You are on page 1of 35

INTRODUCTION Finance is regarded as the life blood of a business enterprise.

In the modern oriented economy, finance is one of the basic foundations of all kinds of economics activities. Finance statements are prepared primarily for decision-making. They play a dominant role in setting the frame work and managerial conclusion and can be drawn from these statements. However, the information provided in the financial statement is of immense use in decision-making through analysis and interpretation of financial statements. As said earlier finance is said to be life blood of any business. Every business under taking needs finance for its smooth working. It has to raise funds from the cheapest and risky source to utilize this in most effective manner. So every company will be interested in knowing its financial performance.

COMPANY PROFILE HISTORY The origin of Ashok Leyland can be traced to the urge for self-reliance, felt by independent India. Pandit Jawaharlal Nehru, India's first Prime Minister persuaded Mr. Raghunandan Saran, an industrialist, to enter automotive manufacture. In 1948, Ashok Motors was set up in what was then Madras, for the assembly of Austin Cars. The Company's destiny and name changed soon with equity participation by British Leyland and Ashok Leyland commenced manufacture of commercial vehicles in 1955. Since then Ashok Leyland has been a major presence in India's commercial vehicle industry with atradition of technological leadership, achieved through tie-ups with international technology leaders and through vigorous in-house R&D. Access to international technology enabled the Company to set a tradition to be first with technology. Be it full air brakes, power steering or rear engine busses, Ashok Leyland pioneered all these concepts. Responding to the operating conditions and practices in the country, the Company made its vehicles strong, over-engineering them with extra metallic muscles. "Designing durable products that make economic sense to the consumer, using appropriate technology", became the design philosophy of the Company, which in turn has moulded consumer attitudes and the brand personality. Ashok Leyland vehicles have built a reputation for reliability and ruggedness. The 5,00,000 vehicles we have put on the roads have considerably eased the additional pressure placed on road transportation in independent India. In the populous Indian metros, four out of the five State Transport Undertaking (STU) buses come from Ashok Leyland. Some of them like the double-decker and vestibule buses are unique models from Ashok Leyland, tailor-made for high-density routes.In 1987, the overseas holding by Land Rover Leyland International Holdings Limited (LRLIH) was taken over by a joint venture between the Hinduja Group, the Non-Resident Indian transnational group and IVECO. (Since July 2006, the Hinduja Group is 100% holder of LRLIH). The blueprint prepared for the future reflected the global ambitions of the company, captured in four words: Global Standards, Global Markets. This was at a time when liberalisation and globalisation were not yet in the air. Ashok Leyland embarked on a major product and process up gradation to match world-class standards of technology.

In the journey towards global standards of quality, Ashok Leyland reached a major milestone in 1993 when it became the first in India's automobile history to win the ISO 9002 certification. The more comprehensive ISO 9001 certification came in 1994, QS 9000 in 1998 and ISO 14001 certification for all vehicle manufacturing units in 2002. It has also become the first Indian auto company to receive the latest ISO/TS 16949 Corporate Certification (in July 2006) which is specific to the auto industry. Ashok Leyland is the leading manufacturer of trucks, buses, special application vehicles and engines in India. The products of Ashok Leyland are at par with the best in the world. Ashok Leyland is the leaders in the Indian bus market, offering unique models such as CNG, Double Decker and Vestibule bus. More than 80% of the State Transport Undertaking (STU) buses come from Ashok Leyland. The company is a pioneer in multi axle trucks and tractor-trailers. Ashok Leyland is the largest provider of logistic vehicles to the Indian army. It also manufactures diesel engines for Industrial, Genset and Marine applications, in collaboration with technology leaders. The birth of Ashok Leyland can be attributed to the quest for self-reliance in the aftermath of independence. Pandit Jawaharlal Nehru persuaded Mr. Raghunandan Saran, an industrialist, to enter automotive manufacture. In 1948, Ashok Motors was set up in Madras (Chennai) for the assembly of Austin Cars. Soon, British Leyland acquired an equity stake in the company and the name of the company was changed from Ashok Motors to Ashok Leyland. In 1955, Ashok Leyland commenced of commercial vehicles. Since then Ashok Leyland has maintained its technological leadership in the India's commercial vehicle industry. Tie-ups with international technology leaders and through vigorous in-house R&D enabled Ashok Leyland to introduce latest technological breakthroughs in the Indian market. Ashok Leyland was the first to introduce full air brakes, power steering and rear engine busses in India. In 1987, the overseas holding by Land Rover Leyland International Holdings Limited (LRLIH) was taken over by a joint venture between the Hinduja Group and IVECO. Since July 2006, the Hinduja Group is 100% holder of LRLIH.

ASSOCIATE COMPANIES OF ASHOK LEYLAND Automotive Coaches & Components Ltd (ACCL):

ACCL was promoted by Ashok Leyland and the Tamil Nadu Industrial Development Corporation (TIDCO) in the 1980s. The company has two Divisions: ACCL Division and PL Haulwel Trailers (PLHT). ACCL is the largest Tipper Body manufacturer in the organised sector in India. Apart from the tippers, it also manufactures bus bodies, frontend structures (FES), tankers, aluminium containers, OB vans, energy vans and the like. PLHT manufactures a wide variety of after-chassis products. These include Fifth Wheel Couplers and Hoists, Semi Trailers, Container trailers, Ladle Carriers, for foundries (Steel / Aluminium), Running gears for LPG tankers, Car / Truck / Tractor Carriers, Bottom dumpers, and all types of user-specific custom-designed trailers for niche applications.

Lanka Ashok Leyland The Company was established in 1982. It is a joint venture between Ashok Leyland and the Government of Sri Lanka. Ashok Leyland supplies chassis in both completely built-up and knocked down conditions to Lanka Ashok Leyland, which in turn assembles the chassis and builds bodies.

