Industry Overview: Indian Automotive Industry

The automotive industry in India is one of the largest automotive markets in the
world. It had previously been one of the fastest growing markets globally, but is
currently experiencing flat or negative growth rates. India's passenger car and
commercial vehicle manufacturing industry is the sixth largest in the world, with
an annual production of more than 3.9 million units in 2011. According to recent
reports, India overtook Brazil to become the sixth largest passenger vehicle
producer in the world (beating such old and new auto makers as Belgium, United
Kingdom, Italy, Canada, Mexico, Russia, Spain, France, Brazil). Throughout the
course of 2011 and 2012, the industry grew 16-18%, selling around three million
units. In 2009, India emerged as Asia's fourth largest exporter of passenger cars,
behind Japan, South Korea, and Thailand. In 2010, India beat Thailand to become
Asia's third largest exporter of passenger cars.
As of 2010, India is home to 40 million passenger vehicles. More than 3.7 million
automotive vehicles were produced in India in 2010 (an increase of 33.9%),
making the country the second (after China) fastest growing automobile market
in the world in that year. According to the Society of Indian Automobile
Manufacturers, annual vehicle sales are projected to increase to 4 million by
2015, no longer 5 million as previously projected.
The majority of India's car manufacturing industry is based around three clusters
in the south, west and north. The southern cluster consisting of Chennai is the
biggest with 35% of the revenue share. The western hub near Mumbai and Pune
contributes to 33% of the market and the northern cluster around the National
Capital Region contributes 32%. Chennai, houses the India operations of Ford,
Hyundai, Renault, Mitsubishi, Nissan, BMW, Hindustan Motors, Daimler, Caparo,
Mini, and Datsun. Chennai accounts for 60% of the country's automotive exports.
Gurgaon and Manesar in Haryana form the northern cluster where the country's
largest car manufacturer, Maruti Suzuki, is based. The Chakan corridor near
Pune, Maharashtra is the western cluster with companies like General Motors,
Volkswagen, Skoda, Mahindra and Mahindra, Tata Motors, Mercedes Benz, Land
Rover, Jaguar Cars, Fiat and Force Motors having assembly plants in the area.
Nashik has a major base of Mahindra and Mahindra with a SUV assembly unit
and an Engine assembly unit. Aurangabad with Audi, Skoda and Volkswagen also
forms part of the western cluster. Another emerging cluster is in the state of
Gujarat with manufacturing facility of General Motors in Halol and further
planned for Tata Nano at their plant in Sanand. Ford, Maruti Suzuki and PeugeotCitroen plants are also set to come up in Gujarat. Kolkata with Hindustan Motors,
Noida with Honda and Bangalore with Toyota are some of the other automotive
manufacturing regions around the country.
In 2011, there were 3,695 factories producing automotive parts in all of India.
The average firm made US$6 million in annual revenue with profits close to
US$400 thousand. India's automobile exports have grown consistently and
reached $4.5 billion in 2009, with United Kingdom being India's largest export
market followed by Italy, Germany, Netherlands and South Africa. India's
automobile exports are expected to cross $12 billion by 2014.

Company Overviews:
1. Maruti Suzuki Limited
Maruti Suzuki India Limited, commonly referred to as Maruti and formerly known
as Maruti Udyog Limited, is an automobile manufacturer in India. It is a
subsidiary of Japanese automobile and motorcycle manufacturer Suzuki.As of
November 2012, it had a market share of 37% of the Indian passenger car
market.Maruti Suzuki manufactures and sells a complete range of cars from the
entry level Alto, to the hatchback Ritz, A-Star, Swift, Wagon R, Zen and sedans
DZire, Kizashi and SX4, in the 'C' segment Eeco, Omni, Multi Purpose vehicle
Suzuki Ertiga and Sports Utility vehicle Grand Vitara.
The company's headquarters are on Nelson Mandela Road, New Delhi. In
February 2012, the company sold its ten millionth vehicle in India.
Originally, 18.28% of the company was owned by the Indian government, and
54.2% by Suzuki of Japan. The BJP-led government held an initial public offering
of 25% of the company in June 2003. As of May 2007, the government of India
sold its complete share to Indian financial institutions and no longer has any
stake in Maruti Udyog.
Maruti Udyog Limited (MUL) was established in February 1981, though the actual
production commenced in 1983 with the Maruti 800, based on the Suzuki Alto kei
car which at the time was the only modern car available in India, its only
competitors the Hindustan Ambassador and Premier Padmini were both around
25 years out of date at that point. Through 2004, Maruti Suzuki has produced
over 5 Million vehicles. Maruti Suzukis are sold in India and various several other
countries, depending upon export orders. Models similar to those made by Maruti
in India, albeit not assembled or fully manufactured in India or Japan are sold by
Pak Suzuki Motors in Pakistan.
The company exports more than 50,000 cars annually and has domestic sales of
730,000 cars annually.[citation needed] Its manufacturing facilities are located at
two facilities Gurgaon and Manesar in Haryana, south of Delhi. Maruti Suzukis
Gurgaon facility has an installed capacity of 900,000 units per annum. The
Manesar facilities, launched in February 2007 comprise a vehicle assembly plant
with a capacity of 550,000 units per year and a Diesel Engine plant with an
annual capacity of 100,000 engines and transmissions. Manesar and Gurgaon
facilities have a combined capability to produce over 14,50,000 units annually.
About 35% of all cars sold in India are made by Maruti. The company is 54.2%
owned by the Japanese multinational Suzuki Motor Corporation per cent of Maruti

