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FINANCIAL APPRAISAL OF AUTOMOBILE
INDUSTRY IN INDIA
(A CASE STUDY OF HONDA SIEL CARS INDIA LIMITED)
THESIS
SUBMITTED TO THE
UNIVERSITY OF LUCKNOW
FOR THE DEGREE OF
Doctor Of Philosophy
In
COMMERCE
By
Nidhi Agarwal
Prof. R.K. Tripathi Dr. Ram Milan

Former Head & Dean Associate Professor
Supervisor Co-Supervisor
DEPARTMENT OF COMMERCE
UNIVERSITY OF LUCKNOW
LUCKNOW, U.P., INDIA
2014
CERTIFICATE
We certify that Ms. Nidhi Agarwal has carried out the research work on the
topic “Financial Appraisal of Automobile Industry in India (A Case Study
of Honda Siel Cars India Limited)” under our supervision. As claimed by the
researcher in her declaration, this thesis is her genuine and original research
work confirming to the subject. She fulfills the conditions laid down in the
relevant ordinances.
(Prof. R.K. Tripathi) (Dr. Ram Milan)

Former Head & Dean Associate Professor
Supervisor Co-Supervisor
DECLARATION
The thesis entitled “Financial Appraisal of Automobile Industry in India (A

Case Study of Honda Siel Cars India Limited)” is a genuine and original
work submitted by me in fulfillment of the award of degree of Doctor of
Philosophy in Commerce, University of Lucknow.
I further declare that the above thesis has not been submitted to any other
university or institute partially or wholly for the award of any other degree and
the references and sources have been duly acknowledged.
Date: (Nidhi Agarwal )

(Department of Commerce)
Place: Lucknow Lucknow University,
Lucknow.
i
PREFACE
One of the major industrial sectors in India is the automobile sector.

Subsequent to the liberalization, the automobile sector has been aptly described
as the sunrise sector of the Indian economy. This sector has witnessed
tremendous growth during the last two decades. On the canvas of the Indian
economy, automobile industry occupies a prominent place. Due to its deep
forward and backward linkages with several key segments of the economy,
automobile industry has a strong multiplier effect and is capable of being the
driver of economic growth. A sound transportation system plays a pivotal role
in the country's rapid economic and industrial development. The well-
developed Indian automobile industry skillfully fulfils this catalytic role by
producing a wide variety of vehicles- passenger cars, light, medium and heavy
commercial vehicles, multi-utility vehicles such as jeeps, scooters,
motorcycles, mopeds, three wheelers, tractors etc.
It has been able to restructure itself, absorb newer technology, align itself to the
global developments and realize its potential. This has significantly increased
automobile industry's contribution to overall industrial growth in the country.
Automobile Industry was delicensed in July 1991 with the announcement of
the New Industrial Policy. The passenger car industry was, however,
delicensed in 1993. With the gradual liberalization of the automobile sector
since 1991, the number of manufacturing facilities in India has grown
progressively. The economic contribution of the sector is significant. The
industry contributes ~22% of India's manufacturing GDP and ~7% of
India's overall GDP. The sector has also contributed to social development
and benefited local communities. It is one of the leading employment
providers in the country and has helped create nearly 19 million jobs
through direct and indirect employment.
The present study is undertaken to make the financial appraisal of automobile

industry in India. The performance of Indian Automobile Industry is analysed
ii
on the basis of production trend, sales trend, profitability analysis, financial
structure, financial performance and assessment of financial health. An
appraisal of performance is made from the accounting point of view to
assess the effectiveness of plans, policies and objectives of the industry
by measuring the efficiency of the automobile industry under study in various
areas of operations. The ever increasing importance and role of automobile
industry in t h e economic growth of a country, particularly in the
developing country like India have attracted several academicians,
professional institutions, research and administrations to conduct diversified
studies in this area.
The study is divided into 7 chapters. Chapter-1 introduces the topic and
presents the profile of automobile industry in India. This Chapter also includes
statement of the problem, significance of the study, selection of automobile
industry, objectives of research, hypothesis, research design and limitations of
the study. Chapter-2 presents a brief review of related literatures on the subject.
Chapter-3 presents the profile of the company selected for the study i.e. Honda
Cars India Limited. Chapter-4 discusses the tools and techniques of financial
appraisal. Chapter-5 deals with the financial appraisal of automobile industry in
India covering production, sales and exports of various heads of vehicles.
Chapter-6 primarily focuses on financial appraisal of Honda Cars India
Limited. We shall also present the comparative financial appraisal of the three
companies under study i.e. Honda Cars India Ltd., Maruti Suzuki India Ltd.
and Tata Motors Ltd. Chapter-7 deals with conclusions and suggestions.
Date (Nidhi Agarwal)
Place
iii
ACKNOWLEDGEMENT
Writing this thesis would have been a lonely and isolating task without the
love, support, patience and dedication of people who walked along with me on
this journey. People who helped me will always hold a special place in my
heart and I owe my sincere thanks to all of them.
I wish to express my sincere thanks and deep sense of gratitude to my

supervisor, Prof. R. K. Tripathi, Former Dean and Head, Department of
Commerce, Lucknow University, who spared his valuable time and provided
me encouragement and guidance for my research work. I am extremely grateful
to my Co-supervisor, Dr. Ram Milan, Associate Professor, Department of
Commerce, Lucknow University, for his encouragement and incessant help
during the research work. My simple words of acknowledgement are not
sufficient to express my gratitude to them for their intellectual guidance,
gracious advice, whole hearted co-operation and constant inspiration. In spite
of their busy schedule, they supervised my work and instilled confidence in me
at each and every step.
I also like to express my sincere thanks to Prof. Arvind Kumar, Head of

Department of Commerce, Lucknow University and Prof. A. Chatterjee,
Dean, Faculty of Commerce, Lucknow University, for their valuable guidance
and support extended to me during the course of studies. I am also thankful to
Prof. S.K. Shukla and all the teachers of the Department and Faculty of
Commerce, Lucknow University for extending their kind help.
I express my special gratitude to my family members, elders and youngers, for

their blessings and moral support which was a constant source of inspiration to
me. I express my special thanks to my parents Mr. Gyanesh Agarwal and
Mrs. Kusum Agarwal, who consistently encouraged me to successfully carry
out the study.
iv
I thankfully acknowledge the help and Cooperation extended by the library
staff of different libraries for providing necessary library facilities for
completion of this work. I am also thankful to all those who extended their
support directly or indirectly for this study.
Date (Nidhi Agarwal)
Place
v
LIST OF CONTENTS
CHAPTER Title Page
No.
Declaration i
Preface ii-iii
Acknowledgement iv-v
List of Contents vi-vii
List of Tables viii-xi
List of Diagrams xii-xiv
1 Introduction 1-72
1.1 Statement of the Problem
1.2 Significance of the study
1.3 Selection of Automobile Industry
1.4 Objectives of Research
1.5 Research Design
1.6 Limitations of the Study
1.7 Automobile Industry: its’ profile
1.8 Classification of Indian Automobile
Industry
1.9 Major Automobile Companies in India
1.10 Profile of Major Passenger Vehicles
Companies
2 Review of Literature 73-82
3 Honda Siel Cars India Limited - Its’ Profile 83-98

3.1 Honda’s Global Vision
3.2 Honda’s Milestones
3.3 Profile of Honda Siel Cars India Ltd.
3.3.1 Product Range
3.3.2 Awards and Accolades
vi
3.3.3 Future Prospects of the Company
4 Financial Appraisal Techniques - An Overview 99-134

4.1 Analysis and Interpretation of Financial
Statements
4.2 Types of Analysis and Interpretation
4.3 Tools and Techniques of Financial Analysis
4.4 Classification of Ratios
4.5 Usefulness of Ratio Analysis
4.6 Limitations of Ratio Analysis
5 Financial Appraisal of Automobile Industry in 135-154

India
5.1 Process of Financial Appraisal
5.2 Importance and Usefulness of Financial
Appraisal
5.3 Financial Appraisal of Automobile Industry
6 Financial Appraisal of Honda Cars India Ltd. and 155-220

other companies – Analysis of Data.
6.1 Liquidity Analysis
6.2 Managerial Efficiency Analysis
6.3 Leverage Analysis
6.4 Profitability Analysis
7 Conclusions and Suggestions 221-238
Bibliography 239-244
Appendices 245-251
vii
LIST OF TABLES
Table Title Page
No. No.
1.1 Indian Automobiles Industry Domestic Sales Trends 20
1.2 Indian Automobiles Industry Production Trends 20
1.3 Indian Automobiles Industry Exports Trends 21
1.4 Trend in Two Wheelers Sales and Growth 38
1.5 Trend in Two Wheelers Market Share 38
1.6 Indian Three Wheelers Industry Sales 43
1.7 Trends in Market Share in the Domestic M & HCV Segment 47
1.8 Trends in Market Share in the Domestic LCV Segment 47
1.9 Trend in Domestic Commercial Vehicle Volumes and 48
Growth Rates by Segments
1.10 Trend in Market Share of leading companies in the domestic 54
Passenger Vehicles Market
1.11 Trend in Market Share in the Small Car Segment 55
1.12 Trend in Market Share in Mid-Size Car Segment 55
1.13 Trend in Market Share in Executive Car Segment 56
1.14 Trend in Market Share in Luxury and Premium Car Segment 56
1.15 Passenger Vehicles Sales Volumes trend 58
1.16 Domestic Sales and Market Share of Passenger Vehicles 59
Industry in 2011-12 and 2012-13
1.17 List of Top Automobile Companies in India in 2011 62
5.1 Production Trends of Automobile Industry - Base Year 142
2001-02 (100) Indexing
5.2 Domestic Sales Trend– Base Year 2001-02 (100) Indexing 144
5.3 Exports trend- Base Year 2001-02 (100) Indexing 145
5.4 Analysis of Average Liquidity Ratios of Selected Companies 146
viii
(April 2001 to March 2011)
5.5 Analysis of Average Managerial Efficiency Ratios of 148
Selected Companies (April 2001 to March 2011)
5.6 Analysis of Average Profitability Ratios of Selected 149
Companies (April 2001 to March 2011)
5.7 Analysis of Average Leverage Ratios of Selected Companies 150
5.8 Assignment of Ranks to Selected Companies on the basis of 52
their Average Performance (April 2001 to March 2011)
6.1 Current Ratio of the Companies from the Financial Year 157
2007-08 to 2011-12
6.2 Liquid Ratio of the Companies from the Financial Year 159
2007-08 to 2011-12
6.3 Absolute Liquidity Ratio of the Companies from the 161
Financial Year 2007-08 to 2011-12
6.4 Inventory Turnover Ratio of the Companies from the 163
6.5 Average age of Inventory Period of the Companies from the 166
6.6 Debtors’ Turnover Ratio of the Companies from the 167
6.7 Average Collection Period of the Companies from the 170
6.8 Creditors’ Turnover Ratio of the Companies from the 172
6.9 Average Payment Period of the Companies from the 174
6.10 Working Capital Turnover Ratio of the Companies from the 175
6.11 Fixed Assets Turnover Ratio of the Companies from the 177
ix
6.12 Total Assets Turnover Ratio of the Companies from the 179
6.13 Capital Gearing Ratio of the Companies from the Financial 182
Year 2007-08 to 2011-12
6.14 Debt Equity Ratio of the Companies from the Financial Year 184
2007-08 to 2011-12
6.15 Total Debt Ratio of the Companies from the Financial Year 186
2007-08 to 2011-12
6.16 Proprietary Ratio of the Companies from the Financial Year 189
2007-08 to 2011-12
6.17 Fixed Assets to Proprietors’ Funds Ratio of the Companies 191
from the Financial Year 2007-08 to 2011-12
6.18 Current Assets to Proprietors’ Funds Ratio of the Companies 193
6.19 Interest Coverage Ratio of the Companies from the Financial 195
Year 2007-08 to 2011-12
6.20 Gross Profit Ratio of the Companies from the Financial Year 198
2007-08 to 2011-12
6.21 Net Profit Ratio of the Companies from the Financial Year 200
2007-08 to 2011-12
6.22 Operating Ratio of the Companies from the Financial Year 203
2007-08 to 2011-12
6.23 Operating Profit Ratio of the Companies from the Financial 205
Year 2007-08 to 2011-12
6.24 Direct Material Cost Ratio of the Companies from the 207
6.25 Administrative Expenses Ratio of the Companies from the 209
6.26 Selling and Distribution Expenses Ratio of the Companies 210
x
6.27 Cost of Goods Sold Ratio of the Companies from the 212
6.28 Return on Assets Ratio of the Companies from the Financial 214
Year 2007-08 to 2011-12
6.29 Return on Investment Ratio of the Companies from the 216
6.30 Return on Shareholders’ Funds Ratio of the Companies from 219
the Financial Year 2007-08 to 2011-12
7.1 Average Liquidity, Managerial Efficiency, Leverage and 228
Profitability Performance of Selected Companies (April
2007 to March 2012)
7.2 Assignment of Ranks to Selected Companies on the basis of 233
xi
LIST OF DIAGRAMS
Diagram Title Page
No. No.
1.1 Domestic Market Share of Automobiles for 2011-12 21
1.2 Sales Development of Indian Automobile Industry 23
1.3 Growth estimates and demand drivers of Indian 31
Automobile Industry
1.4 Classification of Indian Automobile Industry 34
1.5 Classification of Indian Two Wheelers Industry 35
1.6 Trend in two wheelers segment volume mix (Domestic) 37
1.7 Three Wheelers Industry Sales (Domestic vs. Exports) 41
1.8 Market Shares of Three Wheelers Industry 42
1.9 Market Share of Sub-Segments of Passenger Cars in 52
2012-13
1.10 Passenger Car Volumes: Segment –wise concentration 53
1.11 Trend in Domestic Sales of Passenger Vehicles Industry 57
1.12 Passenger Vehicles Majors’ Market Share in 2012-13 58
5.1 Production Growth Trends of Automobile Industry 142
6.1 Graph showing Current Ratio of the Companies from the 157
Financial Year 2007-08 to 2011-12 (Times)
6.2 Graph showing Liquid Ratio of the Companies from the 159
6.3 Absolute Liquidity Ratio of the Companies from the 161
6.4 Graph showing Inventory Turnover Ratio of the 164
Companies from the Financial Year 2007-08 to 2011-12
(Times)
6.5 Graph showing Debtors’ Turnover Ratio of the 165
(Times)
xii
6.6 Graph showing Creditors’ Turnover Ratio of the 172
(Times)
6.7 Graph showing Working Capital Turnover Ratio of the 176
(Times)
6.8 Graph showing Fixed Assets Turnover Ratio of the 178
(Times)
6.9 Graph showing Total Assets Turnover Ratio of the 180
(Times)
6.10 Graph showing Capital Gearing Ratio of the Companies 182
from the Financial Year 2007-08 to 2011-12 (Times)
6.11 Graph showing Debt Equity Ratio of the Companies from 185
the Financial Year 2007-08 to 2011-12 (Times)
6.12 Graph showing Total Debt Ratio of the Companies from 187
6.13 Graph showing Proprietary Ratio of the Companies from 189
6.14 Graph showing Fixed Assets to Proprietors’ Funds Ratio 191
of the Companies from the Financial Year 2007-08 to
2011-12 (Times)
6.15 Graph showing Current Assets to Proprietors’ Funds 193
Ratio of the Companies from the Financial Year 2007-08
to 2011-12 (Times)
6.16 Graph showing Interest Coverage Ratio of the 196
(Times)
6.17 Graph showing Gross Profit Ratio of the Companies from 198
xiii
the Financial Year 2007-08 to 2011-12 (Percentage)
6.18 Graph showing Net Profit Ratio of the Companies from 201
6.19 Graph showing Operating Ratio of the Companies from 203
6.20 Graph showing Operating Profit Ratio of the Companies 205
(Percentage)
6.21 Graph showing Return on Assets Ratio of the Companies 214
(Percentage)
6.22 Graph showing Return on Investment Ratio of the 217
(Percentage)
6.23 Graph showing Return on Shareholders’ Funds Ratio of 219
the Companies from the Financial Year 2007-08 to 2011-
12 (Percentage)
xiv
Chapter- 1
Introduction
Chapter- 1 Introduction
Introduction
Automobile industry is the key driver of any growing economy and plays a
pivotal role in country's rapid economic and industrial development. It caters to
the requirement of equipment for basic industries like steel, non-ferrous metals,
fertilizers, refineries, petrochemicals, shipping, textiles, plastics, glass, rubber,
capital equipments, logistics, paper, cement, sugar, etc. It facilitates the
improvement in various infrastructure facilities like power, rail and road
transport. Due to its deep forward and backward linkages with several key
segments of the economy, the automobile industry is having a strong multiplier
effect on the growth of a country and hence is capable of being the driver of
economic growth. It plays a major catalytic role in developing transport sector
in one hand and help industrial sector on the other to grow faster and thereby
generate a significant employment opportunities. In India, automobile is one of
the largest industries showing impressive growth over the years and has been
significantly making increasing contribution to overall industrial development
in the country. Automobile industry includes two wheelers, three wheelers,
commercial vehicles and passenger vehicles. The Indian automobile industry
has made rapid strides since delicensing and opening up of the sector in 1991.
It has witnessed the entry of several new manufacturers with the state-of-art
technology, thus replacing the monopoly of few manufacturers. There are 19
manufacturers of passenger cars & multi utility vehicles, 16 manufacturers of
commercial vehicles, 10 manufacturers of two wheelers and 7 manufactureres
of three wheelers in India. The norms for foreign investment and import of
technology have also been liberalised over the years for manufacture of
vehicles. At present, 100% foreign direct investment (FDI) is permissible under
the automatic route in this sector, including passenger car segment.
Presently, India is the world's second largest manufacturer of two wheelers,

fifth largest manufacturer of commercial vehicles and fourth largest
manufacturer of tractors. It is the seventh largest passenger car market in Asia
1
as well as a home to the largest motor cycle manufacturer. The installed

capacity of four wheelers is 3.88 million units, two and three wheelers is 14.31
million units. The Indian automobile industry has attained a turnover of USD
56,259.57 million and provides direct employment to 1 million people and
indirect employment to 18 million people in the country. The sector has shown
great advances in terms of development, spread, absorption of newer
technologies and flexibility in the wake of changing business scenario.
The majority of India's car manufacturing industry is based around three

clusters in the south, west and north. The southern cluster consisting of
Chennai and Bangalore is the biggest with 35% of the revenue share. The
western hub near Mumbai and Pune contributes to 33% of the market and the
northern cluster around the National Capital Region contributes 32%. Chennai,
is also referred to as the "Detroit of India" with the India operations of Ford,
Hyundai, Renault, Mitsubishi, Nissan, BMW, Hindustan Motors, Daimler,
Caparo, and PSA Peugeot Citroën is about to begin their operations by 2014.
Chennai accounts for 60% of the country's automotive exports.
The Indian Automobile Industry manufactures over 20.4 million vehicles and
exports about 2.9 million vehicles each year. The dominant products of the
industry are two-wheelers with a market share of over 75% and passenger cars
with a market share of about 16%. Commercial vehicles and three-wheelers
share about 9% of the market between them. About 91% of the vehicles sold
are used by households and only about 9% for commercial purposes. Tata
Motors is leading the commercial vehicle segment with a market share of about
58%. Maruti Suzuki is leading the passenger vehicle segment with a market
share of 45%. Hyundai Motor India Limited and Mahindra and Mahindra are
focusing expanding their footprint in the overseas market. Hero MotoCorp is
occupying over 41% and sharing 25% of the two-wheeler market in India with
Bajaj Auto. Bajaj Auto in itself is occupying about 58% of the three-wheeler
market.
2
The Indian Automobile Industry has flourished like never before in the recent
years. This extraordinary growth that the Indian automobile industry has
witnessed is a result of a major factor namely, the improvement in the living
standard of the middle class and an increase in their disposable incomes.
Moreover, the liberalization steps, such as, relaxation of the foreign exchange
and equity regulations, reduction of tariffs on imports, and refining the banking
policies initiated by the Government of India, have played an equally important
role in bringing the Indian Automobile Industry to great heights. The increased
demand for Indian automobiles has resulted in a large number of multinational
automobile companies, especially from Japan, the U.S.A., and Europe, entering
the Indian market and working in collaboration with the Indian firms. Also, the
institutionalization of automobile finance has further paved the way to sustain a
long term high growth for the industry.
The rising competition and increasing global trade are the major factors in
improving the global distribution system and has forced many auto-giants such
as General Motors, Ford, Toyota, Honda, Volkswagen, and Daimler Chrysler,
to shift their production bases in different developing countries which help
them operate efficiently in a globally competitive marketplace. During the
second half of the 1990‟s, the globalization of the automotive industry has
greatly accelerated due to the construction of important overseas facilities and
establishment of mergers between giant multinational automobile
manufacturers. Over the years, it is being observed that India is emerging as a
global automotive hub. India has growing potential market for automobiles due
to rise in demand. As a result, more and more manufacturers are bringing in
new forms of the existing product because diffusion of a new product depends
upon demand statistics. Automobile manufacturers, particularly car
manufacturers are attracting buyers with new model, shopping to tap growing
demand for automobiles. Utility vehicles also post significant growth. Further,
two and three wheeler industries, specially the motorcycle segments, have
3
shown a steep jump, while the volume growth of all the players has recorded
pretty good market share.
1.1 STATEMENT OF THE PROBLEM
In the fast changing economic scenario world over, the management of any
company has to play a dynamic role in managing its finances. To make rational
decisions in tune with the objectives of the firm, the management must analyze
the funds needs, the financial status and profitability and the business risk of
the company (Van Horne 2000).
As there is an increasing competition from other global players, the

management has to initiate appropriate steps to lower the cost of production
and generation of additional revenues through cost competitiveness. For this
purpose, certain production areas have been identified for cost reduction. The
management can aim at increasing the profit through the following methods:
a) Optimization of the product mix with a view to enhance the sales

revenue and thus, the profitability of the company.
b) Increased production of value added products.
c) Continuous reduction of inventory levels of spare and raw materials.
d) Implementation of expansion plans as per the fixed schedule with an eye
on capturing the expanding market.
e) Creating good reputation in customers by providing adequate sales
network and enhancing after sales services.
In the light of the above, proper analysis of the financial statements of the
company is necessary to assess the financial health of the company, as it
provides valuable insights into its financial performance. Financial appraisal
provides a method for accessing the financial strengths and weakness of a
company. There are two views of the financial strength of every organization
based on the period of lending i.e., the short term and long term. Short term
financial strength relates to the technical solvency of an organization in the
4
near future, while the long term financial strength depends on the structure that
has been imposed in financing more permanent asset requirements.
To analyze the financial strength of Indian Automobile Industry we chose the

topic of research study as “Financial Appraisal of Automobile Industry in India
(A case study of Honda Cars India Limited)” and analyzed the financial
performance of selected automobile companies namely Honda Cars India
Limited with Maruti Suzuki India Limited and Tata Motors Limited by using
appropriate financial appraisal techniques as well as comparing the financial
strength thereof.
1.2 SIGNIFICANCE OF THE STUDY
Financial Appraisal is of special importance in industries and automobile

industry is one of such industry. From the point of view of the socio-economic
development of the country, automobile is significant enough in terms of
investment and employment. The sales and profitability function in automobile
industry differs from that of other industries.
a) The study will be helpful in understanding the pattern and the structure
of financial variables of selected company apart from identifying the
financial relationship with other major automobile companies in India.
b) The study will be helpful in checking current performance against
predetermined standards contained in the plans and will be helpful in
evaluation of standards.
c) The study will be helpful in forming the policies of the management
within the scheduled time and approve cost.
d) The study will be helpful in ensuring maximum economy in
expenditure.
e) The study will be helpful to the management, the financiers the investors
and the government at large, to take valuable decisions on their own.
5
f) The study will be helpful to shareholders, investors and investment

analysts to identify the determinants of financial appraisal of selected
automobile industry.
g) The study will also be helpful to academic researchers, researchers in
securities, industries and companies by providing different perspectives.
1.3 SELECTION OF AUTOMOBILE INDUSTRY
Transport sector plays a key role in a country‟s economic growth and

development. Transportation throughout the world has made possible
unprecedented level of mobility across the geographical boundaries. The
mobility has given many people more options about where to live, and work
than they had years ago. Similarly, mobility has broadened the access of
business to new markets and more choices by increasing the available pool of
resources. From the economic point of view, transportation is a vital factor for
steady economic growth and development. The trade facilitated by
transportation has been a growing component of national income in all
countries. Studies show that the contribution of transportation in GDP has a
positive impact. The structure of the economy also influences the transport
system because consumer expenditure on transportation contributes to national
economy. Transport sector is equally important for both industrialized and
developing economies. Transport sector including water transport, aviation and
surface transport are major players of Gross Domestic Product (GDP), which
includes the value of all goods and services. Being the largest transport
networking in the world, particularly in road transportation, automobile
industry plays a significant role in the GDP of the country.
Automobile industry is a major constituent of surface transport. Automobiles

include passenger cars, commercial vehicles, two and three wheelers; India has
growing market potential for automobiles due to rise in demand. As a result,
more and more manufacturers are bringing in new forms of the existing product
because diffusion of a new product depends upon demand statistics.
6
Automobile manufacturers, particularly car manufacturers, are attracting

buyers with new model, shopping to tap growing demand for automobiles.
Utility vehicles also post significant growth. Further, two and three wheelers
industries, specially the motor cycle segments, have shown a steep jump, while
the volume growth of all the players has recorded pretty good market share.
Therefore, automobile industry has been selected for this study in order to
determine its financial appraisal during the study period.
1.4 OBJECTIVES OF RESEARCH
Main objective of present study is to carry out financial appraisal of

Automobile Industry in India with special reference to Honda Cars India
Limited. The following are the basic objectives of this study:
a) To analyse and interpret the growth of automobile industry in India.

b) To analyse the trends of production, capacity utilization, sales and
market share of the selected automobile company i.e. Honda Cars
India Ltd.
c) To evaluate financial structure, financial performance and financial
health of Honda cars India Ltd.
d) To carry out profitability and efficiency analysis of Honda cars India
Ltd.
e) To analyse liquidity and long term solvency of Honda cars India Ltd.
f) To carry out a comparative study of Honda cars India Ltd.with
Maruti Suzuki India limited and Tata Motors limited regarding their
financial performance.
g) To suggest the measure for improvement in profitability, efficiency,
liquidity and solvency.
1.5 RESEARCH DESIGN
Research design means a sketch or a drawing of a research project‟s structure.

It comprises a series of prior pronouncements that, taken together, provide a
7
roadmap for carrying out a research project. The research design of the present
study is outlined here under.
Keeping in view the scope of the study, it is decided to carry out in depth case
study of Honda Cars India Limited from the financial year 2007-08 to 2011-12
and for comparison, include Maruti Suzuki India Limited and Tata Motors
Limited. The study is mainly based on secondary data. The major source of
data analysed and interpreted in this study related to all those companies
selected is collected from “PROWESS” database, which is the most reliable on
the empowered corporate database of Centre for Monitoring Indian Economy
(CMIE). The database provides financial statements, ratio analysis, fund flow,
cash flow, product profiles, returns and risk on the stock market. The relevant
secondary data have also been collected from annual reports of companies, bse
stock exchange official directory, CMIE publications, annual survey of
industry, business newspapers, reports on currency and finance, libraries of
various research institutions, through internet etc.
The financial analysis approach plays a vital role in the financial environment.
To enjoy the benefit of financial analysis, we have collected, assembled and
correlated the data, classified the data appropriately and condensed them into a
related data series; stated the resultant information in a comprehensive form, in
text and tables and analysed and interpreted the reported data. The financial
appraisal techniques are applied in the study. It is well known that management
is concerned with efficient performance, profitability and solvency. For this
purpose it has to study certain specific ratios, because investors look upon
certain ratios, which are concerned with an organization‟s performance
appraisal. For the purpose of this study, we have used liquidity ratios, turnover
ratios, profitability ratios and long term solvency ratios.
8
1.6 LIMITATIONS OF THE STUDY
However, there are some limitations of the study, which are generally inherent
in all such studies conducted at human level. The most important among them
are:
a) The study is based on secondary data obtained from the published

annual reports and as such its finding depends entirely on the accuracy
of such data.
b) Non-availability of some required financial data for the period of study
has restricted the size of the sample. Therefore, the limitation of the
small sample is also prevalent in this study.
c) The present study is largely based on ratio analysis which has its own
limitations.
d) The analysis of financial statement of business enterprise gives
diagnostic indicators. We being an outside, external analyst, obviously
has no access to internal data. Therefore, inside view of the organization
cannot be characterized in the study.
e) The financial statement does not keep pace with the changing price
level.
However, all these limitations do not, in any way, affect the worth of this
research work.
1.7 AUTOMOBILE INDUSTRY: ITS’ PROFILE
The Automotive Industry is globally one of the largest industries and a key
sector of the economy. Owing to its deep forward and backward linkages, it has
a strong multiplier effect and acts as one of the important drivers of economic
growth. With the gradual liberalization of the automotive sector in India since
1991, the number of manufacturing facilities has grown progressively. It
produces a wide variety of vehicles: passenger cars, light, medium and heavy
commercial vehicles, multi-utility vehicles such as jeeps, two wheelers such as
9
scooters, motor-cycles and mopeds, three wheelers, tractors and other

agricultural equipments etc. With a CAGR of over 15% during the last 5-7
years, it is aptly described as the next sun rise sector of the Indian economy. In
fact, in the last ten years, the volumes, exports and turnover have increased by
3.8, 19.6 and 6 times respectively. . It has grown 14.4 percent over the past
decade. With more than 35 automakers, the industry contributes 7 percent to
India‟s GDP and is responsible for 7 to 8 percent of India‟s total employed
population. The main automobile hubs in India are based at Chennai, Gurgaon,
Manesar, Pune, Ahmedabad, Halol, Aurangabad, Kolkata, Noida and
Bangalore. Chennai is the biggest hub accounting for 60% of Indian auto
exports.
The Indian automobile industry, comprising passenger cars, two-wheelers,

three-wheelers and commercial vehicles, is the seventh-largest in the world
with an annual production of 20.4 million vehicles, of which 2.9 million are
exported. Two-wheelers dominate the Indian market; more than 75% of the
vehicles sold are two wheelers. In the passenger car segment, India is mainly a
small car market though mid size and big car sale is continuously rising in
recent years. The major companies present in the automobiles market in India
include Tata Motors Limited, Maruti Suzuki India Limited, Mahindra &
Mahindra Limited, Ashok Leyland Limited, Hero MotoCorp Limited, Bajaj
Auto Limited, Echier Motors Limited and Force Motors Limited. Tata Motors
is India‟s largest automobile company; the company manufactures commercial
and passenger vehicles, and is the world‟s fourth-largest truck manufacturer
and the second-largest bus manufacturer. Maruti Suzuki is India‟s largest
passenger car company, accounting for 45% share of the Indian car market.
Hero MotoCorp is the world‟s largest two-wheeler manufacturing company in
the world. Its market share in the Indian two-wheeler segment is 41%. Bajaj
Auto is the world‟s fourth-largest two-wheeler and three-wheeler manufacturer.
Over the years, the Indian automobile industry has become quite resilient and
despite the down turn witnessed due to economic slowdown during 2007-09, it
10
was amongst the first few manufacturing sectors to recover and has registered
impressive growth figures in the recent past. In fact the global recession of
2007-09 has firmly shifted the centre of gravity of the automotive industry to
the east. It is predicted that the future growth of automotive industry will
primarily come from the emerging economies which include the BRIC nations
viz. Brazil, Russia, India and China along with Thailand, Iran and Mexico.
At present, there are 19 manufacturers of passenger vehicles, 16 manufacturers

of commercial vehicles, 10 manufacturers of two wheelers and 7 manufacturers
of three wheelers in India. In 2010-11, India surpassed France, UK and Italy to
become the 6th largest vehicle manufacturer globally. Today, it is the largest
manufacturer of tractors, second largest manufacturer of two wheelers, 5th
largest manufacturer of commercial vehicles and the 7th largest passenger car
market in Asia. During the financial year 2010-11, India exported 2.35 million
vehicles to more than 40 countries which included 0.45 million passenger cars
and 1.54 million two wheelers. Today, the automobile industry provides direct
and indirect employment to 18.5 million people. In 2010-11, the turnover of the
automobile industry was USD 53.1 billion. In 2010-11 the total global demand
of passenger vehicles was 73 million units, of which the volume in India was 3
million units (4%).
Snippets of Indian Automobile Industry
 The first automobile in India rolled in 1897 in Bombay.

 India is being recognized as potential emerging auto market.
 Foreign players are adding to their investments in Indian auto industry.
 Within two-wheelers, motorcycles contribute 75% of the segment size.
 Unlike the USA, the Indian passenger vehicle market is dominated by
cars (79%).
 Tata Motors dominates over 60% of the Indian commercial vehicle
market.
 Largest three wheeler market in the world
 2nd largest two wheeler market in the world
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 7th largest passenger car market in Asia & 10th Largest in the world
 4th largest tractor market in the world
 5th largest commercial vehicle market in the world
 5th largest bus & truck market in the world.
1.7.1 EVOLUTION OF INDIAN AUTOMOBILE INDUSTRY
The year 1898 saw the first car rolling out, on the streets of Mumbai. Since
then Indian auto industry has witnessed a lot of change. A land of Premier
Padminis, Ambassadors, scooters, temps, trucks and autos galore, India had not
seen much of choice in vehicles. Only the affluent could think of owning a
personal four-wheeler and the clichéd image of a car followed by lots of
children on a dusty road was actually true. While the automotive industry in
India started developing in the 1940s, distinct growth rates started only in the
1970s. Cars were considered ultra luxury products, manufacturing was strictly
licensed, expansion was limited and there was a restrictive tariff structure.
This was the pre-1980 era where the manufacturing of automobiles especially
cars was subject to strict licensing, restrictive tariff structure and limited
avenues for expansion. This period was marked by unfavorable government
policies – steep excise duties and sales tax, and high customs duty on import.
There were only two major players in this period – Hindustan Motors and
Premier Automobiles Ltd. In 1983, the government of India entered into a joint
venture with Suzuki to form Maruti Udyog. The advent of foreign technology
collaboration came with the inception of Maruti Udyog in collaboration with
Suzuki of Japan in the passenger car segment. Indian roads saw the launch of
Maruti 800. It was still not very easy to own a car, first was affordability and
next was a long waiting period.
In the early 1990s, with liberalization, some more Japanese manufacturers

entered the two-wheeler and the commercial vehicle segment in a collaborative
arrangement. This period characterized joint ventures in India and the market
started opening up. Automobile Industry was delicensed in July 1991 with the
12
announcement of the New Industrial Policy. The passenger car industry was,
however, delicensed in 1993. The abolition of the controls led to an avalanche
of demand. The era of controls and protection came to an end. Curbs on
capacity were done away with, decrease in customs and excise duties meant
that a vehicles started getting affordable. The entry of foreign banks with
attractive auto finance schemes helped garner a huge base of middle class
population. However the market was still ruled by the sellers. The automobile
sector in India went a metamorphosis as a result of these policies with a
number of local players coming into prominence during this period. After the
sector opened to foreign direct investments in 1996, global majors moved into
the Indian market.
Early 2000 however saw globalization of Indian auto industry. Several policy
changes were introduced with focus on boosting the auto exports. A Core
Group on Automotive Research and Development (CAR) was established in
2003 for encouraging R&D activities. Foreign manufactures started looking at
India for sourcing auto components. The buyers started ruling the market due
to the availability of choices in the form of models, price points and brands. A
vibrant economy meant an increase in the GDP and per capita income. These
factors turned out to be significant contributors in pushing up the domestic
demand. The vast geographic spread of India attracted foreign investments. For
the commercial vehicles, the steady growth in Indian economy led to demand
for trucks, tempos, buses etc. The IT and BPO culture that boosted exports and
employment also pushed the sales of vehicles. Indian economy also witnessed
rapid industrialization. Factories needed transport both for goods and for their
employees. The retail boom in India saw malls, supermarket chains
mushrooming all over the urban areas, pushed the demand for efficient logistics
and that in turn increased the number of commercial vehicles.
1.7.2 HISTORY OF THE WORLD’S AUTOMOBILE INDUSTRY
The automobile as we know, it was not invented in a single day by a single

inventor. The history of the automobile reflects an evolution that took place
13
worldwide. It is estimated that over 100,000 patents created the modern

automobile. However, we can point to the many firsts that occurred along the
way. Several Italians recorded designs for wind driven vehicles. The first was
Guido da Vigevano in 1335. Vaturio designed a similar vehicle, which was also
never built. The first vehicle to move under its own power for which there is a
record was designed by Nicholas Joseph Cugnot and constructed by M. Brezin
in 1769. The early steam powered vehicles were so heavy that they were only
practical on a perfectly flat surface as strong as iron. A road thus made out of
iron rails became the norm for the next hundred and twenty-five years. Many
attempts were being made in England by the 1830's to develop a practical
vehicle that didn't need rails. A Frenchman named Etienne Lenoir patented the
first practical gas engine in Paris in 1860 and drove a car based on the design
from Paris to Joinville in 1862.
Siegfried Marcus, of Mecklenburg, built a car in 1868 and showed one at the
Vienna Exhibition of 1873. His later car was called the Strassenwagen had
about 3/4-horse power at 500 rpm. It ran on crude wooden wheels with iron
rims and stopped by pressing wooden blocks against the iron rims, but it had a
clutch, a differential and a magneto ignition. In 1885, Gottllieb Daimler's in
Bad Cannstatt built the wooden motorcycle. Daimler's son Paul rode this
motorcycle from Cannstatt to Unterturkheim and back on November 10, 1885.
On 29th January 1886, Karl Benz was granted a patent on it and on 3rd July
1886, he introduced the first automobile in the world to an astonished public.
Also in August 1888, William Steinway, owner of Steinway & Sons piano
factory, talked to Daimler about US manufacturing right and by September had
a deal. By 1891 the Daimler Motor Company, owned by Steinway, was
producing petrol engines for tramway cars, carriages, quadricycles, fire engines
and boats in a plant in Hartford, CT. By 1890 Ransom E. Olds had built his
second steam-powered car. One was sold to a buyer in India, but the ship it was
on was lost at sea. Running by February, 1893 and ready for road trials by
September, 1893 the car built by Charles and Frank Duryea, brothers, was the
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first gasoline powered car in America. The first run on public roads was made
on September 21, 1893 in Springfield, MA. Henry Ford had an engine running
by 1893 but it was 1896 before he built his first car. With the financial backing
of the Mayor of Detroit, William C. Maybury and other wealthy Detroiters,
Ford formed the Detroit Automobile Company in 1899.
Eli Olds built first petrol-powered car. This car was running by 1896 but
production of the Olds Motor Vehicle Company of Detroit did not begin until
1899. After an early failure with luxury vehicles they established the first really
successful production with the classic Curved Dash Oldsmobile. E. Olds was
the first mass producer of gasoline-powered automobiles in the United States,
even though Duryea was the first auto manufacturer with their 13 cars. The
Rolls Royce Silver Ghost of 1906 was a six cylinder car that stayed in
production until 1925. It represented the best engineering and technology
available at the time and these cars still run smoothly and silently today. This
period marked the end of the beginning of the automobile.
1.7.3 HISTORY OF THE INDIAN AUTOMOBILE INDUSTRY
About hundred years ago the first motorcar was imported and Import duty on
vehicles was introduced. Indian Great Royal Road (Predecessor of the Grand
Trunk Road) was conceived. First car brought in India by a princely ruler in
1898. Simpson & Co established in 1840. They were the first to build a steam
car and a steam bus, to attempt motorcar manufacture, to build and operate
petrol driven passenger service and to import American Chassis in India.
Railways first came to India in 1850's. In 1865 Col. Rookes Crompton
introduced public transport wagons strapped to and pulled by imported steam
road rollers called streamers. In 1919 at the end of the war, a large number of
military vehicles came on the roads. 1942 Hindustan Motors Ltd incorporated
and their first vehicle was made in 1950. In 1944 Premier Automobiles Ltd
incorporated and in 1947 their first vehicle was produced. In 1947 the
Government of Bombay accepted a scheme of Bajaj Auto to replace the cycle
15
rickshaw by the auto and assembly started in a couple of years under a license
from Piaggio. Automobile Products of India (API) and Enfield India had
already commenced the manufacture of scooters, motorcycles, mopeds and
autos from 1955. In 1956, Bajaj Tempo Ltd entered the Indian market with a
program of manufacturing Commercial Vehicles, and Simpson for making
engines. AIA&AIA (association of the component manufacturers) came into
being in 1959 and Government approved Bajaj Auto Ltd's plans for domestic
manufacture of Vespa scooters and granted permission to produce 6000 units
annually.
In sixties two and three wheeler segment established a foothold in the industry.
Escorts and Ideal Jawa entered the field in the beginning of sixties. Association
of Indian Automobile Manufacturers formally established in 1960. Between
1955 and 1960 only API was producing Mopeds. During the first half of the
sixties three companies namely Mopeds India Ltd (1965), SZUL Gwalior
(1964) and Pearl Scooters Ltd (1962) entered the arena. During the decade of
1970‟s there was not much change in the four-wheeler industry except the entry
of Sipani Automobiles in the small car market. In the Two Wheeler Industry
there were many entries during this decade. Scooter India established in 1972.
In 1972 Kinetic Engineering entered the Industry with a licensed capacity of
100,000 units per annum. Three other companies, namely, Kirloskar Ghatge
Patil Auto Ltd, Indian Automotive Ltd and Sen & Pandit Engg products Ltd
entered the market during 1971-75. They ultimately withdrew in early eighties.
Unlike Motorcycle and Scooter segments the Mopeds segment grew rapidly. In
the late seventies there were many entries in the Moped Industry.
Since the 1980s, the Indian car Industry has seen a major resurgence with the
opening up of Indian shores to foreign manufacturers and collaborators. First
phase of liberalization announced and unfair practices of monopoly, oligopoly,
etc slowly disappeared. It was beginning of Liberalization of the protectionism
policies of the Government. Lots of new Foreign Collaborations came up in the
eighties. Many companies went in for Japanese collaborations. Hindustan
16
Motors Ltd. in collaboration with Isuzu of Japan introduced the Isuzu truck in
early eighties. The Two Wheeler market increased since 1982, the Government
had permitted foreign collaborations for the manufacturing of Two Wheelers
up to 100 cc engine capacity. Foreign Equity up to 40% was also allowed. In
1983 Maruti Udyog Ltd was started in collaboration with Suzuki, a Japanese
firm. Other three Car manufacturers namely, Hindustan Motors Ltd., Premier
Automobiles Ltd., Standard Motor Production of India Ltd. also introduced
new models in the market. At the time there were five Passenger Car
manufacturers in India - Maruti Udyog Ltd., Hindustan Motors Ltd., Premier
Automobiles Ltd., Standard Motor Production of India Ltd., Sipani
Automobiles. Ashok Leyland Ltd. and Telco were strong players in the
Commercial Vehicles sector. In 1983-84 Bajaj Tempo Ltd. entered into
collaboration with Daimler-Benz of Germany for manufacture of LCVs.
Important policy changes like relaxation in MRTP and FERA, delicensing of
some ancillary products, broad banding of the products, modifications in
licensing policy, concessions to private sector (both Indian and Foreign) and
foreign collaboration policy etc. resulted in higher growth / better performance
of the industry than in the earlier decades.
Beginning with mid-1991 the government of India has made some radical
changes in polices bearing on trade, foreign investment, exchange rate,
industry, fiscal affairs and so on. Mass Emission Norms were introduced for in
1991 for Petrol Vehicles and in 1992 for Diesel Vehicles. In 1991 new
Industrial Policy was announced. It was the death of the License Raj and the
Automobile Industry was allowed to expand. Further tightening of Emission
norms was done in 1996. In 1997 National Highway Policy has been
announced which will have a positive impact on the Automobile Industry. The
Indian Automobile market in general and Passenger Cars in particular have
witnessed liberalization. Many multinationals like Daewoo, Peugeot, General
Motors, Mercedes-Benz, Honda, Hyundai, Toyota, Mitsubishi, Suzuki, Volvo,
Ford and Fiat entered the market. Various companies are coming up with state-
of-art models of vehicles. TELCO has diversified in Passenger Car segment
17
with Indica. Despite the adverse trend in the growth of the industry, it is
resolutely trying to meet the challenges. Various issues of critical importance to
the industry are being dealt with forcefully. In 1999 The Hon‟ble Supreme
Court passed an order directing all car manufacturers to comply with Euro I
emission norms (India 2000 norms) by the 1st of May 1999 in National Capital
Region (NCR) of Delhi. The deadline was later extended to 1st June 1999. The
90s have become the melting point for the car industry in India. The consumer
is king. He is being constantly wooed by both the Indian and foreign
manufacturers. Though sales had taken a dip in the first few months of 1999, it
is back to boom time. New models like Maruti‟s Classic, Alto, Station Wagon,
Ford‟s Ikon and the new look Mitsubishi Lancer have all been launched with
an eye on the emerging market.
1.7.4 CURRENT STATUS OF AUTOMOBILE INDUSTRY IN INDIA
The world standings for the Indian automobile sector, as per the Confederation
of Indian Industry in financial year 2012, were as follows:
 Largest three-wheeler market

 Second largest two-wheeler market
 Tenth largest passenger car market
 Fourth largest tractor market
 Fifth largest commercial vehicle market
 Fifth largest bus and truck segment
The cumulative production data for April-March 2012 shows production

growth of 13.83 percent over same period last year. In March 2012 as
compared to March 2011, production grew at a single digit rate of 6.83 percent.
In 2011-12, the industry produced 20,366,432 vehicles of which share of two
wheelers, passenger vehicles, three wheelers and commercial vehicles were 76
percent, 15 percent, 4 percent and 4 percent respectively.
The growth rate for overall domestic sales for 2011-12 was 12.24 percent
amounting to 17,376,624 vehicles. In the month of only March 2012, domestic
18
sales grew at a rate of 10.11 percent as compared to March 2011. Passenger

