Project work

Analyzing and Comparing Financial
Ratios of automobile companies (Force
motors, Swaraj-Mazda, Eicher-Volvo)
A PROJECT REPORT BY:- Rahul Bhardwaj(12dcp-086), Rahul
Jain(12dcp-087), Rahul Jain(12dcp-088), Raj Kumar Singh(12dcp-
089):-
FINANCIAL ANALYSIS OF INDIAN COMMERCIAL VEHICLE
INDUSTRIES

Financial Analysis of Indian Commercial Vehicle Industries
1
An Overview of the Indian Automobile Industry
The Indian automobile industry is a globally established industry . Some of the leading
names echoing in the Indian automobile industry include Maruti Suzuki, Tata Motors,
Mahindra and Mahindra, Hyundai Motors, Hero Honda and Hindustan Motors, Force,
Swaraj Mazda, Eicher motors etc. The automobile sector of India is the seventh largest in
the world. Tata Motors is the leader in the Indian commercial vehicles market while it
holds more than 60% share. Tata Motors also enjoys the credit of being the world’s fifth
largest manufacturer of medium and heavy commercial vehicles
FORCE MOTORS- AN INTRODUCTION (NSE: )
Force Motors started production of the HANSEAT 3-Wheelers in collaboration
with Vidal & Sohn Tempo Werke Germany and went on to establish a strong
presence in the Light commercial vehicle (LCV) field with the MATADOR, the
Force Motors has introduced new Light Commercial Vehicles, a new family of
Utility Vehicles, new state-of-the-art Tractors, and a new range of heavy
commercial vehicles.
SWARAJ MAZDA - AN INTRODUCTION (NSE:
SWARAJMAZD; BSE: 505192)
Swaraj Mazda is a joint venture of Swaraj Enterprise and Mazda . Swaraj
symbolizes Indian technology and engineering, and Mazda has R&D at a global
scale. The company produces vehicles for goods and passenger applications, such
as Bus, Ambulance, Water Tanks, Trucks, etc. It is now known as SML ISUZU
Ltd. since 1st
October 2010.
EICHER-VOLVO - AN INTRODUCTION
Eicher Motors Limited, incorporated in 1982, is the flagship company of the Eicher Group in India
and a leading player in the Indian automobile industry. Its 50-50 joint venture with the Volvo
group, VE Commercial Vehicles Limited. . Eicher Motors manufactures and markets the iconic
Royal Enfield motorcycles. Eicher Motors recorded revenue of over USD 1 billion in 2010. The
company is known to make tractors, haullages and tippers.
SECTION V: MARKET PERFORMANCE

2
The market performance of all the three companies vis-à-vis the S&P CNX NIFTY Index is illustrated in
the graph below:
Nifty
Eicher
Swaraj
Force
SECTION IV: COMPUTATION OF FINANCIAL RATIOS
PROFITABILITY ANALYSIS
a) Profit Margin:
 Definition:
A ratio of profitability is calculated as net income divided by revenues, or net profits divided by
sales.
 Significance:

3
Profit margin is very useful when comparing companies in similar industries. A higher profit
margin indicates a more profitable company that has better control over its costs compared to its
competitors.
 Formula used:
Here, we calculate after-tax profit margin, given by: Margin = PAT/Sales.
 Factors:
Higher the PAT more is the margin. Lower the sales, higher the profit margin.
 Graph:
 Observations:
Profit Margin for SML is near about same for both the years, and its comparatively on lower side.
But for Force motor it have shoot up like anything compared to previous year to addition of
exceptional items. Eicher motor have gone okay.
 Conclusion:
Profit Margin should not be the only factor considered when evaluating a company’s
performance. Other criteria must also be taken into account, including Company’s closing stock
etc. by an investor, before making a decision.
Swaraj Mazda Force Motors Eicher Volvo
2010-11 4.02 3.9 6.98
2011-12 4.04 41.14 8.76
0
5
10
15
20
25
30
35
40
45
PAT/SALES