Statement of the Problem The firms primary objective is maximizing the wealth of the shareholder. Due to the fluctuations in the market price of the shares, it is essential to know what are all the factors influencing the wealth and it is required to measure the wealth of the organization. The researcher has compared the firm Tata Motors and Ashok Leyland for the better understanding of wealth maximization of two organisations.

Objectives of the Study To measure and compare the Wealth of the selected automobile industries. To provide the suitable suggestion for the selected industries and for the investors for their Wealth Maximization.

Literature Review: Hayek (1960) and Friedman (1970)1 Says that a firm should be operated in a manner that maximizes its economic profits. In the financial scenario, although the investors always wanted their share value to appreciate but their primary focus was on profits distributed by way of dividends. by economic returns they generate for their shareholders which are measured as dividend and increase in the share price. Kirloy (1999)3 Shareholder wealth can only be created if the performance of the management is more than the expectations. Aswath (2001)4 Discussed the reasons why the shareholder wealth maximization objective should be the main objective of a firm. Chartered Institute of Management Accountants5 (2004) Value based management thus places the interests of owners of companies back in the centre of decision making. This is turn means those investors can rely on more than just instruments of corporate governance to protect them from the possible conflicts of interest arising from the split between ownership and management. A.Lakshminarasimha6 (2006)While the merit of value based metrics as such is not in doubt, the choice of metric should very well be decided based on one convenience and objectives. Ultimately, it is not the metric that one uses that determines the final result, but how one actually performs. R.Azhagaiah and Sabari.N7 (2008)The study proves that the wealth of the shareholders is greatly influenced mainly by five variables viz., Growth in sales, improvement of profit margin, Capital investment decision, Capital structure decision and Cost of capital. K.Sunitha8 (2011) Banks which eroded shareholders value should invest in growth, keep the cost of capital down, and squeeze optimal returns from its investments to add shareholder value. Debdas Rakshit9 (2011) From the segment wise Profit and loss A/C and Balance sheet it is found that all segments earned profit but from EVA based Segmental reporting it becomes clear that all segments are not value generating segments even though under traditional methods all segments earned profit.

Dr.A.Vijayakumar10 (2012)Testing with t-statistics, the table transports that PAT is found significant if tested at 11.8 percent level where as EPS and sales are observed quite significant even at 1 percent level of significance. The result of multiple regression analysis showed that Sales, EPS and PAT are the best explanation of MVA of Indian automobile industry during the study period.

Research Methodology Research Design: Analytical research design is used for this study and researcher used the facts or information already available, and analyzed these to make a critical evaluation of the Wealth of the firms.

Source of Data: Secondary data has been used for the analysis, and for the analysis the financial statements are collected through company annual reports, websites, journals, and books. Analysis and Interpretation Economic Value Added (EVA): EVA is an estimate of a companys Economic profit or Residual income, which is the amount by which the earnings exceed or fall short of the return that could get by investing in other business of comparable risk. EVA is defined in monetary terms and is a period based measure. Table No.1 TEVA of Ashok Leyland (Rs in crores) Year NOPAT WACC(%) Capital 2003-2004 252.99 0.0629 1550.48 2004-2005 301.81 0.0317 1550.48 2005-2006 365.69 0.0736 1994.39 2006-2007 473.11 0.0721 2534.98 2007-2008 552.94 0.0903 3036.48 2008-2009 347.30 0.1409 5435.87 2009-2010 525.52 0.0905 5936.75 2010-2011 820.22 0.1159 6621.15

WACC* C EVA 97.53 155.46 49.20 236.87 146.78 218.90 182.77 290.33 274.19 278.74 765.91 -418.61 537.27 -11.75 767.39 52.82

2011-2012 821.23 0.0880

6607.30

581.44 239.78

Source: Annual reports From the above table it is inferred that the Economic Value of Ashok Leyland is fluctuating from 290.33 crores to 155.46 crores from the year 2003-2004 to 2007-2008. After that it shows the negative EVA of -418.61 crores and -11.75 crores for the next two years from 2008-2009 to 2010-2011. Again it increased from 52.82 crores to 239.78 crores in the financial year 20102012.

Table No.2 EVA of Tata Motors (Rs in crores) YEAR NOPAT WACC(%) CAPITAL WACC *C EVA

2003-2004 1036.30 0.0494 4849.54 239.56 796.73 2004-2005 1471.25 0.0734 6606.81 484.93 986.31 2005-2006 1876.12 0.0747 8477.91 633.29 1242.31 2006-2007 2368.21 0.0808 10938.89 883.86 1484.34 2007-2008 2500.48 0.0894 14119.72 1262.30 1238.17 2008-2009 1706.18 0.1499 25560.43 3831.50 -2125.33 2009-2010 3486.33 0.1453 31429.69 4566.73 -1080.40 2010-2011 3195.61 0.1249 35908.99 4485.03 -1289.42 2011-2012 2460.85 0.1058 30379.29 3214.12 -753.27 Source: Annual reports From the above table it is inferred that Economic value of Tata motors are increasing from 796.73 crores to 1484.34 crores from the financial year 2003-2007. After that It show the negative EVA from the financial year 2008-2009 to 2011-2012. 6.2 Market Value Added: The Market Value Added approach measures the change in the market value of the firms equity and equity investment. Though the concept of market value added is normally used in the concept of equity investment and, hence, is of greater relevance of equity shareholders. It can also be adapted to measure value from the perspective of all invested funds including preference

share capital and dept. The market value added approach cannotbe used for all type of firms whose market prices are available.

