FINANCIAL STATEMENT ANALYSIS

HERO MOTORCORP
TABLE OF CONTENTS

ABOUT THE COMPANY

FUND FLOW ANALYSIS
RATIO ANALYSIS
ICE ANALYSIS
SWOT ANALYSIS
CONCLUSION
 ABOUT THE COMPANY :

Hero MotoCorp Ltd. Formerly Hero Honda, is an Indian motorcycle and scooter manufacture based in New Delhi, India.
The company is the largest two-wheeler manufacture in India which is having presence in 29 countries. 65 Mn Units
cumulative sales achieved since inception
Hero MotoCorp has a domestic market share of about 39% in 2-wheeler category and 52.4% market share in domestic
motorcycle market
In FY 15-16,
o 0.01% YoY growth in number of units Products sales
o 3.2% YoY increase in in total net income
o 31.3% YoY increase in Profit after Tax
o 31.3% YoY increase in Earnings Per Share
o 11.6 % YoY increase in Market Capitalization
o 5% increase in global sales growth compared to FY 14-15
In FY 15-16, first overseas manufacturing facility in Columbia became operational
Hero, a market leader, is a debt-free, cash-rich company operating on a negative working capital cycle with superior
return ratios.
Hero MotoCorp has a wide variety of motorcycles and scooters with excellent brand equity and high customer loyalty
 Annual Performance [2015-2016] :

During the Financial Year 2015-16, Hero MotoCorp sales of 6,632,322 units over 6,631,826 units in the previous FY. Total
sales of products were Rs. 28,160.48 crores as compared to Rs. 27,350.60 crores in FY 2014-15, showing an increase of
2.96%.
During FY 2015-16, net revenue from operations was Rs. 28,599.30 crores as compared to Rs. 27,585.30 crores in FY
2014-15, registering an increase of 3.67%.
Profit before tax (PBT), was Rs. 4,394.58 crores as compared to Rs. 3,328.82 crores in FY 2014-15, showing an increase of
32.02%. Company's Profit after Tax (PAT) was Rs.3132.37 crores as against Rs. 2,385.64 crores in FY 2014-15, registering
an increase of 31.30%.
Earnings before Interest, Depreciation and Taxes (EBIDTA) margins stood at 15.55% in FY 2015-16 as compared to 12.84%
in FY 2014-15.
31.3% YoY increase in Earnings Per Share
11.6 % YoY increase in Market Capitalization
5% increase in global sales growth compared to FY 14-15
FUND FLOW ANALYSIS:

Short Term use was Rs 976.35 cr whereas source was Rs 488.79 leading to a deficit of Rs 487.56 cr

Long Term source was Rs 1727.13 cr and use was Rs 1239.57 cr leading to an excess od Rs 487.56 cr

Long Term sources are funding the short term uses of Rs 487.56 cr

Amount of Mismatch - 487.56

Total Requirement of funds - 3455.49

Criticality of mismatch (Amount of mismatch/Total requirements of funds) - 14.1%

Please find attached Excel spreadsheet containing all calculations

RATIO ANALYSIS:

LIQUIDITY RATIOS :
ROI Ratios
1.60

1.40

1.20

1.00

0.80

0.60

0.40

0.20

-
2016 2015 2014 2013

Current Ratio Quick Ratio Net Working Capital Ratio Cash Ratio

Current Ratio is greater than 1 and is increasing trend, which shows the companies ability to honor the short term borrowings with out depending
upon the long term funds
Quick ratio is also more than 1 which is an healthy sign,
Cash Ratio is also healthy indicating very less need of liquidation of assets if required to pay the current liabilities
Positive net working capital indicates excess short term funds availability. This is also increasing trend, which can fund long term needs if required.
 ROI RATIOS :

ROI Ratios
90.00

80.00

70.00

60.00

50.00

40.00

30.00

20.00

10.00

-
2016 2015 2014 2013

ROA ROE ROCE

Return on Assets is good at an average of 24% over the year. This is also increasing on yearly basis which shows the improving
efficiency of the company to utilize the assets to generate more net income

