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Critical Financial Performance Analysis of

Hindustan Aeronautics Limited

Under the Guidance of SUBMITTED BY:

Dr. PriyankaSrivastava Shrasti Gupta
Department of Management Roll No.: 1512270114

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This is certify that the project entitled..

Submitted by .. [Univ. Roll No...] and

in the partial fulfillment of the requirements for the award of the degree of Master of

Business Administration of Dr. A. P. J. Abdul Kalam Technical University, is a record

of my own work carried under the supervision and guidance. The Project report

embodies results of original work and the study carried out by the student and the

contents do not form the basis for the award of any other degree to the candidate or to

anybody else.

Dr. PriyankaSrivastava Dr. Pragati Malik

(Project Guide) Prof & HOD

(Department of Management) (Department of Management)

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I hereby declare that the Research Report entitled

.. submitted by me in the partial fulfillment

of the requirements for the award of the degree of Master of Business Administration

of Dr. A. P. J. Abdul Kalam Technical University, is a record of my own work carried

under the supervision and guidance of


To the best of my knowledge this project has earlier not been submitted to Dr. A. P. J

ABDUL KALAM Technical University or any other University or Institute for the

award of any degree.

Name of Student.
Univ. Roll. No...

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The research project program is the integral part of MBA curriculum during the

course of management; the research is expected to use and apply their academic

knowledge and gain a valuable insight into corporate culture with all its environment

operational complexities.

The research offers a valuable opportunity to the researcher to meet their academic

knowledge to the real world situation. I have undertaken commercial department to

study about the various activities Critical Financial Performance Analysis of

Hindustan Aeronautics Limited

In this report I have put my finest efforts to compile the data with utmost accuracy

and hope this report will give complete satisfaction regarding the various aspects of

Human resource Management.

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Table of Content

1. Introduction 1

2. Literature Review 17

3. Company Profile 24

4. Research Objectives 33

5. Research Methodology 35

6. Use and Importance of the study 38

7. Data Analysis & Interpretation 41

8. Findings 65

9. Suggestions 69

10. Conclusion 71

11. Limitation 73

12. Bibliography 75

13. Annexure 77

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Hindustan Aeronautics Limited (HAL) undertakes maintenance, repair,

overhaul and manufacture of aircraft, aero engines and their accessories which
are in the inventory of Indian Defence Forces. It is one of the very important
Defence Public Sector Undertaking which supports the Indian Defence Services
in maintaining their assets.

This project has been undertaken to analyse the financial ratios of Hindustan
Aeronautics Limited. A total of 21 critical ratios have been calculated by using
the data available from the annual reports of Hindustan Aeronautics Limited
from the period 2010-11 to 2014-15. These ratios have been calculated and
analyzed to verify the liquidity position, long-term solvency, operational
efficiency and profitability of the firm. A ranking analysis of nine identified key
financial parameters has also been carried out to ascertain the best performing
year in the five years that are being studied. Using the Kendalls coefficient of
concordance (W) and applying Chi-square (2) test, examination of any
uniformity among the identified key financial performance indicators of HAL
during the period of study has also been carried out. A students paired t-test is
also carried out on the mean values of the financial parameters for the periods
2010-2012 and 2012-2014, i.e, for the first half and the second half of the
period of study, to ascertain any statistical difference in the performance of the
company during the two period.

The project uses two strategic frameworks of SWOT and PESTLE analysis on
the firm. The Strength, Weakness, Opportunities and Threat analysis of HAL
under the prevailing scenario in the country has been carried out. The six factors

of PESTLE, viz., Political, Economic, Social, Technological, Legal and
Environmental have been analyzed.

HAL is one of the important public sector enterprises in the country which has
contributed effectively to the Indian Defence Services. With the advances in
technology and the increased threat perception in the country, it has an
important and a larger role to play in the defence of the country.
Aviation industry refers to the industries and organizations, engaged in the
various aspects of aviation, such as airlines manufacturing, airlines flying,
operation, maintenance, ground handling, training centres, airports and
regulatory bodies. India has a long history in the field of aviation. There has
been a remarkable growth in the field of both civil and military aviation sector.
Both in respect of speed and carrying capacity modern aircraft are far superior
to those in use even a decade ago. The volume of air traffic, both in terms of
passenger and cargo, is also increasing day by day. India is presently among the
top 10 civil aviation markets in the world. The airlines industry of India served
over 190 million customers in 2015. According to several experts, India is
poised to become one of the top three civil aviation markets by 2020 and the
largest by 2030.

1.1 Indian Civil Aviation Industry

The Civil Aviation industry has ushered in a new era of expansion, driven by
factors such as low-cost carriers (LCCs), modern airports, Foreign Direct
Investment (FDI) in domestic airlines, advanced information technology (IT)
interventions and growing emphasis on regional connectivity. India is the ninth-
largest civil aviation market in the world, with a market size of around US$ 16
billion. In January 2016, domestic air passenger traffic rose 23 per cent to 7.66
million from 6.25 million during the same month of last year. Passenger traffic
during the January-December 2015 increased at a rate of 20.3 per cent to 81.1
million from 67.4 million in the corresponding period a year ago. India is
among the five fastest-growing aviation markets globally with 275 million new
passengers. The airlines operating in India are projected to record a collective
operating profit of Rs 8,100 crore (US$ 1.29 billion) in fiscal year 2016,
according to CRISIL Ltd.

According to data released by the Department of Industrial Policy and

Promotion (DIPP), FDI inflows in air transport (including air freight) between
April 2000 and December 2015 stood at US$ 612.53 million. Key investments
and developments in Indias aviation industry include:

Auto components maker Bharat Forge Ltd (BFL), the flagship company
of the US$ 3 billion Kalyani Group, has formalised agreement with Rolls-Royce
Plc, under which BFL will supply critical and high integrity forged and
machined components for a range of aero engines.

Boeing, has outlined the companys long term commitment to investing

in India in terms of funds as well as skills, capabilities, infrastructure and
partnerships so as to help the aerospace sector build capacity and become one of
the drivers of the Indian economy.

The Ministry of Civil Aviation has signed Memorandum of

Understanding (MoU) with Finland, Kazakhstan, Kenya, Sweden, Norway,
Denmark, Oman and Ethiopia for increased co-operation between the countries
in terms of additional seats, sharing of airlines codes, increased frequencies and

additional points of call, during the International Civil Aviation Negotiations
(ICAN),2015 held in Antalya, Turkey.

Tata Advanced Systems (TASL) has signed a joint venture with

American aircraft manufacturing major, Boeing, to establish a centre of
excellence for manufacturing aero structures for Apache helicopter initially and
collaborate on integrated systems development opportunities in India in the long

US-based aircraft manufacturer Boeing plans to assemble one of its two

helicopters namely, Chinook (heavy-lift) or Apache (attack type) in India, thus
becoming yet another global company to invest in India encouraged by the
Make in India campaign.

Airbus SAS, one of the top two aircraft manufacturers in the world,
plans to open aircraft maintenance and repair overhaul (MRO) facility in India.
Airbus, the worlds leading aircraft maker, expects Indias aviation industry to
grow at over 10 per cent annually in the next decade, almost double the average
growth rate of the global aviation industry.

Eyeing large orders from Indian airlines, Airbus has committed to

source products worth US$ 2 billion cumulatively over the next five years from
India; the company plans to provide customised maintenance and other services
closer to the base for all its airline customers in India.

French drone-maker LH Aviation signed a Memorandum of

Understanding (MoU) with Indias OIS Advanced Technologies on June 19,
2015 to manufacture tactical drones in India through an industrial license.
1.2 Indian Military Aviation Market

India ranks among the top 10 countries in the world in terms of military
expenditure and is one of the largest importers of conventional defence
equipment as it strives to modernize its forces and replace obsolete equipment.
The Indian Air Force accounts for the largest share of the defence capital budget
5.54 billion USD in FY2012-13, which represents approximately 15% of the
total defence allocation.

However, trends in the developed nations like the US and European countries
show a reduction in their defence expenditure by as much as 500 billion USD
for the next 10 years. These trends have not deterred the defence spending in the
Asia-Pacific region with a major chunk of the budget being pumped into the
military aviation sector.

The Indian Air Force is the fourth largest Air Force in the World. The military
aviation has embarked upon a modernization journey especially with the IAF
completing the first phase of the 15-year plan which commenced in 2006. A
total of 65 billion USD worth of assets are expected to be procured over the 15-
year period. In addition to hi-tech fighter aircraft, the IAF is also completely
revamping its transport and surveillance fleet. The defence services are poised
to induct over 800 rotary wing aircraft in the coming decade, some of them
being built indigenously. Indias some of the big ticket procurements are listed
at Table 1.1.

Prior to 2001, the aerospace and defence industry was exclusively reserved for
Defence Public Sector Undertakings (DPSUs) which have grown tremendously,
in part because of the protection, but in large measure by developing and
acquiring new technologies and by entering into the manufacture of indigenous
aircraft. In 2001, the Govt allowed 100% domestic private investment in the
defence sector upon obtaining an industrial licence and FDI up to 49% with
conditions. New players are aggressively building capabilities and their
attractiveness for potential Tier I and Tier II supplier partnerships. Leading
OEMs have not only established their presence but are actively starting to
participate in programmes of the Indian Government and even forming joint
ventures with the Indian companies. Some of the Indian players in the Aviation
sector include Hindustan Aeronautics Limited, Bharat Electronics Limited,
Larsen & Toubro, Tata Advance Systems Limited, etc.

Table 1.1
Category Potential Spending Main Orders Expected
($ billion)
Combat Aircraft 26.3 Medium multi role combat aircraft (MMRCA)
and other fifth generation fighter aircraft
(FGFA), Mirage Upgrade, MiG-29 upgrade,
Jaguar Engine Upgrade, Basic Trainer
Support 15.8 Transport aircraft, Aerial Tankers, Long Range
Maritime Patrol Aircraft, Midrange Maritime
Reconnaissance aircraft, Phalcon Airborne
Warning and Control System (AWACS), mini
Rotary 9.1 Light utility helicopters replacing Chetaks for
Navy, multirole helicopters for Navy, attack,
heavy lift, light utility, light combat

Source: McKinsey & company

1.3 An Overview of Hindustan Aeronautics Limited

The Company was initially established as Hindustan Aircraft Company and

incorporated on 23 Dec 1940 at Bangalore by a visionary
ShriWalchandHirachand in association with the Government of Mysore with an
Authorised Capital of Rs.4 crores (Paid up capital Rs.40 lakhs). The aim of the
company was to manufacture aircraft in India. In March 1941, the Government
of India became one of the shareholders in the Company holding 1/3 of its paid-
up capital and subsequently took over its management in 1942. In collaboration
with the Inter-Continental Aircraft Company of USA, Hindustan Aircraft
Company commenced its business of manufacturing of Harlow Trainer, Curtiss
Hawk Fighter and Vultee Bomber Aircraft.

