend income in the expectation of greater capital appreciation and higher dividends in the years to come and the whole issue is basically a trade-off between capital appreciation and income. Investors are not really interested in dividends but in the relationship that dividends bear to the market price of the companys shares. This relationship is best expressed by the ratio called yield or dividend yield: Yield = (Dividend per share / market price per share) x 100 Yield indicates the percentage of return that you can expect by way of dividends on your investment made at the prevailing market price. The concept of yield is best clarified by the following illustration. Let us suppose you have invested Rs 2,000 in buying 100 shares of XYZ Ltd at Rs 20 per share with a face value of Rs 10 each.

If XYZ announces a dividend of 20 per cent (Rs 2 per share), then you stand to get a total dividend of Rs 200. Since you bought these shares at Rs 20 per share, the yield on your investment is 10 per cent (Yield = 2/20 x 100). Thus, while the dividend was 20 per cent; but your yield is actually 10 per cent. The concept of yield is of far greater practical utility than dividends. It gives you an idea of what you are earning through dividends on the current market price of your shares. Average yield figures in India usually vary around 2 per cent of the market value of the shares. If you have a share portfolio consisting of shares belonging to a large number of both high-growth and high-dividend companies, then on an average your dividend income is likely to be around 2 per cent of the total market value of your portfolio.

5. Return on Capital Employed (ROCE), and Return on Net Worth (RONW) While analysing a company, the most important thing you would like to know is whether the company is efficiently using the capital (shareholders funds plus borrowed funds) entrusted to it. While valuing the efficiency and worth of companies, we need to know the return that a company is able to earn on its capital, namely its equity plus debt. A company that earns a higher return on the capital it employs is more valuable than one which earns a lower return on its capital. The tools for measuring these returns are: Return on Capital Employed and Return on Net Worth (shareholders funds) are valuable financial ratios for evaluating a companys efficiency and the quality of its management. The figures for these ratios are commonly available in business magazines, annual reports and economic newspapers and financial Web sites. Return on capital employed Return on capital employed (ROCE) is best defined as operating profit divided by capital employed (net worth plus debt). The figure for operating profit is arrived at after adding back taxes paid, depreciation, extraordinary one-time expenses, and deducting extraordinary one-time income and other income (income not earned through mainline operations), to the net profit figure. The operating profit of a company is a better indicator of the profits earned by it than is the net profit.

ROCE thus reflects the overall earnings performance and operational efficiency of a companys business. It is an important basic ratio that permits an investor to make intercompany comparisons. Return on net worth Return on net worth (RONW) is defined as net profit divided by net worth. It is a basic ratio that tells a shareholder what he is getting out of his investment in the company. ROCE is a better measure to get an idea of the overall profitability of the companys operations, while RONW is a better measure for judging the returns that a shareholder gets on his investment. The use of both these ratios will give you a broad picture of a companys efficiency, financial viability and its ability to earn returns on shareholders funds and capital employed. 7. Price Earnings to Growth Ratio PEG is an important and widely used ratio for forming an estimate of the intrinsic value of a share. It tells you whether the share that you are interested in buying or selling is under-priced, fully priced or over-priced. For this you need to link the P/E ratio discussed earlier to the future growth rate of the company. This is based on the assumption that the higher the expected growth rate of the company, the higher will be the P/E ratio that the companys share commands in the market. The reverse is equally true. The P/E ratio cannot be viewed in isolation. It has to be viewed in the context of the companys future growth rate. The PEG is calculated by dividing the P/E by the forecasted growth rate in the EPS (earnings per share) of the company. As a broad rule of the thumb, a PEG value below 0.5 indicates a very attractive buying opportunity, whereas a selling opportunity emerges when the PEG crosses 1.5, or even 2 for that matter. The catch here is to accurately calculate the future growth rate of earnings (EPS) of the company. Wide and intensive reading of investment and business news and analysis, combined with experience will certainly help you to make more accurate forecasts of company earnings. CASH FLOW:

A statement of sources and uses begins with the profit for the year to which are added the increases in liability accounts (sources) and from which are reduced the increases in asset accounts (uses). The net result shows whether there has been an excess or deficit of funds and how this was financed. Investors must examine a company's cash flow as it reveals exactly where the money came from how it was utilized. Investors must be concerned if a company is financing either its inventories or paying dividends from borrowings without real growth as that shows deterioration.

DATA ANALYSIS AND INTERPRETATION

TATA MOTORS Economic Analysis GDP and its Impact on Tata Motors

The Indian economy is one of the largest economies in the world. Presently India stands in the 13th position in the world in terms of Gross Domestic Product (GDP). According to the estimates of the World Bank the India GDP is worth 1217 billion USD or 1.96% of the world GDP. According to a report published by domestic broking major Edelweiss Capital in March2010, India's GDP is set to quadruple over the next ten years and the country is likely to be a US$ 4 trillion economy by 2020. India will overtake China to become the world's fastest growing economy by 2018.

In the Figure 1 we can see that Indias Gross Domestic Product (GDP) expanded 7.90%over the last 4 quarters. Its diverse economy encompasses traditional village farming, modern agriculture, handicrafts, a wide range of modern industries, and a multitude of services. The economy has posted an average growth rate of more than 7% in the decade since 1997.The Indian economy faced significant slowdown in growth momentum in 2008-09, driven by a severe downturn in the global economy. The key shock to Indias growth has come from external sources, largely by way of lower exports and a marked reduction in inflow of foreign capital. The industrial sector has been the largest casualty of the marked slowdown in both investment and imports, slowing from a growth rate of 8.5% in the year ended March 31, 2008 to around 6% in the year ended March 31, 2009. Even during the economic slowdown some of the sectors including the automobile industry have recorded a positive growth while many nations had experienced a negative growth rate. For example, According to data released by Society of Indian Automobile Manufacturers, the cumulative production data for April 2009-February 2010 shows production growth of 24.34 per cent over same period last year. Passenger vehicles production crossed 2 million and two wheelers production

touched almost 9.5 million. With the help of strong financial policies and balanced stimulus packages the economy could recover from the global slowdown in a faster pace when compared with many developed nations which is a sign of political stability in the country. This made India as one of the promising nations in the world for FDIs and FIIs. Foreign institutional investors (FIIs) were net investors of US$ 4.54 billion in equity and US$ 4.71 billion in debt instruments during January- March 2010, according to the data released by Securities and Exchange Board of India. India received FDI worth US$ 20.92 billion during April-December 2009, taking the cumulative amount of FDI inflows from August 1991 to December 2009 to US$ 127.46 billion. As on March 26, 2010, India's foreign exchange reserves totaled US$ 277.04 billion, an increase of US$ 24.71 billion over the same period last year according to RBI. Of the more than 200 companies from over 50 countries that form part of the World Economic Forum's Global Growth Companies (GGC) Community, India today has the second largest representation, with a total of 18 GGCs with a strong representation formal most every sector. According to data from RBI, loan disbursement by scheduled commercial banks, including regional rural banks, recorded 16.04 per cent growth at the end of March 12, 2010, on a year-on-year basis which is above RBI prediction of 16%.The recovery of the Indian economy, as was broadly expected, worked well for the advance tax figures. The all India direct tax collection between April and December 2009, which includes corporate and personal taxes, increased 8.1 per cent to US$ 48.39 billion, according to figures that are currently with the income-tax (I-T) department. Exports from India were worth US$ 16.09 billion in February 2010, 34.8 per cent higher than the level in February 2009, according to the Ministry of Commerce and Industry. India's imports during February 2010 were valued at US$ 25.05 billion representing a growth of 66.4 per cent over February 2009. Inflation and its Impact on Tata Motors Inflation always has a negative effect on the car market. The development of the car market comes to a standstill when there is inflation in the market. The effect of inflation on car market is not at all encouraging and it badly affects every sector, which is associated with vehicle production and manufacturing. The hike in the rate of steel and fuel has resulted in a slower rate of development of the Indian automotive industry. One of the major effects of inflation is that the manufacturing of Indian cars has been hindered to a significant extent.

