eva_indian automobile industry

EVA analysis – Automobile Industry

Advanced Financial management - Project

Abstract:

Corporate performance is affected by various factors ranging from company specific, industry specific and economic variables. There had been wide acceptance on the objective of the firm to maximize the value. Among the set of popular value based management, Economic Value Added (EVA) is the most prominent. Therefore, in this study, an attempt has been made to find the EVA for major automobile companies in India and to derive the relation between EVA, NRIO and share price of the company in Indian Stock market with statistical tools.

Submitted to,

Mr. Vivek Saxena, Course-In-charge, NIIT University.

Submitted by,

Group – 4

Divya Nair P301313CMG426Leoprabhu E P301313CMG443Sanjeev R P301313CMG469Suresh Venkatesan P301313CMG479Ujjawal Mishra P301313CMG481Vignesha Sudan

RP301313CMG487

EVA analysis – Automobile Industry 07/20/2015

Contents1. Introduction - Indian Automobile Industry:..............................5

1.1 Market Size....................................................................................................5

1.2 Government Initiatives..................................................................................5

1.3 Road Ahead...................................................................................................6

2. Two Wheeler Segment – Hero Moto Corp.................................6

2.1 Company Profile.............................................................................................6

2.2 Business performance...................................................................................8

2.3 EVA Calculation:.............................................................................................9

2.4 Correlation................................................................................................10

2.5 Inference:.....................................................................................................10

3. Two Wheeler Segment – TVS Motor Company.........................11

3.1 Company Profile:..........................................................................................11

3.2 Business performance.................................................................................12

3.3 EVA Calculations..........................................................................................12

3.4 Correlation...................................................................................................14

3.5 Inference......................................................................................................14

4. Passenger Vehicle segment – Mahindra & Mahindra...............14

4.1 Company background..................................................................................14

4.2 Business performance.................................................................................15

4.3 EVA Calculations..........................................................................................15

4.4 Correlation...................................................................................................16

4.5 Inference......................................................................................................17

5. Passenger Vehicle segment – TATA Motors............................17

5.1 Company Profile...........................................................................................17

5.3 EVA Calculation:...........................................................................................18

5.4 Correlation:..................................................................................................19

5.5 Inference:.....................................................................................................20

6. Commercial Vehicle segment – Force Motors..........................20

6.1 Company background & Performance:........................................................20

6.2 Business segment of the company:.............................................................21

6.3 EVA Calculation:...........................................................................................21

6.5 Inference:.....................................................................................................22

7. Commercial Vehicle segment - Ashok Leyland........................22

7.1 Company Profile...........................................................................................22

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7.2 Business Performance:................................................................................23

7.3 EVA - Calculations........................................................................................23

7.4 Correlation...................................................................................................25

7.5 Inference:.....................................................................................................25

8. Conclusion...........................................................................26

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4JULY 20, 2015


1. Introduction - Indian Automobile Industry:

The Indian auto industry is one of the largest in the world with an annual production of 21.48 million vehicles in FY 2013-14. The automobile industry accounts for 22 per cent of the country's manufacturing gross domestic product (GDP). An expanding middle class, a young population, and an increasing interest of the companies in exploring the rural markets have made the two wheelers segment (with 80 per cent market share) the leader of the Indian automobile market. The overall passenger vehicle segment has 14 per cent market share. India is also a substantial auto exporter, with solid export growth expectations for the near future. Various initiatives by the Government of India and the major automobile players in the Indian market is expected to make India a leader in the Two Wheeler and Four Wheeler market in the world by 2020.

1.1 Market SizeSales of commercial vehicles in India grew 5.3 per cent to 52,481 units in January 2015 from a year ago, according to Society of Indian Automobile Manufacturers (SIAM).Sales of cars also grew for a third month in a row to 169,300 units in January 2015, up 3.14 per cent from the year-ago period. Car market leader Maruti Suzuki India witnessed 8.6 per cent higher sales at approximately 118,551 units in February 2015, out of which 107,892 were sold in domestic market and 10,659 units were exported. Hyundai Motor India Ltd (HMIL) reported a 2.4 per cent growth in total sales at 47,612 units in February, compared with 46,505 units in the same month last year. In the two-wheeler segment, Hero MotoCorp witnessed sales of 484,769 units in February 2015.TVS Motor Co posted 15 per cent higher sales at 204,565 units against 177,662 units. Bajaj Auto sold a total of 243,000 two and three-wheelers segment.

1.2 Government InitiativesThe Government of India encourages foreign investment in the automobile sector and allows 100 per cent FDI under the automatic route. Excise duty on small cars, scooters, motorcycles and commercial vehicles was reduced in February last year to 8 per cent from 12 per cent to boost the ‘Make in India’ initiative of the Indian government.Some of the major initiatives taken by the Government of India are:

Under the Union budget of 2015-16, the Government has announced to provide credit of Rs 850,000 to farmers, which is expected to boost the tractors segment. The government is aligning to ensure that at least one family member is economically strong to support the family. This is expected to improve the sentiments of entry-level two-wheelers.

