ANNUAL REPORT ON HERO MOTORS LTD

PRESENTED BY: ANIRBAN MUKHERJEE KUSHAL BISWAS SANJEET SINGH THAKUR DEEPAK DAS HARJYOT SINGH NIKHIL CHANDRAVANSHI ABDUL JABBAR

INTRODUCTION
Hero Motors Ltd. is the world's largest manufacturer of two wheelers, based in India. The company was a joint venture between India's Hero Group and Honda Motor Company, Japan that began in 1984 later in 2011 it turn into Hero Motors Limited. In 2001, the company achieved the coveted position of being the largest two-wheeler manufacturing company in India and the World No.1 two-wheeler company in terms of unit volume sales in a calendar year by a single company. Hero has retained that coveted position till date. Today, every second motorcycle sold in the country is a Hero Honda bike. Every 30 seconds, someone in India buys Hero splendor which is Indias selling motor cycle.

ABOUT HERO MOTORS LTD

VISION: The HERO story began with a simple vision- the vision of a mobile and an empowered India, powered by Hero. This vision was driven by Heros commitment to customer, quality and excellence, and while doing so, maintaining the highest standard of ethics and social respnsibilities. Hero believes that the fastest way to turn that dream to reality is by remaining focused on that vision. STRATEGY: Hero key strategy has been driven by innovation in every sphere of activity- building a robost product portfolio across categories, exploring new markets, aggresively expanding the network and continuing to invest inbrand building activities.

ABOUT HERO MOTORS LTD

Manufacturing: Hero Honda bikes are manufactured across three globally benchmarked manufacturing facilities. Two of these are based at Gurgaon and Dharuhera which are located in the state of Haryana in northern India. The third and the latest manufacturing plant is based at Haridwar, in the hill state of Uttarakhand. Technology: In the 1980s Hero pioneered the introduction of fuel-efficient, environment friendly four-stroke motorcycles in the country. Today Hero continues to be technology pioneer. It became the first company to launch the Fuel Injection (FI) technology in Indian motorcycles, with the launch of the Glamour FI in June2006

ABOUT HERO MOTORS LTD

Products: Hero product range includes variety of motor cycles that have set the industry standards across all the market segments. The company also started manufacturing scooter in2006.Hero offers large no. of products and caters to wide variety of requirements across all the segments. Distribution: The company's growth in the two wheeler market in India is the result of an intrinsic ability to increase reach in new geographies and growth markets. Hero extensive sales and service network now spans close to 4500 customer touch points. These comprise a mix of authorized dealerships, Service& Spare Parts outlets, and dealer-appointed outlets across the country.

Current Trend
Hero MotoCorp Ltd (HMCL), the worlds largest two-wheeler manufacturer, today reported sales of 4,84,217 units of two-wheelers in the month of July 2012. HMCL had sold 4,91,036 units in the corresponding month last year. Mr. Anil Dua, Senior Vice-President (Marketing & Sales), Hero MotoCorp Ltd said, The two-wheeler industry in the country has been experiencing sluggish growth for past few months. We are strengthening our brand and saliency in midst of a challenging environment where a patchy monsoon, rising petrol prices and high interest rates have been affecting retail sales in both rural and urban markets. Our brand and models are salient on the current bilateral cricket series and Olympics. We continue to launch new models, air new campaigns and expand our network as we look forward to the commencement of the festive season with cautious optimism.
.

Current Trend :
HMCL recently announced its best-ever turnover (Net Sales & Other Operating income) of Rs. 6247.28 crores for the first quarter (April-June 2012) of FY13. The companys profit before tax for the period stood at Rs 734.88 crore, while profit after tax (PAT) for the period stood at Rs 615.46 crores. The Company has recorded an EBIDTA margin of 15 per cent. Hero MotoCorp registered its highest ever quarterly sales of 16,42,292 twowheelers in the first quarter this fiscal, fuelled by two consecutive months of highest-ever monthly sales witnessed by the company in the months of April (5,51,557) and May (5,56,644). Hero MotoCorp has strengthened its presence in the deluxe segment with the launch of its new 125cc motorcycle Hero Ignitor. The sporty looking Ignitor is loaded with impressive features and is attractively priced at Rs. 55,900/- for the drum-self-cast variant and Rs 57,900/- for the disc-self-cast variant.

