SP09 MBE 006 FAHAD SHAHZAD

The primary purpose of this report is to identify and analyze the dominant companies in the automobile industry and determine the strongest performer as an investment opportunity. Hero Honda Ltd., TVS Motors Ltd. And Bajaj Auto Ltd. has been competing in the automobile sector for over a century and both companies enjoy a high degree of brand consciousness globally. In this project, the comparison among these companies has been done using the following criteria: (a) Key Ratios (b) Cash Flow Statement For the purpose of my report, all relevant financial data on these companies was derived from the reliable and authenticated website and the accompanying annual reports (2007-09) of these companies. Hero Honda Ltd. revenues have been generally outpaced by Bajaj auto Ltd. revenues with notable exception in 2000 when both companies approached parity in terms of revenue. In the year 2005-2006, the annual production of two-wheelers in India stood at around 7600801 units. The trend of owning two-wheelers is due to a variety of facts peculiar to India. One of the chief factors is poor public transport in many parts of India. Additionally, two-wheelers offer a great deal of convenience and mobility for the Indian family. Currently, India is the second largest producer of two-wheelers in the world. The latest trend in the two-wheeler market is the introduction of electrically operated vehicles from a range of manufacturers such as Indus and Hero. Currently, the motorcycle market is witnessing a demand for higher volume engines. Previously, the 100cc bikes were very popular owning to the high fuel efficiency offered. However, the market is maturing fast. Sensing this movement, Bajaj has introduced the Bajaj Pulsar, with 150, 180 and 200 cc engines with Dual Twin Spark Ignition (DTSi) technology. The Honda Activa is a motor scooter made by Honda Motorcycle and Scooter India. It was launched in India in 2000. It is a 102 cc, 7 bhp (5.2 kW) scooter. The mileage averages around 40 km/l. It has been quite successful in India. The vehicle has the option of kick- and self-starts. The comparative analysis of these companies has been done in very appropriate manner. All data findings and analysis in this project has been done on the basis of these automobile companies annual reports. The Conclusion has been stated in the project along with Bibliography and annexure. The project depicts the financial comparison among the various companies in the automobile industry.

OBJECTIVE OF PROJECT
The basic objective of doing the project is to analyze the financial statements of various automobile companies and evaluate their performance in the market over the last 3 years (2006-07, 2007-08, and 2008-09) The objective of this project is to describe the growth trends in the automobile industry and to present an analysis of different parameters by studying the relationship among the various financial factors as disclosed in the financial statements of various companies in the Indian automobile market. Major objectives are:

1.

Know the Financial Position: The basic objective of studying the financial statements of the company is to know the financial position of the company.

2.

Know the Borrowing & Liquidity Position: The objective is to know the borrowings of the company as well as the liquidity position of the company.

Minor Objectives are: 1. Study the Current Assets & Liability Position: The objective of study is to review the position of the current assets and current liabilities of the company during the relevant years. Help in planning: Financial Analysis helps in planning and forecasting. Over a period of time, a firm or industry develops certain norms that indicate future success & failure. If the relationship changes in firms data over different time periods, the various tools of financial analysis such as ratios may provide clues on trends and future problems. Represent Inter-firm Comparison: Financial Analysis provides the data for inter-firm comparison. Ratios highlight the factors associated with successful and unsuccessful firms. They also reveal strong firms & weak firms, over-valued and under-valued firms. The various tools of financial analysis provides inter-firm and intra-firm comparison.

2.

3.

INTRODUCTION TO THE AUTOMOBILE SECTOR

The automobile industry in India happens to be the ninth largest in the world. Following Japan, South Korea and Thailand, in 2009, India emerged as the fourth largest exporter of automobiles. Several Indian automobile manufacturers have spread their operations globally as well, asking for more investments in Indian automobile sector by the MNCs. Potential of the Automobile industry In 2008, Hyundai Motors alone exported 240,000 cars made in India. Nissan Motors plans to export 250,000 vehicles manufactured in its India plant by 2011. Similar plans are for General Motors.

Turnover of Automobile Manufacturers(In USD Million) Year 2002-03 2003-04 2004-05 2005-06 2006-07 In USD Million 14,880 16,544 20,896 27,011 34,285

The figures show that the automobile sector in India has been growing robustly. The market shares of the different types of vehicles will clearly depict the demand pattern in this sector.

