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Financial Accounting – Financial Statement Analysis

Financial Accounting Project Assignment


Financial Statement Analysis

EGMP 45 - Group 2B
Narasimha Rao Pesala (EGMP45055)
Jaya Sharma (EGMP45066)
Sivani Shankar CVS (EGMP45065)
Ravi Rathore (EGMP45056)

Companies Analyzed:
Exide Industries Private Limited
Amara Raja Batteries Limited

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Financial Accounting – Financial Statement Analysis

Brief Introduction
Modernization has led to increased dependence of machinery in daily life and there has been a huge
surge in Batteries Market owing to the latest trends. Battery market in India is mainly driven by growth
in power sector, surging transportation needs, increasing battery integration in consumer electronics and
rising fuel saving initiatives. Several government measures such as promotion of solar power and clean
fuel based automobile technologies are anticipated to propel demand for batteries in the country over the
course of next five years. Moreover, rising investments in infrastructure developments coupled with
growing telecom sector is projected to bolster growth in the country’s battery market. Emergence of new
data transmission technologies such as 4G would require upgradation of technological infrastructure
such as establishment of new telecom towers, etc. This is projected to buoy growth in the country’s
battery industry in the coming years.
With this context, the group has chosen to analyze financial performance of two key market players in
the battery sector based on the financial statements available in public domain. The two companies
selected for the analysis are / and their brief profiles
Exide Industries Limited: For more than six decades, Exide has been one of India's most reliable
brands, enjoying unrivalled reputation and recall. Constant emphasis on innovation, extensive
geographic footprint, strong relationship with marquee clients and steady technology upgradations with
global business partners have made Exide a distinct frontrunner in the lead-acid storage batteries space
for both automotive and industrial applications.
Amara Raja Batteries Limited: Founded in 1985, Amara Raja Batteries Limited is engaged in
manufacturing of industrial and automotive batteries. ARBL was first to introduce Valve Regulated Lead
Acid (VRLA) batteries with three–year warranty in industrial and automotive applications. The
company is largest and dominant market leader of standby batteries in Railways, Telecom, Power
Generating stations in India. It is the largest manufacturer of stand VRLA batteries in South Asia. The
company has pan India presence with network spread across 18,000 retail outlets, 2,000 service hubs
and 400+ PowerZone retail outlets.
1. Strategy Analysis
BATTERY INDUSTRY IN INDIA:
The Indian battery space has been flooded by a wide range of batteries depending upon their application.
But, Lead-acid batteries are the most widely used battery in the market. The lead acid battery market can
be divided into two broad spectrums – automotive and industrial batteries– and finds wide application in
transportation, communications, power, defence, motive, solar and railway industries. The automotive
segment contributes more than 60% of the total turnover of the Indian lead acid battery market. Demand
for auto batteries can be divided into the OE (original equipment) market and the aftermarket segments.
In the industrial segment, batteries are used as a standby source of power for various applications like
Telecom, Railways, Utilities, UPS, Solar, Motive Power and Defence among others.
The global battery market per Amara Raja’s 2015-16 annual report, is projected to grow at a CAGR of
4.15% to reach a market size of USD17.26 billion by the calendar year (CY) 2021. The market in Asia-
Oceania is estimated to reach USD 9.51 billion by value terms during this period due to increasing
vehicle production. The global battery market is driven by growing integration of electronics, demand
for transportation, fuel saving, government incentives for cleaner transportation, new hybrid and electric
automotive models from original equipment manufacturers.

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Financial Accounting – Financial Statement Analysis