The Government plans to promote eco-friendly cars in the country i.e. CNG based vehicle, hybrid vehicle, electric vehicle and also made mandatory of 5 per cent thanol blending in petrol.

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The government has formulated a Scheme for Faster Adoption and Manufacturing of Electric and Hybrid Vehicles in India, under the National Electric Mobility Mission 2020 to encourage the progressive induction of reliable, affordable and efficient electric and hybrid vehicles in the country.

The Automobile Mission Plan for the period 2006–2016, designed by the government is aimed at accelerating and sustaining growth in this sector. Also, the well-established Regulatory Framework under the Ministry of Shipping, Road Transport and Highways, plays a part in providing a boost to this sector.

1.3 Road AheadIndia is probably the most competitive country in the world for the automotive industry. It does not cover 100 per cent of technology or components required to make a car but it is giving a good 97 per cent, highlighted Mr Vicent Cobee, Corporate Vice-President, Nissan Motor’s Datsun. The vision of AMP 2006-2016 sees India, “to 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 per cent of the GDP and providing additional employment to 25 million people by 2016.” The Japanese auto maker Maruti Suzuki expects the Indian passenger car market to reach four million units by 2020, up from 1.8 million units in 2013-14.

2. Two Wheeler Segment – Hero Moto Corp

2.1 Company Profile

Hero MotoCorp Limited is the World's single largest two-wheeler motorcycle company. The company is engaged in the manufacture of two wheelers motorcycles and its parts. The company has three manufacturing facilities namely Dharuhera, Gurgaon at Haryana and Haridwar at Uttarakhand. The company is based in New Delhi, India.

The company offers a range of bikes starting from CD Dawn, CD Deluxe, Splendor Plus, Splendor NXG, Passion and Passion Prao. The 125 cubic centimeter segment offers Glamour, Super Splendor and Glamour F1. It also has an offering called Achiever in 135 cubic centimeter segment. In the 150 cubic centimeter and above the company offers brands like Hunk, CBZ X-treme, Karizma and the Karizma ZMR. It also offers a 100 cubic centimeter scooter, Pleasure.

Hero MotoCorp Limited was incorporated in the year 1984 with the name Hero Honda Motors Ltd. The company was established as a joint venture company between Honda Motor Company of Japan and Hero Group. In the year 1983, they signed a joint collaboration agreement and formed the company. The joint venture between India's Hero Group and Honda Motor Company, Japan has not only created the world's single largest two wheeler company but also one of the most successful joint ventures worldwide.

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In the year 1985, the company commenced their commercial production at Dharuhera plant in Haryana and introduced their first motorcycle, CD 100 in the market. In the year 1989, they launched the new motorcycle model, Sleek in the market and in the year 1991, they introduced new motorcycle model, CD 100 SS in the market. In the year 1995, the company introduced their extraordinary product, Splendor in the market.

In the year 1997, the company inaugurated their second manufacturing facility at Gurgaon in Haryana. Also, they introduced new motorcycle model, Street in the market. In the year 1999, they launched Hero Honda CBZ, the first 150cc motorcycle in the Indian two wheeler industry. In the year 2001, the company introduced new models, Passion and Joy in the market. In the next year, they introduced new models, Dawn and Ambition in the market.

In the year 2003, the company launched new motorcycle models namely, CD Dawn, Splendor+ and Passion Plus in the market. Also, they launched Hero Honda Karizma, the industry's first 223cc motorcycle. In the year 2004, they introduced new models, Ambition 135 and CBZ* in the market. During the year, they renewed the joint technical agreement with the Honda Motors Company, Japan.

In the year 2005, the company launched Super Splendor, CD Deluxe, Glamour and Achiever in the market. In the year 2006, the company forayed into scotter segment and launched 100cc gearless scotter, Pleasure in the market. In the year 2007, the company launched Splendor NXG, CD Deluxe, Passion Plus and Hunk in the market.

During the year 2007-08, the company commissioned their third plant at Haridwar in Uttarakhand with an initial installed capacity of 500,000 units. This plant had lean manufacturing and practices that ensure efficiency. During the year, the company launched new models (including variants) including Splendor NXG, Hunk, New Super Splendor, New Passion Plus, Commemorative Splendor+ and a refreshed version of Pleasure.

During the year 2008-09, the company increased the installed capacity of Motorised 2 wheelers upto 350CC engine by 1800000 Nos to 5200000 Nos. Also, they launched eight models: Passion Pro (100 cubic capacity-4 Stroke), CBZ-Extreme (150 cubic capacity - 4 Stroke), Pleasure New Aesthetics, Splendor NXG (Self Start), CD Deluxe (Self Start), Glamour FI, Glamour (Carb) and HUNK Special Edition. Also, they launched new motorcycle model, Karizma - ZMR in the market.

