TRAINING REPORT

ON

(METRO TYRES Ltd.)

Submitted in Partial fulfillment of the requirements for the award of

Master of Business Administration

(MBA)

By ARJUN SINGH

HARYANA SCHOOL OF BUSINESS ( GURU JAMBHESWAR UNIVERSITY OF SCIENCE & TECHNOLOGY, HISSAR )

To whom so ever it may concern

This is to certify that the project on industrial exposure entitled FINANCIAL ANALYSIS is an original piece of work done by ARJUN SINGH in the partial fulfillment of the requirement for the award of the Degree of MBA from HARYANA SCHOOL OF BUSINESS, GJUS&T (HISSAR) under my guidance & direction. To the best of my knowledge data & information presented by him/her in the project has not been submitted earlier.

(Internal Guide)

Contents Preface Acknowledgement Director Certificate Project guide certificate Company certificate

Chapter 1: Introduction Chapter 2: Industry profile Chapter 3: Company profile Chapter 4: Research methodology Chapter 5: Data presentation and analysis Chapter 6: Finding Chapter 7: Conclusions and suggestion

Annexure Bibliography

Preface
A management professional should not only be well versed with the principles and theories of management but should also be capable of applying the theories and principles studied successfully in the practical life. Considering the practical aspect of the theoretical knowledge to be the supreme importance, Summer Training forms an integral part of the business management curriculum.

I pursued my summer internship at METRO TYRES LIMITED and completed

my projects. I am

submitting the report as a partial fulfillment for the Award of degree of Master of Business Administration.

I hope that the project report will communicate the actual quality of the experience gained with subtlety and precision which is unapproachable by any other means.

ARJUN SINGH

ACKNOWLEDGEMENT

This report took a long time and effort on my part. But, inspite of all the hard work put in by me, this report would not have been possible without the help of certain people, whom I wish to convey my thanks.

I express my gratitude towards Mr. Sanjay Singh(Colg guide) and Mr.R.K. JAIN (company guide), who has given me an opportunity to make this project.

At the very outset, I would also like to express my gratitude to all the people associated, without whose active support & constant guidance, this project would not have been a success.

ARJUN SINGH

INTRODUCTION

Manufacturer & Exporters of Bicycle Tyres, Tubes and Chains

From humble beggining in 1968, Metro Tyres made steady progress to establish itself as a market leader for bicycle tyres and tubes in India.With steadily increasing production of quality products, the Company ventured into overseas market and developed a niche for itself in the international market. The Company also kept itself abreast with latest technologies and developed Nylon tyres and Butyl tubes with its own R&D efforts. The Company has diversified into the field of home appliances such as electric fans, electric irons, sewing machines, etc. under the brand name "ORTEM" . The customer being foremost in our mind, for ease of foreign buyers, the Company has established a full fledged "Export Division" located at New Delhi. The Export Division has the capability for entertaining and servicing enquiries not only for the Company products, but also for non-company commodities and engineering goods. Metro's most precious assets is its professionally trained and dedicated personnel.

Tyre Tube Chains

Motor cycle Scooter Three wheeler Hand cart Jeep

READY RECKONER
SIZE RIM TYPE TREADS AVAILABLE
M-170 M-100 M-650 M-200 M-200 M-225 M-200 M-225

CONSTRUCTION OPTIONS COTTON NYLON YES

LOADABILITY PER 20' FCL 8,500 11,000 11,000 11,000 11,000 11,000 11,000 11,000 11,000 11,000 8,500

28x1.75 28x1.1/2 28x1.5/8x1.3/8 28x1.5/8x1.1/4 28x1.5/8x1.1/8 28x1.5/8x1 27x1.1/4 26x1.3/8 26x1.1/2 26x1.1/2x1.5/8 26x1.1/2x2

HB/SS SS SS SS SS SS SS SS SS

YES YES YES YES YES YES YES YES YES YES YES

M-750
M-105 M-100 M-100 M-160 M-170 M-190 M-250 M-400 M-190

26x2x1.3/4 26x2.125 26x2.10 / 26x2 26x1.95

SS HB HB

M-700
M-120 M-400 M-120 M-400 M-120 M-400 M-500 M-550 M-650

YES YES YES YES YES YES

8,500 8,500 8,500 8,500

26x1.95 26x1.90 26x1.75

HB HB HB

M-1000
M-550 M-600 M-650 M-150

YES YES YES YES YES

8,500 8,500 9,000

24x1.1/2 24x1.3/8 24x2.125 24x1.90 24x1.75 20x2.125

SS HB HB HB

M-100 M-100 M-400 M-650 M-550 M-110 M-300 M-400 M-650 M-400 M-550 M-650 M-160 M-300 M-400 M-100 M-300 M-300 M-400 M-550 M-160 M-300 M-400 M-300 M-550 M-170 M-300

YES YES YES YES YES YES YES YES YES

11,000 11,000 8,500 9,000 11,000 11,000

20x2x1.3/4 20x1.90 20x1.75 20x1.3/8 18x1.75 16x2.125 16x1.90 16x1.75 14x1.75 14x1.3/8x1.5/8 12.1/2x2.1/4

HB HB HB HB HB HB HB

YES YES YES YES YES YES YES YES YES YES YES YES YES YES YES YES

11,000 11,000 11,000 11,000 11,000 11,000 11,000 11,000 11,000 11,000 11,000

Standard Packing: 50 tyres / sets of tyres & tubes will be packed in a bundle wrapped with H.D.P.E. sheet.

Tread Patterns

M-100

M-105

M-110

M-120

M-130

M-150

M-160

M-170

M-190

M-200

M-225

M-250

M-300

M-350

M-400

M-450

M-500

M-550

M-600

M-650

TUBES ARE MOULDED FROM EITHER OF THE FOLLOWING MATERIALS: NATURAL RUBBER
PACKING OPTIONS

BUTYL RUBBER
LOADABILITY PER 20' FCL

Each tube in polybag; 100 pcs in master bag. Each tube in polybag; 100 pcs in master carton. Each tube in Metro box; 100 pcs in master carton. (2nd & 3rd methods entail extra charges) The valve types available

60,000 pcs 50,000 pcs 45,000 pcs

BICYCLE TUBE DUNLOP VALVE

BICYCLE TUBE AMERICAN VALVE

Chain sizes: 1/2x1/8 1/2x3/32 standard 1/2x3/32 chamfered (index) Chains can be supplied in any number of links or in rolls of 150 meters.

Packing Each chain in a Metro box, 50 pcs in a master carton. 150 meters wound on a metal spool packed in a strong wooden case.

Sleek 2.75-18 6PR

Jet Speed 3.00-19 6PR

Jet Speed 3.25-16 6PR

Steel Force 3.50-8 4PR

Steel Force 3.50-10 4PR

Power 16*4 8PR

Jeep 6.00-16 8PR

Kisan 7.00-19 10PR

Heavy Duty 7.00-19 10PR

ADV 7.00-19 10PR

Metro Heavy Duty ADV 5.00-19

Metro Heavy Duty ADV 8.00-19

Metro Heavy Duty ADV 6.00-19

Metro Heavy Duty ADV 6.00-20

Field king 6.00-16 10PR

Yield king 6.00-16 10PR

Shaktiman 6.00-16 10PR

High Yield 6.00-16 8PR

T-90 6.00-16 8PR

Farmer 6.00-16 10PR

Jai Kisan 6.00-16 10PR

Shaktiman 5.50-16 10PR

Field King Extra Heavy Duty 6.0016

Power Trailor 6.00-12 6PR

TR 13.6.28

TR 12.4.28

SWOT ANALYSIS
Strengths
1. Wide product offering at different interest rates. 2. Large distribution network

Weakness
1. Lack of advertisement activites, 2. Focus only on middle class. 3. Limited products

Opportunity
1. Rise of Indian middle class and small cities. 2. A booming economy

Threats
1. Many players fighting for the same cake 2. Entry of new players

METRO TYRES LIMITED

Metro House, 134/4, 135/5 Zamrudpur, Kailash Colony, New Delhi -110 048 Phone : 91-11-6219097/98 Fax No.: 00-91-11-6215113 Email for exports : exports@metrogroupindia.com Email for other enquiries : metro2@vsnl.com .. ..

