Ceat Tyres

A) Introduction to the Company i) Ceat stands for Cavi Electri Affini Toroni or CEAT started in Turino in 1924 which manufactured Cables for Telephone and Railways. Ceat came to Indian in 1958 and was incorporated as Ceat tyres of India limited; in 1982 it was taken over by RPG group. It is one of the key players in the tyre industry in India.

CEAT produces over 6 million tyres a year and commands around 14% share of
the Indian tyre market. The Company manufactures a wide range of tyres, catering to all user segments. This includes tyres for heavy-duty Trucks and Buses (T&B), Light Commercial Vehicles (LCV), Earthmovers and Forklifts (specialty segment), Tractors, Trailers, Passenger Cars (PC), Motorcycles, Scooters and Autorickshaws. CEAT earns around 65% of its revenue from the T&B segment. The Company currently operates 2 plants in Maharashtra, one in Bhandup and the other in Nasik. It has a robust national network consisting of 33 regional offices and over 3,500 dealers, among which ~75 are exclusive dealers running CEAT Shoppe outlets. It has ISO/TS 16949 certification and its motto under corporate social Responsibility is “to positively impact the lives of employees and local communities directly affected by our business”. In 2008 it has shown a increase of 9%. The shares of the Company are listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). The tyre industry in India is truly globalised with imports and exports showing rapid increase. Noticeably higher spending on infrastructure is likely to continue to have a direct consequence on tyre demand in the country for commercial applications. ii) The company is 50 years old since its inception in India from 1958.

61 % Change 13.85 870.89 Change in Value 119. iv) Gross Block Change Year 2008 2007 Total Gross Block 1214.7% 0.03 Change in Gross % Change in Gross Block 101.1% 0.3 6. the reason being an increase in the equity and heavy influx of investment in both 2006 and 2007 year by the company.56% Analysis: The company gross block is constantly increasing and the % change in the Gross Block is also very fast.iii) Total Assets Change of Value: Year 2008 2007 Total Assets 990.07% Analysis: The company assets are increasing from past two years. The company is growing at fast pace and adding new assets of higher value.96 0.€ v) Depreciation % Change .33 1113. The reason for this can be estimated as the increase in the profit potential and profit prospects of the company.25 Block 9.

88.86 Value 9. The CAGR is promising for the company.71 413.33 1113.00 211.59 2133. vii) Net Profit Ratio Year 2008 2007 Sales Value 2327. This can be because of the new assets which are purchased are charged a lesser depreciation as it is the initial year of use for the new assets.25 Net Profit Ratio 6.08 Profit After Tax 148.94 % change of Gross Block 35.1 22 12.10 for Acc. vi) Change on Value of Sales: Year 2008 2007 2006 Sales Value 2327.Year Gross Block Accumulated Depreciation Depreciation charged the year 14.02 Analysis: Although the amount of Gross Block has increased by 101. however. It means assets are expected to have a higher life span. the % change of Accumulated Depreciation over block has decreased by 1.3% 1.8% .03 427. over 2008 2007 1214.59 2133.51 389. but the trend of growth of sales is not a positive sloping curve.6 39.4%. the rate of increase is less.69 27. the compounded annual growth rate of sales between the 2006 and 2008 is 15.22 37.08 Change in Sales % Change in Sales Value 194.08 1744. However.3. Dep.51 in 2008.14 Analysis: Sales have increased by 194.

3% Analysis: Depreciation on fixed assets and % change of Depreciation has decreased. The increase in PAT is attributed to the increase in Sales over the years. The reason being PAT increasing almost 3 times between 2006 and 2008.59 2133.08 for Sales Depreciation as a % for the current year Sales 0.Analysis: Net profit margin is positive from 6. This will put extra pressure on Tax. ix) Excluding Depreciation and its Change on PAT The following table has been made with the assumption that the PAT value include Deprecation value.63% 1.69 27.94 2327.8 between the two years. Particulars 2008 2007 . however. tax is a only a written down value whose rate are pre-decided by the Government.3 to 1. this is due to the increasing in sales. viii) Change in Depreciation and net sales: Year Depreciation the year 2008 2007 14.

17 Analysis: Now after excluding depreciation then the company has to pay higher which will further reduce the value of PAT.18 21. at the rates prescribed in Schedule XIV to the Companies Act.7% 180.99 197.70 The change in the PAT will be seen when we will exclude the depreciation value: Particulars PBT Depreciation rate PAT 2008 230. C) Depreciation is provided on the Straight Line Method.06 59. Certain Plants have been treated as Continuous Process Plants based on technical and other evaluations. . 1956.92 34.98 34.98 32.17 21. Leasehold land is amortized over the period of the lease.7 91.58% 60.17 32.22 2007 91. After going through the annual reports of the previous three years it has been observed that the company has not deviated from the standard method.7% 42.PBDT Less Depreciation PBT Tax Rate Tax Value 230.58% 20. Depreciation charged to Profit and Loss Account is inclusive of depreciation on revalued assets.