Vehicles segment grew at 4.66 percent during April-March 2012 over same
period last year. Passenger Cars grew by 2.19 percent, Utility Vehicles grew by
16.47 percent and Vans by 10.01 percent during this period. In March 2012,
domestic sales of Passenger Cars grew by 19.66 percent over the same month
last year. Also, sales growth of total passenger vehicle in the month of March
2012 was at 20.59 percent (as compared to March 2011). For the first time in
history car sales crossed two million in a financial year. The overall
Commercial Vehicles segment registered growth of 18.20 percent during April-
March 2012 as compared to the same period last year. While Medium & Heavy
Commercial Vehicles (M&HCVs) registered a growth of 7.94 percent, Light
Commercial Vehicles grew at 27.36 percent. In only March 2012, commercial
vehicle sales registered a growth of 14.82 percent over March 2011. Three
Wheelers sales recorded a decline of (-) 2.43 percent in April-March 2012 over
same period last year. While Goods Carriers grew by 6.31 percent during
April-March 2012, Passenger Carriers registered decline by (-) 4.50 percent. In
March 2012, total Three Wheelers sales declined by (-) 9.11 percent over
March 2011. Total Two Wheelers sales registered a growth of 14.16 percent
during April-March 2012. Mopeds, Motorcycles and Scooters grew by 11.39
percent, 12.01 percent and 24.55 percent respectively. If we compare sales
figures of March 2012 to March 2011, the growth for two wheelers was 8.27
percent.
During April-March 2012, the industry exported 2,910,055 automobiles

registering a growth of 25.44 percent. Passenger Vehicles registered growth at
14.18 percent in this period. Commercial Vehicles, Three Wheelers and Two
Wheelers segments recorded growth of 25.15 percent, 34.41 percent and 27.13
percent respectively during April-March 2012. For the first time in history car
exports crossed half a million in a financial year. In March 2012 compared to
March 2011, overall automobile exports registered a growth of 17.81 percent.
Overall Indian Automobile Industry has shown 2.61% growth in 2012-13

compare to 2011-12. Production and Domestic sales has registered growth of
19
1.20% and 2.61%, however export is negative growth due to negative global
environment and fluctuation.
Table 1.1: Indian Automobiles Industry Domestic Sales Trends
Automobile Domestic Sales Trends (Number

of Vehicles)
Category 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13
Passenger 1,379,979 1,549,882 1,552,703 1,951,333 2,501,542 2,618,072 2,686,429
Vehicles
Commercial 467,765 490,494 384,194 532,721 684,905 809,532 793,150
Vehicles
Three 403,910 364,781 349,727 440,392 526,024 513,251 538,291
Wheelers
Two 7,872,334 7,249,278 7,437,619 9,370,951 11,768,910 13,435,769 13,797,748
Wheelers
Grand Total 10,123,988 9,654,435 9,724,243 12,295,397 15,481,381 17,376,624 17,815,618
Source: Siam (Society of Indian Automobile Manufacturers) Industry Statistics, 2013
Table 1.2: Indian Automobiles industry Production Trends
Automobile Production Trends (Number of

Vehicles)
Category 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13
Passenger 1,545,223 1,777,583 1,838,593 2,357,411 2,982,772 3,146,069 3,233,561
Vehicles
Commercial 519,982 549,006 416,870 567,556 760,735 929,136 831,744
Vehicles
Three 556,126 500,660 497,020 619,194 799,553 879,289 839,742
Wheelers
Two 8,466,666 8,026,681 8,419,792 10,512,903 13,349,349 15,427,532 15,721,180
Wheelers
Grand Total 11,087,997 10,853,930 11,172,275 14,057,064 17,892,409 20,382,026 20,626,227
20
Table 1.3: Indian Automobiles Industry Exports Trends
Automobile Exports Trends (Number

of
Vehicles)
Category 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13
Passenger 198,452 218,401 335,729 446,145 444,326 507,318 554,686
Vehicles
Commercial 49,537 58,994 42,625 45,009 74,043 92,663 79,944
Vehicles
Three 143,896 141,225 148,066 173,214 269,968 362,876 303,088
Wheelers
Two 619,644 819,713 1,004,174 1,140,058 1,531,619 1,947,198 1,960,941
Wheelers
Grand Total 1,011,529 1,238,333 1,530,594 1,804,426 2,319,956 2,910,055 2,898,659
Diagram 1.1: Domestic Market Share of Automobiles for 2011-12
15% 5%
3%
Passenger Vehicles
Commercial Vehicles
Three Wheelers
77%
Two Wheelers
Source: Based on Siam (Society of Indian Automobile Manufacturers) Industry

Statistics, 2012
21
1.7.5 GROWTH AND DEVELOPMENT OF AUTOMOBILE

INDUSTRY IN INDIA
It is a known markets fact that health of country‟s automobile industry is one of

the key indicators of the manufacturing competitiveness of the country. India
has emerged as one of the key global (both as consumption and as production
base) in automobile industry and particularly in last few years it has witnessed
tremendous growth and has also been base for global manufacturers .
Volkswagen, Nissan, Renault, General Motors, Ford, Honda, Suzuki, Hyundai,
Daimler, BMW, Skoda, Audi, all top brands are present in India and also
manufacturing/assembling locally. India is 2nd largest two wheeler
manufacturer, 5th largest Commercial vehicles manufacturer, largest three
wheeler manufacturer and 10th largest passenger vehicles manufacturers.
Automobile industry‟s turnover in financial year 2011-12 was USD 56,259.57
million (estimated) and it contributes 5-7% of India‟s GDP. Automobile
industry witnessed a CAGR (Compound Annual Growth Rate) of 12.7%
between 2006-07 and 2010-11, to reach total production units of 17.91 million
units. Two wheelers represent largest segment with 75% share followed by
17% of passenger vehicles and 4% each by commercial vehicles and three
wheelers. But most interesting aspect is that passenger vehicle segment exhibits
highest growth of 17.9% followed by 12% of two wheelers. Growth of both
commercial vehicles and three wheeler segments were between 9-10%.
However, in Revenue terms, passenger vehicles is the largest segment with
approx. 63% share followed by commercial vehicles with 22%, and two
wheelers and three wheelers with remaining 15%.
Domestic sales had grown at relatively slower pace than production with sales
CAGR of 11.3%. It again reinforces the fact the passenger vehicles emerged
out as largest growth segment with 16% followed by 11.6% CAGR of two
wheelers. As of 2010-11 there was domestic demand of 2.5 million passenger
vehicles and 11.8 million two wheelers, approximately 676 thousand units of
commercial vehicles and 526 thousand units of three wheelers which were sold
22
in Indian market. An interesting features is that ration of domestic sales to

Production is decreasing indicating an attractive demand for exports. From
91% in 2006-07 it decreased to 86% in 2010-11.
Diagram 1.2: Sales Development of Indian Automobile Industry
Source: Based on Siam (Society of Indian Automobile Manufacturers) report, 2011
India exported approx. 2.3 million automobiles of which comprise of about 0.5
million passenger vehicles and 1.5 million two wheelers and about 270
thousand units of 3 wheelers. Passenger vehicles with around 25% CAGR
growth is the highest growth segment followed closely by 2 wheelers with 24%
CAGR growth and three wheelers with impressive 17% CAGR. India has
emerged as one of the attractive manufacturing base for Automobiles globally
and this is true for all the segments. Hyundai is exporting close to 50% of its
production and same is true for Reanult and Nissan. In fact, India is
increasingly becoming base for small car and compact car manufacturing
globally. Both the segments of commercial vehicles and passenger vehicles are
23
highly competitive with presence of all the global top manufacturers. Latest to
enter India was Nissan and Renault in passenger vehicles and Bharat Benz in
commercial vehicles. In most of the segments, market leaders are domestic
companies but closely contested by rival global brands. For example:
a) Two wheelers: Hero Motor Corp. has 55% market share and Bajaj has
22% share.
b) Three wheelers: Piaggio and Bajaj have nearly equal share of 40% each.
c) Commercial vehicles: Tata with 65% is dominating leader. However,
Ashok has 2nd highest share in medium and heavy commercial vehicles
segment with 24% whereas Mahindra‟s are 2nd in light commercial
vehicles segment with 30% share.
d) Passenger vehicles: Maruti Suzuki has 45% market share, Hyundai has
16% and Tata has 15% share.
Foreign Direct Investment (FDI) Policy
A policy of automatic approval up to 100% FDI has been a boon for the
Industry. The policy alone has led to a turnover of 12 billion USD in the Indian
auto industry. No need for licensing and no restriction on import of auto
components make this sector very attractive for foreign investors. Apart from
this, advanced technology yet cost effectiveness and efficient manpower add to
the list of advantages which India offers as a target country for investment.
With a lot of foreign players like General Motors, Toyota, Renault, BMW, etc.
already carrying out their activities successfully in India, FDI has definitely
contributed to the growth story of the Indian automobile industry. According to
the Department of Industrial Policy and Promotion (DIPP), the auto sector
accounts for 4% of total FDI inflow into India. As per the DIPP‟s FDI figures
for May 2012, FDI inflow into the auto sector for the period April 2011 to
March 2012 totaled USD 923 million; cumulative FDI into the sector for the
period April 2000 to May 2012 stood at USD 6,853 million. The DIPP is part
24
of the Government of India‟s Ministry of Commerce and Industry; it is

responsible for formulating and implementing the country‟s FDI policy.
The Department of Heavy Industry, under the Ministry of Heavy Industries and
Public Enterprises, is the main agency in India for promoting the growth and
development of the automotive industry. The department assists the industry in
achievement of its expansion plans through policy initiatives, suitable
interventions for restructuring of tariffs and trade, promotion of technological
collaboration and up-gradation as well as research and development. The
department is also concerned with the development of the heavy engineering
industry, machine tools industry, heavy electrical industry, industrial
machinery, etc
Auto Policy, 2002
In order to further accelerate and sustain advancements in the auto sector, the
department has undertaken several policy measures and incentives. The most
important being the announcement of the 'Auto Policy' of 2002, which aims to
establish a globally competitive automotive industry in India and double its
contribution to the economy by 2010. The policy seeks to set out the direction
of growth for the sector and promote R&D therein so as to ensure continuous
technology upgradation as well as building up of better designing capacities. It
emphasizes on low emission fuel auto technologies and availability of
appropriate auto fuels in order to take auto manufacturing to a self-sustaining
level. Broadly, the objectives of the auto policy are to:-
a) Exalt the sector as a lever of industrial growth and employment and to

achieve a high degree of value addition in the country.
b) Emerge as a global source for auto components.
c) Establish an international hub for manufacturing small, affordable
passenger cars and a key center for manufacturing tractors and two-
wheelers in the world.
25
d) Ensure a balanced transition to open trade at a minimal risk to the Indian

economy and local industry.
e) Conduce incessant modernization of the industry and facilitate
indigenous design, research and development.
f) Steer India's software industry into automotive technology.
g) Assist development of vehicles propelled by alternate energy sources.
h) Development of domestic safety and environmental standards at par
with international standards.
National Automotive Testing and R &D Infrastructure Project (NATRIP)
Another milestone in this field has been the launching of the National
Automotive Testing and R &D Infrastructure Project (NATRIP) which aims to
create core global competencies in automotive sector and facilitate its
integration with the world economy. It seeks to develop 'state-of -the- art'
testing, validation and R& D infrastructure in the country with a view to
support the growth and development effort of the automotive industry to reach
international levels. NATRIP envisages setting up of world-class and
homologation facilities in India with a total investment of Rs. 1,718 crores
within the three automotive hubs of the country. These are: Manesar in
Northern India; Chennai in Southern India; and Pune and Ahmednagar in
Western India. The project largely aims at:-
a) Creating critically needed automotive testing and validation

infrastructure to enable the Government to usher in global vehicular
safety, emission and performance standards.
b) Deepening of manufacturing in India by achieving high degree of value
addition and enhancing employment potential in the country.
c) Facilitating convergence of India's strengths in IT and electronics with
automotive engineering.
d) Enhancing India's global outreach in this sector by facilitating
development and mass production of high technology driven, affordable
26
and globally acceptable automotive products and by de-bottlenecking

their exports.
e) Removing the crippling absence of basic product testing, validation and
development infrastructure for automotive industry.
Automotive Mission Plan (2006-2016)
Besides, the announcement of 'Automotive Mission Plan' for the period of

2006-2016 is a major step taken to make India a global automotive hub. The
Mission Plan aims to make India emerge as the destination of choice in the
world for design and manufacture of automobiles and auto components, with
output reaching a level of US$ 145 billion (accounting for more than 10% of
the GDP) and providing additional employment to 25 million people by 2016.
It envisages increase in production of automotive industry from the current
level of Rs. 1,69,000 crores to reach Rs. 6,00,000 crores by 2016. The Mission
seeks to oversee the development of the automotive industry, that is, the
present scenario of the sector, its broad role in the growth of national economy,
its linkages with other key facets of the economy as well as its future growth
prospects. This is involved in improving the automobiles in the Indian domestic
market, providing world class facilities of automotive testing and certification
as well as ensuring a healthy competition among the manufacturers at a level
playing field.
The future challenges for the Indian automobile industry in achieving the
targets defined in the Automotive Mission Plan would primarily consist of
developing a supply base in terms of technical and human capabilities,
achieving economies of scale and lowering manufacturing costs, as well as
overcoming infrastructural bottlenecks. It also involves stimulating domestic
demand and exploiting export and international business opportunities. In all
these, the role of the Government is of facilitating infrastructure creation,
promoting the country‟s capabilities, creating a favourable and predictable
27
business environment, attracting investments and promoting R&D. While, the

role of industry is primarily of designing and manufacturing products of world-
class quality standards, establishing cost competitiveness, improving
productivity of both labour and capital, achieving scale and R & D enhancing
capabilities as well as showcasing India‟s products in potential markets.
All such initiatives indicate that the Indian automotive industry has been
emerging as a sunrise sector of the economy. It is not only meeting the growing
domestic demands, but also gradually increasing its penetration in the
international markets. It has been continuously restructuring itself and
absorbing newer technologies in order to align itself to the global developments
and realize its potentialities. Endowed with several advantages like low cost
and high skill manpower; globally competitive auto-ancillary industry;
established testing and Research & Development centres; production of steel
at lowest cost; etc., the industry provide immense investment opportunities.
This has instilled confidence in auto manufacturers to face international
competition as well as improve quality standards of vehicles with safety norms
in the wake of rapidly increasing traffic. Various policy incentives including
time bound implementation of Automotive Mission Plan together with
establishment of world class testing, homologation and certification facilities
would ensure Indian automotive industry a distinct edge amongst the newly
emerging automotive destinations of the world.
Indian Automobile Market - Reasons to cheer
The Indian Automobile Industry has a bright future because of several factors
working towards increasing demand for automobiles:
a) Rapid Urbanization: Currently only 21% of the population lives in the

urban areas. Given how India is performing, the figures are hoped to
touch 35% by 2020 and 40% by 2030.
28
b) Rising per capita GDP: The per capita GDP of India increased from
1200 USD in 2011 to almost 1330 USD in 2012. This is further
expected cross the 2000 mark by 2015. Increasing GDP would mean
increased purchasing power and hence increased demand for
automobiles
c) Overall growth of other industries: Industries are usually interdependent
on each other. The effect of expansion of other industries is bound to
percolate to the automobile industry as well. Since transport is a basic
need of every industry, demand for automobiles will rise with every
positive change in an industry.
d) Car buyers getting younger: It is no more a hidden fact that India is one
of the youngest countries in the world with a median age of almost 26
years; much lower than the World‟s biggest economies. It only shows
that the work class constitutes majorly of young individuals. The car
buying age has been on a decline. Where a person aged 39 used to buy a
car in the year 2000, this age has gradually come down to 33 in 2010. It
is only expected to become lesser in the coming years.
e) Growing Middle class: With the middle class of India growing annually,
benefits of this sector are still untapped. It is the transition from the
lower class to the middle class which converts car into a need from a
luxury. Other factors like affordability, innovation, infrastructure
facilities and price of fuel also affect the demand for automobiles to a
large extent. These challenges keep the automakers on their toes all the
time. With the middle class in India still growing annually, the benefits
of this sector are still untapped.
f) Rising industrial and agricultural output, which contribute positively to
the GDP and thereby increase the purchasing power.
g) Availability of easy finance schemes.
h) Cost efficiencies contributing to lower production costs.
29
i) Favourable Government policies.

j) Growth in road infrastructure across the country.
1.7.6 FUTURE PROSPECTS OF AUTOMOBILE INDUSTRY IN

INDIA
The Indian two-wheeler market possesses a significant potential, and is

anticipated to grow at a CAGR of around 11% during 2011- 2015 to reach 17.8
Million Units by the end of 2015. By 2016 the size of the Indian automobile
industry is expected to grow by 13%, to reach a mark of US$ 120-159 billion.
The Passenger Vehicle Market of India will sell almost 5 million vehicles by
2017-2018. The Indian Automobile Exports will also grow and cross the 17
billion USD mark by 2015-2016. And, there are factors which are demand
determinants playing in favour of the Indian automobile Industry like rising
family Income, product innovations, demographics and favourable duty
structure; there is a lot which the industry is yet to see. The future looks bright
and being an entrepreneur, if someone is looking for opportunities in this
Industry, anything creative/ innovative related to the automobile industry is
bound to work. The Society of Indian Automobile Manufacturers estimates that
by 2015 India shall be producing 5 million vehicles and in the next 5 years this
would increase by a further 4 million. It is expected that by 2050 India would
be sitting atop the global automobile market with 611 million cars in its streets.
The future for Indian Automobile industry is really bright and all the sub
segments shall witness growth. Major Drivers would be Strong local demand,
rising per capita income, establishment of India as global auto hub, product
innovation and multi financing options.
30
Diagram 1.3: Growth estimates and demand drivers of Indian Automobile

Industry
The Indian Automobile segment shall increase from 17.9 million units in 2010-
11 to 29.1 Million units in 2015-16 and shall be in excess of 120 billion dollar
industry by then. Passenger vehicles segment shall cross 5 million units and
commercial vehicles and three wheelers each shall cross 1 million units. So,
coming years shall establish India more strongly as base for Automobile
manufacturing and which in ripple affect shall lead to demand increase in
R&D, Engineering services and other service industries as off shoring.
1.7.7. SWOT ANALYSIS OF AUTOMOBILE INDUSTRY IN INDIA

Strengths:
a) Globally cost competitive.

b) Adheres to strict quality controls.
c) Adoption or Access to latest technology.
d) Large domestic market.
e) Government incentives for manufacturing plants.
31
f) Able to achieve significant gains in productivity.
Weakness:
a) Low research and development capability.

b) Industry is exposed to cyclical downturns in the automotive Industry.
c) Most component companies are dependent on global majors for
technology.
d) Low labor productivity.
e) High interest costs and high overheads.
f) Rising cost of production.
Opportunities:
a) Sourcing hub for global automobile majors.

b) Export opportunities may be realized through diversification of export
basket.
c) Increase in the income level.
d) Cut in excise duties.
e) Rising rural demand.
Threats:
a) Pressure on prices from OEM‟s (Original Equipment Manufacturers)

continues.
b) Imports from FTA (Foreign Trade Agreements) Regime Countries, in
certain component segments are a threat to local industry.
c) Smaller players, who do not upgrade to global standards, would get
extinct.
d) Rising interest rates.
e) Cut throat competition.
f) Lack of technology for Indian Companies.
32
1.8 CLASSIFICATION OF INDIAN AUTOMOBILE INDUSTRY
The Automobile Industry of India comprises of the following four broad

categories of vehicles:
1 Two-wheelers
2 Three-wheelers
3 Commercial Vehicles
4 Passenger Vehicles
Two-wheelers, being the most popular means of personal transport, alone

account for about 75% of the total automobile production in India, while
passenger vehicles account for nearly 16% of the production. However, owing
to their lower sales realisations, two wheelers account for only around 32% of
the sales in terms of value while passenger vehicles account for around 62% of
the same. Nearly 59% of these two wheelers sold were motorcycles and about
12% were scoters. Mopeds occupy a small portion in the two wheeler market
however; electric two wheelers are yet to penetrate. Commercial vehicles are
categorised into heavy, medium and light. They account for about 5% of the
market. Three wheelers are categorised into passenger carriers and goods
carriers. Three wheelers account for about 4% of the market in India. The
passenger vehicles are further categorised into passenger cars, utility vehicles
and multi-purpose vehicles. All sedan, hatchback, station wagon and sports
cars fall under passenger cars. Tata Nano, is the world‟s cheapest passenger
car, manufactured by Tata Motors - a leading automaker of India. Multi-
purpose vehicles or people-carriers are similar in shape to a van and are taller
than a sedan, hatchback or a station wagon, and are designed for maximum
interior room. Utility vehicles are designed for specific tasks. The passenger
vehicles manufacturing account for about 15% of the market in India.
33
Diagram 1.4: Classification of Indian Automobile Industry
1.8.1 TWO WHEELERS AUTOMOBILE INDUSTRY IN INDIA
India is the second largest producer and manufacturer of two-wheelers in the

world. Indian two-wheeler industry has got spectacular growth in the last few
years. Indian two-wheeler industry had a small beginning in the early 50's. The
Automobile Products of India (API) started manufacturing scooters in the
country. Bikes are a major segment of Indian two wheeler industry, the other
two being scooters and mopeds. Indian companies are among the largest two-
wheeler manufacturers in the world. Hero Honda and Bajaj Auto are two of the
Indian companies that top the list of world companies manufacturing two-
wheelers. The two-wheeler market was opened to foreign companies in the mid
1980s. The openness of Indian market to foreign companies leads to the arrival
of new models of two-wheelers into India. Easy availability of loans from the
banks, relatively low rate of interest and the discount of prices offered by the
dealers and manufacturers lead to the increasing demand for two-wheeler
vehicles in India. This lead to the strong growth of Indian automobile industry,
Kinetic Honda was introduced in the Indian market during the mid 80s. The
Indian two-wheeler industry has come a long way since its humble beginning
in 1948 when Bajaj Auto started importing and selling Vespa Scooters in India.
34
Since then, the customer preferences have changed in favor of motorcycles and
gearless scooters that score higher on technology, fuel economy and aesthetic
appeal, at the expense of metal-bodied geared scooters and mopeds. These
changes in customer preferences have had an impact on the fortunes of the
players.
Diagram 1.5: Classification of Indian Two Wheelers Industry
There are many two-wheeler manufacturers in India. Major players in the two
wheeler industry are Hero MotoCorp, Bajaj Auto Ltd. and TVS Motor
Company Ltd. The other key players in the two-wheeler industry are Kinetic
Motor Company Ltd, Kinetic Engineering Ltd., LML Ltd., Yamaha Motors
India Ltd., Majestic Auto Ltd., Royal Enfield Ltd. and Honda Motorcycle &
Scooter India (P) Ltd.
a) Bajaj Auto limited: Famous for making scooters that are reliable and
last long. They started producing motorbikes. Most of their scooters like
Chetak, Super, Cub etc., seem to have gone out of production, they have
35
now (January 2007) come up with BAJAJ KRISTAL .They also make 3
wheelers.
b) Hero MotoCorp: Hero MotoCorp, is now the world‟s largest
manufacturer of two wheelers.
c) Honda Motorcycle & Scooter India: Honda of Japan has setup a wholly
owned subsidiary in India to make bikes for Indian market.
d) Kinetic Motor Company Limited: It has come a long way, since
introducing the moped LUNA! They have started RENT-A-BIKE and
setup offices in certain parts of India.
e) Royal Enfield: Famous for BULLET and other tough vehicles for police
and armed forces.
f) TVS Motor Company limited: TVS Motor Company is the first two-
wheeler manufacturer in the world to be honoured with the hallmark of
Japanese Quality – The Deming Prize for Total Quality Management.
From mopeds to motorbikes, they have progressed.
g) Yamaha Motors India Limited: It was incorporated in August 2001 as a
100′% subsidiary of Yamaha Motors, Japan.
h) LML Machines: After successfully selling LML scooters, this company
ran into problems and lock out was declared in March 2006.
The Indian two wheeler industry has shown rapid rate of growth in last one
decade. Its share in automobile industry has increased from 15% in 2001 to
17% in 2010 .Annual sales of two wheeler industry have increased from Rs.
7486 crores in 2001 to Rs. 30096.82 crores in 2010. A snapshot of the two
wheelers manufacturers operating in India across time shows that while the
core that existed 10 years back continues to remain the same, there have been
several casualties along the way but at the same time there have been several
new entrants. This is also the period which witnessed the end of Hero Honda‟s
27 years old JV with Honda in 2010. Rising income levels, reducing excise
duties, higher loan tenure and loan-to-value offered by the financing companies
have all fuelled the growth of two-wheeler demand.
With sales volumes of 10.1 million units, the motorcycles segment is the
largest sub-segment of the domestic 2W industry accounting for a bulk of its
36
volumes. However, over the last five years, the motorcycles segment has seen
its volume share in the domestic 2W industry slide down to 75.1% in 2011-12
from the highs of 83.5% recorded in 2006-07. Although domestic motorcycle
volumes grew at 9.0% CAGR during the last five years, both the scooters
segment as well as the mopeds segment grew at a much faster CAGR of 22.2%
and 17.0%, respectively; contributing to reduction in the motorcycle segment‟s
volume share.
Diagram 1.6: Trend in two wheelers segment volume mix (Domestic)
100%
4.50% 5.70% 5.80% 6.00% 5.90% 5.80%
90% 12.00% 14.50% 15.50% 15.60% 17.60% 19.19%
80%
70%
60%
Mopeds
50%
Scooters
40% 83.50% 79.80% 78.70% 78.40% 76.50% 75.15% Motorcycles
30%
20%
10%
0%
2006-07 2007-08 2008-09 2009-10 2010-11 2011-12
In 2011-12 two wheelers sold 13,435,769 vehicles in domestic market,

produced 15,453,619 vehicles and exported 1,947,198 vehicles. Total Two
Wheelers sales registered a growth of 14.16% during April to March 2012.
Mopeds, Motorcycles and Scooters grew by 11.4%, 11.9% and 24.6%
respectively. If we compare sales figures of March 2012 to March 2011, the
growth for two wheelers was 8.27%. Two wheeler industry remains to be an
attractive segment of the Automobiles segment. In 2012-13, the Scooter
segment has outperformed the two wheeler industry and the credit to revive the
market is given to Honda Activa. The sale of Scooters grew at a YOY rate of
24.6% in 2011-12 as compared to motorcycles sales which was at 11.9%.
37
Table 1.4: Trend in Two Wheelers Sales and Growth

FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012
Entry 2,499,963 2,490,392 1,788,353 1,400,441 1,394,815 1,533,245 1,766,072
Motorcycles
Growth % -0.4% -28.2% -21.7% -0.4% 9.9% 15.2%
Executive 2,790,657 3,407,905 3,288,262 3,617,805 4,698,323 5,862,409 6,660,616
Motorcycles
Growth % 22.1% -3.5% 10.0% 29.9% 24.8% 13.6%
Premium 523,248 655,366 692,266 816,924 1,247,992 1,623,436 1,665,154
Motorcycles
Growth % 25.2% 5.6% 18.0% 52.8% 30.1% 2.6%
Total 5,813,868 6,553,664 5,768,881 5,835,169 7,341,130 9,019,090 10,091,842
Motorcycles
Growth % 12.7% -12.0% 1.1% 25.8% 22.9% 11.9%
Scooters 893,145 937,036 1,049,569 1,145,818 1,462,507 2,057,604 2,562,841
Growth % 4.9% 12.0% 9.2% 27.6% 40.7% 24.6%
Mopeds 275,927 331,393 398,905 438,477 564,839 697,418 776,866
Growth % 20.1% 20.4% 9.9% 28.8% 23.5% 11.4%
Overall 6,982,940 7,822,093 7,217,355 7,419,464 9,368,476 11,774,112 13,431,549
Two
Wheelers
Growth % 12.0% -7.7% 2.8% 26.3% 25.7% 14.1%
Table 1.5: Trend in Two Wheelers Market Share

Segments Companies FY FY FY FY FY FY FY
2006 2007 2008 2009 2010 2011 2012
Hero 51.3% 50.0% 56.4% 61.6% 60.2% 55.0% 57.3%
Bajaj 30.2% 31.9% 28.9% 22.0% 24.4% 26.8% 25.4%
Motorcycles TVS 13.0% 12.9% 8.8% 7.9% 6.8% 7.0% 6.2%
HMSI 1.7% 2.5% 4.4% 0.2% 0.2% 7.0% 7.0%
Others 3.8% 2.7% 1.5% 2.3% 2.5% 3.0% 3.5%
Hero 0.0% 9.8% 9.8% 13.4% 14.3% 16.7% 16.3%
Bajaj 11.9% 2.1% 2.0% 0.8% 0.3% 0.0% 0.0%
Scooters TVS 26.2% 26.7% 23.8% 20.9% 20.5% 21.2% 19.4%
HMSI 51.0% 56.3% 58.0% 57.1% 50.6% 43.4% 47.8%
Others 10.0% 5.2% 5.5% 7.7% 14.4% 18.8% 16.5%
Hero 42.6% 43.0% 46.4% 50.4% 49.3% 45.7% 46.1%
Bajaj 20.7% 20.9% 23.4% 17.4% 19.2% 20.5% 19.1%
Overall Two
Wheelers TVS 18.2% 18.3% 16.0% 15.4% 14.6% 15.0% 14.1%
HMSI 8.1% 8.9% 12.1% 13.8% 12.8% 13.2% 14.9%
Others 4.5% 2.9% 2.0% 3.0% 4.2% 5.6% 5.8%
38
Untouchably Hero MotoCorp Limited remains the king in the two-wheeler

segment in India controlling 50% of market. The Scooter market is dominated
by Honda Motorcycle and Scooters India Private Limited (HMSI).
ICRA (Indian Credit Ratings Agency) expects the scooters segment to

gradually increase its share in the domestic two wheeler market from 19.1% in
2011-12 to ~27% by 2016-17E. With this, the volumes in the domestic scooters
market are estimated to get doubled by 2016-17E over the current levels.
Additionally, the entry of new players in the industry, multitude of new model/
variant launches, growing distribution reach, cheaper ownership costs on a
relative basis are expected to be some of the other prime movers for industry
growth over the medium term. In ICRA‟s view, while the trend in rising
commodity prices, hardening interest rates and increasing fuel costs may lead
to some moderation in industry growth over the short term, the growth over the
medium to long term is expected to remain in double digits.
1.8.2 THREE WHEELERS AUTOMOBILE INDUSTRY IN INDIA
India is foremost producer, consumer and exporter of three wheelers in the

world. Three wheelers are widely used both for passenger carriage and for
goods transportation over short to medium distances. In the three wheeler
segment, the classification is broadly in terms of carriage and passenger
vehicles. The industry is characterized by two segments: Passenger carrier and
Goods carrier. These can be further classified according to mass of the
vehicles, seating capacity (3+1 / 4+1 / 6+1), payload capacity (0.35T / 0.50T /
0.75T / >0.75 T), engine type (2-stroke/4-stroke, 150cc/175cc/200cc/400cc,
front-engine/rear-engine) and fuel consumption (Diesel/Petrol/CNG/LPG).
The leading three wheelers manufacturers in India are Bajaj Auto, Mahindra &
Mahindra and the Italy-based Piaggio. Bajaj Auto has a range of models for
passenger three wheelers namely RE 2S, RE 4S, RE 4S CNG, RE 4S LPG, RE
Diesel and RE Diesel Mega while its existing carriage three wheelers is called
GC 1000. M&M has got Champion range of three wheelers. Champion pick
39
up, Champion delivery vans and Champion Passenger carriers are seen more in
western parts of India. Alfa three wheelers carriages of M&M are also in great
demand. TVS Motors recently entered the three wheeler segment as well.
The key players of three wheelers companies in India are:
a) Bajaj Auto Three Wheelers: They make passenger and cargo three
wheelers too.
b) Force Motors: They make three wheelers.
c) Sonalika: They make three wheelers and also Sonalika cars.
d) Scooters India: They were makers of the famous scooter
“LAMBRETTA”! Now they make three wheelers and even export it.
e) Piaggio: It is wholly subsidiary of Piaggio Italy. They have come up
with diesel 3 wheelers.
Over the years, the Indian three-wheelers industry has traversed a high growth
trajectory and evolved from being an import-dependent industry before 1960s
to becoming the world‟s foremost producer, consumer and exporter. The
domestic three wheelers passenger vehicle segment has recorded healthy 10%
CAGR (Compound Annual Growth Rate) volume growth over the last decade.
Besides, with improving road infrastructure and increasing of goods
transportation, the demand for three wheeler goods vehicles had surged during
the first half (~32% CAGR) of the last decade; although the same has been
severely impacted during 2007-2009 (~50% de-growth) due to economic
slowdown and successful entry of four wheelers SCVs (Small Commercial
Vehicles) . However, demand for domestic three wheelers goods segment has
revived again and has grown at ~10%. The contribution from goods segment to
total domestic three wheelers sales had increased rapidly from 27% in 2003 to
41% in 2007, then declined steeply to 21% in 2010 and has stabilized near that
levels since last 2-3 years. The contribution from exports has increased
immensely from ~16% in 2003 to ~41% of total industry sales in financial year
2012. Overall, the Indian three wheelers industry is transforming into an
40
exports driven industry, mainly catering to the passenger transport segment

wherever public transport systems are inadequate.
Diagram 1.7: Three Wheelers Industry Sales (Dom vs. Exports)
Bajaj Auto is the clear market leader in the passenger carrier segment with
~66% market share, Piaggio is the market leader in the goods carrier segment
with ~55% market share. Bajaj Auto has been the industry pioneer and has
remained the leading three wheelers manufacturer / exporter from India over
the last four decades. It enjoys near monopoly in the three wheelers passenger
auto-rickshaws segment. Besides, with well established brands & deeply
penetrated distribution network in the major exports markets, the company
boosts of ~87% market share in three wheelers exports. Overall, the company
is expected to remain the main beneficiary of surging demand from emerging
economies. M&M is the third largest player with Champion and Alfa brands.
The company was focused primarily on the 0.5T 3W cargo and 0.75 ton 3W
cargo segment. However, the company also entered the passenger segment with
launch of Alpha Diesel, which helped it improve its market share in the
domestic three wheelers passenger market from ~2% in FY 2008 to ~12.3% in
2012. Besides, Chennai based TVS Motors has gained 5-6% market share in
the passenger segment. Scooters India has been losing market shares and Force
41
Motors has nearly exited the three wheelers business to concentrate on its LCV
business.
Diagram 1.8: Market Shares of Three Wheelers Industry (Domestic and

Exports)
India is the world's foremost producer, consumer and exporter of three-

wheelers with domestic sales of 5.13 lakh units and exports of 3.63 lakh units
in the financial year ending 2012. Three wheelers are widely used in India as
an affordable means of short-to-medium distance public transportation and last
mile connectivity for goods transportation. Apart from the domestic demand,
India has also emerged as important export hub for three wheelers with
presence in some of the South Asian, African and Latin American markets that
are replicating Indian three wheelers story with rising disposable incomes but
inadequate public transport systems. Overall, the three wheelers industry has
witnessed relatively healthy 15% CAGR volume growth over the last decade
driven by moderate domestic growth (~10% CAGR) and robust exports growth
(~38% CAGR).
However, the successful launch of four-wheeled Small Commercial Vehicles

(mainly Tata ACE in 2005-06) has altered the industry dynamics considerably
over the last five years. While the domestic three wheelers goods segment has
42
de-grown at 9% CAGR over the last five years, SCVs have reported robust
21% CAGR growth over the same period. Moreover, slowing economic
growth, moderating consumer goods consumption, high inflation, increase in
financing costs, rising fuel prices, absence of fresh permits by the state
governments and overall high base has impacted domestic three wheelers sales
in 2012.
Table 1.6: Indian Three Wheelers Industry Sales
FY07 FY08 FY09 FY10 FY11 FY12 FY08 FY09 FY10 FY11 FY12
Domestic: 3W 236,788 234,774 268,489 349,868 425,358 406,236 -1% 14% 30% 22% -4%
Passenger
carriers
Domestic: 3W 167,122 130,007 81,238 90,524 100,666 107,015 -22% -38% 11% 11% 6%
Goods Carriers
Exports: 3W 142,944 140,406 146,914 172,468 268,435 360,736 -2% 5% 17% 56% 34%
Passenger
Carriers
Exports: 3W 952 819 1,152 746 1533 2140 -14% 41% -35% 105% 40%
Goods Carriers
Total 3W Sales 547,806 506,006 497,793 613,606 795,992 876,127 -8% -2% 23% 30% 10%
ICRA Research expects the domestic three wheelers passenger segment to

benefit from product up-gradations (2-stroke to 4-stroke, Petrol/Diesel to CNG,
front engine to rear engine vehicles) as well as opening of fresh permits by
various state governments. Despite stiff competition from four wheelers SCVs,
the domestic three wheelers goods segment continues to benefit from its
favorable operating economics for First Time Users (FTUs). Lastly, ICRA
expects three wheelers exports to remain the main growth driver for the
industry due to rising disposable incomes, evolving travel & consumption
patterns, improving road infrastructure, increasing demand for motorized
transportation and inadequate public transport systems in the target emerging
markets. ICRA expects the three wheelers industry to report a moderate volume
CAGR of 7-8% over the next five years. It expects the long-term sales growth
to be the highest in the exports segment, followed by that in the passenger
carrier segment and the lowest in the goods carrier segment due to intense
competition from the four-wheeler small commercial vehicles. According to
43
"India Three wheeler Market Forecast & Opportunities, 2017", the market for
three wheelers in India is expected to witness phenomenal growth. The changes
in FDI policies and booming retail sector in the country are driving the growth
for commercial loading three wheelers. The rising population and increasing
need for affordable and convenient transportation is fuelling the market for
passenger three wheelers. By 2017, three wheelers market in India is expected
to reach up to USD 4.2 Billion.
1.8.3 COMMERCIAL VEHICLES AUTOMOBILE INDUSTRY IN

INDIA
India is the 5th largest commercial vehicle manufacturer in the world and its
primary growth is driven by a healthy economic climate combined with
massive investments from the government in infrastructure activities as well as
a developing public transportation system. The Indian Commercial Vehicles
(CV) market is segmented on the basis of gross vehicle weight (GVW) into:
Heavy Commercial Vehicles (HCVs), Medium Commercial Vehicles (MCVs)
and Light Commercial Vehicles (LCVs). GVW is defined as vehicle weight
plus the rated payload; the rated payload being the maximum weight permitted
to be loaded on to the vehicle under the Motor Vehicles Act, 1988. Vehicles
with a GVW of more than 16 tonnes are classified as HCVs, vehicles with a
GVW of 7.5-16 tonnes are classified as MCVs and vehicles with a GVW of
less than 7.5 tonnes are classified as LCVs.
The medium and heavy commercial vehicles sub-segment consists of rigid

trucks, tractor trailers, semi-trailers, bulkers and tippers. These vehicles may
have a range of two to twelve axles and they mostly run on diesel.
Manufacturing in this sub-segment is dominated by Indian companies, Ashok
Leyland, Eicher Motors and Tata Motors. The two largest manufacturers of
buses in India are Tata Motors and Ashok Leyland. Another vehicle included
as part of medium and heavy sized commercial vehicles is the tempo. Tempos
44
are smaller than full sized trucks that cater to the rural and urban areas where
big trucks cannot travel.
Light commercial vehicles (LCV, also sometimes light goods vehicle or LGV)
is a commercial carrier vehicles with a gross vehicle weight (GVW) of up to
3.5 tonnes. Vehicles which qualify in this category are pickup trucks, vans and
three-wheelers all commercially based goods or passenger carrier. The LCV
concept was created as a compact truck and is usually optimised to be ruggedly
built, have low operating costs and powerful yet fuel efficient engines, and to
be utilised in intra-city operations. Tata Motors produces India„s first mini
truck called Tata Ace.
In terms of usage, Commercial vehicles may be categorised as goods carriers

and passenger carriers. Among passenger carriers in the less than 7.5 tonne
GVW segment, those with sitting capacity up to 13 are categorised as utility
vehicles (or UVs, and not part of LCVs) while those with capacity over 13
passengers are grouped as LCVs. At present, the overall CV industry is split
between the LCV and M&HCV segments roughly in the ratio of 45:55. Around
13% of the vehicles sold in the LCV as well as the M&HCV segments are
passenger carriers. Besides LCVs and M&HCVs, three-wheelers that can carry
load up to 1.5 tonnes are also an important mode of goods transport.
The key players of Commercial Vehicles makers in India are:
a) Ashok Leyland: They make buses, trucks, defense vehicles and engines.
b) Eicher Motors: They make buses, automotive gears etc.
c) Force Motors: They make Light commercial vehicles, Multi utility
vehicles and Heavy commercial vehicles. They also make three
wheelers.
d) Mahindra & Mahindra: They make trucks and buses. They also make 4
wheelers.
e) Swaraj Mazda: They make buses and trucks and other vehicles.
45
f) Tata Motors: Apart from cars, they make: utility vehicles. medium and
heavy commercial vehicles, intermediate commercial vehicles, light
commercial vehicles, small commercial vehicles, tippers, buses, defense
vehicles
g) Volvo Buses & Trucks: VOLVO makes Buses and Trucks in India.
With the country‟s highway infrastructure improving and the hub-and-spoke

model gaining increasing acceptance, the domestic truck industry is witnessing
polarization, with growth in the HCV and SCV segments outperforming the
overall industry growth rate. Within the M&HCV segment, the share of
heavy-duty, long-haulage trucks is witnessing a steady increase in proportion
to the total M&HCV volumes, while in the LCV segment, SCVs are
accounting for most of the volumes. In terms of cyclicality, the MCV segment
is comparatively less affected by industrial slowdowns as these are primarily
used for transportation of agriculture produce, consumer durables, and
some bulky commodities (like construction material) compared to HCVs,
which cater more to the industrial segment. In LCVs, the share of the sub-3.5T
segment has also been increasing. The sub-3.5T segment has been able to
increase its share of LCVs consistently from 50% in FY 2004 to close to 85%
in FY 2010. The size of the sub-3.5T LCVs and three wheelers goods carriers
market has expanded from 56,000 units in FY 2002 to over 300,000 units in FY
2010, a CAGR of 23.4%. However, within this, the mix of SCVs and three
wheelers has changed from 25:75 in FY2002 to 70:30 in FY 2010,
underscoring the preference for four-wheeled transportation. The overall CV
industry is split between the LCV and M&HCV segments roughly in the ratio
of 45:55. Around 13% of the vehicles sold in the LCV as well as the M&HCV
segments are passenger carriers.
During FY 2007-10, the domestic CV industry has grown a modest CAGR of

4.3% largely reflecting the sharp downturn witnessed in FY 2009. The
recovery witnessed in FY 2010 helped the industry report strong growth in FY
2010 benefitting from the low-base of FY 2009. During the FY 2010, the
domestic CV industry has continued its strong growth momentum, reporting a
46
growth of 38.7% over the FY 2009. The CV industry in India, as is the trend
internationally, is cyclical, with periods of volume growth leading to over-
investments in fleet capacity and subsequently to periods of correction.
Commercial Vehicles sales grew at CAGR 19.47% during the period FY 2002-
2012, LCVs with 23% growth rate grew at the high pace during this period,
while M&HCVs with CAGR of 15% grew modestly during the same period.
Table 1.7: Trends in Market Share in the Domestic M & HCV Segment
M & HCV FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011

Segment
Tata Motors 62.0% 62.9% 60.5% 61.9% 64.9% 60.1%
Ashok Leyland 27.0% 27.9% 27.5% 25.7% 21.2% 25.5%
Eicher Motors 7.4% 6.8% 8.2% 7.4% 8.9% 9.3%
Other Players 3.5% 2.4% 3.9% 5.0% 5.0% 5.15%
Table 1.8: Trends in Market Share in the Domestic LCV Segment
LCV Segment FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011
Tata Motors 60.1% 65.4% 62.1% 59.9% 60.5% 56.0%
M&M 26.1% 24.3% 25.6% 27.8% 28.2% 32.7%
Force Motors 5.0% 3.8% 5.0% 3.9% 3.6% 4.8%
Other Players 8.8% 6.5% 7.2% 8.4% 7.8% 6.5%
In the LCV segment, Tata Motors and M&M enjoy a dominant market share.
Force has a strong presence in the passenger LCV segment. Piaggio is a
relatively new entrant in the goods LCV segment. The M&HCV segment is
dominated by Tata Motors and Ashok Leyland, followed by Eicher Motors.
Ashok Leyland is particularly strong in the passenger M&HCV segment and
has traditionally enjoyed a slightly higher market share over Tata Motors.
47
Over the last two decades, both the LCV and the M&HCV segments have
grown at similar rates, although volume growth in the M&HCV segment has
been more volatile. Growth in both the LCV and M&HCV segments is linked
to economic activity and the level of infrastructure development, and exhibits
cyclicality. The truck segment of the business (M&HCV goods carriers) is
however prone to lumpy capacity addition at the fleet operator level and hence
experiences more severe demand shocks. The LCV segment, though cyclical,
usually exhibits steadier demand patterns on account of the relatively wider
usage range. The top three Commercial Vehicle Manufacturers in India are:
Tata Motors (58.5%), Mahindra and Mahindra (15.7%) and Ashok Leyland
(11.0%).
Table 1.9: Trend in Domestic Commercial Vehicle Volumes and Growth