Suzuki. The rest is owned by public and financial institutions. It is listed on the
Bombay Stock Exchange and National Stock Exchange of India.
During 2007 and 2008, Maruti Suzuki sold 764,842 cars, of which 53,024 were
exported. In all, over six million Maruti Suzuki cars are on Indian roads since the
first car was rolled out on 14 December 1983.
The Suzuki Motor Corporation, Maruti's main stakeholder, has been a global
leader in mini and compact cars for three decades. Suzukis strategy is to utilise
light-weight, compact engines with stronger power, fuel-efficiency and
performance capabilities. Nearly 75,000 people are employed directly by Maruti
Suzuki and its partners. It has been rated first in customer satisfaction among all
car makers in India from 1999 to 2009 by J D Power Asia Pacific.Maruti Suzuki will
be introducing new 800 cc model by Diwali in 2012.The model is supposed to be
fuel efficient, and therefore more expensive.With increasing market competition
in the small car segment, a new model along with the upcoming WagonR
Stingray will be the key fresh products for Maruti Suzuki India (MSI) to defend its
market share amid the ever increasing competition.

Hindustan Motors
Hindustan Motors is an Indian automaker based in Kolkata, West Bengal, India. It
is part of the Birla Technical Services industrial group. The company was the
largest car manufacturer in India before the rise of Maruti Udyog.
It is the producer of the Ambassador car, widely used as a taxicab and as a
government limousine. This car is based on the Morris Oxford, a British car that
dates back to 1954.
One of the original three car manufacturers in India, founded in 1942 by Mr. B. M.
Birla,it was a leader in car sales until the 1980s, when the industry was opened
up from protection. All through its history, the company has depended on
government patronage for its sales and for survival by eliminating competition.
Manoj Jha was the Managing Director and R. Yeshwanth. Manoj Jha stepped down
from the post on 21 February 2012.It began in Port Okha near Gujarat; in 1948, it
moved to West Bengal. The Place is now Called Hindmotor.
Hindustan Motors Limited (HML), India's pioneering automobile manufacturing
company and Flagship Company of the C.K. Birla Group was established just
before Indian independence, in 1942 by Mr. B. M. Birla of the industrious Birla
family. Commencing operations in a small assembly plant in Port Okha near
Gujarat, the manufacturing facilities later moved to Uttarpara, West Bengal in
1948, where it began the production of the Ambassador, HM-Mitsubishi Motors
Plant is in Tiruvallur near Chennai.
Hindustan and General Motors have had several tie-ups in the post
independence era to produce Bedford Trucks, Vauxhall Motors (1980 to 1990),
Allison Transmissions and off-road equipment. In 1994, GM and Hindustan (C K

Birla) formed a 50-50 joint venture, General Motors India to make Opel Astra cars
which turned out to a disaster mainly due to the reputation Hindustan Motors has
in India.The production of Astra was wound up within a few years. GM bought out
the Halol, Gujarat plant from Hindustan in 1999.On 21 February 2012, Mr. Manoj
Jha, the Managing Director stepped down from his post. The decision was
unanimously accepted by the board of directors.
Hindustan has a joint venture with Mitsubishi that started 1998. The plant is
located in Thiruvallur, Tamil Nadu and mainly makes outdated models wound up
by Mitsubishi elsewhere.
Their plants are located at: Hindmotor, West Bengal (near Kolkata), Pithampur,
Madhya Pradesh (near Indore), Thiruvallur, Tamil Nadu (near Chennai) and Hosur,
Tamil Nadu (near Bangalore).

