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Financial Assessment of JK Tyre :

Profitability Analysis :

Net Profit margin :

Since there is a dip in the share of the tyre industry, the overall sales
of the JK Tyre has been reduced (Tyres & Tubes _ -5.03% )- The falling demand from China, the
worlds largest consumer of rubber, combined with the plunging crude oil prices, is the perfect
recipe for a free-fall in rubber prices , but the Inventory is low because of less Finished goods,
hence reducing the expenses which in turn increases the PAT by more than 40%. Continued

softness in input material prices, natural rubber (NR) and crude oil, has kept the industry profit
margins at elevated levels throughout FY 15-16.Hence Net Profit Margin ratio is higher.

Asset Turnover ratio : The net sales has been reduced due to dull demand in tyre
market, the average assets has been increased when compared to the previous year by 3%. . The
tangible asset has also been increased because of expansion of the Chennai Plant by 1400
crore .Thus the capital WIP in FY 14-15 has been changed to tangible assets in FY 15-16 and there
is a slight increase In other tangible assets, but the short term loans and advances got by the
company (Income tax advance payments )- Prepaid advance , It increased the assets which in turn
reduced the asset turnover ratio.

Return on Assets (ROA):

The average assets has been increased when compared to the


previous year by 3%. . The tangible asset has also been increased because of expansion of the
Chennai Plant by 1400 crore .The capital WIP in FY 14-15 has been changed to tangible assets in
FY 15-16 and there is a slight increase In other tangible assets, but the short term loans and
advances got by the company (Income tax advance payments )- Prepaid advance increases
assets. The PAT is also increased because of reduction in (Tyres & Tubes _ -5.03% ) and also
decrease in Inventories. But ROA increase clearly states that the assets are utilised wisely for
making profit. Indirectly rotation of assets are higher.

Return on Equity (ROE):

The Equity increase in JK tyres is due to rise in reserves and

surplus as profit is increased over the previous year, because Continued softness in input material

prices, natural rubber (NR) and crude oil, has kept the industry profit margins at elevated levels . So
the increase in profit helped ROE to be at higher value compared to previous year.

Leverage ratio :

The equity has been increased due to increase in reserves and surplus, the
asset has also been increased especially intangible because of increase in production facility in

Chennai, but not in line with the rise in equity. This clearly indicates that the company is
maintaining less debt which is because of the large cash flow

Operating Profitability Ratio :

Profit margin:

Since there is a dip in the share of the tyre industry, the overall sales of the
JK Tyre has been reduced (Tyres & Tubes _ -5.03% )- The falling demand from China, the worlds
largest consumer of rubber, combined with the plunging crude oil prices, is the perfect recipe for a
free-fall in rubber prices, but the Inventory is low because of less Finished goods, hence reducing
the expenses which in turn increases the NOPAT by more than 10%. Continued softness in input

material prices, natural rubber (NR) and crude oil, has kept the JK Tyre profit margins at elevated
levels throughout FY 15-16. The Tax rate is 33.1% which comprises both the current tax and
negative MAT, which will reduce the deferred tax to comprise the tax bracket.

Asset Turnover:

Tyre exports fell by over 10% during FY2016 led by large fall in realisations
and muted global demand. Chinese imports take a bite of the domestic TBR market. These
activities reduced the demand for domestic manufacturers but the operating assets has been
increased which clearly indicates the increase in production capacity at Chennai plant. But the
ratio got reduced which indicates that the company is using Financial Assets to tally its revenue
TURNOVER performance.

Return on Operating Assets:

The Inventory is low because of less Finished goods,

hence reducing the expenses which in turn increases the NOPAT by more than 10%. Continued

softness in input material prices, natural rubber (NR) and crude oil, has kept the JK Tyre profit margins
at elevated levels throughout FY 15-16. The Tax rate is 33.1% which comprises both the current tax
and negative MAT, which will reduce the deferred tax to comprise the tax bracket. The operating
assets has been increased which clearly indicates the increase in production capacity at Chennai
plant. The high TURNOVER ratio indicates a good margin over operating assets.

Fixed Assets Turnover Ratio:

The fixed asset got increased due to buying of


Cavendish plant in haridwar, expansion of Chennai Plant but the sales got reduced. Tyre exports
fell by over 10% during FY2016 led by large fall in realisations and muted global demand. Chinese
imports take a bite of the domestic TBR market.Hence the ratio got reduced when compared to
last fiscal.

Debt to Equity Ratio:

The equity has been increased especially due to the rise in


reserves and Surplus as there is a rise in profit over the previous fiscal. But the short term
borrowings especially loan from banks has been reduced. JK tyre has done a stock split last year
since it wants to have a greater liquidity over stocks and good bid ask spread. All these events
indicate the tendency of the JK Tyre to have much dependency on Equity over debt.

Liability to Equity ratio : :

The equity has been increased especially due to the rise in


reserves and Surplus as there is a rise in profit over the previous fiscal. But the short term
borrowings especially loan from banks has been reduced. JK tyre has done a stock split last year
since it wants to have a greater liquidity over stocks and good bid ask spread. All these events
indicate the tendency of the JK Tyre to have much dependency on Equity over debt. Even though
the net liabilities has increased over the previous year especially short term provisions for
taxation due to fluctuations in production, the rise in equity is large thus making the ratio to
decrease.

Interest Coverage Ratio:

The interest expense is almost same but the profit increase


has caused the ratio to get increased by 33% over last fiscal.

PE Ratio:

JK tyre has done a stock split last year 2014, since it wants to have a greater
liquidity over stocks and good bid ask spread. This reduces the market price per share of JK in
2014 but the profit increased in 2015-16 which helps EPS to rise. But since the MPPS is an average
value in 2014 the PE ratio is high for 2014.

LIQUIDITY RATIO :
HORIZONTAL :
P&L Apollo:
1) Gross sales in FY 15-16 has decreased by 2.6%(compared with an increase of
3% in the previous year). This can be attributed to the bad monsoon experienced in
the country because of which the agricultural vehicles showed low demand.
2) Other Operating income had shown a decline of 12.4% in FY 14-15 (compared
with a decline of 4.3% in the next year) because the Investment Promotion Subsidy
from the Tamil Nadu Govt decreased by 44.5%.

3) Other Income in FY 15-16 increased by 43% majorly owing to huge increases


in interests earned on deposits (169% increase), dividend income from current
investments (529% increase) and gain on Foreign Exchange Fluctuation (56.5%
increase). The same parameters decreased in the previous FY.
4) Cost of materials consumed has decreased by 14.5% in FY 15-16 owing to
decreasing Rubber prices which account for about 52% of the total raw materials
cost. Apollo tyres uses RSS 4 grade rubber for its manufacturing processes whose
prices have been declining since past several years.
5) The changes in inventory increased by 542% in FY 15-16 (compared with a
corresponding decrease of 117% in the previous FY). This was caused by a 21%
decrease in the finished goods deducted from the Opening Stock.

VERTICAL: