COMPARATIVE STUDY BETWEEN THE CAPITAL STRUCTURES OF TATA MOTORS AND MARUTI SUZUKI

SUBMITTED BY:SANDEEP YADAV SWATI TANEJA SWEETY SAPRA TANVI CHOPRA

MARUTI SUZUKI INDIA LIMITED

INTRODUCTION

Maruti Suzuki India Limited, a partial subsidiary of Suzuki Motor Corporation of Japan, is India's largest passenger car company, accounting for over 45% of the domestic car market. The company offers a complete range of cars from entry level Maruti 800 and Alto, to hatchback Ritz, A star, Swift, Wagon-R, Estillo and sedans DZire, SX4 and Sports Utility vehicle Grand Vitara. On 17 September 2007, Maruti Udyog Limited was renamed Maruti Suzuki India Limited. The company's headquarters are located in New Delhi. To promote its bottom line growth, Maruti Suzuki launched Maruti Finance in January 2002. Prior to the start of this service Maruti Suzuki had started two joint ventures Citicorp Maruti and Maruti Countrywide with Citi Group and GE Countrywide respectively to assist its client in securing loan. Maruti Suzuki tied up with ABN Amro Bank, HDFC Bank, ICICI Limited, Kotak Mahindra, Standard Chartered Bank, and Sundaram to start this venture including its strategic partners in car finance. Again the company entered into a strategic partnership with SBI in March 2003. Since March 2003, Maruti has sold over 12,000 vehicles through SBI-Maruti Finance. SBI-Maruti Finance is currently available in 166 cities across India.

Balance Sheet of Maruti Suzuki India

Mar '06

------------------- in Rs. Cr. ------------------Mar '07 Mar '08 Mar '09 Mar '10

12 mths

12 mths

12 mths

12 mths

12 mths

Sources Of Funds Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Net worth Secured Loans Unsecured Loans Total Debt Total Liabilities 144.50 144.50 0.00 0.00 5,308.10 0.00 5,452.60 71.70 0.00 71.70 5,524.30 Mar '06 144.50 144.50 0.00 0.00 6,709.40 0.00 6,853.90 63.50 567.30 630.80 7,484.70 Mar '07 144.50 144.50 0.00 0.00 8,270.90 0.00 8,415.40 0.10 900.10 900.20 9,315.60 Mar '08 144.50 144.50 0.00 0.00 9,200.40 0.00 9,344.90 0.10 698.80 698.90 10,043.80 Mar '09 144.50 144.50 0.00 0.00 11,690.60 0.00 11,835.10 26.50 794.90 821.40 12,656.50 Mar '10

12 mths

12 mths

12 mths

12 mths

12 mths

Application Of Funds Gross Block Less: Accum. Depreciation Net Block Capital Work in Progress Investments Inventories Sundry Debtors Cash and Bank Balance Total Current Assets Loans and Advances Fixed Deposits Total CA, Loans & Advances Deferred Credit Current Liabilities Provisions Total CL & Provisions Net Current Assets Miscellaneous Expenses Total Assets 4,954.60 3,259.40 1,695.20 92.00 2,051.20 881.20 654.80 51.60 1,587.60 933.10 1,350.00 3,870.70 0.00 1,704.80 480.00 2,184.80 1,685.90 0.00 5,524.30 6,146.80 3,487.10 2,659.70 238.90 3,409.20 713.20 747.40 114.80 1,575.40 1,072.60 1,308.00 3,956.00 0.00 2,288.60 490.50 2,779.10 1,176.90 0.00 7,484.70 7,285.30 3,988.80 3,296.50 736.30 5,180.70 1,038.00 655.50 324.00 2,017.50 1,173.00 0.00 3,190.50 0.00 2,718.90 369.50 3,088.40 102.10 0.00 9,315.60 8,720.60 4,649.80 4,070.80 861.30 3,173.30 902.30 918.90 239.00 2,060.20 1,809.80 1,700.00 5,570.00 0.00 3,250.90 380.70 3,631.60 1,938.40 0.00 10,043.80 10,406.70 5,382.00 5,024.70 387.60 7,176.60 1,208.80 809.90 98.20 2,116.90 1,739.10 0.00 3,856.00 0.00 3,160.00 628.40 3,788.40 67.60 0.00 12,656.50

Contingent Liabilities Book Value (Rs)

1,289.70 188.73

2,094.60 237.23

2,734.20 291.28

1,901.70 323.45

3,657.20 409.65

TATA MOTORS
INTRODUCTION Tata Motors Ltd is a multinational automotive corporation headquartered in Mumbai, India. Part of the Tata Group, it was formerly known as TELCO (TATA Engineering and Locomotive Company). Tata Motors is India s largest automobile company, with consolidated revenues of USD 20 billion in 2009-10. It is the leader in commercial vehicles and among the top three in passenger vehicles. Tata Motors has products in the compact, midsize car and utility vehicle segments. The company is the world's fourth largest truck manufacturer, the world's second largest bus manufacturer, and employs 24,000 workers. Since first rolled out in 1954, Tata Motors has produced and sold over 4 million vehicles in India. Established in 1945, when the company began manufacturing locomotives, the company manufactured its first commercial vehicle in 1954 in collaboration with Daimler-Benz AG, which ended in 1969.Tata Motors is a dual-listed company traded on both the Bombay Stock Exchange, as well as on the New York Stock Exchange. Tata Motors in 2005, was ranked among the top 10 corporations in India with an annual revenue exceeding INR320 billion. In 2010, Tata Motors surpassed Reliance to win the coveted title of 'India's most valuable brand' in a annual survey conducted by Brand Finance and The Economic Times. Tata Motors has auto manufacturing and assembly plants in Jamshedpur, Pantnagar, Lucknow, Ahmedabad, Sanand, Dharwad and Pune in India, as well as in Argentina, South Africa and Thailand.