It has also been witnessed that major Indian vehicle manufacturers such as Tata Motors, Mahindra and Mahindra, Hyundai, Maruti Suzuki, and Honda Siel Motors are attempting their best to improve their manufacturing and sales of the vehicles amidst the situation where the stock market is showing a sluggish growth. It has also been seen because of inflation that sales of particular vehicles are being stimulated by the discounted rates that the car manufacturers are providing to the customers. Some of the vehicle makers have even resorted to offering exchange offers to the customers and some have launched competitive car financing rates. The effect of inflation has resulted in the hike of vehicle prices to the extent of 3%-4%, which sequentially is adequate for the necessity of meeting the hike of rates of raw materials for making an automobile. The effect of inflation on car market has not only badly impacted the manufacturing and sales of Indian vehicles but also the vehicle dealers, employees, and vehicle financers. Surveys and studies have resulted in the conclusion that the vehicle market and the vehicle manufacturing industry in India experienced 8-9% slump due to inflation. The effect of inflation on vehicle manufacturers have consequently affected the vehicle dealers in a manner where they are being forced to thrust the sales curve upward and maintain a high volume of profit. In this arrangement, the vehicle financers are compelled by both vehicle dealers and vehicle manufacturers to offer the customers a 100% financial assistance by lowering the interest rate of the loan. On the whole, it has been observed that the car market in India (both passenger car market and commercial vehicles market) has witnessed a slump with the inflation badly hitting nearly every sector to which the Indian automobile market is closely associated. RECISSION and its Impact on Tata Motors

All the major auto companies enjoyed the high growth ride till the mid-2008. But at the end of the year, industry had to face the hard truth and witnessed the fall in sales compared to last year. In December 2008, overall production fell by 22 % over the same month last year. Global recession has hit the Indian auto industry, India is strong and growing industry but the impact of recession is evident now on industry as sales & growth of automobile companies have declined. Passenger Vehicles segment registered negative growth. One of its supporting facts is that the sales in December 2008 for passenger vehicles fell by13.86% over December 2007 Two Wheelers registered minor growth of 1.85 % during April December 2008. However, Two Wheelers sales recorded 15.43 per cent fall in December 2008over the same month last year. 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. 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. Business Analysts reported that Indian car market had recorded a continuous growth of about 17.2% over the last few years but this year the recession has brought the growth to about 7-8%. Be it Tata Motors or Maruti Suzuki or even Mercedes-Benz, the car market has gone down to a tremendously negative terrain. Tata has reported that its profit fell from 34.1 per cent to 3.47 billion rupees because of theslower growth in the industrial production. Further, the company has also recorded a 20%decline in the sales as compared to last year. Maruti Suzuki reported a 7% decline in sales due to rising cost of the materials and a falling rupee value. Even Mahindra & Mahindra, the India's largest suv and tractor manufacturer, is not immunized, showing profit fall of 20.6%. Business Loan Interest Rates and its Impact on Tata Motors Business loans are something no business can do without. To set up a business or to expand a running business or to launch a new product, business loans are of utmost importance. Here is providing you information on Business Loan Interest Rates. Businesses that use credits to finance their business expenditure generally do well and earn good profits. Business loans helpin achieving effective budget management. Business loans can be availed through various sources. Banks and other financial institutions provide business loan. Various government programs are also there to give economic support to start-up businesses. If a new business manages to get a significant amount of business loan from a bank, it can easily establish its presence in the market. Credit financing from a renowned institution gives the business, good business

reputation. So, credit financing is always encouraged rather than compromising on the financial need of the business and starting it with very low investment in an unprofessional manner. Business Loan Interests are certainly the figures about which the borrowers need to be concerned the most. To repay a business loan, a borrower has to interest along with the principal amount. These interest payments compensate the lenders for the rising prices and serve like a reward for temporarily giving up their ability to spend. The business men also agree to pay interests on their business loans because using loans they can buy equipments and inventories which will in turn generate higher amount of profits. Interest rates associated with business loan vary in most of the cases. The factors which mainly lead to this variation are different degrees of risk involved with the loan, different durations of the loan, Tax Considerations of the loan and diverse characteristics of the loan. If a business loan involves higher risk, interest rate will be higher and if the loan is low risk, Interest rate will be comparatively lower. If the business loan is business mortgage loan then ithas lesser risk associated with it as in business mortgage loans there is always Collateral. Collateral is a property of the borrower which can be seized by the lender if the borrower fails to repay the loan. The longer is the term of repaying the loan; interest rates tend to be higher. In longer period inflation might accelerate resulting in reducing the purchasing power of the repayment of the loan. So, interest rates of long term loan are generally than that of the short term loans. Interest payments on some business loan have tax advantages. Interests on Business loans taken from the govt. have the benefit of tax exemption up to a certain limit. So, the business loans from govt. come with lower interest rates. As far as the business loan interest rates are concerned, they vary generously as we have earlier said. However, we can get an idea about the business loan interest rates. Loans taken for Business Purchase, with a term 6 to 84 months, have interest rates variable from 8.25% to10.25%. Interest rates on loans, taken for Business Refinance with 6 to 84 months term period; vary from 8.25% to 10.25%. Business Loans taken for the purpose of purchasing equipment and furniture for the business, generally having 12 to 60 months loan term period comes up with interest rates varying from 8.25% to10.25%

. INDUSTRY Analysis and its Impact on Tata Motors Indian Automobile Industry The auto industry is the greatest engine of economic growth in the world. The global auto industry is a key sector of the economy for every major country in the world. The industry continues to grow, registering a 30 percent increase over the past decade. In

2009, more than 60 million motor vehicles, including cars and commercial vehicles were produced worldwide equivalent to a global turnover of around 2 trillion. The automobile industry is one of the fastest growing industries in India. The Indian automobile industry is the seventh largest in the world with an annual production of over 2.6million units in 2009.Withstanding a growth rate of 18% per annum and an annual production of more than 2million units, it may not be an exaggeration to say that this industry in the coming years will soon touch a figure of 10 million units per year. In 2009, India emerged as Asia's fourth largest exporter of automobiles, behind Japan, South Korea and Thailand. By 2050, the country is expected to top the world in car volumes with approximately 611 million vehicles on the nation's roads. Indian automobile industry at global level: India ranks 2nd in the global two-wheeler market. India is the second largest tractor manufacturer in the world. India is the fifth largest commercial vehicle manufacturer in the world. India ranks 5th pertaining to the number of bus and truck sold in the world. The Indian Automobile industry is floated with both domestic and international players and is highly competitive. One company is present in more than one segment of the industry. Contributing a major share to the GDP, employing more people the industry also supports many other industries. More about the industry is explored into and is analyzed in the Analysis Chapter under Industry Analysis.

Indian Automobile Industry Analysis

The automobile industry in India is one of the fastest growing industries, growing at a rate of 18% per annum. The industry is the seventh largest in the world by producing around2.6 million units in the year 2009.This part explains in detail about the Indian Automobile Industry and analyzes the industry. Segmentation of the industry: The automobile industry can be broadly segmented into Two Wheelers, Three Wheelers, Passenger Vehicles and Commercial Vehicles. The Commercial Vehicles can be further divided into Heavy Commercial Vehicles (HCVs) and Light Commercial Vehicles (LCVs).The following diagram shows the composition of the major segments of the industry. The Figure 2 shows that the two wheelers enjoy a major share in the Indian Automobile Industry constituting 76% of the industry. While the passenger vehicles constituting for 16%and Commercial Vehicles and Three wheelers constituting 4% each. This shows that India has a great potential in the passenger vehicles segment

which includes cars and vans because increasing standard of living makes people to switch from two wheelers to cars.