Rates by Segments
LCVs Domestic Commercial Vehicle Sales (in Nos) YoY Growth (%)
FY08 FY09 FY10 FY11 FY12 FY13 FY08 FY09 FY10 FY11 FY12 FY13
Passenger 27,832 26,952 34,413 44,816 48,868 48,153 17.2% -3.2% 27.7% 30.2% 9.0% -1.5%
Segment
Goods 188,080 173,747 253,364 317,030 411,415 476,734 11.6% -7.6% 45.8% 25.1% 29.8% 15.9%
Segment
Total 215,912 200,699 287,777 361,846 460,283 524,887 12.3% -7.0% 43.4% 25.7% 27.2% 14.0%
LCV
Sales
M&HCV
Passenger 38,647 34,892 43,083 47,938 49,882 46,553 34.7% -9.7% 23.5% 11.3% 4.1% -6.7%
Segment
Goods 235,935 148,603 201,861 275,121 299,334 221,710 -4.4% -37% 35.8% 36.3% 8.8% -26%
Segment
Total 274,582 183,495 244,944 323,059 349,216 268,263 -0.4% -33% 33.5% 31.9% 8.1% -23%
M&HCV
Sales
Total CV 490,494 384,194 532,721 684,905 809,499 793,150 -6.1% 21.7% 38.7% 28.6% 18.2% -2.0%
Sales
Most market segments of the Indian commercial vehicles industry currently

operate as duopolies, with the top two players‟ together accounting for a
market share of over 85%. Tata Motors & Ashok Leyland continues to
dominate the domestic truck scene in India with a combined market share of
over 85-90% and rest of the players making up the rest of the pie. The overall
commercial vehicle sales in India grew by 18.20% in 2011-12 at 8,09,532 units
48
Vs 6,84,905 units in 2010-11. The sales of medium & heavy trucks posted a
growth of 8.79% in 2011-12 at 2,99,309 vs 2,75,121 units in 2010-11 & light
commercial vehicles grew faster at almost 30% with 4,11,460 units sold in
2010-11. After experiencing a growth of over 30% during 2009-10 and 2010-
11, the buoyancy in domestic CV industry has been on a wane since then.
Slowing industrial growth and weakening investment sentiment across sectors
has had a significant adverse impact on CV demand since the second half of
2011-12. While in 2011-12, the growth in the domestic CV industry slowed
down to 18.2% vis-à-vis the prior year, the industry volume growth entered
into the negative territory in 2012-13 as macro-economic environment
continued to remain weak which coupled with high-base led to contraction of
2% in new CV sales. In 2012-13, segment-wise performance was characterized
by a wide dispersion in growth rates with the LCV segment witnessing a
growth of 14.0% and M&HCVs declining by a sharp 23.2%.
ICRA expects M & HCV to decline by 17-20%, while LCV volumes to

contract by 9-10% in FY14. Medium –term growth outlook for M & HCVs is
expected to be around 9.5-11% and for LCVs around 10-12%. The overall
commercial vehicle sales in India grew at 18.20% in 2011-12 and as per
industry estimates, the Indian market which has seen the entry of international
majors like Damiler, Volvo, Beiqi Foton will see a CAGR growth of 15% till
2016-17. The Indian commercial vehicle market will double to 1.6 million
units in the next five years thanks to the increase in infrastructure spending,
rapid urbanization and entry of major multinational players in the country.
Global majors will redefine brand positioning in the market while domestic
companies will build R&D competence and optimize costs through outsourcing
and modularization.
1.8.4 PASSENGER VEHICLES AUTOMOBILE INDUSTRY IN INDIA
The Indian Automobile Industry has got a tremendous market potential. With
the growth of population and change in their pattern of life style as a result of
49
urbanization, there has been a rapid increase in demand for Indian automobiles.
Due to the emergence of globalization and liberalization there is a stiff
competition among the variety of car industries which are focusing attention in
capturing the Indian markets. Due to the economic boom, higher income levels
and the growing purchasing power of the Indian urban populace, cars have
transformed into a necessitated ingredient for Indian middle class families. The
Government of India allowed Foreign Joint Venture in the industry since early
1990. Subsequently, the Indian Government allowed Foreign Direct Investment
in the industry, which saw many automobile giants entering the Indian market
with their models, readily available, without much waiting time for the
delivery. Thus major car manufacturers such as Suzuki, Ford, Toyota, General
Motors, Skoda, Hyundai, Honda, Renault, Mitsubishi, Nissan, Volvo, Audi,
BMW and Benz, set up their manufacturing units in India with Joint Venture
collaboration with Indian companies. These foreign manufacturers began to
compete with the Domestic Players such as Hindustan Motors, Tata Motors,
and Fiat India etc to increase their market share, with their highly
technological, innovative and attractive models of passenger cars. Sudden
interest of major global players has made Indian automobile industry very
competitive, as India provides twin benefit of ready market and low cost
manufacturing base for them. With the explosion of the automobile industry,
due to its globalization and liberalization, car manufacturers introduced much
innovative and technological advancement in their models. Presently, there are
19 passenger vehicles manufacturers in India. The largest Indian passenger car
manufacturers include Tata Motors, Maruti Suzuki, Mahindra & Mahindra and
Hindustan Motors. Maruti occupies 50% of the market share in the mini and
compact cars and is maintaining its share despite the stiff competition from
manufacturers like Hyundai and Tata Motors, occupies over 20% of the market
share in the small and compact car segment. Presence of foreign players such
as Mercedes-Benz, Fiat, General Motors and Toyota is also growing in this
segment. Recently, the passenger car segment has also seen the entry of other
global majors such as BMW, Audi, Volkswagen and Volvo. The Indian car
50
industry is dominated by Korean and Japanese automakers. Western carmakers

such as Ford and General Motors have not been as successful as their Asian
counterparts like Hyundai and Suzuki in the Indian market. The Indian car
industry is still in the growth and evolution stage and is depending on the
domestic and regional market.
India‟s passenger car industry is broken down into multiple segments. This is
done for ease of understanding and improved competition among
manufacturers to get bigger pies of particular segments. While there are
multiple ways of segmenting this industry like based on price and engine size
but the most prevalent and the official method is based on dimension i.e. the
length of the vehicle under consideration:
A1 Segment - Mini – Up to 3400mm (M800, Nano)

A2 Segment - Compact – 3401 to 4000mm (Alto, wagon r, Zen,i10,A-
star,Swift,i20,palio,indica etc)
A3 Segment – Midsize – 4001 to 4500mm (Manza, City, Sx4, Dzire, Logan,
Accent, Fiesta, Verna etc)
A4 Segment - Executive – 4501 to 4700mm (Corolla, civic, C class, Cruze,
Optra, Octavia etc)
A5 Segment - Premium – 4701 to 5000mm (Camry, E class, Accord, Sonata,
Laura, Superb etc)
A6 Segment – Luxury – Above 5000mm (Mercedes S class, 5 series etc)
B1 Segment - Van – Omni, Versa, Magic etc
B2 Segment – Multi Utility Vehicles (MUV) / Multi Purpose Vehicle (MPU)
– Innova, Tavera, Sumo etc
SUV Segment - CRV, Vitara etc
51
Diagram 1.9: Market Share of Sub-Segments of Passenger Cars in 2012-13
0% 12% Compact
Executive
Luxury
42%
Micro
30% Mid-Size
Mini
Premium
Super Compact
11%
1%
3% 1%
Segments Market Leader

Micro Tata Motors Limited
Mini Maruti India Limited
Compact Maruti India Limited
Super Compact Maruti India Limited
Mid – Size Hyundai Motor India Limited
Executive Toyota Kirloskar Motor Private Limited
Premium Skoda Auto India Private Limited
Market share of passenger cars in India is dominated by Maruti Suzuki and

Mahindra & Mahindra is the market leader of utility vehicles. Established
automobile manufacturers and new entrants in the Indian automobile market
are expanding their production capacities on a large scale. Companies
undergoing expansion include Maruti Suzuki, General Motors, Tata Motors,
Volkswagen Group, Toyota, Honda and Hyundai. The Renault Nissan
Alliance's new automobile plant near Chennai commenced production in 2010.
Peugeot-Citroen is planning a comeback to India and Mazda is entering the
52
Indian passenger car market. Cars have tilled now been affordable to only a
fraction of India's over 200 m households. With the advent of the Tata minicar,
the Nano, which received top marks for its styling and design, retails for
approx. USD 3,000 (Delhi on-road) and therefore has created a completely new
segment in the car market and made autos within the reach to a substantial
segment of the approx. 50 million current two wheeler owners and first time
car buyers. The market for cheap minicars seems to be a lot smaller than what
was earlier projected. India became the fifth largest car manufacturer in the
world in 2011. Passenger cars and utility vehicles are the main segments of the
Indian passenger vehicle industry with the former accounting for 78% of total
volumes. India has primarily been a small-car market, mainly due to the high
demand for a cost-effective mode of transportation. Within the passenger car
segment, small cars comprising A1 and A2 segment account for almost 80% of
total volumes.
Diagram 1.10: Passenger Car Volumes: Segment –wise concentration
100% 2% 1% 3% 4% 4% 5% 4% 3% 4% 4%
90% 16% 17%
20% 21% 21% 18% 19% 20% 18% 18%
80%
70%
60%
50%
40% 82% 82% 77% 77% 77% 77% 78% 78%
75% 75%
30%
20%
10%
0%
FY 2002 FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011
A1 - A2 Segment: Small Car A3 Segment: Mid Size

A4 - A6:Executive, Premium , Luxury
Source: Bases on Siam (Society of Indian Automobile Manufacturers) report 2011
Unlike some of the other emerging markets where market shares are more
fragmented, the Indian passenger vehicle industry has been dominated by three
53
major players – Maruti Suzuki, Hyundai Motors and Tata Motors, which
collectively accounted for over 80% of total volumes in 2010. These players
with their strong product portfolio, particularly in the small car segment,
extensive distribution and servicing reach and strong brand franchise (created
over several years) have maintained their market position for years together.
Table 1.10: Trend in Market Share of leading companies in the domestic

Passenger Vehicles Market
OEMs FY FY FY FY FY FY FY FY FY FY
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Maruti 50.4% 46.7% 46.7% 45.9% 46.1% 46.1% 45.9% 46.5% 44.7% 44.9%
Suzuki
Hyundai 13.0% 14.6% 14.4% 13.4% 13.9% 14.1% 14.0% 15.7% 16.2% 14.4%
Motors
Tata 13.2% 14.7% 15.5% 16.9% 16.5% 16.4% 14.7% 14.9% 14.7% 14.0%
Motors
M&M 6.6% 7.4% 7.6% 7.5% 7.4% 6.5% 8.4% 7.7% 8.0% 7.2%
General 1.3% 1.2% 2.0% 2.7% 2.7% 2.8% 4.3% 4.0% 4.5% 4.3%
Motors
Ford 2.2% 2.2% 2.4% 2.6% 2.5% 3.0% 2.2% 1.8% 1.9% 3.9%
Toyota 3.7% 4.3% 4.7% 4.1% 4.1% 3.7% 3.6% 3.0% 3.3% 3.1%
Motors
Honda 1.6% 1.9% 2.4% 3.5% 3.7% 4.4% 4.1% 3.4% 3.2% 2.5%
Motors
54
Table 1.11: Trend in Market Share in the Small Car Segment
OEMs FY 2010 FY 2011

Maruti 55.9% 54.0%
Hyundai 23.8% 20.9%
Tata Motors 12.1% 10.9%
Ford 0.7% 5.1%
General Motors 5.1% 4.7%
Volkswagen 0.1% 1.9%
Nissan 0.0% 0.8%
Skoda 0.5% 0.7%
Fiat 1.1% 0.8%
Honda 0.6% 0.3%
Toyota 0.0% 0.0%
Table 1.12: Trend in Market Share in Mid-Size Car Segment

Maruti 35.9% 35.8%
Hyundai 11.0% 9.6%
Toyota 0.0% 2.2%
Honda 16.3% 12.7%
Tata Motors 20.5% 24.0%
Ford 9.6% 4.7%
M&M 1.9% 2.7%
Nissan 0.0% 0.0%
Others 4.7% 3.1%
55
Table 1.13: Trend in Market Share in Executive Car Segment

General Motors 12.5% 22.1%
Toyota 21.0% 20.5%
Skoda 16.9% 12.7%
Fiat 24.0% 17.3%
Mercedes 3.6% 5.3%
Honda 12.9% 9.6%
BMW 3.3% 4.6%
Audi 0.6% 1.5%
Renault 0.0% 0.0%
Maruti 0.0% 0.3%
HM 0.0% 0.0%
Table 1.14: Trend in Market Share in Luxury and Premium Car Segment

Skoda 23.9% 22.2%
BMW 14.3% 20.1%
Audi 12.7% 17.4%
Mercedes 14.6% 17.8%
Honda 20.9% 13.5%
Hyundai 3.3% 1.5%
Toyota 3.0% 2.3%
Nissan 1.6% 1.3%
Indian automobile manufacturers produced a record 14.82 million motor

vehicles in 2010. 3.54 million cars and commercial vehicles were produced in
2010 out of which 3.05 million were cars. Domestic passenger vehicle sales hit
a new record in 2009-10 when over 1.95 million vehicles were sold. The luxury
56
car segment grew at 76 % in 2008 over the previous year although actual sales
figures were still very low at around 8,000 units. The Indian passenger vehicles
segment grew by 26 per cent to 19.5 lakh units in 2009-10. Passenger vehicles
segment is ranked the seventh largest in the world and the present size of the
market makes it comparable with some economies. The domestic passenger
vehicles industry has been on a relatively steady growth phase over most of the
last decade and has registered a 10 years CAGR of 10.3% during 2001-2010. It
has been one of the few markets worldwide which saw growing passenger car
sales during the liquidity crisis and recessionary phase witnessed during 2009.
Over the past 10 years, export of vehicles have grown at a CAGR of 31.7% to
achieve volumes of 0.45 million units in 2010. ICRA expects overall growth
momentum to be sustained driven by strong domestic demand and increased
thrust on exports.
Diagram 1.11: Trend in Domestic Sales of Passenger Vehicles Industry
Passenger Vehicles segment grew at 4.66% during 2011-2012 over same

period last year. Passenger Cars grew by 2.19%, Utility Vehicles grew by
16.47% and Vans by 10.01% during this period. In March 2012, domestic sales
of Passenger Cars grew by 19.66% over the same month last year. Also, sales
growth of total passenger vehicle in the month of March 2012 was at 20.59%
(as compared to March 2011). For the first time in history car sales crossed two
57
million in a financial year. One of the hot spot in world automotive industry is
Indian car market. Car sales are down by more than 6% in 2012-13 compared
to 2011-12. The main reasons are high interest rates, fuel price, high inflation,
low movement in other sectors etc. Utility vehicle segment is having maximum
growth of 52% in this segment. Maruti Ertiga has put successful foot print this
segment. This vehicle is giving good competition to Innova. SUV segment also
grown due to its fuel economy and price combination became top choice for
larger families.
Table 1.15: Passenger Vehicles Sales Volumes trend
Segments (Passenger
Vehicles) Volumes YoY Growth (%)
FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 09 FY 10 FY 11 FY 12 FY13
Domestic 1,552,703 1,951,333 2,501,542 2,629,839 2,686,429 0.2% 25.7% 28.2% 5.1% 2.2%
Exports 335,729 446,145 444,326 508,783 554,686 53.7% 32.9% -0.4% 14.5% 9.0%
Total 1,888,432 2,397,478 2,945,868 3,126,855 3,184,525 6.8% 27.0% 22.9% 6.5% 3.3%
Source: Siam (Society of Indian Automobile Manufacturers) and ICRA (Indian Credit
Ratings Agency) Industry Statistics, 2013
Diagram 1.12: Passenger Vehicles Majors’ Market Share in 2012-13
23%
39%
Maruti
12% Hyundai
Tata
M&M
12%
14% Others
Source: Based on Siam (Society of Indian Automobile Manufacturers) Industry

Statistics, 2013
58
Table 1.16: Domestic Sales and Market Share of Passenger Vehicles

Industry in 2011-12 and 2012-13
Passenger Domestic Sales Growth Market Share

Vehicles FY 2011-12 FY 2012-13 FY 2012-13 FY 2011-12 FY 2012-13
Segment
Maruti Suzuki 1,006,316 1,051,046 4.44% 38.27% 39.12%
Hyundai 388,779 383,611 -1.33% 14.78% 14.28%
Tata 371,350 314,464 -15.32% 14.12% 11.71%
M&M 245,700 310,707 26.46% 9.34% 11.57%
Toyota 160,203 165,504 3.31% 6.09% 6.16%
General Motors 110,050 88,150 -19.90% 4.18% 3.28%
Ford 92,665 77,225 -16.66% 3.52% 2.87%
Honda Cars 54,420 73,483 35.03% 2.07% 2.74%
Volkswagen 78,271 65,465 -16.36% 2.98% 2.44%
Renault 3,666 52,463 1331.07% 0.14% 1.95%
Nissan 33,261 36,955 11.11% 1.26% 1.38%
Skoda 34,089 29,067 -14.73% 1.30% 1.08%
BMW* 9,593 7,221 -24.73% 0.36% 0.27%
Audi* 6,547 6,901 5.41% 0.25% 0.26%
Fiat 16,074 6,933 -56.87% 0.61% 0.26%
Mercedes- Benz* 7,419 5,006 -32.52% 0.28% 0.19%
HindustanMotors 4,923 5,589 13.53% 0.19% 0.21%
Force Motors 5,234 4,562 -12.84% 0.20% 0.17%
Tata-JLR* 796 1,597 100.63% 0.03% 0.06%
International 483 260 -46.17% 0.02% 0.01%
Cars & Motors
Porsche 0 220 21900.00% 0.00% 0.01%
Total 2,629,839 2,686,429 2.15%
Maruti has increased market share due its better performance in utility vehicles
segment compare to 2011-12. Tata is still third largest car manufacture with
marker share of 15%. Tata has de-growth of 15% which is very significant.
59
Tata need to revive its product position and brand value which play important
role in passenger segment.
Rating agency ICRA said that the Indian passenger vehicle industry will touch
48.6 lakh units by 2015-16 due to factors like robust economic growth, rising
disposable income and easy availability of finances. Indian passenger vehicle
(PV) industry will reach 4.86 million in annual sales by FY16, representing a
growth of 10.8 per cent CAGR (compound annual growth rate) over the next
five years. A buoyant economic growth, growing middle class population,
rising disposable income levels, relatively low penetration of cars and adequate
availability of financing are likely to provide an ideal backdrop for a sustained
long-term demand growth for the sector. The outlook on Indian passenger
vehicles industry is as under:
1 Domestic market is expected to grow at a CAGR of 10-11 per cent by

2017.
2 Small car segment to grow at a CAGR of 6-7 per cent by 2017.
3 Mid size segment to record rise of 17-18 per cent by 2017.
4 A4-A6 to remain niche segment.
5 Utility vehicles to grow at a CAGR of around 15-16 per cent during 2012-
2017.
6 Inadequate public transport infrastructure to fuel growth in multi utility
vehicles segment.
7 Rising young population coupled with rising income and low penetration
levels will fuel growth.
8 Growing demand for mid-size cars and rise preference for diesel variants
to boost the realization in the medium term.
9 Diesel vehicles will surpass market share of petrol vehicles in the near
term.
10 Asian markets to fuel the growth in short term as demand drops in the
European markets.
60
1.9 MAJOR AUTOMOBILE COMPANIES IN INDIA
Starting from the era when there was too slim of a variety of cars available in
Indian market, Indian automobile industry has come up a long way to have a
diverse array of cars these days. There are a number of top automobile
companies running their operations in India, which again have a range of
models in different segments of cars. However, while looking for top 10
automobile companies in India; one name that would always lead the list is
Maruti Suzuki India Limited. Maruti Suzuki has consistently been the
dominant leader in the Indian automobile industry. However, there are also
other big names like Tata Motors, Mahindra and Mahindra, Hyundai Motors,
Hindustan Motors etc. During its early days, the most of the Indian car auto
manufacturers banked upon foreign technologies. But the scenario has changed
over the years and currently, the Indian auto manufacturers are using their own
technology. Due to the growing pace of Indian automobile market, a number of
car manufacturers including the global leaders have locked their horns in the
Indian auto market. Key players of Automobile manufactures in India are:
 Maruti Suzuki India Limited

 Tata Motors Limited
 General Motors India Limited
 Ford India Limited
 Eicher Motors Limited
 Bajaj Auto Limited
 Hero MotoCorp
 Ashok Leyland Limited
 Hindustan Motors Limited
 Hyundai Motors India Limited
 Royal Enfield Motors
 TVS Motors Company Limited
 Mahindra and Mahindra Limited
 Swaraj Mazda Limited
 Force Motors Limited
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The global payers in India are:
a) Cars/ SUVs: Maruti Suzuki India Limited, Tata Motors Limited,

Hyundai Motors India Limited, Mahindra & Mahindra Limited, Honda
Cars India Limited, Fiat, Audi, General Motors Limited, Ford India
Limited, Hindustan Motors Limited, Chevrolet, Mitsubishi, Mercedes-
Benz, Skoda and Toyota.
b) Two Wheelers: Bajaj Auto Limited, Hero MotoCorps Limited, Honda
Motorcycle and Scooter India Private Limited, Kinetic, LML India,
Royal Enfield Motors Limited, TVS Motor, Suzuki Motor and Yamaha.
c) Commercial vehicles: Ashok Leyland, Swaraj Mazda, Eicher Motors,
Mahindra & Mahindra, Tata, Mitsubishi, Force, Hindustan Motors,
Maruti Suzuki, Volvo, Sonalika and Escorts Limited.
Table 1.17: List of Top Automobile Companies in India, 2011 (Figures in

Crores)
2011 Economic
Company Turnover PAT Assets
Times 500 Rank
7 Tata Motors Ltd. 123222.91 9273.62 52209.48
21 Mahindra & Mahindra Ltd. 37026.37 3079.73 36926.19
19 Maruti Suzuki India Ltd. 38140.69 2382.37 14762.9
41 Hero MotoCorp Ltd. 19669.29 1927.9 4447.22
46 Bajaj Auto Ltd. 17008.05 3454.89 5154.96
67 Ashok Leyland Ltd. 11133.04 631.3 6621.16
110 TVS Motor Company Ltd. 6569.99 127.94 1745.06
148 Eicher Motors Ltd. 5138.64 243.12 474.14
396 Force Motors Ltd. 1574.05 58.62 583.79
62
1.10 PROFILE OF MAJOR PASSENGER VEHICLES COMPANIES
1.10.1 Maruti Suzuki India Limited
Maruti Suzuki India Limited is a subsidiary company of Japanese automaker

Suzuki Motor Corporation. It has a market share of 44.9% of the Indian
passenger car market as of March 2011. Maruti Suzuki offers a complete range
of cars from entry level Maruti 800 and Alto, to hatchback Ritz, A-Star, Swift,
Wagon-R, Estillo and sedans DZire, SX4, in the 'C' segment Maruti Eeco,
Multi Purpose vehicle Ertiga and Sports Utility vehicle Grand Vitara. Maruti
Udyog Limited (MUL) was established in February 1981, though the actual
production commenced in 1983 with the Maruti 800. It is the market leader in
India, and on 17 September 2007, Maruti Udyog Limited was renamed as
Maruti Suzuki India Limited. Maruti Suzuki is India‟s leading automobile
manufacturer and the market leader in the car segment, both in terms of volume
of vehicles sold and revenue earned. Its manufacturing facilities are located at
two facilities Gurgaon and Manesar south of Delhi. Maruti Suzuki‟s Gurgaon
facility has an installed capacity of 900,000 units per annum. Maruti Suzuki
offers 15 models, Maruti 800, Alto, WagonR, Estilo, A-star, Ritz, Swift, Swift
DZire, SX4, Omni, Eeco, Gypsy, Grand Vitara, Kizashi and the newly
launched Ertiga. Swift, Swift DZire, A-star and SX4 are manufactured in
Manesar, Grand Vitara and Kizashi are imported from Japan.
In 2010-11, the company sold over 1.27 Million vehicles including 1,38,266
units of exports. With this, at the end of March 2011, Maruti Suzuki had a
market share of 44.9 per cent of the Indian passenger car market. Maruti's
average revenue for the year ending 2010-11 is US$7.13 billion. In the
financial year 2010-2011 Maruti Suzuki reported a net sales figure of 37,522
crore rupees. They recorded sales of 36,128 crores in 2010-11 & a net profit
margin of 6.06% in 2011. During the fiscal year ended March 31, 2012 (fiscal
2012), the Company sold over 1.13 million vehicles, including 127,379 units of
exports. Maruti Suzuki is the only Indian Company to have crossed the 10
63
million sales mark since its inception. In 2011-12, the company sold over 1.13
million vehicles including 1,27,379 units of exports. Maruti Suzuki's revenue
has grown consistently over the years. The Company plans to expand its
manufacturing capacity to 1.75 million by 2013.
1.10.2 Tata Motors Limited
Tata Motors Limited (formerly TELCO) is an Indian multinational automotive

manufacturing company headquartered in Mumbai, Maharashtra, India and a
subsidiary of the Tata Group. Its products include passenger cars, trucks, vans,
coaches, buses and military vehicles. It is the world's eighteenth-largest motor
vehicle manufacturing company, fourth-largest truck manufacturer and second-
largest bus manufacturer by volume. It is the leader in commercial vehicles and
is among the top three in passenger vehicles in India with products in the
compact, midsize car and utility vehicle segments. It has the 3rd largest Sales
and Service Network after Maruti Suzuki and Hyundai. Tata Motors has auto
manufacturing and assembly plants in Jamshedpur, Pantnagar, Lucknow,
Sanand, Dharwad and Pune, (India) as well as in Argentina, South Africa,
Thailand and the United Kingdom. Tata Motors has produced and sold over
6.5 million vehicles in India since 1954. Tata Motors entered the passenger
vehicle market in 1991 by launching the Tata Sierra, a multi utility vehicle.
After the launch of Tata Sumo (LCV, 1994) and Tata Safari (1998, India's first
sports utility vehicle), Tata launched the Indica in 1998, the first fully
indigenous Indian passenger car. The success of Indica played a key role in the
growth of Tata Motors.
Models of Tata Motors Limited are Tata Indica, Indica V2 Xeta, Tata Indigo,
Tata Indigo Marina, Tata Indigo SX, Tata Safari, Tata Sumo Victa, Tata
Sumo, Tata Aria, Tata Indigo XL, Tata Xenon XT and Tata Nano.
In January 2008, Tata Motors unveiled its People's Car, the Tata Nano, and a
development which signifies a first for the global automobile industry. The
Tata Nano has been subsequently launched as planned, in India in March 2009.
64
Compounded Annual Growth Rate of the Passenger Vehicles Industry during

the Period 2007-11 has been 12.8%. It is 3rd Largest Player in India with
market share of 13-15%. Tata motors sold 3,13,385 cars in 2011-12 and its
market share during the year was 13.12%.
1.10.3 Hyundai Motors India Limited
Hyundai Motors India Limited is a wholly owned subsidiary of the Hyundai

Motors Company in India. It is the largest passenger car exporter and the
second-largest car manufacturer in India. The Company was formed in 6 May
1996 by the Hyundai Motors Company of South Korea. Models of HMIL are
Hyundai Accent Executive, Hyundai Santro Xing, Hyundai Uber Cool i20,
Hyundai Next Gen i10, Hyundai Fluidic Verna, Hyundai EON and Hyundai
Neo Fluidic Elantra. Hyundai Motors presently markets 49 variants of
passenger cars across segments. These includes the Santro in the B segment,
the i10, the premium hatchback i20 in the B+ segment, the Accent and the
Verna in the C segment, the Sonata Transform in the E segment. HMIL's first
car, the Hyundai Santro was launched in 23 September 1998 and was a
runaway success.
HMIL is the first automotive company in India to achieve the export of 10 lakh
cars in just over a decade. Hyundai Motor, continuing its tradition of being the
fastest growing passenger car manufacturer, registered total sales of 559,880
vehicles in the year 2009, an increase of 14.4% over 2008. In the domestic
market it clocked a growth of 18.1% as compared to 2008 with 289,863 units,
while overseas sales grew by 10.7%, with export of 270,017 units. Hyundai is
the leading exporter of passenger cars with a market share of 66% of the total
exports of passenger cars from India, making it a significant contributor to the
Indian automobile industry. It sold 3,88,799 cars in 2011-12 with a market
share of 13.88%. It is a dominant passenger car manufacturer in India,
controlling 14% market share in the passenger vehicles segment. The company
sold a total of 6,16,039 vehicles 2010–11.
65
1.10.4 Mahindra & Mahindra Limited
Mahindra & Mahindra Limited (M&M) is an Indian multinational automaker

headquartered in Mumbai, Maharashtra, India. It is one of the largest
automobile manufacturers by production in India and a subsidiary of Mahindra
Group conglomerate. It formerly had a joint venture with Ford India Private
Limited to build passenger cars. It is ranked 21 in the list of top companies of
India in Fortune India 500 in 2011. M&M is a major automobile manufacturer
of utility vehicles, passenger cars, pickups, commercial vehicles, and two
wheelers. M&M made its entry into the passenger car segment with the Logan
in April 2007 under the Mahindra Renault joint venture. M&M's automotive
division makes a wide range of vehicles including MUVs, LCVs and three
wheelers. It offers over 20 models including new generation multi-utility
vehicles like the Scorpio and the Bolero. Commercial Vehicles models of
M&M are Alfa, Gio, Mahindra Navistar Trucks, Bolero Maxi Truck, Genio,
Loadking, Maxximo and Tourister Buses. Personal Vehicles models are
Bolero, REVA Electric Cars, Scorpio, Thar, Verito ,Xylo, Actyon, Actyon
Sports, Chairman W, Korando, Kyron, Rexton, Rodius, XUV 500 and
Quanto.
M&M Ltd., India‟s leading SUV manufacturer, announced a 25% rise in its
sales, which stood at 47001 units during March 2012 as against 37522 units
during March 2011. This is the highest ever monthly sales number in the
history of the company. The Passenger Vehicles segment (which includes the
UVs and Verito) has registered a growth of 33%, having sold 23020 units in
March 2012, as against 17320 units during March 2011
1.10.5 General Motors India Private Limited
General Motors India Private Limited is a 50:50 partnership between General

Motors and Shanghai Automotive Industry Corporation (SAIC) that is engaged
in the automobile business in India. The new joint venture company is called
66
General Motors SAIC Investment Limited(GMSIL) and is the 5th largest

automobile manufacturing company in India after Maruti Suzuki, Hyundai,
Tata Motors and Mahindra. In 1994, GMIPL was formed as a joint venture,
owned 50 percent by Hindustan Motors and 50 percent by General Motors, to
produce and sell Opel branded vehicles. GM India started its Indian journey in
1996 and bought out the Hindustan Motors interest in 1999. Models of GM are
Chevrolet Optra, Chevrolet Tavera, Chevrolet Aveo, Chevrolet Aveo U-VA,
Chevrolet Spark, Chevrolet Captiva, Chevrolet Cruze and Chevrolet Beat.It
offers products under the Chevrolet brand in the country. Chevrolet has
emerged as one of the fastest growing automotive nameplates in India today.
GMIPL continued to produce Opel cars at the Halol facility until 2003, when it
started production of Chevrolet vehicles at that location. In 2000, GMIPL
moved its headquarters to Gurgaon. GMIPL began construction of a second
vehicle assembly plant in Talagaon in 2006, which began production of
Chevrolet vehicles in September 2008.
General Motors- Chevrolet sold 110,048 cars in the year 2011-12 and has a
market share of 3.75%. General Motors India has registered a growth of 13% in
March 2012, compared to the corresponding period last year. It sold 10,588
vehicles in March 2012 as against 9,391 units in March 2011. The growth was
primarily driven by the much sought after Chevrolet Beat and the Chevrolet
Tavera. While the Beat recorded its highest sales since its launch, the Tavera
crossed the 2,000 mark again after 5 years. The March 2012 sales comprised of
5638 units of Beat, 2075 units of Tavera, 107 units of Aveo, 123 units of Optra,
44 units of Captiva, 722 units of Cruze and 1879 units of Spark. GM India
exports the Beat car to Europe and Asia Pacific. 20% of the cars produced in
India will be exported to these continents. Beat comes in three models - Beat
PS, Beat LS and Beat LT. The company exports vehicles to Bangladesh, Nepal
and Sri Lanka.
67
1.10.6 Hindustan Motors limited
Hindustan Motors limited is an Indian automaker based in Kolkata, West

Bengal, India. It is part of the Birla Technical Services industrial group. The
company was the largest car manufacturer in India before the rise of Maruti
Udyog. It is the producer of the Ambassador car, widely used as a taxicab and
as a government limousine. One of the original three car manufacturers in
India, founded in 1942 by Mr. B. M. Birla, it was a leader in car sales until the
1980s, when the industry was opened up from protection. All through its
history, the company has depended on government patronage for its sales and
for survival by eliminating competition. It began in Port Okha near Gujarat; in
1948, it moved to West Bengal. The Place is now Called Hindmotor. Along
with passenger cars (Ambassador, Grand, and Avigo )and Multi Utility
Vehicles (Trekker, Porter, and Pushpak), Hindustan Motors also manufactures
passenger cars in the mid size premium segment (Mitsubishi Lancer, Lancer
Select, and Lancer Cedia) and has brought in Sports Utility Vehicle (Mitsubishi
Pajero) into the Indian market in collaboration with Mitsubishi Motors, Japan.
Hindustan has a joint venture with Mitsubishi that started 1998. Models
produced include: Mitsubishi Lancer Evolution X, Mitsubishi Lancer,
Mitsubishi Cedia , Mitsubishi Pajero, Mitsubishi Montero, Mitsubishi
Outlander ,
Indian automobile manufacturer Hindustan Motors (HM) has posted a growth

of 166.45 percent in its sales for the month of February 2013 over sales in the
same month in 2012. The carmaker also reported significant growth of 104.37
percent in the month of January 2013 in comparison to its sales in the month in
2012. HM has witnessed a growth of 147 percent in its net profits in the quarter
ending December 31, 2012. The automaker posted net profit of Rs 20.36 crore
in the quarter in comparison to a net loss of Rs 42.81 crore in the same quarter
in 2011. The Indian carmaker sold a total of 826 units in the month of February
2013 in comparison to 310 units sold in the same month in 2012.Hindustan
Motors is exporting its Ambassador to British and Japanese markets. The
68
company is also exporting its Trucks to Bangladesh, Egypt, New Zealand, Sri
Lanka and Mauritius.
1.10.7 Ford India Private Limited
Ford India Private Limited is a wholly owned subsidiary of the Ford Motor
Company in India. Ford India Private Limited's head quarters are located in
Chengalpattu, Chennai, Tamil Nadu. It currently is the 6th largest car maker in
India after Maruti Suzuki, Hyundai, Tata, Mahindra and Chevrolet. It offers
passenger and sports utility vehicles. Production began with the joint venture
Mahindra Ford India Limited (MFIL) in October 1995, a 50-50 venture with
Mahindra & Mahindra Limited. Ford Motor Company increased its interest to
72% in March 1998 and renamed the company Ford India Private Limited.
Models of FIPL are Ford Endeavour, Ford Classic, All New Ford Fiesta, Ford
Figo and Ford Ecosport. FIPL's main manufacturing plant located in
Maraimalai Nagar, Chennai has a capacity to produce 150,000 cars on a two-
shift basis and 200,000 with three shifts. In 2010-11, the company's production
crossed the 100,000 mark. FIPL has 230 dealerships across 123 cities in 22
states and 3 Union Territories of India.
In the year 2010, FIPL recorded sales of 83,887 vehicles against 29,488
vehicles sold during the year 2009 and registered a sales growth of 172%.From
January to December 2011, the company sold 96,270 domestic units. Ford
India has sold over 1 lakh units of cars during the 2010-11 after registering a
97% growth for the quarter ending March 2011.In financial year 2010-11, the
company was able to witness 29804 units that stood at 97% growth compared
to 15154 units same time last year. Production at Ford India has crossed
100,000 units in a single financial year. Ford India was able to sell 10485 units
of Ford Figo hatch in March 2011 compared to 9478 units same month last
year. The company has witnessed 10000+ units of sales in March 2011. Ford
India currently exports 40 percent of its engine production and 25 percent of its
car production to 35 countries, some of them are, South Africa, Nepal, Mexico,
69
Kenya, Bahrain, Angola, Bermuda, Ghana, Iraq, Liberia, Lebanon, Malawi,

Madagascar, Mauritius, Nigeria, Senegal, Tanzania, UAE, Zambia and
Zimbabwe. Between January 2011 and April 2011, Ford India had exported
1,167 units of cars.
1.10.8 Toyota Kirloskar Motor Private Limited
Toyota Kirloskar Motor Private Limited is a subsidiary of Toyota Motor

Corporation of Japan (with Kirloskar Group as a minority owner), for the
manufacture and sales of Toyota cars in India. Toyota Kirloskar Motor Private
Limited (TKM) was established in 1997 and is a joint venture between Toyota
(89%) and Kirloskar Group (11%). It sells its cars through a network of dealers
in more than 60 cities throughout India. TKM's annual production capacity is
about 80,000 units. It launched a second Bangalore production plant that began
operations in late 2010.Models of TKMPL are Toyota Corolla, Toyota Innova,
Toyota Etios, Toyota Etios Liva, Toyota Fortuner and Toyota Camry. Models
imported are Toyota Land Cruiser Prado, Toyota Land Cruiser and Toyota
Prius. The company has been in car market for years now, and has established a
brand of its own. Toyota Kirloskar is the 7th leading producers of cars in India.
Corolla is one of the most sold cars around the world.
TKMPL sold 74,759 vehicles in India in the year 2010 registering a growth rate
of 38% compared to 2009 sales. TKM registered an annual growth of 82% in
the year 2011. The company sold 1,36,150 units as compared to 74,762 units in
2010. The Etios series sales topped the yearly sales volume with 43,313 units
of Etios and 20,262 units of Etios Liva sold respectively in 2011. Toyota,
which entered India a decade back, sold 1,60,203 vehicles in the previous fiscal
2011-12 to become India's fifth-largest carmaker. Auto sales remained subdued
during these months and grew by a marginal 0.86%, the lowest in the past three
years. The company is aiming at an annual production of around 4 lakh
vehicles by 2015-16 that would take its market share to around 10%.
70
1.10.9 Skoda India Private Limited
Skoda India Private Limited is also referred to as Skoda Auto India and is a
subsidiary company, which is fully owned by Skoda Auto, which is a Czech
automotive company and is a division of Volkswagen Group Sales India. It is
one of the leading brands of car in India and has played its major role in
establishing itself in the Indian automobile market. The Company was
established in India in November of 2001, and has two headquarters, one in
Aurangabad, Maharashtra and the second in Chakan. It develops,
manufactures, and markets passenger cars and SUVs in India. Models of Skoda
India Pvt. Ltd. are Škoda Superb, Škoda Laura, Škoda Fabia and Škoda Rapid.
It imports Škoda Yeti. It currently has 106 dealerships and 89 service centres
across cities. It has sold over 1,61,959 units since November 2001. In the year
2010-11, the Company recorded sales of 20,019 units.
Skoda sold 6,84,226 cars in 2009, however this figure was global. Laura and
Octavia are the super-sellers in the Indian market while Fabia trails behind just
a little at a figure of 7,000 cars. The company‟s sales figures increased
primarily due to the Octavia which had sales figures of 2,73,590 cars in 2009.
Another successful model in 2009 was the Skoda Fabia. Skoda Fabia‟s total
number of cars sold went up to 2,64,173 cars, which is 7.1 per cent higher than
Fabia‟s sales in 2008. Compared to last year, sales increased of the cars Superb
(44,548 cars), Yeti (11,018 cars), Superb Combi (735 cars), Roomster (47,152
cars) and Octavia Tour (43,745 cars). In 2010, the company made 13.5 billion
dollars in revenue and spent 11.5 billion dollars on production of cars. The
profit of the company in the same year was approximately 2 billion dollars.
1.10.10 Volkswagen India Private Limited
Volkswagen India Private Limited is a subsidiary of Volkswagen Group Sales

India Private Limited that assembles, manufactures and distributes Volkswagen
vehicles in India. Volkswagen is a German based automobile manufacturing
71
company. Volkswagen entered into the Indian market in 2007. It established

the Volkswagen India Private Limited (VIPL) in the same year. It operates its
manufacturing plant in Chakan, Maharashtra which is capable of producing
110,000 vehicles per annum. Volkswagen India Private Limited currently has
more than 70 dealerships in 56 cities across 18 states and 2 union territories of
India. Models of VIPL are Volkswagen Passat, Volkswagen Jetta, Volkswagen
Polo and Volkswagen Vento. It imports Volkswagen Touareg, Volkswagen
New Beetle and Volkswagen Phaeton. In the year 2010, VIPL recorded sales of
32,627 vehicles against 3,039 vehicles sold during the year 2009 and registered
a sales growth of over 1,000%.
72
Chapter- 2
Review of
Literature
Chapter-2 Review of Literature
Review of Literature
A number of research studies have been carried out on different aspects of
financial appraisal by the researchers, economists and academicians in
India and abroad. Different authors have analysed performance in different
perspectives. A review of these analyses is important in order to develop an
approach that can be employed in the context of the study related to
financial appraisal of Indian automobile industry.
Nagarajan and Burthwal (1990) in their research work entitled

“profitability and structure: A firm level study of Indian Pharmaceutical
Industry”, intensively examined the relationship between profitability and
structure, using a sample of thirty-eight pharmaceutical firms in India for the
period 1970-1982. Two measures of profitability i.e., ratio of net profit to
total sales revenue and the ratio of net profits to total assets have been used to
find out the determination of profitability. The analysis demonstrated that
under the condition of price controls the most significant determinant of the
profitability of the firms in this industry is vertical integration. Size and
advertising intensity did not appear to be major determinants. This was
perhaps due to the inability of firms to translate their market power into
prices, because of controls. The coefficient of growth rate of sales was
positive and significant, suggesting that factors on the demand side of a firm
had a greater impact on profitability than on the supply side.
Jagan Mohan Rao (1993) in „Financial appraisal of Indian

Automotive Tyre Industry‟ studied the financial appraisal of Indian
automotive tyre industry. The study was intended to probe into the financial
condition-financial strength and weakness-of the Indian tyre industry. To this
end a modest attempt has been made to measure and evaluate the financial
performance through inter-company and inter-sectoral analysis over a given
period of time (1981-1988). The main findings are that fixed assets utilisation
in many of the tyre undertakings was not as productive as expected and
73
inventory was managed fairly well. The tyre industry's overall profit
performance was subjected to inconsistency and ineffective.
Kallu Rao (1993) has made a study of intercompany financial analysis

of tea industry-retrospect and prospect. An attempt has been made in this
study to analyse the important variables of tea industry and projected
future trends regarding sales and profit for the next 10 year periods, with a
view to help the policy makers to take appropriate decisions. Various
financial ratios have been calculated for analyzing the financial health of the
industry. The forecast of sales and profits of tea manufacturing companies
shows that the Indian tea industry has bright prospects. The recent changes in
the Indian economic policies will boost up the foreign exchange earnings,
which will benefit those companies, which are exporting to hard currency
areas.
Chandrasekaran (1993) in „Determinants of profitability in Cement

Industry‟ has studied the determinants of profitability in cement industry. The
objective of this study was to examine determinants of profitability in cement
industry. The study aims at drawing inference on impact of policy measures
which led to change in price and distribution polices relevant for cement
industry. Determinants of profitability are analysed using the technique of
ordinary least squares. Based on existing theories and relevant econometric
empirical works, variables are selected. The study concluded that efficiency in
inventory management and efficient management of current assets were
important to improve profitability.
Pai, Vadivel and Kamala (1995) studied the diversified companies and
financial performance: A study. An effort was made to study the
relationship between diversified firms and their financial performance. Seven
large firms having different products-both related and otherwise-in their
portfolio and operating in diverse industries were analyzed. A set of
performance measures / ratios was employed to determine the level of
74
financial performance. The results reveal that the diversified firms studied
have been healthy financial performance. However, variation in performance
from one firm to another has been observed and statistically established.
In RBI study (1995) an attempt was made to study the financial

performance of private corporate business sector during the period 1994-95.
Of the 1030 companies covered in this study, 925 are non-financial
companies and 105 are financial companies. The results of the non-financial
and financial companies are also analyzed size-wise apart from the analysis of
the consolidated results for the entire sector. The good corporate performance
during 1994-95 reflected in major profitability ratios registering distinct
improvement in the year under review as compared to the previous year.
Vijayakumar and Venkatachalam (1995) in „Working Capital and

Profitability - An Empirical Analysis‟ studied the impact of working capital
on profitability in sugar industry of Tamil Nadu by selecting a sample of 13
companies; 6 companies in co-operative sector and 7 companies in private
sector over the period 1982-83 to 1991-92. They applied simple correlation
and multiple regression analysis on working capital and profitability ratios.
They concluded through correlation and regression analysis that liquid ratio,
inventory turnover ratio, receivables turnover ratio and cash turnover ratio
had influenced the profitability of sugar industry in Tamil Nadu.
Sidhu and Gurpreet Bhatia (1998) studied the factors affecting

profitability in Indian textile industry. In this study an attempt was made to
identify the major determinants of profitability in Indian textile industry with
the help of empirical data taken from Bombay Stock Exchange Directory for
the year 1983. To find out the factors affecting profitability, regression
analysis had been applied. From the analysis, there was no clear-cut
relationship between current profitability and capital intensity. The age of the
firm was having generally negative but statistically insignificant relationship
with current profitability which points towards the fact firms in Indian textile
75
industry are absolute and need modernization.
Vijayakumar (1998) has examined the determinants of corporate size,

growth and profitability- the Indian experience. To meet the objectives of the
study, Indian public sector industries were selected. The data relating to size,
growth and profitability were collected from their annual reports
published by the Bureau of Public Enterprises (BPE), Government of India.
The study covers the period from 1980-81 to 1995-96. The technique of
average, correlation and linear and multiple regression analysis has been used
in this study. Inter - industry analysis reveals that the growth is positively and
significantly associated with the size in all the industry groups except textiles.
Agarwal (1999) studied the profitability and growth in Indian

Automobile manufacturing industry. The objective of this study is to examine
if firms have been making super normal profits since 1975 when price
controls were removed. It also evaluates the impact of policy changes since
1981-82 on profitability and growth of firms in the industry using Tobin‟s
Square as a measure of profitability. The study finds no evidence to show that
firms have made super normal profits. Profitability is found to be explained
mainly by the age of the firms, vertical integration, diversification and
industry policy dummy variable. Important determinants of the growth of
firms are found as diversification, industry policy dummy variables, gross
retained profits and expansion of capacities. Results also reveal differences in
performance between car and non-car sectors as well as within the sectors of
the industry.
Juliet D’Souza and William L.Megginson (1999) have studied the financial
and operating performance of privatized firms during the 1990s. This
study compares the pre and post privatization financial and operating
performance of 85 companies from 28 industrialized countries that were
privatized through public share offerings for the period from 1990 through
1996. The significant increases in profitability, output, operating efficiency,
76
dividend payments and significant decreases in leverage ratios for the full
sample of firms after privatization were noticed. Capital expenditures increase
significantly in absolute terms, but not relative to sales. Employment declines,
but insignificantly. The findings of the study strongly suggest that
privatization yields significant performance improvements.
Rajeswari (2000) studied the Liquidity Management of Tamil Nadu Cement