Return of Equity value is high indicating good returns on investor money. This will woo investors for further investments when the
company needs

Though the Return on Capital Employed is good at 53%, this has been decreasing trend. Might also indicate the some of the long
term assets or investment are not being usable. Further investigation is need to identify such assets
LEVERAGE RATIOS :

Leverage Ratios
25.00

20.00

15.00

10.00

5.00

-
2016 2015 2014 2013 2012

Debt Equity ratio Total Debt to Total Capital Employed

The company became Debt free in 2014, from previous years. The company utilized the excess to clear off the long terms debts.
The company is completely equity driven now
PROFITABILITY RATIOS :

Profitability Ratios
18.00

16.00

14.00

12.00

10.00

8.00

6.00

4.00

2.00

-
2016 2015 2014 2013

PBID margin PBT margin PAT margin

All the profitability ratios are healthy. This is also in increasing trend which is contributed both by sales increase and also
tighter controls on the Cost. This shows the ability of company to generate the revenues more than cost which will add
more value to the shareholders as surplus
COVERAGE RATIOS :

Interest Cover and DSCR Ratios Dividend Cover Ratio

2,500.00 2.50

2,000.00 2.00

1,500.00 1.50

1,000.00 1.00

500.00 0.50

- -
2016 2015 2014 2013 2016 2015 2014 2013

Interest Cover DSCR Dividend Cover

Both the Interest Cover and DSCR have a steep increase, as the company become completely Debt Free

The dividend Cover ratio looks healthy and slightly increasing trend. This can indicate that the company is slightly retain
more amount on YOY for their future investment
ACTIVITY RATIOS :

Inventory Activity Ratios

35.00

30.00

25.00

20.00

15.00

10.00

5.00

-
2016 2015 2014 2013

Inventory Turnover Inventory Holding Period (in days)

The inventory turn over is around 29 times a year. This is a very good number shows efficiency in predicting the demand
and supply.

The Inventory holding time is very healthy at 13 days, indicates that company is effectively using the Just in Time
inventory methods. Also there is very less chance of having obsolete stock
ACTIVITY RATIOS :

Debtors Turnover and Avg Collection days Payables Turnover and Avg payment days
60.00 60.00

50.00 50.00

40.00 40.00

30.00 30.00

20.00 20.00

10.00 10.00

- -
2016 2015 2014 2013 2016 2015 2014 2013

Receivables Turnover Average Collection Period (in days) Payables Turnover Average Payment Period (in days)

Though receivables turnover is at 21 times and average collections period is 17 days, there has been decrease in
Turnover and increase in average collections indicates that there has been decrease in efficiency of collection of
receivables and might be due to increase in credit period

However there is been improved efficiency in payables turnover and avg payment days, which is complementing the
decreased efficiency on receivables.
ACTIVITY RATIOS :

Assets Turnover Ratios

12.00

10.00

8.00

6.00

4.00

2.00

-
2016 2015 2014 2013

Fixed Asset Turnover ratio Total Assets Turnover Ratio Capital Employed Turnover ratio

There is declining fixed assets turnover ratio indicates that the company is investing more in fixed assets recently

Similarly there is slight decreasing trend on Total assets Turnover and Capital Employed turnover ratio, indicates the
declining utilization of assets and capital employed for generating the turnover
EQUITY INVESTORS RATIO :

EPS and DPS Ratios Dividend Payout Ratio

180.00 70%

160.00
60%
140.00
50%
120.00

100.00 40%

80.00 30%

60.00
20%
40.00
10%
20.00

- 0%
2016 2015 2014 2013 2016 2015 2014 2013

EPS DPS Dividend Payout ratio = DPS/EPS

Increasing trend in EPS indicates the amount earned for the share holders

The DPS is also slightly increasing trend YOY, indicates that the improved earnings are being shared with share holders

However the % increase in DPS is less that % increase on EPS, which indicates that all the earnings are not passed on to
completely to shareholders, might the company is adding it to reserves for additional funding

Dividend payout ratio is healthy around 50%, indicating the company rewarding the share holders and also adding to
the reserves equally
EQUITY INVESTORS RATIO :

Earning and Dividend Yield Ratios P/E Ratios

8% 25.00

7%
20.00
6%

5% 15.00
4%

3% 10.00

2%
5.00
1%

0% -
2016 2015 2014 2013 2016 2015 2014 2013

Earning Yield Dividend Yield P/E ratio

Both the EPS and DPS were in decreasing trend till 2015, however it recovered in 2016.