The Indian battery market is projected to grow at a CAGR of 16.5% till CY 2020. The battery industry
can be further segmented as organized and unorganized. Organized companies sell branded batteries
with warranties, while unorganized companies provide no warranty or after-sales, sell recycled batteries
and price them at 30-35% discount to branded ones. The organized battery segment accounted for 85%
of the industry size by value in the fiscal ended March 2016 (FY 2016). The share for the unorganized
segment is quite high (50-60%) in the CVs, tractors and three-wheeler markets. However, the market
share for the unorganized segment in the passenger vehicle market has fallen to 10-15%, and is mostly
in the replacement segments. The Passenger Vehicle Industry during the year under review grew by
about 9% over the previous year. The Commercial Vehicle Division grew by 3% after 12% growth last
year. Overall the 3 and 4-Wheeler market grew by about 5%. The 2-Wheeler Sales grew by around 6%.
Market Share
The battery market in India commands a certain branding power on account of being duopoly in nature
with top players’ viz. Exide Industries and Amara Raja Batteries Limited (Amara Raja) controlling ~90
% of the organized battery market. ABRL has strong brand equity in the Indian battery market with
flagship brands like Amaron and Power Zone targeting the urban and rural markets, respectively. Amara
Raja’s market share in different segments: 4-wheeler (OEM-26%, Replacement-34%), 2-wheeler
(Replacement – 24 %), UPS (32 %) and Telecom (46 %). The Company derives about 60 % of its
revenues from the auto segment and the rest from the industrial division, in which the company
primarily makes telecom and UPS batteries. Despite the slowdown in new vehicle sales, both Exide and
Amara Raja have remained largely unaffected as they have a huge market for replacing old batteries in
existing vehicles. The average life span of a battery ranges from 2-4 years and since the battery
replacement decision cannot be deferred, companies like Amara Raja and Exide are expected to benefit
immensely from the ever-increasing number of registered vehicles on the Indian roads.
Exide: Exide is India's largest storage battery company. The company manufactures a wide range of
storage batteries from 2.5 Ah to 15,000 Ah capacities, covering a broad spectrum of applications. Exide
is a leading player in battery industry and enjoys market share of 40% followed by Amara raja batteries.
Amara Raja: Amara Raja Batteries Ltd (ARBL) is one of the largest manufacturers of lead acid
batteries for both industrial as well as automotive sectors in India. ARBL is 26% owned by Johnson
Controls, a global leader in power solutions. Market share of ARBL is 35%. Amara Raja obtains three-
fourths of its auto segment revenues from the replacement markets.

Source: https://www.equitymaster.com/stock-research/compare/EXIDE-AMAR/Compare-EXIDE-INDUSTRIES-
AMARA-RAJA-BATT

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Financial Accounting – Financial Statement Analysis

Products
Exide

Amaron

KEY INPUTS
Exide:
 Sales of automotive batteries registered a double digit growth in volume in the financial year 2016-
2017 as compared to the previous year.
 Inspite of the competitive market conditions, Company continued to remain the preferred supplier to
most of the vehicle manufacturers in the country.
 The company registered a robust growth in the Industrial division. It has become the preferred choice
of majority of OEM’s in the UPS segment because of superior product performance, excellent after
sales service and cordial relationship with the customers.
 Company’s advanced VRLA products has received great response from the telecom customers and the
products have been found to be superior in charge acceptance and performance and the company has
made significant inroads in establishing itself as a preferred vendor in the Telecom segment.
 The Solar division had registered a robust growth and Exide has now forayed in offering the complete
package of modules, Solar Hybrid Inverters and Solar Batteries for the home usage of the customers.
 In Motive Power business, Exide continued to be the market leader in the domestic market and has
added new Distributors in Spain, Italy and France in the export market.
 Exide achieved the highest ever production and supply of submarine batteries in the financial year
2016-17 without adding any additional infrastructure, recording an impressive 38% growth over last
year.
 During the financial year 2016-17 the company received the first order from M/s Mazagon Dock
Shipbuilders Limited for indigenous battery for the new French Scorpene class submarine inducted
into the Indian navy.

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Financial Accounting – Financial Statement Analysis

 In the fiscal year 2016-17, both Automotive and Industrial have registered substantial growth -
primarily through penetrating into new markets and increasing the market shares in the existing
markets.
 For automotive batteries, during the financial year, Exide was able to increase its reach by entering
four wheeler battery markets in Uzbekistan, Indonesia, all GCC (Gulf Cooperation Council) countries
and selective African nations including Mozambique and Angola. As a result of such efforts made in
exports, there was a double digit growth in sales as compared to the previous financial year.
 For industrial batteries, during the year Exide increased its reach by entering into new traction markets
in Europe comprising of Spain, Italy and Greece while increasing its market share in Germany, the
biggest traction market of Europe. In the Standby segment, the Company made inroads into Chile,
Vietnam and Zambia.
Amaron:
 The Company's automotive battery business reported double digit revenue growth supported by good
volume increase in both four-wheeler and two-wheeler batteries, over the previous financial year.
 During the year, the Company fully utilized the first phase of expansion of the new four-wheeler
battery plant, consolidating its position. In four-wheeler OEM space, the Company grew its share by
growing beyond the 6% increase in automobile production
 The volume growth in both four-wheeler and two-wheeler aftermarket business continued during the
year due to strong preference for Company''s products, supported by complete product offering,
strengthening of brands Amaron® and Power Zone™, expansion of channel and leveraging customer
relationships.
 The volume from export business grew significantly at 45% over previous year. The focused market
strategy of the Company paid off leading to higher penetration and enhanced business.
Main Suppliers & Customers
Exide
Main suppliers & partners: Shin-Kobe-Japan, Furkawa- Japan, East Penn- USA
Main customers
Automotive division: Nissan, Hyundai, Honda, Toyota, GM, Fiat, Toyota, Renault, Volkswagen,
Mahindra, Tata, Maruti, Hero Motocorp, Ashok Leyland, Bajaj, TVS, Royal Enfield
Industrial division: Jungheinrich, Kion group, Eaton, GE, Ericson, Socomec, Cipla, Schneider electric,
Delta, Alcatel, Komatsu, Emerson, Hitachi, ABB, Mitsubishi Electric, godrej, Tata steel, L&T, BHEL,
BSNL, NTPC, Finolex
Amaron- Main customers
Automotive division: Maruti Suzuki, Tata, Daimler Benz, Honda Motors, Hyundai, VE Commercial,
Tafe Tractors, Honda, Volvo, Force Motors, M&M, Eicher