Table No.3 Market Value Added For Ashok Leyland (Rs in crores) Year Market value Book value MVA 2003-2004 21854.61 11697.99 10156.62 2004-2005 13662.58 3072.46 10590.12 2005-2006 5466.80 3371.41 2095.39 2006-2007 8007.50 4274.86 3732.64 2007-2008 10245.37 5030.92 5214.45 2008-2009 11856.84 7411.68 4445.16 2009-2010 14839.23 8126.73 6712.50 2010-2011 15029.89 9145.08 5884.81 2011-2012 15830.00 9238.95 6591.05 Source: Annual reports The Market Value is being added for Ashok Leyland from10159.62 crores to 10590.12 crores from the financial year2003-2004 to 2004-2005. After that it fluctuating from 2095.39 crores to 6712.50 crores for the financial year 2005-2006 to 2011-2012.

Table No.4 Market Value Added of Tata Motors (Rs in crores) Year Market value Book value MVA 2003-2004 104454.80 40396.10 64058.70 2004-2005 161233.20 47357.91 113875.30 2005-2006 221258.40 63195.59 158062.80 2006-2007 295920.30 78925.48 216994.80 2007-2008 291957.50 91875.33 200082.20 2008-2009 196905.00 148737.10 48167.90 2009-2010 321325.50 178651.20 142674.30 2010-2011 694558.00 235132.10 459425.90

2011-2012 381890.20 68482.42 313407.80 Source: Annual reports

The Market Value against the book value of Tata motors is being increased from 64058.7 crores to 216994.8 crores for the financial year 2003-2004 to 2006-2007. After that It is declining from 200082.2 crores to 48167.9 crores for the next two years.From the financial year 2009-2010 to 2011-2012 it shows the increasing trend.

Cash Flow Return on Investment of Ashok Leyland: Cash Flow return on investment is the equivalent of ROI computed based on cash flows, instead of profits. CFROI compares the sustainable cash flow generated by a firm with the total cash invested (towards both fixed and working capital) to generate this flows. A valuation model that assumes the stock market sets prices based on the cash flow, not on the corporate performance and earnings.

Table No.5 Cash Flow Return of Ashok Leyland Year Cash flow Rs. In CrMVCRs. In Cr CFROI CFROI(%) 2003-2004 349.44 21854.61 0.0159 1.59 2004-2005 301.81 13662.58 0.0309 3.09 2005-2006 365.69 5466.80 0.0898 8.98 2006-2007 473.11 8007.50 0.0778 7.78 2007-2008 552.94 10245.37 0.0721 7.21 2008-2009 347.30 11856.84 0.0443 4.43 2009-2010 525.52 14839.23 0.0491 4.91 2010-2011 820.22 15029.89 0.0723 7.23 2011-2012 821.23 15830.00 0.0964 9.64 Source: Annual reports The Cash Flow Return on Investment of Ashok Leyland is increasing from 1.59% to 3.09% for the year 2003-2004 to 2005- 2006. After that it decreases from the 7.78% to 4.43% for

the year from 2006- 2007 to 2008-2009. Again it is increasing from 4.91% to 9.64% for the year from 2010-2011 to 2011-2012.

Table No.6 Cash Flow Return of Tata Motors Year Cash flowRs. In CrMVCRs. In Cr CFROI CFROI(%) 2003-2004 1418.90 104454.80 0.013 1.30 2004-2005 1921.41 161233.20 0.011 1.19 2005-2006 2400.06 221258.40 0.010 1.08 2006-2007 2955.50 295920.30 0.009 0.99 2007-2008 3152.81 291957.50 0.010 1.07 2008-2009 2580.72 196905.00 0.013 1.31 2009-2010 4520.20 321325.50 0.014 1.40 2010-2011 4556.38 694558.00 0.006 0.65 2011-2012 4067.59 381890.20 0.010 1.06 Source: Annual reports From the above table it is inferred that the Cash Flow Return on Investment of Tata Motors is decreasing from 1.30% to 0.99% from the year 2003-2007. And it is increasing from 1.07% to 1.40% from the year 2008-2009 to 2009-2010. Again it is decreasing from 1.40% to 0.65% from the year 2010 to 2011. And it is increasing 0.65% to 1.06% from the year 2011-2012.

Total Shareholders Return: Boston consulting group (BCG), an international consulting organisation, has developed an approach to shareholder value management namely TSR. Total shareholders return is the rate of return shareholders earn from owning a companys stock over a period of time. Table No.7 TSR of Ashok Leyland YearEMVRs. In CrBMVRs. In CrDividend(Rs)(EV-BV)/BV (Rs)D/BV(Rs)TSR(%) 2003-2004 3016.64 1116.67 12.21 1.586 0.0100 158.61 2004.2005 2497.95 3052.23 2.28 0.918 0.0070 -91.80

2005-2006 4917.74 2577.99 3.21 0.907 0.0010 90.88 2006-2007 5091.16 5389.08 4.99 0.055 0.0009 -5.43 2007-2008 4696.66 4862.97 5.29 0.034 0.0010 -3.31 2008-2009 2408.20 4763.19 1.43 0.494 0.0003 -49.41 2009-2010 7430.84 2448.12 4.77 2.035 0.0019 203.70 2010-2011 7570.54 7484.06 9.50 0.011 0.0012 1.28 2011-2012 8062.52 15393.30 2.13 0.476 0.0001 -47.60 Source: Annual reports. From the above table it is inferred that the total shareholders return of TATA Motors is very higher in the years 2003-2004 and 2005-2006 by 212.5% and 125.2% respectively. But in the years 2004-2005 and 2011-2012 the TSR is negative. During the year 2005-2006 to 20092010 TSR shows the decreasing trend.