The P/E ratio is 18%, which is a healthy indicator. However there has been decrease in the P/E ratio from previous year,
which might indicate the market price might have been over valued in previous years considering that there has been
increase in the earnings since past few years
EQUITY INVESTORS RATIO :

Book Value per share Book value to Market price Ratio

450.00 18%

400.00 16%

350.00 14%

300.00 12%

250.00 10%

200.00 8%

150.00 6%

100.00 4%

50.00 2%

- 0%
2016 2015 2014 2013 2016 2015 2014 2013

Book Value per share Book value to Market price

Book value per share has been increasing trend over the years, that the company has been consistently earning and
adding to the reserves improving the value for shareholders

Book value is around 14% of market prices, indicates that share prices is overvalued. This would be helpful in case the
company requires additional funds by issue of share, with higher premium
ICE ANALYSIS:

Industry
Largest two-wheeler manufacturer in India
Market share of about 46% in the two-wheeler category.
Market capitalization of the company about 308 billion (US$4.8 billion).
Sold 2.5 crore unit of Splendor. That shows how robust and desirable product is being developed by Hero.
After termination of the joint venture between Hero Group of India and Honda of Japan, Hero Group can now expand to
international market which was restricted earlier.

Company
Among 200 World's Most Respected Companies.
Innovative ways of selling through eCommerce portals like SnapDeal.
Sold over 100,000 two-wheelers on Snapdeal.
Launched robust models like 'Passion Pro and Xtreme Sports'
Advertisement: Became the title sponsor of Hero Caribbean Premier League T20 tournament
Splendor crossed yet another milestone by surpassing 25 million (2.5 crores) units mark in cumulative sales since its
launch in 1994
Hero has less brand recognition as compared to Hero Honda.
ICE ANALYSIS(contd):

Presence:
Commencement of commercial production at Bangladesh plant.
Recognition: (2015-16)
Awarded the TIME India 'Manufacturing Innovator of the Year 2016
Won the best two-wheeler pavilion award at the CNB Auto
Expo Awards for the second consecutive year
Continuous Implementation of Strategies:
Commenced operations of our Centre of Innovation and Technology (CIT) in Jaipur, Rajasthan
Innovation:
Unveiled at the Auto Expo- 2016, 'Splendor iSmart 110CC, Xtreme 200S, XF3R and Duet E

Hero will face technology crunch after termination of joint venture with Honda.
Concerns: Hero Group might not be able to sustain the performance as earlier.

STANDALONE *Mar'17 *Dec'16 Sep'16 Jun'16

Net Sales 6,915.20 6,245.90 7,669.53 7,289.59
Other Income 118.23 131.93 152.36 120.38
PBDIT 957.56 1,079.74 1,368.87 1,230.08
Net Profit 714.19 772.05 1,004.22 883.1
Above snapshot shows company is improving its net sales revenue and profit QoQ. *Dec16 and Mar17 profit went down due to Demonization in India.
ICE ANALYSIS(contd):

Economy

Threats:
- Baring use of BS III vehicles by Indian government made Hero MotoCorp to sell there inventory at huge discount.

Monsoon Effect:
- Forecast of normal rains this year, the industry is expecting a boost in demand and consumption in the rural markets.

International Presence:
- Hero MotoCorp also commenced commercial production today in the manufacturing facility at its subsidiary HMCL
Niloy Bangladesh Ltd. This plant, located at Jessore in Bangladesh, has an installed capacity of 150,000 vehicles per
annum.

