A

PROJECT REPORT ON

SUBMITTED TO UNIVERSITY OF MUMBAI IN PARTIAL

FULLFILLMENT FOR THE
REQUIREMENTS

T.Y.B.COM (BANKING AND INSURANCE) SEMESTER-VI

BY

Roll No.

UNDER THE GUIDANCE OF

DNYAN GANGA EDUCATION TRUST DEGREE COLLEGE OF ARTS,

COMMERCE AND SCIENCE

[2020-21]

1
 DECLARATION

I _______________studying in T.Y.B (Banking and Insurance)

Hereby declares that I have done a project on BANKING SYSTEM IN INDIA. As required by the
University rules, I state that the work presented in this is original in nature and to the best my
Knowledge, has not been submitted so far to any other University.

Whenever references have been made to the work of others, it is clearly indicated in the sources of
information in references

PLACE: THANE STUDENT

DATE : ( )
ROLL NO.

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 ACKNOWLEDGEMENT

It gives me great pleasure to declare that my project on. BANKING SYSTEM IN INDIA
have been prepared purely from the point of views of students requirements.

This project covers all the information pertaining to overall study of LIC. I had tried my best to write project
in simple and lucid manner. I have tried to avoid unnecessary discussion and details. At the same time it
provides all the necessary information. I feel that it would be of immense help to the students as well as all
others referring in updating their Knowledge.

I am indebted to our principal DR.BHAVIKA KARKERA Madam for giving us

such an awesome opportunity. I am also thankful to our librarian and my colleagues for their valuable support,
co-operation and encouragement in completing my project.
Special thanks to ____________Madam my internal guide for this project for giving me expert guidance, full
support and encouragement in completing my project successfully.
I take this opportunity to thanks my parents for giving guidance and for their patience and understanding me
while I am busy with my project work.
Lastly I am thankful to God for giving me strength, spirit and also his blessing for completing my project
successfully.

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 TABLE OF CONTENTS

Chapter No Title Page No

A Institute Certificate 2

B Acknowledgement 3

C Declaration 4

D Abbrevation 6

E Executive Summary 7

I INTRODUCTION ON CAPITAL BUDGETING 8-11

1.1 Methods of Capital Budgeting and Evaluation Techniques 12-16

II COMPANY PROFILE (MARUTI SUZUKI INDIA LTD) 17-28

COMPANY PROFILE (TATA MOTORS LTD) 29-43

Comparative Study of Maruti Suzuki India Ltd And Tata

2.1 44-56
Motors Ltd

III LITERATURE REVIEW 57-60

IV OBJECTIVES OF THE STUDY 61

V RESEARCH METHODOLOGY 62-69

VI DATA ANALYSIS & INTERPRETATION 70-78

VII FINDINGS AND CONCLUSION 79-80

VIII BIBLIOGRAPHY 81

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 ABBREVATION

PI Profitability Index
CB Capital Budgeting
CF’S Cash Flows
CCFS’S Cumulative Cash Flows
EAT Earnings after tax
EBIT Earnings before interest and Tax
PVIF Present value of inflows
PBP Payback period
ARR Average rate of return
NPV Net present value
IRR Internal Rate of return
BC Benefit cost ratio
CV Commercial vehicles
CFAT Cash flows after tax
PV’S Present value of cash flows

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 EXECUTIVE SUMMARY

The study tells the importance of Capital Budgeting. Capital Budgeting is defined as decision making process
that helps managers to evaluate the projects that are more valuable to the company. It is mostly the vital mission
facing by the financial mangers or his/her team. It is most important for the task managers of the company.

The study also explains the Automobile Industry in India. Automobile Industry of India is known as backbone
of economy which is consisting of 75% of industrial output, 50% of exports and employing 80 million of
employees and producing more then 9000 quality products Government of India is taking different measures so to
increase the competitive in global market.

The study helps to know the efficient allocation of capital is most essential financial function in modern times. It
states the whether fund should be invested or not should be invested in projects or not. Evaluating the project
expansion for creating addition capacities. To decide the replacement of assets such as asset. The financial analysis
of different projects regarding capital investments it chooses the best of many different proposals.

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 CHAPTER I

INTRODUCTION ON CAPITAL BUDGETING

MEANING OF CAPITAL BUDGETING

Capital Budgeting is divided into two parts ‘Capital’ and ‘Budgeting’. Here, Capital expenditure is the
expenses made for large expenditure like purchasing of fixed asset and equipment, repairs to fixed assets &
equipment, research and development, expansions and more. Budgeting is setting targets for projects to ensure
maximum profitability.

Capital Budgeting is the process of analyzing investments and huge expenses in order to get best result on
investments. It is the systematic process used to determine whether an organization long term investment such as
new machinery, replaced machinery, new products, new projects, research projects are worth funding of cash,
mainly it is the process of allocating resources for major capital, or investment expenditure. Primary goals of
capital budgeting investments is to increases the value of the firm to the shareholders.

It is important part of every company’s financial management. It requires a managerial tool. Duty of financial
manager is to choose investment with satisfactory cash flow with high returns. Hence the financial manager should
be able to decide whether an investment is worth undertaking and able to decide and choose intelligently between
two or more alternatives. It involves the planning and control of capital expenditure. It is the process of analyzing
whether to allocate the resource or not to long term projects whose benefits are to be realized over a period of time.

The investment decision of firm is generally known as Capital Budgeting or Capital Expenditure Decision. Capital
Budgeting is also known as ‘Investment Decision Making’, ‘Planning Expenditure’ and ‘Analysis of Capital
Expenditure’.

There are many formal methods are used in capital budgeting, including techniques such as

 Accounting rates of return

 Payback period
 Net present value
 Profitability index
 Internal rate of return

These Methods use the incremental cash flows from each potential investments or project. Techniques based on
accounting rules are sometimes used though economists considers this to be improper such as the

7
accounting rate of return and return on investment. Simplified and hybrid methods are used as well such as payback
period and discounted payback period.

The logical analysis to of investment opportunities is the creation of investment opportunities. The field of
investments, where the analyst more or less takes the investment opportunities given the field of capital budgeting
depends upon the work of people in the areas of industrial engineering, research and development, and
management information system for creating the investment opportunities.

Capital Budgeting decisions pertaining to fixed or long term assets which by definition refer to assets which are in
operation, and yield a return, over a period of time, usually exceeding one year. They, therefore involve a series of
outlays of cash resources in return for anticipated flow of future benefits.

CHARACTERISTICS OF CAPITAL BUDGETING

Search for creative and profitable opportunities:

The concept of profit making must be incorporated in capital facility. The profitable opportunities for the company
invested fund must be good result. The organization’s future growth and profitability are connected to its capital
expenditure policy.

Long term capital planning:

It provide the consistent benchmarks for proposals originating in all parts of the organizations it is important to
have some kind of strategy drawn for future plans.

Short term capital planning:

The need of providing a short term capital budget is to force the operating management to submit its capital
proposals early enough to give the top management the indication of company’s credit demands .

Project Measurement:

In order to avail the objective of the projects the productivity of proposed projects must be measured properly.

Screening and Selection:

A screening standard should be set in the way that the supply of cash available for capital expenditure, the cost of
projects and different investment opportunities.

Control of authorized projects:

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Control is to be executed by the higher level management in order to ensure that the facility confirms the project
expenditure is incurred as it is difficult to change the course expenditure.

SIGNIFICANCE OF CAPITAL BUDGETING

Capital Budgeting is significant for the following reasons:

 Capital budgeting also features a pertaining to the competitive position of the enterprise mainly due to
the very fact that they relate to fixed asset. The fixed asset represents a real earning asset of the
firm. They enable the firm to get finished goods which will be ultimately being sold for profits.
 The cost decision has its effects over an extended time span and inevitable affects the company’s future
cost structure.
 The investment decision once made could not easily reversed without much loss to the firm because
there could also be no marketplace for second-of –hand plant and equipment and their financial
changes.
 Capital investment involves cost and therefore the majority of the firms have search capital resources.

NEED OF CAPITAL BUDGETING

Capital Budgeting means systematic planning for capital assets. The decisions made by using capital budgeting
are vital to organization some important decisions like,

 Whether the funds should be invested in long term projects such as settings of an industry, purchase of
machinery etc.
 Evaluating the proposal for expansion or creating additions capacities.
 Deciding the replacement of permanent assets such as building and equipment.
 Required financial evaluation of various proposals regarding capital investments so as to choose the best
out of various proposals.
 The importance of long term investment decisions are more extensive than those of short run decisions
because of involvement of time factor capital budgeting techniques are to be used.

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FACTORS INFLUENCING CAPITAL BUDGETING DECISIONS:

There are various factors, financial and non-financial factors influencing budgeting decisions. The vital factor
that influences the capital expenditure is the profitability of the proposal. Some other determinants which have to
be taken into account.

 Urgency:
When investments are made in urgency for the survival of the firm or to avoid losses. In such situation the
correct analysis of the projects cannot be made through profitability test. Some examples of urgency are
damage of plant and machinery, fire accident etc.

 Certainty:
Profits are directly related to risk higher the profits greater is the risk or uncertainty. Sometimes a proposals
with less profits may be selected due to continues flow of income.

 Invisible Factors:
When cost is formed thanks to certain emotional and invisible factors like welfare of workers, good
projects, welfare , goodwill etc.

 Legal Factors:
An investment which is necessary for the provisions of law is influenced by this factors but the project
may be profitable and investment has to be made.

 Requirement of funds:
When the capital expenditure mostly requires large funds, the requirement of funds is essential factor that
influences the capital budgeting decisions.

 Future earnings:
When projects are compared one of the projects will not be profitable but it will result in better future
earnings. In this situation it will be result in increased earnings.

 Obsolescence:
Some of the projects have greater risk of obsolescence than others. In cases of projects with high rate of
obsolescence the proposal with lesser pay back period may be selected other than higher profitability.

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METHODS OF CAPITAL BUDGETING AND EVALUATIONS TECHNIQUES

 METHODS OF CAPITAL BUDGETING:

TRADITIONAL METHODS:
1) Average rate of return
2) Pay back period

TIME ADJUSTED METHOD or DISCOUNTED METHOD

1) Net present value
2) Internal rate of return
3) Profitability index
4) Net terminal value method

TRADITIONAL METHOD

 AVERAGE RATE OF RETURN (ARR)

The average rate of return (ARR) method of analyzing proposed capital expenditure is also known as accounting
rate of return method. It is depended upon accounting information rather than cash flows.

ARR= Average annual profits after taxes *100

Average investments over the life of projects

The average profits after taxes are determined by adding up the tax after profits expected for each year the life of
projects and dividing by number of years. In case of annuity the average profits after tax is same as any year
profits.

Accept & Reject Criteria

ARR will help financial maker whether to accept or reject the investment proposal. The accept or reject criteria the
actual ARR would be compared with predetermined or minimum required rate of return. A project would be
accepted if the actual ARR is higher than minimum expected ARR, or else it is rejected. Either ranking method can
be used to select or reject proposal.