In Dec 1945, the company was placed under the administrative control of Min.
of Industry & Supply. In January 1951, Hindustan Aircraft Private Limited was
placed under the Administrative control of Ministry of Defence.

The Company built aircraft and engines of foreign design under licence, such as
Prentice, Vampire and Gnat aircraft. It also undertook the design and
development of aircraft indigenously. In August 1951, the HT-2 Trainer
aircraft, designed and produced by the company under the able leadership of Dr.
V.M.Ghatge flew for the first time. Nearly 200 Trainers were manufactured and
supplied to the Indian Air Force and other customers. With the gradual building
up of its design capability, the company successfully designed and developed
four other aircraft i.e. two seater 'Pushpak' suitable for flying clubs, 'Krishak'
for Air Observatory Post(AOP) role, HF-24 Jet Fighter '(Marut)' and the HJT-16
Basic Jet Trainer '(Kiran)'.

Meanwhile, in August 1963, Aeronautics India Limited (AIL) was incorporated

as a Company wholly owned by the Government of India to undertake the
manufacture of the MiG-21 aircraft under licence. In June 1964, the Aircraft
Manufacturing Depot which was set up in 1960 as an Air Force unit to produce
the Airframe for the HS-748 transport aircraft was transferred to AIL. Soon
thereafter, the Government decided to amalgamate Hindustan Aircraft Limited,
with AIL so as to conserve resources in the field of aviation where the technical
talent in the country was limited and to enable the activities of all the aircraft
manufacturing units to be planned and co-ordinated in the most efficient and
economical manner.

Amalgamation of the two companies i.e. Hindustan Aircraft Limited and

Aeronautics India Limited was brought about on 1st Oct 1964 by an
Amalgamation order issued by the Government of India and the Company after
the amalgamation was named as "Hindustan Aeronautics Limited (HAL)" with
its principal business being design, development, manufacture, repair and
overhaul of aircraft, helicopter, engines and related systems like avionics,
instruments and accessories.

Growth & Consolidation: In 1970, a separate division was set up exclusively for
manufacture of 'Chetak' and 'Cheetah' Helicopters in Bangalore under licence
from M/s SNIAS, France. A new division was also established to manufacture
aircraft instruments and accessories at Lucknow. Licence agreements were
entered into with M/s Dunlop of U.K. for Wheels and Brakes, Dowty for under
carriages and Hydraulic equipment, and Normal air Garret for cabin air
pressurisation and air-conditioning equipment, Smiths of UK, SFENA and
SFIM of France for panel instruments and Gyros, Martin Baker of UK for
ejection seats and Lucas for engine fuel systems, for fitment on Marut, Kiran,
Ajeet, Chetak, Cheetah and Jaguar. Similar type of arrangements was agreed
with USSR authorities for manufacture of accessories for MiG-21 series of

Design and Development of Basant agricultural aircraft was undertaken

between 1970 and 1974 and design and development of Ajeet, an improved
version of Gnat was undertaken between 1972 and 1980. In 1976 projects were
sanctioned for design & development of the HPT-32 elementary piston engine
trainer, Kiran MK II (an improved version of Kiran MK I / IA) and Ajeet
Trainer as well as for Advanced Light Helicopter.

In 1971, Avionics Design Bureau at Hyderabad was formed for the

development and manufacture of IFF, UHF, HF, Radio components, Radio
Altimeter, Ground Radars etc. During 1973, a Design wing was set up at
Lucknow for design and development of accessories such as under-carriage and
hydraulic systems, air-conditioning and pressurization systems, fuel
control/gauging systems, generator control and protection units, static inverters
etc. In 1979, after seeking a licence agreement with British Aerospace, the
Company started manufacture of 'Jaguar' aircraft and with Rolls Royce-
Turbomeca for Adour engines. Licence agreements were also signed with
different firms for manufacture of Avionics and accessories.

In 1982, the Company entered into an agreement with USSR and started
production of Swing-wing MiG-27M aircraft as a follow on project for MiG-21
BIS at Nasik Division of the Company. During 1982, Korwa Division of HAL
in District Sultanpur (U.P.) was established for manufacture of Inertial
Navigation System (INS), Head Up Display and Weapon Aiming Computer
(HUDWAC), Combined Map and Electronics Display (COMED), Laser Ranger
and Marked Target Seeker (LRMTS), Auto Stabiliser and Flight Data Recorder
for Jaguar and similar advanced systems for MiG-27M.

HAL is actively engaged and is contributing to the space programmes of the

country. A separate Aerospace division was established in 1988. This Division
is dedicated to space programme to meet the growing requirement of Indian
Space Research Organisation.

In order to capture the growing market in the industrial gas turbine engines, a
new Division called the Industrial & Marine Gas Turbine Division, was formed
in 1998. Currently the Division is undertaking Repair and Overhaul work
related with Industrial Avon Engines and Allison 501K and 71K series. In
addition to this manufacture of LM 2500 engine is also being undertaken. The
Division is doing the overhaul of various existing gas turbines in the country,
thus providing cost-effective services to users such as ONGC, GAIL, TNEB,
RSEB etc., for upkeep of their gas turbine.

An independent profit centre for providing Airport related services was created
in May 2000 with a view to synergize the operation of HAL Bangalore Airport.
The main aim of creation of this Airport Service Centre is to restructure the
existing resources to provide focused attention in relation with the exacting
market needs of service segment related to airlines operations and commercially
exploit the available infrastructure of the Company at Bengaluru.

With the signing of agreement with Russian partners to take up licence
manufacture of SUKHOI 30 MKI Aircraft the Nasik Division which had been
engaged in manufacture & overhaul of MiG series Aircraft and lately upgrade
of MiGBis aircraft, had to be expanded. Accordingly it was decided in
February, 2002 to have two Divisions at Nasik i.e. Aircraft Manufacturing
Division for Su-30 MKI production and Aircraft Overhaul Division for overhaul
and upgrade of existing MiG Series aircraft.

Consequent on decision to manufacture AL 31 FP Engine for SU 30 MK1

Aircraft, under licence from Russian Manufacturer, it was decided to establish a
new Division at Koraput to take up the project in February, 2002. The project
activities under the new Division have accordingly commenced.

In order to facilitate Helicopter Division to dedicate itself exclusively for ALH

manufacture and related activities, the manufacturing and repair / overhaul
activities of Chetak and Cheetah helicopters and their variants were transferred
to the Barrackpore Branch Factory and Barrackpore Division was formed and a
new MRO Division created to carry out ALH Overhaul activities in 2006.

Composites material is being used extensively in aircraft manufacturing for its

low weight. A new Composite Manufacturing Division was formed in Mar 2007
with a dedicated manufacturing facility for composite materials for in-house
projects such as ALH, LCA etc. Facilities Management Division was created in
Dec 2007 for effective and focused attention towards the common services at

In order to boost R & D activities in-house, Mission & Combat System R & D
Center was formed to concentrate on Mission systems, Aircraft upgrades and
technology development in Nov 2008. Additionally, Strategic electronics
Factory at Kasaragod, Kerala, a unit of HAL Hyderabad, was established Nov

The in house development of Light Combat Aircraft (LCA) will give major
boost to the modernization program of our Defence Services. For production of
LCA, a separate Division was established at Bangalore for production of Light
Combat Aircraft in Mar 2014.

R & D Center: The Company has a comprehensive Design organisation in its

divisions. Out of 29 types of aircraft produced so far, 15 have been of
indigenous design. The Company has long experience in design and
manufacture of a diversified range of aircraft and its systems. For further
growth of the Company it was considered necessary for HAL to strengthen its
R&D capability and accordingly the erstwhile Design Bureaus have been
restructured and reorganized into the R&D Centers as mentioned .

Table 1.2: Various HAL R&D Centers and related sphere of activities

Sl. No. R & D Centre Activity

1 Aircraft R&D Centre, Bangalore Design and Development of Fixed Wing

aircraft (LCA, IJT, MTA, FGFA, UAV)
2 Rotary Wing Aircraft R&D Centre, Design and Development of Rotary Wing
Bangalore aircraft (ALH, LCH, LUH, MLH, NRUAV)
3 Mission & Combat Systems R&D Mission systems, Aircraft upgrades and
Centre, Bangalore technology development
4 Aero Engine R&D Centre, Small, Medium Engines & Test Bed design
5 Strategic Electronics R&D Centre, Avionics Items.
6 Transport Aircraft R&D Centre, Development & Modification/ upgrades of
Kanpur Transport Aircraft
7 Aircraft Upgrades R&D Centre, Aircraft/ System Upgrade Work on Russian
Nasik Aircraft
8 Aerospace Systems & Equipment Development of Mechanical, Hydraulic and
R&D Centre, Lucknow Electrical accessories.
9 Gas Turbine R&D Centre, Koraput Design Improvement of Russian Engines
10 Central Materials & Processes Development of Materials, Castings, Forgings
Laboratory & NDT Centre, & New Processes

Source: HAL website

HAL Today: HAL is a fully owned Government of India undertaking under the
administrative control of Ministry of Defence, Department of Defence
Production. The Authorised Capital of HAL is Rs.600 Crore consisting of
60,00,00,000 equity shares having face value of Rs.10 each.

The current programs under progress at HAL are production of SU-30 MKI,
Hawk-AJT, Light Combat Aircraft (LCA), DO-228 Aircraft, Dhruv-ALH and
Cheetal Helicopters, Repair Overhaul of Jaguar, KiranMkI/IA/II, Mirage, HS-
748, AN-32, MiG 21, Su-30MKI, DO-228 aircraft and ALH, Cheetah / Chetak

The Company takes up maintenance and overhaul services to cover the life
cycle requirement of all the old and new products. Presently, 13 types of
aircraft/ helicopters and 17 types of engines are being overhauled. In addition,
facilities exist for repair/ overhaul of various accessories and avionics fitted on
aircraft of Russian, Western and Indigenous designs.