Total Business Return: Definition of TBR is quite similar to the TSR, with the difference being that free cash flows from operation are considered in place of dividends. The beginning and end values are estimates of the business value of the firm at the beginning and end of the period. TBR considers that a companys return on investment and its growth rate would reduce over time towards a global average due to competitive pressure from new entrance.

Table No.9 TBR of Ashok Leyland Year EBVRs. In CrBBVRs. In CrFCFRs. In Cr(EBVBBV)/BBVFCF/BBV TBR (%) 2003-2004 31592.50 13098.98 46.89 1.411 0.003 1.415 2004-2005 4424.30 32481.65 42.22 -0.863 0.001 -0.862 2005-2006 6899.90 4560.22 -40.86 0.513 -0.008 0.504 2006-2007 7493.70 7791.67 -220.20 -0.038 -0.028 -0.009 2007-2008 7600.10 7766.42 -140.59 -0.021 -0.018 -0.039 2008-2009 7711.11 10066.03 -73.56 -0.233 -0.007 -0.241 2009-2010 13234.50 8251.84 97.52 0.603 0.011 0.615 2010-2011 14058.60 13972.18 -598.70 0.006 -0.042 -0.036

2011-2012 14403.70 21734.53 -966.50 -0.337 -0.044 -0.381 Source: Annual reports

From the above table it is inferred that the total business return of Ashok Leyland is positive only in the years 2003-2004, 2005- 2006 and 2009-2010 by 1.415, 0.504 and 0.615 respectively. Other than that the TBR is negative in all the years.

Table No.10 TBR of Tata Motors Year EBVRs. In CrBBVRs. In CrFCFRs. In Cr(EBVBBV)/BBVFCF/BBVTBR(%) 2003-2004 175929.20 59346.50 -2246.4 1.964 -0.037 1.926 2004-2005 155991.40 181693.80 -1675.1 -0.141 -0.009 -0.150 2005-2006 365118.30 166620.00 -486.2 1.191 -0.002 1.188 2006-2007 290946.50 371585.20 -563.5 -0.217 -0.001 -0.218 2007-2008 254074.50 283584.30 -2881.3 -0.104 -0.010 -0.114 2008-2009 117721.80 346816.00 -11967 -0.660 -0.034 -0.695 2009-2010 739712.00 135271.60 -20097 -0.453 -0.148 -0.601 2010-2011 826950.30 514404.90 -20812 0.607 -0.040 0.567 2011-2012 204744.20 819373.60 -19251 -0.750 -0.023 -0.773 Source: Annual reports

The analysis says that the TBR of Tata Motors is Positive only in the years 2003-2004, 2005-2006, and 2010-2011 by 1.926% 1.188% and 0.567% respectively. But in the remaining years the TBR is negative and fluctuating every year.

Market Value to Book Value Ratio: Shareholder value creation is measured as the ratio of Market value to Book value of firms equity, where market value is the value in the stock market, while book value is the sum invested by shareholders.

Table No.11 Market Value to Book Value Ratio of Ashok Leyland (Rs in crores) Year MV BV M/B 2003-2004 171.72 86.32 1.98 2004-2005 78.64 9.61 8.18 2005-2006 28.53 11.37 2.50 2006-2007 42.33 14.14 2.99 2007-2008 39.03 15.99 2.44 2008-2009 23.15 15.85 1.46 2009-2010 40.43 17.46 2.31 2010-2011 64.21 19.97 3.21 2011-2012 35.67 10.89 3.27 Source: Annual reports

From the above table it is inferred that the market to book value ratio of the Ashok Leyland is increasing from 1.98 times to 8.18 times from the year 2003-2005. After that it fluctuating from 2.50 times to 3.27 times for all the years from 2005-2006 to 2011-2012. Marakon approach is greater than 1.Hence it infers that the Market value to book value ratio of Ashok Leyland is optimum in all over the study period.

Table No.12 Market Value to Book Value Ratio of Tata Motors (Rs in crores) Year MV BV M/B 2003-2004 283.20 81.22 3.48 2004-2005 428.44 101.71 4.21 2005-2006 556.82 113.65 4.89 2006-2007 740.72 143.94 5.14 2007-2008 721.72 177.59 4.06 2008-2009 334.35 202.70 1.64 2009-2010 509.09 240.64 2.11

2010-2011 1038.88 259.03 4.01 2011-2012 554.78 314.93 1.76 Source: Annual reports

The Market to book value ratio of the Tata Motors is fluctuating in all the study period. But in the year 2006-2007 it shows the higher ratio of 5.14 times due to the high market price against book value. Marakon approach is greater than 1.Hence it infers that the Market value to book value ratio of Tara motors is optimum in all over the study period.

Findings and Suggestions: Ashok Leyland: From the study it is found that the Economic Value of Ashok Leyland is fluctuating from 290.33 crores to 155.46 crores from the year 2003-2004 to 2007-2008. After that it shows the depressing EVA of -418.61 crores and -11.75 crores for the next two years from 2008-2009 to 2010-2011. After that it increased from 52.82 crores to 239.78 crores in the financial year 2010-2012. It may be the reason that the net profit has been improved in the last two years.

The Market Value is being added for Ashok Leyland from 10159.62 crores to 10590.12 crores from the financial year 2003-2004 to 2004-2005. After that it fluctuates from 2095.39 crores to 6712.50 crores for the financial year 2005-2006 to 2011-2012.

The Cash Flow Return on Investment of Ashok Leyland is increasing from 1.59% to 3.09% for the year 2003-2004 to 2005-2006. After that it decreases from the 7.78% to 4.43% for the year from 2006- 2007 to 2008-2009. Again It is increasing from 4.91% to 9.64% for the year from 2010-2011 to 2011-2012. In general it shows that the cash flow has been increased in these years. From the study it is found that the total shareholders return of TATA Motors is very higher in the years 2003-2004 and 2005-2006 by 212.5% and 125.2% correspondingly. But in the years 2004-2005 and 2011-2012 the TSR is negative. During the year 2005-2006 to 20092010 TSR shows the decreasing trend. It shows that the end market value of shares is lesser than the beginning market value in the years where the TST is Negative. From the analysis it is found that the total business return of Ashok Leyland is positive only in the years 2003-2004, 2005-2006and 2009-2010 by 1.415, 0.504, and 0.615 correspondingly. Other than that the TBR is negative in all the years. From the analysis it is found that the Market to Book value ratio of the Ashok Leyland is increasing from 1.98 times to 8.18 times from the year 2003-2004 to 2004-2005, it indicate that it is being over priced in the market. After that it fluctuating from 2.50 times to 3.27 times for all the years from 2005-2006 to 2011-2012. Marakon approach is greater than 1.Hence it

infers that the Market value to book value ratio of Ashok Leyland is optimum in all over the study period.

Tata Motors: From the study it is found that Economic value of Tata motors are increasing from 796.73 crores to 1484.34 crores from the financial year 2003-2007. After that It show the negative EVA from the financial year 2008-2009 to 2011- 2012. It indicates that the Net profit may be improved and cost of capital is to be reduced in the future years. The Market Value against the book value of Tata motors is being increased from 64058.7 crores to 216994.8 crores for the financial year 2003-2004 to 2006-2007. After that It is declining from 200082.2 crores to 48167.9 crores for the next two years. From the financial year 2009-2010 to 2011- 2012 it shows the increasing trend. From the study it is found that the Cash Flow Return on Investment of Tata Motors is falling from 1.30% to 0.99% from the year 2003-2007. And it is increasing from 1.07% to 1.40% from the year 2008-2009 to 2009-2010. Again it is diminishing from 1.40% to 0.65% from the year 2010 to 2011. And it is growing from 0.65% to 1.06% from the year 2010-2011 to 20112012. The total shareholders return of Tata Motors is very higher in the years 2003-2004 and 2005-2006 by 212.5% and 125.2% correspondingly. But in the years 2004-2005 and 2011-2012 the TSR is negative. During the year 2005-2006 to 2009-2010 TSR shows the decreasing trend. The TBR of Tata Motors is Positive only in the years 2003-2004, 2005-2006, and 20102011 by 1.926% 1.188 and 0.567 respectively. But in the remaining years the TBR is depressing and variable every year.

Suggestions: For Ashok Leyland: The company may maintain the stable dividend policy and other policies connected to improvement in the financial performance to maintain the good shareholders return every year. The company may increase its free cash flows by improving its sales, so that the company can keep the stable and positive business return. So it may help to maximize the wealth of the shareholders. The company may reduce its cost of capital further by altering its capital structure to get better the economic value of the shareholders. The company may reduce the operating expenses for the higher improvement in operating income in the future years. For Tata Motors: The company may maintain the stable dividend policy and bold decisions which affecting market price of the share to maintain the better shareholders return in the future. The company may improve the cash flows by improving its sales performance, so that the company may obtain the constant and positive return in the future. The company may reduce its cost of capital further by altering its capital structure to improve the economic value of the shareholders. For Investors: Based on the analysis it is clear that the EVA, MVA, CFROI, and Market value to Book Value Ratio is healthier in Ashoke Leyland than the Tata Motors, so the investors may be consider the their investment in Ashoke Leyland for their Maximum Wealth in the future.

Conclusion: As a whole the stock market is sometimes highly volatile. The share price of automobile sector is highly fluctuating; it depends upon the investors how they can make use of this in order to get money which he has invested in shares. Investors should be in a position to analyze the companies for investment in a particular sector to minimize the risk and maximize the return. The investors should analyze the various aspects of a company such as economic value, market value, cash returns to get a good return for the investors money. The studys interpretations will help the investors to take right investment decision in automobile industry.

Balance Sheet Ashok Leyland BSE: 500477 ISIN: INE208A01029 Industry : Auto - LCVs/HCVs Balance Sheet Mar '09 12 mths Sources Of Funds Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Networth Secured Loans Unsecured Loans Total Debt Total Liabilities 133.03 133.03 0.00 0.00 133.03 133.03 0.00 0.00 133.03 133.03 0.00 0.00 266.07 266.07 0.00 0.00 266.07 266.07 0.00 0.00 Mar '10 12 mths Mar '11 12 mths -- in Rs. Cr. -Mar '12 12 mths Mar '13 12 mths NSE: ASHOKLEY

1,976.00 2,190.10 2,523.65 2,632.34 4,189.04 1,364.86 1,333.17 1,306.28 1,313.36 0.00

3,473.89 3,656.30 3,962.96 4,211.77 4,455.11 304.41 788.12 1,272.22 960.43 1,903.46

1,657.57 1,492.33 1,385.97 1,435.10 1,601.36 1,961.98 2,280.45 2,658.19 2,395.53 3,504.82 5,435.87 5,936.75 6,621.15 6,607.30 7,959.93 Mar '09 12 mths Mar '10 12 mths Mar '11 12 mths Mar '12 12 mths Mar '13 12 mths

Application Of Funds Gross Block Less: Accum. Depreciation Net Block Capital Work in Progress Investments Inventories 4,953.27 6,018.63 6,691.89 7,174.30 8,117.64 1,554.16 1,769.07 2,058.10 2,147.77 2,709.45 3,399.11 4,249.56 4,633.79 5,026.53 5,408.19 1,043.19 263.56 619.71 387.82 577.31 562.62