Why Annual Report is important??

One wants to know how well the company is doing , how well it is upcoming changes projected for the next year, and about the management staff of the company. One want to find out whether the company is making more money than it is spending. One want to get an idea of managements strategic plan for the coming year. Shareholders can use the annual report to make important decisions.

What is a Director Report ? Why is it important ?

It is obligatory on the part of the directors to make out and attach to every balance sheet laid before company in general meeting, a report known as directors report. The report is intended to report, to all interested stakeholders, the directors' explanations and interpretations of the profit/loss, the state of affairs of the group and any other matters which may be material for the stakeholders' attention.

Why is Auditor appointed ? What is an Auditors report ? Auditors are appointed to certify whether the financial statements reflects a true and fair view of an entity or not. Auditors provide an independent opinion. The auditors report is a means by which the auditor communicates the findings of his examination to the readers of financial statements viz.. Shareholders, creditors, financial institutions and all others who have a stake in the company or wish to acquire a stake with the company

ACCOUNTING POLICY:
The financial statements of the Company have been prepared in accordance with the Generally Accepted Accounting Principles in India The financial statements have been prepared on accrual basis under the historical cost convention. Fixed assets are stated at cost less accumulated depreciation. Cost of acquisition is inclusive of freight,duties, taxes and other incidental expenses. Depreciation is charged on a pro-rata basis at the straight line method rates. Intangible assets, comprising of expenditure on model fee etc, incurred are amortised on a straight line method over a period of five years. Leasehold land has been amortised over the period of Lease Current investments are stated at lower of cost and fair value computed category wise. Long term investments are stated at cost less provision for permanent diminution, if any. Stores and spares and loose tools are stated at cost or under.Raw materials and components, finished goods and work in progress are valued at cost.

COMPARATIVE BALANCE SHEET ANALYSIS OF HERO MOTOCORP AS ON 31-MARCH 2011 AND 2012
ASSETS
GROSS BLOCK NET BLOCK INVESTMENTS INVENTORIES SUNDRY DEBTOR CASH AT BANK LOANS AND ADVANCES

2011 (in cr.) 2012 (in cr.) ABSO LUTE CH ANGE(in cr.)
5,538.46 4,080.28 5,128.75 524.93 130.59 71.52 783.48 6,308.26 2,522.75 3,785.51 193.95 3,964.26 675.57 272.31 76.82 926.99 769.80 1064.57 (294.77) 68.81 (1164.49) 150.64 141.72 5.30 143.51

% CH ANGE
13.90 73.01 (7.22) 54.99 (22.71) 28.70 108.52 7.41 18.32

LESS: ACC. DEPRECIATION 1,458.18 CAPITAL WORK-IN-PROGESS 125.14

TOAL ASSETS
LIABILITIES
SHARE CAPITAL RESERVES & SURPLUS SECURED LOANS UNSECURED LOANS CURRENT LIABILITIES PROVISIONS

10,844.69
39.94 2,916.12 1,458.45 32.71 5,316.40 1,081.07

9,895.41
39.94 4,249.89 994.85 0.00 3,520.66 1,090.07

(949.28)
0.00 1333.77 (463.60) (32.71) (1795.74) 9.00

(8.75)
0.00 45.74 (31.79) (100.00) (33.78) 0.83

TOTAL LIABILITIES 10,844.69

9,895.41

(949.28)

(8.75)

INTERPRETATION:
Reserves and surpluses increased by Rs. 1333.77 cr. means the profitability of the company has increased by 45.74% as compared to previous year i.e. 2011.