Corporation Ltd. Alangulam-A Case Study. It can be concluded from the
analysis; the liquidity position of TANCEM is not stable. Regarding
liquidity ratios, there was too much of liquidity in the first two years of the
study period. A very high degree of liquidity is also bad as idle assets earn
nothing and affects profitability. It can be concluded that the liquidity
management of TANCEM is poor and is not satisfactory.
Dabasish Sur, Joydeep Biswas and Prasenjit Ganguly (2001) studied

the Liquidity Management in Indian Private Sector Enterprises: A case
study of Indian Primary Aluminum industry. From the analysis, it may be
summarized that the overall performance regarding liquidity management at
INDAL was better in terms of efficient utilization of short term funds,
whereas HINDALCO was unable to do so. A very high degree of positive
correlation between liquidity and profitability in case of both the companies
was a notable feature, reflecting the favorable effect of liquidity on
profitability.
Aggarwal and Singla (2001) in their study developed a single index of

financial performance through the technique of Multiple Discriminant
Analysis (MDA).They attempt to identity from among the 11 ratios, used as
inputs, those ratios, which are relevant in distinguish between profit making
units and loss making units in Indian paper industry. The study indicates that
model has correctly classified 82.14 percent of units selected as profit making
and loss marking. The study also shows that inventory turnover ratio, interest
coverage ratio, net profit to total assets and earnings per share are the most
77
important indicators of financial performance. The study also suggests that

the results of MDA can be used as predictor of future profitability / sickness.
Dabasish Sur (2001) studied the Liquidity Management: An overview

of four companies in Indian Power Sector. In this study a
comparative analysis regarding the liquidity management in Electricity
generation and distribution industry has been made for the period 1987-88 to
1996-97. The study reveals that the overall liquidity should be managed in
such a way that not only it should not hamper profitability but also its
contribution towards increase in profitability should be positive.
Debashish Rei and Debashish Sur (2001) studied the profitability analysis
of Indian food products industry: A case study of Cadbury India Ltd. The
study attempts to measure the profitability scenario of Cadbury India Ltd. and
analyses the relationship among various profitability ratios and their joint
impact using multiple correlation co-efficient and multiple regression method.
The study on the inter-relation between the selected ratios regarding the
company‟s position and performance and profitability of the company
revealed both negative and positive association.
Mansur A. Mulla (2002) in „Use of „Z‟ score analysis for evaluation of

financial health of textile mills - A case study‟ has been made an insight
into the financial health of Shri Venkatesh Co-operative Textile Mills Ltd.,
Arunageri of Dharwad District. The „Z‟ score analysis has been applied to
evaluate the general trend in financial health of a firm over a period by using
many of the accounting ratios. From the study it was concluded that the
textiles mill under study was just on the verge of financial collapse. On the
one hand, current assets declined because of the negative profitability
performance, whereas on the other hand, the current liabilities were on the
increase because of poor liquidity performance of the mill.
Vijayakumar (2002) in “Determinants of Profitability-A firm level study of
78
the Sugar Industry of Tamil Nadu”, delved into the various

determinants of profitability viz., growth rate of sales, vertical integration and
leverage. Apart from these three variables, he had selected current ratio,
operating expenses to sales ratio and inventory turnover ratio. Econometric
models were used to test the various hypotheses relating to profitability with
other variables. The researcher noted in his conclusion that efficiency in
inventory management and current assets are important to improve the
profitability.
Vijayakumar (2002) in his study „Financial appraisal of Salem Co-

operative Sugar Mills Ltd, Mohanur‟ analysed the various aspects of the
working of Salem Co-operative Sugar Mills Ltd, Mohanur. Financial
appraisal has been studied with respect to profitability, capital structure, fixed
assets and working capital. The researcher's main finding is about the Mill‟s
over reliance on external funds which results in interest burden. It is certain
that the Mill will have better scope to function in an efficient manner if the
owner's funds are increased and the borrowings are reduced.
Sudarsana Reddy (2003) studied the Financial Performance of Paper

industry in AP. The main objectives set for the study are to evaluate the
financing methods and practices to analyze the investment pattern and
utilization of fixed assets, to ascertain the working capital condition, to review
the profitability performance and to suggest measures to improve the
profitability. The data collected have been examined through ratios, trend,
common size, comparative financial statement analysis and statistical tests
have been applied in appropriate context. The main findings of the study are
that A.P paper industry needs the introduction of additional funds along with
restructuring of finances and modernization of technology for better operating
performance.
Petia Topalova (2004) in his study uses firm level data to examine the
performance of India‟s non financial corporate sector since 1989 and
79
evaluate its financial vulnerabilities. The study shows promising trends in

liquidity, profitability and leverage of the sector emerged in the early 1990s;
they experienced a reversal after 1996. Nevertheless, most indicators were
still at comfortable levels, and there is evidence of improvement in 2002. The
study also reveals that a number of firms still face problems servicing their
debt obligations, posing a risk to lenders. The study of aggregate interest
coverage of the corporate sector indicates that potential non-performing loans
of the corporate sector remain high. This underscores the need of the
corporate sector remain high. This underscores the need for close monitoring
of the corporate sector in the future.
Santimoy Patra (2005) the impact of liquidity on profitability is analysed

in his study considering the case Tata Iron & Steel Company Limited.
The study of the impact of liquidity ratios on profitability showed both
negative and positive association. Out of seven liquidity ratios selected for
this study, four ratios namely current ratio, acid test ratio, current assets to
total assets ratio and inventory turnover ratio showed negative correlation
with profitability ratio. However, these correlation co-efficient were not
statistically significant. The remaining three ratios namely working capital
turnover ratio, receivable turnover ratio and cash turnover ratio have shown
positive association with the profitability ratio, all of which are statistically
significant at 5% level of significance. The result of all the correlation co-
efficient is as desirable except correlation co-efficient between inventory
turnover ratio and ROI. However this undesirable sign between ITR and ROI
is not supported by the multiple regression analysis, which shows the positive
association between these two variables. There is increasing profitability
which depends upon many factors including liquidity.
S.P.Singh (2006) in his study performance of sugar mills in Uttar Pradesh

by ownership, size and location. Performance assessment of the sugar industry
and setting targets for the relatively inefficient mill to improve their
efficiency and productivity is crucial, as the interest of various stakeholders
80
is largely dependent on its performance. The performance of the mills is

found to vary significantly across sector, plant size and region. The private
sector mills achieve the highest efficiency scores, followed by the cooperative
sector. It has also been observed that the mills with bigger plant size attain
relatively higher efficiency scores, moreover, the mills located in the WK
found better performer as compared to their counter parts of other regions.
Labour and energy inputs are found highly underutilized in almost all the
inefficient mills.
Debasish Sur and Kaushik Chakraborty (2006) in his study financial

performance of Indian Pharmaceutical industry: The Indian
Pharmaceutical industry has been playing a very significant role in increasing
the life expectancy and in decreasing the mortality rate. It is the 5th largest in
terms of volume and the 14th largest in value terms in the world. The
comparative analysis the financial performance of Indian Pharmaceutical
industry for the period 1993 to 2002 by selecting six notable companies of the
industry. The comparison has been made from almost all points of view
regarding financial performance using relevant statistical tools.
S.K. Srivastava (2007) in his study Role of Organizational

management and managerial effectiveness in promoting performance and
production. Management is a universal Phenomenon. It is present in virtually
all walks of life. Management is not confined merely to a factory or an office.
Skillful management is needed in clubs, families, Schools, Sports, teams and
social functions like marriages, Picnics parties and so on. Lack of proper
management invariable results in chaos, wastage of time, money and efforts.
Although management is needed in various activities, it has special
significance with respect to business enterprises in the public as well as
private sectors. The productive efficiency of business firm depends a great
deal on the Quality of management. Also effectiveness of management is a
major factor determining the growth and prosperity of a business on which
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rests the process of economic growth.
Adolphus J. Toby (2007) in his study financial management modeling of the

performance of Nigerian quoted small and medium-sized Enterprises. It is
conceptualized that sustained growth, adequate liquidity and requisite
profitability in the SME sector is significantly related to their investment
and financing decisions. The empirical results show a significantly inverse
relationship between current ratio and the gross profit margin, holding the
working capital gap constant. The quoted SMES current assets ratio are
significantly sensitive to commercial Banks „liquidity ratio, cash reserve
requirements, and loan-to-deposit ratio. Overall, over model results confirm
that the SME sector in Nigeria is still limited by the liquidity-profitability
dilemma, efficiency constraints, Pecking order reversals, stringent monetary
policy regimes and a risk-over banking system.
From the above review of empirical works it is clear that different authors
have approached financial appraisal in different ways in varying level of
analysis. These different approaches helped in the emergence of more and
more literature on the subject over time. It gives an idea on extensive and
diversed works on financial appraisal. It has been noticed that the studies on
financial performance in various sectors provide divergent results over the
study period. The main reason for the divergence in the results is the different
in the method used for the measurement of factors specially profitability,
solvency, liquidity, asset productivity, capital structure and growth rate in the
operating performance and social performance all the studies aimed to analyse
the financial performance in Indian industries with number of factors.
82
Chapter- 3
Honda Siel Cars India
Limited - Its’ Profile
Chapter-3 Honda Siel Cars India Limited - Its’ Profile
Honda Siel Cars India Limited - Its’ Profile

Honda Motor Company, Japan with its headquarters in Tokyo, has
manufacturing operations in 32 countries with 109 production bases. The
company principal of Honda Worldwide is dedication to supplying products of
the highest quality yet at a reasonable price for worldwide customer
satisfaction. It has 3 business divisions namely two wheelers, four wheelers and
Power Products. Apart from Honda Motorcycle and Scooter India Private Ltd.
(HMSI) that manufactures two wheelers, the other business divisions in India
include Honda Cars India Limited (HCIL) and Honda Siel Power Products
Limited (HSPP). The history of the Honda Motor Company began with
the vision of one man – Soichiro Honda. His dream was personal mobility
for everyone. Soichiro Honda founded the Honda Motor Company in 1948. In
the same year, he designed and engineered the first product of this Company
– a 50cc motorised bike on a bicycle frame-in his small shed at Hamamatsu.
„Challenging the Limits‟ is a phrase commonly heard across the length and
breadth of Honda. It was made popular by its founder, Soichiro Honda who
knew that his fledgling company had to out-think and out-perform its
competitors every step of the way in order to survive. After all, he started out at
a time when his country was devastated by war. Soichiro‟s vision was
international in character. His desire was to lead the world in technology, and
make a significant contribution to the creation of a better society. Honda is a
global company with a global viewpoint and a four-region global strategy that
is reflected in a solid commitment to local markets and economies. However,
the most enduring challenge has been to satisfy the ever – changing needs of
their customers. This is the essential spirit of Honda. The Company‟s vision is
“To be a Company that the Society would want to Exist”. It strongly believes
in Co-existence and Co-evolution, wherever it operates.
It originally began producing motorcycles in the mid 20th century and began
manufacturing automobiles (the Honda Civic) in 1972. After the original
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Civics‟ inception, Honda produced many variants of this highly successful

vehicle, such as the four-door-sedan, wagons, hatchback, coupe and more
recently the hybrid. Honda currently has two automotive brands (Honda and
Acura) and it produces over 20 other vehicle models, such as the Accord,
Element, Insight, Odyssey Minivan, Pilot SUV, and Ridgeline Truck, in
addition to producing motorcycles and power products. Since Honda began
producing automobiles it has been a leader in producing fuel efficient and low
emissions vehicles. In 1977 and 1983, Civic models ranked first in U.S. fuel-
economy tests. Honda has also introduced hybrid vehicles such as the Insight,
Civic and Accord in 1999, 2002 and 2004 respectively. Honda operates in India
through the following subsidiaries and joint ventures:
a) Honda Motorcycle and Scooter India Private Limited

b) Honda R & D (India) Private Limited
c) Honda Cars India Limited
d) Honda Trading Corporation India Private Limited
e) Honda Siel Power Products Limited
f) Honda Motors Company Limited
3.1. HONDA'S GLOBAL VISION
Soichiro's vision was international in character. His desire was to lead the
world in technology, and make a significant contribution to the creation of a
better society. As a result, most of the products that Honda developed started
out by making a difference. Whether it was the CVCC engine in the sixties or
the solar powered car of the nineties, they all sought to challenge and overcome
conventional wisdom.
Basic Principles
Respect for the individual. The Three Joys (buying, selling and creating).
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Company Principle (Mission Statement)
Maintaining a global viewpoint, we are dedicated to supplying products of the

highest quality, yet at a reasonable price for worldwide customer satisfaction.
Management Policies
 Proceed always with ambition and youthfulness.

 Respect sound theory, develop fresh ideas, and make the most effective
use of time.
 Enjoy work and encourage open communication.
 Strive constantly for a harmonious flow of work.
 Be ever mindful of the value of research and endeavor.
Dreams inspire us to create innovative products that enhance mobility and

benefit society. To meet the particular needs of customers in different regions
around the world, we base our sales networks, research and development
centers and manufacturing facilities in each region. Furthermore, as a socially
responsible corporate citizen, we strive to address important environmental and
safety issues.
3.2. HONDA’S MILESTONES
 1947: Honda produced its first product, the A-type bicycle engine.
 1959: The America Honda Company is setup in Los Angeles. The
company sells the Honda Dream, Berley and Honda 50 motorcycles.
 1962: American Honda Company launches its advertising campaign.
Honda sells power equipment products in the US which include the F-
190 mini-tiller and the E-300 and E-40 portable generators.
 1969: The Honda Dream CB 750 Four motorcycle debuts in North
America.
 1973: Honda makes two new inventions: the Honda Civic hatchback and
the four stroke engine that‟s more fuel efficient than the 2-stroke engine.
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 1974: The Honda Civic CVCC engine is introduced.

 1982: Honda of America begins producing the Accord at Marysville,
Ohio making it the first Japanese automaker to make cars in America.
 1990: Honda released the Acura NSX car with the VTEC engine
technology.
 1991: The Accord Wagon is introduced in America.
 1994: Honda enters the Indy Car open wheel racing series
 1995: The Civic is released and it‟s the first vehicle to meet California‟s
Low Emission Vehicle emission standards.
 1996: Honda begins production at a new plant in Ohio.
 1997: Honda starts leasing the Honda EV Plus.
 1998: Honda started producing the All Terrain Vehicles in South
Carolina and the Honda Civic GX.
 1999: The Honda Insight is launched.
 2001 Automobile production reaches 10 million units in the U.S. Fit and
Civic Hybrid released.
 2002 Leasing of FCX fuel-cell vehicle begins in Japan and the U.S. Fit
achieves No.1 annual sales among domestic registered vehicles.
 2003 Worldwide automobile production reaches 50 million units.
 2005 Leasing of FCX fuel cell vehicle for home use begins. Worldwide
sales of Honda hybrid vehicles reach 100,000 units.
 2006 Sales of Bioethanol-compatible Flexible Fuel Vehicle (FFV)
models for Brazilian market begin. Acura brand launched in China.
 2008 Leasing of FCX Clarity fuel cell vehicle begins in Japan and the
U.S.
 2009 Insight hybrid vehicle released.
 2010 CR-Z hybrid vehicle released.
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3.3. PROFILE OF HONDA SIEL CARS INDIA LIMITED
Honda Siel Cars India Ltd. (HSCIL) is a subsidiary of the Honda Motor
Company Limited of Japan, for the production, marketing and export of
passenger cars in India. It began operations in December 1995 as a joint
venture between Honda Motor Company and Usha International of Siddharth
Shriram Group. Honda Siel Cars India Limited is now known as Honda Cars
India Limited (HCIL). In August, 2012, Honda bought out Usha International‟s
entire 3.16% stake for Rs.1.8 billion in the joint venture. The Company
officially changed its name to Honda Cars India Ltd. and became a 100%
subsidiary of Honda. Honda Cars India Ltd., leading manufacturer of passenger
cars in India provide Honda‟s latest passenger car models and technologies, to
the Indian customers. The Company‟s first state-of-the-art manufacturing unit
was set up at Greater Noida, U.P in 1997 with an investment of Rs. 450 crores.
The green-field project is spread across 150 acres of land (over 6,00,000 sq.
m.). The total investment made by the company in India is Rs 1620 crores in
Greater Noida plant .The annual capacity of this facility is 100,000 units. The
company‟s second manufacturing facility is in Tapukara, Rajasthan. This
facility is spread over 600 acres and will have an initial production capacity of
60,000 units per annum, with an investment of about Rs 1,000 crore. The first
phase of this facility was inaugurated in September 2008.
The company‟s product range includes Honda Brio, Honda Jazz, Honda City,
Honda Civic, Honda Accord and Honda Amaze which are produced at the
Greater Noida facility with an indigenization level of 80%, 77%, 76%, 74%
and 28% respectively. The CR-V is imported from Japan as Completely Built
Units. Honda‟s models are strongly associated with advanced design and
technology, apart from its established qualities of durability, reliability and
fuel-efficiency. Honda Cars has a strong sales and distribution network spread
across the country. The network includes 135 authorised dealership facilities in
83 cities. Its dealerships are based on the “3S Facility” (Sales, Service, Spares)
format, offering complete range of services to its customers. The company
87
operates under the stringent standards of ISO 9001 for quality management and
ISO14001 for environment management. Honda Cars India Ltd. nine member
Board is dominated by Honda Motor Company‟s representatives and they
continue to lend their expertise to Honda Cars India Ltd. in the areas of new
product development, production management, vendor development and
finance.
During the financial year 2010-11, in the absence of new models, Honda Cars
India Limited sold 59,463 units, as against 61,815 units during the year 2009-
10. The Company‟s performance has been adversely impacted by the rising fuel
prices, unfavourable foreign exchange rates, expanding gap between prices of
diesel and petrol, and increasing competition through aggressive sales
promotion policies prevalent during the year. Honda Cars India Limited
reported loss after tax of Rs 6044.8 million in 2011-12 and surplus transferred
to Balance Sheet was Rs 2592.0 million. The Company‟s operations during the
year 2011-12 were severely impacted due to unfortunate natural calamities in
Japan and Thailand in the year 2011, leading to non-availability of critical
components/parts and also due to rising fuel prices and expanding gap between
prices of diesel and petrol. As a result, the launch of BRIO, the new small car,
was adversely affected and during the financial year 2011-12, the Company
sold 54,427 units in comparison to 59,552 units during the year 2010-11
witnessing a 8.5% drop in sales.
The Company has a market share of 2.08% in the overall passenger vehicle
segment. Honda Cars India registered a 35 per cent growth in sales for the
financial year 2012-13. In 2011-12, the company had sold 54,427 units, and it
witnessed a 35 per cent jump in sales at 73,483 units in 2012-13. Accordingly,
the Company has continued its focus on strengthening the in-house cost
constitution, endeavouring for increased localisation levels, developing local
suppliers and building capacity for critical components at its Plant at Tapukara,
so as to optimize its product line-up to address diverse market requirements,
minimize the risk of foreign exchange fluctuations and dependence on imports.
88
As production resumed to full capacity from February, 2012, the Company is

now ready to give more joys to its customers. With the introduction of Brio and
launch of updated Jazz and City models, the Company has a refreshed line-up
of cars, which are competitively priced.
3.3.1. Product Range
Honda Car's product range in India includes the Honda City ZX in the mid-
size segment, Civic & Civic Hybrid in the Lower D segment and Accord in the
luxury segment and third generation all-new CR-V (both 2.0L 2 WD and 2.4L
4WD) in the SUV segment. While the City ZX, Civic and Accord are
manufactured at the company's plant, the CR-V & Civic Hybrid is imported
from Japan as a Completely Built Unit. HCIL produces the following vehicles
in India for local and export market:
a) Honda City
Honda's all-new Third Generation Honda City was launched in September

2008. It comes with a completely new design, new engine, spacious cabin and
equipped with various active and passive safety features. The company has also
launched the 1.5 V MT & AT version of the City in September 2009. The new
Honda City is available as SMT, VMT and VAT. Additionally, all the variants
is available in 2 attractive types – Elegance and Inspire. The all new Honda
City achieved milestone sales with 50,000 units sold within one year of its
launch. Since its launch in the country in 1998, Honda City has been a best
seller in the premium car segment.
Honda City Models
 Honda City 1.5 E MT

 Honda City 1.5 S AT
 Honda City 1.5 S MT
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b) Honda Accord
The Honda Accord was first introduced in India in year 2003. HSCI launched
the 8th generation Honda Accord in India in May 2008. The Honda Accord is
available in 2.4L and 3.5L V6 engine. The 2.4L comes in three types in both
Automatic and Manual transmission − Accord 2.4, Accord 2.4 Elegance and
Accord 2.4 Inspire. The All-new Accord comes with 5-speed Manual
Transmission and 5-speed Automatic transmission with Paddle shift, to give
the exhilarating experience of F-1 racing. The AT now has Shift Holding
System which avoids unnecessary gear shifting on winding roads and helps in
hassle free drive. The Honda Accord V6 3.5-liter comes with Electric Sunroof
and additional luxury features for enhanced exterior styling.
Honda Accord Models
 Honda Accord 2.4 AT

 Honda Accord 2.4 Elegance AT
 Honda Accord 2.4 Elegance MT
 Honda Accord 2.4 Inspire AT
 Honda Accord 2.4 Inspire MT
 Honda Accord 2.4 MT
c) Honda City ZX
Honda City ZX is today recognized as one of the most successful car brands in
the country. Its success is a replica of the success of its predecessor - the
original Honda City, launched way back in 1997. In fact, HSCI took a historic
step in 2003, when it introduced the New-City at a time when the original City
was still performing brilliantly and it was an immediate success. The City ZX
was launched two years later in 2005 as an enhanced version of the New-City
and is strongly associated with durability, reliability, quality and fuel-
efficiency. The City ZX range includes 4 variants - EXi, GXi, CVT (Automatic
Transmission) and VTEC. While EXi, GXi and CVT variants come with the
90
advanced combustion system of the 1.5 litre Intelligent Dual & Sequential
Ignition (i-DSI) engine, City VTEC embodies a 1.5 litre VTEC (Variable
Valve Timing and Lift Electronic Control) engine. The VTEC version was
reintroduced in the new City in response to customer demand. The City VTEC
comes with sporty exteriors and plush interiors, catering to the premium
segment customers.
Honda City ZX Models
 Honda City ZX CVT

 Honda City ZX EXi
 Honda City ZX GXi
 Honda City ZX VTEC
 Honda City ZX VTEC Plus
d) Honda Civic
The Civic is Honda‟s largest selling model globally and is now sold in
approximately 160 nations and regions worldwide. Honda Civic was launched
in India in July 2006 which became a runaway success .The new Civic was
launched in September 2009 with more aggressive and sportier look. The new
V grade Civic juxtaposes Honda‟s advanced technology with striking design.
The new Curved 5 Point Metallic Front Grille and restyled Front Sporty
Bumper add to a pulsating and aggressive appeal of the car. The introduction of
stylized Dark Smokey Headlights & Crystalline Octagonal Tail Lights
enhances the contemporary look of the car.
Honda Civic Models
 Honda Civic 1.8E MT

 Honda Civic 1.8V AT
 Honda Civic 1.8V MT
 Honda Civic Sport
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 Honda Civic Hybrid CVT
e) Honda Jazz
Honda Jazz is the company‟s first offering in the premium compact car
segment. The car was introduced in 2009. The Jazz is a segment-defining car
that has won accolades and adoration all over the world. Widely acclaimed for
its dynamic styling, spacious interiors, versatile utility and remarkable
performance, the Honda Jazz brings added fun and excitement to the driving
experience. The Jazz‟s dynamic performance is achieved by four-cylinder 1.2-
liter i-VTEC engine, featuring Programmed Fuel Injection that delivers
maximum output of 90 PS (66 kW) @ 6,200 rpm and Torque of 110 Nm (11.2
kg-m) @ 4800 rpm while giving impressive fuel economy of 16.1 km/l, as per
ARAI test data. Safety of passengers and pedestrians is a top priority for Honda
and all safety equipment is standard across all variants. The Jazz practicality
has been enhanced with three-mode “Magic Seat” configuration to achieve
multiple seating and cargo-carrying configurations for long or tall objects in
addition to the standard five-passenger mode.
Honda Jazz Models
 Honda Jazz S(Basic)

 Honda Jazz Select
 Honda Jazz X
f) Honda Brio
The Honda Brio is a five-door subcompact hatchback produced by Honda in

India, Thailand and Indonesia. The car was introduced in 2011. The Brio
prototype was first shown at 2010 Thailand International Motor Show. The car
is developed to position in a class below Honda Fit for emerging markets. The
initial markets were Thailand and India. The car is designed as a commuter
with Honda's "man maximum, machine minimum" principle. The Brio is
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powered by a 4-cylinder, 1.2 L (73 cu in) L12B i-VTEC gasoline engine

delivering up to 90 PS (66.2 kW; 88.8 bhp). It is available with either a 5-speed
manual or a continuously variable transmission. Safety equipment includes
dual front airbags, anti-lock braking system, electronic brakeforce distribution
and front pretensioner seat belts. In the Indian market, it competes against
Maruti Suzuki's Swift and Ritz, Hyundai's i10, Ford's Figo, Nissan's Micra and
Toyota's Etios Liva.
Honda Brio Models
 Honda Brio E MT
 Honda Brio S MT
 Honda Brio V MT
 Honda Brio VX MT
 Honda Brio VX AT
g) Honda CR-V
The Honda CR-V is sold as a Completely Built Unit (CBU) import and is
available on confirmed order basis for the customers. The Honda CR-V was
first introduced in India in July 2003. It went on to become the segment leader
since its launch winning several awards for itself. The all new 3rd generation
CR-V was introduced in India in November 2006 which offered its customers a
distinctive combination of „the comfort of a sedan with the thrills of a SUV‟.
Honda launched a refreshed version of the 3rd generation CR-V in November
2009. The new Honda CR-V offers its customers a distinctive combination of
refined styling and high quality. The Honda CR-V is available in 2.0 L - MT
2WD and 2.4L MT /AT Real-time 4WD.
Honda CR-V Models
 Honda CR-V2.0 2WD

 Honda CR-V 2.4 AT
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 Honda CR-V2.4 MT
h) Honda Amaze
The Honda Amaze is a four-door subcompact sedan produced by Honda. The

Amaze is the sedan version of the Brio. Honda launched the Amaze in India on
April 11, 2013 which has been developed at Honda R&D Asia Pacific Co., Ltd.
located in Bangkok, Thailand. The Amaze is available in petrol and diesel
engine. The petrol version is available in 6 variants and the diesel version is
available in 4 variants. The Amaze is being manufactured at the company‟s
facility in Greater Noida, with a localisation level of more than 90%. The
Amaze will be a significant step for the company in India as it will be its first
diesel car in India. The car will also be available with the 1.2 L (73 cu in) L12B
i-VTEC petrol engine that is used in the Jazz and Brio hatchbacks. Apart from
being the company‟s first diesel car in India, the Amaze will also be slotted in
that lucrative sub 4-meter entry-level sedan segment, where it will compete
against the Maruti Suzuki Swift DZire and the Tata Indigo eCS.
Honda Amaze Models
 Honda Amaze S AT
 Honda Amaze 1.2 E MT
 Honda Amaze 1.2EX MT
 Honda Amaze 1.2 S MT
 Honda Amaze 1.5 E MT
 Honda Amaze 1.5EX MT
3.3.2. Awards and Accolades of the Company
2012
 2012 India Vehicle Dependability Study - Honda Civic - Premium

Midsize Car
 2012 India Vehicle Dependability Study - Honda CR-V - SUV
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 JD Power Asia Pacific 2011 India IQS - Honda Brio - Premium

Compact Car
 JD Power Asia Pacific 2011 India IQS - Best Car in Midsize Segment-
Honda City No.1
 2012 India Automotive Performance, Execution and Layout Study -
Honda Jazz - Premium Compact Car
 NDTV Car & Bike Awards 2012- Small Car of the year -Honda Brio
 Hatchback of the Year B.S. Motoring Awards 2012- Honda Brio
2011
 Honda Brio awarded Hatch of the year - Petrol 2011 by Car India
 CNBC TV-18 Overdrive Awards 2011 - Storyboard Auto Commercial of
the year-Honda Jazz
 JD Power Asia Pacific 2011 India IQS - Best Car in Premium Midsize
Segment- Honda Civic
Honda City No.1
 CNBC TV-18 Overdrive Awards 2011-Storyboard Auto Commercial of
the year-Honda Jazz
2010
 JD Power Asia Pacific 2010 India IQS - Best Car in Premium Compact
Segment-Honda Jazz
 Car of the Year -NDTV Profit – Car India & Bike India Awards 2010-
Honda Jazz
 Small Car of the Year -NDTV Profit – Car India & Bike India Awards
2010- Honda Jazz
Honda City
95
 JD Power Asia Pacific 2010 India IQS - Best Car in Premium Midsize
Segment- Honda Civic
2009
 JD Power Asia Pacific 2009 India IQS - Honda City No.1

 Indian Car of the Year 2009 (ICOTY 2009) - New Honda City
 JD Power Asia Pacific 2009 India IQS - Honda Civic No.1
 India‟s Favourite Car for Enthusiasts 2009-Honda Civic
 India‟s Favourite Car for Chaffeur-Driven Executives 2009-Honda
Accord
 2009 Best Luxury Car (UTVi Autocar Awards)- Honda Accord
2008
 Total Customer Satisfaction (Honda City and Honda CR-V) by TNS

 'Best Executive Car' (Honda Civic), CNBC Autocar Auto Awards
 'Best Brand for eco friendliness' (HSCI) by Auto India
 'Best ad campaign of the year' (HSCI's 10th anniversary campaign) by
Overdrive
2007
 SUV of the Year' (Honda CR-V) by NDTV Profit Car & Bike
 'SUV of the Year' (Honda CR-V) by Overdrive awards 2007
 'Best Driver's Car award (Honda CR-V) by CNBC TV-18 Autocar Auto
Awards
 'Car of the Year'(Honda Civic) by CNBC TV-18 Autocar Auto Awards
2007
 'Car of the Year'(Honda Civic) by NDTV Profit Car & Bike Awards
2007
 TNS Total Customer Satisfaction Study 2006 (Accord, CR-V & City)
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 Viewer's Choice of the year - CNBC TV 18 Autocar Auto Awards,

2007-Honda Civic
 Executive Car of the year - NDTV Profit Car India and Bike India
Awards 2007- Honda Civic
2006
 Best Indian Company (unlisted) by Business Standard Group

 Manufacturer of the Year by NDTV Profit-Car India
 Manufacturer of the Year by CNBC-TV 18 Autocar India
 No 1 Mid Size Car (Honda City); No 1 Entry Luxury Car (Honda
Accord) and No 1 Premium SUV (Honda CR-V) by TNS
 Best Mid-size Car in Initial Quality (Honda City) and Most Appealing
Mid-size car (Honda City) by JD Power
2005
 CNBC Autocar CAR of the year 2004 - Honda City

 ICICI Overdrive SUV of the Year 2004 - Honda CR-V
 ICICI Overdrive Car of the Year 2004 - Honda City
 Business Standard Motoring Car of the Year 2004 - Honda City
2004
 CNBC Autocar CAR of the year 2004 - Honda City

 ICICI Overdrive SUV of the Year 2004 - Honda CR-V
 ICICI Overdrive Car of the Year 2004 - Honda City
 Business Standard Motoring Car of the Year 2004 - Honda City
3.3.3. Future Prospects of the company
Aiming to garner a larger pie in the automobile market, Japanese car maker
Honda plans to launch four new models in India by 2015. The proposed models
include an upgraded variant of its highly popular compact hatchback Jazz, a
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compact Sports Utility Vehicle, a seven seater multi-purpose vehicle and an

upgraded premium sedan City. Honda Cars India Ltd. currently sells premium
hatchback Brio, midsize sedan Amaze, premium Sedan City, premium SUV
CR-V and luxury sedan Accord in the country, and it has about 150 dealers.
The Company is planning to launch four more models. They will start with
next generation Jazz, two new models in new segments - a seven seater MPV
and a compact SUV - and an upgraded City. For the financial year 2013-14,
the company expects to sell about one lakh units. The company has planned to
increase its dealership outlets to 162 during the financial year 2014.
Automobile maker Honda Cars India Limited (HCIL) would invest Rs 2,500
crore at Tapukara plant in Alwar District in Rajasthan. The investments would
be to build a new assembly line for cars with an annual installed capacity of
1,20,000 units, a new diesel engine component production line and a forging
plant. Combined with the capacity of the new plant, HCIL‟s total installed
production capacity will be increased to 240,000 units per annum in 2014.
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Chapter- 4
Financial Appraisal
Techniques - An
Overview
Chapter- 4 Financial Appraisal Techniques- An Overview
Financial Appraisal Techniques - An Overview

Financial Statements present a summary of the accounts of the business
enterprise to convey an understanding of financial results and position of a
business enterprise. As rightly said by Hampton John J “A financial statement
is an organised collection of data according to logical and consistent
accounting procedures. Its purpose is to convey an understanding of some
financial aspects of a business firm. It may show a position at a moment of time
as in case of a balance sheet or may reveal a series of activities over a given
period of time as in case of an income statement.” American Institute of
Certified Public Accountants (AICPA) state that „Financial Statements are
prepared for the purpose of presenting a periodical review or report on the
progress by the management and deals with (a) status of investments in
business and (b) results achieved during the period under review. The term
financial statements generally refer to the combination of Balance Sheet (also
termed as Position Statement) and Income Statement (also termed Profit and
Loss Account).
4.1. ANALYSIS AND INTERPRETATION OF FINANCIAL

STATEMENTS
The analysis refers to methodical arrangement of data where in the figures

contained in the financial statements are regrouped and the relationship is
studied between the component parts of financial statements. For the purpose
of analysis, the data is sometimes rearranged; the meaningful relationships are
established by comparing the figures of current year with that of the previous
years; or calculating certain ratios, etc. Thus the complex and heterogeneous
information contained in financial statements is broken up into simple and
valuable information and significant relationships are established between the
elements of these financial statements. This is what we mean by analysis.
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Analysis simplifies the heterogeneous data, regroups the figures contained in

financial statements, but the meaning and significance of these simplified
figures is explained by interpretation. It is the process of drawing
inferences/conclusions and explaining the purpose and the result of analysis.
Though, both the analysis and interpretation are related to different aspects, it is
difficult to draw a definite line of difference between them. Both are
complementary to each other and are interrelated. Analysis is useless without
interpretation and the interpretation is not possible without analysis. Most of
the authors have used the „Analysis‟ to imply both the analysis and
interpretation. As put by Myers, “Financial Statement analysis is largely a
study of relationship among the various financial factors in a business as
disclosed by a single set of statements and a study of trend of these factors as
shown in a series of statements.”
Broadly, the objective of financial analysis is to understand the financial

information contained in the financial statements in order to identify the
strength and weakness of the firm, to make a forecast about the future and to
take decisions regarding the operating and financing plans of the business. The
main objectives of analysis of financial statement are:
a) To assess the operating Performance (profitability and efficiency) of the

business as-a whole and for different departments and units.
b) To find out the relative importance and meaning of different elements of
financial statements.
c) To assess the short-term (liquidity) and long-term financial (solvency)
position of the firm.
d) To facilitate relative comparison of various departments and branches of
the same firm and various firms engaged in the same line of business.
e) To identify the causes and effects of unfavourable changes in various
operating and financial aspects and thereby taking remedial measures for
improvement.
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4.2. TYPES OF ANALYSIS AND INTERPRETATION
The analysis of financial statements can be undertaken in a number of ways.

The type of analysis and interpretation depends on the number of years, types
of persons involved and purpose for which the analysis is carried out. Man
Mohan and Goyal has identified two common basis for classification.
(i) On the basis of Modus Operandi:
Modus Operandi basis of classification of financial analysis is related to the

number of years involved in the analysis. It may be classified into two types as
described below:
(a) Vertical Analysis
It is also known as „Static Analysis‟. It refers to the study of relationships of

various items of financial statements of one accounting period only. It
incorporates the study of only one set of financial statements. Common size
financial statements and financial ratios are two important tools used in vertical
analysis.
(b) Horizontal Analysis
It covers a period of more than one accounting periods, therefore also termed as
„Dynamic Analysis‟. It is an analysis of financial statements of an organization
of two or more years. This type of analysis is quite useful for identifying the
long-term trends in various indicators of performance. 'Comparative Statements
and „Trend Percentages, are the important tools employed in this analysis.
(ii) On the basis of Material Used:
According to materials used, it can be classified into following two parts:
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(a) External Analysis
External Analysis is done by the persons who do not have an access to the
detailed basic accounting records of the business firm. These outsiders include
investors, creditors, government agencies and the general public. The external
analysis is based on the published financial statements and data, thus serves
only a limited purpose.
(b) Internal Analysis
It is the analysis of financial statements of an enterprise by the persons who are

internal to the firm and has an access to the detailed accounting records of the
business. It is conducted either by the employees of the firm or an outside
agency may be employed to undertake analysis for measuring the operating and
managerial efficiency for the different sub-units of an organization.
4.3. TOOLS AND TECHNIQUES OF FINANCIAL ANALYSIS
A variety of tools and techniques are available to the financial analyst.

Financial analyst chooses the techniques to suit the requirements of different
enterprises under different situations. The following are some of the common
techniques of financial analysis:
1 Comparative Financial Statements

2 Common Size Financial Statements
3 Trend Analysis
4 Funds Flow Analysis
5 Cash Flow Analysis
6 Cost Volume Profit (CVP) Analysis
7 Ratio Analysis
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4.3.1. Comparative Financial Statements
In Comparative Financial Statements, two or more balance sheet and/or the

income statement are shown simultaneously, in columnar or form to facilities
comparison. It is a horizontal analysis of the firm in which figures for more
than one year are shown side by side to study the trend of different items. It is a
technique which is being followed while preparing most of the published
annual report. The comparative financial statements are prepared to show:
a) The absolute figures for different items for two or more periods.
b) The amount of absolute changes from one period to another.
c) The changes in terms of percentages.
It can be prepared for both balance sheet and income statement. It is useful for
identifying the direction of changes and to study the trend in different
indicators of performance of an enterprise. Such type of comparison is useful
for identifying the areas in which the firm has improved its performance and
the areas in which the performance as a firm has deteriorated.
4.3.2. Common Size Financial Statements
In Common Size Financial Statements, the relationship of different items of

financial statement is established with some common base. In the Common
Size Income Statement, the sales figure is assumed to be 100 and all Figures
are expressed as a percentage of total sales. In the Common Size Balance
Sheet, each item of the balance sheet is slated as a percentage of the total of
assets side or total of the capital and liabilities side. The percentages so
calculated can be compared with the corresponding percentages in some other
period. For this purpose, it is necessary that both the companies should be
following the uniform accounting policies and procedures.
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4.3.3. Trend Analysis
It is useful for studying financial statements for several years. In this method,
the profit and account and the balance sheet of an accounting year are taken as
the base year. Any year may be taken as the base year, it may be the earliest
year involved or any intervening year. Base should normally be the earliest
year in the study period is taken as the base year. Each item in the base year's
financial statement is taken as 100. All the corresponding figures in the
financial statements of other years are expressed as a percentage of their value
in the financial statements of the base year.
4.3.4. Funds Flow Analysis
Funds Flow Statement is also known as „Statement of Sources and

Applications of Funds‟. The funds flow statement summarises the flow of
funds during the year. It describes the sources of funds and applications of
funds between two balance sheet dates. This statement is a historical record of
where the funds came and how these were utilized during the accounting
period. The sources from which the funds comes in the firm are Funds from
operations, issue of shares and debentures, sale of fixed assets and long term
investments, decreases in working capital, raising a loan etc. The uses to which
funds are applied are funds lost in operations, repayment of long term loans,
redemption of preference shares and debentures, increase in working capital,
purchase of fixed assets or long term investments etc. This statement explains
the liquidity position of the business enterprise and the factors which causes
changes in working capital of the firm. It guides the management about the
allocation of scarce resources and helps in assessing the overall credit
worthiness of the firm. It helps to know whether the internal and external
sources of funds are adequate according to the requirements of the funds. It
helps the management to plan for the sources of repayment of long-term debt,
redemption of preference share capital and other liabilities.
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4.3.5. Cash Flow Analysis
Cash Flow Statement analyses the movement of funds in terms of cash, i.e.,
cash transactions where in cash moved in and out of the firm. The movement of
cash into the firm is called cash inflow and the movement of cash out of the
firm is called cash outflow. It is prepared to study the impact of various
transactions on the cash position of the firm. It may be defined as, summary of
receipts and disbursements during the period , reconciling the opening balance
of cash with the closing balance of information gathered from balance sheet
and profit and loss account. It explains reasons for changes in the cash position
of the firm. Transactions which results in an increase in cash are described as
cash inflows and transactions which results in decrease in cash are termed as
cash outflows. It is prepared to know the changes in cash position from one
period to another. It is a statement which shows the sources and applications of
cash during the period. The cash may be generated from sources, like, cash
operating profit, sale of fixed assets, issue of share capital for cash, issue of
other securities for cash, etc. The application of cash may be cash operating
loss, purchase of fixed assets, payment of tax, dividend, redemption of
debentures, repayment of the borrowings, etc.
4.3.6. Cost Volume Profit Analysis
Cost–volume-profit analysis is a planning tool that analyses the relationship

between price, cost structure, volume and profit. It is an examination of cost
and revenue behavioural patterns and their relationships with profit. The
analysis separates costs into fixed and variable components and determines the
level of activity where costs and revenues are in equilibrium. Cost –volume-
profit analysis is an analytical technique which uses the degree of cost
variability for measuring the effect of changes in volume on resulting profits.
Such analyses assumes that the plant assets of the firm will remain the same in
the short- run, therefore, the established level of fixed cost will also remain
unchanged during the period being studied. This analysis provides information
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for managerial decision-making regarding cost of production at various levels

of operation, volume or level of production required, profits expected and
variation between cost of production and sales revenue.
4.3.7. Ratio Analysis
Ratio analysis is an important and powerful technique or method, generally,

used for analysis of Financial Statements. Ratios are used as a yardstick for
evaluating the financial condition and performance of a firm. Analysis and
interpretation of various accounting ratios gives a better understanding of
financial condition and performance of the firm in a better manner than the
perusal of financial statements. A ratio or financial ratio is a relationship
between two accounting figures, expressed mathematically. Ratio Analysis
helps to ascertain the financial condition of the firm. In financial analysis, a
ratio is compared against a benchmark for evaluating the financial position and
performance of a firm. Financial ratios help to summarise large quantities of
financial data to make qualitative judgment about the firm‟s financial
performance. Ratios are the symptoms of health of an organization like blood
pressure, pulse or temperature of an individual. Ratios are the indicators for
further investigation.
Ratio can be expressed as:
a) Percentage say, gross profit ratio is 25% of sales [calculated by dividing

gross profit (Rs. 10,000) by sales (Rs. 40,000) and multiplying by 100];
b) Proportion say, current ratio is 2:1 [calculated by dividing current assets
(Rs. 20,000) by current liabilities (Rs.10,000)];
c) Times say, inventory turnover ratio is 5 times [calculated by dividing
sales (Rs.40,00) by average inventory (Rs.8,000)].
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A single ratio is not meaningful. For proper interpretation and understanding,

ratios are to be compared. Comparison can be with
a) Past ratios i.e. ratios from previous years‟ financial statements of the
same firm.
b) Competitors‟ ratios i.e. similar ratios of the nearest successful
competitors.
c) Industry ratios i.e. ratios of the industry to which the firm belongs to.
d) Projected ratios i.e. ratios developed by the firm which were prepared,
earlier, and projected to achieve.
4.4. CLASSIFICATION OF RATIOS
Several ratios can be grouped into various classes, according to the activity or
function they perform. There are several groups of persons- creditors,
investors, lenders, management and public, interested in interpretation of the
financial statements. Each group identifies those ratios, relevant to its
requirements. They wish to interpret ratios, for those purposes they are
interested in, to take appropriate decisions to serve their own individual
interests. In view of the diverse requirements of the various users of the ratios,
the ratios can be classified into four categories:
1. Liquidity Ratios: They measure the firm‟s ability to meet current

obligations.
2. Activity Ratios: They reflect the firm‟s efficiency in utilising the assets.
3. Leverage Ratios: These ratios show the proportion of debt and equity in
financing the firm‟s assets.
4. Profitability Ratios: These ratios measure overall performance and
effectiveness of the firm.
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4.4.1. LIQUIDITY RATIOS
Liquidity ratios measure the firm‟s ability to meet current obligations, as and
when they fall due. A firm should ensure that it does not suffer from lack of
liquidity and also does not have excess liquidity. In the absence of adequate
liquidity, the firm would not be able to pay creditors on the due date. If the firm
maintains more liquidity, it will not experience any difficulty in making
payments. However, a higher degree of liquidity is bad, as idle assets earn
nothing, while there is cost for the funds. The firm‟s funds will be,
unnecessarily, tied up in liquid assets. Both inadequate and excess liquidity are
not desirable. It is necessary for the firm to strike a proper balance between
high liquidity and lack of liquidity. These ratios are termed as „working capital
ratio‟ or „short term solvency ratio‟. Liquidity ratios are highly useful to
creditors and commercial banks that provide short-term credit. The liquidity
ratios are classified as under:
Current Ratio
Liquidity Ratios Quick Ratio
Absolute Liquidity Ratio
(i) Current Ratio
Current ratio is defined as the relationship between current assets and current
liabilities. It refers to the measurement of the firm‟s ability to meet its short-
term obligations. It establishes the relationship between the current assets and
the current liabilities. It is calculated as follows:
Current assets normally mean such assets which are converted into cash within
a year‟s time or during the normal operating cycle of the business. It usually
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includes cash in hand and at bank, debtors (less provision for bad and doubtful
debts), inventories - raw materials, work-in-progress and finished goods,
prepaid expenses, bills receivable, marketable securities, etc. Current liabilities
represent the liabilities which are payable within a year‟s time during the
normal operating cycle of the business. It includes sundry creditors, bills
payable, outstanding expenses, bank overdraft, etc.
Interpretation:
The current ratio is used to find out the ability of the business to pay-off its
short-term obligations. The current ratio of 2:1 is reckoned as an ideal ratio.
This ratio should be neither too high nor too low. A very high current ratio is
also not desirable since it means inefficient use of working capital. It may be
due to the piling up of obsolete inventory, excessive cash, large amount of
debtors due to inefficient collection policy, etc. On the other hand, a low ratio
indicates inability of the company to meet adequately its short-term
obligations.
(ii) Liquid Ratio (Quick Ratio) (Acid Test Ratio)
Liquid ratio establishes the relationship between liquid assets and current
liabilities. Liquid assets are those that can be converted into cash, quickly,
without loss of value. Cash and balance in current account with bank are the
most liquid assets. Other assets that are considered, relatively, liquid are
debtors, bills receivable and marketable securities. Inventories and prepaid
expenses are excluded from this category. Inventories are considered less liquid
as they require time for realising into cash and have a tendency to fluctuate, in
value, at the time of realisation. Prepaid expenses cannot be recovered in cash,
normally, hence they are excluded.
Liquid Assets = Current Assets –Inventory -Prepaid Expenses

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Interpretation:
It helps to assess the ability of the company to meet its obligation without
waiting for much time to liquidate its assets. Ideal Quick/Liquid Ratio is 1:1.
Thus, an organisation must have quick assets equivalent to 100% of its current
liabilities. However, the result of quick ratio should be interpreted carefully
keeping in view the composition of liquid assets.
(iii) Absolute Liquidity Ratio (Super-Quick Ratio) (Cash Ratio)
This ratio establishes the relationship between the absolute liquid assets and
current liabilities. Absolute liquid assets usually constitute of cash in hand and
at bank and marketable securities. Cash is the most liquid asset. Although
debtors and bills receivable are, generally, better realisable than inventories,
still, there are doubts regarding their realisation, more so, in time. So, they are
not considered, immediately, available for making payments and so excluded
for the calculation of cash ratio. It is the most vigorous test of the firm‟s
liquidity position. However, this ratio is hardly used in practice. It may be
expressed as follows.
Interpretation:
Cash ratio of 1:2 is considered acceptable. It means Rs. 1 liquid assets are
considered adequate to pay Rs. 2 of current liabilities as all the creditors are not
expected to demand cash, at the same time, and cash may be realised, at least
something, from debtors and inventories too. More so, sanctioned working
capital limits of the bank are not always, fully, utilised and the balance drawing
power is available to the firm for immediate withdrawal of cash.
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4.4.2. EFFICIENCY OR TURNOVER RATIOS
Activity Ratio is also called turnover ratios or asset utilisation ratio or

efficiency ratios. It is concerned with measuring the efficiency with which asset
is managed. It refers to the speed and rapidity with which assets are converted
into sales. The greater is the rate of turnover or conversion, the more efficient is
the utilization or management of the asset. These ratios are usually calculated
with reference to sales/cost of goods sold and are expressed in terms of rate or
times. Activity Ratio may be calculated for all the assets, however, some of the
important activity ratios are as follows:
Inventory Turnover Ratio
Efficiency Ratios Debtors‟ Turnover Ratio
Creditors‟ Turnover Ratio
Other Turnover Ratio
(i) Inventory Turnover Ratio
The Institute of Chartered Accountants of India defines inventories in