326.15 1,230.00 1,534.48 2,337.63

1,330.01 1,638.24 2,208.90 2,230.63 1,896.02

Sundry Debtors Cash and Bank Balance Total Current Assets Loans and Advances Fixed Deposits Total CA, Loans & Advances Deffered Credit Current Liabilities Provisions Total CL & Provisions Net Current Assets Miscellaneous Expenses Total Assets Contingent Liabilities Book Value (Rs)

957.97 1,022.06 1,185.21 1,230.37 1,419.41 86.93 188.92 179.53 32.56 13.94

2,374.91 2,849.22 3,573.64 3,493.56 3,329.37 819.63 1.15 928.31 330.01 787.17 1,302.48 1,458.89 0.00 0.00 0.00

3,195.69 4,107.54 4,360.81 4,796.04 4,788.26 0.00 0.00 0.00 0.00 0.00

2,207.29 3,002.68 3,505.26 4,837.41 4,749.58 268.08 368.69 490.33 496.94 387.20

2,475.37 3,371.37 3,995.59 5,334.35 5,136.78 720.32 9.69 736.17 5.17 365.22 4.31 -538.31 7.31 -348.52 0.00

5,435.87 5,936.76 6,621.14 6,607.32 7,959.92 754.37 15.85 445.03 17.46 881.77 19.97 985.92 10.89 320.70 16.74

Tata Motors BSE: 500570 ISIN: INE155A01022 Industry : Auto - LCVs/HCVs Balance Sheet Mar '09 12 mths Sources Of Funds Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves 514.05 514.05 0.00 0.00 570.60 570.60 0.00 0.00 637.71 637.71 0.00 0.00 634.75 634.75 0.00 0.00 638.07 638.07 0.00 0.00 Mar '10 12 mths Mar '11 12 mths -- in Rs. Cr. -Mar '12 12 mths Mar '13 12 mths NSE: TATAMOTORS

11,855.15 14,208.55 19,375.59 18,991.26 18,496.77

Revaluation Reserves Networth Secured Loans Unsecured Loans Total Debt Total Liabilities

25.07

24.63

0.00

0.00

0.00

12,394.27 14,803.78 20,013.30 19,626.01 19,134.84 5,251.65 7,913.91 7,742.60 8,883.31 7,708.52 6,929.67 6,915.77 4,095.86 5,877.72 8,390.97

13,165.56 16,625.91 14,638.19 11,011.63 14,268.69 25,559.83 31,429.69 34,651.49 30,637.64 33,403.53 Mar '09 12 mths Mar '10 12 mths Mar '11 12 mths Mar '12 12 mths Mar '13 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 Deffered Credit Current Liabilities Provisions Total CL & Provisions Net Current Assets Miscellaneous Expenses Total Assets Contingent Liabilities Book Value (Rs) 13,905.17 18,416.81 21,002.78 23,676.46 25,190.73 6,259.90 7,212.92 7,585.71 8,656.94 9,734.99

7,645.27 11,203.89 13,417.07 15,019.52 15,455.74 6,954.04 5,232.15 3,799.03 4,036.67 4,752.80

12,968.13 22,336.90 22,624.21 20,493.55 19,934.39 2,229.81 1,555.20 638.17 4,423.18 5,909.75 503.65 2,935.59 2,391.92 612.16 5,939.67 5,248.71 1,141.10 3,891.39 2,602.88 2,428.92 8,923.19 5,426.95 0.00 4,588.23 2,708.32 1,840.96 9,137.51 5,832.03 0.00 4,455.03 1,818.04 462.86 6,735.93 5,305.91 0.00

10,836.58 12,329.48 14,350.14 14,969.54 12,041.84 0.00 0.00 0.00 0.00 0.00

10,968.95 16,909.30 16,271.85 20,280.82 16,580.47 1,877.26 2,763.43 3,267.11 3,600.82 2,200.77

12,846.21 19,672.73 19,538.96 23,881.64 18,781.24 -2,009.63 -7,343.25 -5,188.82 -8,912.10 -6,739.40 2.02 0.00 0.00 0.00 0.00

25,559.83 31,429.69 34,651.49 30,637.64 33,403.53 5,433.07 240.64 3,708.33 19,084.08 15,413.62 14,981.11 259.03 315.36 61.84 59.98

COMPARISON
Current Valuations
TATA MOTORS ASHOK LEYLAND TATA MOTORS/ ASHOK LEYLAND P/E (TTM) P/BV Dividend Yield x x % 9.8 3.0 0.6 -9.9 1.0 3.6 - View Chart 299.8% View Chart 15.7%

Financials

TATA MOTORS Mar-13 High Low Sales per share (Unadj.) Earnings per share (Unadj.) Cash flow per share (Unadj.) Dividends per share (Unadj.) Dividend yield (eoy) Book value per share (Unadj.) Shares outstanding (eoy) Bonus/Rights/Conversions Price / Sales ratio Avg P/E ratio P/CF ratio (eoy) Price / Book Value ratio Dividend payout Avg Mkt Cap No. of employees Total wages/salary Avg. sales/employee Avg. wages/employee Avg. net profit/employee x x x x % Rs m `000 Rs m Rs Th Rs Th Rs Th Rs Rs Rs Rs Rs Rs % Rs m 333 205 591.9 31.0 54.7 2.00 0.7 118.0 3,190.12 BC 0.5 8.7 4.9 2.3 6.4 858,142 62.7 165,841 30,106.8 2,644.3 1,577.4

ASHOK LEYLAND Mar-13 33 20 46.9 1.6 3.1 0.60 2.3 16.7 2,660.67 0.6 16.3 8.7 1.6 36.8 70,508 14.7 10,755 8,509.1 733.2 295.7

