project_hero motocorp ltd._financial analysis final

7/24/2019 Project_Hero Motocorp Ltd._financial Analysis Final

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Trend Analysis - Hero MotoCorp Ltd

Equity and Liability

There was exceptional surge in non current liability in year 2011. The company collected cashthrough borrowing for one time payment to Honda for its share during seperation .

The equity for the company is increasing and liabilities (current and non current ) are

decreasing. This trend shows good trend for the company.


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Assets

The current asset is increasing due to the increase in demand. The increase in current asset is

more than the increase in the fixed asset.

!t means the spread of fixed asset is increasing which will result in the scale of economies.

Howe"er it can also be due to the poor management of wor#ing capital.


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Revenue & Expense

The expense is increasing faster than re"enue. !t may be because of three reasons$1. %ompetition is increasing and hence the expense for selling is increasing at much faster

rate.

2. The raw material cost is increasing&. !nefficiency in operation is increasing

The actual reason has to be analysed further.


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Profit before tax & Profit after tax

The bottom line is i.e. 'rofit after Tax ('T) is almost at the same le"el in spite of increase in

re"enue it means to maintain the same 'T and the company needs to #eep increasing its re"enue.

s the expenses are also on increasing trend due to increase in cost of raw material sellingexpense and low mar#ed up price due to increase in the competition.


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Common inan!ial "tatement # Hero Moto!orp Ltd$

Equity and Liability

e can clearly see that the equity * of the company is on increasing trend. !t reflects impro"ement

in financial health of the company.

The sudden drop in equity * in +, 2011 was due to its separation from Honda company.

Howe"er company has not only regained its status but surpassed it (--* equity)


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Total Assets

The ratio of current asset is increasing o"er noncurrent asset. !t means the liquidity of company isincreasing. This phenomenon can be due to economies of scale (due to higher spread of fixed

asset).


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Profit & Loss

%/ (%ost of goods sold) has increased from +, 2010 to +, 2012 after this it has reducing

trend$ it shows that company is impro"ing its efficiency.

The profitability is shrin#ing mainly due to increase in / and depreciation. !ncrease in / in

the company is increasing consistently mainly due to Hero brand establishment after separation

with Honda.

!ncrease in depreciation is mainly due to increase in fixed assets resulting from companys

expansion.


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Cas% lo Analysis

et cash from operating acti"ity too# a dip from +, 2010 to +, 201& howe"er it increased in +,2013. The sudden increase can be resulted from sustained cost efficiency and decrease in Honda

royalty.

The consistent increase in in"esting acti"ity is reflection of companys global expansion.


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inan!ial Ratios

Liquidity and "olven!y Ratios

Liquidity

!t is the ability of a business to meet its short4term obligations when they fall due.

Current ratio

!t is an indicator of a %ompanys ability to pay its obligation in short4term

Comment'-5owest in 2011 due to one time payment to 67 Honda during separation from 8oint

"enture. Though it is less than 1 which is unfa"orable to pay current liabilities yet it is in

impro"ing trend

(ui!) ratio

!t relates more liquid current assets (by remo"ing in"entory into current assets).


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Comment'- 5owest in 2011 due to one time payment to 67 Honda during separation from 8oint

"enture. Though it is less than 1 which is unfa"orable to pay current liabilities yet it is inimpro"ing trend

"olven!y

%ompanys long4 term sol"ency is affected by the extent of debt used to finance its assets. 9ebt ismore ris#y than equity

*ebt-to-equity ratio

!t indicates the extent of use of financial le"erage.

High ratio means aggressi"e use of le"erage5ow ratio indicates small degree of le"erage and is too conser"ati"e

Comments'Highest in 2011 due to one time payment (through borrowing)to 67 Honda during

separation from 8oint "enture .!t is good that %ompany does not has borrowing7debt at all across

the years

*ebt Covera+e Ratios

,nterest !over

!t indicates protection a"ailable to the creditors for the payment of interest charges by the

%ompany


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Comment'-Highest in the year 2010 and from 2011 it is at steady state with 200 times and "erygood interest paying ability

Mana+ement Effi!ien!y ratios'

,nventory Turnover Ratio

!t is number of times a %ompanys in"entories are turned into sales.

!n"estment in in"entory represents idle cash

Comment'-Highest in 2011 and now in decreasing trend which indicates good in"entory

management along with associated expenses in the %ompany


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*ebtors Turnover Ratio!t measures the efficacy of a firms credit policy and collection mechanism and shows the number

of times each year the recei"ables are turned into cash

Comment'-ustained throughout the years and it seems that credit policy is not changed in the last

fi"e years

ixed Asset Turnover Ratio

!ts measures +irms efficiency in utili:ing its fixed assets

Asset Turnover Ratio

!ts measures +irms efficiency in utili:ing its assets.

!t indicates how many times the asset were turned o"er in a period in order to generate sales


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Profitability Ratio'

'rofitability ratios measure a companys ability to generate earnings relati"e to sales assets and

equity. These ratios assess the ability of a company to generate earnings profits and cash flows

relati"e to relati"e to some metric often the amount of money in"ested. They highlight howeffecti"ely the profitability of a company is being managed

%ommon examples of profitability ratios include perating 'rofit 6argin 'T return on equity

return on capital employed (;%


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Comparative study Hero vs$ .a/a/ vs$ T0"1


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2345 2346

.A7A7 HER8 T0" .A7A7 HER8 T0

, Revenue from operations (a) /ross sales of products 100.0 100.0 100.0 100.0 100.0 1

(b) ther operating re"enue 2.1 0.? 2.- 0.@

et re"enue from operations [email protected] A&.? [email protected] A&.&

et re"enue from operations [email protected] A&.? A2.0 [email protected] A&.&

ther income &.3 1.@ 0.& &.A 1.?