Accounting Standard 2 as follows: “Inventories are assets held for sale in the
ordinary course of business, in the process of production for such sale; or in the
form of materials or supplies to be consumed in the production process or in
the rendering of services.”
This ratio is also called as „Stock Velocity Ratio‟ and establishes the
relationship between the cost of goods sold during a given period and the
average inventory held during the year by firm. It is calculated as follows:
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Cost of Goods Sold = Opening Stock + Purchases - Closing Stock
(Or)
= Net Sales - Gross Profit
Sometimes, it is difficult to calculate cost of goods sold on the basis of

available information. In such a case, net sale are used in place of cost of goods
sold. It may be computed on the following basis:
Average age of Inventory Period
The concept of Inventory Turnover Ratio can be extended to find out the
number of days of inventory holding as follows:
Where, 360/365 is taken as number of days in a year.
Interpretation:
It measures the liquidity of the inventory. It indicates the velocity with which
the goods move, thus serves as a yardstick of efficient inventory management.
The lower this ratio, the better it is. A lower inventory ratio indicates quick
sales. But a low turnover ratio should be analyzed carefully as it may result in
lower investment in inventory and frequent stock outs. A high ratio is an
indicator of slow moving, obsolete or poor quality goods which the company
may not be able to sell.
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(ii) Debtors’ Turnover Ratio
It is also known as the „Receivables Turnover Ratio‟ or „Receivables Velocity

Ratio‟. It establishes the relationship between net credit sales of the year and
the average debtors. It indicates how well receivables are turning into cash. It
refers to the speed with which receivables are converted into cash, thus
important for analysing the liquidity position of the firm. This ratio may be
calculated using the following formula:
The term receivables here include both the trade debtors and bills receivable.
Average Accounts Receivable =
In case information about credit sale and average debtors is not available, this
ratio may be calculated on the basis of total sales and closing balance of
receivables.
Average Collection Period
The other important ratio related to „Debtor‟s Turnover Ratio is the „Average
Collection Period‟. It states the average debt collection period. It is useful
because it indicates the average period of credit extended by the firm and the
effectiveness of credit and collection policy of the firm. A low „Average
Collection Period‟ implies the shorter time lag between credit sales and cash
collection. It may be calculated by any of the following methods:
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(Or)
Interpretation:
In absolute terms, high debtors ratio and low collection period is an indicator of
highly liquid accounts receivable. A shorter collection period implies prompt
payment by debtors and restrictive credit policy. On the other hand, low'
debtors‟ turnover ratio and longer collection period implies liberal credit and
collection policy. As such, credit policy should be neither too liberal nor too
restrictive. A restrictive credit policy can affect sales adversely and thus reduce
profits. The efficiency of firms‟ credit and collection policy can be evaluated
by comparing it with the average of the industry. There is no ideal collection
period of debtors. It depends upon the peculiar characteristics of the industry,
business and the firm.
(iii) Creditors’ Turnover Ratio
It establishes the relationship between the net credit purchases and the average
trade creditors. It is also known as „Creditors' Velocity Ratio‟. It indicates the
speed with which the payments for credit purchases are made to the trade
creditors. It is computed as follows:
The term Accounts Payable includes both „Trade Creditors‟ and „Bills
Payable‟.
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Average Payment Period or Credit Period
This ratio is supported by another ratio, viz., „Average Payment Period‟ which
may be calculated by any of the following methods:
(Or)
Interpretation:
A low „Creditors' turnover ratio‟ or „Larger Average Payment Period‟ implies

liberal credit terms granted by the supplier. But excessive „large average
payment period' means an unusual delay in the payment to the suppliers and
thus affects adversely the credit reputation of the firm. On the other hand, a
higher „creditors turnover ratio' or a „shorter credit period' implies that the
creditors are being paid promptly which enhances the credit worthiness of the
company. However, shorter credit period also means that the company is not
taking full advantage of the credit facilities granted by the suppliers. Therefore,
it should be neither too high nor too low. As far as possible, the company
should try to maintain the Average Payment Period in line with the credit terms
of the supplier.
(iv) Other Turnover Ratios
(a) Working Capital Turnover Ratio
It is an indication of the velocity or efficiency in the utilization of the working

capital during the year. The working capital here means the net working capital
which is equal to the total current assets less total current liabilities. It is
calculated as follows:
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The higher the working capital turnover ratio, the lower is the investment in the
working capital and greater is the contribution to sales. However, high working
capital turnover ratio also implies a risky proposition for the firm and low net
working capital in relation to the sales volume.
(b) Fixed Assets Turnover Ratio
It indicates the efficiency of the fixed assets towards contribution to sales. It

helps to assess whether the investment in fixed assets is justified or not. It is
calculated as follows:
Higher fixed assets turnover ratio indicates the higher efficiency in the
utilization of the fixed assets.
(c) Total Assets Turnover Ratio
It measures the efficiency in the use of total assets. This ratio is calculated as
follows:
4.4.3. LEVERAGE RATIOS (FINANCIAL RATIOS) (LONG-TERM

SOLVENCY RATIOS)
These ratios are used to assess the long-term solvency of the business. The
short-term creditors are interested in short-term solvency of the business.
Liquidity of the firm can be ascertained and understood with the help of
Liquidity Ratios. The long-term solvency of the business can be judged by
using Leverage Ratios. Leverage Ratios are used to assess the following two
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aspects of the long-term solvency of a firm: ability to repay the principal

amount when due; and the ability to pay the interest and dividend promptly and
periodically as per the agreed terms and conditions. The following ratios fall in
this category:
(i) Capital Gearing Ratio
Capital Gearing Ratio refers to the relationship between the fixed income
bearing capital and variable income bearing capital. The fixed interest bearing
capital includes the funds provided by the debenture holders and preference
shareholders. The variable income bearing capital includes the funds provided
by equity shareholders. It includes the equity share capital and other reserves. It
can be calculated as follows:
The numerator of the above equation includes both the debt and the preference
share capital. The denominator of the above equation includes equity share
capital and other reserves meant for equity shareholders.
Interpretation:
In case, the amount of fixed interest or dividend bearing funds is more than the
equity shareholders' funds, the capital structure is said to be highly geared. On
the other hand, the capital structure is said to be low geared, if reverse is the
case. If both the components are equal, the capital structure is said to be evenly
geared. There is another implication of capital gearing ratio. It indicates the
additional residual benefits accruing to the equity shareholders' funds. It is due
to the fact that the company earns a certain rate of return on the capital
employed, but is required to pay only a fixed return against loans and
preference share capital.
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(ii) Debt Equity Ratio
The debt-equity (D/E) ratio is another tool of financial analysis. The debt
equity-ratio reflects the relative contribution of creditors and owners of
business in the capital structure of the firm. It is also called „External-Internal
Equity‟ Ratio. It is computed as follows:
External Equities = Debentures + Long-term loans + Short-term Creditors

(Creditors, Bill Payable, Outstanding Expenses, Provision for Income tax,
Proposed Dividend etc.)
(Or)
External Equities = Long-Term Debts + Current Liabilities
Internal Equities/Shareholders‟ Funds = Equity Share Capital + Preference

Share Capital + Capital Reserves + Revenue Reserves.
Interpretation:
Debt Equity Ratio indicates the extent to which debt financing has been used in
business. This ratio shows the level of dependence on the outsiders. As a
general rule, there should be a mix of debt and equity. The owners want to
conduct business, with maximum outsiders‟ funds to take less risk for their
investment. At the same time, they want to maximise their earnings, at the cost
and risk of outsiders‟ funds. The outsiders (lenders and creditors) want the
owners‟ share, on a higher side in the business and assume lower risk, with
more safety to their funds.
Total debt to net worth of 1:1 is considered satisfactory, as a thumb rule. In

some businesses, a high ratio 2:1 or even more may be considered satisfactory,
say, for example in the case of contractor‟s business. It all depends upon the
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financial policy of the firm, risk bearing profile and nature of business.
Generally speaking, the long-term creditors welcome a low ratio as owners‟
funds provide the necessary cushion to them, in the event of liquidation. A high
debt-equity ratio may be unfavourable as the firm may not be able to raise
further borrowing, without paying higher interest, and accepting stringent
conditions. This situation creates undue pressures and unfavourable conditions
to the firm from the creditors.
(iii) Total Debt Ratio
Total Debt Ratio compares the total debts (long-term as well as short-term)
with total assets.
Total Debts = Long Term Debts + Current liabilities
Interpretation:
This ratio depicts the proportion of total assets, financed by total liabilities. A
higher ratio is a threat to the solvency of the firm. A lower ratio is an indication
that the firm may be missing the available opportunities to improve
profitability. What is required a balanced proportion of debt and equity so as to
take care of the interests of lenders, the shareholders and the firm, as a whole.
(iv) Proprietary Ratio
It is also known as „Net Worth to Total Assets Ratio‟ or „Capital Ratio‟ It

establishes the relationship between shareholders' funds and total assets of
business. Its main purpose is to find out how much funds have been provided
by shareholders for investment in assets of the business.
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Proprietors‟ Funds/Shareholders‟ Funds = Ordinary Share Capital + Preference

Share Capital + Reserves and surplus.
Total Assets = Fixed Assets + Current Assets (excluding fictitious assets)
Interpretation:
This ratio is quite significant for the creditors of business. With the help of this
ratio, it can be ascertained in what proportion owners have provided funds for
investment in assets of business. The higher the ratio, the more profitable it is
for the creditors and the lesser is the dependence on external funds. If the ratio
is low, the creditors can be suspicious about the repayment of their debt which
indicates greater risk to the creditors. The higher the ratio, the better it is. A
ratio below 50% may be quite alarming for the creditors. The greater the
percentage financing provided by shareholders equity, the larger is the cushion
of protection for the firm‟s creditors.
(v) Fixed Assets to Proprietors’ Funds Ratio
This ratio establishes relationship between fixed assets and proprietors‟ funds.
The main objective of this ratio is to find out in what proportion owners funds
are invested in fixed assets.
Fixed Assets here means net fixed assets, i.e., after charging depreciation
proprietors‟ funds are the same as internal equities in the debt equity ratio.
Interpretation:
The higher proportion of proprietors‟ funds to fixed assets is a measure of long-

term financial soundness of business. However, the lower the ratio, the better it
is for the long term solvency of business because proprietors funds will be
available for working capital needs also. For industrial units, the standard is
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usually 65%. If the ratio is more than one, it means that a part of fixed assets
has been financed from debt capital.
(vi) Current Assets to Proprietors’ Funds Ratio
This ratio establishes relationship between current assets and proprietor‟s

funds. The main objective of this ratio is to find out in what proportion
proprietors fund has been invested in current assets. It is calculated as follows:
(vii) Interest Coverage Ratio
It is also known as „Debt Service Ratio‟ or „Fixed Charges Cover‟. It

establishes the relationship between the amount of net profit before deduction
of interest and tax, and the fixed interest charges. Interest Coverage Ratio may
be calculated as follows:
Interpretation:
This ratio indicates the extent to which earnings can fall, without causing any
embarrassment to the firm, regarding the payment of interest charges. The
higher the ratio, better it is both for the firm and lenders. For the firm, the
probability of default in payment of interest is reduced and for the lenders, the
firm is considered to be less risky. However, too high a ratio indicates the firm
is very conservative in not using the debt to its best advantage of the
shareholders. On the other hand, a lower coverage ratio indicates the excessive
use of debt.
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(viii) Dividend Coverage Ratio
This ratio measures the margin of safety available to preference shareholders

with regard to the payment of dividend. Though the payment of preference
dividend is not compulsory, it is assumed that the payment of such dividend is
payable only out of profit after taxes, thus it is calculated as follows:
The higher is the ratio the greater is the security for the presence shareholders.
4.4.4. PROFITABILITY RATIOS
The profitability ratios measure the profitability or the operational efficiency of

the firm. A lack of profit may arise due to poor sales, lack of control over the
expenses. Both the shareholders (owners) and the management are interested in
measuring the operational efficiency or profitability of the firm. Even the
prospective investors and creditors of the firm look at the profitability
prospects of the firm. The profitability ratios are the relative measurement
which can be determined on the basis of either sales or investment.
(i) Profitability Ratios Related to Sales
These ratios are calculated on the basis of sale. If a firm does not earn adequate
profit on sales, it will be difficult for the firm to pay operating expenses and the
owners will not able to get reasonable return on their investments. The
following ratios fall in this category:
(a) Gross Profit Ratio

(b) Net Profit Ratio
(c) Operating Profit Ratio
(d) Operating Expenses Ratio
(e) Expenses Ratio
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(a) Gross Profit Ratio
It is also called the average mark up ratio. This ratio establishes the relationship
between the gross profit of the firm and net sales. It is generally expressed in
terms of percentage of gross profit earned on sales. It is calculated as follows:
Gross Profit = Net Sales - Cost of Goods Sold
Cost of Goods Sold = Opening Stock + Net Purchases + Direct Expenses –

Closing Stock
Net Sales = Sales – Sales Return
Net Purchases = Purchases – Purchase Return
Interpretation:
The Gross Profit Ratio measures the per rupee gross profit earned on every 1
rupee of sales. It indicates the efficiency with which the firm
purchases/produces the goods. The improvement in gross profit ratio over the
previous years may be due to improved efficiency of the firm in manufacturing
or trading activities which may result from increase in the selling price or
decrease in the cost price or reduction in raw material consumption per unit,
etc. The deterioration in gross profit ratio over the previous years may be due
to the decline in the efficiency of the firm in manufacturing or trading activities
which may be due to decrease in the selling price per unit of goods sold or
increase in the cost price or increase in the raw material consumption per unit
or increase in the direct expenses, etc. The amount of gross profit earned by the
firm should be adequate to cover operating and non operating expenses and to
provide for reasonable return for the shareholders.
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(b) Net Profit Ratio
The net profit ratio establishes the relationship between the net profit (after tax)
of the firm and net sales. Net profit is obtained, after deducting operating
expenses, interest and taxes from gross profit and is calculated as follows:
The net profit can also be calculated from operating profit as follows:
Net Profit = Operating Profit + Non Operating Income - Non Operating

Expenses.
Interpretation:
It is a meaningful tool to judge the profitability of the firm when this ratio is
studied along with the Gross Profit Ratio and Operating Profit Ratio. Net Profit
ratio indicates the overall efficiency of the management in manufacturing,
administering and selling the products. Net profit has a direct relationship with
the return on investment. If net profit is high, with no change in investment,
return on investment would be high. If there is fall in profits, return on
investment would also go down.
(c) Operating Ratio
This ratio establishes the relationship between the aggregate of cost of goods
sold and other operating expenses on the one hand and the sales revenue on the
other hand. Other operating expenses comprise of administrative overheads,
selling and distribution overheads. Financial charges such as interest, provision
for taxation, etc are excluded from operating expenses. It is calculated as
follows:
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Interpretation:
It is a yardstick for measurement of the operating efficiency of the firm. A

higher operating expense ratio is not favourable since it will leave a small
amount of income to meet non-operating expenses. It should be low enough to
generate a reasonable return for the shareholders. The comparison of operating
ratio with that of the past or average of the industry will indicate whether the
operating cost component is reasonable or not in relation to sales. The reasons
for the variation in the operating expense ratio should be carefully analyzed
which may be due to external uncontrollable factors, internal factor or
management policies of the firm etc.
(d) Operating Profit Ratio
This ratio measures the relationship between the operating profit and net sales.
The operating profit is also termed as the earnings before interest and taxes.
The operating profit refers to the profit generated by the firm from operating
activities. It is calculated as follows:
Net Operating Profit = Net Sales- Operating Cost
Operating Cost = Cost of Goods Sold + Operating Expenses
(Or)
Net Operating Profit =Net Profit (After taxes) + Non-Operating Expenses -

Non-operating Income
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Non-operating Expenses relates to financial charges such as unexpected

interest payments, loss on sale of fixed assets or on account of contingencies,
tax liability, etc. Non operating income relates to dividend, interest received on
long-term investment, profit on sale of goods, etc.
Interpretation:
This Ratio determines the efficiency of the firm in the management of the
business. There are no standard norms for the evaluation of this ratio. However,
the comparison of the OP Ratio with that of the past and/or industry averages
provides an indication about the operating management and conditions of the
business.
(e) Expense Ratios
The operating ratio can be calculated separately for each element of operating
cost, viz
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(ii) Profitability Ratios Related to Investment
A financial analyst is interested to measure the profitability of the firm with

reference to assets employed by the firm. The larger the assets employed, the
greater should be the profits and vice versa. The following are the four
important ratios identified on the basis of linking of the profitability via- a-via
the assets employed by the firm.
(a) Return on Assets

(b) Return on Capital Employed or Return on Investment
(c) Return on Shareholders‟ Funds
(d) Return on Equity Shareholders‟ Funds
(a) Return on Assets (ROA)
It measures the profitability of the firm in relation to assets employed by the

firm. It is computed to know how much is the profit generated by the firm per
rupees of assets used. As 'net profit‟ and „net assets‟ have a number of
meanings, there are a number of approaches to compute the ROA. Usually, the
following approaches are used:
Interpretation:
It measures the overall efficiency of the management in generating profits from

the use of assets. The increase in the size of the firm should be accompanied
with the increase in the ROA; only then the employment of more assets is
justified. The ROA of the firm should be compared with the industry average to
judge the operating efficiency of the firm with respect to the assets employed.
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(b) Return on Investment
It is also known as „Return on Capital Employed‟ or „Rate of Return‟. It is

calculated on the basis of the following formula:
(Or)
The amount of capital employed has been defined differently by different

authors. However, the following approach is the most popular and acceptable
one.
Capital Employed = Net Fixed Assets + Working Capital
= Net Fixed Assets + (Current Assets - Current Liabilities)
(Or)
= Equity Share Capital + Preference Share Capital + Reserves and

Surplus + Long Term Loans - (Fictitious Assets + Non Operating
Assets)
(c) Return on Shareholders’ Funds
It is also called „Return on Net worth Ratio‟ or „Return on Proprietors‟ Funds‟.

It determines the profitability of the company from the perspective of
shareholders. It is computed as follows:
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(d) Return on Equity Shareholder’s Funds
This ratio determines the profitability of the firm from the perspective of equity
shareholders. It is calculated after taking into account the amount of dividend
payable to preference shareholders. It is computed as follows:
Return on Equity Shareholder's Funds =
Where, Equity Shareholder's Funds = Equity Share Capital + Revenue Surplus

+ Capital Reserves – Accumulated Loses if any
(iii) Profitability Ratios from the Point of View of Owners of the Business
The profitability of the firm from the point of view of owners of the business
can be assessed from the following ratios:
a) Earnings Per Share

b) Dividend Per Share
c) Payout Ratio
d) Price Earnings Ratio
e) Earnings and Dividend Yield Ratio
(a) Earnings Per Share
The profitability of the shareholder‟s investment can be assessed by calculating

the earnings per share. EPS is determined by the following formula:
The number of equity shares should be adjusted for bonus or rights issue, if any
made during the year.
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Interpretation:
The comparison of the EPS of the firm with that of the industry average and the
earnings per share of other firms helps in assessing the profitability of the firm
on per share basis. It helps in determining the market value of the share and the
capacity of the company to pay dividend to its equity shareholders.
(b) Dividend Per Share
The profit which is left after paying off taxes and preference dividend belongs
to equity shareholders. But the earnings which they really receive are the
amount of dividends distributed to them. The amount of earnings distributed to
equity shareholders per share is known as dividend per share and is calculated
as follows:
(C) Dividend Payout Ratio
Dividend Payout Ratio refers to the proportion of the earnings which has been
distributed to the shareholders as dividend. The company does not distribute all
of its earnings to equity shareholder The earnings not distributed are retained
back in the business and meant to be invested for the future growth prospects of
the firm.
(d) Price Earnings Ratio
It measures the relationship between the market price of an equity share and the
earning per share and is calculated as follows:
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The PE Ratio indicates the expectation of equity investors about the

earnings or performance of the firm. It is widely used by security analysts to
find out whether the equity share of the company is undervalued or overvalued.
(e) Earnings and Dividend Yield Ratio
The yield is defined as the rate of return on the amount invested in the business.
In order to find out the yield of an equity share, the earnings per share and
Dividend Per Share should be compared with the market price per share. That
is as follows:
The „Earnings Yield' is the inverse of „Price Earnings Ratio‟. It is also known
as „Earnings Price Ratio‟. The dividend yield and the earnings yield ratio
evaluate the return of the shareholders in relation to the market price of shares.
4.5. USEFULNESS OF RATIO ANALYSIS
Ratio analysis is an important tool for analysis of financial statements. It

determines the profitability, financial position and efficiency of the business.
Management can take important decisions on the basis of ratio analysis. It is
important for all parties including creditors, investors and financial institutions.
(i) Useful in Analysis of Financial Statements: Accounting ratios are widely

used for analysis of financial statements. It is a tool in the hands of financial
analyst to summarize and simplify the voluminous financial data. Accounting
Ratios helps in working out significant accounting data relationships from
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financial statements. Thus, provides greater insight into the profit ability and
financial position of the concern.
(ii) Useful in Simplifying Accounting Figures: Ratios simplify the

comprehensive financial data available in financial statements. It helps in
communicating precisely the interrelationship between accounting figures
available in financial statements. Financial ratios provides understandable
platform to detailed and complicated financial figures.
(iii) Useful in Judging the Operating Efficiency of the Business: Ratio

analysis is helpful to assess the operating efficiency of the firm. It helps to
determine whether the assets are being used efficiently or not. It is a useful tool
for the diagnosis of financial health of concern which can be judged from
profitability, liquidity, solvency ratios, etc.
(iv) Useful in Planning: Accounting ratios are very useful for planning and
forecasting. The ratio analysis helps in working out important relationships
among different accounting figures which can be used for future planning and
forecasting.
(v) Useful in Locating the Factors Responsible for Failure of the Business:
Accounting figures help to locate the factors which are responsible for failure
of the business, thus management can take necessary corrective and remedial
measures to overcome the factors responsible for failure of time to ensure
success in the future.
(vi) Useful for Inter-firm and Intrafirm Comparisons: Accounting ratios

helps in comparing the performance of the firm with that of other firm and of
industry in general. It also makes possible the comparison of different units in
the same firm, which is called intrafirm comparison. Such comparison are
useful for the development of healthy competition between the firms and
between different units within the firm.
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(vii) Helps in Determining Trends: With the use of ratio analysis, the trends
in profits, sales, cost, etc., can be ascertained. These trend ratios enable the
analyst to judge the performance of the company over the years.
(viii) Helps in Establishing Standards: The standards for each ratio can be
established. The management can compare the actual with the standards and
can take corrective measures to remove the variances and rectification of errors
committed in the past.
4.6. LIMITATIONS OF RATIO ANALYSIS
Ratio analysis plays a significant role in the process of analysis and

interpretation of financial statements. It is one of the most widely used tool for
analysis and interpretation of financial statements. Though it plays a pivotal
role, it is subject to certain limitations which are identified as below:
(i) Limitations of Accounting Data: Accounting ratios are based on the

information available in the books of accounts. If the books of accounts do not
provide correct values for assets, liabilities and other items, it is not possible to
compute the correct realistic, meaningful and useful ratios.
(ii) Lack of Standards: No standards have been established for most of the
accounting ratios. Lack of adequate standards makes it difficult to provide
adequate comparisons.
(iii) Different Meanings are put on Different Terms: There are a number of
accounting ratios where in different meanings are used for different terms. For
example, a firm may work out ROI on the basis of profits after interest and
taxes, the other firm may consider profits before interest but after tax for
computation of ROI. Obviously, the ratios which will be worked out will not be
comparable.
(iv) Window Dressing: It means manipulation of accounts to conceal the

actual facts and show better picture than what actually is. For example, in order
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to improve the Current Ratio before the balance sheet, the firm may postpone
the purchase of inventory before the balance sheet data for the next year.
Similarly, the company may pay off certain current liabilities before the
balance sheet data.
(v) Diverse Accounting Policies: The management is free to use diverse

accounting policies and practices for the valuation of inventories, depreciation,
treatment of research and development expenditure, etc. Such- differences will
make some of the accounting ratios strictly incomparable if they are based on
different accounting policies, it is also possible that the firm may have changed
the accounting policy from one period to another
(vi) Results may be misleading in the Absence of Absolute Data: Ratios

sometimes give a misleading picture in the absence of absolute data from
which such ratios have been derived. It is extremely careful while comparing
the results of one firm with those of another, if two firms differ in any
significant manner, say in size, location, etc.
(vii) Ignore Qualitative Factors: Accounting ratios considers quantitative

factors and ignore qualitative factors which results into distorted conclusions.
For example, credits are granted to customers on basis of his financial position
but success of the firm also depends on managerial ability of customers
(viii) Limited Use of Single Ratio: Conclusions drawn from analysing the
financial statements should not be based on single ratio, rather all the related
ratios should be considered for this purpose. Single ratio cannot provide all the
relevant information on a particular aspect.
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Chapter- 5
Financial Appraisal
of Automobile
Industry in India
Chapter- 5 Financial Appraisal of Automobile Industry in India
Financial Appraisal of Automobile Industry in India

Finance is the nerve centre and lifeline of any economic activity and is
therefore, omnipresent in every sphere of economic and business life. It plays
an extremely crucial role in the continuity and growth of the business. An
enterprise, which commits itself to an activity, requires finance. No business
firm can be promoted, established and expanded without adequate financial
resources. Success and survival of a business firm depends on how well its
financial function is managed. The firm may have abundant resources-human
and physical, but if the available funds are not properly utilized for the benefit
of the firm, it will come to an early end. So, the finance manager has to utilize
the available funds for the benefit of the business firm. Every effort should be
made to render the financial function as effective as possible.
Appraisal refers to a critical review of the activities for improving performance.

It compares the actual performance with targets fixed, identifies causes of
significant variations, and devises corrective actions. This is naturally tuned to
assessing whether the business operations would be safe, profitable, and
appropriate in a given economic situation. It is known that in the interest of
good health, medical authorities generally advise every individual to have a
periodical checkup and examination of his body. Similarly, in the interest of
good operating results every concern should have a periodical appraisal-both
diagnostic as well as preventive in nature. In the case of an already bad or
deteriorating situation it locates the areas and indicates where to improve,
where, as in case of good condition, it shows ways to further improve the
performance. The assessment of business performance is more complex and
difficult, since it must deal with the effectiveness with which capital is
employed, the efficiency and profitability of operations and the value and
safety of various claims against the business.
Financial appraisal is the process of determining the operating and financial

characteristics of a firm from accounting and financial statements. The goals of
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such appraisal are to determine the efficiencies or performance of a firm’s

management as reflected in the financial records and reports. The analyst
attempts to measure the firms operating performance, profitability, liquidity,
solvency etc., to prove that the business is conducted in a rational and normal
way ensuring enough returns to the shareholders to at least maintain its market
value. Keeping in view the interest of investors and the society as a whole, a
company’s performance can be evaluated broadly on the basis of its operating
achievement, financial achievement and social achievement.
All the above factors have their own importance. Yet, an investor, apart from
other things, first looks to get back sufficient returns from his Investment.
Therefore, financial appraisal of a company stands the most important factor
for its evaluation. The study continues itself with the financial appraisal of
selected industries. The important areas of financial appraisal include
production, cost trends, sales, profitability, financial strength, working capital,
liquidity and managerial efficiency.
Appraisal of performance of a company can be done through a careful and

critical analysis of financial statements; financial analysis helps managers in
controlling their enterprise’s performance. It does this by providing them with a
system and set of procedures for analyzing and understanding financial
indicators of performance. The two important financial statements are the
“Profit and Loss Account” and the “Balance Sheet”. Financial statements
indicate the operating results and financial position of a concern; therefore, by
analyzing and interpreting these statements performance can be appraised. It is
for this purpose, analysis of financial statements is made. Financial statement
analysis is a preliminary step towards the final evaluation of the results drawn
by the analyst or management accountant. Appraisal or evaluation of such
results is made thereafter by the management. The analysis of financial
statements spotlights the significant facts and relationships concerning
management performance, corporate efficiency, financial strength and
weakness, which would have otherwise been buried in a maze of details.
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According to Metoalf and Titard, analysis of financial statements is a process

of evaluating relationship between component parts of financial statement to
obtain a better understanding of a firm’s position and performance.
5.1. PROCESS OF FINANCIAL APPRAISAL
The financial statements contain all the data relating to operating results and
financial position of the business. Besides this, other documents such as
reports, schedules and explanatory notes are also appended. Overall
performance of the business is appraised by analyzing these statements. Hence,
the process of financial statement analysis is the key process of financial
appraisal. The process of financial appraisal through financial statement
analysis is summarized as:
a) Some logical arrangement of financial data is made in an orderly

sequence in a condensed form. The balance sheet and profit and loss
account figures are rearranged to facilitate performance appraisal.
b) Figures are approximated to the nearest thousands or lakhs or crores to
simplify the process of appraisal.
c) The analyst should utilize his knowledge of financial statements to draw
up performance appraisal programme, which must be tailored to fit in the
specific needs.
d) Performance appraisal may be conducted either internally or externally.
Internal appraisal is accomplished by those who are within the enterprise and
have access to detailed records and all other information related to business.
Such appraisal is generally conducted by the management for their purposes.
External appraisal, on the other hand, is conducted by those or for those who
are outside a business enterprise, such as share holders, creditors, bankers,
trade unions, government agencies and research scholars.
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5.2. IMPORTANCE AND USEFULNESS OF FINANCIAL APPRAISAL
In any economic society all active participants do become interested in varying

degrees in the performance of the business enterprise. Within every
commercial enterprise, of whatever size, there are inevitably many different
interests to be served. Some of these interest groups include owners,
employees, customers, society, government, suppliers and managers. By
appraising the performance through financial statement analysis, management
may review a company’s progress to date and decide upon the course of action
to be taken in future. Financial appraisal helps management in the task of
planning of operations. The Financial appraisal enables the management to
operate the control system of the business organization more effectively. It
helps to identify the weaker spots of a company’s operations and to take
corrective action. Furthermore, it tends to restrain management as they are
under pressure to maintain a favourable financial position. Investors
comprising share holders and debenture holders, have a vital interest in the
appraisal of performance of an enterprise. Investors are interested in two
things:
Firstly, they want the safety of their investment; secondly, the ability of a
company to earn profit. They are also interested in a concern whose future is
bright. Through Financial appraisal they get the information which they need.
Creditors are interested in ascertaining whether the company can employ the
funds loaned to in such a way that it will be to meet current interest obligations
and repay loans when it falls due. They act as a magic eye highlighting the
credit worthiness of a company. Creditors often appraise the performance of a
company before lending the money and supplying the goods. Government
regulates economic activities in various spheres. Central and state governments
and local authorities are also interested in knowing the performance of a
business in order to access their revenues through various taxes to regulate
capital issues and public utility regulations. Employees have an interest in the
operating results and the financial strength of a company. The remuneration of
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workers must be generated from the company’s revenues. Thus, worker’s

wages, to a great extent, depend upon the success of the firm.
In addition to the above, news agencies, trade association, economic and

commercial research institutions, stock exchanges, economist and research
workers, members of parliament, members of public accounts committee in
respect of government companies are also interested in the results of Financial
appraisal, of knowing the progress being made in the present position of an
industry.
5.3. FINANCIAL APPRAISAL OF AUTOMOBILE INDUSTRY
In India, the automobile industry is one of the largest industries. It is one of the
key sectors of the economy. The industry has shown great advances since de-
licensing and opening up of the sector to Foreign Direct Investment (FDI) in
1991-92. The present study is undertaken to make a financial appraisal of the
selected companies of the Indian automobile industry. The study is undertaken
to analyse the growth of automobile industry after liberalization, its production
trend, sales trend, profitability analysis, financial structure, financial
performance and assessment of financial health of the industry.
Production is considered as the backbone of the manufacturing sector.

Production function is considered as the effective tool to satisfy the customer’s
demand. The study of the production performance is important to know the
operating level of the business and the financial efficiency of the business
enterprise. Therefore, the present study attempts to make a precise analysis on
the production trend of the Indian automobile industry after liberalization.
Sales are an important component for the development of business. Sales can
be enhanced by following good sales policy. Due to pricing policy of the
government, companies face fluctuations in their sales. These fluctuations may
lead to increase or decrease in the financial risk of the companies. The present
study is carried out to study the sales trends of the automobile industry in India.
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The efficiency of the business is measured by the amount of profit earned. The
greater the profit, the more efficient is the business considered to be.
Management gives top priority to increase the profits and maximise their
shareholders’ wealth. The efficiency of a management is measured in terms of
profit generated by the business. It is sometimes said that higher profitability
implies greater efficiency. The management of a firm is generally eager to
measure its operating efficiency of a firm and its ability to ensure adequate
return to its shareholders depends ultimately on the profits earned. The profit of
a business may be measured by studying the profitability of investment in it.
Profitability may be defined as the ability of a given investment to earn a return
from its use. This ability is referred to as lending power or operating
performance of the investment concerned. Profitability is a relative term and its
relation with the other factors affects profit. It is the test of efficiency, powerful
motivational factor and the measure of control in any business. Hence, an
attempt has been made to study the profitability of Indian automobile industry.
An analysis of the profitability reveals how the position of profits stands as a

result of total transactions made during the year. Profitability implies profit-
making ability of a business enterprise. Profitability is the main indicator of the
efficiency and effectiveness of a business enterprise in achieving its goal of
earning profit. Profitability as a relative measure enables the management to
make prompt change in the financial and production policies in the light of past
performance. Many important management decisions pertaining to such issues
as further expansion of plant, adoption of modern technology, rising of
additional funds, payment of bonus and higher dividend are linked with this
relative measure. Profitability of a firm can be measured by its profitability
ratios. In the process of performance appraisal of a business, profitability ratios
can be calculated to measure the operating efficiency. The profitability ratios
can be determined on the basis of either investment or sales and for this
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purpose a quantitative relationship between the profit and the investment or the
sales is established.
Financial structure of a business consists of three elements: assets, liabilities

and capital. The financial structure provides an insight into the various types of
sources tapped to finance, the total assets employed in a business enterprise.
That part of financial structure which represents long-term sources is known as
capital structure. Since the balance sheet is a detailed form of the fundamental
or structure equation, it is set for the financial structure of an enterprise. It
states the nature and amount of each of the various assets, liabilities and
property interest of the owner or owners. Stating the nature of the assets,
liabilities and capital is not as difficult as stating their amounts. The financial
structure can be made initially from the point of view of the time for which
funds are needed. It includes both the source of finance, i.e., short term and
long term. In the present study various long term and short term ratios have
been calculated to analyse the financial strength of various selected companies
in Indian automobile industry.
Automobile Production:
The cumulative production data for April-March 2011 shows production

growth of 27.28 percent over same period last year. The industry produced
17,892,409 vehicles of which share of two wheelers, passenger vehicles, three
wheelers and commercial vehicles were 75 percent, 17 percent, 4.5 percent and
4.25 percent respectively. The data indicated below taking base as 2001-02
figure as 100, there is a marked improvement in the production relating with
Passenger Vehicles – within that comprising of Passenger cars, Utility Vehicles
and Multi- purpose Vehicles. This is an indication of development in this sector
after Auto Policy 2002. The Passenger Car segment has grown by leaps and
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Chapter-
bounds mainly because of purchasing power, variety of cars (segmenting as

per the income and social status) and lastly the auto-finance facility.
Table 5.1: Production Trends of Automobile Industry - Base Year 2001-02

(100) Indexing
Category 2001-02 2007-08 2008-09 2009-10 2010-11 2011-12

Passenger 669719 1777583 1838593 2357411 2982772 3123528
Number of Vehicles
Vehicles (100) (265) (275) (352) (445) (466)

Commercial 162508 549006 416870 567556 760735 911574
Vehicles (100) (338) (257) (349) (468) (561)
Three 212748 500660 497020 619194 799553 877711
Wheelers (100) (235) (234) (291) (376) (413)
Two 4271327 8026681 8419792 10512903 13349349 15453619
Wheelers (100) (188) (197) (246) (313) (362)
Grand Total 5316302 10853930 11172275 14057064 1,78,92,409 20,366,432
(100) (204) (210) (264) (337) (383)
Source: data from Siam (Society of Indian Automobile Manufacturers) Industry
Statistics, 2012 and self constructed.
Diagram 5.1 : Production Growth Trends of Automobile Industry

There is a fall in Production and Sales in the year 2008-09 due to recession in
USA and Europe. As compared to 2006-07, in the FY 2007-08 there is fall in
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production in two-wheelers by 5.2% which lead to over all grand total less by
5%.The cumulative production data for April-March 2012 shows production
growth of 13.83 percent over same period last year. In 2011-12, the industry
produced 20,366,432 vehicles of which 76 percent share is of two wheelers,
15.6 percent is passenger vehicles, three wheelers 4.3 percent and commercial
vehicles were 4.5 percent. There is a maximum decrease in Commercial
Vehicle production by 24% in the year 2008-09. In the FY 2009-10 and 2010-
11, there is increase in production in all the categories: Two Wheelers, Three
Wheelers, Commercial Vehicles and Passenger Vehicles. The total vehicles
growth in FY 2007-08 is on negative by 2% and marginal increase in FY 2008-
09 by 3% because of economy recession in Europe.
Automobile Domestic Sales:
The growth rate recorded for Domestic Sales for 2010-11 was 25.9 percent
amounting to 15,481,381 vehicles. The growth rate for overall domestic sales
for 2011-12 was 12.24 percent amounting to 17,376,624 vehicles. Passenger
Vehicles segment grew at 4.66 percent during April-March 2012 over same
period last year – comprising of Passenger Cars grew by 2.19 percent, Utility
Vehicles grew by 16.47 percent and Vans by 10.01 percent during this period.
The overall Commercial Vehicles segment registered growth of 18.20 percent

during April-March 2012 as compared to the same period last year. In this
segment Medium and Heavy Commercial Vehicles (MCVs & HCVs)
registered a growth of 7.94 percent; Light Commercial Vehicles grew at 27.36
percent. Three Wheelers sales recorded a decline of (-) 2.43 percent in April-
March 2012 over same period last year. While the Goods Carriers grew by 6.31
percent during April-March 2012, Passenger Carriers registered decline by (-)
4.50 percent. Total Two Wheelers sales registered a growth of 14.16 percent
during April-March 2012: Mopeds, Motorcycles and Scooters grew by 11.39
percent, 12.01 percent and 24.55 percent respectively. There is a steady
increase in the sales of Passenger Vehicles as shown in the figure 25. The
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maximum increase is in the FY 2010-11 as compared with FY 2008-09, which

is by 62% approximately.
Table 5.2: Domestic Sales Trend– Base Year 2001-02 (100) Indexing
Category 2001-02 2007-08 2008-09 2009-10 2010-11 2011-12

Passenger Number of Vehicles 53165 218401 335729 446145 444326 507318
Vehicles (100) (411) (632) (840) (836) (954)
Commercial 11870 58994 42625 45009 74043 92663
Vehicles (100) (497) (360) (379) (624) (781)
Three 15462 141225 148066 173214 269968 362876
Wheelers (100) (913) (958) (1120) (1746) (2347)
Two 104183 819713 1004174 1140058 1531619 1947198
Wheelers (100) (787) (964) (1094) (1470) (1869)
Grand Total 184680 1238333 1530594 1804426 2319956 2910055
(100) (670) (829) (977) (1256) (1576)
Automobile Exports:
During April-March 2011, overall automobile exports registered a growth rate

of 28.6 percent. Passenger Vehicles registered marginal growth at 1.64 percent
in this period. Commercial Vehicles, Three Wheelers and Two Wheelers
segments recorded growth of 69.51 percent, 55.86 percent and 35.04 percent
respectively during April-March 2011.
During April-March 2012, the industry exported 2,910,055 automobiles

registering a growth of 25.44 percent. Passenger Vehicles registered growth at
14.18 percent in this period. Commercial Vehicles, Three Wheelers and Two
Wheelers segments recorded growth of 25.15 percent, 34.41 percent and 27.13
percent respectively during April-March 2012. For the first time in history car
exports crossed half a million in a financial year. The dominating part of
exports is in Three Wheelers followed by Two Wheelers and Passenger Cars –
this is in actual number terms. There is an overall growth in exports from
2001/02 to 2011/12 but the percentage growth over FY on FY is not the same.
Comparing FY 2011-12 with FY 2007-08, there is a significant growth in
volume terms in all the categories – Passenger Vehicles by 132%, Commercial
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Vehicles by 57%, Three Wheelers by 157%, Two Wheelers by 138%

(maximum increase) and Grand Total by 135%.
Table 5.3: Exports trend- Base Year 2001-02 (100) Indexing
Category 2001-02 2007-08 2008-09 2009-10 2010-11 2011-12

Passenger 53165 218401 335729 446145 444326 507318
Number of Vehicles
Vehicles (100) (411) (632) (840) (836) (954)

Commercial 11870 58994 42625 45009 74043 92663
Vehicles (100) (497) (360) (379) (624) (781)
Three 15462 141225 148066 173214 269968 362876
Wheelers (100) (913) (958) (1120) (1746) (2347)
Two 104183 819713 1004174 1140058 1531619 1947198
Wheelers (100) (787) (964) (1094) (1470) (1869)
Grand Total 184680 1238333 1530594 1804426 2319956 2910055
(100) (670) (829) (977) (1256) (1576)
The present chapter focuses on Financial Appraisal of Automobile Industry

in India. It analyses the performance of seven leading companies of four
wheelers Automobile Industry in India. The selection of the company is done
on the basis of their market share. Companies selected from passenger vehicle
segment are Tata Motors Limited, Maruti Suzuki India Limited, Mahindra
and Mahindra Limited and Hindustan Motors Limited. Leading Indian
companies selected from Commercial Vehicles segment are SML Isuzu, Ashok
Leyland and VST Tillers.
There are different tools to investigate the efficiency level, but the ratio
analysis has been found most suitable and has been used for the analysis. The
study attempts to investigate significant difference (if any) in the financial
performance of the selected companies on the basis of four parameters viz.,
profitability, liquidity, managerial efficiency and leverage. Profitability of
companies has been analysed on the basis of five variables viz., Operating
Margin (%), Net Profit Margin (%), Earnings per Share (EPS), Return on
Net Worth (%) and Dividend per Share. The analysis of liquidity position has
been done on the basis of current ratio and quick ratio. As managerial
efficiency of a company lies with effective use of the assets therefore,
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managerial efficiency has been tested on the basis of inventory turnover ratio
and fixed asset turnover ratio. The leverage (long term solvency) of selected
companies has been analysed through the ratio of long-term debt to equity and
proprietary ratio i.e., the proportion of owner’s fund to total resources. The
data used for analysis is a secondary data (taken from way2wealth.com). The
data has been collected for a period of 10 years from 2001-02 to 2010-11. The
financial performance of selected companies have been analysed through
financial ratios.
Liquidity Analysis:
Liquidity analysis attempts to analyse the firm’s ability to meet its immediate
maturing short-term obligations. It is usually done through the calculation of
current ratio and quick (liquid) ratio. A company must attempt to maintain
optimum (ideal) ratio which undoubting depends upon the type of
manufacturing industry. If liquidity ratios of a company are higher than the
ideal ratios, the company is said to be having idle investment. Likewise, if
ratio is lesser to required one, the deficit will represent possible difficulties in
the payment of current liabilities of firm and it is surely not a healthy sign for
the company. The result of average liquidity analysis of selected companies is
shown in the following table:
Table 5.4: Analysis of Average Liquidity Ratios of Selected Companies

Average Tata Maruti Mahindra Hindustan SML Ashok VST

Liquidity Motors Suzuki & Motors Isuzu Leyland Tillers
Ratios Mahindra
(Times)
Current
0.91900 1.4130 1.1610 1.0750 1.5030 1.4200 1.8150
Ratio
Quick
0.64800 1.0460 0.81700 0.53600 0.95800 0.86900 1.0470
Ratio
Source: International Journal of Research in Computer Application and Management,
November 2011.
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Chapter-
Liquidity ratios of selected companies reveal that liquidity position of

commercial vehicle segment is better than that of passenger car manufacturers.
VST Tillers’ proportion of current as well as liquid assets is sufficient enough
to meet its current liabilities. However, liquidity positions of Tata Motors and
Hindustan Motors are not so healthy in comparison to other companies.
Managerial Efficiency Analysis:
Managerial efficiency of a company lies in making optimum utilisation of the

assets of the companies. To analyse the managerial efficiency of the selected
companies, we calculated, inventory turnover ratio and fixed assets ratio.
Inventory is the most crucial asset for a manufacturing organisation.
Particularly with reference to inventory turnover ratio, the cost of materials in
Indian automobile industry is the major component in production cost and its
share is increasing (Narayanan and Vashishth 2008). The managerial efficiency
to keep an optimum level of asset lies in maintaining an adequate ratio of assets
to turnover. Inventory turnover ratio depicts how long a company takes on an
average to sale its stock and replaces its inventory. Higher inventory turnover is
considered to be desirable as it usually implies strong sales. On the contrary,
lower turnover ratio reflects the poor volume of sales and excess inventory
which ultimately accounts for an investment with a zero rate of return.
Likewise, Higher fixed assets ratio implies that company has invested lesser
amount in fixed assets to generate sales revenue hence it depicts better ability
of company to utilise the fixed assets. On the contrary, lower ratio expresses
the company's efficiency to use its fixed assets in an optimum manner. The
result of average managerial efficiency analysis of selected companies is shown
in the following table:
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Chapter-
Table 5.5: Analysis of Average Managerial Efficiency Ratios of Selected

Companies (April 2001 to March 2011)

Efficiency Motors Suzuki & Motors Isuzu Leyland Tillers
Ratios Mahindra
(Times)
Inventory
Turnover 12.977 25.077 12.989 9.2350 6.7220 7.0400 6.7200
Ratio
Fixed
Asset
2.1940 2.3190 2.7210 1.3720 10.109 1.9410 3.1290
Turnover
Ratio
November 2011.
The analysis of inventory turnover ratio shows that the performance of

passenger vehicle manufacturers (Maruti Suzuki followed by Mahindra and
Tata group) could be called satisfactory. However the study of fixed asset
turnover ratio indicates the efficiency of SML Isuzu of commercial vehicle
segment to generate revenue from its fixed assets.
Profitability Analysis:
Profitability indicates company’s efficiency to manage the resources and

generate profit for its shareholders. It could be analysed through various
ratios. To analyse the profitability of the selected companies, we
calculated five profitability ratios viz., operating margin, net margin, return
on net worth, earning per share and dividend per share. Return on net worth
and earnings per share have been taken after adjustment. The result of average
profitability analysis of selected companies is shown in the following table:
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Chapter-
Table 5.6: Analysis of Average Profitability Ratios of Selected Companies

Average Tata Maruti Mahindra & Hindustan SML Ashok VST

Profitability Motors Suzuki Mahindra Motors Isuzu Leyland Tillers
Ratios
Operating 10.329 11.465 11.107 2.6090 6.6770 10.387 12.991
Margin (%)
Net Profit 5.0600 6.5850 8.0330 2.9580 3.1800 5.1950 7.4050
Margin (%)
Return on Net 15.882 15.993 19.408 92.147 28.084 17.609 19.462

Worth (%)
Earnings per 25.980 50.644 30.613 3.9130 15.989 5.4940 23.764
share
Dividend Per 10.850 6.5000 9.6500 0.00 5.1500 2.6700 4.4000
Share