TATA MOTORS/ ASHOK LEYLAND 1,009.1% 1,025.0% 1,261.7% 1,902.4% 1,788.1% 333.3% 32.8% 704.6% 119.9% 80.5% 53.4% 56.8% 144.1% 17.5% 1,217.1% 427.6% 1,542.0% 353.8% 360.6% 533.5%

INCOME DATA
Net Sales Rs m 1,888,177 124,812 1,512.8%

Other income Total revenues Gross profit Depreciation Interest Profit before tax Minority Interest Prior Period Items Extraordinary Inc (Exp) Tax Profit after tax Gross profit margin Effective tax rate Net profit margin

Rs m Rs m Rs m Rs m Rs m Rs m Rs m Rs m Rs m Rs m Rs m % % %

8,115 1,896,292 246,611 75,693 35,533 143,500 -837 0 -6,027 37,710 98,926 13.1 26.3 5.2

624 125,436 8,765 3,808 3,769 1,812 0 0 2,896 370 4,337 7.0 20.4 3.5

1,301.5% 1,511.8% 2,813.7% 1,987.8% 942.8% 7,921.6% -208.1% 10,191.9% 2,280.9% 186.0% 128.7% 150.8%

BALANCE SHEET DATA


Current assets Current liabilities Net working cap to sales Current ratio Inventory Days Debtors Days Net fixed assets Share capital "Free" reserves Net worth Long term debt Total assets Interest coverage Debt to equity ratio Sales to assets ratio Return on assets Return on equity Return on capital Exports to sales Rs m Rs m % x Days Days Rs m Rs m Rs m Rs m Rs m Rs m x x x % % % % 740,067 862,859 -6.5 0.9 41 21 694,836 6,381 348,026 376,373 321,101 1,655,975 5.0 0.9 1.1 8.1 26.3 24.7 1.8 42,965 52,961 -8.0 0.8 55 42 59,708 2,661 28,015 44,551 27,378 130,967 1.5 0.6 1.0 6.2 9.7 11.8 11.4 1,722.5% 1,629.2% 81.2% 105.7% 73.1% 51.0% 1,163.7% 239.8% 1,242.3% 844.8% 1,172.8% 1,264.4% 340.3% 138.8% 119.6% 131.2% 270.0% 209.5% 15.9%

Imports to sales Exports (fob) Imports (cif) Fx inflow Fx outflow Net fx

% Rs m Rs m Rs m Rs m Rs m

1.0 34,191 18,883 48,858 32,078 16,780

5.8 14,254 7,230 15,178 11,258 3,920

17.3% 239.9% 261.2% 321.9% 284.9% 428.0%

CASH FLOW
From Operations From Investments From Financial Activity Net Cashflow Rs m Rs m Rs m Rs m 220,622 -234,126 -16,558 -24,842 7,283 -11,643 4,170 -190 3,029.3% 2,010.8% -397.1% 13,047.3%

Share Holding
Indian Promoters Foreign collaborators Indian inst/Mut Fund FIIs ADR/GDR Free float Shareholders Pledged promoter(s) holding % % % % % % % 34.4 0.0 11.4 26.6 19.3 8.4 396,528 6.0 0.0 38.6 13.1 16.9 13.4 17.9 305,787 14.1 87.0% 157.4% 144.0% 46.9% 129.7% 42.2%

LIQUDITITY / SOLVENCY RATIOS S.NO RATIOS 2009-10 1. Current 1.85 Ratio 2. Debt 0.75 Equity Ratio 3. Proprietar 0.52 y Ratio 4. Quick 1.07 Ratio
7 6 5 4 3 2 1 0 Current Ratio Debt Equity Ration Proprietary Ratio

2010-11 1.58 0.48

2011-12 1.53 0.33

2012-13 1.26 0.41

0.61 0.72

0.69 0.54

0.65 0.73

2012-2013 2011-2012 2010-2011 2009-2010

Quick Ratio

TURNOVER RATIO S.NO 1. 2. 3. 4.

RATIOS Inventory Ratio Debtors Capital Fixed Asset Turnover Ratio

2009-10 14.19 11.10 2.44 4.91

2010-11 12.69 13.70 3.17 5.58

2011-12 12.44 17.54 3.34 5.37

2012-13 7.22 19.88 3.36 4.35

70 60 50 40 30 20 10 0 Inventory Ration Debtors Capital Fixed Asset Turnover Ratio 2012-2013 2011-2012 2010-2011 2009-2010

PROFITABILITY RATIOS S.NO 1. 2. 3. 4. RATIOS Operating Ratio Gross Profit Ratio Net Profit Ratio PreTax Profit Margin 2009-10 10.10 8.70 6.40 7.00 2010-11 10.70 8.20 6.20 7.00 2011-12 8.80 8.60 6.10 7.00 2012-13 9.90 8.80 6.80 8.80

45 40 35 30 25 20 15 10 5 0 Operating Ratio Gross Profit Ratio Net Profit Pre tax Profit Margin 2012-2013 2011-2012 2010-2011 2009-2010

INVESTMENT RATIOS S.NO 1. 2. 3. 4. 5. 6. RATIOS Return on CE Return on Investment Return on Net worth EPS DPS Dividend Payout Ratio P / E Ratio Debt Capitalizati on 2009-10 0.18 0.08 0.23 2.28 0.99 0.43 2010-11 0.22 0.09 0.26 2.67 1.3 0.48 2011-12 0.24 0.1 0.23 3.33 1.49 0.45 2012-13 0.24 0.14 0.22 3.53 1.50 0.42

7. 8.