4
b) Return on Capital Employed (ROCE):
 Definition:
It is a ratio that indicates the efficiency and profitability of a company's capital investments.
 Significance:
ROCE should always be higher than the rate at which the company borrows; otherwise any
increase in borrowing will reduce shareholders' earnings. It indicates efficiency and profitability
of company’s capital investment.
 Formula used:
It is calculated as follows:
ROCE = (PAT + Interest – Tax Savings on Interest)/ (Owned Capital + Borrowed Capital)
 Graph:
 Observations:
Highest ROCE for Eicher. Good and steady ROCE for Swaraj. Lowest for Force motor.
 Conclusion:
A high ROCE for Eicher indicates that the company keeps high profitability and has very good
efficiency.
c) Return on Equity (ROE):
 Definition:
The amount of net income returned as a percentage of shareholders equity.
 Significance:
2010-11 20.14 16.24 38
2011-12 14.47 4.02 45
0
10
20
30
40
50
ROCE

5
Return on equity measures a corporation's profitability by revealing how much profit a company
generates with the money shareholders have invested. It is one of the important factors to be
considered before investment.
 Formula used:
It is calculated as: ROE = Profit Available to Equity Shareholders/Shareholders’ Fund
 Graph:
 Observations:
Constant ROE for Swaraj. Highest ROE for Force motor.Eicher have bettered itself marginaly.
• Conclusion:
Force motor is becoming very good option for investments.
d) Return on Total Assets (ROTA):
 Definition:
It is a ratio that measures a company's net earnings against its total net assets.
 Significance:
The ratio is considered an indicator of how effectively a company is using its assets to generate
earnings before contractual obligations must be paid.
 Formula Used:
ROTA = PAT/ (Total Assets - Capital work in progress - Intangible assets)
 Factors:
2010-11 17.18 17.54 24.9
2011-12 17.36 72.1 33.31
0
10
20
30
40
50
60
70
80
ROE

6
1. Higher the pat, higher the ROTA.
2. More the assets, lesser the ROTA.
 Graph:
 Observations:
1.Force- lowest rota performance out of all.
2. Eicher– better for rota.
3. Ultratech – last two yrs were not so good
 Conclusion:
Greater the earnings, more effective the company is. ROTA is an important factor for investing
in a company.
e) Return on Operating Assets (ROOA):
 Definition:
An extension of ROTA, wherein the purpose is to identify the return generated only via the
company’s core competency – its operations.
 Significance:
We are considering assets that are used only in creating revenue. Numerically, the lesser the value
of assets, better the ROA. The company should maximize the use of operating assets to generate
more revenue. Assets that are not useful in generating revenue should be minimized. ROA is not
a very important parameter in helping an investor to buy a stock of the company as it excludes
other investments which could be non-productive.
2010-11 11.47 7.82 15.47
2011-12 6.82 3.04 25.44
0
5
10
15
20
25
30
ROTA

7
 Formula used: ROA = (PAT – Other Income + Exceptional Expenses) / (Total Assets –
Assets under Development – Current Investments – Non Current Investments - Intangible
Asset)
 Graph:
 Observation and conclusion:
Ranking based on ROA-
1. Eicher
2. Swaraj
3. Force motorS
Force motor needs to utilized it resources more efficiently.
LEVERAGE RATIOS
Any ratio used to calculate the financial leverage of a company to get an idea of the company's
methods of financing or to measure its ability to meet financial obligations are termed as
Leverage ratios. There are several different ratios, but the main factors looked at include debt,
equity, assets and interest expenses.
a) Debt-Equity Ratio:
 Definition:
It is a measure of a company's financial leverage calculated by dividing its total liabilities by
stockholders' equity.
 Significance:
2010-11 6.56 5.36 12
2011-12 5.22 -9.64 22
-15
-10
-5
0
5
10
15
20
25
AxisTitle
ROA

8
It indicates what proportion of equity and debt the company is using to finance its assets. An ideal
Debt/Equity ratio hovers around the 2.0 mark. A High ratio means a company has taken lot of
loans and interest payable is hence, more. A low Debt to Equity ratio is preferred but that can also
mean that the Company does not take any risks. This may lead to high earnings but we have to
see whether the earning is greater than interest expenses. Debt to Equity Ratios also depend on
the Industry. It is also called as the Risk Taking Ability of a Company. It is one of the most
important ratios to be taken into consideration before investing.
 Formula used:
D/E = Long term Borrowings / Shareholders’ Fund
 Graph:
Observations and conclusion:
Both Swaraj and Eicher are very risk savvy companies it seem from the above data. Less Debt
equity ratio means less risk but also less profit. The case different with Force motor though.
LIQUIDITY RATIOS
These are a class of financial metrics that is used to determine a company's ability to pay off its
short-terms debts & obligations. Generally, the higher the value of the ratio, the larger the margin
of safety that the company possesses to cover short-term debts.
a) Current Ratio
 Definition:
2010-11 0 2.13 0
2011-12 0 0.46 0
0
0.5
1
1.5
2
2.5
Debt/Equity Ratio