During the year 2009-10, the company increased the installed capacity of Motorised 2 wheelers upto 350CC engine by 200000 Nos to 5400000 Nos. The company launched nine new models during the year.

During the year 2010-11, the company launched six new models including variants of existing models successfully. They refreshed Glamour and Glamour FI. They introduced the New Hunk, Super Splendor and Splendor Pro. The company

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launched the new upgraded versions of CBZ Xtreme and Karizma. Also, they breached the landmark 5 million figure cumulative sales in a single year.

During the year, the Indian Promoter Group of the company, which comprised of Hero Investments Pvt Ltd (HIPL), Bahadur Chand Investment Pvt Ltd (BCIPL) and Hero Cycles Limited (Hero Cycles) re-aligned the shareholding in the company, following a family agreement. As a result, Hero Cycles transferred its shareholding in the company to HIPL on May 28, 2010. As a result of these transactions, the Indian Promoter Group of the company now comprises of HIPL and BCIPL owned and controlled entirely by the Munjal Family headed by Brijmohan Lall Munjal.

Also, during the year, the Indian Promoter Group and Honda Motor Co Ltd, Japan (Honda) entered into a Share Transfer Agreement (the Agreement) on January 22, 2011. As per the terms of the Agreement, Honda had agreed to transfer its entire shareholding of 26% in the Company to the Indian Promoter Group, bringing an end to the joint venture between the two promoter groups of the company. The acquisition was completed on March 22, 2011 and the shares held by Honda were transferred to the Indian joint venture partner.

In addition to the Agreement, the Indian Promoter Group and Honda also entered into a License Agreement on January 1, 2011. As per this agreement, Honda has given to the company, the right and license to manufacture, assemble, sell and distribute certain products and their service parts under their Intellectual Property Rights.

In July 2011, the company changed their name from Hero Honda Motors Ltd to Hero MotoCorp Ltd.

In February 2012, the company entered into a strategic partnership with Erik Buell Racing (EBR) Of USA for contemporary technology and design inputs to enable the company to launch high end bikes for the domestic and international markets.

2.2 Business performanceDuring the Financial year (FY) your Company clocked the sales of 6,245,960 units depicting an increase of 2.8% over the previous FY 60,75,583 units. The total sales of products (net of excise duty) was increased by 6.5% to Rs. 25,125 crores in the FY under review from Rs. 23,583 crores in previous FY.Net Revenue from Operations of the Company increased by 6.3%, from Rs. 23,768 crores in FY 2012–13 to Rs. 25,275 crores in FY 2013–14. Profit before Tax (PBT) has shown a increase of 13.37% from Rs. 2,529 crores in 2012–13 to 2,867 crores in 2013–14. The Company's Profit After Tax (PAT) decreased by 0.4% from Rs. 2,118 crores in 2012–13 to 2,109 crores in 2013–14. Earnings before Interest, Depreciation and Taxes (EBIDTA) margins stood at 14.01% in FY 2013–14 as compared to 13.82% in FY 2012–13. Similarly the operating margins stood at 9.62% in FY 2013–14 as compared to 9.02% in FY 2012–13

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During the year under review your Company successfully launched the upgraded models of HF Dawn, HF Deluxe, HF Dlx Eco, Passion Pro, Splendor Pro, Splendor Pro Long Seat, Super Splendor, Glamour, Glamour FI, I smart, Pleasure IBS and Pleasure Upgrade. You will be delighted to note that "Splendor" continues to be the largest selling brand in FY 2013–14 as well with 19.6% market share coming from sales of 1,967,006 units.Though the market share declined from 38.4% in the previous year to 36.4% in the financial year under review, the Company has retained its position as the World's largest Two–Wheeler manufacturer Company for the 12th year in a row.A detailed discussion on the business performance and future outlook has been given in the chapter on 'Management Discussion and Analysis' (MDA).

2.3 EVA Calculation:

Year WACC NROIInvestmen

t EVAMarket Value

added% change in share

price

2014 31.00% 38.0% 3070.98 1,165.726

16,116.74 17.52%

2013 21.03% 35.2% 3785.51 1,331.969

281.01 48.01%

2012 10.50% 48.2% 4080.28 1,967.320

(694.79) -25.01%

2011 -1.30% 118.3% 1658.78 1,961.593

2,022.66 28.22%

2010 12.13% 129.8% 1573.71 2,042.571

5,370.12 -21.98%

2009 58.19% 52.8% 1156.26 610.768

14,783.30 86.57%

2008 -14.28% 97.4% 1165.53 1,135.710

2,350.96 52.01%

2007 22.04% 68.4% 949.37 649.745

(1,093.40) 7.95%

2006 17.50% 126.8% 674.48 855.322

658.74 -23.55%

2005 56.98% 85.2% 1695.14 1,443.501

12,439.75 64.91%

9


1 2 3 4 5 6 7 8 9 10

(5,000.00)