Key Players in the industry: The Indian automobile industry is floated with both domestic and international players making it highly competitive. The fact is that almost 8 out of 10 global companies including General Motors, BMW, etc. have their presence in India contributing 25% of the Countrys production. The top 10 companies in the Indian Automobile Industry are: Maruti Suzuki India Ltd., Hyundai Motor India Ltd., Tata Motors, Mahindra & Mahindra Ltd., Hero Honda Motors Ltd., Bajaj Auto, General Motors Pvt. Ltd., Honda Siel Cars India Ltd., Toyota Kriloskar Motor Pvt. Ltd., and Ashok Leyland respectively. Many companies are present in more than one segment of the industry. For example Tata Motors is present in HCVs, LCVs, MUVs and Passenger Cars. Contribution to the GDP: The automobile industry has emerged as the key contributor to the growth of the economy. In the last decade their share in the Indian economy is around 5% of GDP. Economic progress is indicated by the amount of goods and services produced which give the impetus for transportation and boost the sale of vehicles. Increase in automobile production has a catalyst effect by indirectly increasing the demand for a number of raw materials like steel, rubber, plastics, glass, paint, electronics and services. An interesting fact is that the industry accounts for 7% of the total steel consumption. Since transportation is the nerve center of every other industry, the well being of the automobile industry is a good indicator of the health of the economy and every piece of infrastructure development in the country stimulates the demand for automobiles. Economic studies have shown that every truck manufactured creates anywhere between eight to twelve jobs and a bus would create around seven, which would include sales people, drivers, mechanics, cleaners and servicing staff. Automobile Exports: According to Society of Indian Automobile Manufacturers (SIAM), automobile exports increased by 17.90% from 1.53 million units in 2008-09 to 1.80 million units in 2009-10. At a time when many major global auto markets witnessed declines, the automobile exports from the country registering a robust 33.23 per cent growth in the last fiscal. The exports from various segments of the industry are shown in the Figure 3. The future of the industry:

 The Indian economy is on a high growth path on a secured long-term basis and with the consequent increase in disposable incomes of the population at large, the Indian automotive industry is expected to provide significant growth opportunities. The industry is expected to grow to US$ 40 billion by 2015 from the current level of US$ 7 billion and to contribute 10% of the nations GDP. By 2016 the automobile industry is expected to contribute 35% of the Industry GDP. The greatest challenge and competition would be from the Chinese automobile industry. The Chinese automobile industry has been able to give stiff competition to India in terms of productivity, cost of manufacturing and technology. Again the present trend of excess manufacturing capability, reduced margins put additional pressure on the industry. Industrial Life Cycle: The automobile industry in India is in its growth stage at an accelerating rate of sales and earnings growth. The industry is booming at a growth rate of around 18%. The demand for automobiles in the country is rising continuously. Only one car is available per thousand people in India which shows that the passenger vehicles segment has good prospects of growth. Porters Five Forces Analysis: 1. Barrier to Entry: The barriers to enter automotive industry are substantial. For a new company, the startup capital required to establish manufacturing capacity to achieve minimum efficient scale is prohibitive. Al though the barriers to new companies are substantial, establishing companies are entering the new markets through strategic partnerships or through buying out or merging with other companies. However, a domestic company, with local knowledge and expertise, has the potential to competitors home market against the global firms who are not well established there.. 2. Threat of Substitutes: The threat of substitutes to the automotive industry is fairly mild. Numerous other forms of transportation are available, but none offer the utility, convenience, independence and value offered by automobiles. The switching cost associated with using a different mode of transportation, may be high in terms of personal time, convenience and utility.

3. Bargaining Power of Suppliers: In the relationship between the industry and its suppliers, the power axis is tipped in industrys favor. The industry is comprised of powerful buyers who are generally able to dictate their terms to the suppliers.4. 4. Bargaining Power of Customers: In the relationship between the automotive industry and its ultimate consumers, the power axis is tipped in the consumers favor. This is due to the fairly standardized nature and the low switching costs associated with selecting from among competing brands.5. 5. Rivalry among Competitors: Despite the high concentration ratio seen in the automotive sector, rivalry in the Indian auto sector is intense due to the entry of foreign companies in the market. The industry rivalry is extremely high with any being product being matched in a few months by the competitors. This instinct of the industry is primarily driven by technical capabilities acquired over years of gestation under the technical collaboration with international players. SWOT Analysis: Strengths: Large Domestic Market: India has the largest domestic market which is not fully exploited. In specific, the passenger vehicles segment has a bright scope in the coming years. Cost Advantage: India enjoys lower labor cost of $ 8 per hour of skilled labor while the labor cost of other developed countries is around $ 20 per hour. The cost of creating an automotive design is very economical in India ($60 per hour) when compared to Europe and US (around $800 per hour) Engineering Skills: India has a strong competitive advantage in design and engineering skills when compared to other low cost economies. India is the ninth country in the world to design a vehicle on its own Competitive Auto Component Vendor Base:

Competitive auto component vendor base which helps to get the required auto components at competitive rates leading to lower manufacturing costs. Weaknesses: Research & Development: Even though there is a development in R&D, Indian R&D is not competitive with the other countries. The industry should improve its R&D. Infrastructure Facilities: India is lacking proper infrastructure facilities. Many companies view that the cost advantages in India is being eroded because of its bad infrastructure facilities. Low Labor Productivity: The labor productivity in the country is low when compared to the developed countries. This is mainly because of huge unskilled labor force. High Interest Costs: High interest costs and other overheads make the competition unproductive. Taxes: Various kinds of taxes push up the costs and hence companies are forced to operate under low profit margins. Opportunities: Increasing Disposable Income: With the economy on a high growth path on a secured long-term basis and with the consequent increase in disposable incomes of the population at large, the Indian automotive industry is expected to provide significant growth opportunities. Vehicle Switchovers: Passenger Cars segment have a bright scope because people are switching from two wheelers to Cars as a result of increased personal disposable income and rising standards of living. Infrastructure Development Stirs Demand: The increased investments in infrastructure required to maintain the high growth of the Indian economy such as the National Highway Development Programme with a huge

budget - and the increased goods movement in a fast growing economy would result in a high demand or commercial vehicles. Rising Rural Demand: There is a greater change in the rural consumers spending pattern and demand levels because of increasing levels of disposable income. Threats: Integration of Indian Economy with Global Economy: With the growing integration of the Indian economy with the Global economy, events around the world have a direct or indirect impact on the Indian automobile industry. In particular, Indian financial markets are highly integrated to global financial markets. As a result, liquidity and availability of credit, an important facilitator for automobile and tractor sales in the Indian market, will be impacted by conditions in the Global markets. Pollution and Emission Controls: Stringent legislation on pollution and emission requirements will increase the cost of the Companys products for the Automotive Sector. Holding the price line could have an impact on profitability. Price increases on the other hand could impact volumes. Increased Competition: The entry of new players will result in ever increasing levels of competition in all the segments of the automobile industry, resulting in intense pressure on the profit margins of all participants

Tata Motors Annual Result : 2010

Consolidated Net Revenue grows by 30.5% in FY10 over previous year to Rs. 92,519 crores