There is no change in the share capital of the company as because it has not issued any share.
Secured and unsecured loans have decreased more than the decrease in fixed assets shows that the company has used a part of current asset i.e. investment. That is why investment has decreased by Rs.1164.49cr i.e. 22.71% decrease as compared to the previous year 2011. There is an increase in liquid assets i.e. cash and debtors over the last year by 108.52% and 7.41% respectively. This shows that the company has improved its liquidity position.

The company had working capital of Rs. 539.39cr in 2011 and Rs. 1468.30 cr in 2012. It means the working capital has increased by 72.23% and this is an extremely good improvement in the current financial position of the business.
There is an increase in inventory worth Rs. 150.64cr which can be on account of accumulation of stock for want of customers, decrease in demand or inadequate sales promotion efforts.

INTERPRETATION:
There is no change in share capital as because the company had not issued any share There is 14.86% decrease in reserves and surpluses in 2011 as compared to the base year 2010 and an increase of 24.08% in reserves and surpluses of the company. Liquid assets and loans and advances showing an increasing trend. The former increased by 24.23% and 155.26% in 2011 and 2012 respectively. The later increased by 78.69% and 111.42% in 2011 and 2012 respectively. Current assets showing a decreasing trend. It has decreased by 8.18% and 21.78% in 2011 and 2012 respectively as compared to the base year 2010. Current liabilities increased by 34.06% in 2011 and decreased by 11.22% in 2012 as compared to base year 2010.

COMMON-SIZE BALANCE SHEET ANALYSIS OF HERO MOTOCORP AS ON 31-MARCH 2011 AND 2012
ASSETS
GROSS BLOCK LESS: ACC. DEPRECIATION NET BLOCK INVESTMENTS INVENTORIES SUNDRY DEBTOR CASH AT BANK LOANS AND ADVANCES

2011 (in cr.) % TO TAL 2012 (in cr.) % TO TAL

5,538.46 1,458.18 4,080.28 5,128.75 524.93 130.59 71.52 783.48 51.07 13.45 37.62 1.15 47.29 4.84 1.20 0.66 7.22 6,308.26 2,522.75 3,785.51 193.95 3,964.26 675.57 272.31 76.82 926.99 63.75 25.49 38.26 1.96 40.06 6.83 2.75 0.78 9.37

CAPITAL WORK-IN-PROGESS 125.14

TO AL ASSETS
LIABILITIES
SHARE CAPITAL RESERVES & SURPLUS SECURED LOANS UNSECURED LOANS CURRENT LIABILITIES PROVISIONS

10844.69
39.94 2,916.12 1,458.45 32.71 5,316.40 1,081.07

100.00
0.37 26.89 13.45 0.30 49.02 9.97

9895.41
39.94 4,249.89 994.85 0.00 3,520.66 1,090.07

100.00
0.40 42.95 10.05 0.00 35.58 11.02

TO TAL LIABILITIES 10844.69

100.00

9895.41

100.00

INTERPRETATION:
The companys working capital has improved immensely. In 2011 current assets were more than current liability by 4.97% and this year it is 14.84%. This shows how efficient the company is in managing its working capital RATIO ANALYSIS AND ITS COMPARISION WITH BAJAJ AUTO LIQUIDITY RATIO 1.CURRENT RATIO = CURRENT ASSETS /CURRENT LIABILITIES CURRENT ASSETS = WORK IN PROGRESS + INVENTORIES + SUNDRY DEBTORS + CASH AT BANK CURRENT RATIO, 2010 = (48.14+436.40+108.39+1,907.21)/ 3,965.69 = 0.63 CURRENT RATIO, 2011 = (125.14+524.93+130.59+71.52)/ 5,316.40 = 0.16 CURRENT RATIO, 2012 = (193.95+675.57+272.31+76.82)/ 3,520.66 = 0.34 INTERPRETATION: - Current ratio of all the 3 years are below the bench mark i.e. 2 which indicates that the liquidity position of the company is not good and the firm shall not be able to pay its current liabilities in time without facing difficulties. Bajaj Auto has a current ratio of 0.88 in 2012 as against Hero Motocorps 0.34. It means the liquidity of Bajaj Auto is more as compared to Hero Motocrop.