Mahindra and Mahindra

Mahindra & Mahindra Limited (M&M) is an Indian multinational automobile

manufacturing corporation headquartered in the Mahindra Towers in Mumbai. It
is one of the largest vehicle manufacturers by production in the Republic of India.
It is a part of Mahindra Group, an Indian conglomerate. The company was
founded in 1945 in Ludhiana as Mahindra & Mohammed by brothers K.C.
Mahindra and J.C. Mahindra and Malik Ghulam Mohammed. After India gained
independence and Pakistan was formed, Mohammed emigrated to Pakistan. The
company changed its name to Mahindra & Mahindra in 1948.It is ranked #21 in
the list of top companies of India in Fortune India 500 in 2011.
Major competitors in the Indian market include Maruti Suzuki (a 60% owned
subsidiary of Suzuki Motor Corporation), Tata Motors, Toyota, Hyundai, MercedesBenz (Merc) (Based in Pune, Maharashtra in India; A subsidiary of Daimler AG
from Germany) and others.
Mahindra & Mahindra was set up as a steel trading company in 1945. It
eventually saw business opportunity in expanding into manufacturing and selling
larger MUVs, starting with assembly under licence of the Willys Jeep in India.
Soon established as the Jeep manufacturers of India, the company later
commenced manufacturing light commercial vehicles (LCVs) and agricultural
tractors. Today, Mahindra & Mahindra is a key game player in the utility vehicle
manufacturing and branding sectors in the Indian automobile industry with its
flagship UV Scorpio and swiftly exploits India's growing global market presence in
both the automotive and farming industries to push its products in other
countries.

Over the past few years, the company has taken interest in new industries and in
foreign markets. They entered the two-wheeler industry by taking over Kinetic
Motors in India.M&M also has controlling stake in REVA Electric Car Company and
acquired South Korea's SsangYong Motor Company in 2011.
The US based Reputation Institute once ranked Mahindra amongst the top Ten
Indian companies in its 'Global 200: The World's Best Corporate Reputations' list.

Tata Motors
Tata Motors Limited (formerly TELCO, short for Tata Engineering and Locomotive
Company) is an Indian multinational automotive manufacturing company
headquartered in Mumbai, Maharashtra, India and a subsidiary of the Tata Group.
Its products include passenger cars, trucks, vans, coaches, buses, construction
equipment and military vehicles. It is the world's sixteenth-largest motor vehicle
manufacturing company, fourth-largest truck manufacturer and second-largest
bus manufacturer by volume.
Tata Motors has auto manufacturing and assembly plants in Jamshedpur,
Pantnagar, Lucknow, Sanand, Dharwad and Pune in India, as well as in Argentina,
South Africa, Thailand and the United Kingdom. It has research and development
centres in Pune, Jamshedpur, Lucknow and Dharwad, India, and in South Korea,
Spain, and the United Kingdom. Tata Motors' principal subsidiaries include the
British premium car maker Jaguar Land Rover (the maker of Jaguar, Land Rover
and Range Rover cars) and the South Korean commercial vehicle manufactuer
Tata Daewoo. Tata Motors has a bus manufacturing joint venture with Marcopolo
S.A. (Tata Marcopolo), a construction equipment manufacturing joint venture with
Hitachi (Tata Hitachi Construction Machinery) and a joint venture with Fiat which
manufactures automotive components and Fiat and Tata branded vehicles.
Founded in 1945 as a manufacturer of locomotives, the company manufactured
its first commercial vehicle in 1954 in a collaboration with Daimler-Benz AG,
which ended in 1969. Tata Motors entered the passenger vehicle market in 1991
with the launch of the Tata Sierra, becoming the first Indian manufacturer to
achieve the capability of developing a competitive indigenous automobile.In
1998 Tata launched the first fully indigenous Indian passenger car, the Indica,
and in 2008 launched the Tata Nano, the world's cheapest car. Tata Motors
acquired the South Korean truck manufacturer Daewoo Commercial Vehicles
Company in 2004 and purchased Jaguar Land Rover from Ford in 2008.
Tata Motors is listed on the Bombay Stock Exchange, where it is a constituent of
the BSE SENSEX index, the National Stock Exchange of India and the New York
Stock Exchange. Tata Motors is ranked 314th in the 2012 Fortune Global 500
ranking of the world's biggest corporations.

Maruti Suzuki Company Analysis

Horizontal Analysis:

We look at the percentage changes in the relevant aspects of the Profit and Loss
Account and the Balance Sheet for this section. This exercise is carried to see if
the company has made any improvements in isolation. When they benchmark
themselves internally, it is important for them to know if they have indeed
crossed milestones set earlier or not.
We look at percentage changes in Sales turnover, net sales, total income, total
expenses, operating profit and reported net profit over the last 5 years.
For the sake of convenience we look at the data graphically.
Maruti Suzuki
Sales Turnover
Net Sales
Total Income
Total Expenses
Operating
Profit
Reported Net
profit

2014
22
22
21
18

2013
-3
-3
-2
1

2012
14
25
23
29

2011
38
41
45
40

68

31

-5

93

46

29

-8

105

Upon observation we see that the companys performance dipped significantly

from 2009-2010 to 2011-2012. One of the probable reasons for this dip in
performance was the incident at the Manesar plant. This significantly reduced
the brand equity enjoyed by the organization and led to a considerable fall in all
their indices. Additional reasons for the same would be a fall in demand for
automobiles as a direct consequence of the global recession. This would
definitely hurt most indices of the company. The recession factor can be seen by
the decline in the expenses as well. Expenses as a percentage of the previous
year fell, showing a fall in scale of operations.
An analysis of their balance sheet provides the same information.
600%
500%
Networth

