PROJECT OF FINANCIAL MANAGEMENT

ROYAL ENFIELD

Royal Enfield motorcycles had been sold in India since 1949. In 1965, the Indian government
looked for a suitable motorcycle for its police and army, for use patrolling the country's
border. The Bullet was chosen as the most suitable bike for the job. The Indian government
ordered 800 350-cc model Bullets, an enormous order for the time. In 1955, the Redditch
company joined Madras Motors in India in forming "Enfield India" to assemble, under
licence, the 350 cc Royal Enfield Bullet motorcycle in Madras (now called Chennai). Under
Indian law, Madras Motors owned the majority (over 50%) of shares in the company. In 1957
tooling equipment was sold to Enfield India so that they could manufacture components.
Royal Enfield India manufactures and sells in India, and also exports to Europe as well as
the Americas South Africa and Australia. They recently entered the Indonesian
market. Recently Royal Enfield has undergone a major retooling particularly in the engine
department going from carburated cast-iron engines to twin spark unit construction engines
on all its models, with EFI available on their flagship 500 cc model. This retooling has
sparked such an interest in these bikes that they have started double shifts at the plants.
In August 2015, Royal Enfield Motors announced it is establishing its North American
headquarters and a dealership in Milwaukee, Wisconsin, with the intention to offer three
bikes, the Bullet 500 , Classic 500 and Continental GT 535 Cafe Racer as they feel this
engine size represents an underserved market. The dealership will be Royal Enfield's first
company-owned store in the U.S., according to Rod Copes, president of Royal Enfield North
America. The company wants to establish about 100 dealerships in American cities starting
with Milwaukee.

CAPITAL STRUCTURE AS ON 31ST MARCH 2015:

Shareholding Pattern as on December 31, 2014

Category

No. of Shares

Promoters

1,49,03,030

Institutional Investors

65,49,717

Percentage (%)
54.98
24.16

Body Corporates

3,64,214

1.34

Individuals

52,87,822

19.52

2,71,04,783

100.00

Total

Different kind of Financing Sources used by company:

Equity Shares:
No. Of No.
Of
Equity Sharehold
shares
ers
held

Percentag No. Of
e
of Shares
Sharehold
ers

Percentage
of
Shareholdi
ng

1-500
501-1000
10012000
20013000
30014000
40015000
500110000
1000150000
50001100000
100001
and
above
Total

39711
391
167

97.81
0.96
0.41

1990629
288298
246158

7.34
1.06
0.91

70

0.17

173817

0.64

29

0.07

103973

0.38

20

0.05

89802

0.33

76

0.19

562394

2.07

98

0.24

2306004

8.51

19

0.05

1267774

4.68

20

0.05

2007593
4

74.08

40601

100.00

2710478
3

100.00

The above table clearly explains the use of equity by the company.

Debt:
The company is not using any amount of debt. It stopped using any amount of debt from the
year 2010. It worked only on its equity and borrowings.
The different points which can be made for the company not using any debt can be:
Advantages:
1. It has high possibilities of having future financial help in the form of debt.

2. It has less liability.

3. It sounds financially strong.
Disadvantages:
1. It can be said that company is not using the financial sources available.
2. The company is not aggressive in approach.

Borrowings:
Short term borrowing: The company has a short term borrowing of Rs. 58.36 cr. It doesnt
has any long term borrowings. This also leads to the same conclusion that the company is
financially strong so as to not avail the benefit of long term borrowings.

Financial Terms and Ratios:

Year
EPS (Rs)
EBIT (Rs cr)
SALES (Rs
cr)
% EPS
% EBIT
% SALES

2014
206.21
849.86
3031.22

2013
103.04
393.83
1702.47

2012
53.61
191.21
1049.26

2011
46.14
156.87
671.45

2010
28.01
99.85
488.32

100.12
115.79
78.04

92.22
105.96
62.25

15.51
21.89
56.26

64.72
57.10
37.50

-5.49
74.26
18.69

DFL
DOL
DCL

.86
1.48
1.27

.87
1.70
1.47

.70
.38
.26

1.13
1.52
1.71

-0.07
3.97
-.27

2013
-

2012
0.03

2011
0.03

2010
0.04

Key financial ratios:

Year
2014
Debt Equity ratio

Return
on
equity
Return
on
Investment
Interest
coverage
ratio
Debt Service
coverage
ratio

24.5

19.2

18.5

20.7

15.3

455.14

303.76

232.97

200.07

169.53

478.86

1346.00

669.46

57.51

27.77

0.03

0.03

0.04

Interpretation to the Financial Ratios:

Debt Equity Ratio:
It shows whether the company is using the financial leverage in a proper manner or not. In
case of Royal Enfield it kept on decreasing over the years and finally came out to be zero
which signifies that the company is very much conservative in approach and also that it has a
huge scope of borrowing funds in future from market.

Return On Equity Ratio:

It show whether the company is able to tap the market opportunities in a proper manner or
not. In case of Royal Enfield it kept on increasing else than the year 2011 which means that
the company is able to tap the market opportunities and is performing in a well manner.

Return On Investment Ratio:

It shows the degree upto which the company is able to generate return on its investment. It
kept on increasing throughout the year which signifies that company is performing well and
the reason can be increase in sales.

Interest Coverage Ratio:

It shows whether the company has adequate safety for the payment of its interest or not. In
case of Royal Enfield it kept on increasing else than the year 2014 which shows that there
was some lineancy in maintaining adequate safety in the year and should be chalked upon.

Debt Service Coverage Ratio:

It shows the amount of cash present to pay out the debt of the company. In case of Royal
Enfield it kept on decreasing and finally arrived to zero as the debt component also came to
zero.

Link between the Financial and Operating Leverage of company:

DFL
DOL

.86
1.48

.87
1.70

.70
.38

1.13
1.52

-0.07
3.97

As we tried to find out the link between the financial leverage and operating leverage of
Royal Enfield by running correlation in the excel, it came out to be negative. It was found to
be -0.77504 which shows weak negative correlation.

Debt component relative to the sector:

The average for the two wheeler sector is 0.05 and that in the case of Royal Enfield is 0 and
this is because of no debt of the company. From the year 2010 it kept on decreasing and
moving away from the sectors average. The disadvantages and advantages of the fact the
company not using debt component is discussed above in the project.