Balance sheet
Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06

Sources of funds Owner's fund Equity share capital Share application money Preference share capital Reserves & surplus Loan funds Secured loans Unsecured loans Total Uses of funds Fixed assets Gross block Less : revaluation reserve Less : accumulated depreciation Net block Capital work-in-progress 18,416.81 24.63 7,212.92 11,179.26 5,232.15 13,905.17 25.07 6,259.90 7,620.20 6,954.04 10,830.83 25.51 5,443.52 5,361.80 5,064.96 8,775.80 25.95 4,894.54 3,855.31 2,513.32 7,971.55 26.39 4,401.51 3,543.65 951.19 7,742.60 8,883.31 31,405.06 5,251.65 7,913.91 25,534.76 2,461.99 3,818.53 14,094.51 2,022.04 1,987.10 10,852.94 822.76 2,114.08 8,447.52 570.60 14,208.55 514.05 11,855.15 385.54 7,428.45 385.41 6,458.39 382.87 5,127.81

Mar ' 10

Mar ' 09

Mar ' 08

Mar ' 07

Mar ' 06

Investments Net current assets Current assets, loans & advances Less : current liabilities & provisions Total net current assets Miscellaneous expenses not written Total Notes: Book value of unquoted investments Market value of quoted investments Contingent liabilities Number of equity shares outstanding (Lacs)

22,336.90

12,968.13

4,910.27

2,477.00

2,015.15

12,329.48 19,672.73 -7,343.25 31,405.06

10,836.58 12,846.21 -2,009.63 2.02 25,534.76

10,781.23 12,029.80 -1,248.57 6.05 14,094.51

10,318.42 8,321.20 1,997.22 10.09 10,852.94

9,812.06 7,888.65 1,923.41 14.12 8,447.52

21,991.93 345.53 3,708.33 5705.58

12,358.84 558.32 5,433.07 5140.08

4,145.82 2,530.55 5,590.83 3855.04

2,117.86 1,323.08 5,196.07 3853.74

1,648.57 1,550.00 2,185.63 3828.34

MEANING OF FINANCIAL LEVERAGE

A company can finance its investment by debt and equity. The company may also use preference capital. The rate of interest on debt is fixed irrespective of the companys rate of interest on asset. The company has a legal binding to pay interest on debt. The rate of preference dividend is also fixed , but preference dividend are paid when the company earns profit. The rte of equity dividend is not fixed and depends on the dividend policy of a company. The use of fixed charges sources of funds, such as debt and preference capital along with the owners equity in the capital structure, is described as financial leverage or gearing ratio or trading on equity. The financial leverage employed by a company is intended to earn more return on fixed- charge funds than their cost. The surplus will increase or decrease the return on owners equity.

MEASURES OF FINANCIAL LEVERAGE The most commonly used measures of financial leverage are: 1. Debt ratio: The ratio of debt to total capital D/D+E 2. Debt equity ratio: the ratio of debt to equity.. D/E 3. Interest coverage:- the ratio of net operating income (EBIT) to interest charges EBIT/Interest

MARUTI SUZUKI
Sales of 2010- 32174 Variable costRaw material- 22636 Power - 216 Other exp. 1061 Selling exp. 1032 Total -24945 Fixed cost:Interest -33.5 Depreciation -825 TOTAL 858.5 Contribution = Sales Variable cost = 32174 -24945 = 7229 P/V Ratio = Contribution/sales*100 =7229/32174*100 = 22.47% Operating Ratio = Change in contribution/Change in sales:Change in contribution = 7229-5670 =1559 Change in sales = 32174-23381 = 8793 Operating Ratio = 1559/8793 =0.177

TATA MOTORS
Sales of 2010- 38364 Variable costRaw material- 29578

Total- 29578 Fixed costInterest- 1103 Depreciation 1033 TOTAL-2136 Contribution = Sales Variable cost = 38364 29378 =8786 P/V Ratio = Contribution/sales*100 = 8786/38364*100 = 23% Operating Ratio = Change in contribution/Change in sales:Change in contribution = 8786-6242 =2544 Change in sales = 38364 28568 =9796 Operating Ratio = 2544/9796 =0.26

MARUTI SUZUKI Total debt ratio :Debt = 821.4 Equity = 144.5 Debt ratio = D/D+E 821.4/144.5+821.4 = o.850 or 85% Debt equity ratio :D/E 821.4/144.5 = 5.68 or 56.8 % EPS of maruti Suzuki = 86.45

TATA MOTORS
EPS of tata motors = 92.18 It does not have debts

We can observe that MARUTI SUZUKI is a leverage company and TATA MOTORS is a non-leverage company. And EPS ratio of TATA MOTORS is more than MARUTI SUZUKI so they earn their sources of funds from their equity they enough to arrange the funds so that they do not use debts for their funds and maruti use both equity and debt for their funds. MARUTI SUZUKI uses lots of debt so they are in risk and they uses less equity and comparison to TATA MOTORS they uses their own equity they are in less risk. By having a good EPS means the company is able half of its funds requirements at a cost lower than its rate of return on total investment. We can conclude that TATA MOTORS may better than Maruti Suzuki because it has more equity and more EPS.