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Abhishek Bansal

Denis Jose

Pintu Mitruka
Shaswat

ADVANCED FINANCIAL
STATEMENT ANALYSIS
An Indian Auto industry perspective

Industry Overview
The Indian two-wheeler industry has witnessed spectacular growth in the last few years.
The market dynamics of the industry has substantially changed with a majority of the
customers preferring bikes to scooters and mopeds. This is primarily due to better fuel
efficiencies, dynamics, looks and longer product lives of motorcycles.
22% of the countrys manufacturing GDP
Worlds 3rd largest exporter of 2 wheelers after China and Japan
Government allows 100% FDI in this sector
Major players: TVS, Motor, Hero, Bajaj, Honda, Mahindra
The motorcycle segment constitutes about 81.5% of the two wheeler market in India.
It also contributes to three-fourths of the total exports in the two wheeler industry.

Demand & Growth Drivers


Personal Income
Demand increases as the income increases, only to be substituted later by the demand
for four wheelers. Income has been steadily growing in India and is projected to stabilize
at a growth rate of 9-12 percent range by 2012
Demography and Inspiration
The bigger the young and working population, the greater is its need for commutation.
The IT and BPO revolution has influenced this movement. This is a favorable factor since
Indias workforce is young.
Penetration Level
The lower the penetration levels in the market, the better the scope for future demand.
As the penetration of the rural market is significantly low, it is going to be a significant
long term growth driver.
Other Factors
Improvement in infrastructure increases competition, while simultaneously improving the
public transport. The average time period taken to replace an existing bike with a newer
model has decreased from 7 years to 5 years, resulting in replacement demand growth.

Bajaj Auto
The total net worth has been increasing continuously for the past 3-4 years mainly
because of increase in Reserves and Surplus.
The company has not raised any fresh funds through equity.
The total debt of the company has also gone down considerably over time showing that
the company is clearing its long term debts and it has sufficient funds from its core
operations.
The liabilities have increased over time mainly because of the increase in Reserves.

The company has increased its assets over time thereby suggesting that it has invested in
land, plant & machinery.

Bajaj Auto
The company has steadily increased its sales and the operating expenses have remained
constant more or less.
This means that the gross profit has increased.
There have been no extraordinary expenses lately.
The company has posted very EPS figures in the last 5 years.
The company distributes approximately 45% of the profits as dividends to shareholders
and retains the remaining amount.
The remaining amount goes into the Reserves and surplus and is used by the company
to invest in new projects.

TVS Motors
The total net worth has been increasing continuously for the past 3-4 years mainly
because of increase in Reserves and Surplus.
The company has not raised any fresh funds through equity.
The total debt of the company has also gone down considerably over time showing that
the company is clearing its long term debts and it has sufficient funds from its core
operations.
The liabilities have decreased over time.

Like liabilities, total assets have also decreased over time.

TVS Motors
This is mainly because the company has invested in scaling up operations and have
invested heavily on plant & machinery.
The income and expenses from sales have all gone up but the proportion increase in
sales is more than increase in expenses. This has led to an increase in operating profit.
The EPS has increased in all years except 2013 where the completely invested in new
plant.
The company pays out approximately 20% profits as dividends and retains the remaining
amount to be deployed later.

HERO MOTORS
Hero Motorcorp is a zero debt company.
The assets of Hero have been continuously increasing over the years thanks to
investment in plant & machinery, capital work in progress.
It has also seen an increase in the loans and advances it has given. Also the current
assets like cash and cash receivables have steadily increased over the years.
The sales have constantly increased at around 4-5% per annum except for the year 2013
when the whole auto industry was facing a downturn.

The operating expenses have also increased i.e. the cost of raw materials have increased.

HERO MOTOCORP
However, the increase in expenses is less than the increase in sales. This culminates into
an increase in gross profits.
This also shows that Hero has somewhat optimized its production process thereby
leading to higher efficiency.
The reported net profit for the year 2014 has declined compared to 2013 because of an
increase in tax payout. The increase in tax payout was maybe to honor a deferred tax
liability.

The company has a healthy EPS of Rs 106 per share of which it distributes Rs 63 per
share as dividend. This shows that the company does not have any major investment
plans for the next year.

Expenditures
TVS Motor

2011-12

2012-13

2013-14

Capital Expenditure

27.75

30.28

18.48

Revenue Expenditure

92.65

96.87

113.27

All the Expenditures incurred by TVS Motor are on R&D only


Hero

2011-12

2012-13

2013-14

Capital Expenditure on Land etc

565.05

607.64

941.47

Revenue Expenditure on R&D

47.3

59.76

89.16

Bajaj

2011-12

2012-13

2013-14

Capital Expenditure on Land etc

109.53

508.18

220.05

R&D

29.88

40.38

41.25

Capital Structure & Financing Pattern


Hero

Debt free as of date, has redeemed all the loan of Rs. 1458 crore from 2011 to 2014
Did not raise fresh equity in last three years
Debt Equity ratio fell from 23% in 2012 to 0% in 2014
Investment activities financed through reserves and retained earnings

It operates at negative working capital, financing its short term requirements through current liabilities