Domestic Market Share for 2008-09 Passenger Vehicles Commercial Vehicles Three Wheelers Two Wheelers 15.96% 3.95% 3.6% 76.49%

Indian Automotive Industry

Multi-Utility vehicles

Cars

Two wheelers

Three wheelers

Tractors

Scooters

Mopeds

Motorcycles

AUTOMOBILE COMPANIES

Bajaj Auto BMW Chevrolet DaimlerChrysler (Mercedes) Fiat Ford General Motors Hindustan Motors Hero Honda Motors Hyundai Motors Mahindra & Mahindra Maruti Udyog Skoda Tata Motors Yamaha Motors

Overview of Two Wheelers Talking of the two wheeler industry, the names that effortlessly come to us is Bajaj Auto, Hero Honda, TVS Motor, Yamaha Motor, Kinetic and others. The two wheeler segment has played an important role in giving a push to the automobile industry in India. In fact, the production, sales and exports of the two wheelers is a fair indication of the growing importance that it enjoys in this country's manufacturing economy. An overview of the two wheeler industry makes this clear that the two wheelers are among the most sought after automobiles in India for some time and the trend is likely to stay for a while. The economic growth, need for better conveyance and gradually improving road infrastructure coupled with better credit and financing options, have acted as a major catalyst in encouraging the growth and development of the two wheeler segment in India. Further, the new and improved features on the two wheelers, their stylish and trendy looks and a rage with the country's youth who form a substantial influence in determining the consumer behavior have ensured that the two wheelers remain on top of the automobile industry's agenda in India. Some of the features that deserve attention in respect of the Indian two wheeler segment are as mentioned:

The total sale of two wheelers in India has touched a figure of 7.86 million units by March, 2007, up 11.42% from the previous fiscal figures of 7.05 million. Production during the period reached 8.63 million units.

The production of two wheelers in India is expected to reach a staggering 17.85 million units by 2011-12, more than double of the current production level.

The two-wheeler production capacity is to reach 22.31 million units in 2011-12 compared with 10.78 million in 2006-07.

Total investment for new capacity generation in two-wheeler segment is likely to be more than $2.2 billion (INR10, 000 crore).

Hero Honda, Bajaj Auto and TVS Motor remain the leading players in terms of sales and popularity of their two wheelers.

Domestic Market Share for 2008-09

16% 4% 4% Passenger Vehicles Commercial Vehicles 76% Three Wheelers Two Wheelers

The two-wheeler industry in India has grown rapidly in the country since the announcement of the process of liberalization in 1991 by finance minister Dr. Manmohan Singh, now Prime Minister of India. Previously, there were only a handful of two-wheeler models available in the country. Currently, India is the second largest producer of two-wheelers in the world. It stands next only to China and Japan in terms of the number of two-wheelers produced and the sales of two-wheelers respectively.