Please contact the above office for :

Further information on Auto Division ::Export enquiries for cycle tyres to USA, EUROPE, CANADA, AUSTRALIA, JAPAN ::All domestic enquiries ::All raw material supplies ::-

Works ::METRO TYRES LIMITED, FACTORY & HEAD OFFICE

B-27 Focal Point, Ludhiana - 141 010 (INDIA) Phone: 91-161-2671111 - 18, Fax: 91-161-2671119 Email :navneet@metrotyres.com

.
..

For export enquiries for cycle tyres except USA, EUROPE, CANADA, AUSTRALIA, JAPAN ::METRO TYRES LIMITED, EXPORT DIVISION
602 Siddhartha Building, 96 Nehru Place, New Delhi - 110 019 (INDIA) Phone: 91-11-26447353, 26463522, 26234478 Fax: 91-11-26447381 Email:exports@metrotyres.com

TYRE INDUSTRIES
The report elucidates facts about the Indian Tyre Industry, supplemented by latest statistical data and comprehensive analysis. Emphasis is laid on the following key subject matters to accomplish the report

The characteristics of the industry (raw material intensity, cyclicality, competition, wide distribution network, capital intensity, low bargaining power, branding, technology requirements, margins and duty structure) and its demand drivers (vehicle production & population, regulatory norms, retreading of tyres etc.). Category-wise tyre production and market-wise tyre offtake analysis for the period FY 03-07. Market competition and category-wise market share of players. Change in category-wise market share of players in FY07 vis-a vie FY06. Cost Analysis (raw material, power & fuel, employee and selling expense) of the top players with specific focus on raw material costs. Category-wise tonnage offtake growth projection for the tyre industry for a fi ve year horizon (FY 07-12) along with SWOT analysis of the industry. Financial profi le, international forays, expansion plans of the top fi ve players along with the details of corporate actions by other global and local players in India.

The Indian Tyre Industry produced 736 lakh units of tyres (11 lakh tonnes) garnering Rs. 19,000 crores in FY 07. MRF Ltd. was the market leader (22% market share) followed closely by Apollo Tyres Ltd. (21%). The other major players were JK Tyre & Industries Ltd (18%) and Ceat Ltd. (13%). The industry tonnage production registered a 5 year CAGR of 9.69% between FY 02-07. Truck & Bus tyre category (accounting for 57% of the tonnage production) recorded a 5 year CAGR of 7.85% (a rate slower than that of the industry) while Light Commercial Vehicle (LCV), Motorcycle and Car tyre categories grew at 15%, 16% and 14% respectively (at rates faster than that of the industry). Off the road (OTR) tyres (customized tyres which fetch a higher margin compared to other tyres) category is growing at a fast pace. The OTR tyre category registered a 5 year CAGR of over 20% in the last five years. Most of the top players

are increasing their capacity for the production of OTR tyres so as to improve their product mix, for e.g. CEAT Ltd. is increasing its OTR capacity at its Nasik plant from 60,000 to 1,00,000 tyres by end 2008, JK Tyre & Industries is expanding its OTR capacity from 25,000 tyres to 42,000 tyres by end 2008, even smaller player like Falcon tyres is making its foray into the OTR category. The exports from the country clocked a CAGR of 13% in unit terms and 18% in value terms in the period FY 0207. Most of these tyres that are exported are of cross ply design. With radialisation catching up in some of these markets, the manufacturers will need to graduate to radial tyres so as to protect their share in the export market. Radialisation of tyres is still minimal in India. Only the car tyre market has moved to radial tyres (95%) but in all other categories cross ply tyres are still preferred. Poor road conditions, overloading in trucks, higher initial cost of radial tyres and poor awareness levels in tyre users are the main reasons for the non transition of the domestic market to radial tyres. However, going ahead, radialisation in truck & bus tyres may increase due to governments focus on infrastructure development. CARE Research expects the tyre industry to register a tonnage growth of 910% in the next five years (FY 0712). The truck & bus and LCV tyre category are expected to register a CAGR of 8% and 14% respectively (FY 0712).

Background The origin of the Indian Tyre Industry dates back to 1926 when Dunlop Rubber Limited set up the first tyre company in West Bengal. MRF followed suit in 1946. Since then, the Indian tyre industry has grown rapidly. Transportation industry and tyre industry go hand in hand as the two are interdependent. Transportation industry has experienced 10% growth rate year after year with an absolute level of 870 billion ton freight. With an extensive road network of 3.2 million km, road accounts for over 85% of all freight movement in India. Market Characteristics Demand The demand for tyres can be classified in terms of:

Type: Bus and Truck; Scooter; Motorcycle; Passenger Car; Tractor Market: OEM; Replacement; Export Environment Analysis - Porter's Model Entry Barriers: High The entry barriers are high for the tyre industry. It is a highly capital intensive industry. A plant with an annual capacity of 1.5 million cross-ply tyres costs between Rs. 4,000 and Rs. 5,000 million. A similiar plant producing radial tyres costs Rs. 8,000 million. Bargaining Power of the Buyers: High The OEMs have total control over prices. In fact, the OEMs faced with declining profitability have also reduced the number of component suppliers to make the supply chain more efficient. Inter Firm Rivalry: Low The tyre industry in India is fairly concentrated, with the top eight companies accounting for more than 80% of the total production of tyres. Bargaining Power of the Suppliers: High The tyre industry consumes nearly 50% of the natural rubber produced in the country. The price of natural rubber is controlled by Rubber Control Board and the domestic prices of natural rubber have registered a significant increase in recent times.

Threat of

Substitutes: Low but Increasing During the FY2002, over 1,10,000 passenger car tyres were imported. This constitutes over 2% of total radial passenger car tyre production in the country. However, with the reduction of peak custom duty, the import of tyres is likely to increase. Tyres by Type The Indian tyre industry produces the complete range of tyres required by the Indian automotive industry, except for aero tyres and some specialised tyres. Domestic manufacturers produce tyres for trucks, buses, passenger cars, jeeps, light trucks, tractors (front, rear and trailer), animal drawn vehicles, scooters, motorcycles, mopeds, bicycles and off-the-road vehicles and special defence vehicles. The scenario in India stands in sharp contrast to that in the world tyre market, where car tyres (including light trucks) have the major share (88%) by volume followed by truck tyres (12%). In India, however, passenger car tyres have a mere 17% share of the overall tyre market (as of FY2003).

Compiled by INGRES Truck and Bus Tyres The truck and bus tyre segment accounted for 19% of tyres produced in India in FY2003. Every truck/bus manufactured generates a demand for seven tyres (six regular and one spare) as against three in the case of two-wheelers and five for passenger cars. In addition, the price of a truck tyre is significantly higher than that of a passenger car tyre (roughly 10 times) or a motorcycle tyre. Thus the demand multiple emanating from the commercial vehicle segment is highest in value terms. Given the regular use and heavy wear and tear of truck and bus tyres, the demand from the replacement market in this segment worked out to 68% of the total demand for truck and bus tyres in FY2003; the OEM demand accounted for around 9% the same year. With the Indian manufacturers of cross-ply tyres focusing on the export market, this segment accounts for around 22% of the demand for truck and bus tyres. Passenger Car Tyres The passenger car tyre segment accounted for 17% of all tyres produced in India in FY2003. With passenger car production witnessing a growth of 12% in FY2003 over the previous year, OEM demand accounted for about 33% of the total sales that year. The replacement market accounted for around 63% of the total sales of passenger car tyres in FY2003. Exports accounted for 4% of the total passenger car tyre demand in FY2003. With the stock of cars increasing, replacement demand is likely to continue.

