IAPM Report
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Transcript of IAPM Report
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8/3/2019 IAPM Report
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In this report we have tried to cover investment opportunities in two products one from
the Equity market and other from the commodity market to diversify the portfolio. We
have conducted Research on both the Fundamental aspect and the Technical aspect
and have come up with a Comprehensive report on Tata Motors and Gold as products
for investment.
TATA MotorsFundamental Review
Income Statement:
The Balance Sheet of companies for year 2009-10 was prepared based on Vertical
Method. The Balance Sheet has indicated the share capital and reserves and surplus of
the company along with the loans availed by the company. After the sources of funds
were indicated, the application of funds for Fixed Assets, Investments and Details of
Current Assets of the companies were indicated. The same was followed by Liabilities
including Current Liabilities and Provisions made by the company with a note to
accounts. Incidentally the summarized balance sheet of Tata Motors has indicated
goodwill assets (which they have acquired at the time of acquiring Landover and Jaguar
companies)
The Income Statement of the company indicates gross sales of the company and other
income such as dividend & Interest. The Expenditure of the companies towards
manufacturing, purchase of raw material, components, processing charges, payments
and provisions to employees, expenses to manufacturing, administration, selling. It also
has taken care of change in stock in trade and work-in-progress with respect to last
reporting year.
The expenditure was followed by interest, depreciation/amortization, and product
development expenditure and tax details. The profit after tax was shown in the
companies by profit and loss statement.(All the details expenditure was given in the
respective schedule the number of which was mentioned in the respective heads).The
total amount available for appropriation arrived at by adding the previous years profit to
the current year profit. The proposed dividend, general reserve, and balance amount
carried forward to balance sheet were indicated in P&L statement. Earnings per share
were also indicated.
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Cash Flow statement:
Tata Motors have prepared their cash flow statement based on indirect methods. It has
generated positives cash flow from operating activities. The industry activity being highlycapital investment based and has invested in the investing activities such as purchase
of fixed assets and other investments. Hence the cash flow from investment activities is
negative which indicates that both the companies are growing companies. It has
reported positive cash flow from financing activities. The net cash flow for Tata Motors is
positive. Tata Motors also has invested heavily in fixed assets and investments in
subsidiary companies. It has positive cash flow due to issue of Global Depository
Shares and from Long term borrowings.
TATA MOTORS - RATIO ANALYSIS
Sr.
No. Ratios Formula
Year
Ended
Mar10
Year
ended
Mar09
Explanation
1. Current ratio Current Assets/Current Liabilities
0.44 0.44
Higher the current ratio better
is the situation and the ideal
value is 2:1. Tata Motorscurrent ratio is less than 1which indicates more
liabilities than assets.
2. Liquid ratioLiquid assets/liquid
liabilities0.44 0.58
A higher liquid ratio indicates
that there are sufficient assets
available with theorganisation which can be
converted in the form of cash
almost immediately to pay
off those liabilities which are
to be paid off almostimmediately.
3.
Fixed Assets
turnover
ratio
Net sales/ fixedassets
1.93 1.88
It indicates the capability of
organisation to achieve
maximum sales with theminimum investment in fixed
assets. Higher the ratio, the
better.
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Sr.
No. Ratios Formula
Year
Ended
Mar10
Year
ended
Mar09
Explanation
4.
Current
assetsturnover
ratio
Net sales/ currentassets
5.02 5.8
It indicates the capability of
organisation to achieve
maximum sales with theminimum investment in
current assets. Higher theratio, the better.
5.
Working
capital
turnover
ratio
Net sales/ working
capital3.93 3.68
It indicates the capability oforganisation to achieve
maximum sales with the
minimum investment in
working capital. Higher theratio, the better.
6.
Interest
Coverageratio
Profits before
interest and taxes/Interest charges
2.7 2.4
A high ratio as indicted by
the 2 figures is favorable as itindicates the protection
available to the lenders oflong term capital in the form
of funds available to pay the
interest charges.