HAL is currently meeting the requirements of structures for aerospace launch

vehicles and satellites of ISRO through its dedicated Aerospace Division.
Infrastructure has also been set up to undertake completed assembly of the
strap-on L-40 stage booster. Structures for GSLVMk.III have been
productionised. HAL has also contributed to Mars mission by supplying riveted
structural assemblies and welded propellant tankages for the Polar Satellite
Launch Vehicle (PSLV-C25).

Industrial and Marine Gas Turbine: The LM-2500 marine gas turbine engine, a
20 MW aero derivative, is being produced and overhauled from the production
line in the Industrial and Marine Gas Turbine Division, Bangalore. The Division
also undertakes Repair and overhaul of Industrial Avon and Allison engines.

Development Project: The major on-going indigenous development programs

are the Light Combat Aircraft (LCA), Intermediate Jet Trainer (IJT), Light
Combat Helicopter(LCH), Light Utility Helicopter (LUH), Weapon System
integration on ALH, Multi-role Transport Aircraft (MTA), Fifth Generation
Fighter Aircraft (FGFA), Basic Turboprop Trainer. Design and Development of
medium thrust engine has also been taken up. HAL has achieved self-reliance in
the area of design and development of Helicopters and Aircraft. Technology
development projects have been launched to increase self-reliance in critical
areas like the Aircraft Display systems, Mission Computers, Automatic Flight
Controls for helicopters, Aircraft Accessories and avionics.

Literature Review

Literature Review

During the past few decades, a large number of research has been undertake in India and

abroad on evaluating the financial performance, analysis and financial health of organization

or industry. Financial management and financial performance of Public Sector Undertakings

has played a very vital role in the Indian Economy. Thus, various studies that have been made

in the past on financial analysis have been reviewed.

Vijayakumar (1996) reveals that the growth rate of sales, leverage, current ratio, operating

expenses to sales and vertical integration are the important variables which determine the

profitability of companies in the sugar industry. Further, he analyses the short-term liquidity

position in 28 selected sugar factories in co-operative and private sectors. A discriminate

analysis has been undertaken to distinguish the good risk companies from poor risk

companies based on current and liquidity ratios. Discriminating Z scores have been

calculated with the help of discriminate function and according to the Z scores the

companies are ranked in the order of liquidity.

AmalenduBhunia (2007), in his study on liquidity management analysed the

efficiency of the management of short-term liquidity in selected public sector iron and steel

enterprises in India. Generally current ratio, liquid ratio, cash position ratio, age of inventory,

age of debtors and age of creditors are highly useful in determining both the short-term

liquidity position and the efficiency or otherwise of such management. Liquidity position in

case of both SAIL and IISCO was poor and inventory management in case of SAIL was

inefficient and receivable management in case of both the enterprises was inefficient. It

suggested that increase in additional investment in raw materials, reduction in the burden of

current liabilities were necessary in order to improve the inventory management and liquidity

position of these steel companies.

SiddharthMahajan and MainakSarkar (2007) made an attempt to compare the

financial performance of three Indian companies, namely, Tata motors, Maruti and Mahindra

and Mahindra with two MNCs, Honda and Hyundai. The study indicated that the MNCs are

more efficient in utilizing their assets to generate profits. However, the return on equity of the

Indian companies was about ten times than that of the MNCs. Regarding the solvency ratios,

the debt-equity ratio of the Indian companies were about one-and-half times than that of the

MNCs. This was because the Indian Companies used much less equity capital than that of

MNCs. According to the news published in the Lokmat Daily New paper, there is a

significant increase in the sick companies in Maharashtra state. According to the data

supplied by BIFR, after every two sick companies that filed their case to BIFR one is from

Maharashtra state. In the year 2009 to 2012 total 116 companies have registered their case

with BIFR. Out of the total 24 companies are from Maharashtra state only. In the year 2009,

in Maharashtra only 4 companies were sick, where as in 2011 seven companies and in 2012

there are 11 companies are declared as sick companies. A few attempts were made by the

researcher to study the financial performance of selected CPSEs in India or abroad. But no

comprehensive study was carried out to analyze the financial performance and financial

health of CPSEs in India especially with respect to manufacturing sector. Bearing this in

mind, the researcher has selected a comprehensive study the financial analysis, performance,

health of Manufacturing CPSEs in India listed on BSE PSU Index. Though this study was

mainly based on secondary data in the form of financial statements of selected CPSEs, the

present study is unique in the sense that it will assess the financial performance and on the

basis of that it will predict the financial health of CPSEs and it also compare the results with

the average in the industry.

Dheenadhayalan (2008) made a study on financial health of Steel Authority of India

Limited through Z Score Approach. A ten year data between 1998-99 and 2007-08 were

used and the Z score of the SAIL showed a rising trend throughout the study period and it

was ranging from 4.537 to 2.97 during the study period. The Z score of the SAIL showed

2.65 and above, in all the years and it also showed a tremendous change in the liquidity and

solvency of SAIL. Hence it was concluded that the financial health of SAIL was good.

VenkatJanardhanRao and Durga Prasad (2009) examined the health of two private

sector companies i.e., Mahindra and Mahindra Limited (M&M) and Eicher Motors. They

applied Z Score Model and five financial ratios like Working Capital to Total Assets,

Retained Earnings to Total Assets, Earning Before Interest and Tax to Total Assets, Market

Value to Book Value and Sales to Total Assets, for their analysis. It was found that the

contents of the working capital to total assets was more in M&M Motors Ltd., which shows

the unfavourable financial position of that company. It was concluded that the financial

performance of Eicher Motors Limited was better than M&M.

Raiyani and Bhatasna (2011) conducted a study to analyse the financial health of

Indian Textile Industry. A Z Score Approach was used to analyse the financial statements

of all four major players in Textile Industry - Siyaram Silk Mills Ltd. (SSML), Shri Dinesh

Mill Ltd. (SDML), Welspun India Ltd. (WIL) and S.Kumars Nationwide Ltd. (SKNL). The

period of study covered seven years from 2002-03 to 2008-09. To study the financial health

of the sample units, different ratios like Retained Earning to Total Assets Position,

Networking Capital Position, Debt Equity Position, Return on Total Assets Position and Net

Sales Turnover Position of the sample companies. It was found that sample companies like

SDML and WIL were financially sound enough during the study period, barring SSML and

SKNL which had slightly lower Z score on the basis of average scores during the study


Kakani and Reddy (2001) in their paper attempt to provide an empirical validation of

the widely held existing theories on the determinants of firm performance in the Indian

context. The study uses financial statement and capital market data of 566 large Indian firms

over a time frame of eight years divided into two sub-periods (viz., 1992-96, and 1996-2000)

to study Indian firms financial performance across various dimensions viz., shareholder

value, accounting profitability and its components, growth and risk of the sample firms. For

measuring profitability of the firms, the paper considers four most used accounting measures,

viz., Cash Flow Ratio, Return on Assets, Return on Capital Employed and Return on Net

Worth, Return on Sales using Gross Profit Margin and Net Profit Margin and Sales Turnover


Vijayakumar (2002) in Determinants of Profitability-An Empirical Investigation

using Indian Automobile Industry, investigates the various elements of profitability viz.,

growth rate of assets, vertical integration and leverage. Apart from these three variables, he

has selected current ratio, operating expenses to sales ratio, fixed assets turnover ratio and

inventory turnover ratio. Econometric profitability model has been used to test the various

hypotheses relating to profitability performance and the model helps in analysing the

importance of the various factors while assessing the profitability of the Indian Auto Industry.

Vaijayanthimala and Vijay Kumar (2014) According to the paper, profitability is a

highly sensitive economic variable and is affected by different factors acting in a variety of

ways. Some of them affect product prices and quantities; some affect production cost while

others affect the capital stock, size, market share and growth of the firm. Because profitability

is affected by corporate policy relating to various functions, some which are relevant in the

short-run and while others have impact in the long-run, it is therefore difficult to construct a

theory of profitability, taking into account for all such factors. Considering these difficulties,

the paper analyses the variation in profitability by taking the partial approach, i.e., to find the

effect of certain major variables. The paper analyses the determinants of profitability in

Indian cement industry and reveals that current ratio is the strongest determinant of

profitability of Indian cement industry. The overall analysis of the determinants of

profitability divulges that current assets turnover ratio, size, inventory turnover ratio,

leverage, past profitability, operating expenses to sales, growth rate of assets and vertical

integration significantly explain the profitability of Indian cement industry.

Salmi and Martikainen (1994) in their paper provide a critical review of the

theoretical and empirical basis of four central areas of financial ratio analysis. The research

areas reviewed are the functional form of financial ratios, distributional characteristics of

financial ratios, classification of financial ratios and the estimation of internal rate of return

from financial statements. In general there are three categories of more or less common

financial ratios viz., profitability, long-term solvency (capital structure) and short-term

solvency (liquidity). Beyond this there is no clear consensus and pragmatic empiricism has

been exemplified by different authors. The paper concludes that the number of financial

ratios can be reduced to about 4-7 essential ratios. A common feature of all the areas of

financial ratio analysis research seems to be that while significant regularities can be

observed, they are not necessarily stable across the different ratios, industries and time


Beaver (1966) brings out that ratio analysis began with the development of a single

ratio, the current ratio, for a single purposethe evaluation of credit-worthiness. Today ratio

analysis involves the use of several ratios by a variety of usersincluding credit lenders,

credit-rating agencies, investors, and management. In spite of the ubiquity of ratios, little

effort has been directed toward the formal empirical verification of their usefulness. A total

of 30 different ratios were identified and classified into six common element groups based on

popularity, performance in previous studies and defining the ratio in terms of the cash-flow

concept. The cash-flow to total-debt ratio has the ability to correctly classify both failed and

non-failed firms to a much greater extent than would be possible through random prediction.

This ability exists for at least five years before failure.

Chen and Shimerda (1981) reveal that by examining financial ratios, financially

distressed firms can be separated from the non-failed firms in the year before the declaration

of bankruptcy at an accuracy rate of better than 90%. But the question in hand is which ratios

among the hundreds that can be computed easily from the available financial data, should be

analysed to obtain the information for the task at hand. The paper presents a summary of

financial ratios used in a number of earlier studies which use the financial ratios for analysis

and prediction. They note that there are 41 different financial ratios which are found useful in

the earlier studies.