-

5,000.00

10,000.00

15,000.00

20,000.00

EVA Market Value added

1 2 3 4 5 6 7 8 9 10

-40.00%-20.00%

0.00%20.00%40.00%60.00%80.00%

100.00%120.00%140.00%

Chart Title

NROI % change in share price

2.4Correlation Column 1 Column 2 Column 3

EVA 1Market Value added -0.20 1.00Change in stock price -0.38 0.68 1

Column 1 Column 2

NROI 1

10


% change in share price -0.34 1

2.5 Inference:

Economic Value Added (EVA) framework is gradually replacing the traditional measures of financial performance on account of its robustness and its immunity from creative accounting. Following this global trend, several companies in India are focusing on shareholder value creation. The main objectives of this study were: to examine whether the sample companies has been able to generate value for its shareholders.Eva can be defined as operating profits less the cost of all capital employed to produce those earnings.As per the correlation values EVA has a negative correlation with the change in stock price. However in reality the stock price is purely influenced by the prevailing market sentiments and the investor perception of the company.Eva is dependent on the premium our investment is earning over the cost incurred in furnishing the capital. As per the excel also Eva=Investment*(ROI-WACC). As can be seen from the working Eva is inversely proportional to the cost of capital incurred.

3. Two Wheeler Segment – TVS Motor Company

3.1 Company Profile:

TVS Motor Company Ltd, the flagship company of TVS Group is the third largest two-wheeler manufacturer in India. The company manufactures a wide range of two-wheelers from mopeds to racing inspired motorcycles. The company is having their manufacturing plants at Hosur in Tamilnadu, Mysore in Karnataka and Solan in Himachal Pradesh. They are also having one unit located at Indonesia. Their subsidiaries include Sundaram Auto Components Ltd, TVS Motor Company (Europe) BV, TVS Motor (Singapore) Pte Ltd, PT TVS Motor Company, Indonesia, TVS Energy Ltd and TVS Housing Ltd.

TVS Motor Company Ltd is a part of Sundaram Clayton group in TVS group of companies. In the year 1979, Sundaram-Clayton Ltd started Moped Division at Hosur to manufacture TVS 50 mopeds. In the year 1982, the company entered into a technical know-how and assistance agreement with Suzuki Motor Co Ltd of Japan and in the year 1985, they incorporated a new company Lakshmi Auto Components Pvt Ltd for the manufacture of critical engines and transmission parts

During the year 2009-10, the company launched TVS JIVE and TVS Wego in the market. They also launched a four stroke three-wheeler with superior features. They commenced export of TVS Apache to Brazil. Also, they developed a pan India

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presence in three-wheelers. In December 2009, the company acquired the entire shareholding of TVS Energy Ltd. Thus, TVS Energy became a wholly owned subsidiary of the company. In June 2010, they acquired the entire paid up capital of TVS Housing Ltd and thus, TVS Housing Ltd became a wholly owned subsidiary of the company.

In October 2010, the company won the SAP ACE Award for Consumer Excellence 2010 in 'Best Run Award in Automotive' category. They also won the Silver EDGE award from Information Week, a leading IT magazine for in house design and development of Data Acquisition System for improving shop floor productivity. Information Week annually recognize enterprises driving growth and excellence through IT.

In November 2010, the company launched TVS TRU4 Premium, a semi-synthetic 4T Engine Oil. In February 2011, Indian Bank signed an MoU with the company for financing three wheelers manufactured by the company. In March 2011, the company introduced ABS (Anti-lock Braking System) in their premium segment motorcycle TVS Apache RTR 180, giving the bike formidable stopping power and superior braking control that compliments its high performance capability.

3.2 Business performanceDespite a challenging macroeconomic environment and intense competitive landscape, the Company sold 19.9 lakh two wheelers in line with last year. Motorcycle sales increased by 4% and scooters by 6%. Moped sales marginally declined mainly due to poor monsoon and decline of two wheeler sales in Tamilnadu. Three-wheeler sales of the Companyincreased by 63% in 2013-14. Sale of spare parts grew by 18%.TVS Jupiter, the newly launched scooter bagged seven awards acclaiming its superiority over competitive products.The Company's total revenue including other income increased to Rs.7,992.06 Cr in the current year from Rs.7,193.09 Cr in the previous year. Profit before tax and exceptional items (PBT) for the year 2013-14 significantly increased to Rs.351.26 Cr compared to Rs.254.42 Cr of the previous year. Similarly Profit after tax (PAT) for the year 2013-14 increased to Rs.261.63 Cr from Rs.116.02 Cr of the previous year, after taking into account the extra-ordinary and exceptional

3.3 EVA Calculations


t EVAMarket Value

added% change in share

price

2015 32.99% -0.2% 1125.71 (2.679)

7,529.90 173.56%

2014 15.32% 12.4% 1011.48 125.537

543.35 203.91%

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2013 10.13% 4.5% 1025.57 46.186

