India Auto Sector (Stock) Analysis

Let’s study some auto sector companies, we have selected the following companies for study and analysis: –

1. Maruti Suzuki
2. M&M
3. Bajaj Auto
4. Hero MotoCorp
5. Eicher Motors
6. Tata Motors
7. Ashok Leyland
8. TVS Motors

The companies here are a combination of 2-wheeler and 4-wheeler companies. These companies have been chosen on the basis of market capitalization.

Sr. No.	Company Name	Market Cap (Rs. Crore)
1	Maruti Suzuki	2,35,892
2	M&M	98,878
3	Bajaj Auto	83,460
4	Hero MotoCorp	67,122
5	Eicher Motors	65,861
6	Tata Motors	50,803
7	Ashok Leyland	31,131
8	TVS Motors	27,553

The top 100 companies according to the market capitalization are called as the large cap companies. Companies from 101 to 250 (based on market capitalization) are the mid-cap companies and the rest, that is above 250 are the small cap companies.

All the 8 companies here are large cap-oriented companies.

The analysis of these companies is going to be based on 4 parameters. They are as follows: –

1. Price-to-Earnings (PE) Ratio
2. Return On Capital Employed (ROCE)
3. Return On Equity (ROE)
4. Debt-to-Equity (DE) Ratio

These 4 parameters play an important role in the analysis of any company. This does not mean that one should be dependent only on these, but these 4 parameters are crucial for initial screening.

Every parameter has been equal importance (25%). And the companies are scored from 1 to 8, where 1 being the least and 8 being highest score. (total number of companies taken here are 8, that’s why the mentioned scoring card)

PE Ratio

Sr. No.	Company Name	PE Ratio	Score
1	Maruti Suzuki	29.86	4
2	M&M	17.26	7
3	Bajaj Auto	18.62	5
4	Hero MotoCorp	18.35	6
5	Eicher Motors	31.19	3
6	Tata Motors	35.45	2
7	Ashok Leyland	15.79	8
8	TVS Motors	40.64	1

PE ratio is nothing what price an investor is paying for 1 rupee of earning.

The company which has the highest PE ratio has been scored 1 and the company with the lowest PE ratio has been a score of 8.

The PE ratio of TVS Motors is the highest and has gotten the score of 1 and Ashok Leyland has the lowest PE ratio and that is why it’s has been scored 8.

This does not mean that Ashok Leyland is the best and TVS Motors is the worst stock. A company gets premium valuations when the company’s business prospects are looking good.

ROCE

Sr. No.	Company Name	ROCE	Score
1	Maruti Suzuki	23.77%	3
2	M&M	13.64%	2
3	Bajaj Auto	30.96%	6
4	Hero MotoCorp	46.1%	7
5	Eicher Motors	49.4%	8
6	Tata Motors	8.55%	1
7	Ashok Leyland	28.4%	5
8	TVS Motors	24.09%	4

Eicher Motors has scored 8 for having the highest ROCE and Tata Motors scored 1 for having the lowest ROCE.

Eicher Motors has a ROCE of 49.4%. This mean that it has capacity of 49.4% to generate returns on the capital. This is a very good number.

ROE

Sr. No.	Company Name	ROE	Score
1	Maruti Suzuki	16.37%	2
2	M&M	17.23%	3
3	Bajaj Auto	22.15%	4
4	Hero MotoCorp	32.46%	8
5	Eicher Motors	31.68%	7
6	Tata Motors	10.04%	1
7	Ashok Leyland	23.22%	5
8	TVS Motors	24.44%	6

Here too, Tata Motors scored 1 by having the lowest ROE and Here MotoCorp has the highest ROE and has thus scored 8.

DE Ratio

Sr. No.	Company Name	DE Ratio	Score
1	Maruti Suzuki	0	8
2	M&M	1.52	1
3	Bajaj Auto	0.01	6
4	Hero MotoCorp	0	8
5	Eicher Motors	0.02	5
6	Tata Motors	0.93	2
7	Ashok Leyland	0.14	4
8	TVS Motors	0.41	3

If a company’s ROE is less than its ROCE, then it means that the company is not able to mange its debt efficiently. And whenever, the ROE decreases than the ROCE, the chances of increasing debt increases. If the company is mt able to generate returns and is also not able to service its debt, then that is not good.

Maruti Suzuki and Hero MotoCorp being 0-debt companies have scored 8. M&M has the highest DE ratio and has thus scored 1.

Final Standings

Rank	Company Name	Final Score	1 Year Returns
1	Hero MotoCorp	29	-12.5
2	Eicher Motors	23	-23
3	Ashok Leyland	22	-10.8
4	Bajaj Auto	21	-14.5
5	Maruti Suzuki	17	-22
6	TVS Motors	15	-26.4
7	M&M	13	5
8	Tata Motors	6	-58

Hero MotoCorp is on the 1^st position with 29 points, Eicher Motors on 2^nd with 23 points, Ashok Leyland on 3^rd with 22 points and tata Motors is on the last position, that is 8^th with 6 points.

M&M is the only company which is showing positive returns in the last 1 year.

The point here is to focus on the fundamentals of the company. Here, we have analyzed the company based on their current fundamentals. Also, the qualitative analysis of these companies will provide with a better outlook towards them

And quantitative analysis along with qualitative analysis will give a better understanding of which company is worth investing from here on.

Note: –

• We are not, in any case, suggesting buying stocks of any of the companies mentioned above. We have just provided a study on these companies.
• All the data used is of Trailing Twelve Month (TTM)