Consolidated Profit of Rs. 2,571 crores (Loss of Rs.2505.25 crores in the previous year) Consolidated Financial Results for the year ended March 31, 2010 Tata Motors today reported consolidated revenues (net of excise) at Rs. 92,519.25 crores posting a growth of 30.5% over Rs. 70,880.95 crores in the previous year. There has been strong volume growth both at Tata Motors and at Jaguar Land Rover. The Consolidated Profit before Tax (PBT) for the year was Rs. 3,522.64 crores compared to a Loss before Tax of Rs. 2,129.25 crores. The Consolidated Profit after tax (PAT) for the year was Rs. 2,571.06 crores, a significant turnaround from a loss of Rs. 2,505.25 crores in the previous year. The consolidated financial performance is not comparable to the previous year 2008-09 on account of the acquisition of Jaguar Land Rover in June 2008. On March 30, 2010, the company has divested its controlling stake (20%) in Telco Construction Equipment Company Ltd. The resultant profit of Rs 1057.92 crores is included in other income. Tata Motors has reported a Basic Earnings Per Share (EPS) of Rs. 48.64 in 2009-10 for its consolidated operations in 2009-10 as against a Loss Per Share of Rs. 56.88 in 2008-09. Tata Motors Stand-Alone Financial Results Financial year ended March 31, 2010 Tata Motors gross revenue for the financial year 2009-10 was Rs. 38,364.10 crores (2008-09: Rs. 28,568.21 crores). The revenues (net of excise) at Rs. 35,593.05 crores representing a growth of 38.9% over Rs.25,629.73 crores in the previous year. The PBT for the year is Rs. 2,829.54 crores, an increase of 179.1% over Rs. 1,013.76 crores previous year. The PAT for the year is Rs. 2,240.08 crores, an increase of 123.7% over Rs. 1,001.26 previous last year (after exceptional item of a loss of Rs.850.86 crores recognized on redemption of preference shares by TML Holdings Pte Ltd, Singapore, a wholly owned subsidiary of the company)

Volume recovery led by introduction of new products and strong continued growth in the existing portfolio, continued focus on cost efficiencies and price increases undertaken by the company to combat strengthening commodity prices aided the company to grow realizations and deliver double digit operating margin of 11.74%. Operating profit (EBITDA) came in at Rs. 4,178.28 crores in FY 2009- 10 compared with Rs. 1,752.44 crores in the previous year.

Overall economic recovery, a benign liquidity environment along with government stimulus has driven domestic demand revival during the current year. In the domestic market, companys commercial vehicles sales increased by 41% to 373,842 units leading to a market share of 64.2%, up from 63.8% of last year. The growth was well supported by both the Medium and Heavy Commercial Vehicles and the Light Commercial Vehicles which grew by 36.5% and 44.4% respectively. During the year, the company launched and started sales of the Prima range of globally benchmarked Heavy Trucks. A number of variants from the Ace family were also introduced. Passenger Vehicles, including Fiat and Jaguar and Land Rover vehicles distributed in India, grew by 25.3% in the domestic market to 260,020 units. The market share for Tata passenger vehicles for the period stood at 12.4%. The company launched the new Indigo Manza and the Sumo Grande MK II during the second half of the year which improved companys market position in H2 compared with H1 in these segments. The company also ramped up the production of the Nano at the plant in Uttarakhand, and delivered 30,763 units of Nano during the year. Along with Fiat, the company has a joint market share of 13.7% in the industry. The company has planned several new product launches in the near future to defend and improve its market position. Subsidiary Highlights We are pleased with the performance of the Jaguar Land Rover business which turned profitable for the year ended March 31, 2010 reporting a Profit before Tax of GBP 32 million. The financial results are not comparable over the previous year where the business was under the companys ownership for the 10 month period from June 2, 2008 March 31, 2009. With the positive market reception of the enhanced product range in an improved market environment as well as continued cost reduction efforts, the business was able to show sustained quarter on quarter improvement towards solid profitability in Q3 and Q4 of FY10. During the year the company put in place a long term financing plan including the drawdown of GBP 340 million EIB loan and syndication of inventory financing. Wholesale volumes for FY 2009-10 were 193,982 units compared with sale of 167,348 units in the 10 month period June08 March09. Both Land Rover and Jaguar launched the updated 2010 Model Year products (Range Rover, Range Rover Sport, Discovery 4, XF and XK) to critical acclaim with the respective wholesale sales for the year coming in at 146,564 units and 47,418 units. Jaguar Land Rover retail sales improved favorably in the second half of the year, after addressing the effects of the global economic turndown and launching new model year products. There was strong recovery in the UK where Land Rover retail sales were up 25% year on year. The Jaguar XF improved in the UK by 28% year on year. China also continued to show significant growth for JLR with Jaguar growing by 38% and Land Rover 55% year on year.

Tata Daewoo Commercial Vehicles Company Limited, companys subsidiary based in South Korea, continued to see improvement in domestic demand while exports came under pressure resulting in overall sales decline of 4% over the previous year. Tata Motors Finance Limited, the companys captive financing subsidiary reported net profit of Rs. 44.16 crores and improved its NPA performance through better collection efficiency. Dividend The Board of Directors has recommended a dividend of Rs.15/- per share. The dividend is subject to approval of shareholders; tax on the dividend will be borne by the Company. Annual Result: 2009 Tata Motors Net Revenue in 2008-09 lower at Rs.25660.79 crores, and Net Profit lower at Rs.1001.26 crores, due to market upheaval. Tata Motors today reported gross revenue (stand-alone) of Rs.28599.27 crores (200708: Rs.33093.93 crores) in 2008-09, a year marked by severe demand contraction in the automobile industry. Revenues (net of excise) for the year were Rs. 25660.79 crores compared to Rs.28739.41 crores in 2007-08, a decline of 10.7%. The Profit before Tax was Rs.1013.76 crores compared to Rs.2576.47 crores in 2007-08, a decline of 60.7%. The Profit after Tax for the year was Rs.1001.26 crores compared to Rs.2028.92 crores, a decline of 50.7%. The demand contraction was triggered by high interest rates and unavailability of finance throughout the year, particularly in the October-December quarter post the global financial market upheavals. The impact on heavy commercial vehicles was more severe, abetted by reduction in freight movement in different segments and customer concerns on economic conditions. Small commercial vehicles, like the Tata Ace and the Tata Magic, have continued to improve penetration. Stimulus packages from the Government in the last quarter of the year have to an extent helped regenerate overall sales, as in the automobile industry, but growth is yet to revive to earlier levels. The fall in volumes combined with peak input prices and high interest rates brought margins under pressure. The company accelerated cost reduction measures and proactively managed working capital to contain the impact as best as it could.

The total 2008-09 sales volume (including exports) is 506,421 units, compared to 585,649 units in the previous year. The company retained its domestic leadership position in commercial vehicles, and continued to be amongst the top three in passenger vehicles. Domestic commercial vehicles sales amounted to 265,373 units (2007-08: 312,935 units). The company increased market share in commercial vehicles to 63.8% (2007-08: 62.2%), aided by its wide product offering. Domestic passenger vehicles sales amounted to 207,512 units (2007-08: 218,055 units).The launch of the second generation Tata Indica Vista and the continuing good run of the Tata Indigo CS has helped recover market share in passenger vehicles in the second half which stands at 13.1% for the year (2007-08: 14%) and a March exit share of 14.5%. Tata Motors exports were 33,536 numbers (2007-08: 54,659 numbers), impacted by the worldwide downturn in the industry. The launch of the Tata Indica Vista was augmented by the distribution of the Fiat 500 and Linea, both of which have been received well. In commercial vehicles too, new products, introduced during the year or the previous year, offering benefits like higher fuel efficiency, grew at a faster rate and helped enhance market share. The landmark events of the year were the acquisition of Jaguar Land Rover on June 2, 2008, and the launch of the Tata Nano on March 23, 2009. Over 2.03 lakh fully paid bookings were received for the Tata Nano, the deliveries of which will begin from July 2009. The Pantnagar plant began producing the Tata Nano during the year, while the Sanand plant is rapidly progressing towards completion. DIVIDEND The Board of Directors has recommended a dividend of Rs.6/- per share. The dividend is subject to approval of shareholders; tax on the dividend will be borne by the Company.
PROFIT AND LOSS STATEMENT