Survey of the existing literature indicates that so far no specific study has been carried

on to examine the profitability analysis of an Indian DPSU in the aviation MRO industry

after liberalization in the manufacturing sector. The present study is an attempt in this

direction and therefore, aims to enrich the literature of financial performance relation to such

an industry. Further, the study is intended to employ different statistical techniques, before

qualifying any aspects of profitability analysis forwider acceptability and appreciation. The

present study is a humble attempt in this regard..


Company Profile

Hindustan Aeronautics Limited

Native name Hindi:

Type State-owned enterprise

Industry Aerospace and Defence

Founded 1940
(As Hindustan Aircraft)
(Renamed Hindustan Aeronautics)

Headquarters Bangalore, Karnataka, India

Key people T SuvarnaRaju (Chairman and CEO)

Products Transport aircraft

Fighter aircraft

Revenue 177.532614 billion (US$2.6 billion)[1] (2014)

Net income 26.925169 billion (US$400 million)[1] (2014)

Total assets 638.984194 billion (US$9.5 billion)[1] (2014)

Total equity 150.146363 billion (US$2.2 billion)[1] (2014)

Number of employees 32108[1] (March, 2014)


Hindustan Aeronautics
Limited (Hindi:

; IAST: Hindustneronawikslimie) (HAL; ) is an
Indian state-owned aerospace and defence company based in Bangalore, Karnataka. It is governed under
the management of the Indian Ministry of Defence.
The government-owned corporation is primarily involved in the operations of the aerospace industry.
These include manufacturing and assembly of aircraft, navigation and related communication equipment
and airports operation.
HAL built the first military aircraft in South Asia. It is currently involved in the design, fabrication and
assembly of aircraft, jet engines, helicopters and their spare parts. It has several facilities spread across
India. The locations where the manufacturing plants are operated
by HAL include Nasik, Korwa, Kanpur, Koraput, Lucknow, Bangalore and Hyderabad. The German
engineer Kurt Tank designed the HF-24 Marut fighter-bomber, the first fighter aircraft made in India.
Hindustan Aeronautics has a long history of collaboration with several other international and domestic
aerospace agencies such as Airbus, Boeing, Lockheed Martin, Sukhoi Aviation Corporation, Elbit
Systems, Israel Aircraft Industries, RSK MiG, BAE Systems, Rolls-Royce plc, Dassault
Aviation, MBDA, EADS, Tupolev, Ilyushin Design Bureau, Dornier Flugzeugwerke, the Indian
Aeronautical Development Agency and the Indian Space Research Organisation.


Production line of the HAL Dhruv at Bangalore

HAL was established as Hindustan Aircraft in Bangalore in 1940 on 23 Dec 1940. Hindustan Aircraft
Company was duly incorporated under the Mysore Companies Act as a private Ltd Company. Walchand
Tulsidas-Khatau Ltd was the Managing agency.It first directors were: Mr.
Mr.DharmseyMularajKhatau,Mr.A.N.Raghavachar(Mysore State
Representative),Mr.Venkatanaranappa(Mysore State Representative).Companys office was opened at a
bungalow called "Eventide" on DomlurRoad.The initiative was actively encouraged by the Kingdom of
Mysore, especially by its Young Maharaja, H.H.JayachamarajendraWadiyar and the Diwan, Sir
MirzaIsmail.Walchand had fist approached share holders of his own company - The Scindia Steam
Navigation Company Ltd for diversifying but was refused. Then he wrote to the Rulers of Baroda, Gwalior
and Bhavanagar without success. Only Maharaja of Mysore responded favourably by agreeing to invest 25
lakhs and gave initial 700 acres of land free.

The organisation and equipment for the factory at Bangalore was set up by William D. Pawley of the
Intercontinental Aircraft Corporation of New York, who had already established Central Aircraft
Manufacturing Company (CAMCO) in partnership with Chinese Nationalist government in China. Pawley
managed to obtain a large number of machine-tools and equipment from the United States.

The Indian Government bought a one-third stake in the company and by April 1941 by investing 25 lakhs
as it believed this to be a strategic imperative. The decision by the government was primarily motivated to
boost British military hardware supplies in Asia to counter the increasing threat posed by Imperial Japan
during Second World War. The Kingdom of Mysore supplied two directors, Air Marshal John Higgins was
resident director. The first aircraft built was a Harlow PC-5[2] On 2 April 1942, the government
announced that the company had been nationalised when it had bought out the stakes of Seth
WalchandHirachand and other promoters so that it could act freely. The Mysore Kingdom refused to sell
its stake in the company but yielded the management control over to the Indian Government.

In 1943 the Bangalore factory was handed over to the United States Army Air Forces but still using
Hindustan Aircraft management. The factory expanded rapidly and became the centre for major overhaul
and repair of American aircraft and was known as the 84th Air Depot. The first aircraft to be overhauled
was a Consolidated PBY Catalina followed by every type of aircraft operated in India and Burma. When
returned to Indian control two years later the factory had become one of the largest overhaul and repair
organisations in the East. In the post war reorganisation the company built railway carriages as an interim
activity.IJT prototype in its hangar. After India gained independence in 1947, the management of the
company was passed over to the Government of India.

Hindustan Aeronautics Limited (HAL) was formed on 1 October 1964 when Hindustan Aircraft Limited
joined the consortium formed in June by the IAF Aircraft Manufacturing Depot, Kanpur (at the time
manufacturing HS748 under licence) and the group recently set up to manufacture MiG-21 under licence
(with its new factories planned in Koraput, Nasik and Hyderabad).[3] Though HAL was not used actively
for developing newer models of fighter jets, except for the HF-24 Marut, the company has played a crucial
role in modernisation of the Indian Air Force. In 1957 company started manufacturing Bristol Siddeley
Orpheus jet engines under licence at new factory located in Bangalore.

During the 1980s, HAL's operations saw a rapid increase which resulted in the development of new
indigenous aircraft such as the HAL Tejas and HAL Dhruv. HAL also developed an advanced version of
the Mikoyan-Gurevich MiG-21, known as MiG-21 Bison, which increased its life-span by more than 20
years. HAL has also obtained several multimillion-dollar contracts from leading international aerospace
firms such as Airbus, Boeing and Honeywell to manufacture aircraft spare parts and engines.

By 2012, HAL was reportedly been bogged down in the details of production and has been slipping on its
schedules.[4] On 1 April 2015, HAL reconstituted its Board with Mr. TS Raju as CMD, Mr. S
Subrahmanyan as Director (Operations), Mr. VM Chamola as Director (HR), CA RamanaRao as Director
(Finance) and Mr. D K Venkatesh as Director (Engineering & R&D). There are two Govt. nominees in the
Board and six independent Directors.

One of the largest aerospace companies in Asia, HAL has annual turnover of over US$2 billion. More than
40% of HAL's revenues come from international deals to manufacture aircraft engines, spare parts, and
other aircraft materials. A partial list of major operations undertaken by HAL includes the following:

International agreements

HAL Dhruv helicopters of the Ecuadorian Air Force in 2009 Aero India

An IAF BAe Hawk being licence-produced at the HAL Hawk production facility in Bangalore

The US$35 billion fifth-generation fighter jet programme with the Sukhoi Corporation of

US$1 billion contract to manufacture aircraft parts for Boeing.

Multi-role transport aircraft project with Ilyushin of Russia worth US$600 million.[8]

120 RD-33MK turbofan engines to be manufactured for MiG-29K by HAL for US$250 million.

Contract to manufacture 1,000 TPE331 aircraft engines for Honeywell worth US$200,000 each
(estimates put total value of deal at US$200 million).

US$120 million deal to manufacture Dornier 228 for RUAG of Switzerland.

Manufacture of aircraft parts for Airbus SAS worth US$150 million.

US$100 million contract to export composite materials to Israel Aircraft Industries.

US$65 million joint-research facility with Honeywell and planned production of Garrett TPE331

US$50.7 million contract to supply Advanced Light Helicopter to Ecuadorian Air Force.HAL will
also open a maintenance base in the country.

US$30 million contract to supply avionics for Malaysian Su-30MKM.[17]

US$20 million contract to supply ambulance version of HAL Dhruv to Peru.[18]

Contract of 3 HAL Dhruv helicopters from Turkey worth US$20 million.[19]

US$10 million order from Namibia for HAL Chetak and Cheetah helicopters.[20]
Supply of HAL Dhruv helicopters to Mauritius' National Police in a deal worth US$7 million.

Domestic agreements
220 Sukhoi Su-30MKI being manufactured at HAL's facilities in Nasik, Koraput and Bangalore.
The total contract, which also involves Russia's Sukhoi Aerospace, is worth US$3.2 billion.

200 HAL Light Combat Helicopters for the Indian Air Force and 500 HAL Dhruv helicopters
worth US$5.83 billion.
US$900 million aerospace hub in Andhra Pradesh.[23]
US$57 million upgrade of SEPECAT Jaguar fleet of the Indian Air Force.[24]
US$55 million helicopter simulator training facility in Bangalore in collaboration with Canada's
64 MiG-29s to be upgraded by HAL and Russia's MiG Corporation in a programme worth
US$960 million.[26]
Licensed production of 82 BAe Hawk 132.
In-house developed products[edit]
Agricultural aircraft[edit]
HA-31 Basant
Fighter aircraft[edit]
HAL Tejas
HF-24 Marut Mk1 and Mk1T
Tejas Light Combat Aircraft
Su-30MKI a derivative of the Sukhoi Su-27, co-developed with Sukhoi Corporation[citation
FGFA under joint development with Sukhoi Corporation
AMCA India's indigenous stealth fighter (under development).