400%

Current Liabilities

300%

Total Debt

200%

Total Liabilities
Investments

100%

Total CA, Loans & Advances

0%

Total Assets

-100%
-200%

Maruti Suzuki
Net Worth
Current Liabilities
Total Debt
Total Liabilities
Investments
Total CA, Loans,
Advances
Net Current Assets
Total Assets

Percentage Changes
2014
2013
2012
2011
22
10
17
27
10
38
22
-3
29
534
-79
8
23
16
11
26
15
20
-29
126
-2
-42
23

16
-22
16

80
3656
11

-31
-97
26

It is clearly observable that their total debt increased by 534% in 2013 over 2012
due to the Manesar crisis and a dip in the industry in general. Another noticeable
anomaly is the steep rise in current assets in 2011-2012. Over 3500% increase in
current assets shows a huge influx of liquidity within the organization. The source

of this increase is a fall in the current liabilities in 2012, and a significant increase
in total current assets and loans and advances ( as can be seen in the balance
sheet attached in the appendix).
The blue boxes show growth rates above triple digits.
All in all, the company seems to be on a path of recovery.

Vertical Analysis:
We do the vertical analysis to see the component break up of the assets and
liabilities of the organization. Considering all these four firms have primarily
obtained their profits/losses through sales and expenditures of single items, we
will restrict the vertical analysis to the assets and liabilities. Once again we resort
to graphs to do this analysis.

Unsecured Loans

Secured Loans

Revaluation Reserves

Preference Share Capital

Share Application Money

Total Share Capital

0%

20%

Maruti Suzuki
Total Share Capital
Share Appreciation
Money
Preference Share
Capital
Reserves
Revaluation Reserves
Secured Loans
Unsecured Loans

40%

Mar
'14

60%

80%

100%

Mar'1
Mar'1
Mar'1
Mar'1
3
2
1
0
1
1
1
1
1
0

0
92
0
0
7

0
92
0
0
7

0
98
0
0
1

0
92
0
0
6

0
92
0
0
7

Reserves

120%

We can clearly see that majority of the liabilities are made up of reserves. The
only other significant contributor to liabilities are unsecured loans which are
taken to meet operational expenditures.

Net Current Assets

Investments
Net Block

0%

20%

40%

60%

80%

100%

120%

On the asset front, the vertical analysis shows us that there is a spread of assets
among the net block and investments. Being an automobile manufacturer,
having a large share of investments as an asset is a healthy sign. Their current
assets are low, typical due to small immediate cash payments required in this
industry.
Trend Analysis :
The analysis is done using absolute values instead of using base indices.
50,000.00
45,000.00
40,000.00
35,000.00

Total Income

30,000.00

Total Expenses

25,000.00

Operating Profit

20,000.00

Linear (Operating Profit)

Reported Net Profit

15,000.00
10,000.00
5,000.00
0.00

Maruti Suzuki

Mar '14

Mar '13

Mar '12

Mar '11

Mar '10

Operating Profit

44,376.9
0
39,334.9
0
4,229.60

36,545.1
0
33,205.3
0
2,513.00

37,183.2
0
33,035.9
0
3,638.50

30,180.6
0
25,694.0
0
3,824.60

20,864.5
0
18,396.2
0
1,976.60

Reported Net Profit

2,392.10

1,635.20

2,288.60

2,497.60

1,218.70

Total Income
Total Expenses

This shows that Maruti Suzuki has steadily increase its total income. The trend is
likely to continue. However, the total expense is increasing at a quicker place
and hence that should be looked into.

Mahindra and Mahindra

Horizontal Analysis:

We look at the percentage changes in the relevant aspects of the Profit and Loss
Account and the Balance Sheet for this section. This exercise is carried to see if
the company has made any improvements in isolation. When they benchmark
themselves internally, it is important for them to know if they have indeed
crossed milestones set earlier or not.
We look at percentage changes in Sales turnover, net sales, total income, total
expenses, operating profit and reported net profit over the last 5 years.
For the sake of convenience we look at the data graphically.
160%
140%
120%

Sales Turnover

100%

Net Sales
Total Income

80%

Total Expenses
Operating Profit

60%

Reported Net Profit

40%
20%
0%

Mahindra & Mahindra

2014

2013

2012

2011

Sales Turnover
Net Sales
Total Income
Total Expenses
Operating Profit
Reported Net profit

27
27
25
25
25
16

36
36
36
42
9
8

15
27
29
30
15
28

39
42
44
33
135
149

Mahindra and Mahindra has shown the steadiest performance in the automotive
sector. Despite global slowdowns, due to strategic takeovers and portfolio
diversifications (taking over SsangYong in Korea, entering the Motorcycle space)
has helped them grow continuously. Their sharpest growth was in 2009-2010
fiscal, when their operating profit and reported net profit increase by roughly
140%.
60%
50%
40%