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Financial Accounting – Financial Statement Analysis

Industrial division: Indus Towers, Vodafone, BSNL, Socomec, IBM, Citi Bank, Bharti Airtel, Indian
Railways, Schneider, Emerson,TCS, Standard Chartered Bank, ATC, Reliance, Numeric, Idea,
Capgemini, Zensar, HCL, Tata Communications, Delta, Bharti Infratel, Infosys
Technology Advantages
Exide
 In order to maintain its leadership position, Exide had been continuously focussing on upgrading its
products and manufacturing technology as well as acquiring new and advanced technology to meet the
emerging expectations of the customers. The in-house Research & Development (R & D) Division is
recognised by the Department of Scientific and Industrial Research, Government of India, as a fully
accredited Research Centre in the field of energy storage.
 The in-house R&D also plays a major role in providing the interface between the Company priorities
and the adoption of collaborators technology. Exide has ongoing technical collaboration and assistance
agreements with East Penn Manufacturing Company Inc, USA, (EPM), a leading US manufacturer of
lead acid batteries and related items.
 The introduction of state of the art Punched Grid Technology ensures electrodes with superior
corrosion resistance which optimises product consistency and allows for high levels of productivity.
 Additionally, Company has a long standing technical cooperation agreement with Hitachi Chemicals
Co. (formerly, Shin Kobe Electric Machinery Co.), Japan, for a variety of automotive as well as VRLA
industrial range of products. The other ongoing technical cooperation program is with Furukawa
Batteries, Japan and it covers some very advanced maintenance free batteries for 4 Wheeler and 2
Wheeler vehicles.
 During the year under review, Exide has signed a technology co-operation agreement for the design
and manufacture of ‘Lithium Ion’ family of products with Chaowei Group, a large, renowned company
of China.
 With bulk energy storage being a major priority in the country, Exide has signed two technical
collaboration agreements during the year under review: (a) with EPM for Ultra Battery Technology for
Stationary Industrial Applications viz., integration of a lead acid battery with an Ultra Capacitor; and
(b) with Smart Storage Pty Ltd (ECoult, Australia), a hundred percent subsidiary of EPM.
Amaron
 The Company is establishing a 14 mn capacity greenfield unit for manufacturing two-wheeler batteries
at its Chittoor facility. The team is working on implementing the punch grid technology which holds
the potential of reducing lead consumption and optimising cost of operations. In addition, the
Company has strategised on investing in an automated solution for material handling and storage.
 The company introduced state-of-the-art VRLA (value regulated lead acid) technology in industrial
batteries and soon emerged as market leader in this segment.In the MVRLA battery unit, the team
plans to work on six sigma initiatives and continuous improvements which will further increase the
plant’s rated capacity – obviating the need for any brownfield expansion.
 The company has launched switch-mode rectifiers with a technology tie-up from Rectified
Technology, Australia

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Financial Accounting – Financial Statement Analysis