9
It is a liquidity ratio that measures a company's ability to pay short-term obligations.
 Significance:
Typically, a good Current ratio is preferred but if the Current Ratio is down it may because of
reasons such as scope expansion or company growth.
 Formula used:
Current Ratio = Current Assets / Current Liabilities
 Graph:
Current Ratio assure the lender how safe and recoverable is their investment in near future.
Here Force motor is in lead and again it have improve a lot from last year.
b) Quick Ratio/Liquidity Ratio:
 Definition:
It is an indicator of a company's short-term liquidity.
 Significance:
2010-11 1.39 0.97 1.2
2011-12 1.9 2.6 0.76
0
0.5
1
1.5
2
2.5
3
Current Ratio

10
The quick ratio measures a company's ability to meet its short-term obligations with its most
liquid assets. The higher the quick ratio, the better the position of the company.
 Formula used:
Quick/Liquidity Ratio = (Current Assets – Inventories)/ (Current Liabilities – Working
Capital)
Graph:
Higher the margin more the safety. When it comes to converting assets into liquidity in near
future Force motor seems more favorable compared to both others.
EFFICIENCY RATIOS
Ratios that are typically used to analyze how well a company uses its assets and liabilities
internally are known as efficiency ratios. Efficiency Ratios can calculate the turnover of
receivables, the repayment of liabilities, the quantity and usage of equity and the general use of
inventory and machinery.
a) Inventory Turnover Ratio:
 Definition:
2010-11 1.39 0.97 0.85
2011-12 1.9 2.6 0.44
0
0.5
1
1.5
2
2.5
3
Quick Ratio

11
A ratio showing how many times a company's inventory is sold and replaced over a period. It can
be done for raw material and for finished goods.
 Formula used:
Raw material IT ratio = Raw material consumed / Average Raw Material Inventory
Finished Goods IT ratio = Cost of Production / Average Inventory
 Significance:
Higher Inventory Turnover Days is not good for the company. But we should also check the
amount of stock a company buys and sells at a time. Company having low stock will obviously
sell the stock faster than a company having greater stock.
 Graph:
2010-11 7.53 4.2 30.4
2011-12 6.82 4.43 31.44
0
5
10
15
20
25
30
35
Raw Material Turnover Ratio

12
 Observations and conclusion:
Inventory Turnover ratio is a very important tool to predict how effetely the business is being
rum. ITR needs to kept balanced. If it’s value is high shelf cost will increase, if it is low there will
be chances of shortage. To avoid such conditions it need to be in balance mode. Above Eicher
seems to be okay.
b) Asset Turnover Ratio:
 Definition:
It is a financial ratio of net sales to total assets.
 Significance:
The asset turnover ratio measures a company's ability to generate net sales from asset investments
- specifically property, plant and equipment (P&E) - net of depreciation. A higher asset turnover
ratio shows that the company has been more effective in using the investment in assets to
generate revenues.
 Formula used:
AT Ratio = Sales / (Total Assets - Assets under development – Intangible Assets)
 Graph:
2010-11 9.95 5.95 35.26
2011-12 9.16 5.9 30.37
0
5
10
15
20
25
30
35
40
Finished Good Inventory Turnover
Ratio

13
Here all the three companies are doing fairly ok. Eicher is leading though.
c) Debtors’ Turnover Ratio:
 Definition:
An accounting measure used to quantify a firm's effectiveness in extending credit as well as
collecting debts.
 Significance:
The receivables turnover ratio is an activity ratio, measuring how efficiently a firm uses its assets.
 Formula used:
Debtors’ Turnover = Net Credit Sales/Average Trade Receivables
 Graph:
2010-11 1.69 1.44 2.14
2011-12 1.69 1.2 2.42
0
0.5
1
1.5
2
2.5
3
AxisTitle
Asset Turnover Ratio