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  PAY BACK PERIOD

The pay back period is another traditional method of capital budgeting. It is simple and mostly used
quantitative method for capital expenditure decisions. Pay back method answers the questions like, How
many years will take the cash benefits to pay the original cost of investment. Cash benefits requires CFAT
ignoring interest payments. Hence the pay back method measures the number of years required for the
CFAT to pay back the original amount.
There are two ways of calculating the pay back period. The first method can be applied when the cash flow
stream is in the nature if annuity for each year of the projects life that is CFAT is uniform. In such a
situation the initial cost of the investment is divided by the constant annual cash flow.
Investment
Constant average cash flow

For instance an investment of Rs 30,000 in a machine is expected to produce CFAT OF Rs 7000 for 10 years.

Rs 30,000

Rs 7000 PB= 4 YEARS

The second method is used when project cash flows are not continues but varies from year to year. In such
situation pay back is calculated by the process of cumulating cash flow are equal to original investments.

Accept – Reject Criteria

The pay back period can be use for decision criteria for accept or reject investment proposals. The application of
this method is to compare the actual pay back with predetermined pay back, and if actual pay back is less than
predetermined pay back the proposal will be accepted vice-versa. It can be also used as ranking method.

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 DISCOUNTED CASH FLOW OR TIME ADJUSTED METHOD

 Net Present Value Method

The net present value is modern method of analyzing investment proposals. It takes into consideration the
time value of money and times to calculate the return on investment by introducing time element factor.
It shows us the fact that rupee earned today is more worth than same rupee earned tomorrow. Net present
value of all inflows and outflows of cash occurring during the life of project is determined each year
separately by discounting cash flows by firms cost of capital rate.

Firstly determine an appropriate rate of interest which should be selected as minimum required rate of
return it is also called as cut off rate of interest in market and the market on long term loans and it should
reflect the opportunity cost of capital.
Then compute the present value of total investment cash outflows at predetermined rate, and if the total
investment is made in initial year the present value will be cost of investment.
Next step is to compute the present value of total investment proceeds which are inflows at above
discounted rate.
Calculate net present value of each proposal by reducing the present value of cash flows from the value of
cash outflows for each proposal.
If net present value is positive or zero which is when present value cash inflows is more or equal to net
present value of cash outflows the project may be accepted. If net present value of inflows does not
exceeds the net present outflows then the project is rejected
Selection between mutually exclusive proposals the proposals must be ranked in order of net present value

Net present value formula

PV= 1/(1+r)n
Where,
PV= present value
R= Rate of interest/ Discount rate
N= number of years

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 INTERNAL RATE OF RETURN
The another discounted cash flow method for evaluating capital investment decisions is internal rate of
return. This method is also known as yield on investment method, marginal efficiency capital or rate of
return method.
Same as present value method the IRR method also takes into account the time value of money, the
discount is required rate of return and is predetermined rate of return which is mostly cost of capital . The
IRR is basically based on facts which are internal to the projects. In other words when the required rate of
return is received at that time outflows as well as inflows are not considered. But still IRR totally depends
cash outflows and cash proceeds of the proposal which is been analysis o acceptance or rejection which is
known as Internal Rate Return.
The internal rate of return is mostly the rate of return that a proposal gains. It is defined as discount rate
which is equal to the sum of CFAT
With the present value of cash outflows of the proposal.

Accept & Reject Criteria

The use of IRR is created to accept investment capital decision which involves actual IRR with required
rate of return and also the cut off rate. The proposal quality would be accepted if the IRR.. Exceeds cut off
rate
If the IRR and required rate of return are equal the firm has to decide whether to accept or reject the
proposal.

 NET TERMINAL METHOD

The terminal value method separates the timing of cash inflows and outflows. The assumption behind
this method is that each cash is reinvested in other asset at certain rate of return start from the moment it
received at termination period.

Accept & Reject Criteria

The decision taken based on the rule that if the present value of aggregate total of the compounded
reinvested cash inflows (PVTS) is more than present value of outflows (PVO) then only the proposal is
accepted otherwise not.

PVTS>PVO ACCEPT
PVTS<PVO REJECT

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 The firm will not differ if both the values are equal. The variation in terminal value method (TV) is net
terminal value method
(NTV). It is represented as NTV=(PVTS-PVO). If NTV is positive accept the project or else reject the
project.

 PROFITABILITY INDEX
The time adjusted capital budgeting is known as Profitability index (PI) which is also known as benefit
cost ratio (B/C). It is same as NPV. The profitability index method measures the present value of returns
per rupee invested, where the NPV is based on the difference between the present value of future cash
inflows and present value of cash outflows. A most important shortcoming of NPV is that it is absolute
measure and it is not reliable method to analysis the project. The profitability index gives solution to this
kind of problem. In other words it c Italled as relative method. It can be defined as ratio which is obtained
by dividing the present value of future cash flows by present value of inflows.=

PI= Present value of cash inflows

Present value of cash outflows

This method is also known as benefit cost ratio (B/C) because numerator measure benefits and
denominator measures costs.

Accept & Reject Criteria

By using Profitability Ratio a project will qualify for acceptance if PI exceeds one. When PI is equal to
one the firm is indifferently to project.
When PI is greater than or equal to or less than one the net present value is greater than or equal to or less
than zero. It means NPV will be positive when PI is greater than one and negative when PI is less than one.
Hence, NPV and PI method give the same results regarding the investment proposal.

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 CHAPTER II

COMPANY PROFILE

(MARUTI SUZUKI INDIA LIMITED)

Maruti Suzuki India Limited is a public company listed in BSE and NSE automobile maker in India. It was in
1981 (39 years ago), founder is Sanjay Gandhi with it headquarter in New Delhi. The main key people are
R.C.Bhargav as chairperson and managing director Kenichi Ayukawa. It is a number one automaker manufacturer
in south Asia. Suzuki motors incorporated with Maruti hold more shares within the company. As it was the primary
company in India to produce in high quantity and sale more in Indian market.

It is highly credited for altogether giving highest revolution in India Maruti Suzuki is the leading market in India on
17th September 2007 Maruti Udyog was renamed as Maruti Suzuki India Limited. The companies headquarter is in
Gurgaon, Haryana. It is the leader in automobile manufacturers and also the market leader within car segment, it is
on top both in terms of quantity of vehicle sold and also profits earned.

Maruti Udyog Limited was established in February 1981 but the actual production initiated in 1983 with Maruti
800 which was based on SUZUKI Alto which was only the modern car in India, the competitors to Hindustan
Ambassador and Padmini were only two competition. Maruti has produced over 6 million vehicles. Maruti cars are
sold in India and also in several other countries which depends upon the orders.

Models almost like Maruti (but were not manufactured by Maruti Udyog) were sold by Suzuki which was
manufactured in Pakistan and other South Asian countries. The company exports over 50,000 cars and has huge
domestic market in India selling over 8,30,000 cars over a year. Maruti 800 till 2004 was the highest selling market
from the time it was launched in 1983.

The million units is been crossed of the car is been sold in Indian Market the term ‘Maruti’ is mostly used to refer
compact cars. Today the term Maruti is popular in India which one of the main reason was Maruti

16
800. The Maruti Suzuki was led to the government company were Suzuki is minor partner to manufacture car for
middle class people.

Maruti Suzuki India Limited is the part of SMC, Japan is the leading passenger cars and also multipurpose vehicles
in India which accounts for almost 55% of industry.

The company was initially known as Maruti Udyog Limited it was a joint venture between government of India
and SMC. Its first car was out on roads in Gurgaon on 14 December 1983. From that time it is been holding the
position in Indian car market.

In recent time Maruti Suzuki celebrated 26 years of car manufacturing in India. It has been gained manufacturing
excellence in India and it is the process of Research and Development to develop car design and features.

The company sold over 7,22,145 cars in 2017-18 in the domestic market and export were 70,234 cars. Altogether
has manufactured and sold over seven million cars. The sum total of the company in 2017-18 was Rs 3,14,538
million. Now the company is selling 9,30,000 units in domestic market and export was marked as 2,10,000 units.

Maruti Suzuki initiated new compact car at Delhi Auto Expo 2018 in New Delhi on 7 February 2018. Maruti
Suzuki launched the premium hatchback in Swift in New Delhi.

Maruti Suzuki has a powerful balance sheet with reserves and surplus of Rs 95,005 million and debt equity ratio of
0.08 units in 2017-18.

MISSION: Most important mission is to provide highest level of value of money to customers through
continuous improvement of products and services provided

Vision: Making customer happy and shareholders wealth.

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 Backbone of Maruti Suzuki India Limited:

1) R.C. Bhargava
Chairman
Felicitated by Emperor Akihito of Japan

2) Kenichi Ayukawa Managing

Director & CEO
Treasurer, Society of Indian Auto Management

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  Board of Directors

Name Designation
Mr. R.C Bhargava Chairman
Mr. Hiroshi Sakamoto Director
Mr. Hisashi Takeuchi Director
Mr. O Suzuki Director
Mr. K. Saito Director
Mr. Takahiko Hashimoto Director- Sales & Marketing
Ms. Pallavi Shroff Independent Director
Mr. R P Singh Independent Director

 Key Executives

Name Designation
Mr. Ajay Seth Chief Financial Officer
Mr. S Grover Chief General Manager & Secretary
Mr. V Khazanchi Executive Officer
Mr. P K Roy Executive Officer
Mr. M Nishio Executive Officer
Mr .D K Sethi Executive Officer
Mr. P Banerjee Executive Officer
Mr. S Srivastava Executive Officer

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 AWARDS

 INDIAN AWARDS

 Total Customer Satisfaction- TNS

 Car of the Year- BS Motoring
 No. 1 in Initial Quality Study- JD Power
 Car of the Year- CNBC Autocar
 Best Design and Styling- CNBC Autocar
 Viewer’s Choice- CNBC Autocar
 Small Car of the Year- NDTV Profit
 Car of the Year- BBC Top Gear

 International Awards:

 JAPAN:
 2005-2006 Car of the Year Japan “Most Fun”- COTY
 Car view of the Year 2005-2006- Car View
 RJC Car of the Year- Automotive Researcher & Journalist Conference
 Iceland:
 Car of the Year 2006- BIBD the Association of Automotive

 Australia:
 2005 Cars guide Car of the Year- Cars guide

 China:
 Motor Show COTY “Hatchback”- 2005 Shanghai International Motor
 2005 Shenzhen Market Car ranking “ Best Design”- Shenzhen Daily
 Most Popular Hatchback Car- 4th Changchun Motor Show.