November 2011.
The analysis of operating and net margin reveals that commercial vehicle
manufacturer VST Tillers is leading and is followed by Maruti Suzuki and
Mahindra and Mahindra. The performance of SML Isuzu remained lesser
volatile during the study period however margin secured by it is not very
satisfactory. The competitive performance of Mahindra and Mahindra shows
its strength to maintain its resilience. Its worst performance on this parameter,
during the study period, is better than that of its peer group. The average
earning per share of Maruti Suzuki is far ahead from other enterprises.
However, average dividend payout ratio of the company is not so liberal.
Dividend declared by Tata Motors is comparatively more than the other
companies of the group but undoubted, it is highly volatile. The average
profitability of Hindustan Motors is not so sound throughout the study period
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Chapter-
and that resulted into non-declaration of dividend. The study further found
that the operating and net margins of automobile industry in India are not as
volatile as compared to return on net worth and earnings per share.
Leverage (Long-term Solvency) Analysis:
Leverage ratios are designed to depict the future prospects of company to get
finance. These ratios also give an idea about the degree of risk caused as a
result of debt financing. To analyse the long term solvency of the selected
companies, we calculated, debt-equity ratio and proprietary ratio. Here, it is
important to mention that only long term debts have been considered for the
calculation of the ratio. Usually, lower the debt-equity ratio, higher is the
degree of protection enjoyed by the creditors. This is so because company has
to pay fixed obligation in the form of interest irrespective of the volume of the
profit. On the contrary as proprietary ratio represents the owner’s fund to
assets. Higher ratio generally indicates secured position to creditors and a lower
ratio indicates greater risk to creditors. The result of average leverage analysis
of selected companies is shown in the following table:
Table 5.7: Analysis of Average Leverage Ratios of Selected Companies


Leverage Motors Suzuki & Motors Isuzu Leyland Tillers
Ratios Mahindra
(Times)
0.0650
Debt Equity 0.5500 0.0690 0.5900 1.8750 0.1020 0.6290
Proprietary
58.6840 91.8040 66.3860 32.4130 56.4530 59.7560 91.7540
Ratio
November 2011.
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Chapter-
Leverage analysis of selected companies reveals that the long-term solvency

position of VST Tillers and Maruti Suzuki is very satisfactory to their creditors.
These companies enjoy least average long-term equity ratio and higher average
proprietary ratio in comparison to their peer group. Further the leverage
position of these companies is relatively lesser volatile. The study also shows
that the leverage position of Hindustan Motors is not very pleasant for its
creditors.
We assign ranks to different companies for selected variables on the basis of

their average performance. A company showing best average performance for a
particular variable has been assigned 1st rank for that variable and likewise
company securing least ratio has been assigned 7th rank for that variable.
However, for long-term debt to equity ratio the methodology has been reversed
as lower ratio is preferable by creditors. After the assignment of ranks to all the
variables, the composite score for each parameter has been computed and again
ranks are been assigned for each parameter. The parameter having least value
of composite score has been assigned Fist rank and parameter having highest
score has been assigned last rank. The assignment of ranks on the basis of
average performance of selected companies is shown in the following table:
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Chapter-
Table 5.8: Assignment of Ranks to Selected Companies on the basis of their Average Performance (April 2001 to March 2011)
Particulars Tata Maruti Mahindra & Hindustan SML Ashok VST

Motors Suzuki Mahindra Motors Isuzu Leyland Tillers
Liquidity:
Current Ratio 7 4 5 6 2 3 1
Quick Ratio 6 2 5 7 3 4 1
Composite Score 13 6 10 13 5 7 2
Rank on the basis of Liquidity VI III V VI II IV I
Managerial Efficiency (Activity):
Inventory Turnover Ratio 3 1 2 4 6 5 7
Fixed Assets Turnover Ratio 5 4 3 7 1 6 2
Composite Score 8 5 5 11 7 11 9
Rank on the basis of Efficiency III I I V II V IV
Profitability:
Operating Margin (%) 5 2 3 7 6 4 1
Net Profit Margin (%) 5 3 1 7 6 4 2
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Chapter-
Particulars Tata Maruti Mahindra & Hindustan SML Ashok VST

Motors Suzuki Mahindra Motors Isuzu Leyland Tillers
Return On Net Worth (%) 6 5 3 7 1 4 2

Earnings Per Share 3 1 2 7 5 6 4
Dividend Per Share 1 3 2 7 4 6 5
Composite Score 20 14 11 35 22 24 14
Rank on the basis of Profitability III II I VI IV V II
Leverage (Long term Solvency):
Long Term Debt / Equity 4 2 5 7 3 6 1
Proprietary (Owners fund as % of total 5 1 3 7 6 4 2
Source)
Composite Ratio 9 3 8 14 9 10 3
Rank on the basis of Leverage III I II V III IV I
Source: International Journal of Research in Computer Application and Management, November 2011.
153
As shown from table 5.8, Mahindra & Mahindra Limited found best in terms
of profitability among all the peer companies of the industry. It is followed by
Maruti Suzuki, VST Tillers and Tata Motors. In terms of liquidity,
commercial vehicle manufacturers are more efficient. However, passenger
vehicle manufacturer Maruti Suzuki also demonstrates sound liquidity
position. The managerial efficiency of Maruti is also very satisfactory in the
industry. The leverage positions of Maruti Suzuki and VST Tillers are very
satisfactory. However the same for Hindustan Motors is not very rosy.
Further, here it is important to note that the pre-indicated ranks are not the
sole indicator of business efficiency. As a matter of fact the interpretation of
ratio depends upon number of factors. In the present paper a general criteria
for assessment of ratio has been used. According to which the company with
higher profitability, higher liquidity ratios (not more than ideal ratio), lower
debt-equity ratio (not less than ideal ratio), higher proprietary ratio (not more
than ideal ratio) and higher turnover ratio is assumed to be more efficient.
154
Chapter- 6
Financial Appraisal of
Honda Cars India Ltd.
and other companies –
Analysis of Data.
Chapter-
Chapter- 6 Financial Appraisal of Honda Cars India Ltd. and....
Financial Appraisal of Honda Cars India Ltd. and

other companies – Analysis of Data
We have already discussed the theoretical framework of financial appraisal in
chapter four and have applied them for overall financial appraisal of
automobile industry in India in chapter five. This chapter six will primarily
focus on financial appraisal of Honda Cars India Limited. We shall also present
the comparative financial appraisal of the three companies under study i.e.
Honda Cars India Limited, Maruti Suzuki India Limited and Tata Motors
Limited. There are different tools to investigate the efficiency level, but the
ratio analysis has been found most suitable and has been used for the analysis.
The study attempts to investigate significant difference (if any) in the financial
performance of the selected on the basis of four parameters viz., liquidity,
managerial efficiency, leverage and profitability.
The analysis of liquidity position has been done on the basis of current ratio,
liquid (quick) ratio and absolute liquid ratio. Managerial efficiency has been
tested on the basis of stock turnover ratio, debtors’ turnover ratio, Creditors’
turnover ratio, working capital turnover ratio, fixed asset turnover ratio and
total assets turnover ratio. The leverage (long term solvency) of selected
companies has been analysed through capital gearing ratio, debt-equity ratio,
total debt ratio, proprietary ratio, fixed assets to proprietors’ funds ratio, current
assets to proprietors’ funds ratio and interest coverage ratio. Profitability of
companies has been analysed on the basis of gross profit ratio, net profit
ratio, operating ratio, operating profit ratio, direct material expenses
ratio, administrative expenses ratio, selling and distribution expenses
ratio and cost of goods sold ratio, return on assets ratio, return on
investment ratio and return on shareholders’ funds ratio. The data used
for analysis is a secondary data and has been taken from the annual reports of
the companies, published by CMIE (Centre for Monitoring Indian Economy).
The data has been collected for a period of 5 years from 2007-08 to 2011-12.
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Chapter-
The financial performance of selected companies have been analysed by

c a l c u l a t i n g financial ratios.
6.1. LIQUIDITY ANALYSIS
Liquidity analysis is done through liquidity ratios. Liquidity ratios are also
termed as ‘Working Capital Ratios’ or ‘Short Term Solvency Ratios’.
Liquidity ratios measure the liquidity position of the concerns and highlight the
relative strength of the concerns in meeting their current obligations to
maintain sound liquidity in the business. These ratios are used to measure the
firm’s ability to meet short term obligations. They compare short term
obligations with the short term (or current) resources available to meet these
obligations. Management can make use of these ratios to find out how
efficiently the working capital is being used in the business. The inadequacy of
the working capital can be very disastrous for the company as it refers to the
inability of the company to pay off its short-term obligations. Liquidity ratios
are highly useful to creditors and commercial banks that provide short-term
credit.
a) Current Ratio
This ratio is used to evaluate the short term financial position of the business
concern. It compares the current assets and current liabilities of the firm. It
indicates the ability of the business to meet its short term obligations. Current
ratio of 2:1 is considered ideal for concern i.e. current assets should be twice of
the current liabilities. If the ratio is less than 2, difficulty may be experienced in
the payment of current liabilities and day-to day operations of the business may
suffer. If the ratio is higher than 2, it is very comfortable for the creditors but,
for the concern, it is indicator of idle funds. The position of current ratio from
the year 2008 to 2012 is presented in the following table:
156
Table 6.1: Current Ratio of the Companies from the Financial Year 2007-
08 to 2011-12 (Times)
2008 2009 2010 2011 2012

Honda Cars
1.41 1.30 0.98 1.36 1.17
India Ltd.
Maruti
Suzuki India 1.09 1.61 1.05 1.66 1.41
Ltd.
Tata Motors
0.97 0.89 0.66 0.93 0.73
Ltd.
Diagram 6.1: Graph showing Current Ratio of the Companies from the
1.8
1.6
1.4
1.2
1 Honda Cars
0.8 Maruti Suzuki
0.6 Tata Motors
0.4
0.2
0
FY 2008 FY 2009 FY 2010 FY 2011 FY 2012
Current ratio of Honda Cars in financial year 2008 was comparatively higher
than the ratio of other financial years which indicates that during the year 2008
the company efficiently meets its short term obligations i.e. made efficient use
of working capital. But it does not satisfy the standard of ideal current ratio i.e.
2:1 which denotes that the current assets of the business should be twice of the
current liabilities. Current ratio of Honda Cars declines to 1.30 times in 2009
157
and the company has the lowest current ratio of 0.98 times in 2010 which
implies that in the year 2010, the company experienced difficulty in the
payment of its current liabilities. But during the financial year 2011 and 2012,
the current ratio of the company raises to 1.36 times and 1.17 times
respectively.
Current ratio of Honda Cars when compared to Maruti Suzuki and Tata Motors
shows that Maruti Suzuki comparatively has a higher current ratio which
implies that Maruti Suzuki efficiently meets its short term obligations and thus
the short term creditors of the company feels secured for their repayments by
the company. But in the year 2008, current ratio of Honda Cars was 1.41 times
which was even more than the current ratio of Maruti Suzuki. During the
financial year 2008 to 2012, Maruti Suzuki has the highest current ratio in 2011
at 1.66 times. During the financial year 2008 to 2012, Tata Motors has the
lowest current ratio than Honda Cars and Maruti Suzuki, indicating that Tata
Motors does not meet its short term obligations efficiently and thus its short
term creditors feels unsecured for their repayments by the company.
Current ratio of Honda Cars was less than the current ratio of Maruti Suzuki
but more than the current ratio of Tata Motors. But during the year 2008,
Honda Cars has current ratio of 0.41 times which was even more than Maruti
Suzuki‟s current ratio.
b) Liquid Ratio (Quick Ratio)
It is used as a complementary ratio to the current ratio. It is calculated by

comparing the relationship between liquid assets and current liabilities. Liquid
assets are those assets which can easily, at a short notice be converted into cash
without loss in value. It usually includes all the current assets except
inventories and prepaid expenses. It helps to assess the ability of the company
to meet its obligations without waiting for much time to liquidate its assets. It
measures the firm‟s capacity to payoff current obligations immediately with its
most liquid (quick) assets and is a “more rigorous test of liquidity than the
current ratio”. An ideal liquid ratio is 1:1. Thus, an organisation must have
158
quick assets equivalent to 100% of its current liabilities. The position of liquid
ratio from the year 2008 to 2012 is presented in the following table:
Table 6.2: Liquid Ratio of the Companies from the Financial Year 2007-
08 to 2011-12 (Times)
2008 2009 2010 2011 2012

Honda Cars
0.49 0.76 0.42 0.63 0.67
India Ltd.
Maruti Suzuki
0.72 1.35 0.71 1.32 1.09
India Ltd.
Tata Motors
0.74 0.68 0.49 0.68 0.50
Ltd.
Diagram 6.2: Graph showing Liquid Ratio of the Companies from the
1.6
1.4
1.2
1
Honda Cars
0.8
Maruti Suzuki
0.6 Tata Motors
0.4
0.2
0
FY 2008 FY 2009 FY 2010 FY 2011 FY 2012
Honda Cars has a very low liquid ratio of 0.49 times in 2008 but the ratio of the
company increases to 0.76 times in financial year 2009 which shows that the
company was now much able to pay its current obligations immediately out of
159
its liquid assets although was not able to pay 100% of its current liabilities
immediately. But during the year 2010, the company has a lowest liquid ratio
of 0.42 times and the company was not able to pay its current obligations
immediately out of its liquid assets. During the financial year 2011 and 2012,
the company again raises its liquid ratio to 0.63 times and 0.67 times
respectively.
Liquid ratio of Honda Cars when compared with Maruti Suzuki and Tata
Motors shows that Maruti Suzuki has higher liquid ratio from financial year
2009 to 2012 at 1.35 times, 0.71 times, 1.32 times and 1.09 times respectively.
The company was in a better position to pay off its current liabilities
immediately. Tata Motors has adequate liquid ratio of 0.74 times in 2008 and
since then the liquid ratio of the company is declining. Tata Motors had a very
low liquid ratio of 0.49 times and 0.50 times respectively during the financial
year 2010 and 2012 respectively and thus the company does not maintain
sufficient liquid assets to pay off its current liabilities immediately.
Honda Cars has lower liquid ratio than Maruti Suzuki and Tata Motors. But
only in financial year 2009 and 2012, liquid ratio of Honda Cars was even
higher than Tata Motors.
c) Absolute Liquidity Ratio (Super-Quick Ratio)
This ratio measures the ability of a business to repay its current liabilities by its
absolute liquid assets. Absolute liquid assets usually constitute of cash in hand
and at bank and marketable securities. The desirable norm for this ratio is 1:2.
It is the most vigorous test of the firm‟s liquidity position. However, this ratio
is hardly used in practice because keeping large cash balance yields no return
in the business. The position of absolute liquidity ratio from the year 2008 to
2012 is presented in the following table:
160
Table 6.3: Absolute Liquidity Ratio of the Companies from the Financial
Year 2007-08 to 2011-12 (Times)
2008 2009 2010 2011 2012

Honda Cars
0.08 0.05 0.04 0.02 0.31
India Ltd.
Maruti Suzuki
0.11 0.57 0.02 0.60 0.43
India Ltd.
Tata Motors
0.22 0.10 0.10 0.15 0.09
Ltd.
Diagram 6.3: Graph showing Absolute Liquidity Ratio of the Companies

0.7
0.6
0.5
0.4
Honda Cars
0.3 Maruti Suzuki

Tata Motors
0.2
0.1
0
FY 2008 FY 2009 FY 2010 FY 2011 FY 2012
Absolute liquidity ratio of Honda Cars is showing a decreasing trend from the
financial year 2008 to 2011. This indicates that the company does not have
sufficient absolute liquid assets to pay its current obligations immediately.
Lower ratio shows that the company relies too much on inventory or other
assets to pay its current liabilities and thus the liquidity of the company is not
satisfactory. But in the year 2012, the absolute liquidity ratio of the company
161
shows significant improvement and increases to 0.311 times which shows that
now the company is in better position to pay its current obligations out of its
absolute liquid assets.
Absolute liquidity ratio of Honda Cars when compared to the Maruti Suzuki
and Tata Motors shows that the Maruti Suzuki comparatively has higher ratio.
Maruti Suzuki has a high ratio in 2009 and 2011 at 0.50 times and 0.60 times
respectively and thus satisfied the standard norm of absolute liquid ratio i.e.
0.50 times. This implies that the company has sufficient absolute liquid assets
to pay its current obligations immediately. Maruti Suzuki also has an adequate
ratio in 2012 at 0.43 times but has a very low ratio during the financial year
2008 and 2010 at 0.11 times and 0.02 times respectively. Absolute liquidity
ratio of Tata Motors is very low and showing a decreasing trend from the
financial year 2008 to 2012, which represents that the day-to day cash
management of the company is poor and does not has adequate absolute liquid
assets to pay its short term obligations immediately. Thus the company must
improve its liquidity position.
Absolute liquidity ratio of Honda Cars was lower than the ratio of Maruti
Suzuki and Tata Motors. But during year 2012, ratio of Honda Cars was even
6.2. MANAGERIAL EFFICIENCY ANALYSIS
Managerial efficiency analysis is done through efficiency ratios. Efficiency

Ratios is also called „Turnover Ratios‟ or „Activity Ratios‟. These ratios
measure how well the resources at the disposal of the concern are being
utilized. It is a measure of movement and reflects how frequently an asset has
moved or turned over during the period. It refers to the speed and rapidity with
which assets are converted into sales. The greater is the rate of turnover or
conversion, the more efficient is the utilization or management of the asset.
162
These ratios are usually calculated with reference to sales/cost of goods sold
and are expressed in terms of rate or times.
a) Inventory Turnover Ratio
It is also called „Stock Velocity Ratio‟ and establishes the relationship between
the cost of goods sold during a given period and the average inventory held
during the year by company. This ratio indicates whether inventory has been
efficiently used or not. It shows the speed with which the Stock is rotated into
sales or cost of goods sold i.e. the number of times the Stock is turned into
sales during the year. The higher the ratio, the better it is, since it indicates that
stock is selling quickly. A low inventory turnover ratio indicates that stock
does not sell quickly and remains lying in the godown for quite a long time. By
comparing the inventory turnover ratio of current year with the previous year,
the management can assess whether inventory has been more effectively used
or not. There is no ideal standard ratio for evaluating the inventory turnover
ratio of a company. It can be compared with the inventory turnover ratio of the
same company in the past or inventory turnover ratio of the industry. The
position of inventory turnover ratio from the year 2008 to 2012 is presented in
the following table:
Table 6.4: Inventory Turnover Ratio of the Companies from the Financial
Year 2007-08 to 2011-12 (Times)
2008 2009 2010 2011 2012

Honda Cars
7.98 7.34 8.09 5.12 4.91
India Ltd.
Maruti
Suzuki India 15.54 16.56 21.03 21.62 17.50
Ltd.
Tata Motors
8.56 8.36 9.87 10.47 9.85
Ltd.
163
Diagram 6.4: Graph showing Inventory Turnover Ratio of the Companies

25
20
15
Honda Cars
Maruti Suzuki
10
Tata Motors
0
FY 2008 FY 2009 FY 2010 FY 2011 FY 2012
Inventory turnover ratio of Honda Cars has been declining from the financial
year 2008 to 2012 except the year 2010. The ratio of Honda Cars declined from
7.98 times in 2008 to 4.91 times in 2012. During the year 2010, the ratio was
comparatively high at 8.09 times indicating that the stock of the company is
selling quickly. In a business where inventory turnover ratio is high, goods can
be sold at a low margin of profit and even then, the profitability may be quite
high. During the financial year 2012, Honda Cars has lowest inventory
turnover ratio of 4.91 times showing that the stock does not sell quickly and
remains lying in the godown for quite a long time. This results in increased
storage costs, blocking of funds and losses on account of goods becoming
obsolete or unsalable.
Inventory turnover ratio of Honda Cars when compared to Maruti Suzuki and
Tata Motors showed that Maruti Suzuki had the highest inventory turnover
ratio during the financial year 2008 to 2012 at 15.54 times, 16.56 times, 21.03
times, 21.62 times and 17.50 times respectively. This indicates that the stock of
Maruti Suzuki is selling quickly and thus reducing the blockage of funds in
164
unsold stock, carrying cost and storage costs of inventory. Inventory turnover
ratio of Tata Motors is less than the stock turnover ratio of Maruti Suzuki but
more than the stock turnover ratio of Honda Cars. Thus the stock of Tata
Motors was not selling as quickly as Maruti Suzuki‟s stock but was selling
more quickly than the stock of Honda Cars. Honda Cars has the lowest
inventory turnover ratio during the financial year 2008 to 2012 at 7.98 times,
7.34 times, 8.09 times, 5.12 times and 4.91 times respectively showing that the
stock of Honda Cars does not sell as quickly as the sock of Maruti Suzuki and
Tata Motors.
Inventory turnover ratio of Honda Cars was lower than the ratio of Maruti
Suzuki and Tata Motors.
Average age of Inventory
This ratio is also called as „Stock Holding Period‟. It indicates the velocity with
which the goods move, thus serves as a yardstick of efficient inventory
management. This ratio is calculated for finding out the number of days of
stock holdings in a company. The lower the average age of inventory, the better
it is, as it indicates the stock of the company quickly converts into sales. The
high average age of inventory indicates that the stock of the company takes
long time to convert it into sales and thus the funds of the company may be
locked into its stock. The position of average age of inventory from the year
2008 to 2012 is presented in the following table:
165
Table 6.5: Average age of Inventory of the Companies from the Financial
Year 2007-08 to 2011-12 (Days)
2008 2009 2010 2011 2012

Honda Cars
45 49 45 70 73
India Ltd.
Maruti
Suzuki India 23 22 17 17 21
Ltd.
Tata Motors
42 43 36 34 37
Ltd.
Note: Here we consider, 360 days in a year.
The average age of inventory of Honda Cars is showing an increasing trend

from the financial year 2008 to 2012. The average age of inventory of Honda
Cars significantly increases to70 days and 73 days in the year 2011 and 2012
respectively. It implies that during the year 2011 and 2012, the company has to
hold the stock for a longer duration and thus takes long period to convert the
stock into sales due to various reasons and it also shows that the funds of the
company were unnecessary blocked and there was slow recovery of cash, tied
in stocks. Thus, comparatively during the financial year 2008 to 2010, the stock
of the company was selling more quickly.
Average age of inventory of Honda Cars when compared to Maruti Suzuki and
Tata Motors shows that Maruti Suzuki has the lowest average age of inventory
indicating that the Maruti Suzuki‟s stock quickly converts into sales which
increases the fast recovery of cash and thus the company does not faces the
problem of liquidity crunch. Average age of inventory of Tata Motors was
more than the average age of inventory of Maruti Suzuki but less than the
average age of inventory of Honda Cars. Thus the stock of Tata Motors takes
more time to convert it into sales than the stock of Maruti Suzuki but takes less
time than the stock of Honda Cars. Honda Cars has highest average age of
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inventory stating that the stock of the company takes long period to convert it
into sales and thus the company has slow recovery of cash.
Honda Cars has larger average age of inventory than Maruti Suzuki and Tata
Motors.
b) Debtors’ Turnover Ratio
It is also known as the „Receivables Turnover Ratio‟ or „Receivables Velocity

Ratio‟. It establishes the relationship between net credit sales of the year and
the average debtors. This ratio indicates the speed with which the amount is
collected from debtors i.e. the number of times on average the receivables are
turn over in each financial year. The higher the ratio, the better it is, since it
indicates that amount from debtors is being collected more quickly. The more
quickly the debtors pay, the less is the risk from bad debts. It is difficult to set
up a standard for this ratio. It depends on the policy of the management and the
nature of industry. By comparing the debtors‟ turnover ratio of the current year
with the previous year, it may be assessed whether the sales policy of the
management is efficient or not. The position of debtors‟ turnover ratio from the
year 2008 to 2012 is presented in the following table:
Table 6.6: Debtors’ Turnover Ratio of the Companies from the Financial
Year 2007-08 to 2011-12 (Times)
2008 2009 2010 2011 2012

Honda Cars
N.A. 83.0 68.24 22.65 17.72
India Ltd.
Maruti
Suzuki India 25.46 25.86 33.50 43.86 39.39
Ltd.
Tata Motors
29.34 18.59 17.77 18.66 20.23
Ltd.
Note: Here we consider the net sales as net credit sales.
167
Diagram 6.5: Graph showing Debtors’ Turnover Ratio of the Companies

90
80
70
60
50 Honda Cars
40 Maruti Suzuki
30 Tata Motors
20
10
0
FY 2008 FY 2009 FY 2010 FY 2011 FY 2012
Debtors‟ turnover ratio of Honda Cars is showing a decreasing trend from the
financial year 2009 to 2012 which shows the decline in the speed with which
the amount is being collected from the debtors. During the year 2009 and 2010,
the company has a very high Debtors‟ turnover ratio of 83 times and 68.24
times respectively, which indicates that the amount from debtors is being
collected more quickly. The more quickly the debtors pay, the less is the risk
from bad debts, and so lower the expense of collection and increase in the
liquidity of the company. However, it may also suggest a restrictive credit
policy of the company. Debtors‟ turnover ratio of the company decreases to
22.65 times and 17.72 times in the year 2011 and 2012, which reveals the
inefficient credit sales policy of the management. It means that credit sales
have been made to customers who do not deserve much credit.
Debtors‟ turnover ratio of Honda Cars when compared to the ratio of Maruti
Suzuki and Tata Motors shows that during the financial year 2009 and 2010,
Honda Cars has higher ratio than Maruti Suzuki and Tata Motors but in the
year 2011 and 2012, the ratio of Maruti Suzuki has been more than the ratio of
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Honda Cars and Tata Motors. Only in the year 2008, the ratio of Tata Motors
was even more than the ratio of Maruti Suzuki. Debtors‟ turnover ratio of
Maruti Suzuki is showing an increasing trend from the financial year 2008 to
2011. The higher the ratio, the better it is, since it indicates that amount from
debtors is being collected more quickly. The more quickly the debtors pay, the
less is the risk from bad debts. During the financial year 2009 to 2011, ratio of
Tata Motors was less than the ratio of Maruti Suzuki and Honda Cars which
implies that the Tata Motors have not been collecting the amount from its
debtors quickly and can thus have the problem of liquidity crunch. It also
shows the inefficient credit sales policy of the company. But only in 2012, the
debtors‟ turnover ratio of Tata Motors was more than the ratio of Honda Cars.
Honda Cars has higher debtors‟ turnover ratio than Maruti Suzuki in 2009 and
2010 but lower ratio than Maruti Suzuki in financial year 2011 and 2012.
Honda Cars has higher ratio than Tata Motors but in the year 2012, ratio of
Honda Cars was even lower than Tata Motors.
Average Collection Period
It states the average debt collection period. This ratio indicates the time within
which the amount is collected from debtors and bills receivables. This ratio
shows the time in which the customers are paying for credit sales. Longer
collection period indicates the excessive blockage of funds with the debtors
which increases the chances of bad debts and also shows the liberal credit
policy of the company. On the other hand, if there is decrease in debt collection
period, it indicates prompt payment by debtors which reduces the chances of
bad debts and it also shows the restrictive credit policy of the company. As
such, credit policy of the company should neither be too liberal nor too
restrictive. There is no ideal collection period of debtors. It depends upon the
peculiar characteristics of the industry, business and the firm. The position of
average collection period from the year 2008 to 2012 is presented in the
following table:
169
Table 6.7: Average Collection Period of the Companies from the Financial
Year 2007-08 to 2011-12 (Days)
2008 2009 2010 2011 2012

Honda Cars
N.A. 4 5 16 20
India Ltd.
Maruti
14 14 11 8 9
Suzuki v
Tata Motors
12 19 20 19 18
Ltd.
Average collection period of Honda Cars is showing an increasing trend during

the financial year 2009 to 2012. This implies that the time taken by the
company in collection of the amount from its debtors is increasing which is
also increasing the chances of bad debts. During the year 2009 and 2010,
Honda Cars has a shorter collection period of 4 days and 5 days respectively.
This indicates the prompt payment by debtors which reduces the chances of
bad debts in the company. This also shows the restrictive credit policy of the
company. But during 2011 and 2012, collection period of the company
significantly increases to 16 days and 20 days respectively, this indicates
excessive blockage of funds with the debtors of the company which increases
the chances of bad debts. It also shows the liberal credit policy of the company.
A higher debt collection period is thus, an indicator of the inefficiency and
negligence on the part of management of the company.
Comparison of average collection period of Honda Cars to Maruti Suzuki and

Tata Motors shows that collection period of Maruti Suzuki is showing a
decreasing trend which implies that the debtors of the company are paying
promptly and reduces the chances of bad debt . This is an indication of the
efficiency of management. During the year 2009 and 2010, Honda Cars has the
shorter collection period than Maruti Suzuki and Tata Motors but in the year
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2011 and 2012, Maruti Suzuki has the low collection period than Honda Cars
and Tata Motors. Lower collection period implies prompt payment by the
debtors and restrictive credit policy. During the financial year 2009 to 2011,
Tata Motors has a higher debt collection period than Maruti Suzuki and Honda
Cars. This shows excessive blockage of funds with the debtors which increases
the chances of bad debts in Tata Motors. It is also an indication of liberal credit
policy of Tata Motors and reveals the inefficiency and negligence on the part of
management of Tata Motors. But in 2012, Honda Cars has higher collection
period than Tata Motors and Maruti Suzuki.
Honda Cars has smaller collection period than Maruti Suzuki in the year 2009
and 2010 but in 2011 and 2012, Honda Cars has larger collection period than
Maruti Suzuki. Honda Cars has smaller collection period than Tata Motors but
in 2012, collection period of Honda Cars was even higher than Tata Motors.
c) Creditors’ Turnover Ratio
It establishes the relationship between the net credit purchases and the average
trade creditors. It is also known as „Creditors' Velocity Ratio‟. This ratio
indicates the speed with which the amount is being paid to creditors i.e. the
speed with which payments for credit purchase are made to the trade creditors.
The higher the ratio, the better it is, since it will indicate that the creditors are
being paid more quickly which increases the creditworthiness of the company.
A low creditors' turnover ratio implies an unusual delay in the payment to the
suppliers. The position of creditors‟ turnover ratio from the year 2008 to 2012
is presented in the following table:
171
Table 6.8: Creditors’ Turnover Ratio of the Companies from the Financial
Year 2007-08 to 2011-12 (Times)
2008 2009 2010 2011 2012

Honda Cars
7.60 5.16 5.0 3.55 3.01
India Ltd.
Maruti
Suzuki India 7.45 7.40 9.16 11.53 9.47
Ltd.
Tata Motors
2.79 2.15 2.42 3.33 4.59
India Ltd.
Note: Here we consider the net purchases as net credit purchases.
Diagram 6.6: Graph showing Creditors’ Turnover Ratio of the Companies

14
12
10
8
Honda Cars
6 Maruti Suzuki
Tata Motors
4
0
FY 2008 FY 2009 FY 2010 FY 2011 FY 2012
Creditors‟ turnover ratio of Honda Cars is showing decreasing trend from the
financial year 2008 to 2012 which implies that the company is making delay in
the payment to its creditors and thus adversely affects the credit worthiness of
the company. HCIL has a highest creditors‟ turnover ratio in 2008 which
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implies that during the year, creditors of the company have been paid promptly
which enhances the credit worthiness of the company. But during the year
2012, the company has the lowest creditors‟ turnover ratio of 3.012 times
which indicates that the creditors are not being paid on the due date by the
company which adversely affects the credit reputation of the company.
Comparison of creditors‟ turnover ratio of Honda Cars with Maruti Suzuki and
Tata Motors shows that Maruti Suzuki has higher creditors‟ turnover ratio than
the ratio of Honda Cars and Tata Motors. This indicates that Maruti Suzuki is
paying off its creditors promptly which increases the credit worthiness of the
company. From the financial year 2008, creditors‟ turnover ratio of Maruti
Suzuki increases to 11.53 times in 2011 but falls down to 9.47 times in the year
2012. During the Maruti Suzuki‟s 2008 to 2012, Tata Motors has the lowest
creditors‟ turnover ratio than the ratio of Maruti Suzuki and Honda Cars. This
indicates that Tata Motors is not paying its creditors promptly which adversely
affects its credit worthiness. But in 2012, Tata Motors increases its ratio to 4.59
times which was even more than the ratio of Honda Cars.
Honda Cars has lower creditors‟ turnover ratio than Maruti Suzuki but has
higher ratio than Tata Motors. Only in 2012, creditors‟ turnover ratio of Honda
Cars was even lower than Tata Motors.
Average Payment Period
This ratio indicates the period which is normally taken by the company to make
payment to its creditors. The lower the ratio, the better it is, because a shorter
payment period implies that the creditors are being paid promptly which
enhances the credit worthiness of the company. The position of average
payment period from the year 2008 to 2012 is presented in the following table:
173
Table 6.9: Average Payment Period of the Companies from the Financial
Year 2007-08 to 2011-12 (Days)
2008 2009 2010 2011 2012

Honda Cars
47 70 72 101 120
India Ltd.
Maruti Suzuki
48 49 39 31 38
India Ltd.
Tata Motors
129 167 148 108 78
Ltd.
Average payment period of Honda Cars have been showing increasing trend
from the financial year 2008 to 2012 which implies that the credit worthiness
of the company is decreasing or the company is availing the benefit of the
liberal credit terms granted by the suppliers. But Honda Cars has a shortest
average payment period of 47 days in 2008 which implies that the creditors
were promptly paid during the year 2008. Shortest credit period also means that
the company is not taking full advantage of the credit facilities granted by the
suppliers. In 2012, Honda Cars has excessive larger payment period of 120
days which means an unusual delay in the payment to the suppliers and thus
affects the credit reputation of the company.
Comparison of average payment period of Honda Cars to Maruti Suzuki and

Tata Motors shows that the Maruti Suzuki has the lowest payment period than
Honda Cars and Tata Motors. This indicates that the Maruti Suzuki is paying
its creditors promptly and thus increasing its credit worthiness. During the
financial year 2008 to 2011, Tata Motors has the highest payment period than
Maruti Suzuki and Honda Cars. This reveals that Tata Motors is making
unusual delay in the payment to the suppliers. But in 2012, Honda Cars has the
highest average payment period of 120 days which was even more than the
payment period of Tata Motors and this adversely affects the credit reputation
of Honda Cars.
174
Honda Cars has larger payment period than Maruti Suzuki but has smaller
payment period than Tata Motors. Only in 2012, payment period of Honda
Cars was even larger than Tata Motors.
d) Other Turnover Ratios
i. Working Capital Turnover Ratio
This ratio reveals how efficiently working capital has been utilized in making
sales. In other words, it shows the number of times working capital has been
utilized in making sales. Working Capital is the excess of current assets over
current liabilities. A high working capital turnover ratio shows efficient use of
working capital and quick turnover of current assets like stock and debtors. A
low working capital turnover ratio indicates under utilization of working
capital. However a very high turnover ratio of working capital is also
dangerous, as it is a sign of over trading, i.e., doing business with too little
working capital. On the other hand, a very low turnover ratio of working
capital may be assign of under-trading in comparison to working capital, i.e.,
the working capital is in excess of the requirements of the business. The
position of working capital turnover ratio from the year 2008 to 2012 is
presented in the following table:
Table 6.10: Working Capital Turnover Ratio of the Companies from the
2008 2009 2010 2011 2012

Honda Cars
10.52 17.49 52.50 23.86 12.19
India Ltd.
Maruti
Suzuki India 22.25 17.21 25.20 24.24 13.58
Ltd.
Tata Motors
22.35 (35.25) (10.05) (13.68) (17.37)
Ltd.
175
Diagram 6.7: Graph showing Working Capital Turnover Ratio of the

Companies from the Financial Year 2007-08 to 2011-12 (Times)
60
50
40
30
20 Honda Cars
10 Maruti Suzuki
0 Tata Motors
FY 2008 FY 2009 FY 2010 FY 2011 FY 2012
-10
-20
-30
-40
Working capital turnover ratio of Honda Cars is showing an increasing trend

from the financial year 2008 to 2010. During the year 2008, Honda Cars has
lowest working capital turnover ratio of 10.52 times indicating inefficient
utilization of working capital. But the ratio increases to 17.59 times in 2009
which implies that Honda Cars has efficiently utilized its working capital.
Honda Cars has a very high working capital turnover ratio of 52.5 times in
financial year 2010 which is a sign of over-trading i.e. doing business with too
little working capital. It is an indicator of the shortage of working capital and
may put the company in financial difficulties. But the ratio stabilizes in 2011
and 2012 at 23.86 times and 12.19 times respectively.
Working capital turnover ratio of Honda Cars when compared to Maruti Suzuki
and Tata Motors shows that Maruti Suzuki has the higher working capital
turnover ratio than the ratio of Honda Cars and Tata Motors during the
financial year 2008 to 2012. This indicates efficient use of working capital and
quick turnover of current assets by Maruti Suzuki. But in 2009, Honda Cars
also has higher working capital turnover ratio of 17.49 times which shows
efficient utilization of working capital by the company. In the year 2008, Tata
Motors has adequate working capital turnover ratio indicating efficient use of
176
working capital. But during the financial year 2009 to 2012, Tata Motors has a
very low working capital turnover ratio which indicates under-trading in
comparison to working capital i.e. the working capital is in the excess of the
requirements of the company.
Honda Cars has lower working capital turnover ratio than Maruti Suzuki but in
2010, ratio of Honda Cars was higher than Maruti Suzuki. Honda Cars has
higher ratio than Tata Motors but in 2008, ratio of Honda Cars was even lower
than Tata Motors.
ii. Fixed Assets Turnover Ratio
It indicates the efficiency of the fixed assets towards contribution to sales. This
ratio reveals how efficiently the fixed assets are being utilized to generate sales
in the business. Compared with the previous year, if there is increase in this
ratio, it will indicate that there is better utilisation of fixed assets. Thus, higher
fixed assets turnover ratio indicates the higher efficiency in the utilization of
the fixed assets. If there is a fall in this ratio, it will show that fixed assets have
not been used as efficiently, as they had been used in the previous year. The
position of fixed assets turnover ratio from the year 2008 to 2012 is presented
Table 6.11: Fixed Assets Turnover Ratio of the Companies from the
2008 2009 2010 2011 2012

Honda Cars
4.45 2.21 2.95 2.57 1.84
India Ltd.
Maruti Suzuki
4.42 4.12 5.35 5.60 4.26
India Ltd.
Tata Motors
2.68 1.71 2.13 2.70 2.81
Ltd.
Note: Here we consider that net fixed assets exclude depreciation and include capital
work in progress.
177
Diagram 6.8: Graph showing Fixed Assets Turnover Ratio of the

Honda Cars
3
Maruti Suzuki
2 Tata Motors
0
FY 2008 FY 2009 FY 2010 FY 2011 FY 2012
Fixed assets turnover ratio of Honda Cars is showing decreasing trend from the
financial year 2008 to 2012. Fixed assets turnover ratio of Honda Cars was
higher during the year 2008 at 4.45 times but has declined to 1.84 times in
2012. This indicates that during the year 2008, company has efficiently utilized
its fixed assets. During 2012, the lowest fixed assets turnover ratio of the
company shows inefficient use of the fixed assets in the company which will
result in low sales volume coupled with high overhead charges and under
utilization of the available capacity. Thus, the management must strive for
using fixed assets efficiently in the business.
Fixed assets turnover ratio of Honda Cars when compared to Maruti Suzuki
and Tata Motors shows that during the financial year 08 to 2012, Maruti Suzuki
has higher fixed assets turnover ratio than the ratio of Honda Cars and Tata
Motors. From the year 2008, fixed assets turnover ratio of Maruti Suzuki is
showing an increasing which shows that Maruti Suzuki has been efficiently
using its fixed assets but in 2012, the ratio falls to 4.26 times. During the
financial year 2008 to 2010, fixed assets turnover ratio of Tata Motors was less
than the ratio of Honda Cars indicating that Tata Motors has not been making
178
use of its fixed assets efficiently. During 2011, both Honda Cars and Tata
Motors have the same ratio but during 2012, fixed assets turnover ratio of
Honda Cars was less than the ratio of Tata Motors.
Fixed assets turnover ratio of Honda Cars has been lower than Maruti Suzuki
but higher than Tata Motors. During 2011 and 2012, ratio of Honda Cars was
even lower than Tata Motors.
iii. Total Assets Turnover Ratio
This ratio establishes the relationship between total assets and net sales of the
business. It shows how efficiently the total assets are being utilized in the
business. Compared with the previous year, if there is increase in this ratio, it
will indicate that there is better utilisation of total assets. Thus, higher total
assets turnover ratio indicates the higher efficiency in the utilization of the total
assets. If there is a fall in this ratio, it will show that total assets have not been
used as efficiently, as they had been used in the previous year. The position of
total assets turnover ratio from the year 2008 to 2012 is presented in the
following table:
Table 6.12: Total Assets Turnover Ratio of the Companies from the
2008 2009 2010 2011 2012

Honda Cars
2.36 1.50 1.76 1.38 1.07
India Ltd.
Maruti
Suzuki India 1.45 1.49 1.76 1.95 1.55
Ltd.
Tata Motors
1.09 0.67 0.69 0.86 0.99
Ltd.
Note: Here we consider that total Assets includes net fixed assets, investments and
current assets loans and advances.
179
Diagram 6.9: Graph showing Total Assets Turnover Ratio of the

2.5
1.5
Honda Cars
Maruti Suzuki
1
Tata Motors
0.5
0
FY 2008 FY 2009 FY 2010 FY 2011 FY 2012
Total assets turnover ratio of Honda Cars is showing decreasing trend from the
financial year 2008 to 2012. Total assets turnover ratio of Honda Cars was
higher during 2008 at 2.36 times but has declined to 1.07 times in 2012. This
indicates that during the year 2008, company has efficiently utilized its total
assets. During the financial year 2012, the lowest total assets turnover ratio of
the company shows inefficient use of the total assets in the company which will
result in low sales volume coupled with high overhead charges and under
utilization of the available capacity.
Total assets turnover ratio of Honda Cars when compared to the Maruti Suzuki
and Tata Motors shows that during the financial year 2008 to 2012, total assets
turnover ratio of Maruti Suzuki was more than the ratio of Honda Cars and
Tata Motors. From the year 2008, total assets turnover ratio of Maruti Suzuki is
showing an increasing which shows that Maruti Suzuki has been efficiently
using its total assets. Honda Cars and Maruti Suzuki both have the same ratio
in 2009 and 2010 at 1.50 times and 1.76 times respectively which implies the
better use of the total assets of the companies. During the financial year 2008 to
2012, total assets turnover ratio of Tata Motors is showing a declining trend.
Total assets turnover ratio of Tata Motors was also less than the ratio of Honda
180
Cars indicating that Tata Motors has not been making use of its total assets
efficiently in the business.
Total assets turnover ratio of Honda Cars has been lower than Maruti Suzuki
and higher than Tata Motors. But in 2008, ratio of Honda Cars was higher than
Maruti Suzuki.
6.3. LEVERAGE (LONG TERM SOLVENCY) ANALYSIS
Leverage analysis is done through Leverage Ratios. Leverage Ratios are also
known as „Long Term Solvency Ratios‟ or „Financial Ratios‟ or „Capital
Structure Ratios‟. Long Term Solvency Ratios analyses the long term solvency
of a business which depends on firms‟ adequate resources to meet its long term
funds requirements, appropriate debt equity mix to raise long term funds and
earnings to pay interest and installment of long term loans in time. These ratios
are used to assess the following two aspects of the long-term solvency of a firm
i.e. ability to repay the principal amount when due; and the ability to pay the
interest and dividend promptly and periodically as per the agreed terms and
conditions. Usually the long term lenders, debenture holders and financial
institutions are interested in these ratios. With the help of these ratios, they
want to judge the ability of a firm to pay the interest regularly as well as repay
the principal, when due.
a) Capital Gearing Ratio
This ratio establishes the relationship between fixed interest bearing capital and
shareholders‟ funds and thus examines the capital structure of the company. A
company is said to be highly geared if the major share of the total capital is in
the form of fixed- interest-bearing securities or this ratio is more than one. If
this ratio is less than one, it is said to be low geared. If it is exactly one, it is
evenly geared. This ratio must be carefully planned as it affects the company‟s
capacity to maintain a uniform dividend policy during difficult trading periods
that may occur. The lower the capital gearing ratio, the better it is for the
company because it shows that too much capital has not been raised by way of
debentures. Too much capital should not be raised by way of debentures
because debentures do not share in business losses. There is another
181
implication of capital gearing ratio. It indicates the additional residual benefits

accruing to the equity shareholders' funds. It is due to the fact that the company
earns a certain rate of return on the capital employed, but is required to pay
only a fixed return against loans and preference share capital. The position of
capital gearing ratio from the year 2008 to 2012 is presented in the following
table:
Table 6.13: Capital Gearing Ratio of the Companies from the Financial
Year 2007-08 to 2011-12 (Times)
2008 2009 2010 2011 2012

Honda Cars
N.A. 0.98 0.66 1.68 0.49
India Ltd.
Maruti
Suzuki India 0.10 0.07 0.06 0.01 0.07
Ltd.
Tata Motors
0.80 1.07 1.11 0.73 0.56
Ltd.
Diagram 6.10: Graph showing Capital Gearing Ratio of the Companies

1.8
1.6
1.4
1.2
1 Honda Cars
0.8 Maruti Suzuki
0.6 Tata Motors
0.4
0.2
0
FY 2008 FY 2009 FY 2010 FY 2011 FY 2012
182
Capital gearing ratio of Honda Cars is showing a declining trend from 2009 to
2012, except the year 2011 in which the ratio of the company increases to 1.68
times. This indicates that during 2009, 2010 and 2012, the capital gearing ratio
of the company was low which implies that the fixed interest bearing funds of
the company was less than its equity shareholders‟ funds. Honda Cars has the
lowest capital gearing ratio during 2012 which indicates that the company
during the year was less burdened to pay fixed interest charges for its fixed
interest bearing funds. But during the year 2011, the capital gearing ratio
increases to 1.68 times indicating that the capital structure of the company is
highly geared, as the amount of fixed interest bearing funds is more than the
equity shareholders‟ funds. Thus, during 2011, Honda Cars is more burdened
with paying off more fixed interest charges.
Capital gearing ratio of Honda Cars when compared to Maruti Suzuki and Tata
Motors shows that Maruti Suzuki has low capital gearing ratio than the ratio of
Maruti Suzuki and Tata Motors. This indicates that the fixed interest bearing
funds of Maruti Suzuki is less than its equity shareholders‟ funds and thus it is
less burdened with paying off its fixed interest charges. During the year 2008 to
2012, Tata Motors has the highly geared ratio, which was more than the ratio of
Maruti Suzuki and Honda Cars indicating that Tata Motors has more fixed
interest bearing funds than its equity shareholders‟ funds and thus is more
burdened with paying off its fixed interest charges. But in 2011, Honda Cars
has a high capital gearing ratio of 1.68 times which is even more than the ratio
of Tata Motors.
Honda Cars has higher capital gearing ratio than Maruti Suzuki and has lower
ratio than Tata Motors. But in the year 2011, ratio of Honda Cars was higher
than Tata Motors.
183
b) Debt Equity Ratio
It is also known as „External-Internal Equity Ratio‟. Debt equity ratio shows a

relationship between long term debts and shareholders‟ funds. In other words,
this ratio indicates the relationship between the outsiders‟ funds and
shareholders‟ funds. This ratio indicates the extent of funds provided by long-
term lenders in comparison to the funds provided by the owners, i.e.
shareholders. It measures the extent of equity covering the debt. This ratio is
calculated to know about the firms‟ repayment capacity of long term debts.
Generally, the ratio of 1:1 is considered satisfactory. A low ratio is considered
favourable from the long term creditors‟ point of view because a high
proportion of owners‟ funds provide a large margin of safety for them. A high
debt equity ratio which indicates that the claims of outsiders are greater than
those of owners, may not be considered by the creditors because it gives a
lesser margin of safety for them at the liquidation of a company. The position
of debt equity ratio from the year 2008 to 2012 is presented in the following
table:
Table 6.14: Debt Equity Ratio of the Companies from the Financial Year
2007-08 to 2011-12 (Times)
2008 2009 2010 2011 2012

