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Trend Analysis - Hero MotoCorp Ltd
Equity and Liability

There was exceptional surge in non current liability in year 2011. The company collected cash
through borrowing for one time payment to Honda for its share during seperation .
The equity for the company is increasing and liabilities (current and non current ) are
decreasing. This trend shows good trend for the company.

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Assets

The current asset is increasing, due to the increase in demand. The increase in current asset is
more than the increase in the fixed asset.
It means the spread of fixed asset is increasing, which will result in the scale of economies.
However, it can also be due to the poor management of working capital.

It may be because of three reasons. Competition is increasing and hence the expense for selling is increasing at much faster rate. .3 Revenue & Expense The expense is increasing faster than revenue. The raw material cost is increasing 3. 1. Inefficiency in operation is increasing The actual reason has to be analysed further. 2.

and the company needs to keep increasing its revenue.e. in spite of increase in revenue. . selling expense and low marked up price due to increase in the competition. it means to maintain the same PAT. As the expenses are also on increasing trend due to increase in cost of raw material.4 Profit before tax & Profit after tax The bottom line is i. Profit after Tax (PAT) is almost at the same level.

The sudden drop in equity % in FY 2011 was due to its separation from Honda company. However company has not only regained its status but surpassed it (55% equity) . It reflects improvement in financial health of the company.5 Common Financial Statement – Hero Motocorp Ltd. Equity and Liability We can clearly see that the equity % of the company is on increasing trend.

6 Total Assets The ratio of current asset is increasing over noncurrent asset. . This phenomenon can be due to economies of scale (due to higher spread of fixed asset). It means the liquidity of company is increasing.

. Increase in SGA in the company is increasing consistently mainly due to Hero brand establishment after separation with Honda. it shows that company is improving its efficiency.7 Profit & Loss COGS (Cost of goods sold) has increased from FY 2010 to FY 2012. The profitability is shrinking mainly due to increase in SGA and depreciation. after this it has reducing trend. Increase in depreciation is mainly due to increase in fixed assets resulting from company’s expansion.

8 Cash Flow Analysis Net cash from operating activity took a dip from FY 2010 to FY 2013. however it increased in FY 2014. . The sudden increase can be resulted from sustained cost efficiency and decrease in Honda royalty. The consistent increase in investing activity is reflection of company’s global expansion.

9 Financial Ratios Liquidity and Solvency Ratios Liquidity It is the ability of a business to meet its short-term obligations when they fall due. yet it is in improving trend Quick ratio It relates more liquid current assets (by removing inventory into current assets). Though it is less than 1 which is unfavorable to pay current liabilities. Current ratio It is an indicator of a Company’s ability to pay its obligation in short-term Comment:-Lowest in 2011 due to one time payment to M/S Honda during separation from joint venture. .

Though it is less than 1 which is unfavorable to pay current liabilities.Lowest in 2011 due to one time payment to M/S Honda during separation from joint venture.term solvency is affected by the extent of debt used to finance its assets. Debt is more risky than equity Debt-to-equity ratio It indicates the extent of use of financial leverage.10 Comment:. yet it is in improving trend Solvency Company’s long.It is good that Company does not has borrowing/debt at all across the years Debt Coverage Ratios Interest cover It indicates protection available to the creditors for the payment of interest charges by the Company . High ratio means aggressive use of leverage Low ratio indicates small degree of leverage and is too conservative Comments: Highest in 2011 due to one time payment (through borrowing)to M/S Honda during separation from joint venture .

Investment in inventory represents idle cash Comment:-Highest in 2011 and now in decreasing trend which indicates good inventory management along with associated expenses in the Company .it is at steady state with 200 times and very good interest paying ability Management Efficiency ratios: Inventory Turnover Ratio It is number of times a Company’s inventories are turned into sales.11 Comment:.Highest in the year 2010 and from 2011 .