LIQUID RATIO = LIQUID ASSETS/LIQUID LIABILITIES

LIQUIDITY RATIO:
LIQUID ASSETS = CURRENT ASSETS INVENTORIES LIQUID RATIO, 2010 =( 2500.14-436.40)/ 3965.69 = 0.52 LIQUID RATIO, 2011 = (852.18 - 524.93)/ 5,316.40 = 0.06 LIQUID RATIO, 2012 = (1,218.65 - 675.57)/3,520.66 = 0.15

INTERPRETATION : - The bench mark for liquid ratio is 1. But the

company has liquid ratio below 1 which indicates that the company is too much relies too much on inventory or other assets to pay its short-term liabilities. Bajaj Auto has a liquid ratio of 0.72 as against Hero Motocrops 0.15 in 2012. Though both the company has to depend too much on inventory or other assets to pay its short-term liabilities still Bajaj Auto has the upper hand as compared to Hero Motocrop

SOLVENCY RATIO:
DEBT EQUITY RATIO = OUTSIDERS FUND/SHARE HOLDERS
FUND SHARE HOLDERS FUND = SHARE CAPITAL + RESERVES AND SURPLUSES DEBT EQUITY RATIO, 2010 = (0.00+66.03)/( 39.94+3,425.08) = 0.02 DEBT EQUITY RATIO, 2011 = (1,458.45+32.71)/( 39.94+2,916.12) = 0.50 DEBT EQUITY RATIO, 2012 = (994.85+0)/(39.94+4249.89) = 0.23

INTERPRETATION :- The ratio of all the three years are less than 1 which
means the company has more share capital with respect to outsiders fund. A higher ratio demonstrate that the company has aggressively financed its growth through outsiders fund. Ultimately it helps in saving tax. Here, both the company Hero Motocorp and Bajaj Auto has their ratio lower than 1 i.e. 0.23 and 0.02 respectively. The higher the debt equity ratio the better it is for the company as it helps in saving tax

FIXED ASSETS TO NET WORTH RATIO

FOR YEAR 2010 = 1,658.78 / 3,465.02 = 0.48 FOR YEAR 2011 = 4,080.28 / 2956.06 = 1.38 FOR YEAR 2012 = 3,785.51 / 4,289.83 = 0.88

FIXED ASSETS AFTER DEPRECIATION / SHARE HOLDERS FUND

INTERPRETATION : - Except 2011 in other two year the

ratio is less than 1. It indicates that that the owners fund is not sufficient in to finance the fixed assets and the company has to depend upon outsiders to finance the fixed assets in 2012. Here, Bajaj Auto has a ratio of 0.25 as against Hero Motocorps 0.88 in 2012. It shows owners fund is more than total fixed assets and a part of working capital is provided the shareholders.

EARNING PER SHARE(EPS) = NET PROFIT AFTER TAX / NUMBER OF EQUITY SHARES OUTSTANDING
NUMBER OF EQUITY SHARES OUTSTANDING = EQUITY SHARE CAPITAL / PRICE PER SHARE= 39,94,00,000 / 2 = 19,97,00,000 shares EPS FOR THE YEAR 2010,2011 AND 2012 = 2,231.83 / 19,97,00,000 = Rs.111.76 INTERPRETATION: - EPS of Rs. 111.76 shows the amount of profit one share produces where as EPS of Bajaj Auto is Rs.103.80. It means the profit earned by Hero Motocorp is Rs.7.96 more as compared to Bajaj Auto.