Particulars
INCOME : Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income EXPENDITURE : Raw Materials Power & Fuel Cost

2010 - 2011
51,328.68 4,095.51 47,233.17 1,230.26 354.22 48,817.65 34,421.60 471.28

2009 - 2010
37,795.71 2,771.05 35,024.66 2,564.23 606.63 38,195.52 24,905.83 362.62

Employee Cost Other Manufacturing Expenses Selling and Administration Expenses Miscellaneous Expenses Less: Pre-operative Expenses Capitalised Total Expenditure Operating Profit Interest Gross Profit Depreciation Profit Before Tax Tax Fringe Benefit tax Deferred Tax Profit after TAX Extraordinary Items Net Profit

2,242.82 2,535.94 2,580.81 2,441.89 817.68 43,876.66 4,940.99 1,383.70 3,557.29 1,360.77 2,196.52 8.4 0 376.3 1,811.82 116.4 1,928.22

1,807.76 1,941.67 1,787.10 3,007.36 726.46 33,085.88 5,109.64 1,246.23 3,863.41 1,033.87 2,829.54 0 0 589.46 2,240.08 703.09 1,536.99

BALANCE SHEET

Particulars
SOURCES OF FUNDS : Share Capital Number of Shares Issued till date Reserves Total Total Shareholders Funds Secured Loans Unsecured Loans Total Debt Total Liabilities APPLICATION OF FUNDS : Gross Block Less : Accumulated Depreciation Less: Impairment of Assets Net Block Lease Adjustment Capital Work in Progress Investments Current Assets, Loans & Advances

2010 - 2011
634.65 2691.61 19,375.59 20,010.24 7,766.05 8,132.70 15,898.75 35,908.99 21,883.32 8,466.25 0 13,417.07 0 4,058.56 22,624.21

2009 - 2010
570.6 2691.61 14,394.87 14,965.47 7,742.60 8,851.94 16,594.54 31,560.01 18,416.81 7,212.92 0 11,203.89 0 5,232.15 22,336.90

Inventories Sundry Debtors Cash and Bank Loans and Advances Total Current Assets Less : Current Liabilities and Provisions Current Liabilities Provisions Total Current Liabilities Net Current Assets Miscellaneous Expenses not written off Deferred Tax Assets Deferred Tax Liability Net Deferred Tax Total Assets Contingent Liabilities

3,891.39 2,602.88 2,428.92 5,167.42 14,090.61 13,032.53 3,222.71 16,255.24 -2,164.63 0 685 2,708.16 -2,023.16 35,912.05 3,370.22

2,935.59 2,391.92 1,753.26 4,587.53 11,668.30 14,609.16 2,763.43 17,372.59 -5,704.29 0 791.5 2,300.14 -1,508.64 31,560.01 3,034.83

KEY RATIOS FROM TATA MOTORS FINANCIAL STATEMENT:

YEAR ENDED MAR 2010 YEAR ENDED MAR 2011

S.No

RATIOS

FORMULA

EXPLANATION

Current ratio

Current Assets / Current Liabilities

0.62

Higher the current ratio better is the situation and the ideal value is 2:1. Tata 0.77 Motors current ratio is less than 1 which indicates more liabilities than assets. A higher liquid ratio indicates that there are sufficient assets available with the organization which 0.55 can be converted in the form of cash almost immediately to pay off those liabilities which are to be paid off almost immediately.

Liquid ratio

Liquid Assets / Liquid liabilities

0.43

Fixed Assets Turnover ratio

Net Sales / Fixed Assets

1.95

It indicates the capability of organization to achieve maximum sales with the 2.19 minimum investment in fixed assets. Higher the ratio, the better.

Current Assets Turnover ratio

Net Sales / Current Assets

6.68

It indicates the capability of organization to achieve maximum sales with the 5.4 minimum investment in current assets. Higher the ratio, the better.

Working Capital Turnover ratio

Net Sales / Working Capital

5.68

It indicates the capability of organization to achieve maximum sales with the 3.68 minimum investment in working capital. Higher the ratio, the better.

Stock Turnover ratio

Net Sales / Closingstock

3.52

It indicates the capability of organization to achieve maximum sales with the 4.6 minimum investment in inventory. Higher the ratio, the better.

Capital Turnover ratio

Sales / Capital employed

1.12

It indicates the efficiency of the organization with which 0.79 the capital employed is be ingutilized. Higher the ratio, the better.

Proprietary ratio

Fixed Assets / owners funds

0.54

Both these figures indicate that the owners funds are exceeding the fixed assets 0.6 which indicate that a part of owners funds is invested in the current assets also.

Capital Employed ratio

Fixed Assets / Capital employed * 100

32%

A low value of this ratio in both cases indicates that a major portion of the long 26% term funds are invested in current assets as compared to fixed assets.

10

Interest Coverage ratio

Profits before Interest and taxes / Interest charges

3.56

A high ratio as indicted by the 2figures is favorable as it indicates the protection 4.33 available to the lenders of long term capital in the form of funds available to pay the interest charges.

11

Return on capital Employed

Net profit + Interest on long term sources)/capital employed

0.73

It measures profitability of capital employed in the firm. 0.57 Higher value is preferred and the situation of Mar08 was much better than Mar09.

12

Return on Shareholders Funds

Net profit after taxes* 100/ Total shareholders funds

0.14

It measures if the firm has earned sufficient returns for its shareholders or not. 0.08 Higher the ratio, the better the situation which is not the case for Tata Motors in both the years.

13

Earnings per Share

Net profit after taxespreference dividend)/ Number of equity shares outstanding

59.91

It measures the profits available to the equity 51.67 shareholders on a per share basis.

14

Book value per share

Shareholders funds / Total number of equity shares issued

7.43

This ratio shows the claim of the shareholders on a per share basis. This ratio shows the worth of a share 5.56 according to the books. we can see that the Book value per share is increased when compared to the financial year 2009-10.

Cash Flow Particulars Cash and Cash Equivalents at Begining of the year Net Cash from Operating Activities Net Cash Used In Investing Activities Net Cash Used In Financing Activities Net Inc/(Dec) In Cash And Cash Cash And Cash Equivalents At End Of The Year Cash Flows from Operating Activities This section shows how much cash comes from sales of the company's goods and services, less the amount of cash needed to make and sell those goods and services. Investors tend to prefer companies that produce a net positive cash flow from operating activities. High growth companies, such as technology firms, tend to show negative cash flow from operations in their formative years. At the same time, changes in cash flow from operations typically offer a preview of changes in net future income. Normally it's a good sign when it goes up. Watch out for a widening gap between a company's reported earnings and its cash flow from operating activities. If net income is much higher than cash flow, the company may be speeding or slowing its booking of income or costs. 2010 - 11 716.27 1,505.56 -2,518.11 1,648.42 635.87 1,352.14 2009-10 668.74 6,400.18 -11,886.99 5,534.34 47.53 716.27