D) The following point have taken with the perspective whether what is the effect of the additions and deletions of the assets during the year on the value of assets. For 2007-2008(Rs in Lakhs): Assets Value of Additions Deletions of Assets of Assets Adjusted depreciated Value % depreciation to the Value of the Assets . For moving the point ahead we have shown the effect of the additions and deletions we have taken two years data.

8 3.of Asset Buildings 12790.34.4 6.80 which make the total depreciation on the addition and deletions upto1829.40 17.59 5.86 4.38 Fixtures Vehicles 12.99 13.57.80 9.84.02 of deductions.66 2.45 10.1 00 For 2006-2007 (Rs in Lakhs): Assets Value of Additions Deletions of Assets of Assets Adjusted depreciated Value Buildings 12954.00 0.18.13 52.02 1.44 10.38.25 and 997.78.67.73 Machinery Furniture and 22.60 4.60 1.41.6 1.45 Plant and 580.73 3.31 Machinery Furniture and 7.58.42. However.32.74. This infers that as compared to 2007 the depreciation on the additions/deletions in 2008 have increased which means that the company has purchased assets more than selling.21.57 2.21.90 2.33 2.11 56.23. hence the depreciation on the adjusted addition/deduction is 945. E) Comparison of Rate of Depreciation For 2007-2008 .80 00.07 14.09.34 % depreciation to the Value of Asset 0.05 82.16 74.65 1.62 73.18 Plant and 63216.16 Fixtures Vehicles Software 12.06 1671.6 4.32.80 62.87 1.94. for the year 2007 the additions of assets are 1426.60.62 00 12.02.5 of the Assets The following points can be inferred by the data available: The total addition in the assets in the year 2008 is 18804 with respect to deductions of 8673.

it has used a lower rate of interest in comparison to rates prescribed in schedule 14.2 4. The company data shows that the value of assets as per their books is lesser than the one prescribed as per Schedule 14.15 98. F) The company follows Straight line method.78 4.33 9.32 .37 0.09 0.0 4.1 40 of Depreciation Value as per WDV Method 6.75 6.74 Furniture and 22.87 and 2742.05 4. or can also be for the fact that the age of the assets of the company is more.94 Analysis: The Company has not followed the rate as prescribed in schedule 14. hence if the company follows a written down method then the value of the Assets will be as follows: For 2007(in crore) Assets Value of Asset Rate Depreciation 5.63 2.99 Machinery Furniture and 34. this can be a measure adopted to avoid tax.42 Fixture Vehicles 12. this infers that the strategy of the company is to show lesser value for the assets.47 80.63 4. so depreciating them at the rate prescribed by Schedule 14 is not a viable option.3 13.55 Plant and Machinery 580.9 of Schedule Rate 1.1 18.91 18.45 Fixtures Vehicles Software 86.91 14 Deviation in % Buildings Plant 262.45 1.0 13.3 4.92 Buildings 129.Assets Depreciation Value % Depreciation charged 2.7 7.

98 Analysis: As the company has adopted SLM method in calculating depreciation it has led to overstated value of profits by 48.1 40 of Depreciation Value as per WDV Method 6.97 247.98 crores.32 2.96 Furniture and 18.0 13.15 69.For 2008 (in crore) Assets Value of Asset Rate Depreciation 5.66 48.64 32.96 Buildings 123. WDV overstate the value of the assets and SLM shows a lower value of assets which enable companies evade taxes.37 Fixture Vehicles 7.08 Plant and Machinery 499.99 81. Also the use of WDV method transpires that this method has an impact on the income of the company profit as it showing a lower value of PAT in this case.91 18. it can be inferred that rate of depreciation followed by WDV method reduces the value of the depreciation as compared to SLM method. . The aim of the company is to use SLM in a manner by which it can show the value of the certain assets higher in order to attract investors and shareholders and on the other hand show the value of assets lower than the exact in order to evade tax. G) Impact of Income Statement for the re-casted depreciation: Year 2008(in crores): Particulars PBDIT Add Depreciation as per SLM Method Less Depreciation as per WDV Method PAT Effect on income Amount 296.54 3.40 Analysis: After analyzing the above two tables.

Conclusion: Ceat Company is well established since 50 years and it is still showing a growth rate of 9%. may be this trend will follow the coming years as they would first wish to get the returns of investment that has been initiated from past 3 years. The company uses SLM method as in the case of most tyre industries in India. The company is also increasing its gross block value by investing continuously from since 4 years. . The company sales have increased tremendously from the past 3 years and the PAT value has also shown an increase of 3 fold. the year 2008 has shown has a low investment. however. The Gross Block has also increased due to an increase in current liabilities. The Net Profit Ratio is also increasing which shows the sign of growth for the company.

ceatyres.References 1) http://www.com/ 2) Capitaline .

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