TVS
Levered capital structure but the company has been reducing its debts significantly
Debt Equity ratio has come down from 61.18% in 2012 to 33.62% in 2014

It retains and reinvests 50% to 75% of its earnings


Cash profit of the company has grown sufficiently to help it pay off its debts and also finance its Capex

Bajaj
Very low reliance on external capital. 1.6% Debt Equity ratio in 2012 which fell to 0.6% of total capital

Owners equity is the primary source of capital


It retains 50% to 55% of its earnings to invest in Capex
It sources its short term requirements through current liabilities as it maintains negative cash cycle

Management Discussion of TVS Motor


For 2011-12,

Interim dividend of 60% (0.60Rs/share) and a second interim dividend of 70% totaling 130% for the year

Overall sales growth in 2 wheeler segment was lower mainly due to its absence in the executive segment of motor cycles

New products launched TVS Star City, Wego, Streak

Planning to launch Apache next year to help company grow in the premium segment
For 2012-13,

Interim dividend of 60% (0.60Rs/share) and a second interim dividend of 60% totaling 120% for the year

The Company's total revenue including other income marginally fell from Rs.7,163.23 Cr in the previous year to Rs.7,088.84 Cr in
the current year

New Products Launched TVS Sport, TVS Phoenix 125, TVS Apache, TVS Scooty

TVS Phoenix was launched to address the Executive segment

Tie up with BMW Motorrad, Germany to produce high-end motorcycles

For 2013-14,

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

Interim dividend of 65% (0.65Rs/share) and a second interim dividend of 75% totaling 140% for the year

New Products launched multi colored models of existing products, TVS Jupiter

Management Discussion of Hero


For 2011-12,

New Products Launched Impulse, gearless Maestro 100cc, Ignitor 125 cc bike

Impulse was the first hero branded bike after separating from Honda, Japan

Debt free company

2250% dividend with payout ratio 43.9%

Operating on negative working capital

For 2012-13,

Net revenue from operations of the Company grew by 0.80%, from Rs 23,579crores in 2011-12
to Rs 23,768crores in 2012-13
New Products lauched PassionXPro and new model of Ignitor
High dividend 3000% (Rs 60 per share)

For 2013-14,
Dividend 3250%
Total sales increased by 6.5% to Rs 25,125crores as compared to previous year