Sales
Hero Honda Bajaj Auto TVS Motors HMSI Others

4% 19%

6%

44%

27%

COMPANY PROFILE HERO HONDA MOTORS LIMITED

Hero Honda Motors Limited, based in Delhi, India is a joint venture between the Hero Group of India and Honda Motors of Japan. It has been referred to as the world's biggest manufacturer of 2-wheeled motorized vehicles since 2001, when it produced 1.3 million motorbikes in a single year. During the fiscal year 2008-09, the company has sold 3.28 million bikes and the net profit of the company stood at Rs. 1281.7 crore, up 32% from the previous fiscal year. The Hero Honda story began with a simple vision the vision of a mobile and an empowered India, powered by Hero Honda. This vision was driven by Hero Hondas commitment to customer, quality and excellence, and maintains the highest standards of ethics and societal responsibilities. Twenty five years and 25 million two wheelers later, Hero Honda is closer to fulfilling this dream. Hero Honda has been the largest two wheeler company in the world for eight consecutive years. The company crossed the ten million unit milestone over a 19-year span. In the new millennium, Hero Honda has scaled this to 15 million units in just five years! In fact, during the year in review, Hero Honda sold more two wheelers than the second, third and fourth placed Two-wheeler Company put together. With Hero Honda, the domestic two wheeler market was able to show positive growth during the year in review. Without Hero Honda, the domestic market would have actually shrunk. As one of the world's technology leaders in the automotive sector, Honda has been able to consistently provide technical know-how, design specifications and R&D innovations. This has led to the development of world class, value - for- money motorcycles and scooters for the Indian market. On its part, the Hero Group has taken on the singular and onerous responsibility of creating world-class manufacturing facilities with robust processes, building the supply chain, setting up an extensive distribution networks and providing insights into the mind of the Indian customer. In the process, Hero Honda is recognized today as one of the most successful joint ventures in the world. It is therefore no surprise that there are more Hero Honda bikes on this country's roads than the total population of some European countries put together! The best is yet to come. During the year in review, Hero Honda powered its way in a market that, for all practical purposes, was feeling the full effects of the economic slowdown in India. With an economic recovery now clearly on the cards, Hero Honda is all set to ride into another summit. As Brijmohan Lall Munjal, the Chairman, Hero Honda Motors briefly puts it, "We pioneered India's two wheeler industry, we have steered it through difficult times; now it is our responsibility to set the pace again.'' Hero is the brand name used by the Munjal brothers for their flagship company Hero Cycles Ltd. A joint venture between the Hero Group and Honda Motor Company was established in 1984 as the Hero Honda company, India. During the 1980s, the company introduced motorcycles that were popular in India for their fuel economy and low cost.

MISSION

Hero Hondas mission is to strive for synergy between technology, systems and human resources, to produce products and services that meet the quality, performance and price aspirations of its customers. At the same time maintain the highest standards of ethics and social responsibilities. This mission is what drives Hero Honda to new heights in excellence and helps the organization forge a unique and mutually beneficial relationship with all its stake holders.

PRODUCTS

Achiever Ambition 133, Ambition 135 CBZ, CBZ Star, CBZ Xtreme CD 100, CD 100 SS, CD Dawn, CD Deluxe, CD Deluxe (Self Start) Glamour, Glamour F.I Hunk Joy Karizma, Karizma R, Karizma ZMR FI Passion, Passion+, Passion Pro Pleasure Street Splendor, Splendor+, Splendor+ (Limited Edition), Super

Splendor,

Splendo

TVS MOTORS LIMITED

TVS Motor is the third largest two-wheeler manufacturer in India and ranks among the top ten globally. It is the first company in the world to be honored with The Deming Prize for Total Quality Management. The company was the first in India to launch 2seater 50cc moped and 100cc Indo-Japanese motorcycles. At present TVS Apache, TVS Victor, TVS Scooty, TVS Centra and TVS Fiero are the popular bikes in Indian market. TVS Group is one of India's oldest business groups. It is a giant conglomerate with presence in diverse fields like automotive component manufacturing, automotive dealerships and electronics. Today, there are over thirty companies in the TVS Group, employing more than 40,000 people worldwide and with a turnover in excess of USD 2.2 billion. TVS Group originated as a transport company in 1911. TV Sundaram Iyengar and Sons Limited are the parent and holding company of the TVS Group. TVS has been at the forefront in bringing a revolution in the way personal commutation was happening, way back in the 1980s. Beginning with launching a simple, easy-to-use moped for the middle class in India in the 1980s to launching 7 new bikes in a single day (first time in the history of the automotive industry in the world), TVS has often taken the unbeaten path to innovation. TVS Motor Company has its origin in Sundaram Clayton Limited, Moped Division, started in 1980. The factory was started in Hosur, Tamil Nadu in southern India. The first product launched was a 50 cc moped, which appealed to the masses because of its capability to carry two people. In the same location, the same promotors started another company in 1984, in collaboration with Suzuki Motor Corporation of Japan, for the manufacture of 100 cc motorcycles under the brand name of Ind-Suzuki Motorcycles. Subsequently in the moped division was bought by Ind Suzuki Motorcycles in 1987 and the company changed its name to TVS Suzuki Ltd. Even though the company started producing all kinds of two wheelers like mopeds, scooters and motorcycles, the collaboration with Suzuki continued for the motorcycles only. The collaboration with Suzuki Motor Corporation ended in 2001 and since then the name of the company changed to TVS Motor Company. The company now develops all types of two-wheelers through its own in house R&D facility and manufactures in three locations in India, Hosur in Tamil Nadu, Mysore in Karnataka and Baddi in Himachal Pradesh. It has recently started a new manufacturing plant in Indonesia to cater to the South East Asian market. The Chairman and Managing Director of the Company is Mr. Venu who is the grandson of TV Sundaram Iyengar.