Motorcycle Tyres Motorcycles accounted for 76% of two-wheelers sold in the domestic market in FY2003. Motorcycle tyres constitute the largest segment of the domestic tyre industry (29% of total tyre demand in FY2003). The replacement market accounted for around 49.8% of the total motorcycle tyres sold in FY 2003, while OEM demand accounted for around 50%. Scooter Tyres Scooters were the dominant segment in the Indian two-wheeler industry till FY1998, accounting for around 42% of domestic two-wheeler sales. However, the introduction of new motorcycle models has seen the share of scooters declining to 19% of domestic two-wheeler sales in FY2003. The OEM segment accounted for around 34% of the total sales in the scooter tyre segment in FY2003, with the rest being accounted for by the replacement market. Tyre Demand by Markets

Vehicle Manufacturers or OEMs The demand from the OEM segment is a derived one and directly correlated to the level of automotive production. The OEMs demand varies significantly across categories from between 8% for truck and bus tyres to over 50% for some other segments like, jeeps and mopeds. Replacement Market The replacement market, including State transport undertakings and Government buying, accounted for around 59% of the total tyre demand in FY2003. The demand in the replacement market depends on the vehicle population, the level of economic activity, life of the products transported, kilometreage per vehicle, the price of the tyres and the quality of the existing road

infrastructure. Additionally, the replacement market, which offers better margins, is extremely competitive. The replacement market is dominated by the truck and buses segment, which accounted for 22% of all tyre sales in the replacement market in FY2003.The large size of the replacement in turn is determined by the interplay of various factors as discussed below: The replacement demand may be lower because of longer replacement intervals and lower business mileage if the economic activity slows down. Replacement demand in India is higher because of a low vehicle scrappage rate. Poor road conditions by lowering the life of tyres, have a positive impact on replacement demand. Stricter enforcement of the MV Act, which seeks to prevent overloading of vehicles, will result in an increase in the life of tyres and thus impact replacement demand negatively. Applying a new tread or "re-treading" can extend the life of the tyre at a significantly lower cost, thereby lowering replacement demand. In India, re-treading finds greater acceptance in the commercial segment. Radialisation of tyres is likely to result in lower replacement demand. While car radialisation in the country has reached a level of 65%, truck and bus radialisation stands at just 2-10%. Poor road and support infrastructure as well as traditional vehicle designs act as a barrier to radialisation in the commercial vehicle segment. Radial technology for trucks and buses would help increase operating efficiencies by delivering better mileage and minimising wear and tear. According to ATMA, even if only 25% of the truck and bus segment is radialised, the savings in fuel costs would be around Rs. 7,500 million. Introduction of tubeless tyres in the passenger car segment is also likely to affect replacement demand adversely. Introduction of eco-friendly radial tyres such as hyper-bonding silica technology in the passenger car segment may affect replacement demand adversely.

Exports In the light of the prevailing domestic market situation, most of the tyre manufacturers have taken to exports to reduce inventory build-ups. In FY2003, Indian tyre exports stood at Rs. 10.8 billion (10% of the total industry) in value terms and 3.1 million in unit terms (6.5% of total production). Indian companies have currently entered into sourcing agreements (for tyres) with neighbouring countries. For instance, Ceat and J K Tyres have sourcing agreements with tyre producers in Sri Lanka and China. This is likely to have a positive impact on tyre exports from India. Market Players Some of the major players in the Indian tyre industry are MRF, Ceat, JK Industries, Apollo

Tyres, Bridgestone India, Goodyear India, Falcon Tyres and TVS Srichakra. The tyre industry in India is fairly concentrated, with the sample of eight companies (as in the text) accounting for 82% of production in FY2002. Besides, not all companies have a diversified product portfolio. Key Issues High tax usage The high tax content on tyres can be gauged from the fact that the percentage of total tax to the tax excluded price for various categories of tyres is - 44% for Truck Tyre; 41% for Passenger Car Radial Tyre, 35% for Tractor Rear Tyre and 76% for Truck Tyre Tube. Increase in raw material costs Apart from being capital intensive, the tyre industry is highly raw material intensive. Any change in the prices of raw materials affects the profitability of tyre companies. The raw materials used in the manufacture of tyres are rubber and petroleum derivatives like nylon tyre cord, carbon black, styrene butadiene rubber and poly butadiene rubber. The most important raw material is rubber-natural and synthetic. Natural rubber (NR), with 29% weightage in the cost of raw materials used by tyre industry, is the highest cost item. Annual consumption of NR by tyre industry is 3.50 lakh tonnes, valued at Rs. 14 billion. Over 85% of NR consumed' by the industry is procured domestically. 15% is imported. In the 2003-04 fiscal, as against the Minimum Statutory Price of Rs. 32.0 per kg, the ruling domestic price of NR had been over Rs. 50 per kg. This is higher than the world rubber prices. However, this does not entail the tyre industry players to import as a number of restrictions are imposed on the import of NR. NR can be imported only through two ports-Kolkata & Visakhapatnam. The customs duty on import of natural rubber is 20%, with 10% under Bangkok Agreement. However, this is not relevant, as NR is not cultivated in South Korea, Bangladesh & China (signatories under the Bangkok Agreement). Hence, NR can be sourced only from Sri Lanka (under the Indo-Sri Lanka Agreement), which is of bad quality. Thus, the options of rubber import are restricted and the manufacturers have to rely on the domestic market for procuring rubber. Import of tyres During the FY2002, over 1,10,000 passenger car tyres were imported. Although this constitutes a small percentage (1.5%) of total passenger car tyre production in the country, since total imports are of radial passenger car tyres, the percentage is higher when compared against domestic production of radial passenger car tyres. A large percentage of imports are from South

Korea at a concessional rate of customs duty (i.e. 15%) under the Bangkok Agreement - as against 20% normal rate of customs duty. Even though the Government has imposed a restraint on the import of used tyres into India, occasionally there are reports of import of such tyres in a clandestine manner, sometimes as new tyre at low value, since there is no restriction on import of new tyres or as tyres under the "others" category. Many countries such as Japan, Bangladesh, Pakistan, Philippines, Thailand, Kenya, South Korea, etc. have either put a complete ban on import of used tyres or have placed stringent conditions on such imports. Tyre Exports The product focus of tyre exports from India has been Traditional Truck Tyres. Globally this segment of tyre export is shrinking due to greater acceptance of radial tyres. Over the years, China has emerged as a major exporter in bias tyre category. Additionally, export of Indian tyres to select countries is subjected to non-tariff barriers (NTBs) by way of standards, tests, etc. Export of cheaper tyres from China to major tyre importing markets, like US, is adversely affecting Indian tyre exports to these markets. India's share in exports to these countries (especially USA) is progressively declining. If the trend is not reversed, Indian tyre industry will find it extremely difficult to regain its erstwhile position in these markets. Low rate of interest, cheaper electricity tariff, hidden subsidies by the Chinese Government, better infrastructure facilities and lower transaction costs are factors favourable to Chinese tyre industry. Trends in Production, Consumption, Price & Capacity Utilisation The total tyre produced in the country was 51.58 million units in FY2003 - a 19% growth rate over FY2002. CAGR of tyre production (in %) FY 1993-2003 FY 1993-1998 FY 1999-2003 FY 2002-2003 Compiled by INGRES 9% 7% 9% 19%

Currently, the size of the Indian tyre industry is estimated at Rs. 128 billion (0.5% of Indian GDP), as of FY2003. The total installed capacity of the Indian tyre industry is around 60.5 mn

units, and the capacity utilisation is around 85%. The capacity utilisation improved in FY2003 following improved demand from the automotive segment (75% in FY2001). Additionally, in FY2003, the price realisation of tyre manufacturers also registered an increase by 8%, as against a 0.6% increase in FY2002. Demand Supply Gap The demand for tyres is either in the domestic market or in the export market. As far as domestic demand is concerned, the OEM and the replacement segments are likely to witness strong growth given the current performance of the automotive sector. Given the strong linkages of tyre industry with automotives, its demand is likely to be strong over the short to medium term. As for the export demand for tyres, the outlook is positive, even though some downsides remain. As regards supply of tyres, currently, the major players are in the process of expanding their capacities, in anticipation of uptrend in sales. For instance, Apollo Tyres has set up a joint venture with Michelin for manufacture and sale of bus and truck radials. JK is expanding its Mysore truck and bus radial facility along with eyeing acquisitions of smaller units. Ceat has increased its offtake by 3 times from Pirelli. However, a characteristic of the Indian tyre industry is that most of the tyre manufacturers in the past had increased capacities in anticipation of a surge in demand, but when it did not materialise, they reduced their addition to capacities. Thus, the demand-supply gap is likely to be an important issue for the Indian tyre industry over the short to medium term. Review of Performance Overall Performance The operating margin of the representative sample of tyre companies improved during FY2003. However, the net profit margin of the tyre companies even though improved, was still at 3%. Performance in FY2004 The tyre industry continues to be driven by good demand growth, propelled by sustained uptrend in demand and sales of automobiles in general, and commercial vehicles and passenger cars in particular. However, this does not get translated into improved margins for the industry, as it is witnessing sustained rise in prices of raw materials like natural rubber. Additionally, the customs duty on imports has been brought down from 25% to 20% and Special Additional Duty of 4% has been dispensed with.

Outlook The level of economic activity, performance of domestic automotive industry, and the faring of the transport sector directly influence the performance of the tyre industry in India. With the replacement segment dominating the overall tyre demand in India, the industry remains inherently vulnerable to economic cycles. While radialisation has become the norm in the passenger car segment, in the bus and truck tyre segment, its acceptance is still limited. Bus and truck radialisation could emerge in the long term as the quality of roads improves and the restrictions on overloading are better enforced. The practice of re-treading, which is gaining increasing acceptance, could pose a challenge to replacement demand in the medium term. The ability of the re-treading sector to capture potential replacement demand would depend on the awareness among customers (of the benefits of retreading) and also the quality of retreading done. Given the low levels of penetration of two-wheelers and passenger cars in the country, OEM demand is likely to increase, which in turn would push up replacement demand with a lag. The prospects of tyre exports from India appear healthy, following efforts by Indian companies to increasingly enter into outsourcing agreements with tyre producers in Southeast Asia, Eastern Europe and Latin America. Overall, tyre manufacturers are likely to tap the export market in an effort to boost sales. The increasing exports of bus and truck tyres (crossply variety) from India to developing countries is because of the fact that developing countries are unable to source them from developed countries as these are no more produced there. Tyre imports are unlikely to pose a threat to the domestic industry, given that domestic prices are lower than international tyre prices. In the domestic market, tyre manufacturers are expected to increasingly focus on expanding their dealership networks & explore possibilities of tie-ups among themselves to penetrate the growing customer base. They are also likely to pursue innovative measures (such as "dial-a-tyre service and road shows) to improve customer awareness. The consolidation of the Indian tyre industry is likely to continue in the coming years through mergers among existing players. The industry is likely to expand through a combination of organic and inorganic growth. While organic growth would come from raising efficiency levels, inorganic growth would be achieved through alliances and M&As.

Tyre industry

The tyre industry has witnessed a CAGR of 8.3% over the last decade mainly fuelled by the strong growth in the domestic auto industry. Though the replacement market has driven the industry growth for long time, the OEM market has seen a robust growth over the last couple of years.

The industry is highly capital intensive, as it requires around Rs4bn to setup a radial tyre plant with a capacity of 1.5mn tyres and around Rs1.5-2bn for a crossply tyre plant of a capacity to manufacture 1.5mn tyres. The profitability of the industry has high correlation with the prices of key raw materials such as rubber and crude oil as they account for more than 70% of the total costs. The raw material to sales ratio in the industry is around 65%. The industry has high entry barriers because of its capital intensive nature and low operating margins. With demand increasing at a steady pace, the industry is expected to go through a consolidation phase. The industry is dominated by four players viz MRF, Apollo Tyres, JK Industries and Ceat and enjoys more than 70% of the total market share. The fortunes of the industry are linked to the trend in the domestic auto industry, retreading, trend in road transportation and spending on road infrastructure. The companies have lined up further expansion plans to meet the increasing demand.

Report on Indian Tyre Industry The report elucidates facts about the Indian Tyre Industry, supplemented by latest statistical data and comprehensive analysis.Emphasis is laid on the following key subject matters to accomplish the report.

FOR IMMEDIATE RELEASE PRLog (Press Release) Jun 26, 2008 Indian Tyre Industry The report elucidates facts about the Indian Tyre Industry, supplemented by latest statistical data and comprehensive analysis.Emphasis is laid on the following key subject matters to

accomplish the report.The characteristics of the industry (raw material intensity, cyclicality, competition, wide distribution network, capital intensity, low bargaining power, branding, technology requirements, margins and duty structure) and its demand drivers (vehicle production & population, regulatory norms, retreading of tyres etc.).Category-wise tyre production and market-wise tyre offtake analysis for the period FY 03-07.Market competition and category-wise market share of players. Change in category-wise market share of players in FY07 vis-a vie FY06.Cost Analysis (raw material, power & fuel, employee and selling expense) of the top players with specific focus on raw material costs.Category-wise tonnage offtake growth projection for the tyre industry for a fi ve year horizon (FY 07-12) along with SWOT analysis of the industry.Financial profi le, international forays, expansion plans of the top fi ve players along with the details of corporate actions by other global and local players in India. The Indian Tyre Industry produced 736 lakh units of tyres (11 lakh tonnes) garnering Rs. 19,000 crores in FY 07. MRF Ltd. was the market leader (22% market share) followed closely by Apollo Tyres Ltd. (21%). The other major players were JK Tyre & Industries Ltd (18%) and Ceat Ltd. (13%). The industry tonnage production registered a 5 year CAGR of 9.69% between FY 02-07. Truck & Bus tyre category (accounting for 57% of the tonnage production) recorded a 5 year CAGR of 7.85% (a rate slower than that of the industry) while Light Commercial Vehicle (LCV), Motorcycle and Car tyre categories grew at 15%, 16% and 14% respectively (at rates faster than that of the industry). Off the road (OTR) tyres (customized tyres which fetch a higher margin compared to other tyres) category is growing at a fast pace. The OTR tyre category registered a 5 year CAGR of over 20% in the last five years. Most of the top players are increasing their capacity for the production of OTR tyres so as to improve their product mix, for e.g. CEAT Ltd. is increasing its OTR capacity at its Nasik plant from 60,000 to 1,00,000 tyres by end 2008, JK Tyre & Industries is expanding its OTR capacity from 25,000 tyres to 42,000 tyres by end 2008, even smaller player like Falcon tyres is making its foray into the OTR category. The exports from the country clocked a CAGR of 13% in unit terms and 18% in value terms in the period FY 0207. Most of these tyres that are exported are of cross ply design. With radialisation catching up in some of these markets, the manufacturers will need to graduate to radial tyres so as to protect their share in the export market. Radialisation of tyres is still minimal in India. Only the car tyre market has moved to radial tyres (95%) but in all other categories cross ply tyres are still preferred. Poor road conditions, overloading in trucks, higher initial cost of radial tyres and poor awareness levels in tyre users are the main reasons for the non transition of the domestic market to radial tyres. However, going ahead, radialisation in truck & bus tyres may increase due to governments focus on infrastructure development. Research expects the tyre industry to register a tonnage growth of 910% in the next five years

(FY 0712). The truck & bus and LCV tyre category are expected to register a CAGR of 8% and 14% respectively (FY 0712).

The Indian Tyre Industry is Expected to Register a Growth of 9-10% in the Next 5 Years Business Wire, June 4, 2008 E-mail Print Link DUBLIN, Ireland -- Research and Markets (http://www.researchandmarkets.com/reports/c93693) has announced the addition of "Indian Tyre Industry 2008" to their offering. Indian Tyre Industry to Register a Growth of 9-10% in the Next 5 Years The Indian Tyre Industry produced 736 lakh units of tyres (11 lakh tonnes) garnering Rs. 19000 crores in FY07. MRF Ltd. was the market leader (22% market share) followed closely by Apollo Tyres Ltd. (21%). The other major players were JK Tyre & Industries (18%) and Ceat Ltd.(13%). Most Popular Articles in Business Research and Markets : Tesco Plc - SWOT Framework Analysis Do Us a Flavor - Ben & Jerry's Issues a Call for Euphoric New Flavors eBay made easy: ready to start an eBay business? These 5 simple steps will ... Katrina's lawsuit surge: a legal battle to force insurers to pay for flood ... Wal-Mart's newest distribution center opened last month near the southwest ... More The Indian tyre industry is characterized by its raw material intensity (raw material costs account for approximately 70% of operating income), capital intensity, cyclicality, fierce competition among the top players, low bargaining power and resulting low margins. The top players are now focusing on branding their products and strengthening their distribution network so as to increase their market share. The industry derives its demand from the automobile Industry. While OEM market offtake is dependent on the new vehicle sales, replacement market demand depends on the total population of vehicles on road, road conditions, vehicle scrapping rules, overloading norms for trucks, average life of tyres and prevalence of tyre retreading. The main category of tyres produced in the country is that of Truck & Bus tyres. These tyres accounted for 57% of the total tyre tonnage production in FY07 followed by LCV tyres which accounted for 9% of the total tyre tonnage production. Approximately 53% of the total tyre

