an analysis of cost structure of indain automobile companies

A cost analysis of automobile sector

Automobile industry is one of the most building blocks of the world’s most influential economies such as US and Japan.

Today , the industry is among the most vibrant , modern,and growing markets in the world.

In 2009 India emerged as Asia’s 4th largest exporter of automobiles.

Indian automobile industry is ranked 10th globally.(2nd in two-wheelers,4th in four wheelers).

The auto industry accounts for about 5.2% of India's GDP

AUTOMOBILE INDUSTRY IN INDIA

TATA MOTORS Ltd.

COST ELEMENTS

  2007 2008 2009

raw materials 19,879.56 20,891.33 18,801.37

employee cost 1,367.83 10,554.57 1,551.39

Prime cost 21,247.39 31,445.90 20,352.76

power and fuel 327.41 325.19 304.94

manufacturing 872.95 904.95 866.65

factory cost 22,447.75 32,676.04 21,524.35

selling and adminstration 1505.23 2197.49 1652.31

miscellaneous expense 1051.49 964.78 1438.89

Total expense 25,004.47 35,838.31 24,615.55

PERCENTAGE CHANGE IN COST ELEMENTS

2007-08 2008-09

raw materials 5.08 -10.0

employee cost 671.6 -85.3

Prime cost 47.93 -35.2

power and fuel -0.67 -6.22

manufacturing 3.6 -4.23

factory cost 45.5 -34.1

selling and administration 45.9 -24.8

miscellaneous expense -8.246 49.14

Total expense 43.3 -31.315

Vertical analysis of cost elements with respect to Total cost(%)

2007 2008 2009

Prime cost 84.9743666 87.744 82.683

factory cost 89.7749482 91.176 87.442

selling and administration 6.01984365 6.1317 6.7125

miscellaneous expense 4.20520811 2.692 5.8455

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200720082009

CONTRIBUTION OF COST ELEMENTS ON TOTAL COST

Net sales is highest in 2008 ,which amounts to 28768 Cr.

The cost incurred in 2008 is found to be highest compared to other years, which amounts to 35838.8cr and Total income is 29214Cr.

ANALYSIS

In year 2007-08 Tata motors were marked with two events.

unveiling of Tata Nano. acquisition of Jaguar and Land Rover. The Company recorded its highest ever sale

of 5,85,649 vehicles and grew its turnover to Rs. 33,094 Crs. to remain as India’s largest automobile company by revenue.

INTERPRETATION

RISE IN EMPLOYEE COST IN 2007-08 Due to companies expansion and growth

plans, employee recruitment and training was carried out extensively .

During the year, the Company entered into a three year wage settlement with its unions at Jamshedpur and Pune, Passenger Car Business.

Maruti-Suzuki Ind .ltd

Particulars 2007 2008 2009

Raw Materials 10,863.00 13,958.30 15,983.20

Materials consumed 10,863.00 13,958.30 15,983.20

Power & Fuel Cost 97.4 147.3 193.6

Employee Cost 288.4 356.2 471.1Other Manufacturing Expenses 392.4 523.3 716.1

Factory cost 11,641.20 14,985.10 17,364.00 Administrative Expenses 274.5 170.6 150.2Miscellaneous Expenses 239.44 287.62 303.44

Cost of production 12,155.14 15,443.32 17,817.64Selling& Distribution Expenses 194.46 331.08 578.56

Cost of sales 12,349.74 15,774.40 18,396.20

Sales 14806.4 18066.8 20729.4

PROFIT 2165.66 2287.28 2564.16

Cost Sheet of Maruti Suzuki of Ind Ltd

Materials consumed

Factory cost Cost of pro-duction

Cost of sales

2007 10863 11641.2 12155.14 12349.6

2008 13958.3 14985.1 15443.32 15774.4

2009 15983.2 17364 17817.64 18396.2

1,000.00

5,000.00

9,000.00

13,000.00

17,000.00

Comparison of items on cost sheet

Expenditure 2007%of Cost of sales 2008

%of Cost of sales 2009

Raw Materials 10,863.00 87.96 13,958.30 88.49 15,983.20

Power & Fuel Cost 97.4 0.79 147.3 0.93 193.6

Employee Cost 288.4 2.34 356.2 2.26 471.1Other Manufacturing Expenses 392.4 3.18 523.3 3.32 716.1Selling and Admin Expenses 483.26 3.91 521.48 3.31 751.06

Miscellaneous Expenses 239.44 1.94 287.62 1.82 303.44

Total Expenses 12,349.60 100.00 15,774.40 100.00 18,396.20

Expenditure as a percentage of total expenses

Material consumed formed a major part of cost of sales(87%)

Manufacturing expenses formed 4.83% of cost of sales

Selling and administrartive expenses fomed 3.92 % and 2.07% of the cost of sales.