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 Company Product

The company provides the portfolio of 14 brands it starts from the people’s car Maruti 800 to the designer cars like,
Swift, SX4 and sports cars like Grand Vitara, SUV. Maruti Suzuki sells over 50 percent of cars in India. According
to the analysis of Indian Automobile manufacturers Maruti cars are categorized into below points:

A1 Segment(up to 4000mm): Alto 800

A2 Segment(up to 4000mm-4400mm): Estilo, Wagon R, A A3

Segment(up to 4000mm-5000mm): Dzire & SX4

Multy utility Vehicles (MUA) Segment: Gypsy & grand Vitara

Multi Purpose vehicles (MPV) Segment: Omni & Versa

1) Maruti 800- change your life:

When Maruti 800 was launched it had crossed all the records
just a car breaking the records was a great thing. It had
changed the standard of living of number of people, at that
time it had almost covered the Indian market.

2) Alto- Let’s go:

Alto was manufactured with the combination of design,

in budget and economy. It raised the benchmark of the
company and also it was reliable on quality compact car.
These some features makes it highest selling car in
Automobile industry in India.

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3) Dzire-The heart car:
The car which has everything which the middle
class people think all the features you get in Dzire.
It looks luxurious, styled with great research and
more power to hold the heart of common man.

4) SX4- Men are back:

The SX4 is a European design it is the spacious classic design,
steering design, more ground clearance, high on safety also
dual airbags, anti lock break.

5) GRAND VITARA-2.4 Reloaded:

The three decades of Suzuki SUV heritage is taken by
Grand Vitara to altogether next level. The first time it was
on the roads of Japan. In its second launch it was designed
with luxurious was and it was renamed as Grand Vitara.

6) VERSA- The joy of travelling together:

Its main tagline is to experience a joy of riding. It is design with
4 ac, large sliding doors and also flexible seating it is good
experience for long drives.

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 7) SWIFT- You are the fuel:
It is one of the new technology car known as
computer car it is a new design launched
depending upon new research & development. It
provides the best passenger experience.

8) WAGONR- For the smarter race:

The main aim of the car was to give a peace to people driving. The
WAGONR keeps the passenger safe and secure with the fresh
colors
and. A compact new car were it can easily gone in a narrow or
crowded car .

9) ESTILO- Take a fresh view of life:

The new ESTILO is a new design and technology
with all its new pattern of design. ESTILO sets
the bar and makes each drive best experience.
The reviews of the car were great as it is classy
and elegant interiors.

Above are some of the products of Maruti Suzuki India Limited.

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SWOT ANALYSIS OF MARUTI SUZUKI

STRENGTHS:

One of the main strength is the brand name is the bigger in the Indian market. Indian

population has more trust on the company.

As the market leader Maruti Udyog Ltd is constant in Indian market. The

suppliers and the investors has trust due to its goodwill.

The company provides best after sales service also it has low maintenance cost.

WEAKNESSES:

Its one of the major weakness is that the exports are not up to mark.

The less diesel models are been produced compared to other manufacturers. Though it

has covered international market it has not captured the global market.

OPPORTUNITIES:

The company has the high opportunities in global market with the success of the SX4 all over the world. When

the introduction more automatic as the segment of automatic cars are bee increasing day by day. Entering into

bigger car markets as now it covers 55 percent it will cover in coming future.

THREATS:

One of the recent threats are foreign markets are entering into a market so there is threat to MNCs. May

effect into market share because other big names are coming in the market.

Maruti Suzuki has a powerful balance sheet with reserves and surplus of Rs 95,005 million and debt equity ratio of
0.08 units in 2017-18.

24
MARUTI SUZUKI SALES IN 2018

25
Maruti Suzuki Limited India is a car market leader which sold a total of 17,18,456 vehicles in 2017-18. It is the
first time held in Indian automobile market in the history of car industry. The company has sold over million of car
units in the financial year. It involves 12,70,890 units sold in the domestic market and the high in fiscal market of
the company. In the export market it sold 57,575 units in the year were the highest in the automobile manufacturer
and as compared to annual exports of the company.

The aggregate sales total in 2017-18 has raised by 30 percent over the previous financial year. Maruti Suzuki total
sales in 2016-17 was 9,921,167 units.

In the Indian market the domestic sales in A2 segment increased by 24.8 percent at the same time in the A3
segment the amount of sales grown in 2017-18 was 30.9 percent in comparison with 2016-18.

March 2018 Sales:

In March 2018 Maruti Suzuki sold 99,125 total units which has grown 12 percent over March 2017. The March
2018 include domestic sales of 80,530 units and the more monthly exports of 16,459 units. The last year highest
monthly exports were in August 2017 were 15,645 units.

Number of sales in March 2018 and the Fiscal 2017-18 are as follows:

In March Till March

Segment Models
2017 2018 % Change 2017-18 2016-17 % Change

A1 M800 2762 2430 13.7% 33028 49383 -33.1%

C Omni, Versa, Eeco* 10875 6021 80.6% 101325 77948 30.0%

Alto, Wagon-R, Estilo,

A2 Swift, A-Star, Ritz* 54763 55415 -1.2% 633190 511396 23.8%

A3 SX4, DZire 10453 8595 21.6% 99315 75928 30.8%

Total Passenger Cars 78853 72461 8.8% 866858 714655 21.3%

MUV Gypsy, Grand Vitara 677 1394 -51.4% 3932 7489 -47.5%

Domestic 79530 73855 7.7% 870790 722144 20.6%

Export 15593 11814 32.0% 147575 70023 110.8%

Total Sales 95123 85669 11.0% 1018365 792167 28.6%

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Maruti Suzuki Limited India sold out last car of the year on march 23 2018. By selling it globally Maruti entered
into global market. Now Maruti is growing into production quantity which reach to 13,45.000 units by 2017. In
March 2018 the company initiated for investment of Rs 2000 crore for expanding the production capacity by 2.3
lakh units at Manesar plant.

A process of new launch and development in process in 2017-18 which helped company in good performance.
These involves Maruti Suzuki Dzire and New Grand Vitara, Alto 800 which were having K series with SX4 and
VVT engine with in build automatic transmission.

MARUTI SUZUKI SALES IN MAY 2019

Table 6.4

In May Till May

April'18 -
Segment Models % % March'19
2017 2018 2017-18 2018-19
Change Change

A1 M800 2558 2336 9.5% 4816 4681 2.9% 33028

Omni,
C 12953 7619 70.0% 23607 15343 53.9% 101325
versa, Eeco*

Alto, Wagon-R,

A2 Estilo, 62679 53760 16.6% 119095 100577 18.4% 633190

Swift, Ritz*, A-
Star

A3 SX4, D'zire 10883 6782 60.5% 20877 13848 50.8% 99315

Total Passenger Cars 89073 70497 26.4% 168395 134449 25.2% 866858

Gypsy, Grand
MUV 968 288 236.1% 1680 1193 40.8% 3932
Vitara*

Domestic 90041 70785 27.2% 170075 135642 25.4% 870790

Export 12134 9087 33.5% 25158 15978 57.5% 147575

Total Sales 102175 79872 27.9% 195233 151620 28.8% 1018365

27
 COMPANY PROFILE

(TATA MOTORS LIMITED)

ORIGIN OF TATA MOTORS

TATA MOTORS was known as Telco (Tata Engineering & Locomotive Company) it is MNC head quartered in
Mumbai. India is the biggest automobile & vehicle manufacturing company. It OICA ranked it as world 20 th
biggest automobile, which is based on 2006.

It was established in the year 1945. It importance across the India. Hence over 3 million Tata vehicles came on
Indian roads thus it was out on road on 1954.

The private trading firm was started by Jamshedji Tata, depending on the foundation of Tata group. The Tata
Group is operating 96 companies in seven business sector which is information system and communication,
engineering, materials, services, energy and consumer products. In 19 th century the group was founded by
Jamshedji Tata in a life when India is set on road when importance gained.

The Tata Motors Limited which shares 5 corporate value, understanding, integrity, unity, excellence and
responsibility. Therefore some of the value are the part of group trust and importance from the initial days. The
business decisions of Tata group and commitment towards CSR (Corporate Social Responsibilities) activities.

28
 HISTORY OF TATA MOTORS

The company started its operations on 1st September 1945 in Mumbai to manufacture diesel vehicles for
commercial use, transport use, industrial, heavy vehicles, dumpers, machine tools and excavators. One of the
commercial vehicle which was known is Tata Mercedes Benz and which are now known as Tata after the
completion used manufacture paper making machine. The company name was known as Tata Locomotive &
Engineering Company Ltd which was later changed to Tata Engineering & Locomotive Company Ltd.

The historical statement said by Ratan Tata during the launch of Tata Nano was ‘A promise is promise and I kept
my promise’ as he launched the people car in India on 23 rd March 2009. To the Indian car industry Tata has given
the valuable products to automobile market, back in 2009 which broke the records when Tata Motors launched Tata
Nano which created different brand name in Indian automobile industry.

The Tata Motors not only focused on passenger cars but also created the place in heavy vehicle sector as they
were the sole leader in the market.

Tata Motors are accepted globally it has created it brand image in the eyes of customer over the globe by owning
Jaguar Land Rover, Corus Steel at the time of 2007-2008.

It has been recognized as Top 10 brand names in India by Fortune Magazine and also it has been in top 100
companies in the research by Standard & Poor Mody in the year 2016. Though it is most valued brand carrying
good reputation but it provide great customer satisfaction as they keep customer at first place as they are
repeatedly working with the objective that they have to provide good products to customer. So that customer
will be satisfied and get value of the money invested by them.

One product which cannot be ignored is TATA INDICA VISTA as it has created all together different place in the
world. The car industry in India the Tata Motors has been setup and was known as world mid cap car and had
achievements in Indian automobile industry.

The company did the collaboration for the research engine in 1991 for the growth of organization
globally, and to mainly develop the power, petrol engine for the future requirements. In that year

29
company launched two passenger cars ESTATE and SERRA which are researched and manufactured in India.
The company also conquered BFR company. In 1991 the company also launched the Tata Front End Wheeler
Vehicle. Multiple models in Ex series were also launched.

The old used paint shop, cylinder and machine line from Australia sector of Japanese auto, Nisan was obtained by
Tata Engineering and Locomotive Company (TELCO). The TELCO acquired almost unit of 70 crore. The
aggregate import cost was aproxx Rs 100 crores. The machine tool department in Tata motors was increased to
double to its machine capacity.

In November 1999 the company launched TATA SAFARI in multi utility department. Also Tata Holser plant was
inaugurated in November 1999. The company also launched 10-tonne vehicle which was accepted in market. The
company also manufactured the less floor bus to meet the requirements in urban areas. It signed the new
agreement with Hitachi to manufacture the upgrade range of vehicles.

In year 1998 TELCO announced the merger with Tata Finance Ltd as the financials with the small car Indica
which was go to enter in market in 2000. It also started selling it construction equipment in new department.
The company in small car sector launched TATA INDICA which received the great acceptance in Indian
market.

The altogether range of engines vehicle which has count of 37-tonne and 42-tonne of trucks and multiple buses.
To make good improvement in the quality of bus and trucks with Tata Motors the company also initiated merger
with Japan and Automobile corporation with Goa. The fresh project was undertaken in which manufacturing of
Tata chasis which will lead to increase in the production of the company. There was the merger between Tata
Engineering and Jardin Motors which was appointed as a dealer in several cities.