tonnage offtake was by the replacement market, 31% by OEM and 15% by the export market in FY07. The industry tonnage production registered a 5 year CAGR of 9.69% between FY 02-07. The largest category of Truck & Bus tyres recorded a 5 year CAGR of 7.85% (slower than the industry) while Light Commercial Vehicle (LCV), motorcycle and car tyre categories grew at 15%, 16% and 14% respectively (faster than the industry). Off the road (OTR) tyre category (customized tyres) which fetch a higher margin compared to other tyre categories, is the fastest growing category. The OTR tyre category has registered a 5 year CAGR of over 20% in the last five years. Most of the top players are increasing their capacity for the production of OTR tyres so as to improve their product mix, this being a high margin product. The exports from the country clocked a CAGR of 13% in unit terms and 18% in value terms in the period FY 02-07. Most of these tyres that are exported are of cross ply design. With radialisation catching up in some of these markets, the Indian manufacturers will need to graduate to production and export of radial tyres so as to protect their share in the export market. Radialisation of tyres is still minimal in India. Only the car tyre market has moved to radial tyres (95%) but in all other categories, cross ply tyres are still preferred. Poor road conditions, overloading in trucks, higher cost of radial tyres and poor awareness of the tyre users are the main reasons for the non transition of the domestic market to radial tyres. However, going ahead radialisation in truck & bus tyres may increase due to government's focus on infrastructure development.

RESEARCH METHODOLOGY

RESEARCH METHODOLOGY
Research Methodology refers to the framework or plan according to which the researcher has to carry out his activity.

Research can be defined as a "systematized effort to gain new knowledge." Marketing Research is a systematic and objective process of identifying and formulates the marketing problems; Setting research objectives and methods for collecting, editing" coding, tabulating,

evaluating, analyzing, interpreting and presenting the various information does it 985 data in order to find justified solutions for these problems. Research Methodology is the procedure for conducting the research. It is a way to systematically solve the problem. It may be understood as a science of studying how research is done scientifically. In it we study the various steps that are generally adopted by a researcher In studying his research problem along with the logic behind them. If the researcher wants to claim objectivity of His research and wishes to establish a truth and gain wide /* aceptability than lot of attention has to be devoted to the procedure and methodology of the research. Market research involves the following steps:

Step 1: Define the problem and research objectives. Step 2: Developing the research plan Selection method Questionnaire method Sampling method Contact method

Step 3: Collect the information Step 4: Analyze the information. Step 5: Present the findings.

Step 1: Define the research objective

After discussing with the external project guide the topic for the project was selected as: Financial analysis of Metro Tyres ltd.

Step 2: Developing the research plan

Questionnaire method

Marketing researchers have the best instrument in collecting primary data i.e. a questionnaire to collect the data and to establish the view of the people from all the sectors of the society. Questionnaires are designed to elicit information that meets the studies requirements. Questions should be:
o o o

clear easy to understand directed towards meeting an objective.

Need to define objectives before designing the questionnaire. Must maintain impartiality and be very careful with personal data. Four basic types of questions are:
o o o o

Open ended Dichotomous Multiple choice. Scaled (lickert)

The questionnaire designed for this project contains open-ended questions. All the questions are clearly defined. The questions are framed keeping in mind the objective of research and kind of information required .Sampling method To select representative units from a total population.

A population "universe", all elements, units or individuals that are of interest to researchers for a specific study. IE all registered voters for an election.

Sampling procedures are used in studying the likelihood of events based on assumptions about the future.
o o

Random sampling, equal chance for each member of the population Stratified sampling, population divided into groups re: a common characteristic, random sample each group

o o

Area sampling, as above using areas Quota sampling, judgmental, sampling error cannot be measured statistically, mainly used in exploratory studies to develop a hypotheses, non-probablistic.

Random sampling is selected as the sampling method for this project. Selection Method o Mail-wide area, limited funds, need incentive to return the questionnaire Mail panels, consumer purchase diaries. Must include a cover letter to explain survey!! o Telephone-speed, immediate reaction is negative, WATS, computer assisted telephone interviewing. o Personal interviews-flexibilty, increased information, non-response can be explored. Most favored method among those surveyed. Can be conducted in shopping malls.

o In home (door-to-door) interview, get more information but it is costly and getting harder to accomplish. o Mall intercepts-interview a % of people passing a certain point. Almost half of major consumer goods and services orgs. use this technique as a major expenditure. Can use demonstration, gauge visual reactions. Regarding social behavior, mall surveys get a more honest response than telephone surveys. There is a bias toward those that spend a lot of time in malls. Need to weight for this. On site computer interviewing, respondents complete self administered questionnaires conducted in shopping malls. Questions can be adaptive depending on the responses. o Focus groups-observe group interaction when members are exposed to an idea or concept, informal, less structured. Consumer attitudes, behaviors, lifestyles, needs and desires can be explored in a flexible and creative manner. Questions are open ended. Cadillac used this method to determine that they should be promoting safety features. A sample of 200 people was taken and judgement was done to select the right prospects to secure accurate information. The sample consisted of people like businessman, doctors, pvt. Company employees. Contact/Observation method

Record overt behavior, note physical conditions and events. Can be combined with interviews, i.e. get demographic variables. Mechanical observation devices, IE cameras, eye movement recorders, scanner technology, Nielsen techniques for media. Observation avoids the central problem of survey methods, motivating respondents to state their true feelings or opinions. If this is the only method, then there is no data indicating the causal relationships. Step 3: Collection of information The information of the project was gathered in 2 forms: Primary data

In primary data collection, you collect the data yourself using methods such as interviews and questionnaires. The key point here is that the data you collect is unique to you and your research and, until you publish, no one else has access to it. There are many methods of collecting primary data and the main methods include:

questionnaires interviews focus group interviews observation case-studies diaries critical incidents portfolios.

Secondary data Secondary data - collected by others to be "re-used" by the researcher

What Form Does Secondary Data Take?

o o

Qualitative Sources Sources for Qualitative Research:

Biographies - subjective interpretation involved Diaries - more spontaneous, less distorted by memory lapses Memoirs - benefit/problem of hindsight Letters - reveal interactions Newspapers - public interest & opinion

Novels & Literature In General Handbooks, Policy Statements, Planning Documents, Reports, Historical & Official Documents (Hansard, Royal Commission reports)

Quantitative Sources

Published Statistics:

National Government Sources Local Government Sources Other Sources Non-Published / Electronic Sources Data Archives eg the Data Archive At Essex On-Line Access To National Computing Centres International Sources on Internet & Web

For this project the secondary sources used are: Journals Company product brouchers Internet

Market Research Design

Research Data Source Research approach Research instrument Type of questions Sample sizes Mode of collecting data collection

: : : : : : : :

Descriptive type Primary & secondary Survey method Questionnaire Closed ended 100 samples Respondents to be chosen randomly.

In my project I have used SECONDARY DATA

RESEARCH DESIGN A research design is simply a framework for the study that is used as a guide for collecting and analyzing the data. Decision regarding what, where when, how much, by what means concerning an inquiry or a research study constitutes a research design. This framework ensures collection and analysis of data in a manner that aims to combine relevance to the research purpose with economy in procedure. In fact, the research design is the conceptual structure within which research is conducted. It constitutes the blue print for collection, measurement analyses of data. Research design depends on the purpose of study. Research purpose may be grouped into four categories: a) EXPLORATORY RESEARCH: It is also termed as formulate research. The main purpose of such research is to gain familiarity with a phenomenon or discovery of ideas and insights. b) DESCRIPTIVE RESEARCH: These are studies, which are concerned with describing the characteristics of a particular individual, situation or a group. c) DIAGNOSTIC RESEARCH STUDIES: These studies determine the frequency with which something occurs or with which it is associated with something else. d) HYPOTHESIS TESTING RESEARCH STUDIES: These are concerned with testing a hypothesis of a causal relationship between variables.

TYPE OF RESEARCH
SAMPLE DESIGN All items in any field of study constitute the UNIVERSE. In any study it is almost impossible to examine the entire universe. The only alternative that is best, suitable and economical is to resort to sample. 'This is absolute for present study. The basic principle, which is followed is that the sample chosen should be representative of the entire universe to be studied.