Networth

30%

Current Liabilities

20%

Total Debt

10%

Total Liabilities
Investments

0%

Total CA, Loans & Advances

-10%

Total Assets

-20%
-30%
-40%

Mahindra & Mahindra

Net Worth
Current Liabiltiies
Total Debt
Total Liabilities
Investments
Total CA, Loans,
Advances
Net Current Assets
Total Assets

Percentage Changes
2014
2013
2012
2011
22
10
17
27
10
38
22
-3
29
534
-79
8
23
16
11
26
15
20
-29
126
-2
-42
23

16
-22
16

80
3656
11

-31
-97
26

Due to the acquisitions and increase in operating expenditures, their current

assets have taken a hit. We can clearly see the large % fall in their net current
assets in 2011 and 2013. However, given the company has strong income gains,
their current assets need not be questioned as the total assets have managed to

increase despite the tremendous fall in current assets. Thus the company has a
portfolio that focuses on future growth and expansion.

Vertical Analysis:
We do the vertical analysis to see the component break up of the assets and
liabilities of the organization. Considering all these four firms have primarily
obtained their profits/losses through sales and expenditures of single items, we
will restrict the vertical analysis to the assets and liabilities. Once again we resort
to graphs to do this analysis.

Net Current Assets

Investments
Net Block
Unsecured Loans
Secured Loans
Revaluation Reserves
Reserves
Preference Share Capital
Share Application Money
Total Share Capital
-50%

0%

50%

Mahindra & Mahindra

Net Worth
Current Liabiltiies
Total Debt
Total Liabilities
Investments
Total CA, Loans,
Advances
Net Current Assets
Total Assets

100%

150%

200%

250%

Percentage Changes
2014
2013
2012
2011
2
2
2
3
0
0
0
0
0
0
0
0
80
77
79
70
0
0
0
0
1
17
28

3
18
28

3
15
25

6
21
22

In this we see that there is a huge portion of reserves. However unsecured loans
are also there in a large measure. This shows that a lot of their expenditure is
financed by taking unsecured loans which isnt necessarily good for them.

Net Current Assets

Investments
Net Block

-20%

0%

20%

Mahindra & Mahindra

Net Block
Investements
Mnet Current Asssets

40%

60%

Mar-14
28
66
1

80% 100% 120%

Mar13
28
67
0

Mar12
25
71
-2

Mar11
22
60
6

Mar10
25
62
3

The asset break up confirms our reasoning that the company is investing heavily.
Since they have such a large time frame in mind, their horizontal analysis
showed not too favorable scenarios. The company focuses on long run growth, it
is bound to do well.

Trend Analysis:
The trend analysis is done using absolute values and not base indices.

Mahindras trends are very good. Their income is rising at a quicker pace than
their expenditures. The trend will definitely continue due to the high investments
that they have made and their operating model.

Tata Motors

Horizontal Analysis:

We look at the percentage changes in the relevant aspects of the Profit and Loss
Account and the Balance Sheet for this section. This exercise is carried to see if
the company has made any improvements in isolation. When they benchmark
themselves internally, it is important for them to know if they have indeed
crossed milestones set earlier or not.
We look at percentage changes in Sales turnover, net sales, total income, total
expenses, operating profit and reported net profit over the last 5 years.
For the sake of convenience we look at the data graphically.
150%

100%
Sales Turnover
Net Sales

50%

Total Income
Total Expenses

0%

Operating Profit
Reported Net Profit

-50%

-100%

Tata Motors
Sales Turnover
Net Sales
Total Income
Total Expenses
Operating Profit
Reported Net profit

2014
-18
-18
-15
-15
-59
-76

2013
15
15
15
19
-10
-31

2012
23
33
28
34
16
28

2011
39
42
44
33
135
149

Tata Motors, despite its international acquisitions, has not been able to brave the
storm. The company has been steadily declining in it performance over the last 5
years. Despite acquiring Jaguar Land Rover (which is operating in profit), Tata
Motors has incurred severe losses in the previous years. The last time they had
an increase in their operating profit and reported net profit both was in 2011. The
failure of the Nano and the global slow down severely hurt Tata Motors. Their
current stand seems to be increase expenses as well in order to cope with falling

sales. In 2013-2014 they have even experienced a reduction in sales which was
not the case before. Thus it is a matter of grave concern for them.
300%
250%
Networth
200%

Current Liabilities
Total Debt

150%

Total Liabilities
Investments

100%

Total CA, Loans & Advances

Net Current Assets

50%

Total Assets
0%
-50%

Tata Motors
Net Worth
Current Liabiltiies
Total Debt
Total Liabilities
Investments
Total CA, Loans,
Advances
Net Current Assets
Total Assets

Percentage Changes
2014
2013
2012
2011
-3
-2
35
19
-18
25
4
54
30
25
-12
26
9
-12
-10
23
-3
-9
1
72
-20
-24
9

4
72
-12

16
29
10

14
266
23

Even their balance sheet shows significant weaknesses. Despite a fall in their
liabilities, their assets have fallen even more resulting in a dip in their net current
assets. Their assets on the average have increased due to the acquisition of JLR
and increase in plants due to the Nano being launched. Thus their financial
position is not as stable as their competitors (mainly Mahindra and Maruti).