The TELCO company in 2003 became the first Indian manufacture which offers the commercial vehicles which are
to be introduced in the market. Its main aim was to become the main construction equipment shops in the Indian
market. The company was rewarded with R&D Efforts in Development with Engines Technology in Mechanical
Engineering Industries Sector given by Department of Scientific and Industrial Research. It was also awarded by
Ministry of Science and Technology in 2004.

30
PERFORMANCE OF COMPANY IN 2010-2011:

Performance in Domestic Commercial Vehicle (CV) segment

Q4 FY 09- Q4 FY 10- Change FY 09-10 FY 10-11 Change

10 11

MHCVs 18,197 44,548 (60.0)% 88,947 117,450 (23.8)%

LCVs 32,545 39,866 (20.4)% 109,588 104,754 5.7%
Total CV 50,742 84,414 (45.05)% 1,98,535 2,22,204 (10.9)%

The company is impacted by major liquidity problem slow moving economy in CV sales in Indian market
which is reduced by 50% which is 50,742 in 2009-2010 as compared to 84,414 units in Q4FY 2010-2011.

CV market has grown by 520 basis at 68.01% for the quarter from 64.9% in 2009-2010. CV industry was
decreased with 45.9% during Q4FY 2009-2010. The environment is challenging as it make available in vehicle
financing with high interest rate and less growth and freight traffic. The MHCV market has declined by 63.2%
during the quarterly and LCV is reduced by 67.3% with industry volumes during Q4 FY 2009-2010.

VISION:

The main aim of the company is to revolve globally in World Class Indian Car Brand.

MISSION:

The important mission is to provide passenger vehicles which offers their customers the exceptional value and also
which helps to build company that provides shareholders which will get superiors returns to the investor and
society as the valuable contributor to the company development.

31
CORE VALUES:

The core values are constructed upon the traditions of Tata group give more importance on :

 Trust
 Concern for the goodness of both the
employees and the society
 Integrity
 Customer focus
 Innovation
 Engineering passion

The core values helps to maintain a balance with comparison with the requirements of customers, employees,
suppliers, community and stakeholders

Backbone of Tata Motors:

Mr. N Chandrasekaran

Non- Executive Director and Chairman

32
Mr. Guenter Butschek

CEO and Managing Director

BOARD OF DIRECTORS

 Dr. Ralf Speth Non Executive Director

 Mr. O P Bhatt Non Executive Independent Director
 Ms. Hanne Sorensen Non Executive Independent Director
 Ms. Vedika Bhandarkar Non Executive Independent Director
 Mr. P B Balaji Group Chief Financial Officer
 Mr. Mayank Pareek President- Passenger Vehicles Business Unit
 Mr. Girish Wagh President Commercial Vehicles Business Unit
 Mr. Rajender Petkar Chief Technology Officer
 Mr. Shailesh Chandra President- Electric Mobility Business & Corporate Strategy
 Mr. Ravindra Kumar G P President & Chief Human Resources Officer

33
 TATA GROUP

Commer Consumer
Energy Material Engineering Chemicals Services
cial IT Goods

Tata Auto Comp

Tata Groups Tata Commercial
Systems

Passenger Tax Commercial

Subsidiaries
Vehicles

HV HV Sales Telecom TAL TIL

Others
Transmissio

34
Tata Motors Limited is India's largest automobile company, within Rs.24,000 corers (USD5.5billion) in 2005- 06.
It is the leader by far in commercial vehicles within products in the compact, mid size car and utility vehicle
segments. The company is the fifth largest medium and heavy commercial vehicle manufacturer India. The
company's22,000employeesare directed by the vision to be" best in the manner with the products we deliver and
best in our values system and ethics.

India's largest multi holding company, Tata Motors has grown significantly in the past 60 years in its establishment
in 1945. The company works in three main market segments globally: the passenger cars, utility vehicles and
commercial vehicles. A significant breakthrough for the company was the development and commercialization of
truly Indian cars-Tata India and Tata Indigo Vehicles.

The company produced its first mini truck, first light and first heavy vehicle and many more firsts in India, being an
innovator in their industry. It has followed a strategy of acquisitions and joint ventures in its mid-stage and
launched new product satarapidpace in different market segments of India and all over world. Today,
TataMotorsenjoythepositionofbeingIndia'sleadingautomobile manufacturerwithincreasingp resenceinEurope,
SouthEastAsia. Africa and the Middle East with a tata.

Company Focuses on providing customers the best value for firm money and meets European standards and
environmentally regulations through their advanced technologies.

Established In 1945, Tata Motors is on e of the 32 publicly listed entreprises interfer the Tata Group India's largest
business conglomerate. Tata Motors collaborated with Daimler Benzin 1945 for 15 years to manufacture
commercial vehicles. Since then, Tata Motors has grown enormously and produces various product.

The Tata Group USD 100 billion half of part is in Tata Motors Limited. In the organization the USD 45 billion is
holding the international automobile production of cars, vehicles, trucks, buses and utility vehicles. The only OEM
providing range of smart and integrated solutions is India’s highest manufacturing industries.

The new products in Tata Motors brings altogether next level imagination by the art and proper research and
development departments located in India, Italy and UK. In South Korea, South Africa, Indonesia and UK has its
operation and strong global network and merger companies including Tata Daewoo and Land Rover.

Globally passenger vehicle and Tata commercial is spread over world Africa, Middle East, South Asia and CIS.
The Tata Motors crossed all levels of world with manufacturer spread across the world its highest industrial centres
are Pune, Dharwad, Sanand, Lucknow and Jamshedpur.

36
Business Highlights

Electric Vehicles
 The new product of E- mobility is launched is TATA NEXON EV.
 The electric bus was supplied at lowest rate to almost 7 to 10 states which are Jammu, Jaipur, Guwahati,
Indore, Lucknow and Kolkata to which 265 buses makes 63% of buses orders.
 The MoU was signed with Government of Maharashtra for employing 1000 Electric Vehicles which cross
world passenger and commercial vehicles in state.
 Tata Motors has set up electric mobility of business in June 2018.

Commercial Vehicles
 In commercial vehicle sector the market leader is Tata Motors which is been continuously bringing new
innovation and new technologies in market.
 The portfolio CV and proper modular design is been prepared to introduced to give name the market
segments.
 BS6 ready is Tata Motors products which have received to complete certificate for TATA 3.9 lakhs CNG
engine.

Passenger Vehicles
 ALFA and OMEGA are two new architecture at Auto Expo in 2018.
 The second highest selling level in the country became Tata Tiago and also recorded the highest sales in
September 2018.
 The one and only car in India to give five star adult safety rates in global NCAP is Tata Nexon.

Financial Highlights FY 2018 (India Operation)

Table 6.6

SR.NO LABEL 2017-2018 (Rs crore)

1 Revenue 58,457
2 EBITDA 3,391
3 EBIT 292
4 PBT (947)

37
 Live Stock Data

Table 6.7

SR.NO TATA MOTORS LIMITED 2018-2018

1 BSE Price 169.1 (-0.21%)
2 NSE Price 169.1 (-0.24%)

SWOT ANALYSIS

STRENGTH:

Good importance in market:

The only company in India which has great cover in all market segment of Indian automobile sector is Tata Motors,
which includes heavy vehicles and medium vehicles, pickups and key segments also utility vehicle and midsize car
of commercial passenger vehicle.

Proper understanding of Customer requirement:

With experience of over 50 years in automobile industries Tata Motors have understood the customer needs and
provide the quality and quantity required. For example, In 1980 company launched loght commercial vehicles also
facing Japanese competition to which it leads first in market. In further year in 1990s the Tata Motors provides the
family car which is afforded by middle class families which was Tata Indica.

Skill Development:

Tata Motors is holding strong place in Indian market also set proper Engineering Research Centre. In Tata motors
there are over 1500 scientist and engineers, also testers, managers, innovation are increased also developed various
skills over a period of time.

Employee Relationship:

The companies main strong point is its employee the trust Tata Motors gained over the years in the automobile
sector. The employees in organization are very vast talent based people having goodskills in work they are allotted
with. Also company has gained the international trust over the year there are mergers

38
with international companies due to which the talent and skills have developed in every best ways in industries.

Materials:

The international leaders in the automobile sector with Tata Motors with its operations in composites and steel. It is
leading in providing parts in countries in over all world and also domestic markets.

OPPORTUNITIES:

Geographic area covered:

It is one of the factor that company looking and keep it important and various cars range which covers almost the
domestic market in India.

Good Finance schemes:

Due to its good sales in the current trend as it has boosted the level of car sales over the years and also easy loan
rules in the country and increase as car the basic need to the customer.

The most important reason due to which the automobile industry and commercial vehicle has taken great advantage
in coming days.

 Increasing Golden Quadrilateral and Road Development as well as the infrastructure will also increase car
industry which is directly connected with industry and also various government policy in which
government is been spending the for good infrastructure.
 Growth in GDP were the economy is been increasing due to which there is boost in the demand in market.
 Also the rural demand is been increasing and many more then urban market which help the automobile
industry to grow as it helps in infrastructure development also.
 As the Tata Motors have grown at next level from two wheeler to four wheeler for the people with less
purchasing power the company launched the dream car which is TATA NANO which lead to growth in
four wheeler sector in the market.

39
THREAT:

 One of the big problem faced by auto industries in India is the lack in good infrastructure.
 The most impacting growth of industry in the Indian automobile market is the crisis occurring globally but
then too tyre industry increased tremendously.
 The global competitors like Audi, Mercedes, GM which is the race to cover the market segment is one of
the treat to Indian automobile industries.

WEAKNESS:

 The financial situation of Tata Motors which is like it is been acquired Land Rover Jaguar and Corus and it
has lead to big problem to the company and hopefully will be back on the track in coming future.
 The debt equity ratio is also became high which is not good for the company.et
 The competitor in small car segment is Maruti Suzuki so it is problem to compete in small car segment.
 The high competition segment is CV the new entered players are Volvo and M&M which have new
product to compete in market.

40
 SALES IN MAY 2018

Table 6.8

In March Till March

MODELS
2017 2018 % CHANGE 2017-18 2016-17 % CHANGE

Tata Indica,

Sumo, Indigo 3764 4066 14.7% 34082 48567 44.2%

Tata Vista, Safari, 10256 6324 80.7% 103515 77849 25.8%

Manza

Tata Zest, Tiago, 54879 56789 -1.3% 645924 522318 24.9%

Hexa

Tata Altroz, 13258 98564 23.8% 99123 75629 32.8%

Nexon, Harrier,
Tigor

Total passenger 799586 735692 7.8% 870956 7331449 21.6%

cars

Domestic 75530 748225 7.6% 870780 733144 22.3%

Export 14456 11814 33.2% 157575 70023 119%

Total Sales 96254 85667 13.0% 1018456 7892612 29.4%

INCOME STATEMENT & BALANCE SHEET OF LAST 5 YEARS OF TATA

MOTORS LIMITED

41
FF

42
43
 COMPARATIVE STUDY OF MARUTI SUZUKI INDIA LIMITED AND TATA
MOTORS LIMITED

COMPARISON BETWEEN MARUTI SUZUKI AND TATA MOTORS w.r.t CAPITAL BUDGETING

Capital Budgeting methods would be most accurate foe analyzing the investment decisions.