13.15 0.42

19.85 0.32

15.91 0.25

10.86 0.29

70 60 50 40 30 20 10 0 Return on Return on Return on CE Investment Networth EPS DPS Dividend P/E Ratio 2012-2013 2011-2012 2010-2011 2009-2010

ANALYSIS OF RATIOS 1. Current ratio Higher this ratio better for the Company, it reflects the Company's ability to pay off its Current Liabilities, current ratio for Ashok Leyland has been more than 1 over the years. It shows that its current assets are more than its current liabilities. But over the years this ratio has been declining which means there is an increase in the current liabilities that is causing this ratio to decrease, in order to maintain stability in its operations the company needs to maintain its Current ratio as per industry standards which is 2:1.

2. Proprietary ratio The Proprietary ratio is ideal since its a manufacturing unit company which is showing an upward trend over the period of four years, the company's most of the Assets have been financed by the proprietor itself, which means more satisfaction for lenders and creditors.

3. Debt equity Ratio Lower the ratio better for the Company; the Company has a strong Equity and Long term financial position which is clearly reflected over the past four years, hence higher degree of protection enjoyed by the lenders.

4. Operating profit Over the Years the Operating profit of the Company has remain stable (except for the year 2007-08 where it declined) which indicates the operational efficiency of the management as against the net profit which reveals only overall efficiency

5. Net profit Ratio Over the years the Net profit of the Company has remain consistent indicating stability in profitability and efficiency of the business, In General terms higher this ratio better for the Business .

6. Return on Net worth An Important Profitability Metrics. Over the years the Net worth of the company has been showing an Increasing trend which Indicates that the company has been generating Cash Internally and reinvesting the investor Capital quite effectively.

7. Earnings per Share & Dividend per Share The Company EPS and DPS has been showing an Increasing trend Year by Year which Indicates Company's profitability and more return to its Share holder.

8. Dividend Payout ratio The Company's Dividend Payout ratio has been slightly on the Higher note, which reflects that the Company is matured as the major portion of its earnings are given to shareholders in the form of dividends.

9. Price Earnings ratio The Investors have been showing confidence in the company stocks as it is on the higher note even though it has been fluctuating due to market sentiments , Also the market has high hopes on its Stock Future and ready to bid up the price for its stocks

10. Inventory turnover ratioFor the last two years the management has been efficient in managing the Inventories of the company and converting the stock into Sales quickly.

11. Debtors turnover ratioThe Company is not Offering Lenient payment terms which is clearly reflected over the years, since this ratio is on the higher note, the debts are been collected quickly and more Cash is there in hand for the Company indicating the Efficiency of the Company.

12. Return on Capital Employed-

Starting of with the Good ROCE, there has been sharp Decline in the ROCE of the company but later it has recovered and the company has been efficiently utilizing its available resources to generate Revenue, the Company has been continuously increasing its investments in fixed Assets (Taking MONEY to Make MONEY). 13. Return on Investment The Company' s ROI has a Direct relationship with the ROCE since both the ratios had been on the higher note indicating the overall performance and Efficiency of the Company

14. Interest Coverage RatioThe Company has not been finding difficulties in paying Interest on its Outstanding Debt, which means that the company has sufficient revenues to satisfy its Interest Payment Obligations( The Standard Interest coverage ratio should be above 1 as per Industry standards)

15. Debt CapitalizationThe Debt Structure of the Company has been fluctuating over the years, about 32 % to 42% of the Company's Total Capitalization is comprised of Long term Debt (Secured and Unsecured). 16. Capital turnover The Company has been efficiently utilizing its capital and turns it into Sales, the companys Capital turnover has been showing an increasing trend for past 4 years and leading to higher profitability of the company.

RATIO CALCULATION

LIQUDITY / SOLVENCY RATIO Current ratio = Current Asset / Current Liabilities = 28752.56 / 22719.40 = 1.26

Debt Equity Ratio = Debt / Equity = 8875.01 / 21489.82 = 0.41

Proprietary Ratio = Share Holders Fund / Total Asset = 21489.82 / 32903.03 = 0.65

Quick Ratio = Liquid Asset / Liquid Liability = 16513.42 / 22719.40 = 0.73

TURNOVER / ACTIVITY RATIOS Inventory = COGS / Average Stock = 82828.03 / 11471.18 = 7.22

Debtors = Total Sales / Average Debtors = 89336.90 / 4493.55 = 19.88

Capital = Sales / Capital Employed = 89336.90 / 26581.11

= 3.36

Fixed Asset = Sales / Fixed Assets = 89336.90 / 20547.95 = 4.85

PROFITABILITY RATIOS Operating Profit = Operating Profit / Net Sales = 6314.11 / 71861.76 = 9.90

Gross Profit = Gross Profit / Net Sales = 6508.87 / 77291.23 = 8.80

Net Profit = Net Profit / Net Sales = 4693.10 / 77291.23 = 6.60

Pre Tax Profit = Pre Tax profit / Net Sales = 6381.50 / 77291.23 = 8.80

INVERSTMENTS RATIOS Return On CE = PBITD / Capital Employed = 6508.87 / 26581.11 = 0.24

Return On Investments = PAT / Total Assets = 4693.10 / 32903.03 =0.14

Return On Net Worth = Net Profit / Share Holders Fund = 4693.10 / 21489.82 = 1.22

EPS = AS PER BALANCE SHEET = 3.53 Dividend Per Share = Dividend / No Of Equity Share = 19997.71 / 1330.54 = 1.50

Dividend Payout = DPS / EPS = 1.50 / 3.53 = 0.42

P / E Ratio = Market Price / EPS = 38.35 / 3.53 = 10.86

Debt Capitalization = Long Term Debt / Long Term Debt + sh.eq = 8875.01 / 30364.83 = 0.29