87%

1%

3%

4%1% 2% 3%

Chart Title

Raw Materials

Power & Fuel Cost

Employee Cost

Other Manufacturing Expenses

Administrative Expenses

Miscellaneous Expenses

Selling& Distribution Expenses

Cost of Sales for the year 2009

Material consumed formed a major part of cost of sales amounting to 87.8%

Manufacturing expenses contributed 4.32% towards cost of sales.

Selling expenses and administrative expenses contributed 3.6% and 2.10% respectively towards cost of sales.

88%

4%

2%4%

2% 0%

As % of Cost of sales

Material consumed Manufacturing expenses Selling expenses Adminstrative expenses

Expenses as % of cost of sales for the year 2008

2007 2008 2009

Total Income 14943.8 18897.1 20864.5

Total Expenses 12349.6 15774.4 18396.2

2,500.00

7,500.00

12,500.00

17,500.00

22,500.00

Chart showing total income & total expenses

Axis

Tit

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The operating income of the company showed an increasing trend over the years.

It increased from Rs 11046.30 in 2005 to Rs 20729.40 in the year 2009.

The cost of sales increased from Rs 9476 to Rs 18825.70 from the year 2005 to 2009.

The operating income increased to 21.23% from the year 2005 to 2009.

The net profit increased to 39.3% in the year 2005-06, 22.39% in the year 2006-07, 10.84% in the year 2007-08 but it decreased to 29.59% in the year 2008-09

Interpretation

Ashok Leyland

COST SHEET

Particulars 2007 % change 2008 % change 2009

Raw Materials 5,570.18 6.87 5,952.86 -23.49 4,554.36

Materials consumed 5,570.18 6.87 5,952.86 -23.49 4,554.36

Power & Fuel Cost 45.44 -0.35 45.28 -15.15 38.42

Employee Cost 480.7 28.18 616.17 -8.10 566.26

Other Manufacturing Expenses 41.7 37.84 57.48 -12.49 50.3

Factory cost 6,138.02 8.70 6,671.79 -21.92 5,209.34

Administrative Expenses 413.1 -3.23 399.76 -83.76 64.91

Cost of production 6,551.12 7.94 7,071.55 -25.42 5,274.25

Selling& Distribution Expenses 170.7 14.02 194.63 62.65 316.57

Cost of sales 6,721.82 8.10 7,266.18 -23.06 5,590.82

Sales 7,358.88 

8.34 7,972.52  -

24.09 6,051.64

Profit 637.06

10.87  706.34  -

34.76 460.82

EXPENSES AS % OF COST OF SALES

Particulars 2007

As % of cost of sales 2008

As % of cost of sales 2009

As % of cost of sales

Raw Materials 5,570.18 82.87 5,952.86 81.93 4,554.36 81.46

Power & Fuel Cost 45.44 0.68 45.28 0.62 38.42 0.69

Employee Cost 480.7 7.15 616.17 8.48 566.26 10.13

Other Manufacturing Expenses 41.7 0.62 57.48 0.79 50.3 0.90

Administrative Expenses 413.1 6.15 399.76 5.50 64.91 1.16

Selling& Distribution Expenses 170.7 2.54 194.63 2.68 316.57 5.66

Cost of sales 6,721.82 100 7,266.18 100 5,590.82 100

HINDUSTHAN MOTORS

COST SHEETPARTICULERS AMOUNT’07 AMOUNT’08 AMOUNT’09

SALES 666.51 704.66 626.55RAW MATERIALS 504.08 502.93 469.96PRIME COST 504.08 502.93 469.96+ FACTORY O/H POWER & FUEL 16.15 13.65 12.92EMPLOYEE COST 69.14 86.11 75.97MANUFACTURING EXP 2.4 8.17 4.93