Management Discussion of Bajaj


For 2011-12,

To dominate the high end it launched KTM Duke 200 and the Kawasaki Ninja 650R

In the mid-commuter deluxe segment, Bajaj Discover dominated the market

Commuter standard segment Bajaj Platina

Exports to 35 countries and enjoys leadership position in 12 countries

For 2012-13,

Total revenue grew by 3.3% to Rs 20,793crores

Bajaj Auto sold over 3.76 million motorcycles in India and abroad

Lunched the next generation Pulsar 200NS

For 2013-14,

Bajaj Auto sold over 3.42 million motorcycles in India and abroad

New products launched - KTM Duke 390 with ABS

Financial Ratios
TVS
Liquidity And Solvency Ratios

Bajaj

2014

2013

2012

Current Ratio
Quick Ratio
Debt Equity Ratio

0.87
0.57
0.34

0.85
0.51
0.45

0.71
0.44
0.61

Long Term Debt Equity Ratio

0.31

0.4

0.41

Current assets and current liabilities both are increasing


Debt is decreasing

Liquidity And Solvency Ratios


Current Ratio
Quick Ratio

2014
0.8
0.67

2013
0.88
0.74

2012
0.88
0.72

Debt Equity Ratio

0.01

0.01

0.02

Long Term Debt Equity Ratio

0.01

0.01

0.02

Debt is decreasing

Hero Motorcorp

Liquidity And Solvency Ratios


Current Ratio
Quick Ratio
Debt Equity Ratio
Long Term Debt Equity Ratio

Became debt free in 2014

2014
0.65
0.47
--

2013
0.67
0.52
0.06

2012
0.42
0.28
0.23

--

0.06

0.23

Du Pont Analysis
HERO Motocorp

2014

2013

2012

Profit Margin

8.34%

8.91%

10.08%

Asset Turnover

4.51 times

4.47 times

4.46 times

Leverage

1.06

1.23

ROE

37.6%

42.3%

55.43%

BAJAJ

2014

2013

2012

Profit Margin

16.09%

15.21%

15.39%

Asset Turnover

2.1 times

2.51 times

3.18 times

Leverage

1.01

ROE

33.7%

38.51%

49.73%

TVS Motor

2014

2013

2012

Profit Margin

3.28%

1.65%

3.5%

Asset Turnover

4.21 times

3.99 times

3.78 times

Leverage

1.34

1.45

1.61

ROE

18.48%

9.47%

21.30%

Altman Z Score Analysis


Hero Motorcorp
2011-12: 8.08 2012:13: 7.9

2013-14: 9.96

Bajaj Auto
2011-12: 9.25 2012:13: 10.45 2013-14: 10.22

TVS Motors
2011-12: 4.47 2012:13: 3.53

2013-14: 3.80

Managerial Renumeration - TVS


TVS
2012 - Mr Sudarshan Venu is appointed as vice-president of the Company on a remuneration not exceeding Rs. 2.50 lakhs per month
effective 1st December 2011, being a relative of CMD and a director of SCL would amount to holding an "Office or Place of Profit" and
hence would require approval of the shareholders of the Company
2012 Reaffirmation of the NE-IDs compensation from 1 April 2013 to next 5 years as deadline of 5 years from 2008 approaches for
setting of compensation at 1% of the net profits of the Company.
2013- Venu relinquished his office as Vice President of the Company consequent upon his appointment as a director and also in the
rank of whole-time director of the Company by special resolution
2014- Mr A N Raman, practising cost accountant hired for a fixed sum of Rs. 5 Lakhs as remuneration payable to him, for the financial
year 2014-15.
2014- Appointment of 4 non executive independent directors and 1 non-executive non independent director
Some Foreign investments in highlight

TVS Indonesia boasts of negative reserves of Rs 4.2 bn which is equal to the paid up capital of 4.3 billion. In other words its net
worth is fully eroded. It rang up revenues of Rs 1 bn and generated a post-tax loss of Rs 245 m

Singapore offshoot with a paid up capital of Rs 2 bn and negative reserves of Rs 52 m, no results for what happened to the
investment

Amsterdam offshoot where the parent has provided for part depreciation for its investment in it. It has a paid up capital of Rs 1.3
bn and negative reserves ofRs 811 m. This company too has very little to show for it at the end of the day

Sundaram Auto Components handed out a Rs 29 m to the parent while drawing a majority of business Rs 9 billion from parent

5 out of 9 directors having interests in the company operations and 1 non independent

Managerial Renumeration - BAJAJ

7 out of 16 directors having interests in the company operations

Managerial Renumeration - HERO

3 out of 11 directors having interest in the company operations

Cash flow analysis


Hero- Net cash from operating activities 2963.5 crores, investing -1,619.32 on account of huge capital
investments across three plants for 936.80 crores, financing activities -1,414.93 on account of huge
dividend pay-out 1,199.29 crores. Cash in hand at end of year is 66 crores.
Bajaj- Net cash from operating activities 3545.71 crores, investing -2,141.49 on account of huge other
investments of Rs 2,116.56 crores, financing activities -1,468.22 on account of huge dividend pay-out
1,301.52 crores. Cash in hand at end of year is 486.28 crores
TVS- In 2014 while others were fairing well TVS had to increase its liabilities to make room for
increased profit to cover the 280 crore investment into plant and machinery for engine manufacture in
Himachal. Net cash from operating activities 523.79 crores, investing -259.84, financing activities
(-198.38) on account of dividend pay of -69.00 crores and debt repay of 88 crores. Cash in hand at end
of year is 65.57 crores
HERO

Opening Cash & Cash Equivalents


Closing Cash & Cash Equivalents

137.25
66.41
BAJAJ

33.73
134.95

39.32
33.73

Opening Cash & Cash Equivalents


Closing Cash & Cash Equivalents

TVS

550.28 1172.75 228.74


486.28 550.28 1178.83

Opening Cash & Cash Equivalents


Closing Cash & Cash Equivalents

14.89
80.46

-207.65
-34.27

-73.08
-207.65

Insight

Both TVS and Bajaj are losing significant amounts abroad Bajaj with its revenues and finance potential seems better poised while TVS
has to convert into a export hub. Lack of foresight

With Bajaj tie-up with KTM for R&d, Hero with Eric Buell racing and TVS with BMW Motorrad the race to bring out the next big
innovation in India seems a three sided race with hero seemingly the investors favourite warhorse as Post split with Honda, Hero
MotoCorp is free to explore global markets; it is targeting exports of 1m units over by FY17 (of total 10m units).

TVS has a better position in the growing scooter segment with Jupiter, while Bajaj has the 3W segment covered and hero is the
strongest player in the sub 125 cc segment. With all 3 companies making inroads into others sectors

With Honda seemingly can do nothing wrong in the scooter segment and Yamaha onslaught of sub 30,000 Rs 100cc bike threatening
heros core market. There seems to be tough times for both TVS and hero.

Bajajs dominance of performance bikes at higher prices seems to be at an advantage as the near government ruling of making ABS a
standard mandatory feature leading to higher costing for 100cc bikes from hero.

Favourable fuel and material cost has lead to industry experts revising earnings call on auto manufacturers as sales are starting to really
pick up
HERO P&L

Miscellaneous
Expenses

TVS P&L

2,339.09 2,025.33 389.52 340.42 280.64

Total
21,727.05 20,446.16 20,032.81 16,796.90 13,084.39
Expenses

Miscellaneous
1,208.76
Expenses
Total
7,474.10
Expenses

1,012.41 881.6 32.65 21.85


6,623.27 6,671.7 6,019 4,151

BAJAJ P&L

Miscellaneous Expenses
940.73 815.36 263.37 168.53 221.94
Total Expenses
16,062.67 16,338.00 15,874.89 13,277.15 9,340.64

THANK YOU

Honesty is as deep as subsidiaries in Auto industries

Abhishek Bansal
Denis Jose
Pintu Mitruka
Shaswat