Honda Cars
N.A. 1.57 1.65 3.0 1.30
India Ltd.
Maruti
Suzuki India 0.44 0.43 0.37 0.30 0.44
Ltd.
Tata Motors
2.15 1.96 2.27 1.49 1.57
Ltd.
184
Diagram 6.11: Graph showing Debt Equity Ratio of the Companies from
3.5
2.5
2
Honda Cars
1.5 Maruti Suzuki

Tata Motors
1
0.5
0
FY 2008 FY 2009 FY 2010 FY 2011 FY 2012
Debt equity ratio of Honda Cars has been showing increasing trend from the
financial year 2009 to 2011 at 1.57 times, 1.65 times and 3 times respectively
which indicates that the claim of the outsiders are more than those of the
owners which may not be considered by the long term creditors of the company
because it gives a lesser margin of safety for them at the liquidation of the
company. But the company‟s Debt equity ratio significantly falls down to 1.30
times in 2012, showing a high proportion of owners‟ funds than the outsiders‟
funds which is favourable from the point of view of the long term creditors of
the company as it provide a large margin of safety to them for their repayment
by the company.
Debt equity ratio of Honda Cars when compared to Maruti Suzuki and Tata
Motors shows that Maruti Suzuki has a low Debt equity ratio than the ratio of
Honda Cars and Tata Motors. Debt equity ratio of Maruti Suzuki is showing a
declining trend during the year 2008 to 2012. This reveals that the creditors of
Maruti Suzuki has large margin of safety against all possible losses in case of
liquidation of the company. But during the financial year 2008 to the 2012,
Tata Motors has high Debt equity ratio than the ratio of Maruti Suzuki and
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Honda Cars, except the year 2011. This implies that the claim of outsiders of
Tata Motors is more than its shareholders‟ funds, against the firm‟s assets.
Thus the long term creditors of Tata Motors feels unsecured about their
repayment by the company and they can also interfere in the affairs of the
business or put certain restrictive conditions on the operations of the business.
During 2011, Honda Cars has a very high Debt equity ratio of 3 times which
was even more than the ratio of Tata Motors.
Debt equity ratio of Honda Cars has been higher than Maruti Suzuki and lower
than Tata Motors. But in 2011, debt equity ratio of Honda Cars was even
c) Total Debt Ratio
This ratio is also known as „Solvency Ratio‟. This ratio depicts the proportion
of firms‟ total assets, financed by total debt. Total debt represents both long
term as well as short term debt. It also helps in ascertaining the long term
solvency of the company. To the creditor, a low ratio would ensure greater
security for extending credit to the firm. However a too low ratio suggests that
the management is not using its credit most advantageously. The position of
total debt ratio from the year 2008 to 2012 is presented in the following table:
Table 6.15: Total Debt Ratio of the Companies from the Financial Year
2007-08 to 2011-12 (Times)
2008 2009 2010 2011 2012

Honda Cars
N.A. 0.64 0.66 0.75 2.50
India Ltd.
Maruti
Suzuki India 0.30 0.30 0.26 0.23 0.30
Ltd.
Tata Motors
0.65 0.64 0.67 0.55 0.56
Ltd.
186
Diagram 6.12: Graph showing Total Debt Ratio of the Companies from
2.5
Honda Cars
1.5
Maruti Suzuki
1 Tata Motors
0.5
0
FY 2008 FY 2009 FY 2010 FY 2011 FY 2012
Total debt ratio of Honda Cars is showing an increasing trend from the
financial year 2009 to 2012. This indicates that the total debts of the company
are more than its total assets which is not considered favourable from the point
of view of the creditors of the company. In 2012, debt ratio increased highly
rose to 2.50 times which is a threat to the solvency of Honda Cars as it
indicates that the company is carrying too much debt. This is of concern to the
company because it may not be able to repay the debts and nor may borrow the
additional funds required. This situation is risky because short term financing is
limited and may not be available in an emergency.
Total debt ratio of Honda Cars when compared to the ratio of Maruti Suzuki
and Tata Motors, shows that the Maruti Suzuki has low total debt ratio than the
ratio of Honda Cars and Tata Motors. This reveals that the Maruti Suzuki is not
risky because it has plenty of financing available when compared to its needs.
However, it also indicates that the company should take on more debt. The
reason for this is that the ability to borrow is considered a resource. During the
year 2008 to 2010, Tata Motors has higher total debt ratio of 0.65 times, 0.64
187
times and 0.67 times respectively, but during 2009 and 2010, total debt ratio of
Honda Cars was equal to the ratio of Tata Motors. During the financial year
2011 and 2012, Honda Cars has higher debt ratio of 0.75 times and 2.50 times
respectively which was even more than the ratio of Tata Motors. This shows
threat to the solvency of the company as it indicates that the company is
carrying too much debt.
Total debt equity ratio of Honda Cars has been higher than Maruti Suzuki and
Tata Motors. But during the year 2009 and 2010, debt equity ratio of Honda
Cars and Tata Motors was equal.
d) Proprietary Ratio
This ratio is also known as „Equity Ratio‟ or „Net Worth to Total Assets Ratio‟.
It measures the proportion of the company‟s assets that are provided or claimed
by the owners. This ratio is quite significant for the creditors of business. With
the help of this ratio, it can be ascertained in what proportion owners have
provided funds for investment in assets of business. The higher the ratio, the
more profitable it is for the creditors and the lesser is the dependence on
external funds. If the ratio is low, the creditors can be suspicious about the
repayment of their debt which indicates greater risk to the creditors. The higher
the ratio, the better it is. A ratio below 50% may be quite alarming for the
creditors. The greater the percentage financing provided by shareholders
equity, the larger is the cushion of protection for the firm‟s creditors. The
position of proprietary ratio from the year 2008 to 2012 is presented in the
following table:
188
Table 6.16: Proprietary Ratio of the Companies from the Financial Year
2007-08 to 2011-12 (Times)
2008 2009 2010 2011 2012

Honda Cars 0.68 0.41 0.39 0.24 0.43
India Ltd.
Maruti 0.68 0.68 0.72 0.75 0.68
Suzuki India
Ltd.
Tata Motors 0.30 0.32 0.29 0.36 0.36
Ltd.
Diagram 6.13: Graph showing Proprietary Ratio of the Companies from

0.8
0.7
0.6
0.5
Honda Cars
0.4
Maruti Suzuki
0.3 Tata Motors
0.2
0.1
0
FY 2008 FY 2009 FY 2010 FY 2011 FY 2012
Proprietary ratio of Honda Cars is showing a decreasing trend from the

financial year 2008 to 2012. This reveals that the company is more depending
on external funds and thus the creditors of the company can be suspicious
189
about the repayment of their debts which indicates greater risk to the creditors.
But in the year 2008, Honda Cars has the larger Proprietary ratio of 0.68 times
which implies that the dependency on external sources was less during the year
and financial position of the company was sound. The greater the percentage
financing provided by shareholders equity, the larger is the cushion of
protection for the firm‟s creditors. Whereas, in 2011, Proprietary ratio of the
company falls to 0.24 times indicating more dependence on external sources
and greater risk to the creditors about the repayment of their debts.
Proprietary ratio of Honda Cars when compared to the ratio of Maruti Suzuki
and Tata Motors shows that during the year 2008 to 2012, the Maruti Suzuki
has higher proprietary ratio than the ratio of Honda Cars and Tata Motors. This
implies that Maruti Suzuki has less dependence on external funds, creditors
were not suspicious about the repayment of their debts and the financial
position of the company was also sound. The proprietary ratio of Tata Motors
was even lower than the ratio of Honda Cars except the year 2011, which
implies that the Tata Motors is depending more on external funds and which
increases the risk of the creditors about the repayment of their debts. But in
2011, proprietary ratio of Honda Cars was less than the ratio of Tata Motors at
0.24 times. A ratio below 50% may be quite alarming for the creditors of the
company.
Proprietary ratio of Honda Cars has been lower than Maruti Suzuki and higher
than Tata Motors. But in the year 2011, proprietary ratio of Honda Cars was
even lower than Tata Motors.
e) Fixed Assets to Proprietors’ Funds Ratio
This ratio measures the proportion in which owners‟ funds are invested in fixed
assets of the company. The higher proportion of proprietors‟ funds to fixed
assets is a measure of long-term financial soundness of business. However, the
lower the ratio, the better it is for the long term solvency of business because
190
proprietors funds will be available for working capital needs also. For industrial
units, the standard is usually 65%. If the ratio is more than one, it means that a
part of fixed assets has been financed from debt capital. The position of fixed
assets to proprietors‟ funds ratio from the year 2008 to 2012 is presented in the
following table:
Table 6.17: Fixed Assets to Proprietors’ Funds Ratio of the Companies

2008 2009 2010 2011 2012

Honda Cars
0.77 1.65 1.50 2.16 1.32
India Ltd.
Maruti
Suzuki India 0.47 0.52 0.45 0.46 0.53
Ltd.
Tata Motors
1.33 1.19 1.09 0.86 0.97
Ltd.
Diagram 6.14: Graph showing Fixed Assets to Proprietors’ Funds Ratio of

the Companies from the Financial Year 2007-08 to 2011-12 (Times)
2.5
1.5
Honda Cars
Maruti Suzuki
1
Tata Motors
0.5
0
FY 2008 FY 2009 FY 2010 FY 2011 FY 2012
191
Fixed assets to proprietors‟ funds ratio of Honda Cars have been showing an
increasing trend from the financial year 2008 to 2011 at 0.77times, 1.65 times,
1.50 times and 2.16 times respectively. This implies that the part of the fixed
assets of the company has been financed from debt capital. Though the
company doesn‟t satisfy the standard ratio norm of the fixed assets to
proprietors‟ funds ratio but still has the lowest ratio in 2008 at 0.77 times
measuring comparatively better long term financial soundness of the company
because Proprietors‟ funds will be available for working capital needs also. But
in 2011, the ratio of the company raises highly to 2.16 times indicating long
term solvency of the company to be unsound as if the ratio is more than 1, it
suggest that a part of fixed assets has been financed from the debt capital but
the ratio falls to 1.32 times in 2012.
Fixed assets to proprietors‟ funds ratio of Honda Cars when compared to the
ratio of Maruti Suzuki and Tata Motors indicates that the Maruti Suzuki has
lowest ratio during the year 2008 to 2012 at 0.47 times, 0.52 times, 0.45 times,
0.46 times and 0.53 times respectively which measures long term financial
soundness of the company as the fixed asset of the company have not been
financed from debt capital. Fixed assets to proprietors‟ funds ratio of Tata
Motors have been showing a decreasing trend from 2008 to 2011. The ratio of
Tata Motors was more than the ratio of Maruti Suzuki but was less than the
ratio of Honda Cars which reveals that the fixed assets of Honda Cars have
been much financed by the debt capital but in 2008, fixed assets to proprietors‟
funds ratio of Tata Motors was more than the ratio of Honda Cars.
Honda Cars has higher fixed assets to proprietor‟s funds ratio than Maruti
Suzuki and Tata Motors. But only in 2008, ratio of Honda Cars was lower than
Tata Motors.
f) Current Assets to Proprietors’ Funds Ratio
This ratio establishes relationship between current assets and proprietor‟s

funds. This ratio indicates the extent to which shareholders‟ funds have gone
192
into the financing of the current assets. The main objective of this ratio is to
find out in what proportion proprietors fund has been invested in current assets.
The lower this ratio, the better it is for the company because it implies that the
current assets are mainly financed by the proprietors‟ funds and less is the
dependency on external sources. The position of current assets to proprietors‟
funds ratio from the year 2008 to 2012 is presented in the following table:
Table 6.18: Current Assets to Proprietors’ Funds Ratio of the Companies

2008 2009 2010 2011 2012

Honda Cars
0.68 0.76 0.98 1.83 0.95
India Ltd.
Maruti
Suzuki India 0.36 0.58 0.31 0.49 0.52
Ltd.
Tata Motors
1.32 0.79 0.77 0.71 0.74
Ltd.
Diagram 6.15: Graph showing Current Assets to Proprietors’ Funds Ratio

of the Companies from the Financial Year 2007-08 to 2011-12 (Times)
2
1.8
1.6
1.4
1.2
Honda Cars
1
Maruti Suzuki
0.8
Tata Motors
0.6
0.4
0.2
0
FY 2008 FY 2009 FY 2010 FY 2011 FY 2012
193
Honda Cars has the lowest current assets to proprietors‟ funds ratio in 2008 at
0.68 times which implies that the current assets are mainly financed by the
proprietors‟ funds and less is the dependency on external sources which in turn
indicates a sound financial position of the company. During the financial year
2008 to 2011, the ratio of the company have been showing increasing trend
which implies that comparatively lesser proportion of current assets being
financed by the proprietors funds. The ratio was very high in 2011 at 1.83 times
which reveals the increased dependency on external funds for the financing of
the current assets of the company and thus during the year 2011, financial
position of the company was weak but in the year 2012, the ratio falls to 0.95
times which implies the improvement in the financial position of the company.
Current assets to proprietors‟ funds ratio of Honda Cars when compared to

Maruti Suzuki and Tata Motors shows that Maruti Suzuki has low ratio which
indicates that the company has less dependency on external sources for the
financing of its current assets and larger is the proportion of proprietors funds
for the current assets of the company and thus shows a sound financial position
of the company. During 2008 and 2009, Tata Motors has very high ratio of
1.32 times and 0.79 times respectively. But during the financial year 2010 to
2012, current assets to proprietors‟ funds ratio of Honda Cars was even more
than the ratio of Tata Motors at 0.98 times, 1.83 times and 0.95 times
respectively which shows the increased dependency on external sources for the
financing of the current assets of the company.
Honda Cars has higher current assets to proprietor‟s funds ratio than Maruti
Suzuki and Tata Motors. But during the year 2008 and 2009, ratio of Honda
Cars was lower than Tata Motors.
194
g) Interest Coverage Ratio
It is also known as „Debt Service Ratio‟ or „Fixed Charges Cover Ratio‟. It

establishes the relationship between the amount of net profit before deduction
of interest and tax, and the fixed interest charges. This ratio indicates how
many times the interest charges are covered by the profits available to pay
interest charges. This ratio measures the ability of a firm to protect the interests
of long term creditors. The higher the ratio, better it is both for the firm and
lenders. For the firm, the probability of default in payment of interest is
reduced and from the point of view of lenders, the larger is the coverage, the
greater is the security for them with respect to their periodical interest
payments. An interest coverage ratio of 6 to 7 times is considered appropriate.
The position of interest coverage ratio from the year 2008 to 2012 is presented
Table 6.19: Interest Coverage Ratio of the Companies from the Financial
Year 2007-08 to 2011-12 (Times)
2008 2009 2010 2011 2012

Honda Cars
N.A. 16.81 1.33 2.67 18.79
India Ltd.
Maruti
Suzuki India 43.0 33.50 108.23 125.35 39.88
Ltd.
Tata Motors
10.12 2.50 3.56 2.58 2.10
Ltd.
195
Diagram 6.16: Graph showing Interest Coverage Ratio of the Companies

140
120
100
80
Honda Cars
60 Maruti Suzuki
Tata Motors
40
20
0
FY 2008 FY 2009 FY 2010 FY 2011 FY 2012
Honda Cars has smaller interest coverage ratio of 1.33 times and 2.67 times
during the year 2010 and 2011 respectively which implies that the operating
profit of the company is 1.33 times and 2.67 times of its interest liability and
thus the lenders of the company feels less secured with respect to their
periodical interest payments. The company has larger interest coverage ratio
during 2009 and 2012 indicating that the creditors has greater security with
respect to their periodical interest payments. The company has sufficient profits
to pay its fixed interest charges regularly which have a favorable impact on the
credit worthiness of the company.
Interest coverage ratio of Honda Cars when compared to Maruti Suzuki and
Tata Motors shows that Maruti Suzuki has larger interest coverage ratio than
the ratio of Honda Cars and Tata Motors which indicates that Maruti Suzuki
has larger ability to protect the interest of long term creditors of the company
and there is larger margin of safety for the lenders of Maruti Suzuki about their
periodical interest payment by the company. The company has sufficient
profits to pay interest on long term loans regularly and hence the long term
196
solvency position of the company is quite satisfactory. Comparatively, Honda

Cars has larger interest coverage ratio than Tata Motors. This implies that the
lenders of Honda Cars are more secured with respect to their periodical interest
payment by the company and the lenders of Tata Motors feel unsecured about
their payment of periodical interest payment by Tata Motors. But only in the
year 2008, interest coverage ratio of Tata Motors was appropriate to pay fixed
interest charges regularly to their lenders.
Interest coverage ratio of Maruti Suzuki has been higher than Honda Cars and
Tata Motors. Honda Cars has larger interest coverage ratio than Tata Motors
but during 2010, ratio of Honda Cars was even lower than Tata Motors.
6.4. PROFITABILITY ANALYSIS
Profitability refers to the ability of a business to each profit. It shows the

efficiency of the business. These ratios measure the profit earning capacity or
the operational efficiency of the company. Profitability analysis is done
through profitability ratios. Profitability has direct link with sales. Thus, these
ratios calculated on the basis of sales. Generally profitability ratio is calculated
in percentage (%). The operating efficiency of a firm and its ability to provide
sufficient return to its shareholders or owners depends on the profits earned by
the company. If adequate profits are not earned on sales, difficulty will be
experienced in meeting the operating expenses and no profit will be left for the
owners of the company.
I. Profitability Ratios Related to Sales
a) Gross Profit Ratio
Gross Profit Ratio reveals the profit earning capacity of the business with
reference to its sales. It reflects how well cost of goods sold, a major expense
item, is being controlled. It shows the profit made on sales before taking
accounts of overheads. Increase in the gross profit ratio will mean reduction in
cost or increase in selling price and decrease in gross profit ratio will mean
197
increase in cost or sales at lesser price. The gross profit ratio also works as a
guide to the management in determining its selling and distribution expenses.
The effective control system can be adopted on the basis of gross profit ratio.
Higher gross profit ratio is always in the interest of the business. The position
of gross profit ratio from the year 2008 to 2012 is presented in the following
table:
Table 6.20: Gross Profit Ratio of the Companies from the Financial Year
2007-08 to 2011-12 (Percentage)
2008 2009 2010 2011 2012

Honda Cars
25.10 13.52 18.58 21.0 5.95
India Ltd.
Maruti
Suzuki India 24.30 21.0 23.33 20.87 19.0
Ltd.
Tata Motors
24.89 22.16 27.25 23.32 22.28
Ltd.
Diagram 6.17: Graph showing Gross Profit Ratio of the Companies from
30
25
20
Honda Cars
15
Maruti Suzuki
10 Tata Motors
0
FY 2008 FY 2009 FY 2010 FY 2011 FY 2012
198
Honda Cars has high Gross profit ratio of 25.10% in 2008 which falls in 2009
at 13.52%, the ratio rises to 18.58 % and 21% in 2010 and 2011 respectively
but it highly falls in 2012 at 5.95%. The higher gross profit ratio of the
company in 2008 indicates the improved efficiency of the company in
manufacturing or trading activities which may result from increase in selling
price or decrease in cost price or reduction in raw material consumption per
unit. But the lowest Gross profit ratio of 5.95% in 2012 implies the decline in
the efficiency of the company, decrease in selling price per unit or increase in
direct expenses of the company.
Gross profit ratio of Honda Cars when compared to Maruti Suzuki and Tata
Motors indicates that Tata Motors has higher gross profit ratio than the ratio of
Honda Cars and Maruti Suzuki. This indicates the reduction in cost price or
raw material consumption or sale at a higher price in Tata Motors. It has
adequate gross profit ratio to cover fixed expenses, dividends and creation of
reserves in the company. During the financial year 2009, 2010 and 2012, gross
profit ratio of Honda Cars was even less than the ratio of Maruti Suzuki.
Deterioration in the gross profit of Honda Cars indicates decrease in selling
price or increase in cost price or increase in raw material or increase in the
direct expenses of the company. Thus, it implies that Honda Cars is not
controlling its direct expenses efficiently. Gross profit ratio of Honda Cars,
Maruti Suzuki and Tata Motors has declined from the financial year 2008 to
2012, which indicates the increase in the selling price, increase in the raw
material consumption, increase in cost of goods sold and also the increase in
the direct expenses of these companies.
Gross profit ratio of Honda Cars has been lower than Maruti Suzuki and Tata
Motors. But only in financial year 2008, ratio of Honda Cars was slightly more
than Maruti Suzuki and Tata Motors; and in 2011, Honda Cars and Maruti
Suzuki has the same ratio.
199
b) Net Profit Ratio
This ratio establishes relationship between net profit and net sales. This ratio
measures the efficiency of the firm in generating additional revenue over and
above the total cost of operations. It indicates the proportion of the revenue
available to the owners of the firm. This ratio provides a clear picture of how
efficiently the firm maintains control over its total expense. The higher the
ratio, the better it is as increase in the net profit shows better performance of
the management in the business and decrease in the ratio indicates managerial
inefficiency and excessive selling and distribution expenses. This ratio should
be analysed as a time series. Net profit ratio of the firm when compared with
the average of the industry or net profit of competitors indicates the
profitability position of the firm. The position of net profit ratio from the year
Table 6.21: Net Profit Ratio of the Companies from the Financial Year
2007-08 to 2011-12 (Percentage)
2008 2009 2010 2011 2012

Honda Cars
5.93 (5.64) (0.86) (5.40) (18.98)
India Ltd.
Maruti Suzuki
9.69 5.98 8.62 6.38 4.71
India Ltd.
Tata Motors
7.22 4.0 6.38 3.88 2.31
Ltd.
200
Diagram 6.18: Graph showing Net Profit Ratio of the Companies from the
Financial Year 2007-08 to 2011-12 (Percentage)
15
10
0
Honda Cars
FY 2008 FY 2009 FY 2010 FY 2011 FY 2012
-5 Maruti Suzuki
Tata Motors
-10
-15
-20
-25
Honda Cars has Net profit ratio of 5.93% in 2008 indicating that the company
has adequate profitability during the year. But during the financial year 2009 to
2012, Honda Cars have been incurring huge net losses and it even rose to
(18.98%) in 2012. This implies managerial inefficiency and excessive selling
and distribution expenses in the company. This also reveals that the company
does not efficiently maintain control over its total expenses. So, corrective
actions should be taken by the company to remove the causes responsible for
the heavy net loss ratio. Thus, during the financial year 2009 to 2012, the
operational efficiency of the company was weak.
Comparison of Net profit ratio of Honda Cars with Maruti Suzuki and Tata
Motors shows that Honda Cars only has Net profit ratio in negative i.e. net loss.
During the year 2008 to 2012, Maruti Suzuki has higher net profit ratio than the
ratio of Honda Cars and Tata Motors which shows the sound operational
efficiency and profitability position of Maruti Suzuki. This also implies that
Maruti Suzuki have been efficiently controlled its operating and non-operating
201
expenses. Maruti Suzuki has high Net profit ratio of 9.69% in the year 2008
which declined to 4.71% in 2012; this reflects increase in the operating and
non-operating expenses of the company in 2012. Net profit ratio of Tata
Motors was more than the ratio of Honda Cars but less than the ratio of Maruti
Suzuki. Thus during 2008 to 2012, Honda Cars has the lowest net profit ratio.
Net profit ratio of Tata Motors is also declined from the year 2008 at 7.22% to
2.31% in 2012, which implies that the operating and non-operating expenses of
Tata Motors have also been increasing.
Net profit ratio of Honda Cars has been lower than Maruti Suzuki and Tata
Motors as Honda Cars has been incurring net losses during the financial year
2009 to 2012.
c) Operating Ratio
This ratio is also known as „Operating Expenses Ratio‟. This ratio establishes
the relationship between the aggregate of cost of goods sold and other
operating expenses on the one hand and the sales revenue on the other hand.
Other operating expenses comprise of administrative overheads, selling and
distribution overheads. Financial charges such as interest, provision for
taxation, dividends etc. are excluded from operating expenses. This ratio is the
measure of efficiency and profitability of the business. The lesser is the ratio,
the better it is because less operating ratio means higher net profits. The
comparison of Operating Ratio with that of the past or average of the industry
will indicate whether the operating cost component is reasonable or not in
relation to sales. The position of operating ratio from the year 2008 to 2012 is
presented in the following table:
202
Table 6.22: Operating Ratio of the Companies from the Financial Year
2007-08 to 2011-12 (Percentage)
2008 2009 2010 2011 2012

Honda Cars
87.74 103.0 95.72 95.33 120.0
India Ltd.
Maruti
Suzuki India 87.67 92.55 88.65 92.0 94.84
Ltd.
Tata Motors
93.29 98.48 90.5 92.0 94.34
Ltd.
Diagram 6.19: Graph showing Operating Ratio of the Companies from the
140
120
100
80
Honda Cars
60 Maruti Suzuki
Tata Motors
40
20
0
FY 2008 FY 2009 FY 2010 FY 2011 FY 2012
Honda Cars has lower operating ratio of 87.74% in financial year 2008
indicating efficiency and profitability of the company during the year. But the
operating ratio of the company have been showing increasing trend from the
financial year 2008 to 2012. Operating ratio of the company even rose to 120%
in the year 2012. This is unfavorable for the company as it would have a
203
smaller margin of operating profit for the payment of dividends and the
creation of reserves. This shows that the company has been unable to control its
operating cost which adversely affects the operating profit of the company.
This shows inefficiency of the company in the management of the business.
Operating ratio of Honda Cars when compared to the ratio of Maruti Suzuki
and Tata Motors shows that Maruti Suzuki has the lowest operating ratio
during the year 2008 to 2012, this indicates the higher efficiency and
profitability of the Maruti Suzuki. The lesser is the Operating ratio, the better it
is for the company because less Operating ratio means higher net profit. But the
Operating ratio of Maruti Suzuki has been increasing from the financial year
2008 to 2012 at 94.84% and thus the company should control its operating cost
for a better operational efficiency. During the year 2009 to 2012, operating
ratio of Honda Cars was even more than the ratio of Tata Motors; this implies
that the operating cost of Honda Cars has been very high and it adversely
affects the efficiency and profitability of the company.
Operating ratio of Honda Cars has been higher than Maruti Suzuki and Tata
Motors. But in 2008, ratio of Honda Cars was less than the ratio of Tata
Motors.
d) Operating Profit Ratio
This ratio measures the relationship between the operating profit and net sales.
The operating profit is also termed as the earnings before interest and taxes.
The operating profit refers to the profit generated by the firm from operating
activities. This ratio indicates the portion remaining out of every rupee worth of
sales after all operating costs and expenses have been made. The higher the
operating profit ratio, the better it is for the company. This ratio determines the
efficiency of the firm in the management of the business. There are no standard
norms for the evaluation of this ratio. However, the comparison of the
Operating Profit Ratio with that of the past and/or industry averages provides
an indication about the operating management and conditions of the business.
204
The position of operating profit ratio from the year 2008 to 2012 is presented in
Table 6.23: Operating Profit Ratio of the Companies from the Financial
Year 2007-08 to 2011-12 (Percentage)
2008 2009 2010 2011 2012

Honda Cars
12.25 (3.48) 4.27 4.66 (20.12)
India Ltd.
Maruti Suzuki
12.32 7.44 11.34 7.95 5.15
India Ltd.
Tata Motors
6.70 1.51 9.48 7.93 5.65
Ltd.
Diagram 6.20: Graph showing Operating Profit Ratio of the Companies

from the Financial Year 2007-08 to 2011-12 (Percentage)
15
10
0
Honda Cars
FY 2008 FY 2009 FY 2010 FY 2011 FY 2012
-5 Maruti Suzuki
Tata Motors
-10
-15
-20
-25
Honda Cars has a high Operating profit ratio of 12.25% in financial year 2008
indicating efficiency and profitability of the company. This implies that during
2008, Honda Cars has efficiently controlled its operating costs and thus has
205
larger profits available after all operating costs have been met, to be distributed
to shareholders and for the creation of reserves. However, during the financial
year 2008 to 2012, Operating profit ratio of Honda Cars is showing a
decreasing trend, the company even incurs net operating loss in 2009 and 2012.
This indicates that the company has been unable to control its cost of goods
sold, operating expenses efficiently and is thus reducing the profitability of the
company.
Operating profit ratio of Honda Cars when compared to Maruti Suzuki and
Tata Motors indicates that Maruti Suzuki has higher Operating profit ratio than
the ratio of Honda Cars and Tata Motors. This indicates that comparatively
Maruti Suzuki have been efficiently controlling its cost of goods sold and
operating expenses and is thus increasing its profitability. But the ratio of
Maruti Suzuki has been showing a declining trend from the financial year 2008
to 2012. Operating profit ratio of Tata Motors was less than the ratio of Maruti
Suzuki but during the year 2009 to 2012, ratio of Tata Motors was more than
the ratio of Honda Cars and Honda Cars has lowest Operating profit ratio. This
implies that Honda Cars have not been controlling its operating cost efficiently
which is adversely affecting its profitability. Thus, Honda Cars should
efficiently control its operating costs for increasing the net profits available
after all the operating costs have been met.
Operating profit ratio of Honda Cars has been lower than Maruti Suzuki and
Tata Motors. But in 2008, Honda Cars and Maruti Suzuki both has the same
ratio and the ratio of Honda Cars was more than Tata Motors.
e) Expenses Ratio
These Ratios indicate the relationship between expenses and sales. Although
the operating ratio reveals the ratio of total operating expenses in relation to
sales but some of the expenses included in operating ratio may be increasing
while some may be decreasing. Hence, specific expenses ratio are computed by
dividing each type of expense with the net sales to analyse the causes of
206
variation in each type of expenses. Various expenses ratios, when compared

with the same ratios of the previous year, indicates that whether the expenses in
relation to sales are increasing, decreasing or remain stationary. The lower the
expenses ratio, the greater will be the profitability and higher the ratio, lower
will be the profitability.
i. Direct material Cost Ratio
This ratio indicates the relationship between direct material cost and sales. This
ratio is calculated to ascertain the portion of sales revenue consumed by direct
material cost. The lower the direct material cost ratio, the greater will be the
profitability and higher the ratio, lower will be the profitability. Direct raw
material ratio of firm, when compared with the same ratio of the previous year,
indicates that whether the direct material cost ratio in relation to sales are
increasing, decreasing or remain stationary or it can also be compared with the
average direct raw material ratio of the industry. The position of direct material
cost ratio from the year 2008 to 2012 is presented in the following table:
Table 6.24: Direct Material Cost Ratio of the Companies from the
2008 2009 2010 2011 2012

Honda Cars
81.82 78.27 87.0 82.65 84.26
India Ltd.
Maruti
Suzuki India 77.32 77.53 77.32 79.27 81.36
Ltd.
Tata Motors
71.92 73.67 71.0 73.84 75.0
Ltd.
Direct raw material cost ratio of Honda Cars in the year 2008 was 81.82% but
it increased to 84.26% in 2012 and the ratio even increased to 87% in 2010.
This indicates that that a high portion of sales revenue is consumed by direct
207
material cost and thus decreases the efficiency and profitability of the company
as an increase in direct material cost thereby increases the operating cost of the
company. But Honda Cars comparatively has lower ratio of 78.27% in the year
2009 which implies that during the year management of the company has
efficiently controlled its raw material cost which decrease the operating cost of
the company and thus increases the profitability of the company.
Direct material cost ratio of Honda Cars when compared to Maruti Suzuki and
Tata Motors suggests that Honda Cars has higher ratio than the ratio of Maruti
Suzuki and Tata Motors. This implies that comparatively Honda Cars have not
been efficiently controlling its raw material cost which increases its operating
cost and reduces the profitability of the company. Maruti Suzuki has a stable
ratio of 77% during the financial year 2008 to 2010 but the ratio increases to
81.36% 2012. Direct material cost ratio of Tata Motors was much lower than
the ratio of Honda Cars and Maruti Suzuki. This reveals that the management
of Tata Motors is efficiently controlling its operating cost this in turns increases
its profitability.
Direct material cost ratio of Honda Cars has been higher than Maruti Suzuki
and Tata Motors.
ii. Administrative Expenses Ratio
This ratio indicates the relationship between administrative expenses and sales.
This ratio discloses the portion of sales revenue consumed by office and
administrative expenses ratio. The lower the administrative expenses ratio, the
greater will be the profitability and higher the ratio, lower will be the
profitability. Administrative expenses ratio of firm, when compared with the
same ratio of the previous year, indicates that whether the administrative
expenses in relation to sales are increasing, decreasing or remain stationary or
it can also be compared with the average administrative expenses ratio of the
208
industry. The position of administrative expenses ratio from the year 2008 to
2012 is presented in the following table:
Table 6.25: Administrative Expenses Ratio of the Companies from the

2008 2009 2010 2011 2012

Honda Cars
10.73 14.19 11.73 13.23 18.90
India Ltd.
Maruti
Suzuki India 8.84 10.0 8.83 10.24 10.98
Ltd.
Tata Motors
15.92 17.63 14.81 13.0 14.17
Ltd.
From the financial year 2008, administrative expenses ratio of Honda Cars
increases to 14.91% in 2009, the ratio even increased to 18.90% in 2012. This
implies that during 2009 and 2012, management of the company has not
efficiently controlled its administrative expenses, and thus it increases the
operating expenses of the company and reduces its profitability. Administrative
expenses ratio of the company was lower in 2008 and 2010 at 10.73% and
11.73% respectively, indicating that during this period, management of the
company has efficiently controlled its administrative expenses and increases its
profitability.
Administrative expenses ratio of Honda Cars when compared to the ratio of

Maruti Suzuki and Tata Motors shows that Maruti Suzuki has the lowest
administrative expenses ratio which indicates high efficiency of the
management of Maruti Suzuki in controlling its administrative expenses and it
in turns increases the profitability of Maruti Suzuki. During the year 2008 to
2010, Tata Motors comparatively has higher administrative expenses ratio
than the ratio of Maruti Suzuki and Tata Motors. This implies increase in the
administrative expenses of Tata Motors and it has also not been effectively
controlled by the management and thus decreases the profitability of Tata
209
Motors. But during the year 2012, administrative expense ratio of Honda Cars
was even higher than the ratio of Tata Motors, which implies that during 2012,
Honda Cars has not effectively controlled its administrative expenses and thus
lowers the profitability of the company.
Administrative expenses ratio of Honda Cars has been higher than Maruti
Suzuki and Tata Motors. But during the year 2008 to 2010, ratio of Honda Cars
has been lower than Tata Motors.
iii. Selling and Distribution Expenses Ratio
This ratio indicates the relationship between selling and distribution expenses
and sales. This ratio discloses the portion of sales revenue consumed by selling
and distribution expenses ratio. The lower the selling and distribution expenses
ratio, the greater will be the profitability and higher the ratio, lower will be the
profitability. Selling and distribution expenses ratio of firm, when compared
with the same ratio of the previous year, indicates that whether the selling and
distribution expenses in relation to sales are increasing, decreasing or remain
stationary or the selling and distribution expenses ratio of a firm can also be
compared with the average selling and distribution expenses ratio of the
industry. The position of selling and distribution expenses ratio from the year
Table 6.26: Selling and Distribution Expenses Ratio of the Companies

2008 2009 2010 2011 2012

Honda Cars
2.12 2.81 2.58 3.19 7.16
India Ltd.
Maruti Suzuki
3.13 3.62 3.16 2.67 2.86
India Ltd.
Tata Motors
2.26 2.98 2.95 2.37 2.45
Ltd.
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Honda Cars has a lower selling and distribution expenses ratio during the
financial year 2008 to 2010, which states that the management of the company
have been efficiently controlling its selling and distribution expenses and is
thus increasing the profitability of the company. Thus, lower the selling and
distribution expenses ratio, the better it is for the company. But in 2012, selling
and distribution expenses ratio of the company significantly increases to
7.16%. This indicates that during the year selling and distribution expenses of
the company increases and has not been efficiently controlled by the
management of the company which adversely affects its profitability.
Selling and distribution expenses ratio of Honda Cars when compared to

Maruti Suzuki and TML shows that the ratio of Tata Motors is lower than the
ratio of Maruti Suzuki and Honda Cars, and the ratio of Tata Motors is much
more stable. This shows that Tata Motors is efficiently controlling its selling
and distribution expenses. Maruti Suzuki‟s selling and distribution expenses
ratio is showing a declining trend from the financial year 2008 to 2012, which
reveals that the company is also controlling its selling and distribution expenses
efficiently, and it has a favourable effect on the profitability of the company.
During the year 2008 to 2011, selling and distribution expenses ratio of Honda
Cars was also effectively controlled by its management but in 2012, the ratio
increases highly to 7.16% which adversely affects its profitability.
Honda Cars has lower selling and distribution ratio than Maruti Suzuki and
Tata Motors. But in 2011and 2012, ratio of Honda Cars was even higher than
Maruti Suzuki and Tata Motors.
iv. Cost of Goods Sold Ratio
This ratio indicates the relationship between cost of goods sold and sales. This
ratio is calculated to know the portion of sales revenues consumed by cost of
goods sold. The lower the cost of goods sold ratio, the greater will be the
profitability and higher the ratio, lower will be the profitability. Cost of goods
sold ratio of firm, when compared with the same ratio of the previous year,
211
indicates that whether the cost of goods sold in relation to sales are increasing,
decreasing or remain stationary or it can also be compared with the average
cost of goods sold ratio of the industry. The position of cost of goods sold ratio
from the year 2008 to 2012 is presented in the following table:
Table 6.27: Cost of Goods Sold Ratio of the Companies from the Financial
2008 2009 2010 2011 2012

Honda Cars
74.89 86.40 81.41 78.90 94.0
India Ltd.
Maruti
Suzuki India 75.69 78.92 76.66 79.12 80.98
Ltd.
Tata Motors
75.10 77.87 72.74 76.67 77.71
Ltd.
Cost of goods sold ratio of Honda Cars is showing an increasing trend from the
financial year 2008 to 2012. This states that the cost of goods sold of the
company is increasing and has not been effectively controlled by the
management and thus adversely affects the profitability of the company. Honda
Cars has a low cost of goods sold ratio of 74.89% during 2008 which implies
that during the year, the company has controlled its cost of goods sold and thus
has favourable effect on the profitability of the company. But during 2009,
2010 and 2012, the company has a very high cost of goods sold ratio of 86.4%,
81.41% and 94% respectively. This reveals that during theses financial years,
larger portion of cost of goods sold is consumed by the sales revenue of the
company and thus has adverse effect on the efficiency and profitability of the
company.
Cost of goods sold ratio of Honda Cars when compared to the ratio of Maruti
Suzuki and Tata Motors shows that Honda Cars has higher ratio than the ratio
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of Maruti Suzuki and Tata Motors. This indicates that the management of
Honda Cars has not been controlling its cost of goods sold which has an
adverse affect on the efficiency and profitability of the company. Tata Motors
has lower cost of goods sold ratio than the ratio of Maruti Suzuki and Honda
Cars. This implies that cost of goods sold is efficiently controlled by the
management of Tata Motors, which in turns has a favourable affect on its
profitability. Ratio of Maruti Suzuki is showing an increasing trend from the
financial year 2008 to 2012, which has an adverse affect on the efficiency and
profitability of the company.
Honda Cars has higher cost of goods sold ratio than Maruti Suzuki and Tata
Motors. But in 2008, ratio of Honda Cars was lower than Maruti Suzuki and
Tata Motors.
II. Profitability Ratios Related to Investment
These ratios reflect the true earning capacity of the resources employed in the
business. Sometimes the profitability ratios based on sales are high whereas
profitability ratios based on investment are low. Since the capital is employed
to earn profit, these ratios are the real measure of the success of the business
and managerial efficiency. A financial analyst is interested to measure the
profitability of the firm with reference to assets employed by the firm. The
larger the assets employed, the greater should be the profits and vice versa.
a) Return on Assets (ROA)
One of the most widely used ratios is the return on assets. It measures the
profitability of the firm in relation to assets employed by the firm. It is
computed to know how much is the profit generated by the firm per rupees of
assets used. It measures the overall efficiency of the management in generating
profits from the use of assets. The higher the return on assets ratio the better it
is for the company. The increase in the size of the firm should be accompanied
with the increase in the ROA, only then the employment of more assets is
213
justified. The ROA of the firm should be compared with the industry average to
judge the operating efficiency of the firm with respect to the assets employed.
The position of return on assets ratio from the year 2008 to 2012 is presented in
Table 6.28: Return on Assets Ratio of the Companies from the Financial
2008 2009 2010 2011 2012

Honda Cars
14.03 (8.45) (1.52) (7.47) (20.35)
India Ltd.
Maruti Suzuki
14.0 8.96 15.26 12.45 7.34
India Ltd.
Tata Motors
7.88 2.68 4.45 3.34 2.29
Ltd.
Note: Here we consider that total Assets includes net fixed assets, investments
and current assets loans and advances.
Diagram 6.21: Graph showing Return on Assets Ratio of the Companies

20
15
10
5
Honda Cars
0
FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 Maruti Suzuki
-5
Tata Motors
-10
-15
-20
-25
214
Honda Cars has a high return on assets ratio of 14.03% in 2008 which shows
that the management has efficiently used its assets to increase the profitability
of the company. But during the year 2009 to 2012, Honda Cars has been
incurring negative returns on assets and negative returns on assets even
increases to (20.35%) in 2012. This indicates the inefficiency of the
management in generating profits from the use of the assets of the company
and has an adverse affect on the profitability of the company. Thus the
company must use its assets efficiently to increase its profitability.
Return on assets ratio of Honda Cars when compared to Maruti Suzuki and
Tata Motors shows that Maruti Suzuki has higher ratio than the ratio of Honda
Cars and Tata Motors. This implies that comparatively Maruti Suzuki has been
efficiently earning higher returns on the use of its assets in the business.
Although the ratio of Maruti Suzuki have been showing a decreasing trend
from the year 2008 to 2012. Tata Motors has more return on assets ratio than
the ratio of Honda Cars, which implies that comparatively Tata Motors has
been higher returns from the use of its assets in the business although the ratio
of Tata Motors is also showing a decreasing trend from 2008 to 2012. During
the year 2009 to 2012, Honda Cars has been incurring negative returns on the
use of its assets in the business. This implies that the company is also not
making use of its assets efficiently and thus reducing the profitability of the
company.
Return on assets ratio of Honda Cars has been lower than Maruti Suzuki and
Tata Motors as during the financial year 2009 to 2012 as Honda Cars has been
incurring negative returns from the use of its assets in the business. But only in
2008, ratio of Honda Cars and Maruti Suzuki was same, and Honda Cars has
higher ratio than Tata Motors.
b) Return on Investment
It is also known as „Return on Capital Employed‟ or „Rate of Return‟. It is

calculated by comparing the profit earned and the capital employed to earn it.
215
Since profit is the overall objective of a business enterprise, this ratio is a

barometer of the overall performance of the enterprise. It measures how
efficiently the capital employed in the business is being used. The ratio can be
used to judge the borrowing policy of the enterprise. This ratio helps in taking
decisions regarding capital investment in new projects. Lenders like bankers
and financial institutions will be able to determine whether the enterprise is
variable for giving credit or extending loans or not. With the help of this ratio,
shareholders can also find out whether they will receive regular and higher
dividend or not. The higher the ratio, the better it is, for the company. By
comparing the previous year ratio with that of the current year, it is ascertained
whether the return on capital employed ratio is increasing, decreasing or is
stationary. A comparison of this ratio with the ratio of similar firms will throw
light on the relative profitability and strength of the firm. The position of return
on investment ratio from the year 2008 to 2012 is presented in the following
table:
Table 6.29: Return on Investment Ratio of the Companies from the

2008 2009 2010 2011 2012

Honda Cars
32.21 (15.8) (1.76) (3.09) (30.15)
India Ltd.
Maruti Suzuki
59.52 24.32 64.55 34.27 20.98
India Ltd.
Tata Motors
28.08 12.54 37.0 22.0 18.48
Ltd.
Note: Here we consider net operating profit before interest and tax. Capital employed
includes net fixed assets and working capital.
216
Diagram 6.22: Graph showing Return on Investment Ratio of the

Companies from the Financial Year 2007-08 to 2011-12 (Percentage)
80
60
40
Honda Cars
20 Maruti Suzuki
Tata Motors
0
FY 2008 FY 2009 FY 2010 FY 2011 FY 2012
-20
-40
Honda Cars has a higher return on capital employed ratio of 32.21% in 2008
which indicates that during the year capital employed of the business has been
efficiently utilized by the management which increases the overall profitability
of the company. But during the year 2009 to 2012, the company has been
incurring negative returns on capital employed in the business and it even
increases to (30.15%) in 2012. This implies that during this period, funds
provided by the shareholders and creditors have not been used efficiently in the
company. This will have an adverse affect on the company to provide adequate
return to its shareholders and the overall profitability of the company declines.
Lenders like bankers and financial institutions will not be willing to extend
credit to the company. It will also have an adverse affect on the decisions of the
company regarding capital investment in new projects.
Comparison of return on capital employed ratio of Honda Cars to Maruti

Suzuki and Tata Motors shows that Maruti Suzuki comparatively has much
higher return on capital employed ratio during the financial year 2008 to 2012.
The company has a very higher ratio in 2008 and 2010 at 59.52% and 64.55%
217
respectively, which implies that Maruti Suzuki is efficiently and profitably

employing the capital in the company and this increases the overall profitability
of the company. The company is able to give regular and high dividend to its
shareholders. A higher percentage of return on capital employed will satisfy the
owners that their funds are profitably utilized. But the ratio of Maruti Suzuki
decreases to 20.98% in 2012. Only during the year 2008, return on capital
employed ratio of Honda Cars was higher than the ratio of Tata Motors. But
during 2009 to 2012, return on capital employed ratio of Honda Cars was even
lower than the ratio of Tata Motors, as Honda Cars has been incurring negative
returns on capital employed. This implies that Honda Cars has not utilized the
capital employed in the business efficiently and it adversely affects its overall
profitability.
Return on investment ratio of Honda Cars has been lower than Maruti Suzuki
and Tata Motors as during 2009 to 2012 as Honda Cars has been incurring
negative returns on the capital employed in the business. But in 2008, return on
investment ratio of Honda Cars was more than Tata Motors.
c) Return on Shareholders’ Funds
This ratio is also called „Return on Net worth Ratio‟ or „Return on Proprietors‟
Funds‟. Return on shareholders‟ funds measures the profitability of the funds
invested by the shareholders. This ratio determines the profitability of the firm
from the perspective of equity shareholders. The higher the ratio, the better it
is, for the company. This ratio reveals how profitably the proprietors‟ funds
have been utilized by the company. By comparing the previous year ratio with
that of the current year, it is ascertained whether the return on shareholders‟
funds ratio is increasing, decreasing or is stationary. A comparison of this ratio
with the ratio of similar firms will throw light on the relative profitability and
strength of the firm. The position of return on shareholders‟ funds ratio from
the year 2008 to 2012 is presented in the following table:
218
Table 6.30: Return on Shareholders’ Funds Ratio of the Companies from