In Maruti Suzuki India Limited as dependent upon the above calculations in the case of Manesar and the sales and
growth by using the capital budgeting techniques in which the Maruti Suzuki mostly prefer three techniques which
are Payback period, Net present Value and Internal Rate of Return.

In Tata Motors Limited the capital budgeting techniques preferred are two basic methods Net present value,
Internal Rate of Return and Profitability Index.

 Payback Period: The Payback Period (PBP) is the expected time in which the date of investment and the
result in cash of the amount invested is known and Maruti Suzuki main aim is the increses the cash flows in
the organization and during the selection of investment proposal they give more attention to the Payback
period of time in which the recovery time will be less and it is the main reason due to which MARUTI
SUZUKI is leading car manufacturer and highest sales in the automotive industry.

 Net Present Value: The NPV compares the amount to be invested with the present value of net cash
inflows, but the interest rate is required to be predetermined the present value of future cash flows. The
determinants which are taken under study is rate involved in the risk of the investment and cost of
obtaining the invested money back. In MARUTI SUZUKI the results should be positive that the cash flow
should be exceeded to the amount invested and making the investment successful. Same with TATA
MOTORS the Net Present Value one of the vital technique to analysis the investment decision so that the
result should be increase in cash flows with comparison with the amount invested for the project. Hence
Net Present Value is one of the techniques preferred by most of the companies to decide the selection of
investment proposal.

 Internal Rate of Return: The IRR states the present value to be computed with the rate of return from the
capital investment in the project. So as we see in MARUTI SUZUKI & TATA MOTORS both the
companies give more attention to the Internal Rate of Return as this method will help the

44
 company to know the future rate of return on the capital investment of the project. Hence both the
companies will prior know the rate of return of future investment so that it will be easier to managers to
give the accurate investment decision.

 Profitability Index: The Profitability Index (PI) is the cash inflows on the investment projects. It is mostly
used to rank the projects as it will help to segregate the amount of value per unit of investment in the
proposal. Hence TATA MOTORS uses the Profitability index as it evaluate the project on the profitability
index and they will be able to know that if profitability index is low then they should reject the project and
if it is high then they should accept the project, as it helps company to know in which project the
investment will be profitable. So according to me Maruti Suzuki should also give importance to
Profitability Index for taking investment decision.

Thus, by the comparison between MARUTI SUZUKI INDIA LIMITED & TATA MOTORS we get to know for
taking investment decision both the company uses various capital budgeting techniques for evaluating their
investment decisions.

Capital Budgeting practices in Maruti Suzuki & Tata Motors (Statistical Comparison)

The Capital Budgeting practices is important in both Maruti Suzuki India Limited and Tata Motors while taking
the investment decision to select the accurate project. They prefer the CFO’s and depending upon the difficulty in
the steps of Capital Budgeting. It comparative study is divided into three parts the capital budgeting techniques
used the both the companies, how it is evaluated to select the appropriate projects, Ranking of capital budgeting
techniques in both the companies.

 Hierarchical Level of Capital Budgeting Decisions

Levels of SIZE OF CAPITAL BUDGET

Management
Below Rs.50 cr Rs.50-100 cr Rs.100-500 cr
TOTAL

MARUTI TATA MARUTI TATA MARUTI TATA COMPARE

SUZUKI MOTORS SUZUKI MOTORS SUZUKI MOTORS %

Lower level of 0(0) 0(0) 0(0) 0(0) 0 0 0%

management

45
Middle level of 1(3.0) 1(4.0) 3(10.3) 4(10.6) 2(11.3) 2(13.4) 7.3%
management

Top level of 24(18.3) 25(19.3) 18(80.3) 19(12.3) 16(3.6) 17(15.3) 65(1.3)%

management

Middle & Senior 3(12.0) 3(6.2) 0(0) 0(0) 1(5.6) 2(2.3) 6(7.3)%
level management

TOTAL 28(33.2) 29(28.9) 21(90.6) 23(18.9) 19(14.3) 21(18.6) 141(77)%

In the hierarchical level the people involved to take the capital budgeting decisions is close to 85% of the
personnel employed to take decision in senior and top level management. Only the sum of 7% people are involved
in middle level management.

Hence the hierarchical level of people are involved in taking capital budgeting decision so that the investment
proposal will be selected accurately is the senior level management. Both the companies think that the senior level
management should be included in taking decisions.Also both the companies were interviewed about the minimum
level of investment in a specific project for which the capital budgeting procedure is been carried out. The question
was to know the level of investment at each and every project required and analyzed with capital budgeting.

TYPES OF INVESTMENT PROJECT AND CAPITAL BUDGET SIZE Table 6.10

TYPES OF SIZE OF CAPITALBUDGET

INVESTMENT
Below Rs.50cr Rs.50cr-100cr Rs.100cr- 500cr TOTAL
PROJECT

Maruti Tata Maruti Tata Maruti Tata TOTAL

Suzuki Motors Suzuki Motors Suzuki Motors %

Entry into new

process/new product/
4(16.0) 4(19.6) 11(55.0) 10(63.2) 12(8.5) 17(2.0) 41(53.2)%
new business

Expansion of existing 19(75.0) 17(45.0) 13(72.2) 15(13.0) 14(100) 17(1.3) 52(60.5)%

business

46
 Equipment of 14(56.0) 15(9.6) 14(70.0) 15(16.0) 7(38.7) 9(12.4) 42(59.7)%
replacement &
Modernization

TOTAL 25(32.5) 36(74.2) 20(26.0) 40(92.2) 18(2.3) 43(15.7)

The main objective behind the investment project analysis was preferred by Maruti Suzuki India Limited and Tata
Motors and to use the same data in the project to give the valuable information in which projects the companies
invest in which %. Table6.10 shows that nearly four-fifth of both the companies reported that ‘Expansion of
existing business’ is the investment project in which the higher importance is been given as it is the path of growth
for the company.

CURRENT VALUATION OF MARUTI SUZUKI & TATA MOTORS

Table 6.11

Particulars TATA MOTORS MARUTI SUZUKI TATA MOTORS/

MARUTI SUZUKI
P/E (TTM) -303.9 33.2 -
P/BV 0.8 4.3 17.5%
DIVIDENED YEILD 0.0 1.2 -

CAPITAL BUDGETING ANALYSIS METHODS RELATED TO MANESAR PLANT:

The case study is on the investment project of Maruti Suzuki Manesar Plant in which the capital
budgeting techniques were used to evaluate the investment decision.

Table 6.12

Years Total Total Fixed Net Capital Long Share

Sales Asset Asset Profit Employed Term Holders
Funds Funds
2013- 6512.53 5321.4 3120 1008.61 1173.21 982.66 124.59
2014
2014- 7386.45 6743.73 4563 977.60 2651.9 1175.8 124.59
2015
2016- 8543.54 7456.63 5896 1093.2 854.16 865.54 274.04
2017

47
 2017- 10205.6 11456.5 10860.6 4505.6 3789.67 2789.86 274.04
2018
2018- 12954.7 15465.8 25166.1 3556.1 4015.6 2012.09 274.04
2019

1. PAY BACK PERIOD METHOD:

Payback period method is a old method of analyzing capital budgeting decision. The term pay back or
payoff is referred to period in which the proposal will generate the essential cash and also to increase the
investment or cash outflows.

The Manesar plant has Rs 7,683.708 which lacks the initial investment and the cash flow for the year from
2016-2018.

The payback period depended upon the above information is calculated as follows:

CALCULATION OF PAY BACK PERIOD OF MANESAR PLANT IN MARUTI SUZUKI

(Rs in crores)

SI.NO YEAR CASH FLOW CUMULATIVE

CASH FLOW
1 2013-14 1244.84 1244.84
2 2014-15 1300.02 2544.86
3 2015-16 1481.32 4026.18
4 2016-17 2169.96 6196.14
5 2017-18 3348.75 9544.89

From the above table we understand that the initial investment Rs 2687.87 Cr which lies between second and third
years with Rs 2544.86 and 4026.18 Cr.

Difference in cash flows

PBP=Actual (Base) year+ Next year cash flows

48
PBP= 2+ 1481.32

6196.14

= 2+0.23

= 2.239 year

Payback period (PBP)= 2.239 year.

ACCEPT- REJECT CRITERIA:

When PBP can be used as criteria to accept or reject an investment project. The project whose actual
payback period has exceeded than what is predetermined by the organization.

Hence the PBP is used for managing to accept the investment decision on the Manesar plant and also it
helps management to know the initial investment is recovered in 1.884 years.

2. ACCOUNTING OR AVERAGE RATE OF RETURN METHOD:

It is another method capital budgeting analysis. According to the method the capital
investment project are on the basis of the profitability.
The incomes and capital employed are determined according to accepted accounting principles and
practices over the life of proposal and average rate is calculated. Hence such a rate is called the
accounting rate of return or ARR.

It is calculated by using one of the following method:

(1) Annual average net earnings

Original investment X 100

(2) Annual average net earnings X 100

Average investment

49
 (3) Increased in expected future annual net earnings X100
Initial increase in required investment

The average rate of return is the average earnings after the depreciation and tax. The whole
economic life of the proposal and giving on ARR above the required rate is accepted.

The average rate of return can be calculated by any of the following method:

(a) Original investment

2

(b) Original investment + scrap value

(c) Original investment + scrap value + net additional + scrap

value
2

Cash flows of the MARUTI SUZUKI INDIA LIMITED are shown in the cash flow statement ARR is
calculated as below:

Statement showing calculation of ARR

Table 6.14 (Rs In lakhs)

YEARS EARNINGS AFTER TAX

2013-2014 1244.84
2014-2015 1300.02
2015-2016 1418.32
2016-2017 2169.96
2017-2018 3348.75
2018-2019 9544.89

ARR= Average annual earnings X 100

Average investment

50
Average annual earnings = Total amount

No. of years

= 9544.89

Average investment = 1908.97

ARR= 9544.89 X 100

1908.97

Average rate of return = 50.02%

ACCEPT- REJECT CRITERIA

The method allows MARUTI SUZUKI INDIA LIMITED to set the minimum rate of return. Any proposal is
expected to give the return below it will be rejected. The ARR at current scenario 50.02% is good of MARUTI
SUZUKI INDIA LIMITED, as it shows the efficiency of the management

TIME ADJUSTED (OR) DISCOUNTED CASH FLOW METHOD:

The time adjusted or discounted cash flow shows the profitability time value of money. These method is also
known as modern method of capital budgeting.