TOTAL FACTORY COST 87.69 107.93 93.82

ADMINISTRATIVE & SELLING COST84.48 94.33 84.48

MISCELLANEOUS EXPENSES 21.5 21.72 26.85COST OF SALES 697.75 726.91 675.11

% CHANGES IN COSTPARTICULERS 2007 % CHANGE 2008 %CHANGE 2009

POWER & FUEL 16.15 -15.47 13.65 -5.34 12.92

EMPLOYEE COST 69.14 24.54 86.11 -11.77 75.97

MANUFACTURING EXP 2.4 240.41 8.17 -39.65 4.93

TOTAL FACTORY COST 87.69 23.08 107.93 -13.07 93.82

ADMINISTRATIVE & SELLING COST 84.48 11.65 94.33 -10.44 84.48

MISCELLANEOUS EXPENSES 21.5 1.02 21.72 23.61 26.85

POWER & FUEL

EMPLOYEE COST

MANUFACTURING EXP

TOTAL FACTORY COST

ADMINISTRATIVE & SELLING COST

MISCELLANEOUS EXPENSES

0 20 40 60 80 100 12016.15

69.14

2.4

87.69

84.48

21.5

13.65

86.11

8.17

107.93

94.33

21.72

12.92

75.97

4.93

93.82

84.48

26.85

2009 2008 2007

Mahindra & Mahindra

Cost Sheet 2007-2009  Mar '07 Mar '08 Mar '09

Raw Materials 6,937.16 7,963.82 9,208.71

Prime Cost 6,937.16 7,963.82 9,208.71

Power & Fuel Cost 65.19 91.33 98.69

Employee Cost 666.15 853.65 1,024.61Other Manufacturing Expenses 68.8 73.35 75.36

Work Cost 7,737.30 8,982.15 10,407.37

Adminstrative expenses 466.22 561.66 575.34Cost Of Production 8,203.52 9,543.81 10,982.71

Selling expenses 635.1 804.51 937.56Cost of sales 8,838.62 10,348.32 11,920.27

Operating Profit 1,136.23 1,157.65 1,092.25

Operating income 10,458.92 12,035.44 13,339.54

Comparison of Various Costs and Incomes  

% Cng. Frm. 2007

% Cng. Frm. 2008

% Cng. Frm. Base year 2007

Raw Materials 14.80 15.63 32.74Prime Cost 14.80 15.63 32.74

Power & Fuel Cost 40.10 8.06 51.39Employee Cost 28.15 20.03 53.81Other Manufacturing Expenses 6.61 2.74 9.53

Work Cost 16.09 15.87 34.51

Administrative expenses 20.47 2.44 23.41Cost of Production 16.34 15.08 33.88

Selling expenses 26.67 16.54 47.62Cost of sales 17.08 15.19 34.87

Operating Profit 1.89 -5.65 -3.87Operating income 15.07 10.84 27.54

Contribution of Expenses to Cost of Sales

Expenses 2007 2008 2009

Raw Materials 78.49 76.96 77.25

Power & Fuel Cost 0.74 0.88 0.83

Employee Cost 7.54 8.25 8.60

Other Manufacturing Expenses 0.78 0.71 0.63

Adminstrative expenses 5.27 5.43 4.83

Selling expenses 7.19 7.77 7.87Cost of sales

100.00 100.00 100.00

Mar '07 Mar '08 Mar '09

Total Income 10458.92 12035.44 13339.54

Cost of sales 8838.61999999997

10348.32 11920.27

Operating Profit

1136.23 1157.65 1092.25

1,000.00

5,000.00

9,000.00

13,000.00

Comparison of Total income, Cost of sales and Operating Profit

Rs.

in

Cro

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ConclusionThe net profit of Tata motors was highest in the year 2008 i.e. 2028.92 crore , but in the year 2009 it’s profit decreased to 1016.55 crore .

The profit of the company decreased by 49 % in the year 2009.

The net profit of Maruti Suzuki in the year 2008 was 1730.80 crore which was lower than that of Tata motors

In the year 2009 the net profit of the company decreased by 29.58% but on comparing the profit with Tata motors the net profit of Maruti Suzuki was 11.9% higher .

Hindustan Motors is the worst performing company showing a negative growth in the year 2008 and a minimal profit 0f 30.84 in the year 2009.

On the basis of pas records Tata Motors is the best performing company in India.