7.Gross profit
Margin
Gross profit *
100/net sales8.84 3.3
A low value shown by the 2
figures indicates that thisorganisation is not able to
produce or purchase at a low
cost. It can be increased by
either adjusting the salesprice or production cost or by
increasing volume of
products having high grossprofit margin.
8.
Net profit
ratio
(Net profit after
taxes) * 100/net
sales6.26
3.77
It indicates that portion ofsales available to the owner
after considering all types of
expenses and costs. Thelower figures alongside
indicate lower profitability of
the business.
9.Return on
Asset
Net profit * 100
/assets259.03 240.06
It measures profitability of
investments in the firm.
Higher value is preferredwhich is not the case as per
figures shown.
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Sr.
No. Ratios Formula
Year
Ended
Mar10
Year
ended
Mar09
Explanation
10.
Return on
capital
employed
(Net profit +Interest on long
term
sources)/capital
employed
11.74 6.41
It measures profitability ofcapital employed in the firm.
Higher value is preferred and
the situation of Mar08 was
much better than Mar09.
11.
Return on
Shareholders
funds
Net profit after
taxes * 100/ Total
shareholders funds
0.14 0.08
It measures if the firm hasearned sufficient returns for
its shareholders or not.
Higher the ratio, the better
the situation which is not thecase for Tata Motors in both
the years.
12.Earnings per
share
(Net profit)/
Number of equity
shares
39.26 19.48
It measures the profits
available to the equityshareholders on a per share
basis.
13. Book Value(Networth) / No of
equity shares262.3 240.64
14.
Operating
Profit
Margin(%)
Operating
Profit/Total Sales11.74 6.71
15.Net Profit
Margin(%)Net Profit / Total
Sales6.26 3.77
16.Debt Equity
RatioDebt / Equity 1.11 1.06
17.Inventory
Turnover
Ratio
Net Sales /
Inventory13.07 13.47
18.
Asset
TurnoverRatio
Net Sales / Current
Assets 1.95 1.88
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Conclusion Based on Fundamental Aspect:
It is a growing company and positive operating cash flow. The outlook spelt out by
management indicates that the automobile industry is on growth track and more and
more new models can be introduced in India and other markets. The success of Tata
Nano in the small car segment indicates the potential of the growth of small carsegment in India and justifies the amount being spent in the R&D activities in
automobile industry. The acquisition of Iconic International brands - Jaguar and
Landrover, by an Indian Company that is Tata Motor clearly indicates the strength and
to spread the brand across the globe to increase the sales and turnover.
Technical Analysis:
The Monthly chart of Tata Motor shown in the figure indicates that the MACD is above
the zero line indicating bullishness. RSI is in the neutral condition indicating prices are
neither overbought nor oversold. Dips towards 126/120 levels can be bought followed
by further adding to the position at 108 with Stop loss at 93 for the move higher towards
280 followed by 371.
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Gold
Gold has remained a synonym of wealth, a safe haven asset, an inflation and US dollar
hedge for decades. In recent times it has cemented all of its above strengths by
performing better in absolute terms and in relative terms against other asset classes.
As the world tries to battle with year another upcoming recession, gold prices should
remain firm in year 2011 and the coming year 2012 reflecting safe heaven risk premium
and hence supporting strong investment demand.
It could subsequently rise higher as major economies recover, triggering high
inflationary pressures as a result of the monetary expansion amid depreciating
currencies. The current monetary expansion and the escalating fiscal burden shouldtrigger a surge in global inflation with a weaker USD, hence boosting commodity prices.
How much of Gold is there?
Even with the modern technology gold is still difficult to find. A total of about 160,000tons of gold has been taken out of the earth, formed in a single gold cube it wouldntquite cover a tennis court, yeah sounds strange but that all the gold in the world.Gold is mined around 2,600 tons a year, so that above supply in the ground isexpanding at 1.6% per annum. This newly mined supply means the world's cube of gold- currently 20.2 meters across - is growing by just 11 cm per year.
How is Gold Used?
Gold is not consumed in any meaningful sense. A tiny amount finds some use as false
teeth because of its inertness, and some is used in electronics because of its non-corrosive nature and excellent conductivity. But currently well over 95% of the world's
gold is held as a wealth store - either in bullion vaults or as jewelry, which is generally
considered a private monetary reserve (particularly in India, the world's biggest gold
customer).