HAL Dhruv of the Indian Army

Dhruv Advanced Light Helicopter
Light Combat Helicopter (under trial)
Light Utility Helicopter (under development)
Indian Multi-role Helicopter (under development)
Rudra - Attack helicopter

GTRE GTX-35VS Kaveri- co-developed with GTRE (DRDO) (under development; developed
into following programmes)
PTAE-7- For indegeniously designed Lakshya PTA
GTSU-110 - for starting main engine GE404 or Kaveri of LCA Tejas
HAL/Turbomeca Shakti - co-developed with Turbomeca for HAL Dhruv Helicopter to be used in
light utility helicopter

HAL HTSE-1200 (under development)

Trainer aircraft

Closeup of a HAL Kiran aircraft

HT-2 - First company design to enter production.
HPT-32 Deepak - Basic trainer in service for more than three decades.
HJT-16 Kiran Mk1, Mk1A and Mk2 - Turbojet trainers scheduled to be replaced with IJT like
HJT-36 Sitara
HTT-34 - Turboprop version of HPT-32 Deepak
HTT-35 - Proposed replacement for HPT-32 basic trainer in early 1990s; not pursued
HJT-36 Sitara Intermediate jet trainer (under development) (Inducted as LSP[clarification
needed] waiting further orders)
HAL HTT-40 Basic trainer (under development)[29] first prototype flew the first flight on 31May
HAL HJT 39 / CAT Advanced jet trainer (proposal)

Observation and reconnaissance aircraft

HAOP-27 Krishak

Transport and passenger aircraft

Saras, developed by HAL Lucknow and National Aerospace Laboratories
Saras under joint development with the National Aerospace Laboratories (NAL)
HAL Multirole Transport Aircraft under joint-development with Ilyushin Design Bureau
Indian Regional Jet (IRJ) of 70-100 seater capacity to be jointly developed with NAL.

Utility aircraft
HAL-26 Pushpak

HAL G-1 HAL's first original design, dating from 1941. Only one was built.
Ardhra training glider
Notable People

Kota Harinarayana

Kurt Tank


Vishnu MadavGhatage

Licensed production

HAL licensed-built Su-30 MKI

Harlow PC-5 first aircraft assembled by HAL

Percival Prentice 66 built by HAL

Mikoyan-Gurevich MiG-21 FL, M, Bis and Bison upgrades variants

Folland Gnat

HAL Ajeet improved version of the Folland Gnat

Mikoyan-Gurevich MiG-27 M variant

SEPECAT Jaguar IS, IB and IM variants

BAE Hawk scheduled production run of 42 aircraft

Sukhoi Su-30 MKI variant

Dornier Do 228 117 built + fuselage, wings and tail unit for production of the

upgraded Do 228 NG variant

Aerospatiale SA 315B Lama HAL Cheetah, Lancer, Cheetal Variants

Aerospatiale SA 316B Alouette III HAL Chetak, Chetan Variants



The major objectives of the study are to know about financial

strengths and weakness of HINDUSTAN AERONAUTICS

To evaluate the performance of the company by using

ratios as a yardstick to measure the efficiency of the company.

To understand the liquidity, profitability and efficiency

positions of the company during the study period.

To identify a few key dimensions of financial

performance and investigate whether there is any uniformity
among the identified dimensions.




I have used Descriptive research design in my report.

Secondary data: This data was used in my project report

Statistical Tools Used

Pie Charts
Bar Diagrams
Line Charts

Source of data collection

Five year annual report of HAL from 2010-2015

1 Research Methodology

R e s e a r c h m e t h o d o l o g y i s a w a y t o s ys t e m a t i c a l l y s o l v e t h e
r e s e a r c h problem. It may be understood as a science of studying how research is done
scientifically. So, the research methodology not only talks about the research methods but
also considers the logic behind the method used in the context of the research study.

Descriptive research is used in this study because it will ensure the minimization of
bias and maximization of reliability of data collected. The study uses fact and information
already available through financial statements of previous years and analyze these to make
critical evaluation of the available material. Thereby making the type of the research
conducted to be both Descriptive and Analytical in nature.

2 Data Collection
The required data for the study are basically secondary in nature and the data are
collected from the audited reports of the company. The sources of data are from CMIE
prowess database for annual report for the year 2010-2011 and the annual reports of the
company from the HALs website for the years 2011-12 to 2014-15 for a total of five years.
The data collected were edited, classified and tabulated for analysis. Time-series analysis of
the different ratios has been used in this study.

Guidelines & Precautions for Use of Ratios: The calculation of ratios may not be a difficult
task but their use is not easy. Following guidelines or factors may be kept in mind while
interpreting various ratios is

Accuracy of financial statements

Objective or purpose of analysis
Selection of ratios
Use of standards should also be kept in mind when attempting to interpret ratios.

Use and Importance of
the study

Importance of the Study

Ratios are well known and most widely used tools of financial analysis. A
ratio gives the mathematical relationship betwe en one variable and another.
Though computation of ratio involves only a simple arithmetic operation, its
interpretation is a difficult exercise. The analysis of ratios can disclose
relationships as well as basis of comparison that reveal conditions and tr ends
that cannot be detected by going through the individual components of the ratio.
The usefulness of ratios ultimately depends on their intelligent and skillful

Ratio analysis is critical for helping one understand financial statements ,

for identifying trends over time and for measuring overall financial state of the
business. One of their most important function lies in their capacity to act as
lagging indicators in identifying positive and negative financial trends. The trend
analysis allows one to make and implement ongoing financial plans and make
necessary course corrections to short -term financial plans. Ratio analysis also
provides ways to compare the financial state of the business against other
businesses within the industry or between one business and businesses in other

Ratios are used by different people for various purposes. Ratio analysis mainly
helps in valuing the firm in quantitative terms. Two groups of people who are
interested in them are creditors and sha reholders; creditors are further divided
into short-term and long-term creditors. Short-term creditors hold obligations
that will soon mature and they are concerned with the firms ability to pay its
bill promptly. In short run, the amount of liquid assets determines the ability to
clear off current liabilities. These persons are interested in current payments of
interest and eventual repayment of principal. The firm must be sufficiently liquid
in short term and have adequate profits for long -term. These persons examine
profitability and liquidity.

In addition to liquidity and profitability, the owners of the firm are
concerned about the policies of the firm that affect the market price of the firms
stock. Without liquidity, the firm cannot pay cash divid ends. Without profits, the
firm would not be able to declare dividends. With poor policies, the common
stock would trade at lower prices in the market.

The present study of the Ratio Analysis of Hindustan Aeronautics Limited

will give us a better insight into the financial health of the company and its
performance vis--vis its performance in the past. It will also help us in
identifying the problem areas that require fixing or even better direct attention to
potential problems that can be avoided.

Data Analysis

Data Analysis

Liquidity Ratio
Current Assets
(a) Current Ratio = -----------------------
Current Liabilities

Table 4.1 Current Assets and Current Liabilities from 2010-11 to 2014-2015
Year Current Assets Current Liabilities Ratio
(Rupees in lakhs) (Rupees in lakhs)
2010-2011 4554611.33 4112197.38 1.11
2011-2012 4667274.20 3112596.93 1.50
2012-2013 4262414.51 3520653.44 1.21
2013-2014 5451283.94 4144433.43 1.32
2014-2015 5459710.11 3795643.73 1.44

in TImes

2010-11 2011-12 2012-13 2013-14 2014-15

Current Ratio (CA/CL)

Fig 4.1 Current Ratio chart of HAL

The Current Ratio of HAL has been satisfactory, although less than the ideal
2:1 ratio. The time-series analysis shows an increasing trend in the past three years.
The current ratio declined from the period 2011-2012 to 2012-2013 due to a 39%
reduction in Cash and Bank Balance. The firm has shown adequate liquidity to meet
short-term maturing obligations when their payment becomes due without affecting

Quick Asset
(b) Quick Ratio = ------------------
Current Liability

Table 4.2 Quick Assets and Current Liabilities from 2010-2011 to 2014-2015
Year Quick Assets Current Liabilities Ratio
(Rupees in lakhs) (Rupees in lakhs)
2010-2011 2241753.36 4112197.38 0.55
2011-2012 2749471.93 3112596.93 0.88
2012-2013 2019086.15 3520653.44 0.57
2013-2014 2717888.41 4144433.43 0.66
2014-2015 2591809.34 3795643.73 0.68

in TImes

2010-11 2011-12 2012-13 2013-14 2014-15

Quick Ratio

Fig 4.2 Quick Ratio chart of HAL

The Quick ratio is less than 1 for the past five years. The reason for the quick ratio of
HAL being less than one could be that the firm has arrangements for short-term needs
in the form of bank borrowings/overdraft and cash-credit limit from banks which is
facilitating them to operate them to operate them in the lower margin of working
capital. Requirement of working capital is being met through cash credit and advances
from banks. The quick ratio shows a steep rise from 2010-2011 to 2011-2012 due to
reduction in the other current liabilities by 30%.

Profitability Ratio(related to sales)

Gross Profit
(a) Gross Profit Ratio= ------------------- X 100
Table 4.3 Gross Profits and Sales from 2010-2011 to 2014-2015
Year Gross Profits Sales Ratio
(Rupees in lakhs) (Rupees in lakhs)
2010-2011 236498.58 1074909.49 22.00%
2011-2012 688698.34 1421105.96 48.46%
2012-2013 505377.38 1432778.77 35.27%
2013-2014 554231.22 1513479.02 36.62%
2014-2015 561984.77 1562987.76 35.96 %


Returns in Percentage





2010-11 2011-12 2012-13 2013-14 2014-15

Gross Profit Ratio

Fig 4.3 Gross Profit Ratio chart of HAL

The Gross Profit Margin has shown an increase from 2010-2011 to 2011-2012 due to
a decrease in the cost of goods sold which in turn was due to a 26% reduction in the
Production Cost. The Gross Profit Margin shows a reduction from 2011-2 to 2012-13
has been due to a 1% increase in Revenue from Operation as compared to a 14%
increase in the Production Cost. The management has been able to maintain a healthy
Gross Profit Margin by increasing the sales revenue and reducing the cost of

Operating Profit
(b) Operating Profit Ratio= ----------------------------- X 100

Table 4.4 Operating Profits and Sales from 2010-2011 to 2014-2015
Year Operating Profit Sales Ratio
(Rupees in lakhs) (Rupees in lakhs)
2010-2011 54256.45 1311408.07 4.14%
2011-2012 81805.43 1421105.96 5.76%
2012-2013 16958.18 1432778.77 1.18%
2013-2014 96018.59 1513479.12 6.34%
2014-2015 74292.25 1562987.76 4.75%

Returns in Percentage

2010-11 2011-12 2012-13 2013-14 2014-15

Operating Profit Ratio

Fig 4.4 Operating Profit Ratio chart of HAL

The Operating Profit Margin has seen a sharp decline from 2011-2012 to 2012-2013
due to a 33% increase in other income like interest income, dividend income, etc as
compared to a 5% increase in EBIT. On the other hand the Other Income has reduced
by 21% from 2012-2013 to 2013-2014 resulting in an increase in the Operating Profit
Margin. There is a 11% reduction in the EBIT noticed due to increase in the expenses
which has resulted in the decline of the Operating Profit Margin from 2012-2014 to