(718.72) -25.14%

2012 -8.57% 39.9% 937.59 374.348

(388.02) -33.66%

2011 16.79% 9.5% 955.73 90.865

1,651.79 41.89%

2010 31.26% -13.7% 995.94 (136.282)

636.08 257.16%

2009 -8.01% 17.4% 1016.48 177.106

(717.77) -36.06%

2008 22.28% -17.0% 797.08 (135.513)

(1,027.04) -38.66%

2007 19.18% -7.1% 766.78 (54.788)

229.00 -61.66%

2006 51.27% -34.0% 1151.16 (391.876)

378.55 100.77%

1 2 3 4 5 6 7 8 9 10

(2,000.00)

-

2,000.00

4,000.00

6,000.00

8,000.00

10,000.00


13


1 2 3 4 5 6 7 8 9 10

-100.00%

-50.00%

0.00%

50.00%

100.00%

150.00%

200.00%

250.00%

300.00%

Chart Title

NROI % change in share price

3.4 Correlation Row 1 Row 2 Row 3

EVA 1Market Value added -0.06 1Change in stock price (April - March) -0.13 0.88 1

Colum

n 1 Column 2NROI 1% change in share price -0.26 1

3.5 Inference

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The NROI and EVA has negative correlation with share price, however if we consider the time lag between market response and the realization of the profit we have a positive correlation of 0.37 between the NROI and share price.The EVA is inversely proportional to WACC, which is mostly impacted by cost of equity, which is evident from the above table.The EVA is negative in FY06, FY08, FY10 and FY15 when the cost of capital is comparatively high.

4. Passenger Vehicle segment – Mahindra & Mahindra

4.1 Company backgroundMahindra & Mahindra Ltd., incorporated in the year 1945, is a Large Cap company (having a market cap of Rs 80636.42 Cr.) operating in Auto sector. Mahindra & Mahindra is the only Indian company among the top three tractor manufacturers in the world. The Group has a leading presence in key sectors of the Indian economy. The Group employs over 50,000 people and has several state–of–the–art facilities in India and overseas. Mahindra & Mahindra has comprehensive manufacturing facilities with high level of vertical integration, Catering to the Sector's diverse customer base spanning rural and semi urban customers, defence requirements and luxurious urban utility vehicles or SUVs. These manufacturing plants keep abreast with the latest technology to meet the growing market expectations. These manufacturing facilities have some of the best technologies and equipment in India and provide for a very challenging and satisfying work environment. Its plants in Mumbai and Nasik manufacture multi–utility vehicles and engines are produced at the Igatpuri plant. Utility Vehicles, Light commercial vehicles and 3 wheelers are manufactured at the Zaheerabad plant in Andhra Pradesh and three–wheelers at the Haridwar plant.The company manufactures & markets utility vehicles, light commercial vehicles that include three wheeler vehicles, namely; Scorpio, Bolero, Champion and many more. The company also exports its products to several countries in Europe, Africa, South America, South Asia and the Middle East. Mahindra International is into producing trucks and buses. The company has entered into a joint venture with Navistar for production of diesel engines & trucks. M&M's farm equipment segment has presence in six continents and has a worldwide network of 800 dealers .Its total combined production capacity is 1,50,000 tractors a year from countries like India, USA, China and Australia

4.2 Business performanceFor the quarter ended 31-Mar-2015, the company has reported a Standalone sales of Rs. 9411.52 Cr., down -0.57% from last quarter Sales of Rs. 9465.94 Cr. and down -13.16% from last year same quarter Sales of Rs. 10837.89 Cr. Company has reported net profit after tax of Rs. 550.56 Cr. in latest quarter.

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4.3 EVA Calculations


t EVAMarket value

addedGrowth in stock

price

2015 19.60% 32.4% 5876.95 1,903.141

76,196.13 22.86%

2014 16.49% 58.5% 4957.86 2,899.664

55,954.88 17.00%

2013 8.36% 66.9% 4293.35 2,870.612

49,572.77 23.42%

2012 -7.87% 95.5% 3132.91 2,991.218

44,192.64 4.92%

2011 11.29% 81.8% 2738.52 2,240.396

39,000.87 29.92%

2010 61.44% 17.6% 2567.6 451.379

24,482.34 117.18%

2009 -19.80% 63.1% 1814.45 1,145.406

11,494.13 0.00%

2008 15.18% 44.4% 1590.57 705.933

17,895.32 -4.17%

2007 15.85% 55.0% 1375.26 757.036

17,479.65 29.99%

2006 41.98% 8.0% 1364.15 109.586

9,272.79 95.12%

1 2 3 4 5 6 7 8 9 10 -

10,000.00

20,000.00

30,000.00

40,000.00

50,000.00

60,000.00

70,000.00

80,000.00

90,000.00

EVA Market value added .