Cash Flows from Investing Activities This section largely reflects the amount of cash the company has spent on capital expenditures, such as new equipment or anything else that needed to keep the business going. It also includes acquisitions of other businesses and monetary investments such as money market funds. Cash Flow from Financing Activities This section describes the goings-on of cash associated with outside financing activities. Typical sources of cash inflow would be cash raised by selling stock and bonds or by bank borrowings. Likewise, paying back a bank loan would show up as a use of cash flow, as would dividend payments and common stock repurchases. FII Investments PPIFII No of Shares 24.14 2,691,613,455 21.88 2,691,612,415 22.98 538,322,483 23.6 538,272,284 24.22 536,723,818 23.59 506,381,476 22.38 506,381,356 17.83 506,381,170 15.67 479,737,904 11.25 449,833,269 8.7 449,832,659 7.13 449,832,659 8.04 514,008,314 14.91 385,656,979 15.24 385,618,723 16.96 385,503,954 19.84 385,373,885 22.63 385,277,580 23.67 385,171,510 24.13 383,078,588

Date 31-Dec-11 30-Sep-11 30-Jun-11 31-Mar-11 31-Dec-10 30-Sep-10 30-Jun-10 31-Mar-10 31-Dec-09 30-Sep-09 30-Jun-09 31-Mar-09 31-Dec-08 30-Sep-08 30-Jun-08 31-Mar-08 31-Mar-07 31-Dec-06 30-Sep-06 30-Jun-06

The increase in Foreign Institutional Investors Investments in Tata motors is making the stock more volatile. Whenever there is more purchase of shares by FIIs the company

prices increase and whenever there is disinvestment by FIIs the company share value gets decreased.

Monthly Price Movement of TATA MOTORS on Bombay Stock Exchange

Month Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Close Price 242.35 336.7 291.15 421.55 489.35 591.35 565 660.9 792.6 694.35 711.05 755.7 872.85 754.65 778.35 846.15 1007.45 1097.3 1159.45 1237.1 1306.3 1148.25 1081.8

Mar-11

1247.5

Opportunities and Risks in TATA MOTORS Opportunities

1. Road development: Continued focus on development of road infrastructure is expectedto have a positive thrust to automobile sales in the country. The near completion of theGolden Quadrilateral road project, the development under the North South East West roadcorridor project and other phases under the National Highway Development Programme,continue to provide a boost to growth of automobile sales. Additionally, the developmentunder the Pradhan Mantri Gram Sadak Yojana (PMGSY), to construct and upgrade rural roadnetworks is expected to result in higher rural penetration of vehicle sales. Improvementin road infrastructure will facilitate faster transportation of goods and passengers, andwould in turn create a demand for safer, reliable and faster vehicles. With its wide rangeof goods and passenger transportation vehicles ranging from 0.75 Ton load carrier to largehaulage tractors (49T) for goods movement, buses and coaches for public transportation andpassenger cars and utility vehicles for personal transportation, the Company is poised togain significantly from the initiatives on infrastructure development and the improvedroad infrastructure.

2. Population Dividend and increase in income levels: With more than half of India'spopulation less than 25 years of age, India has the youngest population in the world.India has a large work force with 64% of the population in the working age group of 19-64years and is poised to be the largest contributor to the global workforce over the nextfew decades. With a significantly high proportion of youth population, India has a largeconsumer base for goods and services. Steady increase in working population and rise indisposable income will provide a demand impetus to automobile industry, both in terms ofpersonal transportation as well as goods movement. 3. Growing consumer culture: In India, with the continuous rise in disposable income,the demand for a better lifestyle continues to enhance consumption levels and rapid growthin several segments like lifestyle product, cellular phones and cable and satellitetelevision. This growing consumerism is expected to lead to an increase in car penetrationfrom the current levels of 8 per thousand towards the 500+ levels witnessed in thedeveloped countries. The Company, with its broad based portfolio is expected to benefitfrom improved enviroment. 4. Rural market growth: There has been continuing shift in rural spending in terms ofits growth and it is less dependent on farm income. Income remittances from migrant ruralpopulation, increase in land prices and increase in non-farm activities such as tradingand agro-processing are boosting non-farm income. The increase in prices of agriculturalproduce / products, and access to finance and institutional credit has brought greaterwealth to rural households. Policy measures such as the National Rural EmploymentGuarantee Scheme (NREGS), which guarantees 100 days of employment to one member of everyrural household, and increased government spending in rural areas, have helped to reducerural under-employment and raised rural income levels. It is estimated that compared with48% of motorcycles sales in the rural areas, only 11% of cars/UVs sales are todaycontributed by the rural market, which indicates a potential growth opportunity in thismarket. The Company has offered affordable transport solutions and distribution channelsto leverage the opportunities presented by this market. 5. International Business: India continues to be a competitive source both in terms ofquality and cost for the automotive industry globally, both for vehicles and components.India's manufacturing base continues to benefit from these scale economies coupled withtechnology/quality improvements. The Company's product portfolio in commercial vehiclesand passenger cars and wide distribution channels enables the Company to take advantage ofvarious opportunities in international business. The Company has also set up and isfurther exploring the

setting up of manufacturing footprint overseas, which would combinethese advantages with local operations and sourcing in these markets. Risks

1. Hardening of interest rates and other inflationary trends: RBI continues with itsmonetary policy measures to curb inflation. RBI has stepped up policy rates 7 times duringfiscal 2010-11 and again in May 2011, resulting in hardening of the repo rate by 225 bpsto 7.25% and reverse repo by 275 bps to 6.75%. During the year, rising interest rates havecompelled the banks to increase base rate, impacting borrowing costs for corporate sector,which has negative impact on the expansion of output and capacity expansion especially inthe manufacturing sector. It will impact cooling down of demand side of the economy willaffect the growth of EMI driven products and also impact profit margins of the corporatesector. Further hardening of consumer interest rates could have an adverse impact on theautomotive industry, mainly in terms of interest cost on automotive loans. Inflation couldalso have a negative impact on growth and consequently on automobile sales in the domesticmarket. 2. Fuel Prices: The Brent crude prices surged from an average of US$ 75 a barrelduring May - September 2010, to US$ 123 a barrel in April 2011. The Government has partlyderegulated petrol prices and diesel / cooking gas continues to be subsidized. The fuelprice continues to impact inflation and Government finances. Further, higher fuel pricesforce the consumers to think of alternative transportation solutions or defer purchases.The Company's product programmes encompass initiatives to improve fuel efficiency of itsproducts and investing in programmes for development of alternative solutions. The KiritParikh Committee recommendations that the retail prices of petrol and diesel to be marketdetermined and that an additional excise duty of ?80,000 per car to be levied on dieselcars if implemented, could adversely impact demand. 3. Input Costs: Input costs on account of commodities like steel, nonferrous,precious metals, rubber and petroleum products have risen over the year and resulted inhigher input costs. While the Company continues to pursue cost reduction initiatives,rises in commodity prices and other costs resulting from inflationary pressures, couldimpact the Company's profitability to the extent that the same are not absorbed by themarket through price increases and/or could have a negative impact on the demand. Inaddition, because of intense price competition and the high level of fixed costs, theCompany may not be able to adequately address changes in commodity prices even if they areforeseeable.