Net profit after tax
(c) Net Profit Ratio = -------------------------------- X 100

Table 4.5 Net Profit after tax and Sales from 2010-2011 to 2014-2015
Year Net Profit after tax Sales Ratio
(Rupees in lakhs) (Rupees in lakhs)
2010-2011 211425.78 1311408.07 16.12%
2011-2012 253943.21 1421105.96 17.87%
2012-2013 299691.40 1432778.77 20.92%
2013-2014 269251.69 1513479.12 17.79%
2014-2015 238804.70 1562987.76 15.28%


Returns in Percentage



2010-11 2011-12 2012-13 2013-14 2014-15

Net Profit Ratio

Fig 4.5 Net Profit Ratio chart of HAL

The Net Profit Margin has shown an increase due to increase in the earnings after tax
from 2010-2011 to 2012-2013. However, a reduction in earnings after tax from 2012-
2013 to 2014-2015 has resulted in a decline in the Net Profit Margin. The Net Profit
Margin is healthy and indicates the managements ability to carry out business

Operating Expenses
(d) Operating expenses Ratio = ------------------------------- X 100
Net Sales

Table 4.6 Operating Expenses and Sales from 2010-2011 to 2014-2015

Year Operating Expenses Sales Ratio

(Rupees in lakhs) (Rupees in lakhs)
2010-2011 282880.33 1311408.07 21.57%
2011-2012 330811.14 1421105.96 23.28%
2012-2013 311561.63 1432778.77 21.75%
2013-2014 351115.16 1513479.12 23.20%
2014-2015 442174.10 1562987.76 28.29%

Fig 4.6 Operating Expenses Ratio chart of HAL

The operating expenses ratio of the firm has shown an increasing trend which is
worrying. All the expenses, viz., employee benefit expenses, selling and distribution
expenses and establishment expenses, have shown an increase during the period of
study resulting in an increase in the Operating Expenses Ratio.

Profitability Ratios (related to investment)

EAT + (Interest Tax advantage on interest)

(a) Return on Asset = ------------------------------------------------------------------------------X 100
Average Total Assets

Table 4.7 Earnings and Average Total Assets from 2010-2011 to 2014-2015
Year EAT +Int- Tax adv Avg Total Assets Ratio
(Rupees in lakhs) (Rupees in lakhs)
2010-2011 211426.11 4792750.96 4.41%
2011-2012 253943.21 5383171.49 4.72%
2012-2013 299691.40 5641374.44 5.31%
2013-2014 269327.23 6070357.85 4.44%
2014-2015 239427.16 6396043.01 3.74%

Returns in Percentage

2010-11 2011-12 2012-13 2013-14 2014-15

Return on Assets

Fig 4.7 Return on Assets chart of HAL

The ROA of HAL has been determined on the basis of net profit after taxes and the
interest to lenders less the tax shield on interest payment. ROA focusses directly on
operating efficiency and is an overall measure of performance. The ROA has shown a
rising trend from 2010-2011 to 2012-2013 due to increase in earnings after tax.
However, decline in profits after tax from 2012-2013 to 2014-2015 has resulted in a
decline in the ROA.

Net Profit after Tax- Pref Dividend

(b) Return on Net Worth = ------------------------------------------------------------X 100
Equity Shareholder Fund (net worth)

Table 4.8 Earnings After Tax and Net Worth from 2010-2011 to 2014-2015
Year EAT-PrefDiv Net Worth Ratio
(Rupees in lakhs) (Rupees in lakhs)
2010-2011 211425.78 893437.25 23.67%
2011-2012 253943.21 1054191.07 24.09%
2012-2013 299691.4 1235839.58 24.25%
2013-2014 269251.69 1419641.45 18.97%
2014-2015 238804.7 1590035.31 15.02%


Returns in Percentage




2010-11 2011-12 2012-13 2013-14 2014-15

Return on Net Worth

Fig 4.8 Return on Net Worth chart of HAL

The drop in the RONW of HAL is primarily due to the decline in the Earnings After
Tax from 2012-2013. The RONW shows the return provided to the equity
shareholders (government in case of HAL).

(c) ROCE = --------------------------------------------------------------- X 100
Avg Long term assets used + Net Working Capital

Table 4.9 EBIT and Capital Employed from 2010-2011 to 2014-2015

Year EBIT Avg long term assets + net Ratio
(Rupees in lakhs) working capital
(Rupees in lakhs)
2010-2011 283952.84 784130.86 36.21%
2011-2012 332851.55 1744593.91 19.07%
2012-2013 349697.03 939098.63 37.24%
2013-2014 357865.71 1511682.91 23.67%
2014-2015 318078.92 1877262.92 16.94%

Returns in Percentage

2010-11 2011-12 2012-13 2013-14 2014-15

Return on Capital Employed

Fig 4.9Return on Capital Employed chart of HAL

The ROCE points toward the efficient use of the owners and lenders long-term funds. The
ROCE has been showing a declining trend during the period of study. This is primarily due to
a large increase in the capital employed year on year as compared to a slow growth rate of
EBIT. In fact, the EBIT has reduced by 11% from 2013-2014 to 2014-2015.

Efficiency Ratio

Cost of Goods Sold

(a) Inventory Turnover Ratio = --------------------------------------------------
Average finished goods Inventory

Table 4.10 Cost of Goods Sold and Avg Finished Goods Inventory from 2010-2011 to

Year Cost of Goods Sold Avg finished goods inventory Ratio

(Rupees in lakhs) (Rupees in lakhs)
2010-2011 1074909.49 No data available --
2011-2012 853282.5 194536.47 4.39
2012-2013 927401.39 158686.29 5.84

2013-2014 959247.80 567132.09 1.69
2014-2015 1001003.05 173381.965 5.77

Turnover in Times

2011-12 2012-13 2013-14 2014-15

Inventory Turnover Ratio

Fig 4.10 Inventory turnover ratio chart of HAL

The data for average finished goods inventory for 2010-2011 was not available from
the annual reports of HAL. For the remaining four years the inventory turnover ratio
has been fluctuating. The inventory turnover ratio is a measure of how quickly the
inventory is sold. A low inventory ratio signifies excessive inventory or
overinvestment in inventory whereas a high inventory ratio signifies a good inventory
management. The Finished Goods Inventory Holding Period calculated from the
above ratio ranges between 62 days and 213 days.

Total Credit Sales

(b)Receivable Turnover Ratio = ----------------------------------------------- X 100
Average Debtor

Table 4.11 Total Credit Sales and Avg Debtor from 2010-2011 to 2014-2015
Year Total Credit Sales Average Debtors Ratio
(Rupees in lakhs) (Rupees in lakhs)
2010-2011 1311550.43 208812.56 6.28
2011-2012 1421230.23 308955.92 4.60
2012-2013 1432928.49 469736.76 3.05
2013-2014 1602073.04 618761.54 2.59
2014-2015 1677611.13 656333.18 2.56


Turnover in Times 5

2010-11 2011-12 2012-13 2013-14 2014-15

Receivable Turnover Ratio

Fig 4.11 Receivable turnover ratio chart of HAL

The receivable turnover ratio has shown a declining trend primarily due to increase in
both credit sales and average debtors. However, the rate of increase of the average
debtors has been higher than that of credit sales. The lower receivable turnover ratio
for HAL is worrying which indicates the reducing number of times the debtors are
getting converted into cash. It depicts a poor trade credit management. The liquidity
of the debtors of the firm is poor and the firm seems to be putting in an inadequate
collection effort.

No of days in a year
(c) Average Collection Period = ---------------------------------
Debtors Turnover

Table 4.12 Debtors Turnover and Collection Period from 2010-2011 to 2014-
Year No of Days in a year Debtors Turnover Ratio
2010-2011 365 6.28 58.12 days
2011-2012 365 4.6 79.35 days
2012-2013 365 3.05 119.67 days
2013-2014 365 2.59 140.93 days
2014-2015 365 2.56 142.60 days


Holding Period inNo of Days

2010-11 2011-12 2012-13 2013-14 2014-15

Average Collection Period

Fig 4.12 Average collection period chart of HAL

The Debtors Collection Period has seen a gradual increase over the period of study.
This indicates a diminishing efficiency of trade credit management. The inordinately
large collection period, in spite of improvements in the banking system and other
means of collection, indicates either a poor credit selection or an inadequate collection

Cost of goods sold

(d) Fixed Asset Turnover Ratio = ----------------------------
Average fixed assets

Table 4.13 Cost of Goods Sold and Avg Fixed Assets from 2010-2011 to 2014-

Year Cost of goods sold Avg fixed assets Ratio

(Rupees in lakhs) (Rupees in lakhs)
2010-2011 1074909.49 341716.91 3.15
2011-2012 853282.50 189916.64 4.49
2012-2013 927401.39 197337.56 4.70
2013-2014 959247.80 204832.40 4.68
2014-2015 1001003.05 213196.54 4.69

Turnoverin Times 3.5
2010-11 2011-12 2012-13 2013-14 2014-15

Fixed Asset Turnover Ratio

Fig 4.13 Fixed assets turnover ratio chart of HAL

The Fixed Assets Turnover Ratio (FATR) is one of the primary modes by which we
measure the extent of utilization of assets. The FATR shows an increasing trend
during the study period indicating a marked increase in the capacity utilization of
assets and reduction in the presence of idle capacity of HAL.

Cost of goods sold

(e) Total Asset Turnover Ratio = ----------------------------
Average total asset

Table 4.14 Cost of Goods Sold and Avg Total Assets from 2010-2011 to 2014-

Year Cost of goods sold Avg total assets Ratio

(Rupees in lakhs) (Rupees in lakhs)
2010-2011 1074909.49 4792750.96 0.22
2011-2012 853282.50 5383171.49 0.16
2012-2013 927401.39 5641374.44 0.16
2013-2014 959247.80 6070357.85 0.16
2014-2015 1001003.05 6396043.01 0.16


Turnover in Times



2010-11 2011-12 2012-13 2013-14 2014-15

Total Asset Turnover Ratio

Fig 4.14 Total assets turnover ratio chart of HAL

Total Assets Turnover Ratio (TATR) has reduced from 0.22 in 2010-2011 to 0.16 in
2012-2013 and thereafter has remained constant. The TATR has remained less than
one throughout the period of study and can be considered, prima facie, as
unsatisfactory. It indicates underutilization of assets and presence of idle capacity.
Given the fact that the FATR is satisfactory and the TATR is unsatisfactory, the
Current Assets Turnover Ratio (CATR) is also unsatisfactory.