16


1 2 3 4 5 6 7 8 9 10-20.00%

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

140.00%

NROI Growth in stock price

4.4 Correlation

Column 1 Column 2

NROI 1

% change in share price -0.66 1

4.5 Inference

1. The company raises funds by equity and debts with insignificant portion of debentures. Cost of equity is more than cost of debt and cost of debentures.

2. The ROI of the company is on the higher side and varies between 50% to 93% in the last 10 years

3. There is no direct relationship between PAT and ROI of the company.

4. The NROI of the company varies between 8% to 95.5% in the last 10 years

5. The values of EVA fluctuate similar to NROI. EVA is minimum for lowest NROI of 8%.

6. Steady increase in market value for last 7 years.

7. There is no direct relationship between EVA and market value addition.

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8. Correlation was conducted to find the relationship between NROI and growth in company's stock price.

9. For M&M, there is a negative correlation between NROI and growth in stock price for the time period under study.

5. Passenger Vehicle segment – TATA Motors

5.1 Company ProfileTata Motors Ltd is India's largest automobile company. The company is the leader in commercial vehicles in each segment, and among the top three in passenger vehicles with winning products in the compact, midsize car and utility vehicle segments. They are the world's fourth largest truck manufacturer, and the world's second largest bus manufacturer.Tata Motors Limited recorded a gross turnover of Rs.37,758 crores, 23.4% lower from Rs.49,320 crores in the previous year. On top of a 16.7% decline in FY 2012-13, a decline of more than 40% over a 2 year period was witnessed. Sustained deceleration in the economic growth, high inflation, higher fuel prices, reduced availability of finance and elevated interest rate regime continued to impact demand for the Indian auto industry in general and commercial vehicle industry in particular. Additionally, the need to increase marketing expenses on account of severe competitive intensity and depressed market scenario impacted EBITDA margins from positive 4.8% in FY 2012-13 to negative 1.4% for FY 2013-14. The reduction of profits from operations was offset by dividend from subsidiary companies of Rs.1,574 crores (including dividend from JLR) as compared to Rs.1,584 crores for the previous year and profit of Rs.1,966 crores on divestment of investments in certain foreign subsidiaries to TML Holdings Pte Ltd, Singapore, a wholly owned subsidiary. Loss Before Tax and Profit After Tax for the FY 2013-14 were at Rs.1,026 crores and Rs.335 crores respectively, as compared to Profit Before Tax and Profit After Tax of Rs.175 crores and Rs.302 crores respectively in FY 2012-13.



t EVAMarket Value

added% Change in Share

Price

2015 24.47% -23.1% 15455.74 (3,564.561)

19,527.13 50.15%

2014 11.54% -4.3% 15019.52 (640.375)

19,998.37 -2.76%

2013 -16.62% 34.3% 13417.07 4,600.414

2,128.47 10.83%

2012 12.95% 13.4% 11203.89 1,501.956

31,890.28 60.53%

2011 44.55% -2.3% 7645.27 320.92%

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(179.050) 13,145.37

2010 -10.00% 43.5% 5387.31 2,340.931

(13,573.98) -70.36%

2009 16.46% 44.4% 3881.26 1,725.178

(4,714.46) -7.19%

2008 15.13% 46.1% 3570.04 1,647.351

11,453.48 -25.10%

2007 59.40% -4.1% 3157.67 (128.199)

5,040.52 115.12%

2006 16.06% 27.1% 3247.8 878.534

5,129.54 -16.37%

1 2 3 4 5 6 7 8 9 10

(20,000.00)

(10,000.00)

-

10,000.00

20,000.00

30,000.00

40,000.00


1 2 3 4 5 6 7 8 9 10

-100.00%

-50.00%

0.00%

50.00%

100.00%

150.00%

200.00%

250.00%

300.00%

350.00%

% Change in Share Price NROI

19


5.4 Correlation:

Row 1 Row 2 Row 3EVA 1Market Value added -0.46 1Change in stock price (April - March) -0.54 0.61 1

Row 1 Row 2NROI 1% change in share price -0.56 1

5.5 Inference:

1. The company raises funds by equity, debts and debentures. Cost of equity is more than cost of debt and cost of debentures.

2. The ROI of the company varies 1% to 61% in the last 10 years.3. The ROI of the company under study is positive, whenever the company has

booked profits. 4. The NROI of the company varies -23% to +46% in the last 10 years.5. The values of NROI are negative in some years (FY 06, FY 10, FY 13 & FY 14),

even though the company had booked profits and had positive ROI.6. The values of EVA fluctuate similar to NROI. EVA < 0 for 4 years where NROI

was negative.7. Thus it can identify that positive ROI does not always signify that the

company is doing good.8. The company has added to the shareholder value for the rest of the 6 years

and maximum value was added in FY 129. Correlation was conducted to find the relationship between NROI and growth

in company's stock price.10.For Tata Motors Ltd there was negative correlation between NROI and growth

in stock price for the time period under study.