4. Environmental and other Government Regulations: Stringent emission norms and safetyregulations could bring new complexities and cost increases for automotive industry,impacting the Company's business. WTO, Free Trade Agreements and other similar policiescould make the market more competitive for local manufacturers.In the international markets, most of the countries have stricter norms of regulationsrelated to emission, safety, noise, technology etc. These factors may impact demand of theCompany's products in international markets. The Company competes with internationalplayers, established in those markets which have a global brand image, larger financialcapability and multiple product platforms.To comply with current and future environmental norms, the Company may have to incuradditional capital expenditure and R&D expenditure to upgrade products andmanufacturing facilities, which would have an impact on the Company's cost of productionand the results of operations and may be difficult to pass through to its customers. Ifthe Company is unable to develop commercially viable technologies within the time framesset by the new standards, the Company could face significant civil penalties or be forcedto restrict product offerings drastically to remain in compliance. Moreover, meetinggovernment mandated safety standards is difficult and costly because crash worthinessstandards tend to conflict with the need to reduce vehicle weight in order to meetemissions and fuel economy standards. 5. Global Competition: India being the second fastest growing economy in the world,continues to be an attractive destination for the global automotive players. The globalautomotive manufacturers present in India have been expanding their product portfolio andenhancing their capacities in India. To counter the threat of growing global competition,the Company continues to intensify its drive to improve quality and product offering,while maintaining its low cost product development/sourcing advantage.Further, the global automotive industry, including the premium passenger car segment,is highly competitive and competition is likely to further intensify in view of thecontinuing globalisation and consolidation in the worldwide automotive industry. There isa strong trend among market participants in the premium automotive industry towardsintensifying efforts to retain their competitive position in established markets whilealso developing a presence in more profitable and fast growing emerging markets, such asChina. A range of factors affect the competitive environment, including, among otherthings, quality and features of vehicles, innovation, development time, ability to controlcosts, pricing, reliability, safety, fuel economy, environmental impact and perceptionthereof, customer service and financing terms.To counter the threat of growing global competition, the Company continues to intensifyits drive to improve quality and product offering while maintaining its low cost productdevelopment/sourcing advantage.

6. Exchange Rates: The Company's operations are subject to risk arising fromfluctuations in exchange rates with reference to countries in which it operates. Theserisks primarily relate to fluctuations of Pound to US Dollar, Japanese Yen, Renminbi,Russian Ruble and Euro, and fluctuations of Indian Rupee against Pound, US Dollar andEuro. The Company imports capital equipment, raw materials and components and also sellsvehicles in various countries. These transactions are denominated in foreign currencies,primarily the U.S. Dollar and Euro. Moreover, the Company has outstanding foreign currencydenominated debt and hence it is sensitive to fluctuations in foreign currency exchangerates. It has experienced and expects to continue to experience foreign exchange lossesand gains on obligations denominated in foreign currencies in respect of its borrowingsand foreign currency assets and liabilities due to currency fluctuations. Although theCompany engages in currency hedging as per its policy, in order to decrease its foreignexchange exposure, the weakening of rupee against the dollar or other major foreigncurrencies may have an adverse effect on its cost of borrowing and consequently mayincrease its financing costs, which could have a significant adverse impact on the resultsof operations. 7. New Project Execution: Intensifying competition, reducing product life cycles andbreadth of the Company's product portfolio, necessitates the Company to continuouslyinvest in new products, upgrades and capacity enhancement programme. Though the Companyemploys sophisticated techniques and processes to forecast the demand of new products yetthe same is subject to margin of error. Timely introduction of new products, theiracceptance in the market place and managing the complexity of operations across variousmanufacturing locations, would be the key to sustain competitiveness. 8. Deterioration in global economic conditions: The impact of the recent globalfinancial crisis continues to be a cause of concern despite concerted efforts to containthe adverse impact of these events on global recovery.The Indian automotive industry is affected substantially by the general economicconditions in India and around the world. The demand for automobiles in the Indian marketis influenced by factors including the growth rate of the Indian economy, easyavailability of credit, and increase in disposable income among Indian consumers, interestrates, freight rates and fuel prices. During the global financial crisis, the Reserve Bankof India (RBI) had eased its monetary policy stance to stimulate economic activity.Subsequently, as the Indian economy started recovering from the downturn, inflationpressures increased substantially and despite several interest rate hikes, inflationcontinues to be high. The trends of higher inflation, muted industrial growth and risinginterest rates are expected to

pose downside risks to overall growth. The automotiveindustry in general is cyclical and economic slowdowns in the past have affected themanufacturing sector including the automotive and related industries. Deterioration in keyeconomic factors such as growth rate, interest rates and inflation as well as reducedavailability of financing for vehicles at competitive rates may adversely affect ourautomotive sales in India and results of operations.Jaguar and Land Rover business has significant presence in the UK, North America andContinental Europe and has operations in many major countries across the globe. TheCompany also has automotive operations in South Korea, Spain and Thailand. The globaleconomic downtown significantly impacted the global automotive markets, particularly inthe United States and Europe, where Jaguar Land Rover business have significant salesexposure. The Company's strategy, which includes new product launches and expansion intogrowing markets such as China, Russia and Brazil, may not be sufficient to mitigate thedecrease in demand for its products in established markets and this could have asignificant adverse impact on the financial performance. In response to the recenteconomic slowdown, the Company further intensified efforts to review and realign coststructure such as reducing manpower costs and other fixed costs.Further, Jaguar Land Rover business is exploring opportunities to reduce breakevenlevels through increased sourcing of materials from low cost countries, reduction innumber of suppliers, reduction in number of platforms, reduction in engineering changecosts, increased use of off-shoring and several other initiatives. Although consumersentiments have improved in many developed markets since late 2009, if industry demandsoftens because of a major debt crisis, negative economic growth in key markets or otherfactors, the results of operations and financial condition could be substantially andadversely affected. 9. Increase in costs, or disruption in the supply, of vehicle parts from naturaldisasters: The recent earthquake and tsunami in Japan and their aftermath have createdsignificant economic uncertainty in that country, the effects of which are largely not yetassessable. Since the earthquake, the Company has observed a significant drop incommercial activity in Japan, and it believes that the economic activity in the countrymay be generally disrupted for a substantial period of time. Some of the Jaguar LandRover's vehicles use raw materials, pre-products and vehicle parts that are sourced fromJapan, including microchips. The recent natural disasters in that country have caused someJapanese suppliers to halt, delay or reduce production, which could reduce or disrupt thesupply of such raw materials, pre-products and vehicle parts and / or an increase in theircost. Substantial increases in the costs or a significant delay or sustained interruptionin the supply of key inputs sourced from Japan

could adversely affect the Jaguar LandRover's ability to maintain the current and expected levels of production. 10. Changes in tax, tariff or fiscal policies: Imposition of any additional taxes andlevies designed to limit the use of automobiles could adversely affect the demand for theCompany's vehicles and the results of operations. Changes in corporate and other taxationpolicies as well as changes in export and other incentives given by various governments orimport or tariff policies could also adversely affect the Company's results of operations.Such government actions may be unpredictable and beyond the Company's control, and anyadverse changes in government policy could have a material adverse effect on its businessprospects, results of operations and financial condition. 11. Political instability, wars, terrorism, multinational conflicts, natural disasters,fuel shortages / prices, epidemics, labour strikes:The Company's products are exported to a number of geographical markets and the Companyplans to expand international operations further in the future. Consequently, the Companyis subject to various risks associated with conducting the business both within andoutside the domestic market and the operations may be subject to political instability,wars, terrorism, regional and / or multinational conflicts, natural disasters, fuelshortages, epidemics and labour strikes. In addition, conducting business internationally,especially in emerging markets, exposes the Company to additional risks, including adversechanges in economic and government policies, unpredictable shifts in regulation,inconsistent application of existing laws and regulations, unclear regulatory and taxationsystems and divergent commercial and employment practices and procedures. 12. Product liability, warranty and recall: The Company is subject to risks and costsassociated with product liability, warranties and recalls in connection with performance,compliance or safety related issues affecting its vehicles. The Company spendsconsiderable resources in connection with product recalls and these resources typicallyinclude the cost of the part being replaced and the labour required to remove and replacethe defective part. In addition, product recalls can cause consumers to question thesafety or reliability of the Company's vehicles and harm its reputation. Any harm to thereputation of any one of the Company's models can result in a substantial loss ofcustomers.Furthermore, the Company may also be subject to class actions or other large scaleproduct liability or other lawsuits in various jurisdictions in which it has a significantpresence. The use of shared components in vehicle production increases this risk becauseindividual components are deployed in a number of different models