Vertical Analysis:
We do the vertical analysis to see the component break up of the assets and
liabilities of the organization. Considering all these four firms have primarily
obtained their profits/losses through sales and expenditures of single items, we
will restrict the vertical analysis to the assets and liabilities. Once again we resort
to graphs to do this analysis.

Unsecured Loans
Secured Loans
Revaluation Reserves
Reserves
Preference Share Capital
Share Application Money
Total Share Capital

0%

20%

40%

Tata Motors
Total Share Capital
Share Appreciation
Money
Preference Share
Capital
Reserves
Revaluation Reserves
Secured Loans
Unsecured Loans

60%

Mar
'14

80%

100%

120%

Mar'1
Mar'1
Mar'1
Mar'1
3
2
1
0
2
2
2
2
2
0

0
55
0
18
25

0
62
0
23
13

0
56
0
22
20

0
45
0
25
28

0
44
0
21
31

Tata Motors has a large share of loans in their liabilities. The ratio analysis later
will show that the company pays dividends even when its profits are low (as
compared to the industry). This could perhaps show why they require such a
large number of loans. Additionally, the company would require loans to make
day to day payments when their sales are falling (as shown by the horizontal
analysis).

Net Current Assets

Investments
Net Block

-40% -20%

0%

20%

40%

60%

80%

100% 120% 140%

Tata Motors
Net Block
Investements
Mnet Current Asssets

Mar-14
46
60
-20

Mar13
49
67
0

MarMar12
11
39
36
65
71
-15 -23

Mar10
30
51
-8

Once again negative current assets are present where we have high ratio of
secured and unsecured loans. The company relies heavily on borrowing to
finance its activities. However, despite shortterm borrowings, the company has a
high percentage of investments which is a good sign and helps indicate that they
are planning to grow.

Trend Analysis:
The trend analysis is done using absolute values and not base indices.
60,000.00
50,000.00
40,000.00

Total Income
Total Expenses

30,000.00

Operating Profit
Polynomial (Operating Profit)
Reported Net Profit

20,000.00
10,000.00
0.00

Tata Motors
Total Income
Total Expenses
Operating Profit
Reported Net Profit

Mar
'14
46571
43191
%
1717
301

Mar'1
3

Mar'1
2

Mar'1
1

54919

47718

Mar,1
0
26,34
37200
3

50752
4177
1242

42771
4665
1811

31947
4032
2240

23699
1723
1001

The operating profit of Tata Motors increase from 2009-2011, but has been falling
over the last two years. Additionally, both their expenditure and revenues have

fallen. This maybe a cause of concern. Since this is a first time data point, it is
difficult to predict a trend and for us to conclude that income will continue to fall.

Hindustan Motors
Horizontal Analysis:

We look at the percentage changes in the relevant aspects of the Profit and Loss
Account and the Balance Sheet for this section. This exercise is carried to see if
the company has made any improvements in isolation. When they benchmark
themselves internally, it is important for them to know if they have indeed
crossed milestones set earlier or not.
We look at percentage changes in Sales turnover, net sales, total income, total
expenses, operating profit and reported net profit over the last 5 years.
For the sake of convenience we look at the data graphically.
80%
60%
40%

Sales Turnover
Net Sales

20%

Total Income
Total Expenses
Operating Profit

0%
-20%
-40%

Hindustan Motors
Sales Turnover
Net Sales
Total Income
Total Expenses
Operating Profit
Reported Net profit

2014
22
39
21
45
20
138

2013
-30
-26
-2
-23
58
-4095

2012
15
19
23
15
10
-101

2011
-4
1
45
-1
1
31

2010
38
41
45
40
93
105

The company has been performing poorly compared to industry standards. There
has been a substantial increase in operating profit in 2012, however that was

due to a greater than proportionate reduction in total expenses over total

income. Income has been steadily declining in Hindustan Motors. What is even
more perplexing is the nature of reported net profit. Reported net profit behaves
highly erratically. It has fluctuated from -101% to -4095% and then to 138%. If
we look at absolute numbers in Hind Motors, they are well behind all their
competitors in the sector.
600%
500%
400%

Networth
Current Liabilities

300%

Total Debt

200%

Total Liabilities
Investments

100%

Total CA, Loans & Advances

0%

Net Current Assets

Total Assets

-100%
-200%
-300%

Hindustan Motors
Net Worth
Current Liabiltiies
Total Debt
Total Liabilities
Investments
Total CA, Loans,
Advances
Net Current Assets
Total Assets

Percentage Changes
2014
2013
2012
2011
-210
-30
35
19
13
25
4
54
29
25
-12
26
-74
-12
-10
23
-78
-9
1
72
-7
72
-74

4
72
-12

16
29
10

14
266
23

Inspection of the companies horizontal trends in the balance sheet, we see that
net worth in 2013 took a huge hit. It fell by over 200% from 2012. This is perhaps
due to resurgence in private players within the automotive space. All private
players (especially international ones) in this industry have shown significant
growth in the 2013-2014 fiscal. This has perhaps cannibalized Hind Motors share.
Other startling phenomenons are the 534% increase in total debt in 2012
(perhaps due to the recession) and the 265% increase in current assets in 2010.