6. Commercial Vehicle segment – Force Motors

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6.1 Company background & Performance:Force Motors Ltd was incorporated in the year 1958 by signing collaboration between Vidal & Sohn Tempo Werke. The company, formerly known as Bajaj Tempo Limited, is a Firodia Enterprise company established in 1958 the founder and the managing director for the company was N K Firodia.Four decades ago, Force Motors started production of the Hanseat three–wheelers in collaboration with Vidal & Sohn Tempo Werke, Germany, and went on to establish a strong presence in the light commercial vehicles (LCV) field with the Matador, the proverbial LCV in India. Through the 80s and 90s, especially in the last five years with a major product development effort, Force Motors has introduced new LCVs, a new family of utility vehicles, new state–of–the–art tractors, and a new range of three–wheelers.Force Motors is a fully vertically integrated automobile company, with expertise in design, development and manufacture of the full spectrum of automotive components, aggregates and vehicles.

6.2 Business segment of the company:Force Motors stands on the threshold of a new era in the automobile industry in India, with a stake in five products1) Tractors: OX and Balwan – Modern tractors, sporting synchromesh transmission, Bosch hydraulics, excellent ergonomics and fuel efficient engines designed for demanding farmers of developing countries. 2) Three wheelers: Minidor – A family of new and beautifully engineered three–wheelers –– economical, rugged and environment friendly –– very efficient transport for people and goods.3) Light commercial vehicles: Traveller and Excel range of passenger and goods carriers. Powered by a family of DI and IDI engines including the legendary Mercedes derived OM 616 engines. A range of high reliability axles and transmissions add value. 4) Multi Utility Vehicles: Complete range of multi utility vehicles including Trax Judo, Trax Gama, Trax Cruiser, Trax Kargo King range of single cabin and double cabin pickups. And the 4X4 cross country vehicle – Trax Gurkha. 5) Heavy commercial vehicles: In technical collaboration with MAN AG, Germany, the company will be introducing shortly a range of heavy commercial vehicles with a payload capacity ranging from 16 to 50 tonnes.For the quarter ended 31-Mar-2015, the company has reported Standalone sales of Rs. 694.55 Cr., up 35.68% from last quarter Sales of Rs. 511.92 Cr. and up 24.03% from last year same quarter Sales of Rs. 560.00 Cr. Company has reported net profit after tax of Rs. 46.28 Cr. in latest quarter.


Year WACC NROI Investment EVA% change in share

price

2014 26.75% -23.6% 1271.02 (299.390) 99.76%

2013 8.88% -7.7% 1226.53 -26.88%

21


(94.253)

2012 21.11% 32.6% 1240.51 404.492 -30.49%

2011 -8.44% 14.5% 616.5 89.305 28.22%

2010 13.84% -5.7% 431.15 (24.637) 281.56%

2009 35.58% -0.3% 388.44 (1.003) -5.60%

2008 -0.96% -10.2% 468.87 (48.056) -53.02%

2007 20.30% -21.3% 435.93 (92.915) -40.86%

2006 21.41% -11.7% 449.29 (52.407) 65.74%

2005 23.98% -19.5% 251.68 (49.083) 8.45%

1 2 3 4 5 6 7 8 9 10

-100.00

-50.00

0.00

50.00

100.00

150.00

200.00

250.00

300.00

350.00

Ri,%NROI

Column 1Column

2NROI 1

Share price

-0.1360492

24 1

6.5 Inference:1. The company raises funds by equity and debts. Cost of equity is more than cost of debt.2. The ROI of the company varies between -11.2% to 53% in the last 10 years3. There is no direct relationship between PAT and ROI of the company.

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4. The NROI of the company varies between -23.5% to 32.6% in the last 10 years5. The values of EVA fluctuate similar to NROI. EVA is minimum for lowest NROI of -23.5%.6. For Force motors, there is a negative correlation between NROI and growth in stock price.

7. Commercial Vehicle segment - Ashok Leyland

7.1 Company ProfileAshok Leyland is the 2nd largest manufacturer of commercial vehicles in India, the 4th largest manufacturer of buses in the world and the 16th largest manufacturer of trucks globally. With a turnover in excess of US $ 2.3 billion (2012-13) and a footprint that extends across 50 countries, it is the most fully-integrated manufacturing companies in this side of the globe. Headquartered in Chennai, India, their manufacturing footprint spreads across the globe with 8 plants; including one at Ras Al Khaimah (UAE). Their Joint Venture partners include Nissan Motor Company (Japan) for Light Commercial Vehicles, John Deere (USA) for Construction Equipment, Continental AG (Germany) for Automotive Infotronics and the Alteams Group for the manufacture of high-press die-casting extruded aluminum components for the automotive and telecommunications sectors.