1. NET PRESENT VALUE METHOD (NPV):

NPV or Net present value is one of the time adjusted method. These method is one of the best
method of analyzing the capital investment project. In the cash inflows and outflows attached with each
proposal are first calculated.

Role of Discounting Factor:

The cash inflows and outflows are changed into present value of discounting factor which is actual
discount factor display Manesar project is 10%.

51
 The rate of return is taken as required rate or rate predetermined on the cost of capital which allows the
risk element included in the proposal.

STEPS FOR CALCULATION OF NPV:

 The cash flows are calculated after taxes of three years which is gained by deducting depreciation interest
and tax from EBIT (earnings before interest and tax)
 The cash flow after tax are multiplied with values obtained from the Table which is 8%.
 NPV is obtained from deducting the total of present values from the initial investment.
 The investment are the sum of cash flows of 3 years shown as capital expenditure table.

Assuming the discounting rate as 10%

YEARS CFAT’S PVIF @ 10% PV’S

2013-14 1244.84 0.909 1131.55
2014-15 1300.02 0.826 1073.81
2015-16 1481.32 0.751 1112.47
2016-17 2169.96 0.683 1482.08
2017-18 3348.75 0.620 2076.22

TOTAL 6876.13
LESS: Initial Investment 2687.87
NPV 4188.26

ACCEPT- REJECT CRITERIA:

The accept and reject of NPV is very easy. If the NPV is positive then the proposal should be
accepted and NPV is negative and is rejected

i.e NPV >0 (ACCEPT) NPV

< 0 ( REJECT)

Thus the case of MARUTI SUZUKI INDIA LIMITED project is seen that the NPV is accepted and important of
project.

52
 2. INTERNAL RATE OF RETURN METHOD (IRR):

The internal rate of return is also one of the modern method of capital budgeting, which takes into account
time value of money. It is also known as Discounted Cash Flow, Yield Method, Time adjusted method and
Trial and Error method.

The IRR is the rate were the aggregate discounted cash flows are equal to the total discounted cash
outflows. Thus equals the present value of cash inflow to present value of cash outflows.

In the IRR method discount rate is not gained but the cash inflows and cash outflows are gained. It is
actually the rate of return which is equal to present value of cash inflows to outflow or it is rate of return
which gives NPV to ZERO.

STEPS INCLUDED IN CALCULATION OF IRR:

 Calculation of NPV with given discount rate.

 Calculation with assumed discount rate.
 Select the higher NPV of both.
 Let the R be the highest discount rate.
 Let R be difference of discount rate.
 Calculation of difference of PV (Higher NPV- Lower NPV)

IRR= R + Higher NP X R1

Difference of PV

 Decision making ( whether to accept or reject)

FORMULATION OF STEPS:

Following Statement showing NPV under IRR method:

53
 YEARS Annual Discount Rate- 88% Discount Rate- 89% Discount Rate-90%

CFAT
PVF PV PVF PV PVF PV

2014-15 1244.84 0.531 661.01 0.529 658.52 0.526 654.78

2015-16 1300.02 0.2921 379.73 0.2799 362.87 0.277 360.01

2016-17 1481.32 0.1579 223.90 0.1481 219.38 0.145 214.79

2017-18 1269.69 0.0858 186.18 0.0783 169.90 0.076 164.91

2018-19 3348.75 0.0461 154.37 0.0414 138.63 0.04 133.95

1605.19 1550.3 1528.53

From the calculation following can be observed:

PV of net cash flow at 88% is 1602.19cr

PV of net cash flow at 89% is 1548.98cr

DECISION:

Hence the initial investment Rs 2687.87cr lies between 75% to 80% the company APTDC can be determine IRR as
76.51%.

Therefore IRR is 76.51%

ACCEPT- REJECT CRITERIA:

In IRR the rate of interest is low for which organization should be able to pay on capital and investment is accepted if
IRR is more than cutoff rates and rejects if less then cutoff rate.

The cut off rate of MARUTI SUZUKI INDIA LIMITED is 10% which is less than IRR is 76.15%. Thus the
acceptance of MARUTI SUZUKI is quiet good.

54
 3. PROFITABILITY INDEX:

The Profitability Index method another name is time adjusted method of analyzing the investment
proposal. Profitability index is also called as benefit cost ratio in relation between present value of cash
inflows and outflows.

Formula
Profitability Index= Present value of cash inflows
Present value of cash outflows

(OR)

Profitability Index= Present value of cash inflows

Initial cash outlay

CALCULATION OF BCR:
Step 1: Calculation of cash flows after tax
Step 2: Calculation of Present value of cash inflows @10% Step 3:
Application of foemula.

Statement for calculation of benefit cost ratio

YEARS CFAT’S PVIF @10% PV’S

2013-14 1244.84 0.909 1131.55

2014-15 1300.02 0.826 1073.81

2015-16 1418.32 0.751 1112.47

2016-17 2169.96 0.683 1482.08

2017-18 3348.75 0.620 2076.22

TOTAL 6876.13

55
Profitability Index= Present value of cash flows

Initial Investment

= 6876.13

2687.87

= 2.55

Hence Profitability Index= 3

ACCEPT- REJECT CRITERIA

There is difference between present value index method and profitability index method.
Hence under Profitability index method the present value of cash inflows and outflows accordingly accept and
reject decisions are taken.

Therefore the accept and reject criteria is

Profitability Index > 1 (ACCEPT)

Profitability Index < 1 ( REJECT)

The acceptance by the management must be properly analyzed through Profitability Index method is PI > 1
(i.e 4 years)

56
 CHAPTER III
LITERATURE REVIEW

BOOKS:
 Book Name-Corporate Finance
Author Name-S.A.Ross, R.W.Westerfield, J.Jaffle, R.Kakani 2010
In book authors explained how to find the future value and present value for the determined period how to
measure the present and future value of multiple period and also Discounted Cash Flow which it differentiate
between yearly interest and effective rate.

 Book Name-Corporate Finance A Focused Apporach

Autor Name-M.C.Ehrhardt, E.F.brigham 2003
In book authors said that the basis of Capital Budgeting, Capital Budgeting Rules the rules for NPV
Decision and Decision for Payback Period, Decision Rule for IRR. It also describes Time Value of
Money, Present Value, Future Value & Present Value of Annuity.

 Book Name-Principals of Corporate Finance

Author Name-R.A.Brealey, S.C.Myers, F.Allien, P.Mohanty2010
In the book authors explained about basics of Capital Budegting. Importance of Capital Budgeting in
present and future needs. Vital terms related Capital Budgeting. It also specifics while deciding capital
investment resource which one should be selected.

 Book Name-Fundamental of Corporate Finance

Author Name-R.Parino, D.Kidwell 2011
The book describes the Meaning of Capital Budgeting, need of capital budgeting in future, essentials of
Capital Budgeting, Process of capital Budgeting and other important terms related to capital budgeting.

RESEARCH PAPERS:

International Journal of Economics and Finance, “The Extent of Using Capital Budgeting
Techniques in Evaluating Manager’s Investments Projects Decisions VOLUME 9

PAGE NO 175-206

57
The main goal of research paper is to understand the using technique of Capital Budgeting on the projects. The
present research study gives more importance on capital budgeting techniques such as Net Present Value, Internal
Rate of Return, Pay Back Period which is stated as the main tool to be used by decision makers in the
organization to give best possible result for investment. For the purpose to be achieved the questionnaire is been
made based on the survey. The main aim was to cover the Jordanian industrial companies ignoring the size and
ownership. The data was evaluated using the statistical program SSPS. At last the study was at its end stage with
59% of Jordanian industrial companies which uses Net Present Value in which 24% of Pay Back Period, 15% of
Internal Rate of Return and others is the mixer of Accounting rate of Return, Sensitivity Analysis, and
Profitability Index. The research study is to know how management is selecting the best Capital Budgeting
techniques for investment decisions.

IIMB Management Review (2017), “ Capital budgeting practices in Indian companies Volume 29 Issue 1

PAGE NO 29-44

The research found out the level of professionalism of Capital Budgeting practices Indian companies which is
based on the primary survey of Indian companies. It is important to note that there is growing need of proper
capital budgeting techniques and risk management techiquees to be used for proposal selection. By the academic
literature DCF techniques of NPV and IRR are one of the most preferred techniques by Indian companies but it is
accepted with all its disadvantage that IRR overlaps NPV in preference. Survey indicates that the Indian
companies are equally segregated on the problem of NPV & IRR and both methods are given equal importance.
Considering the Time Value of Money and all cash inflow of project as main aim for more usage of sensitivity
analysis technique. There is growing need by Indian corporate to use various capital budgeting techniques in
analyzing investments at some time DCF method is also used as supplement. The more importance of this method
is attributed to its growing need on risk liquidity and simplicity. It to be noted that other investment increasing
methods are reduced to use.

There is more adoption of the of newer techniques which are MIRR, EVA, APV. Seeing the higher management is
included and they control in capital budgeting decisions with evaluating its techniques for small projects also as it
is beneficial. The study says that Indian automobile sector prefer WACC as most popular calculated technique.

Introduction to Capital Budgeting, Author Pamela Peterson, Florida State of university PAGE

NO 1-82

58
This paper states the Capital Budgeting is the process of viewing and selecting investments in long term asset
where long term asset is expected to gain benefits over a period of time. In this research we look at the capital
budgeting steps in general. After looking at the over all look that how to take investment decisions should look
how proposal can be classified. This classification will help to understand the cash flows which are needed to be
considered in our decisions. We then have a look at mechanics which are estimating future cash flows which are
needed to be considered as future decision and also to evaluate expenses, future revenues and depreciation. It also
summarize the analysis of cash flows with evaluating different investment proposal.

Improved capital budgeting decision making: evidence from Canada,

PAGE NO 225-247

The research paper states the capital budgeting techniques with data from large firms in Canada. The literature
review and survey is dependent over a time. Hence the study had various features which is not same samples,
response and question asked and can be drawn. Hence DCF is most favoured investment decision method and is
given by literature due to which improvement in capital budgeting 247 standard. In last few years the studies state
that with large firms in North America and USA had proved at that time, that DCF techniques have been growing
and is standing important in todays world to evaluate capital budgeting techniques. The WACC has widely used as
a major large firms in Canada sensitivity analysis as most likes technique for major risk and real options is less.
There is recent from of research that DCF techniques are not used properly in USA, UK and Canada which may
result in wrong.

Anand Manoj (2002), Corporate Finance Practices in India: A Survey; Vikalpa; Vol. 27, No. 4,
October- December 2002,

PAGE NO 29-56,

Research 81 CFOs of Indian to know their finance practices which is capital budgeting decisions, capital
structure, cost of capital and dividend decisions. It is evaluated the responses of the firm features like profitability,
firm size, P/E ratio, leverage, CFO education and other sectir.