Net Credit Purchases

(f) Creditors Turnover Ratio = ------------------------------------
Average Creditors

Table 4.15 Net Credit Purchases and Avg Creditors from 2010-2011 to 2014-

Year Net credit purchases Avg creditors Ratio

(Rupees in lakhs) (Rupees in lakhs)
2010-2011 1271823.3 276147.29 4.60
2011-2012 623703.95 130259.12 4.79
2012-2013 1053646.99 173881.29 6.06
2013-2014 1285219.96 206902.69 6.21
2014-2015 1017002.68 221114.465 4.60


Trunovers in Times 5

2010-11 2011-12 2012-13 2013-14 2014-15

Creditors Turnover Ratio

Fig 4.15Creditors turnover ratio chart of HAL

Creditors Turnover Ratio is on an average 5 times the average creditors which

indicates that the creditors are paid on an average in 72 days. The summing up of the
three turnover ratios, viz., the Inventory Turnover Ratio, Debtors Turnover Ratio and
Creditors Turnover Ratio has an effect on the liquidity of the firm. The cash cycle
which captures the interrelationship of sales, collection from debtors and payment to
creditors indicates that on an average the firm has a cash cycle of 144 days which,
prima facie, is high and is to be reduced in order to improve the liquidity ratios.

Cost of raw material used

(g) Raw material turnover ratio = ------------------------------------------
Average raw material inventory

Table 4.16 Cost of RM used and Avg RM inventory from 2010-2011 to 2014-

Year Cost of RM used Avg RM inventory Ratio

(Rupees in lakhs) (Rupees in lakhs)
2010-2011 1220822.95 660038.89 1.85
2011-2012 614573.38 671969.68 0.91
2012-2013 740687.68 775847.61 0.95
2013-2014 897929.15 1041632.19 0.86
2014-2015 827886.12 1332756.43 0.62

Turnovers in Times 1.4
2010-11 2011-12 2012-13 2013-14 2014-15

Raw Material Turnover Ratio

Fig 4.16Raw material turnover ratio chart of HAL

The Raw Material inventory turnover ratio has been reducing indicating an excessive
raw material inventory or overinvestment in raw material inventory. This is possibly
due to the fact that the obsolescence in the aviation industry strikes fast and hard and
in order to obviate the issues of obsolescence the firm has purchased raw material in
anticipation of obsolescence or future increase in their prices. It could also be possible
due to an overvaluation of the closing stock of the inventory. The Raw Material
Inventory Holding period, which is calculated from the Raw Material Inventory
Turnover Ratio is extremely high ranging between 197 days to 589 days.

Cost of goods manufactured

(h) Stock-in-process turnover ratio = ----------------------------------------
Avg stock in process inventory

Table 4.17 Cost of Goods Mfd and Avg Stock-in-Process from 2010-2011 to
Year Cost of goods mfd Avg stock in process Ratio
(Rupees in lakhs) (Rupees in lakhs)
2010-2011 1074909.49 703991.75 1.53
2011-2012 793377.88 784081.26 1.01
2012-2013 904836.07 741040.39 1.22
2013-2014 986860.55 768048.93 1.28
2014-2015 997733.82 825769.36 1.21

Turnoer in Times 1.2
2010-11 2011-12 2012-13 2013-14 2014-15

Stock-in-process turnover ratio

Fig 4.17Stock-in-process turnover ratio chart of HAL

The Stock-in-process turnover ratio has shown a declining trend. The stock-in-process
inventory holding period ranges between 235 days and 356 days. This indicates the
extremely long time taken by the firm in converting the raw material to finished
goods. Excessive dependency of HAL on foreign suppliers results in revision of
project schedule a number of times as per their supply schedule. Similarly, long
periods of breakdown of important machines during the manufacturing process could
also result in an increase in the stock-in-process inventory holding period.

Financial Leverage Ratio

Total Debt
(a) Deb-Equity Ratio = -----------------------------------
Shareholders equity

Table 4.18 Total Debt and Shareholders Equity from 2010-2011 to 2014-2015

Year Total Debt Shareholders equity Ratio

(Rupees in lakhs) (Rupees in lakhs)
2010-2011 148555.29 974522.24 0.15
2011-2012 148202.18 1133859.89 0.13
2012-2013 157111.12 1337819.26 0.12
2013-2014 236550.74 1501463.63 0.16
2014-2015 162350.06 1678600.99 0.10

2010-11 2011-12 2012-13 2013-14 2014-15

Debt to Equity Ratio

Fig 4.18Debt-to-Equity ratio chart of HAL

Debt-to-Equity ratio provides an insight into the practices of capital structure and
liquidity position of HAL. The ratio reflects the relative contribution of the owners of
business and creditors in financing. The firm displays low levels of debt-to-equity
ratio. On an average, for every rupee of owners capital, the firm has 13 paise of
outside liability. There is, therefore, a safety margin of 88.5% available to the
creditors of HAL. HAL would therefore be able to meet the creditors claims even if
the value of the assets declines by 88.5%.

Total debt
(b) Deb-Asset Ratio = ----------------------
Total asset

Table 4.19 Total Debt and Total Asset from 2010-2011 to 2014-2015

Year Total Debt Total Asset Ratio

(Rupees in lakhs) (Rupees in lakhs)
2010-2011 148555.29 5235291.76 0.028
2011-2012 148202.18 5530512.58 0.027
2012-2013 157111.12 5752233.89 0.027
2013-2014 236550.74 6387841.94 0.037
2014-2015 162350.06 6404244.08 0.025

in Times

2010-11 2011-12 2012-13 2013-14 2014-15

Debt to Asset Ratio

Fig 4.19 :Debt-Asset ratio chart of HAL

Debt-Asset ratio indicates the proportion of the total assets financed by the owners.
The debt-to-total assets is negligible in case of HAL. The low ratio of debt to asset is
desirable from the point pf creditors as there is sufficient margin of safety available to

Earnings Ratio
(a) Earnings per share = -----------------------------------------------------
No of ordinary shares outstanding

Table 4.20 EAT and No of ordinary shares from 2010-2011 to 2014-2015

Year EAT No of ordinary shares Ratio

(Rupees in lakhs) outstanding (Rupees per share)
2010-2011 211425.78 120500000 175.45
2011-2012 253943.21 120500000 210.74
2012-2013 299691.40 120500000 248.71
2013-2014 269251.69 482000000 55.86
2014-2015 238804.70 482000000 49.55

Earnings per share






2010-11 2011-12 2012-13 2013-14 2014-15

Earnings per share

Fig 4.20 Earnings per share chart of HAL

The Earnings per Share (EPS) of HAL has increased from Rs 175.45 per share in
2010-2011 to Rs 248.71 per share in 2012-2013 owing to increase in earnings. The
EPS of HAL has reduced from Rs 248.71 in 2012-2013 to Rs 55.86 in 2013-2014
owing to the issue of bonus shares. The company has issued 36.15 Crore bonus shares
of Rs 10 each in the ratio of 3:1 to the President of India and his nominees.

Dividend Ratio
Dividend per ordinary share
(a) Dividend Payout Ratio = ----------------------------------- X 100
Earnings per Share

Table 4.21 Dividend per share and EPS from 2010-2011 to 2014-2015
Year Div per share EPS Ratio
(in Rupees) (in Rupees)
2010-2011 40.88 175.45 23.30%
2011-2012 78.51 210.74 37.25%
2012-2013 79.44 248.71 31.94%
2013-2014 21.60 55.86 38.67%
2014-2015 9.96 49.55 24.12%

in Percentage

2010-11 2011-12 2012-13 2013-14 2014-15

Dividend Payout Ratio

Fig 4.21 Dividendpayout ratio chart of HAL

The dividend payout ratio measures the relationship between the earnings belonging
to the ordinary shareholder, in this case the Govt of India, and the dividend paid to
them. On an average, HAL has paid 31% of its net profits after taxes as dividend to
the Govt of India during the period of study. Thus the average retention ratio (100%-
dividend payout ratio) is 69%.

Ranking of Financial Performance

In Table 4.22, in order to establish the financial performance of Hindustan

Aeronautics Limited more accurately in the different years under study, a comprehensive
ranking test has been carried out. A total of nine key financial performance indicators have
been selected and these have been ranked for the five years from 2010-2011 to 2014-2015. A
composite score for each year has been arrived at by combining the individual ranks of each
of the performance indicator. The ultimate financial performance ranking has been carried
out on the basis of the sum of scores for each year individual rankings of the identified
financial performance ratio. The ranking has been made on the principle that lower the
composite score higher the financial performance. Table 4.23 shows that the company had
the best financial performance in 2012-2013 and this was followed by the years 2011-2012,
2013-2014, 2010-2011 and finally 2014-2015 in that order.

In Table 4.23, it was also endeavored to examine whether there was any uniformity
among the identified key financial performance indicators of HAL during the study period
using Kendalls coefficient of concordance (W). For testing the computed value of W, Chi-
square (2) test was applied. Table 4.23 discloses that the computed value of W was 0.28395
which was found to be statistically significant at 5 per cent level. It indicates the existence of
uniformity among the identified indicators of financial performance of HAL during the
period under study.

Hypothesis Testing.

To examine whether the difference in the financial performance of HAL during the
period 2010-2012 is statistically different from that during the period 2012-2014. A students
t- test is used to test the hypothesis that the means of the two periods are the same on the
twenty variables. Table 4.24 provides a summary of results for the students paired t- test for
the two periods under review.

With regard to liquidity, Current Ratio shows that the firm performed better in the period
2012-2014 as compared to 2010-2012. As shown in Table 4.24, the mean for Current Ratio
was 1.27 for 2010-2012 as compared to the 1.32 for 2012-2014. Quick Ratio, however,
shows an opposite trend with the mean for 2010-2012 being 0.667 compared to 0.6367 for
2012-2014. The P- values for Current Ratio and Quick Ratio are 0.7622 and 0.8002
respectively, therefore statistically there is no significant difference between the performance
of the firm for the two periods under review and the null hypothesis cannot be rejected.