2008 2009 2010 2011 2012

Honda Cars
20.52 (20.61) (3.84) (30.17) (46.46)
India Ltd.
Maruti Suzuki
20.56 13.0 21.0 16.50 10.76
India Ltd.
Tata Motors
25.88 8.18 14.96 9.05 6.32
Ltd.
Note: Here we consider net profit after interest and tax.
Diagram 6.23: Graph showing Return on Shareholders’ Funds Ratio of

the Companies from the Financial Year 2007-08 to 2011-12 (Percentage)
30
20
10
0
FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 Honda Cars
-10
Maruti Suzuki
-20
Tata Motors
-30
-40
-50
-60
Honda Cars has a higher return on shareholders‟ funds in 2008 at 20.52%

which reveals that the shareholders‟ funds have been profitably utilized by the
company and management has been efficiently using the resources of the
company which increases the profitability of the company. But during the year
2009 to 2012, the company has been incurring negative returns on
shareholders‟ funds in the business and it even increases to (46.46%) in 2012.
219
This implies that during this period, funds provided by the shareholders have
not been used efficiently in the company and thus affects the profitability of the
company. The company was unable to pay fair return to the shareholders of the
company which has an adverse affect on the profitability of the company.
Comparison of return on shareholders‟ funds ratio of Honda Cars to Maruti

Suzuki and Tata Motors indicates that although the ratio of Maruti Suzuki is
showing decreasing trend but has higher ratio than the ratio of Honda Cars and
Tata Motors during the year 2008 to 2012. This implies that the funds provided
by the shareholders have been profitably utilized by the management of Maruti
Suzuki and the company was able to pay regular and high dividend to its
shareholders. A higher percentage of return on shareholders‟ funds will satisfy
the shareholders that their funds are profitably utilized. During the year 2008 to
2012, return on shareholders‟ funds ratio of Honda Cars was even lower than
the ratio of Tata Motors, as Honda Cars has been incurring negative returns on
shareholders‟ funds. This implies that Honda Cars has not utilized the funds
provided by the shareholders in the business efficiently and it adversely affects
its profitability. Thus the company will be unable to provide fair return to its
shareholders.
Honda Cars has lower return on shareholders‟ fund ratio than Maruti Suzuki
and Tata Motors as during the year 2009 to 2012 as Honda Cars has been
incurring negative returns on shareholders‟ funds.
220
Chapter- 7
Conclusions and
Suggestions
Chapter-
Chapter- 7 Conclusions and Suggestions
Conclusions and Suggestions

On the canvas of the Indian economy, automobile industry occupies a
prominent place. This sector has witnessed tremendous growth during the last
two decades. Due to its deep forward and backward linkages with several key
segments of the economy; automobile industry has a strong multiplier effect
and is capable of being the driver of economic growth. Automobile Industry
was delicensed in July 1991 with the announcement of the New Industrial
Policy. The passenger car industry was, however, delicensed in 1993. The
industry contributes ~22% of India's manufacturing GDP (Gross Domestic
Product) and ~7% of India's overall GDP. The Indian automobile industry
provides direct employment to 1 million people and indirect employment to 18
million people in the country. The Indian automobile industry, comprising
passenger cars, two wheelers, three wheelers and commercial vehicles, is the
seventh-largest in the world with an annual production of 20.4 million vehicles,
of which 2.9 million are exported. At present, there are 19 manufacturers of
passenger vehicles, 16 manufacturers of commercial vehicles, 10
manufacturers of two wheelers and 7 manufacturers of three wheelers in India.
Two-wheelers, being the most popular means of personal transport, alone

account for about 75% of the total automobile production in India, while
passenger vehicles account for nearly 16% of the production. However, owing
to their lower sales realisations, two wheelers account for only around 32% of
the sales in terms of value while passenger vehicles account for around 62% of
the same. Commercial vehicles are categorised into heavy, medium and light.
They account for about 5% of the market. Three wheelers are categorised into
passenger carriers and goods carriers. Three wheelers account for about 4% of
the market in India. The passenger vehicles are further categorised into
passenger cars, utility vehicles and multi-purpose vehicles. In the passenger car
segment, India is mainly a small car market though mid size and big car sale is
continuously rising in recent years.
221
The major Indian companies present in the automobiles market include Tata
Motors, Maruti Suzuki India, Mahindra & Mahindra, Ashok Leyland, Hero
MotoCorp and Bajaj Auto. Tata Motors is India‟s largest automobile company;
the company manufactures commercial and passenger vehicles, and is the
world‟s fourth-largest truck manufacturer and the second-largest bus
manufacturer. Maruti Suzuki is India‟s largest passenger car company,
accounting for 45% share of the Indian car market. Hero MotoCorp is the
world‟s largest two-wheeler manufacturing company in the world. Its market
share in the Indian two-wheeler segment is 41%. Bajaj Auto is the world‟s
fourth-largest two-wheeler and three-wheeler manufacturer. The largest Indian
passenger car manufacturers include Tata Motors, Maruti Suzuki, Mahindra &
Mahindra and Hindustan Motors. Presence of foreign players such as
Mercedes-Benz, Fiat, General Motors and Toyota is also growing in this
segment. Recently, the passenger car segment has also seen the entry of other
global majors such as BMW, Audi, Volkswagen and Volvo. Maruti occupies
50% of the market share in the mini and compact cars and is maintaining its
share despite the stiff competition from manufacturers like Hyundai and Tata
Motors, occupies over 20% of the market share in the small and compact car
segment.
The production, sales and export development of automobile industry during

2006-07 to 2010-11 was at a CAGR (Compound Annual Growth Rate) of
12.7%, 11.3% and 23.7% respectively. The domestic passenger vehicles
industry has been on a relatively steady growth phase over most of the last
decade and has registered a 10 years CAGR of 10.3% during the period. The
Indian car industry is still in the growth and evolution stage and is depending
on the domestic and regional market. Overall Indian Automobile Industry has
shown 2.61% growth in 2012-13 compare to 2011-12. Production and
Domestic sales has registered growth of 1.20% and 2.61%, however export is
negative growth due to negative global environment and fluctuation
222
Various research studies have been carried out on different aspects of

financial appraisal by the researchers, economists and academicians in India
and abroad. Jagan Mohan Rao (1993) in „Financial appraisal of
Indian Automotive Tyre Industry‟ studied the financial appraisal of
Indian automotive tyre industry. The study was intended to probe into the
financial condition-financial strength and weakness-of the Indian tyre industry.
Agarwal (1999) studied the profitability and growth in Indian
Automobile manufacturing industry. The objective of this study is to examine
if firms have been making super normal profits since 1975 when price
controls were removed.
Honda Siel Cars India Limited is a subsidiary of the Honda Motor Company
Limited of Japan, for the production, marketing and export of passenger cars in
India. It began operations in December 1995 as a joint venture between Honda
Motor Company and Usha International of Siddharth Shriram Group. Honda
Siel Cars India Limited is now known as Honda Cars India Limited. In August,
2012, the Company officially changed its name to Honda Cars India Limited
and became a 100% subsidiary of Honda Motor Company. The company‟s
product range includes Honda Brio, Honda Jazz, Honda City, Honda Civic,
Honda Accord and Honda Amaze which are produced at the Greater Noida
facility. In 2011-12, the company had sold 54,427 units, and it witnessed a 35
per cent jump in sales at 73,483 units in 2012-13. During the year 2012-13, the
Company has a market share of 2.74% in the overall passenger vehicle
segment.
The various tools and techniques of financial appraisal are comparative

financial statements, common size financial statements, trend analysis, funds
flow analysis, cash flow analysis, cost volume profit analysis and ratio analysis.
Ratio analysis has been found the most suitable tool of analysis and has been
used in our study for the analysis. Ratio analysis helps to ascertain the financial
condition of the firm. Financial ratios help to summarise large quantities of
financial data to make qualitative judgment about the firm‟s financial
223
performance. The ratios can be classified into four categories: liquidity ratios,
managerial efficiency ratios, leverage (long term solvency) ratios and
profitability ratios.
Liquidity analysis attempts to analyses the companies‟ ability to meet its short-
term obligations. It is usually done through the calculation of current ratio and
quick (liquid) ratio and absolute liquid ratio. The company must attempt to
maintain optimum (ideal) ratio which depends upon the type of manufacturing
industry. If liquidity ratios of the company are higher than the ideal ratios, the
company is said to be having idle investment. Likewise, if ratio is lesser to
required one, the deficit will represent possible difficulties in the payment of
current liabilities of firm and it is surely not a healthy sign for the company.
Managerial efficiency of the company lies in making optimum utilisation of the
assets of the companies.
Managerial efficiency ratios are classified as inventory turnover ratio, debtors‟

turnover ratio, creditors‟ turnover ratio, working capital turnover ratio, fixed
assets turnover ratio and total assets turnover ratio of selected companies.
Inventory turnover ratio depicts how long a company takes on an average to
sale its stock and replaces its inventory. Higher inventory turnover is
considered to be desirable as it usually implies strong sales. Debtors‟ turnover
ratio indicates the speed with which the amount is collected from debtors. The
higher the debtors‟ turnover ratio, the better it is, since it indicates that amount
from debtors is being collected more quickly. Creditors‟ turnover ratio
indicates the speed with which the amount is being paid to creditors. The
higher the creditors‟ turnover ratio, the better it is, since it will indicate that the
creditors are being paid more quickly which increases the creditworthiness of
the company. Working capital turnover ratio reveals how efficiently working
capital has been utilized in making sales. A high working capital turnover ratio
shows efficient use of working capital and quick turnover of current assets like
stock and debtors. Higher fixed assets ratio implies that company has invested
lesser amount in fixed assets to generate sales revenue hence it depicts better
224
ability of company to utilise the fixed assets. Total assets turnover ratio shows
how efficiently the total assets are being utilized in the business. Higher total
assets turnover ratio indicates the higher efficiency in the utilization of the total
assets.
Leverage ratios assess the following two aspects of the long-term solvency of a
firm i.e. ability to repay the principal amount when due; and the ability to pay
the interest and dividend promptly and periodically as per the agreed terms and
conditions. Leverage ratios are classified as capital gearing ratio, debt-equity
ratio, total debt ratio, proprietary ratio, fixed assets to proprietors‟ funds ratio,
current assets to proprietors‟ funds ratio and interest coverage ratio. Capital
gearing ratio establishes the relationship between fixed interest bearing capital
and shareholders‟ funds and thus examines the capital structure of the
company. The lower the capital gearing ratio, the better it is for the company
because it shows that too much capital has not been raised by way of
debentures as debenture holders do not share in business losses.
Debt equity ratio indicates the extent of funds provided by long-term lenders in
comparison to the funds provided by the owners, i.e. shareholders. Usually,
lower the debt-equity ratio, higher is the degree of protection enjoyed by the
creditors. Total debt ratio depicts the proportion of firms‟ total assets, financed
by total debt. To the creditor, a low ratio would ensure greater security for
extending credit to the firm. Proprietary ratio measures the proportion of the
company‟s assets that are provided or claimed by the owners. Higher
proprietary ratio generally indicates secured position to creditors and a lower
ratio indicates greater risk to creditors. Fixed assets to proprietors‟ funds ratio
measures the proportion in which owners‟ funds are invested in fixed assets of
the company. The lower this ratio, the better it is for the long term solvency of
business because proprietors‟ funds will be available for working capital needs
also. Current assets to proprietors‟ funds ratio indicates the extent to which
shareholders‟ funds have gone into the financing of the current assets. The
lower this ratio, the better it is for the company because it implies that the
225
current assets are mainly financed by the proprietors‟ funds and less is the
dependency on external sources. Interest Coverage Ratio indicates how many
times the interest charges are covered by the profits available to pay interest
charges. The higher the interest coverage ratio ensures larger security for the
creditors with respect to their periodical interest payments.
Profitability refers to the ability of a business to earn profit. It shows the

efficiency of the business. These ratios measure the profit earning capacity or
the operational efficiency of the company. Profitability ratios are further
classified as gross profit ratio, net profit ratio, operating ratio, operating profit
ratio, expenses ratios, return on assets ratio, return on investment ratio and
return on shareholders‟ funds ratio. Gross profit ratio shows the profit made
on sales before taking accounts of overheads. Higher gross profit ratio is
always in the interest of the business. Increase in the gross profit ratio will
mean reduction in cost or increase in selling price. Net profit ratio measures the
efficiency of the firm in generating additional revenue over and above the total
cost of operations. The higher the net profit ratio, the better it is as increase in
the net profit shows better performance of the management in the business.
Operating ratio establishes the relationship between the aggregate of cost of
goods sold and other operating expenses on the one hand and the sales revenue
on the other hand. The lesser is the operating ratio, the better it is because less
operating ratio means higher net profits. The operating profit ratio refers to the
profit generated by the firm from operating activities. The higher the operating
profit ratio, the better it is because increase in operating profit ratio determines
the efficiency of the firm in the management of the business. Expenses ratios
indicate the relationship between expenses and sales. The lower the expenses
ratio, the greater will be the profitability and higher the ratio, lower will be the
profitability.
Return on assets ratio measures the overall efficiency of the management in

generating profits from the use of assets. The higher the return on assets ratio
the better it is for the company. Return on investment ratio measures how
226
efficiently the capital employed in the business is being used. The higher the
return on investment ratio, the better it is, for the company because this ratio is
a barometer of the overall performance of the enterprise. The ratio can be used
to judge the borrowing policy of the enterprise. Return on shareholders‟ funds
measures the profitability of the funds invested by the shareholders. The higher
the return on shareholders‟ funds ratio, the better it is, for the company because
it shows that the proprietors‟ funds have been profitably utilized by the
company.
Financial appraisal is the process of determining the operating and financial

characteristics of a firm from accounting and financial statements. The goals of
such appraisal are to determine the efficiencies or performance of a firm‟s
management as reflected in the financial records and reports. The important
areas of financial appraisal include production, cost trends and sales,
profitability, financial strength, working capital, liquidity and productivity. The
present study is undertaken to make a financial appraisal of the selected
companies of the Indian automobile industry. The study analyses the growth of
automobile industry after liberalization, its production trend, sales trend,
exports trend, profitability analysis, financial structure and financial
performance of the automobile industry.
The study focuses on the financial appraisal of Honda Cars India Ltd. We also
study the comparative financial appraisal of the three companies i.e. Honda
Cars India Ltd., Maruti Suzuki India Ltd. and Tata Motors Ltd. Financial
appraisal of selected companies i.e. Honda Cars India Ltd., Maruti Suzuki India
Ltd. and Tata Motors Ltd. have been studied by Liquidity analysis, managerial
efficiency analysis, leverage (long term solvency) analysis and profitability
analysis. In the present study liquidity analysis of the selected companies is
done through the study of current ratio, liquid ratio and absolute liquid ratio.
The present study analyses the efficiency of the selected companies though the
study of inventory turnover ratio, debtors‟ turnover ratio, creditors‟ turnover
ratio, working capital turnover ratio, fixed assets turnover ratio and total assets
227
turnover ratio of selected companies. Leverage analysis of the selected

companies is done though the study of capital gearing ratio, debt-equity ratio,
total debt ratio, proprietary ratio, fixed assets to proprietors‟ funds ratio, current
assets to proprietors‟ funds ratio and interest coverage ratio. The present
study analyses the profitability of the selected companies through the
study of gross profit ratio, net profit ratio, operating ratio, operating profit ratio,
direct material expenses ratio, administrative expenses ratio, selling and
distribution expenses ratio and cost of goods sold ratio, return on assets ratio,
return on investment ratio and return on shareholders‟ funds ratio. Average
liquidity, managerial efficiency, leverage and profitability performance of
selected companies is shown in the following table:
Table 7.1: Average Liquidity, Managerial Efficiency, Leverage and

Profitability Performance of Selected Companies (April 2007 to March
2012)
Ratios Honda cars Maruti Suzuki Tata Motors

India Ltd. India Ltd. Ltd.
Average Liquidity Ratios (Times)
Current Ratio 1.24 1.36 0.83
Liquid Ratio 0.59 1.03 0.61
Absolute Liquidity Ratio 0.10 0.33 0.13
Average Managerial Efficiency Ratios (Times)
Inventory Turnover Ratio 6.68 18.45 9.42
Debtors‟ Turnover Ratio 47.90 33.61 20.91
Creditors‟ Turnover Ratio 4.86 9.0 3.05
Working Capital Turnover Ratio 23.31 20.4 (10.8)
Fixed Assets Turnover Ratio 2.80 4.75 2.40
Total Assets Turnover Ratio 1.61 1.64 0.86
Average Leverage Ratios (Times)
Capital Gearing Ratio 0.95 0.064 0.85
228
Debt Equity Ratio 1.88 0.39 1.89

Total Debt Ratio 1.13 0.27 0.61
Proprietary Ratio 0.43 0.70 0.32
Fixed Assets to Proprietors‟
1.48 0.48 1.08
Funds Ratio
Current Assets to Proprietors‟
1.04 0.452 0.866
Funds Ratio
Interest Coverage Ratio 9.90 69.99 4.17
Average Profitability Ratios (%)
Gross Profit Ratio 16.83 21.7 23.98
Net Profit Ratio (4.99) 7.07 4.75
Operating Ratio 100.35 91.14 93.72
Operating Profit Ratio (0.484) 8.84 6.25
Direct Material Cost Ratio 82.8 78.56 73.08
Administrative Expenses Ratio 13.75 9.77 15.10
Selling and Distribution
3.57 3.08 2.60
Expenses Ratio
Cost of Goods Sold Ratio 83.12 78.27 76.01
Return on Assets Ratio ( 4.75) 11.60 4.12
Return on Investments Ratio (3.71) 40.72 23.62
Return on Shareholders‟ Funds
(16.11) 16.36 12.87
Ratio
Liquidity ratios of selected companies reveal that liquidity position of Maruti

Suzuki is better than that of Honda Cars and Tata Motors. Maruti Suzuki‟s,
proportion of current assets, liquid assets and absolute liquid assets is sufficient
enough to meet its current liabilities. However, liquidity position of Honda
Cars is not so healthy in comparison to Maruti Suzuki and Tata Motors. Thus,
proportion of current assets, liquid assets and absolute liquid assets of Honda
Cars is not sufficient enough to meet its current liabilities.
229
The analysis of inventory turnover ratio shows that the stock of Maruti Suzuki
is selling more quickly (followed by Tata Motors and Honda Cars). However,
there is delay in the sale of stock of Honda Cars. The study of debtor‟s turnover
ratio indicates that Honda Cars is collecting the amount from its debtors more
quickly (followed by Maruti Suzuki and Tata Motors). The more quickly the
debtors pay, the less is the risk from bad debts. However, the analysis of
creditors‟ turnover ratio shows that Maruti Suzuki is paying its creditors more
quickly (followed by Honda Cars and Tata Motors) which increases the
creditworthiness of Maruti Suzuki. The analysis of working capital turnover
ratio shows that Honda Cars has efficiently utilized its working capital
(followed by Maruti Suzuki and Tata Motors). However, the study of fixed
assets turnover ratio and total assets turnover ratio indicates that Maruti Suzuki
has efficiently utilized its fixed assets as well as total assets (followed by
Honda Cars and Tata Motors).
The analysis of capital gearing ratio of selected companies reveals that the
capital structure of Maruti Suzuki is low geared (followed by Tata Motors and
Honda Cars). In Honda Cars, the proportion of fixed interest bearing capital is
more than the equity shareholders‟ funds and thus the company is highly
geared. The study of debt equity ratio shows that the long term creditors of
Maruti Suzuki are more secured about the repayment of their debts by the
company (followed by Honda Cars and Tata Motors). The study of total debt
ratio shows the solvency of is much better (followed by Tata Motors and
Honda Cars). However, there is threat to the solvency of Honda Cars as the
company is carrying too much debt. The analysis of proprietary ratio indicates
that the assets of Maruti Suzuki are mainly financed by its proprietors‟ funds
(followed by Honda Cars and Tata Motors) and thus lesser is the dependence
on external funds. The study of fixed assets to proprietors‟ funds and current
assets to proprietors‟ funds reveals that that the current assets and fixed assets
of Maruti Suzuki are mainly financed by the proprietors‟ funds (followed by
Tata Motors and Honda Cars) and less is the dependency on external sources.
230
However the analysis of interest coverage ratio shows that the lenders of
Maruti Suzuki are more secured with respect to their periodical interest
payments (followed by Honda Cars and Tata Motors). This has a favourable
impact on the credit worthiness of Maruti Suzuki (followed by Honda Cars and
Tata Motors).
The analysis of gross profit ratio reveals that the Tata Motors is efficiently
generating higher profits made on sales (followed by Maruti Suzuki and Honda
Cars) before taking accounts of overheads. Deterioration in the gross profit of
Honda Cars indicates decrease in selling price or increase in cost price or
increase in raw material or increase in the direct expenses of the company and
thus, it also implies that Honda Cars is not controlling its direct expenses
efficiently. The study of net profit ratio indicates the sound operational
efficiency and profitability position of Maruti Suzuki (followed by Tata Motors
and Honda Cars) in generating additional revenue over and above the total cost
of operations. Honda Cars has been even incurring net loss which reveals that
Honda Cars has inefficiently controlled its operating and non-operating
expenses and thus decreases its efficiency in generating net profit.
The analysis of operating ratio shows that Maruti Suzuki has efficiently
controlled its operating cost (Tata Motors and Honda Cars), and thus has a
favourable impact on its profitability. It also shows that Honda Cars has been
unable to control its operating cost which adversely affects the operating profit
of the company and shows inefficiency of the Honda Cars in the management
of the business. The analysis of operating profit ratio indicates that Maruti
Suzuki has efficiently controlled its cost of goods sold and operating expenses
(followed by Tata Motors and Honda Cars) and thus has larger profits available
after all operating costs have been met, to be distributed to shareholders and for
the creation of reserves. This also shows that Honda Cars has been unable to
control its cost of goods sold, operating expenses efficiently and thus has an
adverse affect on the profitability of the company. The study of direct material
cost ratio, selling and distribution expenses ratio and cost of goods sold ratio
231
reveals that Tata Motors has efficiently controlled its direct material cost ,
selling and distribution expenses and cost of goods sold (followed by Maruti
Suzuki and Honda Cars) and thus has a favourable impact on the efficiency and
profitability of the company. This also implies the inefficiency of Honda Cars
in controlling its direct material cost, selling and distribution expenses and cost
of goods sold and thus reduces its profitability. However, the study of
administrative expenses ratio shows that Maruti Suzuki has efficiently
controlled its administrative expenses (followed by Honda Cars and Tata
Motors) and thus increases the profitability of the company.
The analysis of return on assets ratio and return on investment ratio indicates
the overall efficiency of the management of Maruti Suzuki (followed by Tata
Motors and Honda Cars) in generating profits from the use of assets and capital
employed in the business. This also shows that Honda Cars has been even
incurring negative returns from the use of assets and capital employed in the
business and thus has an adverse affect on the profitability of the company. The
study of return on shareholders‟ funds reveals that the management of Maruti
Suzuki has profitably utilized the funds provided by the shareholders (followed
by Tata Motors and Honda Cars) and Maruti Suzuki was much efficiently able
to pay regular and higher dividend to its shareholders. This also shows that
Honda Cars has been incurring negative returns on shareholders‟ funds because
Honda Cars has inefficiently utilized the funds provided by the shareholders in
the business and it adversely affects its profitability. Thus, Honda Cars will be
unable to provide fair return to its shareholders.
Ranking of the Companies
This section assigns ranks to the selected companies for selected variables on
the basis of their average performance. A company showing best average
performance for a particular variable has been assigned 1st rank for that
variable and likewise company securing least ratio has been assigned 3rd rank
for that variable. However, the methodology has been reversed for capital
232
gearing ratio, debt equity ratio, total debt ratio, fixed assets to proprietor‟s
funds ratio, current assets to proprietor‟s funds ratio, operating ratio, direct
material expenses ratio, administrative expenses ratio, selling and
distribution expenses ratio and cost of goods sold ratio . After the
assignment of ranks to all the variables, the composite score for each parameter
has been computed and again ranks are been assigned for each parameter. The
parameter having least value of composite score has been assigned Fist rank
and parameter having highest score has been assigned third rank. The
assignment of ranks on the basis of average performance of selected companies
is shown in the following table:
Table 7.2: Assignment of Ranks to Selected Companies on the basis of

Particulars Honda cars Maruti Suzuki Tata

India Ltd. India Ltd. Motors
Ltd.
Liquidity:
Current Ratio 2 1 3
Liquid Ratio 3 1 2
Absolute Liquidity Ratio 3 1 2
Composite Score 8 3 7
Rank on the basis of
III I II
Liquidity
Managerial Efficiency:
Inventory Turnover Ratio 3 1 2
Debtors‟ Turnover Ratio 1 2 3
Creditors‟ Turnover Ratio 2 1 3
Working Capital Turnover
1 2 3
Ratio
Fixed Assets Turnover Ratio 2 1 3
233
Total Assets Turnover Ratio 2 1 3

II I III
Efficiency
Leverage ( Long term Solvency):
Capital Gearing Ratio 3 1 2
Debt Equity Ratio 2 1 3
Total Debt Ratio 3 1 2
Proprietary Ratio 2 1 3
Fixed Assets to Proprietors‟
3 1 2
Funds Ratio
Current Assets to
3 1 2
Proprietors‟ Funds Ratio
Interest Coverage Ratio 2 1 3
III I II
Leverage
Profitability:
Gross Profit Ratio 3 2 1
Net Profit Ratio 3 1 2
Operating Ratio 3 1 2
Operating Profit Ratio 3 1 2
Direct Material Cost Ratio 3 2 1
Administrative Expenses
2 1 3
Ratio
Selling and Distribution
3 2 1
Expenses Ratio
Cost of Goods Sold Ratio 3 2 1
Return on Assets Ratio 3 1 2
Return on Investments Ratio 3 1 2
234
Chapter-
Return on Shareholders’
3 1 2
Funds Ratio
III I II
Profitability
As shown from table 7.2, Maruti Suzuki found best in terms of liquidity
among the companies selected for the study. It is followed by Tata Motors and
Honda Cars. However, the liquidity position of Tata Motors and Honda Cars
is almost the same. The managerial efficiency of Maruti Suzuki is very sound
(followed by Honda Cars and Tata Motors). Honda Cars also has a
satisfactory managerial efficiency. The leverage position of Maruti Suzuki is
very sound (followed by Tata Motors and Honda Cars). However, the leverage
position of Tata Motors and Honda Cars is almost the same. In terms of
profitability, Maruti Suzuki is very efficient (followed by Tata Motors and
Honda Cars). However, the profitability position of Honda Cars is very
inefficient. Further, here it is important to note that the pre-indicated ranks are
not the sole indicator of business efficiency. As a matter of fact the
interpretation of ratio depends upon number of factors. In the present study a
general criteria for assessment of ratio has been used. According to which the
company with higher profitability, higher liquidity ratios (not more than ideal
ratio), lower debt-equity ratio (not less than ideal ratio), higher proprietary
ratio (not more than ideal ratio) and higher turnover ratio is assumed to be
more efficient.
235
Chapter-
SUGGESTIONS
Keeping in view the above observations relating to the study, the following
measures are suggested which would go on a long way to improve the
performance of Indian automobile industry.
1. It is suggested that there is a need for Indian automobile industry to adopt

producing and selling wide range of products, to adopt better market
strategy, by reducing cost and revising selling prices to enhance the value
of turnover so as to go ahead in the era of competitions.
2. Inventory is the most crucial asset for a manufacturing organisation.
Particularly with reference to inventory turnover ratio, the cost of
materials in Indian automobile industry is the major component in
production cost and its share is increasing (Narayanan and Vashishth
2008). The managerial efficiency to keep an optimum level of asset lies in
maintaining an adequate ratio of assets to turnover.
3. Cost accounting and cost audit should be made mandatory in automobile
industry and they should be called to prepare cost sheet along with their
annual financial statements.
4. A systematic, prompt and regular flow of information and its analysis is
important for improving productivity, efficiency and profitability. A
suitable management information system needs to be evolved which will
take care of the data requirement of administrative officers as well as
other units like factory etc., for internal management and control.
Appropriate organisational arrangements should be made for the
successful implementation of management information system in Indian
automobile industry.
5. At present, in India the financial statements are presented on historical
cost basis. As such these statements do not exhibit the correct realizable
value of the assets on the date of the balance sheet. Thus, the true
profitability cannot be ascertained on the basis of the figures given in the
balance sheet on historical cost basis. It is, therefore, suggested that a
236
Chapter-
supplementary statement should be included in the annual report

showing the figures of assets and liabilities on the basis of current
values.
6. At present, the profit and loss account of multi-product concern is
disclosed in a consolidated form which cannot measure and judge the
performance and profitability of each activity. Hence, the profit and loss
accounts should be prepared on departmental activity basis by each multi
product concern.
7. The policy of borrowed financing in automobile industry is not proper. So,
the company should use wisely the borrowed funds and should try to
reduce the fixed charges burden gradually by decreasing borrowed funds
and by enhancing in owners fund.
8. The automobile industry is impeded by power and the state of road
infrastructure in the country. Because of the road condition the penetration
level of automobile in India is very low compared to other developing
countries. Therefore, it is suggested that mass road building project
should be seriously implemented in the next fifteen years are
imperative.
9. Method of production by the Indian automobile industry is based on the
assembly of different components in a knock down condition. The
MNC’s have not been improving the quality of produce in India rather
they have been in a sense “importing” high quality products into the
country. This is actually providing in India. Cost of fuel is important and
at the same this fuel quality needs to be improved in terms of gumming
tendency, and dust contamination.
10. The inverted duty structure of customs duty on raw materials components
and finished goods needs to be corrected. The government should grant
certain funds to leading Indian automobiles companies for research and
development so that Indian vehicles can really become world class in
five years time. Vehicles with 100 per cent local content should be
given a concessional excise duty of 50 per cent of the normal rate.
237
Chapter-
Further, all local constraints like the outdated industrial disputes act,
factories act and the like, which make local manufacturing far more
difficult, should be modified without further delay.
11. Liquidity position of Honda cars India Ltd. is not sound as compared to
Maruti Suzuki India Ltd and Tata Motors Ltd. Honda cars India Ltd.
should efficiently control its current assets and liquid assets to pay its
current liabilities so that the creditors of the company feel secured about
the repayment of their amounts by the company. This will enhance the
creditworthiness and also the short term solvency of the company.
12. Honda cars India Ltd. should also improve its managerial efficiency by
effectively controlling its inventory, fixed assets and total assets. The
company should also make payment to its creditors quickly as this will
increase the creditworthiness and also the short term solvency of the
company.
13. Leverage position of Honda cars India Ltd. is not sound as compared to
Maruti Suzuki and Tata Motors. Honda Cars should not raise too much
capital by way of fixed interest bearing capital because company has to
pay fixed obligation in the form of interest irrespective of the volume of
the profit. The company should increase the proportion of proprietors’
funds in the business. This will improve the long term solvency position
of the company.
14. Profitability position of Honda cars India Ltd. is not sound as compared to
Maruti Suzuki India Ltd and Tata Motors Ltd. Honda Cars should
efficiently control its direct material cost, cost of goods sold,
administrative expenses and selling and distribution expenses. Honda Cars
should also efficiently utilize the assets, proprietors’ funds and capital
employed in the business.
238
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Industries and Public Enterprises, Government of India, New Delhi
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08 to 2011-12
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1. Financial Express
2. Hindustan Times Online
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5. The Hindu
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1. www.auto.indiamart.com
2. www.cmie.com
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244
Appendices
Appendices
Financial Statistics: Liabilities and Assets

HONDA CARS INDIA LTD.
2008 2009 2010 2011 2012
(Rs. in Millions)
LIABILITIES
Shareholders' Funds:
Paid up Share Capital 3600 3600 3600 3600 5699.7
Reserves and Surplus 7899.9 5934.3 5581.1 3452.8 7308.3
Total 11500 9534.3 9181.1 7052.8 13008
Loan Funds:
Secured Loans N.A. 2246.15 3346 5133 354.1
Unsecured Loans N.A. 7168.08 2742.2 6772.8 6032.1
Total N.A. 9414.23 6088.2 11905.8 6386.2
Current Liabilities Provisions:
Creditors 5342.83 5225.09 8991.4 9303.38 8514.1
Other Current Liabilities 5417.49 5401.27 9010.19 9349.6 10420.4
Provisions 164.71 157.69 139.14 159.39 116.3
Total 5582.21 5558.96 9149.33 9509.05 10536.7
ASSETS
Fixed Assets:
Gross block 12910.8 18933.4 22407.9 22463.3 29225.2
Less: Accumulated Depreciation 7675.5 7352 10209 12798.1 12585.6
Net block 7235.91 11581.45 12198.9 9665.2 16639.6
Capital Work-in- progress 1693.7 4163.28 1611.6 5632.8 602.3
Total Fixed Assets 8929.61 15744.73 13810.5 15298 17242
Investments N.A 256.43 256.43 230.59 118
Current Assets loans advances:
Inventories 5164.4 3038.59 5167.7 6948.36 5249.3
Receivables 183.48 655.2 540.62 2935.14 657.8
Cash & Bank Balance 455.09 324.87 387.65 204.31 3279.9
Current Assets 5802.97 4018.67 6096 10088 9187
Loans advances 2079.39 3223.92 2922.7 2851 3143.5
Total Current assets 7881.94 7242.59 9018.7 12938.8 12330.5
245
Appendices

MARUTI SUZUKI INDIA LTD.
2008 2009 2010 2011 2012
(Rs. in Millions)
LIABILITIES
Paid up Share Capital 1445 1445 1445 1445 1445
Reserves and Surplus 82709 92004 116906 137230 150429
Total 84154 93449 118351 138675 151874
Loan Funds:
Secured Loans 1 1 265 N.A. N.A.
Unsecured Loans 9001 6988 7949 1702 10783
Total 9002 6989 8214 1702 10783
Creditors 16962 25696 23181 26083 33499
Other Current Liabilities 24562 30169 29394 36013 49391
Provisions 3695 3807 6284 5258 6985
Total 28257 33976 35678 41271 56376
ASSETS
Fixed Assets:
Gross block 72853 87206 104067 117377 147347
Less: Depreciation 39888 46498 53820 62083 72140
Net block 32965 40708 50247 55294 75207
Capital Work -in -progress 7363 8613 3876 8625 6114
Total Fixed Assets 40328 49321 54123 63919 81321
Investments 51807 31733 71766 51068 61474
Inventories 10380 9023 12088 14150 17965
Receivables 6555 9189 8099 8245 9376
Cash & Bank Balance 3305 19390 982 25085 24361
Other Current Assets 331 981 848 1930 3764
Current Assets 20571 38583 22017 49410 55466
Loans advances 10408 16328 15707 19383 24498
Total Current Assets 30979 54911 37724 68793 79964
246
Appendices

TATA MOTORS LTD.
TATA MOTORS LTD.
2008 2009 2010 2011 2012
(Rs. in Millions)
LIABILITIES
Paid up Share Capital 385.54 514.05 570.6 637.71 634.75
Reserves and Surplus 7453.96 11716.1 14394.87 19375.59 18991.26
Total 7839.5 12230.15 14965.47 20013.3 19626.01
Loan Funds:
Secured Loans 2461.99 5251.65 7742.6 7708.52 6915.77
Unsecured Loans 3818.53 7913.91 8883.31 6929.67 4095.86
Total 6280.52 13165.56 16625.91 14638.19 11011.63
Creditors 8368.16 8731.27 11824.69 8817.27 8744.83
Other Current Liabilities 8643.67 8958.25 14609.16 12027.64 16215.78
Provisions 1989.43 1877.26 2763.43 3267.11 3600.82
Total 10633.1 10835.51 17372.59 15294.75 19816.6
ASSETS
Fixed Assets:
Net block of Fixed Assets 5387.31 7645.27 11203.89 13417.07 15019.52
Capital Work-in -progress 5064.96 6954.04 5232.15 3799.03 4036.67
Total Fixed Assets 10452.27 14599.31 16436.04 17216.1 19056.19
Investments 4910.27 12968.13 22336.9 22624.21 20493.55
Current Assets loans advances:
Inventories 2421.83 2229.81 2935.59 3891.39 4588.23
Receivables 1130.73 1555.2 2391.92 2602.88 2708.32
Cash & Bank Balance 2397.31 1141.82 1753.26 2428.92 1840.96
Other Current Assets 0.86 0.11 0.11 111.85 113.41
Current Assets 5950.73 4926.94 7080.88 9035.04 9250.92
Loans advances 4409.52 4764.75 4457.1 5280.26 5359.85
Total Current Assets 10360.25 9691.69 11537.98 14315.3 14610.77
247
Appendices
Operating Statistics: Incomes and Expenses

HONDA CARS INDIA LTD.
2008 2009 2010 2011 2012
(Rs. in Millions)
INCOMES
Net Sales 39747.08 34834.66 40811.06 39368.51 31847.2
Other Incomes:
Interest on long term deposits 260.45 8.94 9.082 10.839 136.5
Income Tax Refund N.A. N.A. 150.236 0.84 51.9
Profit on Sale of Fixed Assets 1.84 13.5 5.209 55.627 98.5
Excess provision written back 21.15 9.02 54.35 65.026 131.6
Other Receipts 366.64 394.66 1014.39 740.42 836.2
Total Other Incomes 650.1 426.13 1233.271 872.753 1254.7
Total Incomes 40397.19 35260.8 42044.3 40241.2 33101.9
EXPENSES
Purchases 32524.84 27266.39 35537.13 32541.14 26834.80
Cost of Goods Sold 29768.41 30123.04 33225.92 31063.31 29953.9
Administrtive General Expenses:
Travelling Conveyance 223.41 221.11 212.856 267.28 285.6
Insurance 129.66 316.11 325.99 309.3 116.9
Repair Maintainance Expenses 157.01 315.48 226.97 321.69 311.6
Rent, Rates and Taxes 172.69 225.8 211.24 249.08 288.7
Auditor's Remuneration 1.8 2 2.035 2.368 3
Donations Subscription N.A. 17.3 10.5 3.6 N.A.
Other Administrative General Expenses 3581.147 3846.972 3799.48 4058.45 5015.1
Total 4265.717 4944.77 4789.08 5211.79 6020.9
Selling & Distribution Expenses:
Advertisement Expenses 416.43 733.52 810.12 645.97 2263.3
Warranty claim Expenses 85.25 51.82 32.98 46.45 19.9
Other Selling distribution Expenses 342.04 195.39 209.98 565.87 N.A.
Total 843.72 980.73 1053.09 1258.3 2283.2
Net Provisions Charged:
248
Appendices
Provision-bad & doubtful debts N.A. N.A. 0 12 0

Provision-diminution long term investment N.A. 115.66 0 25.84 112.7
Total N.A. 115.66 0 37.84 112.7
Loss on sle of Fixed Assets 204.44 31.13 4.21 31.3 128.3
Administrative Selling Other Expenses 5319.41 6488.42 6155.07 7028.1 9082.9
Depreciation-Tangible assets 1222.98 1934.42 2904.67 2728.58 2226.6
Interest Expenses-Long term loans 0.39 164.69 181.04 216.67 305.9
Provision for Taxation 1257.38 -967.69 -69.22 1332.97 N.A.
Total Expenses 36779.98 38194.13 42466.72 41036.68 41568.7
Net Profit/Loss before Tax(PBT) 3617.207 -2933.33 -422.384 -795.418 -6044.8
Provision for Taxation 1257.38 -967.69 -69.22 1332.97 N.A.
Profit after Tax(PAT) 2359.822 -1965.64 -353.158 -2128.39 -6044.8
P/L carried to B/S(Res. & Surplus) 7899.947 5934.307 5581.149 3452.761 -2592
249
Appendices

MARUTI SUZUKI INDIA LTD.
2008 2009 2010 2011 2012
(Rs. in Millions)
INCOMES
Gross sales of Products 209493 230852 318073 401021 386141
less: Excise duty 30890 27269 28488 42531 39082
Net Sales of Products 178603 203583 289585 358490 347059
Other Operating Revenue 759 970 1404 7694 8812
Other Incomes 8371 9985 10209 5088 8268
Total Incomes 187733 214538 301198 371272 364139
EXPENSES
Purchases 138113 157854 223931 284199 282395
Cost of Goods Sold 135196 160672 221998 283639 281083
Finance Cost 596 510 335 250 552
Depreciation 5682 7065 8250 10135 11384
Administrative Expenses 15801 20369 25583 36738 38139
Selling & Distribution Expenses 5602 7382 9160 9600 9958
Other Expenses 24 2005 232 79 1988
Less: Vehicles for own use -198 -223 -296 -257 -427
Total Expenses 162703 197780 265273 340184 342677
Profit before Tax(PBT) 25030 16578 35925 31088 21462
Tax Expense -7722 -4571 -10949 -8202 -5110
Profit after Tax(PAT) 17308 12187 24976 22886 16352
Profit brought forward 56373 70257 80042 100499 118578
Profit carried forward to Balance
Sheet 70257 80042 100499 118578 130777
250
Appendices

TATA MOTORS LTD.
2008 2009 2010 2011 2012
(Rs. in Millions)
INCOMES
Gross sales of Products 32425.3 27911.8 37843.44 50710.45 58650.42
Less: Excise duty -4354.52 -2938.48 -2771.05 -4095.51 -4914.38
Net Sales of Products 28070.78 24973.32 35072.39 46614.94 53736.04
Other Operating Revenue 668.63 687.47 520.66 463.5 570.52
Other Incomes 483.18 925.97 1853.45 422.97 574.08
Total Incomes 29222.59 26586.76 37446.5 47511.41 54880.64
EXPENSES
Purchases 20190.19 18398.94 24905.83 34421.60 40328.77
Cost of Goods Sold 21082.1 19447.58 25512.1 35743.45 41762.44
Finance Cost 282.37 673.68 1103.84 1383.7 1218.62
Depreciation 652.31 874.54 1033.87 1360.77 1606.74
Administrative Expenses 4470.56 4403.65 5196.12 6064.89 7618.84
Selling & Distribution Expenses 636.28 744.44 1036.92 1107.33 1317.57
Other Expenses 427.46 279.87 540.12 325.31 337.29
Expenses t/f to capital &
other Accounts -744.23 -916.02 -726.46 -817.68 -907.13
Total Expenses 26806.85 25507.74 33696.51 45167.77 52954.37
Profit before Exceptional &
Extraordinary items 2415.74 1079.02 3749.99 2343.64 1926.27
Extra ordinary & exceptional items 160.73 -65.26 -920.45 -147.12 -585.24
Profit before Tax(PBT) 2576.47 1013.76 2829.54 2196.52 1341.03
Tax Expense 547.55 12.5 589.46 384.7 98.8
Profit after Tax(PAT) 2028.92 1001.26 2240.08 1811.82 1242.23
251

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FINANCIAL APPRAISAL OF AUTOMOBILE

Prof. R.K. Tripathi Dr. Ram Milan

(Prof. R.K. Tripathi) (Dr. Ram Milan)

The thesis entitled “Financial Appraisal of Automobile Industry in India (A

Date: (Nidhi Agarwal )

One of the major industrial sectors in India is the automobile sector.

The present study is undertaken to make the financial appraisal of automobile

Date (Nidhi Agarwal)

I wish to express my sincere thanks and deep sense of gratitude to my

I also like to express my sincere thanks to Prof. Arvind Kumar, Head of

I express my special gratitude to my family members, elders and youngers, for

Date (Nidhi Agarwal)

2 Review of Literature 73-82

3 Honda Siel Cars India Limited - Its’ Profile 83-98

4 Financial Appraisal Techniques - An Overview 99-134

5 Financial Appraisal of Automobile Industry in 135-154

6 Financial Appraisal of Honda Cars India Ltd. and 155-220

7 Conclusions and Suggestions 221-238

Presently, India is the world's second largest manufacturer of two wheelers,

as well as a home to the largest motor cycle manufacturer. The installed

The majority of India's car manufacturing industry is based around three

1.1 STATEMENT OF THE PROBLEM

As there is an increasing competition from other global players, the

a) Optimization of the product mix with a view to enhance the sales

To analyze the financial strength of Indian Automobile Industry we chose the

1.2 SIGNIFICANCE OF THE STUDY

Financial Appraisal is of special importance in industries and automobile

f) The study will be helpful to shareholders, investors and investment

1.3 SELECTION OF AUTOMOBILE INDUSTRY

Transport sector plays a key role in a country‟s economic growth and

Automobile industry is a major constituent of surface transport. Automobiles

Automobile manufacturers, particularly car manufacturers, are attracting

1.4 OBJECTIVES OF RESEARCH

Main objective of present study is to carry out financial appraisal of

a) To analyse and interpret the growth of automobile industry in India.

1.5 RESEARCH DESIGN

Research design means a sketch or a drawing of a research project‟s structure.

1.6 LIMITATIONS OF THE STUDY

a) The study is based on secondary data obtained from the published

1.7 AUTOMOBILE INDUSTRY: ITS’ PROFILE

scooters, motor-cycles and mopeds, three wheelers, tractors and other

The Indian automobile industry, comprising passenger cars, two-wheelers,

At present, there are 19 manufacturers of passenger vehicles, 16 manufacturers

Snippets of Indian Automobile Industry

 The first automobile in India rolled in 1897 in Bombay.

1.7.1 EVOLUTION OF INDIAN AUTOMOBILE INDUSTRY

In the early 1990s, with liberalization, some more Japanese manufacturers

1.7.2 HISTORY OF THE WORLD’S AUTOMOBILE INDUSTRY

The automobile as we know, it was not invented in a single day by a single

worldwide. It is estimated that over 100,000 patents created the modern

1.7.3 HISTORY OF THE INDIAN AUTOMOBILE INDUSTRY

1.7.4 CURRENT STATUS OF AUTOMOBILE INDUSTRY IN INDIA

 Largest three-wheeler market

The cumulative production data for April-March 2012 shows production

sales grew at a rate of 10.11 percent as compared to March 2011. Passenger

During April-March 2012, the industry exported 2,910,055 automobiles

Overall Indian Automobile Industry has shown 2.61% growth in 2012-13

Table 1.1: Indian Automobiles Industry Domestic Sales Trends

Automobile Domestic Sales Trends (Number

Source: Siam (Society of Indian Automobile Manufacturers) Industry Statistics, 2013

Table 1.2: Indian Automobiles industry Production Trends

Automobile Production Trends (Number of

Source: Siam (Society of Indian Automobile Manufacturers) Industry Statistics, 2013