Rakesh H M (2013), a study on capital budgeting practices in listed companies of Bombay stock
exchange, tactful management research journal

2(2) PAGE NO 1-5,

In December 2013 to March 2014 the research conducted by using a questionnarire is sent to 163 people in
charge of capital budgeting listed in Bombay stock exchange (BSE) which is focused on capital budgeting
practices, investigates in numbers and the research article examines the use of capital relating to capital budgeting
which are large companies listed in BSE.

59
Kengatharan Lingesiya (2016), “Capital Budgeting Theory and Practice: A Review and Agenda for Future
Research.” Applied Economics and Finance, 3(2), PAGE NO 15-38.

The main purpose of this research was to decline the path in the extant capital budgeting theory & practice
during the last two decades and ipso facto become springboard for future scholarships.

Mawih Kareem Al-Ani. (2015), A strategic Framework to use payback period in evaluating the capital
budgeting in energy and oil and gas sectors in Oman.” International Journal of Economics and financial
Issues, 5(2), PAGE NO 469-475

This article aims to examine the associations between new variables & use the payback period in analysing
the capital budgeting decisions from the point of view of managers and investors in Oman.

..Weerakun Banda Yatiwelle Koralalage (2014), The use of capital budgeting techniques in large
businesses: Evidence from Sri Lanka, International Journal of Arts & Commerce

3(9), PAGE NO 77-84

This research article helps how to use capital budgeting techniques and investigates a number of variables and
associations which are related to capital budgeting practices in large listed companies in Sri Lanka. From the study
it was found that Net present value, Accounting rate of return, Payback period, Internal rate of return &
Profitability index are used to evaluate investment project.

Mbabazi Mbabazize Peter &Daniel Twesige (2014) Capital budgeting practices in developing
countries: A case of Rwanda, Research Journal of finance

2 (3), PAGE NO 1-19

This study focuses on the capital budgeting practices in Rwanda by looking on the capital budgeting techniques
and the cash flow estimation. The findings of this research show that firms in Rwanda are adopting the use of
discounted cash flow techniques though are still some inconsistencies on the acceptability as most firms are
still using wrong discount rates in discounting the expected cash flows.

60
 CHAPTER IV

OBJECTIVES OF THE STUDY

1) To evaluate the capital budgeting techniques relating to different projects of Maruti Suzuki India Limited
and Tata Motors Limited.

2) To analyze the effectiveness of long term investment decisions of Maruti Suzuki India Limited & Tata
Motors Limited.

3) To know how Capital Budgeting benefits and prevents from risk involved in the projects.

4) To offer the conclusion derived from the study and how best the capital budgeting works in giving the
effective decisions to company.

61
 CHAPTER V
RESEARCH METHODOLOGY

DATA COLLECTION:

PRIMARY DATA
The data is been collected by the primary source. It is been collected by the Personal Interview with the persons of
Maruti Suzuki India Limited and Tata Motors by interviewing them and asking them various questions related to
project “ Capital Budgeting Evaluation”
Primary research consists of a set of original primary data. It is mostly undertaken after researcher has received
some insight into the problem by reviewing secondary research or by analyzing previously collected primary data.
It is almost accomplished through various method including questionnaires and telephonic interviews in marketing
research or experiments and direct observation within the physical sciences among others.

SECONDARY DATA
Secondary data is data collected by someone apart from user. One of the common ways of secondary data are
included organizational record and data collected through qualitative methodologies or quantitative research.
 Data is collected from books, research papers.
 Data is also collected from company’s annual journal report.
 Other sources like internet, journal’s.

RESEARCH DESIGN:
It is the mixer of primary as well as secondary data, Qualitative is the data collected in the interview to get the
needed information for the data analysis and project report. The research is descriptive in nature.

SAMPLE SIZE
Since the research is based on books and questionnaire which was collected by from the personnel of both the
companies so it is very limited.

62
LIMITATION OF STUDY:
 The study is only limited Maruti Suzuki and Tata Motors.
 The study is limited to projects of Maruti Suzuki India Limited and Tata Motors
 The study period is only limited to last 5 years.
 The study cannot be used as other firm companies study.
 The limited time period is limitation to the project i.e 2015-2019.
 The information given in the project is used from the annual reports published by the companies.
 The capital budgeting evaluation is done on the basis of last 5 years.

INTRODUCTION TO AUTOMOBILE INDUSTRY

‘Automobile’ the word comes from French from ancient Greek word (auto) and latin mobiles (movable) which is
vehicle that moves itself rather than being pulled or pushed. The another name for the same is ‘Car’.
Today automobiles has become very essential part of our lives which are faster, cheaper and more convenient.

HISTORY OF AUTOMOBILES
The history of automobiles began from 4,000 years ago when the first vehicle was used for transportation in India.
The automobile industry began in 1769. The automobile industry can be divided number of eras. The government
of India and Indian private sector in 1953 started the process of manufacturing to develop the automobile industry,
which was initiated by nascent in 1940s.From 1970s to economic liberalization of 1991, the automobile industry
was on path of growth at the slow speed due to many obstacle by government. In between 1970-1980 many Indian
manufactures entered into this industry and also Japanese industry entered Indian market which was the result of
setup of company like Maruti Udyog. Quite a number to foreign nation started joint venture with Indian companies.

Following is the timeline of Indian Automobile industry:

 1901 Jamshedji Tata First Indian to own a car in India
 1905 Mrs.Suzanne RD Tata First Women to Drive a car in India
 1905 Fiat motors
 1911 First taxi in India
 1928 Chevrolet Motors
 1943 Hindustan Motors
 1947 Mahindra Motors
 1948 Ashok Motors

63
  1974 Sipani Motors
 1981 Maruti Udyog
 1994 Mercedes Benz
 1995 Honda Steel
 1995 Ford Motors
 1996 Hyundai Motors
 1997 Toyota
 1997 Fiat
 1998 San Motors
 2001 Skoda
 2003 Chevrolet
The economic reforms in 1991 helped automobile industry to open for 100% Foreign Direct Investment. A
increase in economic growth rate and purchasing power resulted to increase in automobile industry, which
has grown at interest rate of 17% from when economic reform has came in existence.

The automobile industry provided with employment to 13.1 million people in which it includes both direct
and indirect employment. The export sector has raised at a rate of 40% per year during 21 st century. Hence
overall contribution of automobile industry has been increased.

As the growth in automobile manufacturers has been led to market competition and also customer got
options in automobile industry. India was ranked highest in tractor manufacturers in world in 2005-2007.
India also has enough tyres production which also exports to 70 other countries.

MODERN ERA OF AUTOMOBILES

Through continuous improvement & the application of latest technology, the car reconfirmed and updated its
status as a triumph of engineering throughout the 20th century.29 Today the car remains the most voracious
consumer of latest technology of any product within the marketplace. And promising new technological
developments, such as the use of fuel cells as a power source, will undoubtedly keep the automobile on the
leading edge of technology in the 21st century30. There are some technical and style aspects that differentiate
modern cars from antiques. Some particularly notable advances in times are the wide spread of front wheel
drive and every one wheel drive, the adoption of the V6 engine configuration and therefore the ubiquity of fuel
injection. Nearly all modern passengers cars are front wheel drive unibody designs with transversely radical
just 20 years

64
earlier. Body styles have changed also within the era . For example some of the best selling cars in USA 2008
were Toyota Camry, Ford F series, Honda accord, Toyota Corolla, Honda Civic, Honda CR-V.

Sales statistics of automobile industries:

Manufacturer Sales ( IN MILLION)

Maruti Suzuki 12.56
Tata Motors 11.3
General Motors 10.3
Volkswagon 9.156
Nissan Renault 8.09
Hyundai 7.56
Toyota 7.53

Some of the modern car of India are:

Modern Cars in India

SR.NO COMPANY BRANDS

1 Maruti Suzuki Maruti Suzuki brezza, Maruti Suzuki ignis, Baleno,
Swift, Dzire, Ertiga, Wagon R.
2 Hyundai Hyundai Elite I20,Verna, Hyundai Venue, Creta,
Hyundai Elantra.
3 Tata Tata Nexon, Tata Altroz, Tata Tiago, Tata Safari, Tata
Nexa.
4 Ford Ford Eco Sport, Ford Endeavour, Ford Figo
5 Mahindra Scorpio, XUV300, Bolero, Marazzo, TUV300, Xylo.
6 Fiat Linea, Punto, 500
7 Volkswagen Vento, Polo, Ameo
8 Renault Duster, Kwid, Triber.
9 Jeep Jeep Compass, Wrangler,

65
Figure 5.1
Share of automobile industry in India 2018

GROWTH OF INDIAN AUTOMOBILE INDUSTRY

The Indian automobile industry is one among of the essential reason for Indian economy. Hence their were front
and back relations with several economic sectors, and hence automobile industry has strong effect on Indian
economy.
The Indian automobile industry is comprised of automobile and other component has been grown over the years.
The investment in automobile industry has increased from Rs 50,000 crore in 2007-2008 to Rs 250000 crore in
2017-2018.
The Indian automobile industry is currently producing large variety of vehicles which includes passenger cars,
light, medium and heavy vehicles, multiple utility vehicles such as Jeeps, two wheeler and three wheeler.
As per gap analysis report of Indian automobile industry contribution is close to 5% to Indian GDP and also 20-
23% to indirect tax to the Indian government. Liberalization, availability of skilled labors, availability of large
resources is increased due to economic growth. For global automobile industry is the prime destination. The Indian
automobile industry has provided over 15 million direct and indirect opportunities.
The total turnover of Indian automobile industry in 2010-2011 was USD 75 billion and contribution to
manufacturing industry GDP is 25% and excise duty is 23%. India exceeded Italy, France and UK to become 4th
largest vehicle manufacturer. In today time India is the largest producer of tractor manufacturer, two wheeler is
second largest manufacturer, and fourth largest commercial vehicle. According to the report India over took Brazil
and became 6th largest passenger vehicle producer.
In current situation India has become best destination for foreign automobile companies. The Indian automobile
industry is presently manufacture of 15 million vehicles and exports are about 1.7 million each

66
year. The automobile industry has grown in slow speed over last 8 years. As the automobile industry has grown not
only in domestic sales but also exports in India.

Following is the figure of growth reasons of automobile industry in India:

Growth in
road
infrastructure
Availability Variety &
of Finance availability
from banks of vehicles

Increase in Growth
Per capita Helpful
Reasons
Government
income
policies

Increasing
Urbanization
working class

Automobile Domestic Sales Trends (Number of Vehicle)

67
 Category 2013-14 2014-15 2015-16 2016-17 2017-18
Passenger 1,549,882 1,552,705 2,852,444 3,401,649 3,719,008
Vehicles
Commercial 5,90,594 4,84,256 6,34,184 7,89365 8,09,654
Vehicle
Three 3,65,458 3,95,485 4,50,550 5,26,024 5,15,259
Wheelers
Two 7,249,278 7,465,278 8,437,619 9,450.659 12,768,901
Wheelers
Total 9,784,654 9,934,365 13,295,397 15,581,381 17,147,624

The above table shows the total domestic sales in the year 2017-18 was 17,147,624 whereas the total domestic
sales in 2016-17 was 15,581,381 I comparison between two years their was a growth of 12.27 percent over two
years. The domestic sales of commercial vehicle in year 2017-18 were 8,09,542 that is in year 2017-18 the
registered growth was 18.20 percent.