MISSION We are committed to being a highly profitable, socially responsible, and leading manufacturer of high value for money, environmentally friendly, lifetime personal transportation products under the TVS brand, for customers predominantly in Asian markets and to provide fulfillment and prosperityforemployees,dealersandsuppliers.

PRODUCTS
Motorcycles
TVS MAX 100 TVS Shogun TVS Apache (150 cc,13.7 Ps @8500rpm) TVS Apache RTR 160 TVS Apache RTR 160 EFI (Electronic Fuel Injection) TVS Apache RTR 180 (17.3ps) TVS Centra TVS Fiero TVS Fiero F2 TVS Fiero FX TVS MAX 100 TVS MAX R 100 TVS Star TVS Star City TVS Star Sport TVS Victor (110 cc) TVS Victor EDGE (125 cc) TVS Victor GLX (125 cc)

BAJAJ MOTORS LIMITED

Bajaj Motors Limited was incorporated in 1986 and started its commercial production in 1989. BAJAJ MOTORS have started in machining unit and backward integrated in Forgings of Auto Components. The Company is engaged into manufacturing of auto components mainly precision engine components for Two Wheelers, Four Wheelers, Tractors and other Heavy Machine Equipments. Bajaj Auto Limited is India's largest manufacturer of scooters and motorcycles. The company generally has lagged behind its Japanese rivals in technology, but has invested heavily to catch up. Its strong suit is high volume production; it is the lowest-cost scooter maker in the world. Located on the Delhi-Jaipur Highway on 39-40 milestones, Bajaj Motors Limited is ISO 9001:2000 certified & recommended for TS-16949, ISO-14001 certifications from TUV GmBH, Germany. Since its inception in 1986, BAJAJ MOTORS has its specialization in machining for Auto components specifically Precision Engine Components. The Bajaj Group was formed in the first days of India's independence from Britain. Its founder, Jamnalal Bajaj, had been a follower of Mahatma Gandhi. After Jamnalal's death, Jamnalal Bajaj was succeeded by his eldest son, 27-year-old Kamalnayan, in 1942. Kamalnayan, however, was preoccupied with India's struggle for independence. After this was achieved, in 1947, Kamalnayan consolidated and diversified the group, branching into cement, ayurvedic medicines, electrical equipment, and appliances, as well as scooters. The precursor to Bajaj Auto had been formed on November 29, 1945 as M/s Bachraj Trading Ltd. It began selling imported two- and three-wheeled vehicles in 1948 and obtained a manufacturing license from the government 11 years later. The next year, 1960, Bajaj Auto became a public limited company. Rahul Bajaj reportedly adored the famous Vespa scooters made by Piaggio of Italy. In 1960, at the age of 22, he became the Indian licensee for the make; Bajaj Auto began producing its first two-wheelers the next year. Rahul Bajaj became the group's chief executive officer in 1968 after first picking up an MBA at Harvard. The company had an annual turnover of Rs 72 million at the time. By 1970, the company had produced 100,000 vehicles. Bajaj Auto Ltd. is the largest exporter of two and three wheelers. With Kawasaki Heavy Industries of Japan, Bajaj manufactures state-of-the-art range of two-wheelers. The brand, Pulsar is continually dominating the Indian motorcycle market in the premium segment. Its Discover DTSi is also a successful bike on Indian roads. Since 1986, there is a technical tie-up of Bajaj Auto Ltd. with Kawasaki Heavy Industries of Japan to manufacture state of-art range of latest two-wheelers in India. Bajaj Auto is a major Indian automobile manufacturer started by a Rajasthani merchant. It is world's fourth largest manufacturer of twowheelers and India's second largest two wheeler manufacturer and the world's 4th largest two- and three-wheeler maker. It is based in Pune, Maharashtra, with plants in Akurdi and Chakan (Pune), Waluj (near Aurangabad) and Pantnagar in Uttaranchal. Bajaj Auto makes and exports motor scooters, motorcycles and the auto rickshaws.