Product range of the company includes: Buses Trucks Engines Defence & Special Vehicles

Associates Companies: Automotive Coaches & Components Ltd (ACCL) Lanka Ashok Leyland Hinduja Foundries IRIZAR-TVS Ashok Leyland Project Services Limited

7.2 Business Performance:

The company has faced with multiple challenges over the past two years. While the economic slowdown impacted sales of commercial vehicles, the company’s capital expenditure of Rs 6,000 crore over FY08-13 added to its debt burden. The company’s under-utilized capacities have hurt operating leverage and tilt towards light commercial vehicles (CVs) hurt volumes. The CV maker’s profitability took a huge hit both counts. With the mining industry in distress and industrial output collapsing, the outlook remained weak for the CV industry. But with the new government taking charge, the outlook for Ashok Leyland has dramatically changed. Driven by a strong 33 per cent year-on-year growth in volume and improvement in realisations, Ashok Leyland’s revenues grew 46 per cent to Rs 4,505 crore in the quarter ending March 2014. Realisations were up 10 per cent as the proportion of medium and heavy commercial vehicles (M&HCV) improved. Price

23


increases helped, with the operating profit margin up 430 basis points (bps) over a year earlier, to 10.1 per cent, slightly lower than some estimates. Driven by a strong 33 per cent year-on-year growth in volume and improvement in realisations, Ashok Leyland’s revenues grew 46 per cent to Rs 4,505 crore in the quarter ending March. Realisations were up 10 per cent as the proportion of medium and heavy commercial vehicles (M&HCV) improved. Price increases helped, with the operating profit margin up 430 basis points (bps) over a year earlier, to 10.1 per cent, slightly lower than some estimates.

7.3 EVA - Calculations


t EVAMarket Value

AddedGrowth in Stock

Price

2015 26.36% -21.6% 5659.86 (1,220.013)

12,687.34 224.34%

2014 14.66% -24.5% 5281.88 (1,296.662)

4,692.00 6.77%

2013 8.60% -5.1% 4913.5 (249.483)

6,668.15 -29.40%

2012 -0.65% 13.9% 4633.79 643.355

6,873.55 4.91%

2011 9.90% 8.6% 4249.56 366.840

8,680.31 -0.18%

2010 29.76% -4.6% 3399.12 (156.911)

5,454.39 202.28%

2009 -9.25% 22.9% 1525.55 349.823

3,335.82 -48.20%

2008 21.04% 26.7% 1307.04 349.596

5,238.93 -2.37%

2007 13.52% 34.1% 943.27 321.788

5,461.51 -6.25%

2006 40.53% -6.0% 893.84 (53.192)

3,508.98 85.71%

24


1 2 3 4 5 6 7 8 9 10-2000.00

0.00

2000.00

4000.00

6000.00

8000.00

10000.00

12000.00

14000.00

EVA Market Value Added

1 2 3 4 5 6 7 8 9 10

-100.00%

-50.00%

0.00%

50.00%

100.00%

150.00%

NROI Growth in Stock Price

7.4 Correlation

Column 1 Column 2NROI 1Change in stock price -0.54 1

Column 1 Column 2EVA 1Change in stock price -0.36 1

25


7.5 Inference:

The company raises funds by equity, debts and debentures. Cost of equity is more than cost of debt and cost of debentures.

The ROI of the company varies between -10% to +48% in the last 10 years. The ROI of the company under study is positive, whenever the company has booked

profits. The ROI is negative, when the company is under loss. There is direct relationship between PAT and ROI of the company. The NROI of the company varies between -24.5% to +34.1% in the last 10 years. The values of NROI are negative in some years (FY 15, FY 13, FY 10 & FY 05), even

though the company had booked profits and had positive ROI. The values of EVA fluctuate similar to NROI. EVA is negative (EVA < 0) for 4 years

where NROI was negative. Hence it can be identified that positive ROI does not always signify that the company is

doing good. The company has added to the shareholder value for the rest of the 6 years where EVA is

positive and maximum value was added in FY 12. Correlation was conducted to find the relationship between NROI and growth in

company's stock price. For Ashok Leyland there was negative correlation between NROI and growth in stock

price for the time period under study.

8. Conclusion

M&M and Hero Moto Corp are the only two companies which has positive NROI throughout 10 years.

Tata Motors, Ashok Leyland and Force share similar NROI trend with positive and negative NROI’s.

TVS Motors booked consecutive positive NROI in last 4 years except in FY 2015. Similar to NROI, M&M and Hero Moto are the only 2 companies with positive EVA throughout

the 10 years. All other companies followed similar trend in line with NROI. All the companies booked positive EVA in FY 2012 and FY 2011 and TATA motors added more

shareholder value in FY 2012.

26


1 2 3 4 5 6 7 8 9 10

-4000

-3000

-2000

-1000

0

1000

2000

3000

4000

5000

6000

M&MTata MotorsHero Moto CorpAshok LeylandTVS MotorForce

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eva_indian automobile industry

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eva calculations154

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