A SAMPLE DESIGN is a definite plan for obtaining a sample from a given population. It refers to the technique or the procedure the researchers would adopt in selecting items for the sample. Sample design may as well lay down the number of items to be included in the sample i.e. the size of sample and also the sampling units. Sampling units implies the unit of sample considered and the unit of inquiry

There are different types of sample designs based on two factors viz., REPRES.ENTATION BASIS and, the ELEMENT SELECTION TECHNIQUE.

On the REPRESENTATION BASIS, the sample may be PROBABILITY SAMPLING or it may be NON PROBABILITY SAMPLING.

Probability sampling is based on random selection and in this every element in the universe has an equal chance of being selection in sample.

Non-Probability is non-random sampling and it does not afford any basis for estimating the probability that each item in the population has of being included in the sample.

On ELEMENT SELECTION BASIS, the sample may be either RESTRICTED or UNRESTRICTED. Unrestricted sampling is based when each sample element is drawn individually from the population at large, then the sample so drawn is known as 'unrestricted sampling'.

Restricted sampling includes all other forms of sampling like quota, judgmental, stratified sampling etc.

TYPE OF SAMPLE In the PRESENT STUDY non-probability sampling technique was applied, where samples are selected RANDOMLY BASED ON CONVENIENCE AND JUDGEMENTAL.

SAMPLE SIZE A sample of 50 Dealers was selected.

TECHNIQUES USED IN THE RESEARCH

Various techniques were used for making and studying the report. These are: Ratio analysis Profitability ratio Long-term solvency ratio Short-term solvency ratio Turnover ratio

Objective: Assesement of METRO TYRES Ltd in order to come out with the potential areas for improvement and suggest the recommendations for the same.

Data collection process design: Collecting the Dealer list of metro tyres Ltd. for the regions of Delhi and Gurgaon from the Asst. Managers in the Corporate Sales Dept. Selecting the dealers to whom the goods were send from last six months and the data was compared

FINANCIAL ANALYSIS
INTRODUCTION
o Financial analysis is the process of determining the significant operating and financial characteristics of a firm from accounting data and financial statements o The goal of such analysis is to determine the efficiency and performance of the firms management, as reflected in the financial records and reports. o The analyst attempts to measure the firms liquidity, profitability and other indication that business is conducted in a rational and orderly way. o If a firm does not achieve financial norms for its industry or relationships among data that seem reasonable, the analysts note the deviations. The burden of explaining the apparent problems may then be placed upon management. Managers, shareholders, creditors, tax authorities and other interested groups seek answers to the following important questions about the firm: # # What is the financial position of the firm at a given point of time? How did the firm perform financially over a given period of time?

The firm itself and outside providers of capital creditors and investors all undertake financial statement analysis. The type of analysis varies according to the specific interests of the party involved. Trade creditors (suppliers owed money for goods and services) are primarily interested in the liquidity of the firm. Their claims are short term, and the ability of the firm to quickly pay these claims is best judged by the analysis of the firms liquidity. The long term lenders on the other hand accordingly are more interested in the cash flow ability of the firm to service debt over a long period of time. They evaluate this ability by analyzing the capital structure of the firm, the major sources and uses of funds, the firms profitability over the time, and projections of future profitability. Investors in a companys common stock are principally concerned with present and expected future earnings as well as with the stability of these earnings about a trend line. As a result, investors usually focus on analyzing the profitability of the firm. They would also be concerned with the firms financial condition insofar as it affects the ability of the firm to pay dividends continuously.

All the cases described so far have involved suppliers of capital. Therefore, the analysis has taken an external point of view. Internally, management also employs financial analysis for the purpose of internal control and to better provide what capital suppliers seek in financial condition and performance from the firm. From an internal control standpoint, management needs to undertake financial analysis in order to plan and control effectively

FINANCIAL STATEMENTS
Financial analysis involves the use of various financial statements. A financial statement is a collection of data organised according to logical and consistent accounting procedures. Its purpose is to convey an understanding of some financial aspects of a business firm. It may show a position at a moment in time, as in the case of Balance Sheet (A summary of firms financial position on a given date that shows total assets = total liabilities + owners equity ), or may reveal a series of activities over a given period of time; as in the case of an Income Statement ( A summary of the firms revenues and expenses, over a specified period ending with net income or loss for the period ), or may show the sources and uses of funds, as in the case of Fund Flow Statement (A summary of a firms changes in financial position from one period to another).The Income statement, the statement or retained earnings and the statement of changes of financial position report what has actually happened to earnings during a specified period. The balance sheet presents a summary of financial position of the company at a given point of time. The statement of retained earnings reconciles income earned during the year and any dividends distributed with the change in retained earnings between the start and end of financial year under study. The statement of changes in financial position provides a summary of funds flowing during the period of financial statements.

BALANCE SHEET The balance sheet is the first of the three major financial statements. The balance sheet shows the assets, liabilities and the equity for the firm as of the last day of the accounting period. In effect, it matches resources (assets) with sources (liabilities and equity). It is commonly presented in two columns that

illustrate the relationship between assets and the sources of these assets. The assets or resources of the firm are displayed in the right hand column and the sources of these assets in the left hand column. INCOME STATEMENT The income statement, is a report of the firms activities during a given accounting period. Firms often publish income statements showing the results of each quarter, each half year and the full accounting year. It shows the revenues and expenses of the firm, the effect of interest and taxes, and the net income for the period. It may be called by other titles, such as the profit-and-loss statement or the statement of earnings. It is an accounting device designed to show stockholders and creditors whether the firm is making money. It can also be used as a tool to identify the factors that affect the degree of profitability FLOW OF FUNDS STATEMENTS A third important financial statement is the flow-of-funds or sources-of- funds statement. This statement shows the movement of funds into the forms current asset account from external sources such as stockholders, creditors and customers. It also shows the movement of funds to meet the firms obligations, retire stock or pay dividends. The movements are shown for a specific period of time, normally the same time period as the firms income statement. The financial manager makes decisions to ensure that the firm has sufficient funds to meet financial obligations when they are due and to take advantage of financial opportunities. To help the analyst appraise these decisions (made over a period of time), we need to study the firms flow of funds.

RATIO ANALYSIS-A TOOL

Ratio analysis is a very powerful analytical tool for measuring performance of an organization. The ratio analysis concentrates on the inter-relationship among the figures appearing in the aforementioned four financial statements. The ratio analysis helps the management to analyze the past performance of the firm and to make further projections. Ratio analysis allows interested parties like shareholders, investors, creditors, Govt. and analyst to make an evaluation of certain aspects of a firms performance.

Ratio analysis is a process of comparison of one figure against another, which make a ratio, and the appraisal of the ratios to make proper analysis about the strengths and weaknesses of the firms operations. The calculation of ratios is a relatively easy and simple task but only the skilled analyst can make the proper

analysis and interpretation of the ratios. While interpreting the financial information, the analyst has to be careful in limitations imposed by the accounting concepts and methods of valuation. Information of nonfinancial nature will also be taken into consideration before a meaningful analysis is made. Ratio analysis is extremely helpful in providing valuable insight into a companys financial picture. Ratios normally pinpoint a business strengths and weakness in two ways: 1. Ratios provide an easy way to compare todays performance with past. 2. Ratio depict the areas in which a particular business is competitively advantaged or disadvantaged through comparing ratios to those of other businesses of the same size within the same industry.

TYPES OF RATIOS

CLASSIFICATION OR TYPES OF RATIOS

The following classification is based on the financial statements on which ratios are calculated. Thus these are: Balance Sheet Ratios. Current Ratio Liquid Ratio Proprietary Ratio Debt Equity Ratio Stock Working Capital Ratio Profit and loss A/C Ratios Gross Profit Ratio

 Operating Profit Ratio Net Profit Ratio

Combined or balance sheet and profit and loss ratio Capital-turnover ratio Fixed-assets turnover ratio Net working capital-turnover ratio Stock-working capital ratio Return on investment Return on equity

However, the above basis of classification is found to be too crude and unsuitable because analysis of balance sheet and income statement cannot be done in isolation. Therefore they are studied together in order to determine profitability and solvency of the business. In order that ratio serves a tool of financial analysis, they are now classified into four important categories. Liquidity ratios Solvency/Financial/Leverage ratios Activity ratios Profitability ratios

LIQUIDITY RATIOS-AN ANALYSIS FOR SHORT TERM CREDITORS Liquidity ratios measures the firm abilty to meet current obligations. These are of 2 types:

1) CURRENT RATIO: The current ratio is calculated by dividing current assets by current liabilities.