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WHY INVEST IN GOLD
1) The graph below shows the data for Relative price performance of selected
assets in US$. It clearly shows that gold has been an outperformer against all
asset classes
2) The image below shows the data for the Performance on Various commodities
and commodity indices during the Q2 2011.The table denotes that among the
commodities and indices gold has been perhaps the only commodity that have
shows a positive change in terms of return compared to others from 31 march to
6 may with least amount of volatility.
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3) Jewelry Demand for Gold has been on an average of 500 tons every year and in
the recent past the demand for gold in Jewelry market has started to pick up thus
increasing the demand for gold in the future in this sector which would indirectly
support appreciation in prices of Gold. The image below shows the demand for
Gold in Jewelry and its value in USD$bn.
4) The demand for Gold in Industrial sector has been majorly in Electronics,
Dentistry and other small industrial demands. The trend in these sectors has
been increasing over the years thus increasing the demand for gold in the future
in this sector which would indirectly support appreciation in prices of Gold. The
image below shows the demand for Gold in Industrial sector and its value in
USD$bn.
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5) The Image below shows the top 40 official holdings in gold as in IFS July
2011...This image shows the figures of the tons of gold being held by various
countries and the percentage of reserves it resembles in their portfolio.
The figure clearly shows that gold has been perceived as a save heaven
investment over the years by not only retailers but also central banks in their
portfolios.
6) The Second Quarter global demand in gold was 919.8 tons worth US$ 44.5bn
the second highest quarterly value on record. Year on year growth was broad
based across sectors and Geographies. In volume terms demand was 17percent lower compared to the demand seen in Q2 2010 while in value terms
demand grew up by 5%,the major contributors to the overall growth were India
and china. The image below shows the Demand and Supply figure cumulative
Q2 2010 Q1 2011.
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Fundamental Events:The performance of the gold price over the past month has been erratic following
failed attempts to break through USD1,900 on a sustained basis. Gold faced
some downward pressure this week following the decision by the Swiss NationalBank to intervene to prevent EURCHF falling below 1.20 as it raised the question
as to whether the flight to safe havens was in danger of reversing.
The fact that gold prices are at all time highs in both nominal and real terms
continues to inject concerns towards whether or not the gold market has moved
into bubble. However, we would argue that the SNBs decision has simply
enhanced golds status as a safe haven. However, the rapid rise in the gold price
may slow central bank gold buying going forward as well as increase the
likelihood of further margin requirement increases.
The image below shows the speculators position in the market in gold with thischange in price movements. There has been a transitional change of the
speculators from being a net seller in gold in the period of 1999 till 2001 to being
an increasing amount of buyers from 2001 till date with the increase in prices.
The recent trend in the Central Bank holding pattern for gold is that there has
been substantial buying been seen in the recent years thus increasing the
demand for gold which would indirectly support appreciation in prices of Gold.
The Image below shows the Central Bank Holding pattern over the years.
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Although gold prices suffered from profit-taking in the recent past, the macroenvironment has become increasingly gold favorable with central banks keeping interest
rates unchanged, the SNBs decision to limit the strength of the CHF and continueduncertainty surrounding the state of the global economy. Good physical interest fromAsia emerged upon the dip in prices this week while other central banks Kazakhstanand Bolivia have announced they will add to their gold reserves from domesticproduction are some positive factors for investing in Gold for a good ROI in the future.We would expect prices to extend their gains as fundamentals remain constructive.
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Technical Overview:
Prices have been moving strongly upwards along the moving averages, the 8 period MAis steadily rising indicating a strong uptrend. As of now we expect prices to cool towardsUSD 1550/1500 levels from the current USD 1600 levels for where the next movetowards USD 2400 followed by USD 2900 is expected if the rally doesnt stop here atUSD 2900 and crosses above it a move higher towards USD 3600 will be the nexttarget. The above view will hold good till USD 1294 levels are not broken on thedownside.