IAPM Report

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.

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