MISSION
Focus on value based manufacturing Fostering team work & enhancing the capability of the team Continual Improvement Total Elimination of wastes Pollution Free & Safe Environment

PRODUCTS 1972 - Bajaj Chetak 1976 - Bajaj Super 1977 - Rear engine Autorickshaw 1981 - Bajaj M-50

FINDINGS AND ANALYSIS

Analysis of Financial Statements
Financial Statements are the summarized statements of accounting data produced at the end of the accounting process by an enterprise through which it communicates accounting information to the external users. The external users can be investors, lenders, suppliers and trade creditors, customers, government and their agencies, public at large and employees. Analysis of Financial Statements is a systematic process of the critical examination of the financial information contained in the financial statements in order to understand and make decisions regarding the operations of the firm.

Customarily, a set of financial statements include: (i) (ii) (iii) Balance Sheet Profit and Loss Account Schedules and notes forming part of the Balance Sheet and Profit & Loss Account This depicts that: (i) Balance Sheet is a statement of assets and liabilities indicating the financial position of an enterprise at a given date. Profit and Loss Account shows the net result of business operations during an accounting period. Schedules have the details of amounts in the Balance Sheet and Profit and Loss Account, while the Notes are the statement of accounting policies adopted and explanation of material information.

(ii)

(iii)

Essentials of Financial Statements

1. 2. 3. 4. 5. 6. Accurate information Understandability Comparable Verifiable Relevant Timeliness

RATIO ANALYSIS
A Ratio gives the mathematical relationship between one variable and another. Ratio analysis helps in valuing the firm in quantitative terms. Ratios are classified as follows: 1. 2. 3. 4. Liquidity Ratios Turnover Ratios Profitability Ratios Leverage Ratios

1.

Liquidity Ratios Liquidity implies firms ability to pay its debts in short run. This ability can be measured by Liquidity Ratios. Current Ratio and Quick Ratio are the two ratios which directly measure Liquidity. Receivables turnover Ratio and Inventory Turnover Ratio are the two ratios which in directly measure Liquidity.

A.

Current ratio =

Current Assets Current Liabilities

Current assets which are converted into cash within one year. Current liabilities are liabilities which are to be repaid within a period of 1 year. Current Assets Cash Marketable Securities Debtors Inventories Loans and Advances Prepaid Expenses O/S Incomes Current Liabilities Loans And Advances Trade Creditors O.S. Expenses Provisions Pre Received incomes

IDEAL RATIO = 2:1

B.

Quick ratio or Liquid ratio or Acid Test ratio = Quick Assets/Liquid Assets Current Liabilities Quick Assets = Current Assets Inventories- Prepaid expenses

Ratio of quick assets to quick liabilities. Quick assets which can be converted into cash very quickly. Quick liabilities are liabilities which have to be necessarily paid with in 1 year.

IDEAL RATIO = 1:1

2.

Turnover Ratios (Activity Ratios)

The turnover ratio is a process of measuring the number of times that holdings are sold within a specified period of time. Generally, a turnover ratio is calculated to cover either a calendar year or a period encompassing twelve consecutive calendar months. The same formula may be used to evaluate shorter or longer periods of time.

A.

Fixed Assets Turnover Ratio

Cost of Sales Average Net Fixed Assets

B.

Inventory Turnover Ratio

Cost of goods Sold Average Inventory

It indicates no. of times stock has been turned into sales in a year. Ideal Ratio = 8

Cost of goods sold = Sales gross profit Average Inventory = Opening Stock + Closing Stock 2

Stock Conversion Period = Cost of goods Sold * No of days in a year/Average Inventory

3.

Profitability or Efficiency Ratios

These Ratios measure the efficiency of forms activities and its ability to generate profits.

(i) (ii) (iii)

Gross Profit Margin Ratio Net Profit Margin Ratio Return On Equity These are elucidate as follows:

(i)

Gross Profit Margin Ratio =

Revenue Cost of Sales - Depreciation Revenue

Gross Profit = Sales Cost of goods sold Net Sales = Sales Sales Return - Excise Duty There is no Ideal Ratio. Higher the ratio better will be the performance of the business. (ii) Net Profit Margin Ratio = Net Profit Net Sales

It measures the overall efficiency of production, administration, selling, financing, pricing and tax management. It shows the result of overall operation of the firm. (iii) Return on Equity = Net Income Average Equity