- Cheap Public Transport and Costly Fuel price is a clear threat to Hero.

Competitors
Bajaj Auto is the major competitor for Hero in domestic market and also in export market having more market cap
and assets than Hero
Apart from Bajaj, TVS also possess a major challenge to Hero MotoCorp both in motorcycle and scooter segments
In premium segment, other players like Yamaha, Royal Enfield and Bajaj[Duke] are posing stiff challenge to Hero
MotoCorp
In scooter segment, Honda is the market leader and posing tiff competition to Hero MotoCorp
SWOT ANALYSIS
STRENGTH
- Hero Moto Corp has a huge brand equity and one of the biggest players in
the two wheelers Indian market
- Excellent R&D of Hero Moto Corp, and wide variety of products in every
segment. WEAKNESS
- Excellent distribution, over 3000 dealerships and service centers - Intense competition from Indian and international players means limited
- Good advertising and excellent branding & marketing of Hero Moto Corp market share growth of Hero Moto Corp
- More than 5000 people are employed with the organization - Most of the products have similar features and low on design and innovation
- Sponsorship of many events related to sports & racing has made Hero Moto
Corp a strong brand
- The brand has received several awards & recognition for its work in the
industry
- Ad campaigns through TV, billboards, online media etc boost the brand
image
SWOT

THREAT
OPPORTUNITY
- Strong competition from Indian as well as international brands
- Two-wheeler segment is one of the most growing industries
- Dependence on government policies and rising fuel prices can affect business
- Export of Hero Moto Corp bikes is limited i.e. untapped international markets
margins for Hero Moto Corp
- Introduction of bikes in the premium segment
- Better public transport will affect two-wheeler sales
 CONCLUSION:
Hero MotoCorp remains a debt-free franchise with high return ratios

In both motorcycle & scooter segment, Hero MotoCorp Ltd has faced severe competition from its peers resulting in a loss of market share. Hero MotoCorp Ltds
margins have remained under pressure in the past fiscal years as the product mix deteriorated. However, with the launch of the LEAP program, Hero MotoCorp
Ltd has managed to show a significant cost reduction.

Hero MotoCorp Ltd continues to boast of a negative working capital cycle even as the industry faces a slowdown. Even with aggressive capex planned, FCF
generation is likely to be strong as the working capital management remains strong.

Unlike its other peers Bajaj and TVS, Hero MotoCorp Ltd is heavily dependent on a single segment. A single market makes it more vulnerable to a demand
slowdown. We continue to believe the 2-W space is likely to face growth challenges, at least in the near to medium term, with Hero MotoCorp Ltd being no
exception to the industry. The response to the new product launches holds the key to the long-term growth for Hero MotoCorp Ltd in India.

Hero MotoCorp Ltd plans to double its target export markets from currently 29 to 50 countries over next few years. Hero MotoCorp Ltd being one of the last
entrant could find it difficult to compete against incumbents due to limited scope to differently position its product. This coupled with turmoil in currencies of
these markets would make entry and ramp-up even more difficult.

Industry growth to remain sub-dued, competitive pressure to remain high: Domestic 2W industry growth is expected to remain subdued at 6-8%, impacted by
weak Kharif/rabi crop in FY15, and back-to-back weak monsoon in FY16. This coupled with several new launches by competition in 100cc Executive segment
would curtail pricing power and put pressure on margins

Hero MotoCorp Ltd. is expanding its annual capacity from 7.65 Mn units to nearly 10 Mn units by FY18. Given the capacity expansion and improving industry
prospects, we expect Hero to report a 3-year revenue CAGR of 10.1% to Rs 36,751 crore by FY18[E].

Hero MotoCorp Ltd. has been able to maintain a leadership position in the two-wheeler segment despite stiff competition on the back of higher warranties,
established distribution strength and increasing spends on R&D.

Hero MotoCorp Ltd. need to focus on premium segment where Bajaj TVS, Royal Enfield are doing great in that area where Hero is not having much market share.