across brands. Anycosts incurred or lost sales caused by product liability, warranties and recalls couldmaterially adversely affect the business. 13. Automobile financing business: The Company is subject to risks associated with itsautomobile financing business. Any defaults by the customers or inability to repayinstalments as due, could adversely affect the business, results of operations and cashflows. In addition, any downgrades in the Company's credit ratings may increase theborrowing costs and restrict the access to the debt markets. Over time, and particularlyin the event of any credit rating downgrades, market volatility, market disruption,regulatory changes or otherwise, the Company may need to reduce the amount of financingreceivables it originates, which could adversely affect the ability to support the sale ofvehicles. 14. Underperformance of distribution channels and supply chains: The Company's productsare sold and serviced through a network of authorized dealers and service centers acrossthe domestic market, and a network of distributors and local dealers in internationalmarkets. The Company monitor the performance of its dealers and distributors and providethem with support to enable them to perform to the expectations. Any under performance bythe dealers or distributors could adversely affect our sales and results of operations.The Company relies on third parties to supply the raw materials, parts and components usedin the manufacture of our products. Furthermore, for some of these parts and components,the Company are dependent on a single source. The Company's ability to procure supplies ina cost effective and timely manner is subject to various factors, some of which are notwithin its control. While the Company manages supply chain as part of its vendormanagement process, any significant problems with supply chain in the future could affectresults of operations in an adverse manner.Adverse economic conditions, decline in automobile demand, lack of access to sufficientfinancing arrangements could have a negative financial impact on the suppliers anddistributors in turn impairing timely availability of components to the Company, whileimpairments to the financial condition of distributors may impact the performance in somemarkets. In addition, if one or more of the other global automotive manufacturers were tobecome insolvent, this would have an adverse impact on the supply chains and may furtheraffect results of operations in an adverse manner.In respect of Jaguar Land Rover business, as part of a separation agreement from Ford,the Company has entered into supply agreements with Ford and certain other third partiesfor critical components. Any disruption of such transitional services could have amaterial adverse impact on operations and financial condition. 15. Labour unrest: All of the Company's permanent employees, other than officers andmanagers, in India and most of the permanent employees in South Korea

and the UnitedKingdom, including certain officers and managers, in relation to automotive business, aremembers of labour unions and are covered by wage agreements, where applicable with thoselabour unions.In general, the Company considers labour relations with all of employees to be good.However, in the future the Company may be subject to labour unrest, which may delay ordisrupt the operations in the affected regions, including the acquisition of raw materialsand parts, the manufacture, sales and distribution of products and the provision ofservices. If work stoppages or lock-outs at the facilities or at the facilities of themajor vendors occur or continue for a long period of time, the business, financialcondition and results of operations may be adversely affected.

FINDINGS After the economic downturn and difficult market conditions in the automotive sector globally in2008-09, during the year, economies across the world (with a few exceptions) showed signs of recovery and growth. The Indian economy bounced back quickly and strongly growing at 7.2%in 200910. The automotive sector in India started the year steadily, gathered momentum indifferent segments in the second half of the year and ended the year with a record growth and performance. Indian Automobile Industry is in the growth phase and the expected growth rate is 9-10% for FY2010-11 compares to last year growth rate which was just 0.7% and the above facts and figures in our study also support this truth. Indian Automobile has a lot of scope for both two wheelers and four wheelers due to development in infrastructure of the country and especially the rural sector in which demand of two wheelers has increased even in recession. According to Indian Statistical Organization the per capita income (Rs.38000) is increasing and national income at the rate of 14.4% which shows potential to buy vehicle in auto industry. The growth rate of Indian Automobile is so fast that by 2016 Indian Industry will be world 7 largest manufacturers in all sections. The Indian auto market is still untapped the majority of the people in country dont own a four wheeler and all the major auto companies are trying to increase their sales by several moves. We have also come to know that share price movement of TATA Motors is just according to the movement of SENSEX, whenever there is a negative sentiment

in the market regarding TATA Motors there is a steep fall in the stock price of TATA Motors but we have seen quick recovery in its share prices to regain its primary trend E.g. as we seen in last 3-4months TATA recovers approx.90% after downfall. By analysing the current trend of Indian Economy and Automobile Industry we can say that being a developing economy there is lot of scope for growth and this industry still have to cross many levels so there is huge opportunities to invest in and this is proving as more and more foreign Companies setting up there ventures in India. Now taking TATA motors into consideration we can say the company is performing very well its fundamentals tells us that it has great potential for growth it has good future ventures which could boosts its sales and profits .Its current financial data tells it has got a very strong financial position . The Tata Motors Group turnover was Rs.95, 567 crores, a growth of 29%over previous year contributed mainly by market recovery, improved realization and successful launch of new products. RECOMMENDATIONS

By analysing the industry on various parameters with the help of Implementing Fundamental tools we came to know that this industry has a lot of potential to grow in future. So recommending to invest in Automobile Industry have no doubt is going to be a good and smart option because this industry is booming like never before not only in India but all around the world.

The returns which came out of this industry were very impressive recently, as if we take an example of TATA motors it gives approx. 50% return in a period of just 3 months while others like Maruti Suzuki shows always a buy and hold position because there is possibility of growth in future, same situation is in two wheeler segment with market leader Hero-Honda a debt free company also have bright future ahead. The numbers which came out in the end of financial year 2010-11 prove that even in the period of recession the overall sales went up is sufficient to support to this fact.

Through fundamental analysis of TATA Motors and the industry it can be recommended that for now TATA share price shows that its a time to hold the position or buy more shares as there is scope in further rise in share prices until and unless any negative reaction or sentiments comes in the Economy. Investing in TATA motors for long time could be a good option whereas in stocks like M&M motors there is a chance of getting correction, as it already went on high side in a very short period of time so holding the shares for long time could be a wrong step, so at this point of time those who invested earlier can book their profit or new investors can buy now and sell with in short period of time by earning profit in short period of time.

CONCLUTION

The main disadvantage for this study is that if used on its own, fundamental analysis (FA) doesn't take into consideration the "herd mentality" phenomenon. In the long run, the price per share (PPS) of companies is driven by their earnings, i.e. the profit they're yielding. In the short term, the momentum can be quite influential on the PPS: I'm sure you've noticed that some stocks are considered market darlings and, to a certain degree, it doesn't matter what their quarterly results are; people keep on buying. The same applies for companies that, all of a sudden, fall out of favor for whatever reason, genuine or not. They keep getting hammered regardless of the results the company pumps out, until one day it reverses... FA doesn't consider this irrational behavior. Fundamental analysis may offer excellent insights, but it can be extraordinarily timeconsuming. Time-consuming models often produce valuations that are contradictory to the current price prevailing on Wall Street. When this happens, the analyst basically claims that the whole street has got it wrong. This is not to say that there are not misunderstood companies out there, but it is quite brash to imply that the market price, and hence Wall Street, is wrong. Valuation techniques vary depending on the industry group and specifics of each company. For this reason, a different technique and model is required for different industries and different companies. This can get quite time-consuming, which can limit the amount of research that can be performed.

Fair value is based on assumptions. Any changes to growth or multiplier assumptions can greatly alter the ultimate valuation. Fundamental analysts are generally aware of this and use sensitivity analysis to present a base-case valuation, a best-case valuation and a worse- case valuation. However, even on a worst-case valuation, most models are almost always bullish, the only question is how much so. The majority of the information that goes into the analysis comes from the company itself. Too many economic indicators and extensive macroeconomic data can confuse no vice investors. It is beneficial only for long-term investments.

Bibliography

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