12 Debtors Turnover Ratio It measures the efficacy of a firm’s credit policy and collection mechanism and shows the number of times each year the receivables are turned into cash Comment:-Sustained throughout the years and it seems that credit policy is not changed in the last five years Fixed Asset Turnover Ratio Its measures Firm’s efficiency in utilizing its fixed assets Asset Turnover Ratio Its measures Firm’s efficiency in utilizing its assets. It indicates how many times the asset were turned over in a period in order to generate sales .

profits and cash flows relative to relative to some metric.13 Profitability Ratio: Profitability ratios measure a company’s ability to generate earnings relative to sales. return on capital employed (ROCE). These ratios assess the ability of a company to generate earnings. They highlight how effectively the profitability of a company is being managed Common examples of profitability ratios include Operating Profit Margin . return on equity. often the amount of money invested.5% to 8% due to increases in depreciation cost and increases in CGA over the years . Hero Motocorp Ltd PAT decreases from 13.It is mainly because of establishment of Brand HERO and increase in investment for Gloabal Expansion. assets and equity. .PAT.

TVS) . Bajaj vs.14 Comparative study (Hero vs.

6 100.2 62.6 67.4 4.3 10.9 4.9 91.1 8.7 Total Expenses 71.9 1.15 2014 HERO BAJAJ TVS I Revenue from operations (a) Gross sales of products (b) Other operating revenue Net revenue from operations Net revenue from operations Other income 100.0 III Total Revenue (I + II) 100.8 84.8 94.3 93.2 3.1 VII Profit for the year (V-VI) 22.0 97.6 69.0 92.8 68.6 7.IV) 29.0 0.6 1.0 3.5 97.4 100.0 2.4 3.8 3.7 93.5 1.0 67.1 97.6 88.7 14.9 95.6 93.6 4.0 3.4 0.0 21.4 V Profit before tax (III .6 93.9 2.3 1.2 92.3 .0 3.4 100.2 97.5 IV Expenses: (a) Cost of materials consumed (c) Employee benefits expenses (d) Finance costs e) Depreciation and amortization expenses (f) Other expenses Liquidity and Solvency Ratios: Comparative Graph of Three Companies are shown from 2014 to 2010 91.5 0.8 6.0 0.0 0.1 9.9 88.3 73.0 0.4 8.3 0.6 2013 HERO BAJAJ TVS 100.5 62.1 0.3 100.1 27.3 1.9 6.0 2.5 15.5 0.3 84.0 3.2 0.1 9.7 100.

.16 Current ratio Comment:-It is lowest in case of Hero MotoCorp as compared to others. Bajaj and TVS are having similar trend Quick ratio/Acid Test Ratio Comment:-It is highest in case of Bajaj .Hero MotoCorp and the TVS have comparable ratio in 2014.

17 Debt-to-equity ratio Comment:There is no debt in recent years for Hero MotoCorp and Bajaj(good capital management) TVS has more debt which is unfavorable condition for the Company.TVS might be using borrowings in making investment Debt Coverage Ratios Interest Cover .

TVS has very low interest coverage ratio.Because Hero and Bajaj has almost zero debt over Years. .18 Comment:-Good interest coverage position in each company with highest in Bajaj Interest Coverage ratio very high for Bajaj And Hero ie greater than 1000 compare to TVS 5.

Management Efficiency ratios: Mangement Effiecieny ratio are presented of three company from year 2014 to 2010 From Below graph it is clearly seen that HERO outperform other two company Inventory Turnover Ratio Comment:-It is highest in case of Hero MotoCorp . TVS has very high Debt to owner fund however TVS reduces Debt from 3 to 1 in recent years .19 Bajaj and Hero Has Debt in 2010 but now they become almost Debt free.

Similar trends in each company .20 Debtors Turnover Ratio Comment:-Similar trends in each company Fixed Assets Turnover Ratio Comment:.

21 Asset Turnover Ratio Comment:-Good maintenance of assets in each compnay. Well efficient asset management by TVS Profitability Ratio: .