Net income = PAT (Profit after Tax) is an important profit indicator to share holders of the firm. 5. Leverage Ratio

The leverage ratio shows the percent of long term financing represented by long term debt. In finance, capital structure refers to the way a corporation finances its assets through some combination of equity, debt, or hybrid securities.

a)

Debt Equity Ratio =

Debt/Equity

= Long Term Liabilities + Current Liabilities Share Holders Funds Ratio 2 or Less Exposes Its Creditors Lesser Risk Ratio >2 Exposes Its Creditors Higher Risk

b)

Debt Assets Ratio =

Debt /Assets

HERO HONDA LTD

Particulars Mar ' 09 Mar ' 08 Mar ' 07

Profitability Ratios (%)

Gross profit margin Net profit margin Return on net worth 12.75 10.39 32.09 11.67 9.35 24.23 10.72 8.66 21.47

Leverage Ratios
Debt Equity ratio Debt Assets ratio 0.02 0.02 0.04 0.04 0.06 0.06

Liquidity Ratios
Current ratio Quick ratio Turnover Ratios (times) Fixed assets turnover ratio Inventory turnover ratio 7.74 32.84 7.73 30.29 9.36 34.69 0.46 0.31 0.48 0.31 0.56 0.39

TVS MOTORS LTD

Particulars Mar ' 09 Mar ' 08 Mar ' 07

Profitability Ratios (%)

Gross profit margin Net profit margin Return on net worth 0.49 0.85 1.31 (1.53) 0.98 1.38 1.35 1.71 2.79

Leverage Ratios
Debt Equity ratio Debt Assets ratio 1.11 0.52 0.81 0.44 0.78 0.43

Liquidity Ratios
Current ratio Quick ratio Turnover Ratios (times) Fixed assets turnover ratio Inventory turnover ratio 3.52 13.31 3.50 9.61 4.93 11.86 1.15 0.68 1.07 0.46 1.04 0.51

BAJAJ AUTO LTD.

Particulars

Mar ' 09

Mar ' 08

Mar ' 07

Profitability Ratios (%)

Gross profit margin Net profit margin Return on net worth 11.06 7.52 4.52 10.32 8.56 5.22 12.09 13.13 12.22

Leverage Ratios
Debt Equity ratio Debt Assets ratio 0.83 0.45 0.84 0.45 0.29 0.22

Liquidity Ratios
Current ratio Quick ratio Turnover Ratios (times) Fixed assets turnover ratio Inventory turnover ratio 5.41 22.10 6.09 23.48 6.72 27.77 0.92 0.73 0.88 0.64 0.85 0.75

GRAPHICAL REPRESENTATION AND INTERPRETATION

1.

CURRENT RATIO

1.4 1.2 1 0.8 0.6 0.4 0.2 0 2006-07 2007-08 2008-09

Hero Honda TVS Motors Bajaj Auto

From the year 2006-07 to 2008-09, the current ratio of TVS Motors is quite good among both Hero Honda and Bajaj Auto. This shows that the company can successfully pay off its debt while at the same time still have cash left over to continue operating. 2.
0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 2006-07 2007-08 2008-09 Hero Honda TVS Motors Bajaj Auto

QUICK RATIO or LIQUID RATIO or ACID TEST RATIO

From the year 2006-07 to 2008-09, the Liquid ratio of Bajaj Auto is quite good among both Hero Honda and TVS Motors. This shows that the company can successfully meet its current liability.

3.

DEBT EQUITY RATIO

1.2 1 0.8 0.6 0.4 0.2 0 2006-07 2007-08 2008-09
Hero Honda TVS Motors

Debt-to-Equity Ratio of Hero Honda Ltd. is 0.02 times for the year 2008-2009 which means that the company is not using its debt instruments, while it is relying more on the shareholders capital. This also indicates the companys assets are primarily supplied with equity. This graphical representation indicates that Hero Honda company has employed 0.02 times long-term debts that of the shareholders funds. 4. DEBT ASSETS RATIO

0.6 0.5 0.4 0.3 0.2 0.1 0 2006-07 2007-08 2008-09

Hero Honda TVS Motors Bajaj Auto

The Debt Assets Ratio of TVS Motors Ltd. is higher among all other players for the years (2006-07, 2008-09) which indicate the claims of investors against the assets are higher.