,,, Total Revenue , 9 ,,1 433$: ;


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Current ratio

Comment'-!t is lowest in case of Hero 6oto%orp as compared to others.

>a8a8 and TB are ha"ing similar trend

(ui!) ratio?A!id Test Ratio

Comment'-!t is highest in case of >a8a8 .Hero 6oto%orp and the TB ha"e comparable ratio in2013.


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*ebt-to-equity ratio

Comment'-

There is no debt in recent years for Hero 6oto%orp and >a8a8(good capital management)

TB has more debt which is unfa"orable condition for the %ompany.TB might be usingborrowings in ma#ing in"estment

*ebt Covera+e Ratios

,nterest Cover


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Comment'4/ood interest co"erage position in each company with highest in >a8a8

!nterest %o"erage ratio "ery high for >a8a8 nd Hero ie greater than 1000 compare to TB -. TBhas "ery low interest co"erage ratio.>ecause Hero and >a8a8 has almost :ero debt o"er ,ears.


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>a8a8 and Hero Has 9ebt in 2010 but now they become almost 9ebt free.

TB has "ery high 9ebt to owner fund howe"er TB reduces 9ebt from & to 1 in recent years .

Mana+ement Effi!ien!y ratios'

6angement elow graph it is clearly seen that H


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*ebtors Turnover Ratio

Comment'-imilar trends in each company

ixed Assets Turnover Ratio

Comment'-imilar trends in each company


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Asset Turnover Ratio

Comment'-/ood maintenance of assets in each compnay. ell efficient asset management by

TB

Profitability Ratio'


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Hero MotoCorp Ltd$


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Operating Profit Margin(%) 14 13.97 15.46 13.4 17.32

Gross Profit Margin(%) 9.62 9.17 10.81 11.33 16.11

Cas Profit Margin(%) 12.5 13.64 13.56 11.36 14

!et Profit Margin(%) 8.19 8.76 10.04 9.89 14

"et#rn On !et $ort(%) 37.66 42.31 55.43 65.21 64.41

.A7A7 A@T8 LT*

Operating ProfitMargin(%) 20.61 18.19 18.93 19.22 20

Gross ProfitMargin(%) 19.71 17.36 18.18 18.47 19.6

Cas ProfitMargin(%) 16.39 15.41 16.2 16.04 15.9

!et Profit Margin(%) 16.22 15.03 15.08 20.45 13.2

"et#rn On !et$ort(%) 33.24 38.84 50.07 71.86 58.6

T0" M8T8R" LT*

Operating Profit Margin(%) 5.81 5.91 6.18 4.13 3.3

Gross Profit Margin(%) 4.03 3.54 4.05 2.05 0.29

Cas Profit Margin(%) 3.72 3.6 3.9 4.12 3.45

!et Profit Margin(%) 2.21 2.66 1.78 1.94 0.72

"et#rn On !et $ort(%) 16.04 22.08 18.24 18.76 5.59


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perating 'rofit is worse for TB 6otors 5td and >est for >a8a8 uto ltd..!t is "ery 5ow for TB 6otors %ompany 9ue To High /.9ue to this TB motors has "ery

5ow 'T. ;eturn of et orth is increasing due to impro"ement in 'T but it is not comparable to

other two automoti"e.

!t is medium range for Hero 6otocorp 5td due to increase in / and +ixed asset depreciation

cost. 9epreciation is increasing due to increase in +ixed sset and continued in"estments. / for

Hero 6otocorp 5td increases due to separation with 8oint "enture with Honda 6otors 5td andestablishment for brand of H


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"ummary of Performan!e4 to 6 4 bein+ best1

HERO BAJAJ TVSProftability

(ROE%) 2 1 3Margins

(EBDIT/Sals) 2 1 3!i"#i$ity(#rrnt

ratio) 3 2 1Asst

Manag&nt(sals/assts) 1 2 3

'rot Rats

Total Assts1 2 3

Sals 1 2 3EBITDA 2 1 3

*t Ino&2 1 3

inal Comments


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Hero !s mar#et 5eader !n Two4heeler and cooter 6ar#et which is aspire to

become /lobal %ompany .9ue to this it is in"esting hea"ily on ew 'lants ; E 9

/lobal 'arts %enter etc.and establish Ha8a8 uto ma#es mobi#es and three4wheelers which are a completely differentmar#et. !n effect >a8a8 uto ma#es only one product in two4wheelers 4 with power

as its brand "alue.

and it has no product in cooter egment which is currently fast growing mar#et.

TB 6otors are full4line producers ma#ing both motorbi#es and scooters.TB

mar#et share is 12.@ * and sold 1.@- million two wheeler in 201&413.

!ts ma8or concern area is 'rofitability which is quite low ie at & * compare to other

two ri"als.

This is due to 5ow sset Turno"er ;atio and "ery High / cost .!ts debt to equityratio is also poor compare to ri"als howe"er it has been impro"ed in recent years.

!ts !ts sale has been impro"ing .o TB to wor# on increasing 'rofitability ratio.

project_hero motocorp ltd._financial analysis final

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