In three wheeler section it was seen that the year 2017-18 registered domestic sales 5,15,259 vehicle in this year
it resulted in decline in 2.4% percent over years at the same time the two wheelers vehicle in 2017-18 was
12,768,901 the year 2017-18 depicted the huge growth of 15.16 percent.

68
 CAPITAL BUDGETING PRACTICES IN INDIAN AUTOMOBILES INDUSTRY

In recent times companies are growing in financial and profitable investment which is mostly based on sound
investment decisions which is supported on corporate strategy and which improves the competitive advantage.
Hence it is been taken that as comparative high sum of money and commitment is done for the long term and
decision cannot be changed. Over it capital budgeting decision have high and long term impact on the firms
performance and it is more of difficult to find the success or failure of the decision.

Hence the duty of the finance manager in today’s world is to make effective allocation of resources by selecting
proper investment proposal with decided cash flows and rate of return. Thus a financial manger has to decide
whether the investment is to be done or not and should be selected by using proper intelligence between various
alternatives. To all this a proper process is been decided to analyze, compare and select required project. This
procedure is known as Capital Budgeting.

The requirement of relevant and proper information for good investment decision making has been inspired the
series of capital budgeting techniques which is segregated into Discounted and Non discounted cash flows
Techniques. In further process the risk and uncertain events faced by the company in environmental has been
resulted in the growth and risk evaluation and management techniques to supple both DCF and NDCF depended
decision models. The calculation of accurate discount rate and allowing relative cash flows aim should been
acquired and should give more importance to efficient investment.

Many of the companies in automobile industry states with the problem of investment decisions and more level of
difficulty. So to easier the procedure the capital budgeting techniques is been brought in which by using the past
statistics company mangers can give proper decisions by using techniques of DCF & NDCF methods

69
 CHAPTER 8

DATA ANALYSIS & INTREPRETATION

1) Do your company uses any capital budgeting techniques pay back period (PBP), Net present
value(NPV), internal rate of return(IRR) etc for evaluating investment decision?

DATA ANALYSIS

USE OF CAPITAL BUDGETING TECHNIQUES

ANSWER PERCENTAGE
YES 85%
NO 15%

USE OF CAPITAL BUDGETING TECHNIQUES

YesNo

15%

85%

DATA INTERPRETATION:

As per the survey of the employees in Tata motors & Maruti Suzuki, the highest percent answer is YES
as it is 85% the company while taking investment decision both the company mostly uses techniques as it is
easy to take immediate decisions.

70
 2) When deciding on investment opportunity, risk consideration is always vital.

Risk consideration

1%
10%

Yes No
Not Sure
89%

DATA INTERPRETATION:

According to the survey the risk consideration while taking investment decisions risk consideration is
important as it is highest as it is 89%.

71
 3) Which of the following method is favored by your firm in deciding investment decisions to
choose?

Investment Decision
90
80
70
60
50
40 Investment Decision
30
20
10
0
Net Present Internal Rate Pay Back Profitability Average Rate
of Return
Value Period Index of Return

DATA INTERPRETATION:

One can observe that PBP (84.2%), NPV (80%) and IRR (72.5%) respectively are the most preferred
techniques for evaluating new capital budgeting projects. PBP is most preferred method used in various
investment decisions. The respondents prefer even NPV in the second preference in various decisions.
However the %age of ARR,PI and MIRR is very low.

72
 4) “Please indicate the relative importance of each of following Quantitative techniques used in your
firm to rank the proposal capital investment and to decide whether or not they should be accepted
for inclusion in the capital budget (on a scale of 1 to 5, where 1= not used, 2= unimportant, 3=
somewhat important, 4= important and 5= very important)”

Chart Title
0.9
0.8
0.7
0.6
0.5
0.4
0.3 Modified
Accounting
0.2 Internal Rate Payback Net Present Profitability Internal Rate
Rate of Return
0.1 of Return (IRR) Period (PBP) Value (NPV) Ratio (PI) of Return
(ARR)
0 (MIRR)
1
2 25%
3 76% 69%
4 85% 78%
5 70%

DATA INTERPRETATION:

The results are shown in ranked according to perceived importance. The responding firms ranked PBP
(69%), NPV (76.3%) and IRR (70%) and as the most important techniques respectively. Among these
techniques PBP is getting highest rating even though it ignores time value of money and it also ignores cash
flow beyond payback period. It seems as it is easy to calculate and understand, PBP is still a very popular
technique. Although it is not directly comparable, these results are consistent with the findings of Wong,
Farragher and Leung (1987), who found that payback, IRR and ARR were equally the most popular
techniques. However, NPV is ranked second and IRR is ranked third as the most important but 35.05 %
consider it as most important technique in this survey. Surprisingly, only 10.5% consider ARR as most
important technique, in fact 62.8% respondents are not using this technique at all.

73
 5) Please tick the capital budgeting technique used by you for evaluating various investment
decisions. You may tick multiple techniques if used.

S.NO Investment
Decision
1 New Project 80%
2 Expansion of existing operation 67%
3 Merger / Acquisition 75%
4 Replacement of 25%
Assets
5 Leasing of Assets 20%
6 Modernization 37%
7 Process or Product improvement 55%

Leasing of Assets,
20% Modernization,
37%
New Project, 80%

Replacement of,
25%

Expansion of
Merger / existing operation,
Acquisition, 75% 67%

DATA INTERPRETATION:

It explains the percentage of different sources of risk in a particular project. In case of new project specific
of the companies (80%) perceived it most important source of risk. It is important to note that not even a
single company considers it as most unimportant. At the same time more than half of the companies
(58.85%) perceived competitive risk as the most important risk and 41.15% respondents consider it as an
important risk.

74
6) What is the inflation adjustments methods used while estimating cash flows by your firm?
You may tick more than one item.

S.NO Particulars
1 Specify cash flow in constant prices and apply a real rate of 62%
return
2 Considered at risk analysis or sensitivity analysis 75%
3 All cash flows expressed in inflated price terms and discounted 57%
at the market rate of return
4 No adjustments 3%

Inflation Adjustment Methods

Specify cash flow in constant

2%
prices and apply a real rate of
return
29%31%
Considered at risk analysis or
sensitivity analysis

38% All cash flows expressed in

inflated price terms and
discounted at the market rate
of return
No adjustments

DATA INTERPRETATION:

As observed in the table, the equal numbers of firms (40.74%) prefer to adjust for inflation by
expressing all cash flows in inflated price terms and discounted at the market rate of return or
considering sensitivity analysis. Very few companies (15.67 %) are not making any adjustment for
inflation in their capital budgeting decisions.

75
 6) Is their at least one member of your employees assigned full time for capital investment
analysis?

Employees assigned

8%

Yes No

92%

DATA INTERPRETATION:

According to serve in MARUTI SUZUKI & TATA MOTORS 92% of employees are employed for the
capital investment analysis only for the few capital budgeting decisions the top management takes decsions.

76
 7) For calculating investment decisions the capital budgeting techniques your firm use the
standard model (e.g. a standard Microsoft excel)

DATA INTERPRETATION:

In India overall the basic software used for the capital budgeting decisions is Microsoft Excel which is 95%
only in few conditions like less the 5% other software are been used.

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 9) What are the level of personnel involved in taking capital budgeting techniques?

Hierarchical Level Of Personnel

Lower level
management, 39
Top level
management, 87

Middle level
management, 72

DATA INTERPRETATION

Most important decisions of the organizations are taken by top management. So according to the response of the
respondents 87% decisions are taken by management. However the representatives of the middle management ( and
lower level also took participation in decision making.

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 CHAPTER 9

FINDINGS AND CONCLUSION

FINDINGS:
 The capital budgeting decision for MARUTI SUZUKI INDIA LIMITED is governed by a manual issued
by the planning Commission. It contains the following important provisions in the regard: (1) It suggest the
use of various project 79 evaluation techniques, such as return on investment (ROD, payback period,
discounted cash flow (DCF) Evaluation and Review Technique (PERT), Critical path method (CPM), and
strengths, weaknesses, opportunities and Threats (SWOT) Analysis.
 The total assets of MARUTI SUZUKI INDIA LIMITED recorded consistent fluctuations from 1.24 (2007-
2008) to 1.87 (2011-2012). The lowest recorded as 1.14 (2009-2010). This decline is an account of lower
growth rates sales in those years.
 The total assets of TATA MOTORS LIMITED recorded consistent fluctuations from 1.32 (2007-2008) to
2.24 (2011-2012). The lowest recorded as 2.13 (2009-2010). This decline is an account of lower growth
rates sales in those years.
 The fixed assets of MARUTI SUZUKI INDIA LIMITED showing a fluctuating trend and increased from
2.57 times (2007-2008) to 3.65 times (2011-2012). These fluctuations any be due to fixed assets investment.
 The fixed assets of TATA MOTORS LIMITED shows the fluctuating trends form 0.76 (2007-2008) to
(2011- 2012) as 1.15 and the funds were required then continuously declined.

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 CONCLUSION:
 The budgeting exercise in MARUTI SUZUKI INDIA LIMITED & TATA MOTORS LIMITED also
covers the long term capital budgets, including annual planning and provides long term plan for 80
application of internal resources and debt servicing translated in to the corporate plan.
 The scope of capital budgeting also includes expenditure on plant betterment, and renovation, balancing
equipment, capital additions and commissioning expenses on trial runs generating units.
 To establish a close link between physical progress and monitory outlay and to provide the basis for plan
allocation and budgetary support by the government.
 A single discount rate should not be used for all the capacity budgeting projects.
 The manual recommends the computation of NPV at a cost of capital / discount rate specified from time to
time.
 The analysis of relevant facts and quantifications of anticipated results and benefits, risk factors if any,
must be clearly brought out.
 Feasibility report of the project is prepared on the cost estimates and the cost of generation.
 Scope of capital budgeting in Ultratech cements limited are
 Approved and ongoing schemes
 New approved schemes
 Unapproved schemes
 Capital budgets for plant betterment’s
 Survey and investigation

 Research and development budget

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 CHAPTER 10

BIBLIOGRAPHY

BOOKS:

Financial Management Prasanna Chandra

Management Accounting - R.K.Sharma & Shashi K.Gupta

Management Accounting - S.N.Maheshwary

WEBSITES:

• http\\:www.ultratech.co.in

• http\\:www.googlefinance.com

• http://www.investopedia.com/

• http://www.zenwealth.com/

• http://www.cliffnotes.com/

• http://www.capitalbudgetingtechniques.com/

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