5.
14 12 10 8 6 4 2 0 -2 -4

GROSS PROFIT RATIO

Hero Honda TVS Motors Bajaj Auto

2006-07

2007-08

2008-09

Gross Profit Ratio of Hero Honda Ltd. is 12.75% for the year 2008-2009, means that Hero Honda Ltd. is making a profit before interest, depreciation and tax of 12.75%. Hero Honda Ltd. has been able to generate gross profit more than the industry standards and also among all other major players in two wheeler segment of the automobile industry. 6. NET PROFIT RATIO

14 12 10 8 6 4 2 0 2006-07 2007-08 2008-09

Hero Honda TVS Motors Bajaj Auto

Net Profit Ratio of Hero Honda Ltd. is 10.39% for the year 2008-2009 which is higher in comparison with the other players, so this goes to show the efficiency of the operation of the company. But, Net Profit Ratio of TVS Motors is 0.85% for the year 2008-2009, which is lower in comparison with the other players. This shows that TVS Motors had to pay other indirect expenses which led to fall in the net profit. In overall comparison of 3years, the net profit of Bajaj Auto Ltd. is declining at a rapid pace.

7.
35 30 25 20 15 10 5 0

RETURN ON NET WORTH

Hero Honda TVS Motors

2006-07

2007-08

2008-09

Bajaj Auto

Return on Net Worth of TVS Motors Ltd. is 1.31% for the year 2008-2009, which is lower than the other players and therefore shows a profit of 1.31 times per rupee invested by the investors. But, Return on net worth of Hero Honda Ltd. is outstanding. This depicts that the company is showing tremendous performance in the competitive market.

8.

FIXED ASSETS TURNOVER RATIO

10 9 8 7 6 5 4 3 2 1 0 2006-07 2007-08 2008-09

Hero Honda TVS Motors Bajaj Auto

The fixed asset turnover ratio measures the company's effectiveness in generating sales from its investments in plant, property, and equipment. Generally speaking, the higher the ratio, the better, because a high ratio indicates the business has less money tied up in fixed assets for each rupee of sales revenue. A declining ratio may indicate that the business is over-invested in plant, equipment, or other fixed assets. For these years, this ratio of all companies is low as compared to the industry or past years of data for the

firm, it means that sales are low or the investment in plant and equipment is too much. But, in overall comparison among these companies, Hero Honda Ltd. shows good results. 9. INVENTORY TURNOVER RATIO

40 35 30 25 20 15 10 5 0 2006-07 2007-08 2008-09

Hero Honda TVS Motors Bajaj Auto

Inventory turnover ratio measures the velocity of conversion of stock into sales. Usually a high inventory turnover/stock velocity indicates efficient management of inventory because more frequently the stocks are sold; the lesser amount of money is required to finance the inventory. A low inventory turnover ratio indicates an inefficient management of inventory. A low inventory turnover implies over-investment in inventories, dull business, poor quality of goods, stock accumulation, accumulation of obsolete and slow moving goods and low profits as compared to total investment. The inventory turnover ratio is also an index of profitability, where a high ratio signifies more profit; a low ratio signifies low profit. Sometimes, a high inventory turnover ratio may not be accompanied by relatively high profits. Similarly a high turnover ratio may be due to under-investment in inventories. Hence, high inventory turnover ratio may indicate that the inventory is too low. This often can result in stock shortages. Here, Hero Honda Ltd. has High Inventory Turnover ratio for 3 consecutive years, whereas TVS Motors Ltd. has low inventory turnover ratio for 3 consecutive years and Bajaj Auto Ltd. also shows considerable results, but has less stock turnover ratio than Hero Honda Ltd.

CASH FLOW STATEMENT

Cash Flow Statement is a statement that shows flow of cash and cash equivalents during a period. Cash Flow Statement is prepared with an objective to highlight the sources and uses of cash and cash equivalents for a period. Cash Flow Statement is classified under operating activities, investing activities and financing activities. Cash from operating activities includes the cash effects of those transactions which lead to calculation of net profit or loss such as cash receipts from sale of goods & rendering of services, royalties, fees, commission & other revenue and cash payments to suppliers, employees, and cash relating to future contracts for dealing purposes. Cash from investing activities include transactions involving purchase and sale of long-term productive assets like machinery, land and building and cash payments for capitalized research and development costs. Cash from financing activities includes cash proceeds from issue of shares, debentures and other short-term borrowings, payment of dividend and cash repayments of the amounts borrowed.