Vertical Analysis:
We do the vertical analysis to see the component break up of the assets and
liabilities of the organization. Considering all these four firms have primarily
obtained their profits/losses through sales and expenditures of single items, we
will restrict the vertical analysis to the assets and liabilities. Once again we resort
to graphs to do this analysis.

Unsecured Loans
Secured Loans
Revaluation Reserves
Reserves
Preference Share Capital
Share Application Money
Total Share Capital

-400%-300%-200%-100% 0% 100% 200% 300% 400% 500%

Hindutan Motors
Total Share Capital
Share Appreciation
Money
Preference Share
Capital
Reserves
Revaluation Reserves
Secured Loans
Unsecured Loans

Mar
Mar'1
Mar'1
Mar'1
Mar'1
'14
3
2
1
0
231
55
46
119
730
0

0
-309
0
90
89

0
-39
0
23
59

0
-27
4
26
50

0
-95
6
29
42

0
-35
4
26
32

The liability structure of Hindustan Motors shows a company that is on the verge
of ruin. Having negative reserves and very high percentage of secured and
unsecured loans shows that it is hemorrhaging money.

Net Current Assets

Investments
Net Block

-300%

-200%

-100%

Hindustan Motors
Net Block
Investements
Mnet Current Asssets

0%

Mar-14
295
46
242

100%

Mar13
72
55
-35

200%

Mar12
73
59
-34

300%

Mar11
102
51
-57

400%

Mar10
70
32
-10

On the asset front too this company has poor signs. The current assets are
negative which show that they do not have cash to meet even their day to day
expenditures. This is perhaps why they have such a large percentage of
unsecured loans. The company has to work hard to strengthen its financials or it
shall not brave the storm.

Trend Analysis:
The analysis is done using absolute values and not base indices.
1000
800
600

Total Income
Total Expenses

400

Operating Profit
Linear (Operating Profit)

200
0
-200

Reported Net Profit

Hindustan Motors
Total Income
Total Expenses
Operating Profit
Reported Net Profit

Mar
'14

Mar'1
Mar'1
Mar'1
Mar,1
3
2
1
0
598.4
803.7
830%
4
7
675.3
669
589.7
768.8
670.0
675.2
857%
7
8
5
1
118.86 -99.08 -62.85 -56.98 -56.21
-71.2 29.96
0.75
-51.1 -38.86

For Hindustan Motors, the expenses have overtaken the income. The operating
and reported net profit are falling and that trend is likely to continue.

Ratio Analysis
Note:
I shall carry out a sector Ratio analysis for the year of 2012-2013. The ratio
analysis is a comparison of ratios across all the firms. Conducting a ratio analysis
in isolation is of no use, which is why I have taken the liberty to reduce the time
period under consideration. The key for reading the table is mentioned below:
MS: Maruti Suzuki HM: Hindustan Motors MM: Mahindra and Mahindra and TM:
Tata Motors
We start off by considering Investment valuation ratios. As already mentioned in
the earlier threads, Mahindra and Maruti Suzuki far outperform their competitors
in the ratio space. Both MS and MM feature as a much better investment option
as they provide higher than average dividend and have greater operating profit
per share. Thus by going public, these two companies end up benefiting both the
shareholders and themselves.

In Profitability Ratios once again MS and MM have higher operating profit

margins. In addition they have higher net profit margins, return on long term
funds and return on assets excluding revaluations.
Looking at the table below, we see that MS and MM have better Liquidity and
Solvency ratios, better debt coverage ratios and stronger management efficiency
ratios. However, among all these ratios the anomaly is the total assets turnover
ratio. For a company that is haemorrhaging money, HM has the highest total
assets turnover ratio. This is perhaps due to them sharing their plant facilities
with Mitsubishi in India and helping them manufacture cars. Thus there is a
possibility of them earning more than simply what they sell as Hindustan Motors.