PRICE EARNING RATIO = MARKET PRICE PER SHARE / EARNING PER SHARE
PRICE EARNING RATIO, 2010 = 173.52 / 111.76 = 1.55 times PRICE EARNING RATIO, 2011 = 148.03 / 111.76 = 1.32 times PRICE EARNING RATIO, 2012 = 214.83 / 111.76 = 1.92 times

INTERPRETATION: - Price earning ratio has increased from 2010 to from 2012 which will encourage the investor to buy the shares of the company as it is the sign of higher earnings growth in future. Where as the price earning ratio of Bajaj Auto is 2.01 which is slightly higher than Hero Motocorp.

INVENTORY TURNOVER RATIO = COST OF GOODS SOLD / AVERAGE INVENTORY

COST OF GOODS SOLD = SALES GROSS PROFIT AVERAGE INVENTORY =( OPENING INVENTORY + CLOSING )/2
FOR 2010 ITO RATIO = (16856.43 2743.65)/436.40 = 32.33 FOR 2011 ITO RATIO = (20787.27 2597.07)/480.665 = 37.84 FOR 2012 ITO RATIO = (25252.98 3648.032)/ 600.25 = 35.99

INTERPRETION: - Inventory turnover ratio in 2012 is on the

higher end as compared to 2010 which indicates efficient management of inventory because more frequently the stocks are sold the lesser money is required to finance the inventory. Bajaj Auto has 27.11 as inventory turnover ratio which is 8.88 less than Hero Motocorp.

DEBTORS TURNOVER RATIO = NET CREDIT ANNUAL SALES/ AVERAGE DEBTOR

AVG. DEBTOR = (OPENING DEBTOR + CLOSING DEBTOR)/2 FOR 2010 = 16856.43/108.39 = 155.5 FOR 2011 = 20787.27/119.49 = 173.9 FOR 2012 = 25252.98/201.45 = 125.3

INTERPRETATION: - Debtor turnover ratio is on the higher

end. After considering the reputation a higher ratio indicates efficient management of debtor or sales and liquidity of debtors. Bajaj Autos debtor turnover ratio is 52.10. Though its a good ratio still it is way below Hero Motocorps 125.3.

GROSS PROFIT RATIO = (GROSS PROFIT/ NET SALES)*100

FOR 2010 = (2743.65/16856.43)*100 = 16.27% FOR 2011= (2597.07/20787.27)*100 = 12.49% 2012 = (3648.02/25252.98)*100 = 14.44%

INTERPRETATION : - Though the gross profit has

decreased by 1.83% in 2012 as compared to 2010, it is still in the higher side indicates that the company can make reasonable profit as long as it keeps the overhead cost in control. It also indicates the production efficiency of the company and how efficient the company is in controlling production cost. Gross profit ratio of Bajaj Auto is 18.25% which is 3.81% more than that of Hero Motocrop. It shows that Bajaj Auto has much better control over production cost.

NET PROFIT RATIO = (NET PROFIT AFTER TAX/NET SALES)*100

2010 = (2213.83/16856.43)*100 = 13.13% 2011 = (1927.90/20787.27)*100 = 9.27% 2012= (2378.13/25252.98)*100 = 9.41%

INTERPRETATION: - There is decrease in net

profit by 3.72% in 2012 as compared to 2010. A higher rate of net profit indicates that how efficient the company is and how well it controls its overhead cost. The net profit ratio of Bajaj Auto is 14.67% as against Hero Motocrops 9.41% showing a difference of 5.26%. It means Bajaj Auto is more efficient in controlling its overhead cost as compared to Hero Motocorp.

LEARNING FROM FINANCIAL STATEMENT ANALYSIS:

One of the handiest skills that we learned is how to read a corporate financial statement and why it is important to learn to read a financial statement. This skill is very handy if you are interested in investing in stocks. In fact, reading a financial statement is extremely important if you want to invest in stocks. And understanding the numerous ratios, which can be used to interpret the financial health of a company is very important as each ratio has a specific purpose.