14
 Observation:
Best Debtor Turnover Days is for Eicher i.e. its rotating cash very efficiently. And it is lowest for
Swaraj mazda. Both Force motor and Swaraj need to improve their debtor’s ratios.
DIVIDEND PAYOUT
a) Dividend Payout Ratio:
 Definition:
The percentage of earnings paid to shareholders in dividends.
 Formula used:
Dividend payout ratio = Proposed Dividend / Net Income
 Significance:
Higher Ratio companies should be preferred but it is not an important factor for buying of shares
of the company as it does not tell us where the company is going. If the company gives a huge
dividend then obviously the investor gains.
2010-11 1 9.56 42.1
2011-12 1.02 9.7 62
0
10
20
30
40
50
60
70
AxisTitle
Debtor's Turnover Ratio

15
 Graph:
Swaraj is very generous in giving Dividend compared to other two companies. But All of the
companies have decreased their dividends from last year.
b) Dividend Yield:
 Definition:
A financial ratio that shows how much a company pays out in dividends each year relative to its
share price. In the absence of any capital gains, the dividend yield is the return on investment for
a stock.
 Formula used:
Dividend Yield = Proposed Dividend / Market Capitalization of the Company.
 Significance:
Higher the dividend yield, it is good for the company. Improves investor sentiments.
It indicates ”bang for your buck.”
2010-11 0.37 0.11 0.12
2011-12 0.32 0.02 0.11
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
AxisTitle
Dividend Payout Ratio

16
 Graph:
When it comes to giving dividend Swaraj Mazda is leading ahead of both Eicher and Force
motor. Though investors do not earn much from the dividend a company pays, still it’s a factor to
be consider while investing.
ECONOMIC VALUE ADDED
 Definition:
A measure of a company's financial performance based on the residual wealth calculated by
deducting cost of capital from its operating profit (adjusted for taxes on a cash basis). It is also
referred to as "economic profit".
 Significance:
Measures how much value is added to Company’s finances every year. It captures true Economic
Profit.
 Formula used:
EVA = Net Operating Profit after Taxes (NOPAT) - (Capital * Cost of Capital)
 Graph:
2010-11 2.43 1.16 0.008
2011-12 2.44 2.34 0.007
0
0.5
1
1.5
2
2.5
3AxisTitle
Dividend Yield

17
Eicher has got the highest value addition over the years. It have grown up from the previous
considerably. Swaraj’s EVA have decreased substantially from the previous and force motor have
done the worst by going in negatives.
SECTION VI: CONCLUSION
Seeing the data we have collected and processed it seems that Eicher motor is on very right track and it is
pose to grow. So one can definitely invest into Eicher motor. Other two are not doing so well in these
terms. Force motor is improving but it’s still a long way to go.Swaraj mazda is relatively new to the share
market. So its need to take its own time to show results.
Disclaimer: Our analysis & interpretation is limited to the ratios we have computed, and our own
intuition.
SECTION VI: ROAD AHEAD FOR INDIAN COMMERCIAL VEHICLE
INDUSTRY:-The Indian commercial vehicle market will double to 1.6 million units in next five
years thanks to the increase in infrastructure spend, rapid urbanisation and entry of major multinational
players in the country said Ernst & Young in its latest report on 'Mega trends shaping the Indian
commercial vehicle market.'
The country is likely to see the emergence of more than six cities (each with a total population of
over 10 million) and 63 cities with a projected population of more than1 million by 2025.
2010-11 1433.3 3600 2327.2
2011-12 381.118 -1200 4156.5
-2000
-1000
0
1000
2000
3000
4000
5000
AxisTitle
Economic Value Added

18
E&Y says the Indian market which has seen the entry of international majors like Daimler,
Volvo, Beiqi Foton will see a CAGR growth of 15% till 2016-17.
The overall commercial vehicle sales in India grew by 18.20% in 2011-12 at 8,09,532 untis 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 the last fiscal.
According to the report, the stakeholders across the Indian CV industry are likely to be impacted
by rapidly changing events - right from the operating environment, fleet operator/ manager
preferences, competition, distribution channel and also supply chain.
Urging the need of road infrastructure development to facilitate OEMs, Rakesh Batra, partner &
national leader, automotive practice, Ernst & Young, said, "By 2012, one expects to have six-
laning of 6,500 km and a development of 1000 km of expressways. Of the 66,590 km of National
Highway, only 38% are single-lane, leading to logistics inefficiencies as trucks can cover only
250 km per day vs. 600 km globally. Moreover, the development of road infrastructure enables
OEMs to introduce higher power vehicles. By 2012, the modernisation of roads under the NHDP
( National Highway Development Program) is expected to involve a total investment of US$47.2
billion."

19
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