If we look at the profit and loss account ratios also, we see that in material cost
composition all the four are very similarly placed. However, if we look at ratio of
the composition of raw materials consumer, we see that for HM, it is primarily
imported. In contrast, most of MM and TMs resources are obtained domestically.
However, surprisingly, for HM expenses are a very small fraction of the
composition of total sales. Interestingly, while MM and MS have higher dividend
per share, TM has the highest dividend/net profit ratio. Thus this signals two
things, first the company pays dividend even though it has low profits, and
secondly their proportions of shares floated to proportion of profits is much
higher than the industry average. This practice perhaps helps explain why the
Tata Motors stock is still traded with gusto despite poor performance in the last
four fiscals.
We see that the earning per share is the highest for MS and the MM. This is made
clear by their operating profit per share and NOI/share ratios as well. Their book
values are also superior to their peers. Thus all in all, by looking at the ratios in
2013, we see that MS and MM are above the industry average. They outperform
TM and HM in every regard and are a much safer bet.

________________________________________________________________________

Conclusion
The automobile sector is in a transition phase in India. There is a huge increase
in conspicuous consumption, which pushes people into buying new and more
diverse cars. People with cars are willing to spend more and more on purchasing
good quality cars, and a lot of two wheeler owners are looking to enter the four
wheeler buyer segment.
In such a market scenario, it is very important to invest and maintain a long term
outlook. There is tremendous growth opportunity in this sector. There are a lot of
foreign competitor brands present to cannibalize. Mahindra has done a wonderful
job in uprooting the entire SUV segment that was earlier monopolized by Tata.
Tata on the other hand has been successful in entering the premium car segment
through JLR. In fact it is only JLR that is keeping Tata Motors afloat. The company
has seized production of a lot of units of its models. This is a cause of major
concern as it is not an industry trend. As our analysis shows, the industry is
growing and there is potential for those who are ready to fight for it.
This analysis has helped in showing what the winners and doing right and what
needs to be done to become a winner in this segment.

Appendix
Maruti Suzuki Balance Sheets

Profilt and Loss Accounts

5 year Ratios for Maruti Suzuki:

Hindus Motors Balance Sheets

Profit and Loss Accounts

5 year Ratios for Hindustan Motors:

Mahindra and Mahindra Balance Sheets

Profit and Loss Accounts

Time

Mar '13

Mar '12

Mar '11

Mar '10

40,441.1
6
0
40,441.1
6

31,853.5
2
0
31,853.5
2

23,460.2
6
0
23,460.2
6

20,323.6
3
1,807.30
18,516.3
3

Mar '09

Income
Sales Turnover
Excise Duty
Net Sales

14,668.13
1,587.05
13,081.08

Other Income

639.79

574.06

551.63

285.09

132.65

87.31
41,168.2
6

597.33
33,024.9
1

202.23
24,214.1
2

23.69

-156.29

18,825.11

13,057.44

Power & Fuel Cost

30,675.2
7
206.39

24,258.9
4
175.78

16,604.8
8
143.93

12,461.5
6
120.97

Employee Cost

1,866.45

1,701.78

1,431.52

1,199.85

Other Manufacturing Expenses

96.92

75.36

Selling and Admin Expenses

1,439.26

1,109.96

Miscellaneous Expenses

3,071.06

2,543.63

2,027.83

264.21

165.83

Preoperative Exp Capitalised

0
28,680.1
3
3,770.72

0
20,208.1
6
3,454.33

-59.55
15,523.2
2
3,016.80

-42.83
11,640.24

Operating Profit

0
35,819.1
7
4,709.30

PBDIT

5,349.09

4,344.78

4,005.96

3,301.89

1,417.20

191.19

162.75

72.49

156.85

134.12

5,157.90

4,182.03

3,933.47

3,145.04

1,283.08

710.81

576.14

413.86

370.78

291.51

Stock Adjustments
Total Income
Expenditure
Raw Materials

Total Expenses

Interest
PBDT
Depreciation

9,208.71
98.69
1,024.52

1,284.55

Other Written Off

Profit Before Tax

4,447.09

3,605.89

3,519.61

2,774.26

991.57

72.49

48.97

PBT (Post Extra-ord Items)

4,447.09

3,605.89

3,519.61

2,846.75

1,040.54

Tax

1,094.27

727

857.51

759

199.69

Reported Net Profit

3,352.82

2,878.89

2,662.10

2,087.75

836.78

Total Value Addition

5,143.90

4,421.19

3,603.28

3,061.66

2,431.53

798.17

767.48

706.08

549.52

278.83

92.98

101.13

96.56

74.23

33.23

6,139.81

6,139.75

6,139.40

5,659.08

2,726.16

54.61

46.89

43.36

36.89

30.69

260

250

230

190

100

238.75

198.23

167.99

138.02

191.91

Extra-ordinary items

Preference Dividend
Equity Dividend
Corporate Dividend Tax
Per share data (annualised)
Shares in issue (lakhs)
Earning Per Share (Rs)
Equity Dividend (%)
Book Value (Rs)

5 year Ratios for Mahindra and Mahindra:

Tata Motors Balance Sheets

Profit and Loss Accounts

5 year Ratios for Tata Motors: