AUTOMOBILE SECTOR Four Wheelers

Why automobile Industry???

One of the oldest industry Core Industrial sector Higher growth potential One of the important GDP contributor High domestic growth rate Investment of Global Auto companies Rising incomes in smaller cities and rural areas Creators of jobs at all levels Governments support

Indian Automobile Industry

Born in 1942 7th largest manufacturer in the World of Passenger cars and Commercial Vehicles 3.5Million units 4th largest exporter in Asia Employment to 13mn people Manufacturing clusters in India: South 35% West 33% North 32%

Sector Analysis
Delicensing of sector in 1991 and subsequent opening of 100% FDI

Year 2010-11 Exports: :$11bn (4.5% of Indian Export) Turnover :$73bn

Sector Analysis

SWOT Analysis
Threats Increasing rates of interest Competition from other low cost countries like China, Taiwan. Rising petrol prices Development of new technologies FTA / PTA Strengths Large Domestic Market Manufacturing capabilities with International quality standards. Cost Competiveness in terms of Labour & Raw Material. Established manufacturing base.

Opportunities The growing need to outsource Rural demand is rising Income level is at a constant increase Global Market opportunity. Leverage on product engg expertise.

Weaknesses Infrastructural setbacks Poor supply chain & exports Too many taxes levied by government increase the cost of production Low investments in Research and Development

Key drivers for sector growth

Financial availability easy loans from banks and institutions Improved infrastructure Rising family income increased purchasing power Favorable duty structure reduction in duty for small cars Poor public transport system Low car penetration Changing lifestyle -

Key factors
Finance:
Cost Fluctuations in input cost Pricing in competitive market Cash flow in tough times

Non-Finance:
Image positive image of company Distribution network always through channel partners Compliance to local and state guidelines Flexibility to taste of customers Competition Entry of imported car makers Service sales and after sales

Key Players

Ratios
Liquidity Ratios

Quick Ratio Leverage Ratios

Current ratio

Interest Coverage Ratio

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Return on Equity

Return on Assets

Sales

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Ratios...
Valuation Ratios

Dividend Payout Ratio

Earnings per share

20.49

6.29

P/E Ratio

EV / EBITDA

Profit / Book

DuPont Analysis

Return on Equity

Profit Margin Ratio

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Equity Multiplier

Concerns
M&M: Management of complex group structure Weak performance of subsidiaries Vagaries of monsoon Tata Motors: Global liquidity crisis Adverse currency movements 50 % of sales of JLR is to US and Europe Capacity utilisation below par (50 % ). Market share in trucks fell to 62 % in 2011 compared to 68 % in 2009. Compact and UV segment losing market share.

Why M&M ?
Rising Rural income and High domestic growth rate - 26.17 % Total Overall Growth - 29.64% JV with Navistar international 70 % stake in Ssangyong Motors company Due to dominant market share & low competition enjoys Pricing power Leadership in Tractor segment with 41 % market share and in UV segment with 52 % market share. Tax benefit & operating leverage from Chakan facility New launches

Inference: Good to invest with

high exposure to rural sales; greater contribution from exports; low dependency on bank credit to push sales; have low competitive intensity; have high replacement demand; and
Company Interest rate sensitive demand Yes Yes Sales on bank credit High High Contribution of rural demand High High Exports contribution High Low Pricing power High Low

are available at reasonable valuation.

M&M TATAMOTORS

M&M 52 week high 52 week low

877.3 585 28-Oct-11 28-Feb-11

TATA Motors
260.74 137.55 06-Apr-11 13-Sep-11

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