CURRENT ASSETS= CURRENT ASSETS CURRENT LIABILITIES

In a business, a 2:1 ratio is treated a satisfactory relationships.

2)Acid test ratio or quick ratio or liquid ratio: Quick ratio establishes a relationship between quick, or liquid, assts and current liabilities.

Quick ratio= Total current assets-(stock in trade+prepaid expenses) Current Liabilites A ratio of 1:1 is considered favourable since for every rupee of current liabilities there is a rupee of quick assets.

SOLVENCY RATIO- AN ANALYSIS FOR LONG-TERM CREDITORS

Solvency ratios indicate ability of the company to meet its interest cost and repayment schedules associated with its long term indebtedness. 1)Debt-Equity Ratio: Debt equity ratio expresses the relationship of long term liability to net worth.

DEBT-EQUITY RATIO = Long term liabilities Equity (or net worth)

The normally accepated debt-equity ratio is 2:1.

2)Interest-coverage ratio The interest coverage ratio or debt services ratio indicate how much interest charges are covered by operating profits by operating profits available to pay its interest charges.

INTEREST COVERAGE RATIO= Net income before charging interest and income tax Periodic interest on long term debts

A higher ratio is desiarable.

3)Debt to total funds ratio This ratio compares the total liabilities to total assets.

DEBT TO TOTAL FUNDS RATIO=Total liabilites Total assets The ratio indicates the percentage of assets financed through borrowings.

ACTIVITY RATIOS-AN ANALYSIS FOR MEASURING THE MOVEMENT OF ASSETS. Activity ratio signifies the effective utilisation of a concern of its available resources. These are es follows:

1) CAPITAL TURNOVER RATIO

This ratio measures the effectiveness with which a firm uses financial resources at its disposal. CAPITAL TURNOVER RATIO=Net sales (or) cost of sales (or) cost of goods sold Capital employed or owners equity

A low ratio may signify that the capital is lying idle or there is a fall in sales revenue.A high ratio indicates that either the business firm is overtrading to an extent that its financial health is in risk or danger or there is manipulation in the figures.

2)FIXED ASSETS TURNOVER RATIO

This ratio indicates the firms efficiency of utilising fixed assets.

FIXED ASSETS TURNOVER RATIO=Net sales Fixed assets less depreciation

Higher the ratio, better it is because it indicates higher efficiency, i.e., every rupee invested in fixed assets generates higher sales.

3)NET WORKING CAPITAL TURNOVER RATIO

This ratio computes the requirement of working capital for an expected increase in sales. NET WORKING CAPITAL TURNOVER RATIO=Net credit sales Average debtors

A high ratio indicates efficient use of working capital and quick turnover of these current assets.

4)STOCK TURNOVER RATIO

This ratio signifies the number of times on an average,the inventory or stock turnover or sold during the period. It shows how the goods are kept in stores before being sold.

STOCK TURNOVER RATIO=Cost of goods sold Average stock held during the year

A higher stock turnover ratio is desirable because it leads to higher liquidity. It indicates efficient sales performance. A low stock turnover ratio indicates that goods are not sell quickly and remains in the godown for a long time. This will lead to excessive blocking up of working capital in inventories. Moreover, slower stock turnover will reduce liquidity.

4)DEBTORS TURNOVER RATIO This ratio establishes the relationshipof receivables to net credit sales. It indicates the number of times debtors turnover each year.

DEBTORS TURNOVER RATIO=Net credit sales Average debtors (Debtors + Bills Receivables) Generally higher the value of debtors, the more efficient is the management of credit.

PROFITABILITY RATIOS-THESE RATIOS ARE CALCULATED TO ANALYSE THE FINANCIAL RESULTS OF BUSINESS OPERATIONS FOR THE SAME FIRM OVER SEVERAL YEARSOR OF THE SIMILAR FIRMS FOR THE SAME FIRM OR SEVERAL YEARS. THESE ARE:

1) GROSS PROFIT RATIO

The gross profit ratio is also called the average markup ratio. This ratio expresses relationship between gross profit and net sales. This ratio indicates the degree to which income per unit may decline without resulting in losses from operations to the firm. It also helps in ascertaining whether the average percentage of mark up on the funds is maintained. It is calculated by comparing the gross profit of the firm with the net sales as follows: GP Ratio= Gross profit x 100 Net sales Gross profit = Gross income Interest and other charges.

1)OPERATING PROFIT RATIO

The operating refers to the pure operating profit of the firm i.e. the profit generated by the operation of the firm and hence is calculated before considering any financial charge (such as interest payment), non operating income/ loss and tax liability etc. the operating profit is also termed as the Earning Before Interest and Tax (EBIT). The Operating Profit ratio may be calculated as follows:

Operating Profit Ratio = Operating cost x 100 . Net Sales

So, the Operating cost = Gross income Interest and other charges Staff expenses Other expenses Depreciation

3)NET PROFIT RATIO

The NP ratio establishes the relationship between the net profit (after tax) of the firm and the net sales. The NP ratio measures the efficiency of the management in generating additional revenue over and above the total cost of operations. The NP ratio shows the overall efficiency in manufacturing, administrative, selling and distributing the product. It may be calculated as follows:

NP ratio = Profit (after tax) x 100 Net sales

4)RETURN ON ASSETS (ROA)

The ROA measures the profitability of the firm in terms of assets employed in the firm. The ROA is calculated by establishing the relationship between the profits and the assets employed to earn that profit. Usually the profit of the firm is measured in terms of the net profit after tax and the assets are measured in terms of total assets or total tangible assets or total fixed assets. Conceptually, the ROA may be measured as follows:

ROA = Net profit after taxes x 100 Total assets

4)RETURN ON INVESTMENT (ROI)

The profitability of the firm can also be analyzed from the point of view of total funds employed in the firm. The term funds employed or the capital employed refers to the total long-term sources of funds. Capital employed = shareholders funds plus long-term debts. Alternatively, capital employed = fixed assets plus + working capital. The ROI may be calculated as follows:

ROI = Net profit before interest and taxes x 100 Capital employed

RETURN ON EQUITY (ROE)

The ROE examines profitability from the perspective of equity investors by relating profits available for the equity shareholders with the book value of equity investment. The return from the point of view of equity shareholders may be calculated by comparing the net profit less preference dividend with their total contribution in the firm

ROE = Net Profit after tax x 100 Total shareholders fund

PROFITABILITY RATIO
In a business enterprise, profitability is the most important part for a financial institution notwithstanding it is pre eminently a service oriented industry. It is fundamental truth that revenue must exceed expenditure incurred in the process of earning that revenue. Profit provides cushion to the financial institution to support its credit risks and withstand any unforeseeable developments. A profitable financing organization has sufficient resources in its command to finance its growth and diversification programmes in future.

Profitability ratios are measured with reference to sales, capital employed, total assets employed, shareholders funds etc. the major profitability rates are as follows: Gross profit margin

Operating profit ratio Net profit margin Return on assets Return on investment Return on equity Earning per share. Dividend per share Dividend payout ratio

FINDINGS

GROSS PROFIT RATIO

The gross profit ratio is also called the average markup ratio. This ratio expresses relationship between gross profit and net sales. This ratio indicates the degree to which income per unit may decline without resulting in losses from operations to the firm. It also helps in ascertaining whether the average percentage of mark up on the funds is maintained. It is calculated by comparing the gross profit of the firm with the net sales as follows: GP Ratio= Gross profit x 100 Net sales Gross profit = Gross income Interest and other charges.

GP RATIO - 2010 =

( Current Year)

50.13 x 100 718.43

6.97%

GP RATIP 2009 =

(Previous Year)

40.85 x 100 320.67

12.73%

Hence, gross profit of year 2010 is better then 2009.

GP RATIO

14.00% 12.00%

12.73%

10.00%
% change 8.00% 6.00%
6.97%

4.00%
2.00% 0.00% Years

NET PROFIT RATIO

The NP ratio establishes the relationship between the net profit (after tax) of the firm and the net sales. The NP ratio measures the efficiency of the management in generating additional revenue over and above the total cost of operations. The NP ratio shows the overall efficiency in manufacturing, administrative, selling and distributing the product. It may be calculated as follows:

NP ratio = Profit (after tax) x 100 Net sales Net Profit 2010 (Current Year) = 131.90 718.43 X 1 00

= 18.35% Net Profit 2009 (Previous Year) = 40.56 320.67 X 100

= 12.64%

Hence, Net profit of year 2009 is better then 2010

NET PROFIT RATIO

20.00%
15.00%

18.35%

12.64%

%change 10.00%

5.00% 0.00% 2010

Years

2009

RETURN ON ASSETS (ROA)

The ROA measures the profitability of the firm in terms of assets employed in the firm. The ROA is calculated by establishing the relationship between the profits and the assets employed to earn that profit. Usually the profit of the firm is measured in terms of the net profit after tax and the assets are measured in terms of total assets or total tangible assets or total fixed assets. Conceptually, the ROA may be measured as follows: ROA = Net profit after taxes x 100 Total assets

ROA 2010 (Current Year)

= 131.90 1172.73 11.24% X 100

ROA 2009 (Previous Year) = 40.56 241.79 16.77% X 100

Hence, ROA of the year 2010 is better then 2009.

RETURN ON ASSETS

0.2 0.15 % Change 0.1 0.05 0

16.77%

11.24%

2010
Years

2009

RETURN ON INVESTMENT (ROI)

The profitability of the firm can also be analyzed from the point of view of total funds employed in the firm. The term funds employed or the capital employed refers to the total long-term sources of funds. Capital employed = shareholders funds plus long-term debts. Alternatively, capital employed = fixed assets plus + working capital. The ROI may be calculated as follows:

ROI = Net profit before interest and taxes x 100 Capital employed ROI 2010 (Current Year) = 197.63 17.25 1145.68% X 100

ROI 2009 (Previous Year) = 58.17 7.30 7.96% X 100

Hence, ROI of the year 2010 is better then 2009

RETURN ON INVESTMENT

12.00%
10.00%

11.45%

7.96%

8.00% %change 6.00% 4.00% 2.00% 0.00% 2010 Years 2009

RETURN ON EQUITY (ROE)

The ROE examines profitability from the perspective of equity investors by relating profits available for the equity shareholders with the book value of equity investment. The return from the point of view of equity shareholders may be calculated by comparing the net profit less preference dividend with their total contribution in the firm

ROE = Net Profit after tax x 100 Total shareholders fund

ROE 2010 (Current Year)

= 131.90 x 100 931.91 = 14.15%

ROE 2009 (Previous Year)

= 40.56 X 100 141.94 28.57%

Hence, the ROE of year 2009 is better then Year 2010

RETURN ON EQUITY

0.3 0.25 0.2

14.15%

28.57%

%change 0.15 0.1 0.05 0 2010 Years 2009

CONCLUSIONS & SUGGESTIONS

FINANCIAL PERFORMANCE (1ST APRIL,2006 TO 31ST MARCH,2007)

a) SHARE CAPITAL As on march 31st 2010, paid up equity share capital of the company stood at rs 28,37,52,750/-(i.e. 5,67,50,550 equity share Capital of rs 5/- each, fully paid up). However, consequently upon the issue and allotment of bonus Equity share on 04.05.2010 in the ratio of 1:1 in terms of approval of members received on 19.03.2010 by voting through postal ballot, the paid up capital of the company inceased from rs. 28,37,52,750/- to Rs. 56,75,05,500/-(i.e. 11,35,01,100 equity shares of Rs 5/- each, fully paid up). b) RESERVE & SURPLUS An amount of rs 7500 lacs has been transferred to General Reserve out of the Net Profit for the year ended 31.03.2010 as compared to the Rs 3000 lacs in the previous year. c) LOANS Secured loans stood at rs 23361.37 lacs as compared to rs. 8930.98 lacs in the previous year. This includes an amount of rs 5000 lacs raised by issue of 819659 no. of Zero Coupon Secured Redeemable optionally Convertible Debentures(ROCD) of Rs 100/- each Unsecured loans stood at Rs 720.91 lacs as compared to rs 1054.46 lacs in the previous year. d) CURRENT ASSETS Inventories: During the year, Inventory level has increased by Rs 18821.83 lacs i.e from Rs 30639.53 lacs to Rs 13270.19 lacs. Sundary Debtors: There is also an increase in Subdary Debtors of rs 7167.21 lacs i.e from Rs 6039-98 lacs to rs 13207.19 lacs. Loans & Advances: During the year, the loans and advances also increases by Rs 60519.86 lacs i.e. from Rs 30844.72 lacs to Rs 91364.58 lacs. Current Liabilities: Current Liability stood at Rs 63532.75 lacs as compared to Rs 49500.91 lacs in the previous year.

e) NET CURRENT ASSETS During the year, the net current of the company have increased by rs 92492.75 lacs i.e from Rs 20486.94 lacs as compared to Rs 112979.69 lacs. f) INTEREST During financial 2009-10, company has paid an amount of rs 1942.41 as interest as compared to rs 1203.68 lacs in the previous year. g) STAFF EXPENSES During the year, the staff cost of he company stood at rs 2255.96 lacs as compared to rs 952.08 lacs in the previous year. This includes Eployees Stock Option Compensation Expenses of rs 45.97 lacs pursuance to grant of 1,16,700 Option on 26.10.2009 in terms of the approval of the members received on 02.05.2009. h) DEPRICIATION During financial 2009-10, depreciation increased from rs 213.14 lacs to rs 310.64 lacs

ANNEXURES

Profit & Loss A/C Of Metro Tyres Ltd

PARTICULARS Sales Turnover Other Income Stock adjustments Total Income Raw Material Excise Duty Power & Fuel Cost Other manufacturing Expenses Employee Cost Selling & Administration Expenses Miscellaneous Expenses Less: Preoperative Expenditure Capitalised Profit before interest, Depreciation & Tax Interest & Financial Charges Profit Befire Depreciation & Tax Depreciation Profit before Tax Tax Profit after Tax Adjustment below Net Profit P & L Balance brought forward Appropriations P & L Balance carried down Equity Dividend Preference Dividend Corporate Dividend Tax Equity Dividend (%) Earning Per Share (Rs) Book Value Extraordinary Items 2010 718.43 47.72 -6.59 759.56 0.12 0.00 0.49 469.46 17.25 43.75 6.45 0.00 222.04 21.30 200.74 3.11 197.63 65.73 131.90 0.00 23.46 86.49 68.87 9.93 0.00 1.56 25.00 22.96 163.31 0.01 2009 320.67 34.51 3.73 258.91 1.04 0.00 0.29 241.86 7.30 12.85 21.56 0.00 74.01 13.71 60.30 2.13 58.17 17.61 40.56 0.00 16.89 33.99 23.46 3.50 0.00 0.49 20.00 22.90 78.11 -10.14

Balance sheet of METRO TYRES LTD.

PARTICULARS Share Capital Reserve & Surplus Total Shareholders Fund Secured Loans Unsecured Loans Total Debt Total Liabilities Gross Block Less: Accum Depreciation Net Block Capital Work In process Investments Inventories Sundry debtors Cash and Bank Balance Loans and Advances Current Liabilities Provisions Net Current Assets Miscellaneous Expenses not w/o Total Assets Contigent Liabilities 2010 28.38 903.53 931.91 191.81 49.01 240.82 1,172.73 50.13 19.86 30.27 0.00 11.22 494.61 132.07 224.79 915.40 614.95 20.68 1,131.24 0.00 1,172.73 196.47 2009 17.50 124.44 141.94 89.31 10.54 99.85 241.79 40.85 15.81 25.04 0.00 9.03 306.39 60.40 24.64 311.30 475.17 19.84 207.72 0.00 241.79 110.48

BIBLOGRAPHY

BIBLOGRAPHY
WEBSITES: www.wikipedia.com www.yahoo.com www.google.com Metro tyres ltd.

BOOKS REFFERED: Financial Management by I.M.Pandey Cost accounting by S.N. Maheshwari