HERO HONDA LTD. Particulars Profit before tax Net cash flow-operating activity Net cash used in investing activity Net cash used in financing activity Net increase/decrease in cash and equivalent Cash and Cash equivalents at the beginning of year Cash and Cash equivalents at the end of year Mar ' 09 1,781.46 1,359.03 (861.19) (499.93) (2.09) 15.19 13.10 Mar ' 08 1,410.28 1,211.78 (781.01) (432.33) (1.56) 16.66 15.10 Mar ' 07 1,246.10 625.05 (273.13) (474.34) (122.42) 158.72 36.30

TVS MOTORS LTD. Particulars Profit before tax Net cash flow-operating activity Net cash used in investing activity Net cash used in financing activity Net increase/decrease in cash and equivalent Cash and Cash equivalents at the beginning of year Cash and Cash equivalents at the end of year Mar ' 09 31.10 161.56 (204.30) 20.62 (22.12) (18.53) (40.65) Mar ' 08 35.37 6.33 (106.30) (5.12) (105.09) 86.56 (18.53) Mar ' 07 90.85 120.09 (228.84) 170.96 62.21 24.35 86.56

BAJAJ AUTO LTD. Particulars Profit before tax Net cash flow-operating activity Net cash used in investing activity Net cash used in financing activity Net increase/decrease in cash and equivalent Cash and Cash equivalents at the beginning of year Cash and Cash equivalents at the end of year Mar ' 09 958.09 411.49 (207.66) (123.03) 80.80 56.07 136.87 Mar ' 07 1,728.05 681.73 (429.99) (250.35) 1.39 82.09 83.48 Mar ' 06 1,580.74 1,072.62 (1,087.54) (11.68) (26.60) 108.69 82.09

INTERPRETATION
The Cash Flow statement of Hero Honda Ltd. shows that net cash at the end of financial year is declining at a rapid pace. This is because Cash from operating activities are increasing due to increase in non-cash and non-operating items such as depreciation, preliminary expenses, goodwill written off, interest on borrowing and debentures, loss on sale of fixed assets etc. and decrease in current assets and increase in current liabilities. Cash from Investing activities depicts that more cash is invested in the Purchase of an asset (assets can be land, building, equipment, marketable securities, etc.) for last 3 years. Cash from Financing activities depicts that downbeat amount can mean the company is servicing debt, but it can also mean the company is making dividend payments and stock repurchases, which investors might be glad to see. The Cash Flow statement of TVS Motors Ltd. shows that net cash at the end of financial year is declining at a rapid pace showing negative indication. This is because Cash from operating activities are increasing due to increase in non-cash and non-operating items such as depreciation, preliminary expenses, goodwill written off, interest on borrowing and debentures, loss on sale of fixed assets etc. and decrease in current assets and increase in current liabilties. Cash from Investing activities depicts that more cash is invested in the Purchase of an asset (assets can be land, building, equipment, marketable securities, etc.) for previous financial year. Financing cash flow is related to money in and out to investors and shareholders. Cash from Financing activities depicts that when a company raises funds from bonds or stock, this is considered cash in. While dividends paid out to investors and interest paid to bond holders is considered cash out. Here, Cash from financing activities are increasing. This means that the company is raising its funds through issuance of bonds or stock. The Cash Flow statement of Bajaj Auto Ltd. shows that net cash at the end of financial year is increasing at a deliberate pace. This is because Cash from operating activities are increasing due to increase in non-cash and non-operating items such as depreciation, preliminary expenses, goodwill written off, interest on borrowing and debentures, loss on sale of fixed assets etc. and decrease in current assets and increase in current liabilities. Cash from investing activities depicts that more cash is invested in the Purchase of an asset (assets can be land, building, equipment, marketable securities, etc.) for last 3 years. Cash from financing activities is increasing which depicts that the company is raising its funds through bonds and stock. So in comparison of these companies, Bajaj Auto Ltd. is considered to be the better one among all. As a result, Hero Honda Ltd. and TVS Motors Ltd. have to take effective steps to control its Flow of cash position in order to maintain its liquidity.