With respect to profitability, Gross Profit Ratio, Operating Profit Ratio and Operating
Expense Ratio shows that the firm performed better in the period 2010-2012 compared to
2012-2014. As shown in Table 4.23, the mean for Gross Profit Ratio was 0.3526 for 2010-
2012 compared to the 0.35957 for 2012-2014. Operating Profit Ratio shows a similar trend
with the mean for 2010-2012 being 0.03693 compared to 0.0409 for 2012-2014. The mean of
Operating Expense Ratio for 2010-2012 was 0.222 as compared to 0.24413 for 2012-2014.
The P- values for the above three ratios are 0.9319, 0.8546 and 0.3424 respectively, therefore

the differences between the performances for the two periods are not statistically significant
and therefore the null hypothesis cannot be rejected.
In case of the Efficiency Ratios viz., Receivables Turnover Ratio, Total Assets Turnover
Ratio and the Raw Material Turnover Ration indicates a drop in performance in the period
2012-2014 as compared to 2010-2012. As shown in Table 4.24, the mean for the three
efficiency ratios dropped from 4.64, 0.18 and 1.23667 respectively for the period 2010-2012
to 2.7333, 0.16 and 0.81 respectively for the period 2012-2014. This indicates that the firm
has been more efficient in 2012-2014 as compared to 2010-2012. However, the P-value for
the three ratios being 0.1141, 0.3739 and 0.2561 respectively, the differences in the mean
values are not statistically significant and therefore null hypothesis cannot be rejected.

From the results of the students t-test it can be stated that there is no significant difference
observed in the performance of the firm during the two periods 20010-2012 and 2012-2014 in
terms of liquidity, profitability, efficiency and solvency


Liquidity Position: The Liquidity ratio indicates a healthy state of affairs as

the Current and the Quick Ratio are showing an upward trend. The ratio

indicates that the firm is capable of servicing the short term liabilities. A

reduction in short term borrowings and an increase in the inventories from

2014 to 2015 has shown an increase in the current and quick ratio. HAL will be

able to meet its short-term liabilities as adequate liquid funds are available as

shown in the balance sheet to pay the interest on its maturing debt. The

company has a CRISIL rating of CRISIL A1+ and [ICRA] A1+ by ICRA for

its short-term loan of Rs 1500 Cr.

Long-term Solvency: The long-term solvency as measured leverage/capital

structure and profitability ratios which focus on earning power and operating

efficiency. Debt-Equity ratio is relatively low and displays a decreasing trend

indicating a higher margin of safety for the creditors. Increase in production

costs resulted in lesser gross profit in 2012-13 as compared to 2011-12.

However, gross profit has been increasing since then and the profit margin has

also shown a rising trend. The gross profit margin and the net profit margin are

behaving in opposite manner as a decrease in gross margin from 2011-12 to

2012-13 shows an increase in net profit margin for the same period.

66 | P a g e
Operational Efficiency: The operational efficiency is found wanting in case

of HAL. The inventory turnover ratio is low which could be due to inferior

quality of goods, overvaluation of the inventory, stock of unsaleable/obsolete

goods or excessive purchase in anticipation of future increase in price or

obsolescence. Low raw material turnover and stock-in-process turnover ratios

indicate poor inventory management of raw materials and stock-in process to

finished goods. This manifests in delays in production as is being encountered

by the Indian Air Force in many of its projects with HAL. Total asset turnover

ratio has also shown a declining trend in the past five years indicating

underutilization of available resources and presence of idle capacity. The firm

has scope of expanding its activity level, in terms of production and sales,

without requiring additional capital investment.

Overall Profitability: Return on assets is a profitability ratio which measures

the relationship between the profits and the investments of the firm. The ROA

has found to be showing a declining trend over the last two years of the study

though it was initially increasing in the first three years. This is mainly due to

reducing profits over the last two years. Return on equity shareholders capital

and the capital employed is also displaying a decreasing trend owing to

reduction in profit. The EPS has also reduced over the last two years primarily

due to reduction in profits and introduction of bonus shares by the firm.

Dividend per share has also drastically reduced over the last two years.

67 | P a g e
The ratio analysis has given an insight into the performance of the firm over

the last five year period from 2010-11 to 2014-15. There are some positives

and there are some negatives. The firms liquidity and long-term solvency

positions are good and strong. However, the firm still has scope to expand its

activity in order to improve its operational efficiency. This in turn will also

have a positive impact on the profitability of HAL.

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As a researcher, I would like to add few suggestions to the company, which

I find useful for the company's operations in near future. The suggestions
are shown below

Liquidity refers to the ability of the concern to meet its current

obligations as and when these become due. The company should improve
its liquidity position.

The company should make the balance between liquidity and solvency
position of the company.

The profit ratio is decreased in current year so the company should pay
attention to this because profit making is the prime objective o every

The cost of goods sold is high in every year so the company should do
efforts to control it.

The long term financial position of the company is very good but it
should pay a little attention to short term solvency of the company.

The management should take effect is measures to recover the

outstanding debts of HAL as the major portion of current assets is in the
form or debtors.

Regarding the cash position.the study reveals that the cash ratio of
HALis standard position that 10%. The company should maintain above

Trend of working capital turnover shows the efficiency of HAL in

utilizing the working capital.

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It can also be concluded from the above study that the company had the

best financial performance in 2012-2013 and this was followed by the years

2011-2012, 2013-2014, 2010-2011 and finally 2014-2015 in that order.

Also, from the results of the students t-test it can be concluded that there is

no significant difference observed in the performance of the firm during the

two periods 20010-2012 and 2012-2014 in terms of liquidity, profitability,

efficiency and solvency.

HAL is one of the important pillars supporting the Indian Defence industry.

IAF is heavily dependent on HAL for the MRO of its frontline fighter

aircraft. Aviation industry is highly technology and manpower intensive.

Obsolescence hits fast and hard in this industry. The leadership needs to be

highly proactive and visionary to look into the futuristic technologies be it

in the strategic and tactical operations of the firm. Shortage of the number

of squadrons will see induction a large number of fifth generation aircraft in

the IAF. HAL will need to overhaul its image by improving the quality of

production and meeting the production timelines to be able to sustain in the

future and bag for itself more projects in the future from the defence


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Limitations of the study

Although analysis of financial statement is essential to obtain relevant information

for making several decisions and formulating corporate plans and policies, it should
be carefully performed as it suffers from a number of the following limitations.

1. Mislead the user

The accuracy of financial information largely depends on how accurately financial
statements are prepared. If their preparation is wrong, the information obtained from
their analysis will also be wrong which may mislead the user in making decisions.

2.Not useful for planning

Since financial statements are prepared by using historical financial data, therefore,
the information derived from such statements may not be effective in corporate
planning, if the previous situation does not prevail.

3. Qualitative aspects
Then financial statement analysis provides only quantitative information about the
company's financial affairs. However, it fails to provide qualitative information such
as management labor relation, customer's satisfaction, management's skills and so on
which are also equally important for decision making.

4. Comparison not possible

The financial statements are based on historical data. Therefore comparative analysis
of financial statements of different years can not be done as inflation distorts the
view presented by the statements of different years.

5. Wrong judgment
The skills used in the analysis without adequate knowledge of the subject matter
may lead to negative direction . Similarly, biased attitude of the analyst may also
lead to wrong judgment and conclusion.

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.Vijayakumar, A. (2011), The Determinants of Profitability: An Empirical

Investigation Using Indian Automobile Industry, International Journal of

Research in Commerce & Management.

Jain, P.K., Seema Gupta, Surendra S. Yadav (2014) Public Sector Enterprises in
India- The Impact on Disinvestment and Self Obligation and Financial
Performance. Springer, New Delhi, pp 69-172

Mahajan, S. and M.Sarkar, (2007), How does financial performance of MNC in

the Auto Mobile Sector Compare with Indian Companies?- An analysis using

financial ratios, PARADIGM, XI(2), pp. 38-45

Research paper of B Venkatesh

Annual Report of HAL- 2010-2015


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------------------- in Rs. Cr. ------
Balance Sheet of HAL -------------
2014-15 2013-14
12 months 12months
Capital and Liabilities:
Total Share Capital 386.18 385.16
Equity Share Capital 386.18 385.16
Share Application Money 3.00 8.53
Reserves 13,754.91 11,889.93
Net Worth 14,144.09 12,283.62
Deposits 74,860.31 59,072.33
Borrowings 12,149.71 12,895.58
Total Debt 87,010.02 71,967.91
Other Liabilities & Provisions 4,857.97 3,333.82
Total Liabilities 106,012.08 87,585.35
2014-15 2013-14
12 months months
Cash & Balances with RBI 3,928.30 2,948.23
Balance with Banks, Money at Call 2,334.06 3,031.66
Advances 66,160.71 53,027.63
Investments 30,421.09 25,484.55
Gross Block 1,206.71 1,106.94
Net Block 1,206.71 1,106.94
Other Assets 1,961.21 1,986.33
Total Assets 106,012.08 87,585.34
Contingent Liabilities 68,092.15 46,903.54
Book Value (Rs) 183.09 159.35

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2012-13 2011-12 2010-11
12 months 12 months 12 months
Total Share Capital 385.16 373.30 370.34
Equity Share Capital 385.16 373.30 370.34
Share Application Money 8.53 17.53 34.82
Reserves 11,889.93 9,073.65 7,575.59
Net Worth 12,283.62 9,464.48 7,980.75
Deposits 59,072.33 51,028.77 38,536.52
Borrowings 12,895.58 20,410.62 16,595.52
Total Debt 71,967.91 71,439.39 55,132.04
Other Liabilities & Provisions 3,333.82 2,789.81 2,553.99

Total Liabilities 87,585.35 83,693.68 65,666.78

2012-13 2011-12 2010-11
12 months 12 months 12 months
Cash & Balances with RBI 2,948.23 2,207.90 2,016.49
Balance with Banks, Money at Call 3,031.66 1,481.26 618.06
Advances 53,027.63 48,468.98 39,079.23
Investments 25,484.55 28,873.43 21,566.81
Gross Block 1,106.94 464.42 449.97
Net Block 1,106.94 464.42 449.97
Other Assets 1,986.33 2,197.69 1,936.23
Total Assets 87,585.34 83,693.68 65,666.79
Contingent Liabilities 46,903.54 42,117.47 40,052.52
Book Value (Rs) 159.35 126.53 107.28

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