22 Hero MotoCorp Ltd. .

18 18.17 10.41 Operating Profit Margin(%) Return On Net Worth(%) BAJAJ AUTO LTD Operating Profit Margin(%) 20.86 58.22 15.45 Net Profit Margin(%) 2.64 Cash Profit Margin(%) 16.12 3.9 4.21 2.29 Cash Profit Margin(%) 3.5 13.47 19.03 3.46 13.59 .99 Net Profit Margin(%) 16.6 3.27 Return On Net Worth(%) 33.78 1.97 15.91 6.19 18.8 Gross Profit Margin(%) 19.2 16.41 16.03 15.08 20.3 Gross Profit Margin(%) 4.33 16.94 0.66 42.76 10.07 71.4 17.81 5.61 18.81 11.93 19.69 TVS MOTORS LTD Operating Profit Margin(%) 5.43 65.18 4.36 14 Net Profit Margin(%) 8.56 11.11 Cash Profit Margin(%) 12.05 0.72 Return On Net Worth(%) 16.84 50.04 9.89 14 37.19 8.31 55.05 2.08 18.04 22.62 9.71 17.24 18.23 14 13.04 15.72 3.21 64.32 Gross Profit Margin(%) 9.54 4.66 1.36 18.76 5.24 38.45 13.64 13.39 15.22 20.13 3.

Hero Depreciation cost is around 4 and BAJAJ has 0.It is very Low for TVS Motors Company Due To High SGA. Return of Net Worth is increasing due to improvement in PAT but it is not comparable to other two automotive. HERO profitability is likely to increase as the export demand will increase with increasing Global Expansion.24 Operating Profit is worse for TVS Motors Ltd and Best for Bajaj Auto ltd. On above three Bajaj Auto Ltd outperform Hero and TVS in terms of Profitability ratio. It is medium range for Hero Motocorp Ltd due to increase in SGA and Fixed asset depreciation cost. . Profitability of Bajaj is also high due to greater share in Export Market . Bajaj Auto Ltd has very PAT ie around 16 compare to HERO‘s 8 and TVS ‘s 3. It is because of very low SGA and Depreciation cost compare to HERO .On other hand Hero has high depreciation cost due to High investment and going Global.8. It means Bajaj is not investing too much . Its Return on Net Worth is decreased due to decrease in PAT and greater competition in Automotive Sector. .Also SGA cost is very low for Bajaj Auto Ltd.Due to this TVS motors has very Low PAT. Depreciation is increasing due to increase in Fixed Asset and continued investments. SGA for Hero Motocorp Ltd increases due to separation with joint venture with Honda Motors Ltd and establishment for brand of HERO.

25 Summary of Performance(1 to 3. 1 being best) HERO BAJAJ TVS 2 1 3 2 1 3 3 2 1 1 2 3 Total Assets 1 2 3 Sales EBITDA 1 2 2 1 3 3 Net Income 2 1 3 Profitability (ROE%) Margins (EBDIT/Sales) Liquidity (current ratio) Asset Management (sales/assets) Growth Rates Final Comments .

Global Parts Center etc. Its Its sale has been improving .TVS market share is 12.Its is far ahead of other rivals.Its debt to equity ratio is also poor compare to rivals however it has been improved in recent years. Bajaj Auto makes mobikes and three-wheelers. In effect. Major concern for Bajaj Auto is to maintain its market share and sales volume which is in decline trend .and establish HERO brand its PAT has been decreases in recent years That will improve its profitability in near future .75 million two wheeler in 2013-14.26 Hero Is market Leader In Two-Wheeler and Scooter Market which is aspire to become Global Company . Its major concern area is Profitability which is quite low ie at 3 % compare to other two rivals. Currently its market share is 41. Its is mainly because of Global presence and low depreciation and SGA cost.1 million twowheelers in previous year and 2. This is due to Low Asset Turnover Ratio and very High SGA cost .Its Asset Management ratio is far excellent than other two company.5 % and very large volume of ie 6.Honda and TVS. making both motorbikes and scooters. R & D .So TVS to work on increasing Profitability ratio.2 million in first quarter. which are a completely different market. . Bajaj Auto makes only one product in two-wheelers . Bajaj Auto has been excellent in Profitability .In current quarter it position is at 4 behind Hero .with power as its brand value. TVS Motors are full-line producers.7 % and sold 1. and it has no product in Scooter Segment which is currently fast growing market.Due to this it is investing heavily on New Plants.