 Brought in high warranty, energy efficient products in dominant user segments


 Intensified APP (Alliance for Partner Performance) Programme
 The team increased technologyadoption for DC operations namely Barcode, Auto Shipment note, and
e-POD for faster and accurate information capture and transmission to the customer.
 The Company has launched "Amaron Pit Stops", a distribution network through franchises
Key Changes In Management
Exide
 Board appointed Mr. Bharat D Shah as the Chairman of the Board of Directors.
 Mr. R. B. Raheja, Non-Executive Director and Mr. Subir Chakraborty, Director - Automotive, retire by
rotation at the ensuing Annual General Meeting and being eligible offer themselves for re-
appointment.
 During the year, Mr. Nadeem Kazim, Whole-time Director designated Director-HR & Personnel
resigned w.e.f. 28th November, 2016 and the following directors/executives continued as Key
Managerial Personnel of the Company:
 Mr. Gautam Chatterjee, Managing Director & CEO Mr. A. K. Mukherjee, Director - Finance & CFO
Mr. Subir Chakraborty, Director - Automotive Mr. Arun Mittal, Director - Industrial Mr. Jitendra
Kumar, Company Secretary & Sr. Vice President – Legal
Amaron
 Mr. Nagarjun Valluripalli, Mr. N Sri Vishnu Raju, Mr. T R Narayanaswamy, Mr. Raymond J Brown
and Ms. Bhairavi Tushar Jani were appointed as an Independent Directors of the Company.
 Dr. Ramachandra N Galla, Chairman (DIN : 00133761) is liable to retire by rotation at the ensuing
annual general meeting and being eligible offer himself for re-appointment
 Mr. Bruce Ronning Jr. (DIN: 06938974) resigned from the Board with effect from February 1, 2016
and Mr. Raphael John Shemanski (DIN 07462586) was appointed as an Additional Director on the
Board with effect from March 19,2016, who hold office up to the date of the ensuing annual general
meeting
 Mr. Jayadev Galla, Vice Chairman and Managing Director, Mr. S V Raghavendra, Chief Financial
Officer and Mr. M R Rajaram, Company Secretary are the key managerial personnel of the Company
 Mr. Raphael John Shemanski had been appointed as a director

Mergers & Acquisitions

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Financial Accounting – Financial Statement Analysis

Exide:Two of Exide's wholly owned subsidiaries Chloride Metals and Chloride Alloys, engaged in the
business of recycling old batteries and lead smelting, have been merged into one single corporate entity
called Chloride Metals Ltd. The merger came into effect from March 1, 2016.
Amaron:No Mergers and acquisitions have been done by the company between FY2015-2016 &
FY2016-2018
Economic events
The economic environment for the year 2016-17 was dominated by the single event of demonetisation
of larger currency notes in November 2016. While this had certain positives for the battery industry, in
that it rang the death knell for the largely illegal and unorganised sector of the economy, it also meant a
temporary setback in certain product categories like two wheeler battery.On the external front several
developments took place that will have significant implications for the Indian economy. To be precise,
these two external developments are of importance. In the short run, the outlook for global interest rates
have changed in the aftermath of the US elections. India’s capital flows and exchange rates would be
impacted by US fiscal and monetary policy.
Exide-Effect of Lead Price Movement: Lead and Lead Alloys are the primary materials consumed in the
manufacturing of batteries representing more than 70% of total material consumption by value. Exide
procures about 30% of its Lead and Lead Alloys requirement through imports or import parity pricing
based on prices quoted on London Metal Exchange (LME). The balance 70% is procured locally at
prices which are influenced by demand/ supply situation as well as LME movement.
Exide procures Lead and Lead Alloys mostly at current prices or on LME averages and there is no long-
term contract for pricing. About 30% of Company’s business with OEM’s as well as institutional
customers is having “Lead price variation clause” and thus this portion of the business is protected from
lead price volatility. The balance 70% of the Company’s business to retail customers is exposed to lead
price volatility the risk of which is reduced to an extent by increasing the usage of recycled lead which
is cheaper than pure lead and not directly exposed to LME price movement.
The exposure to currency fluctuations and its impact on Company’s business is significant since about
30% of Lead and Lead Alloys procurement is based on “import parity price”. Further, Exide imports few
other materials and capital goods. Exports which constitute about 5% of the Company’s business, acts as
an automatic hedge against risks resulting from currency fluctuation.
Amaron- The recent developments in the telecom market, with the new entrant, had disrupted the
revenue models of all Telcos and tower companies forcing to relook at their cost structures. This had
impacted the volume off-take for replacement batteries in the industrial battery business during the last
quarter. In addition, the increase in lead price presented challenging market conditions in both Telecom
and UPS segments. Under this competitive environment, the Company's industrial battery business
achieved a moderate growth in volume in industrial battery business during the year. The industrial
battery business improved the overall performance by virtue of its "preferred supplier status” with all
major customers, efficient after sales service, customer relationship management and consistent product
performance of its flagship brands Power Stack®, Quanta® and QRS Series battery
Sources:https://economictimes.indiatimes.com/amara-raja-batteries- d/directorsreport/companyid-12713.cms

https://economictimes.indiatimes.com/exide-industries-ltd/directorsreport/companyid-13895.cms

2. Accounting Analysis

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Financial Accounting – Financial Statement Analysis

Exide Industries Limited-The financial statements of the Company have been prepared in accordance
with the generally accepted accounting principles in India (Indian GAAP). The Company has prepared
these financial statements to comply in all material respects with the accounting standards notified under
section 133 of the Companies Act, 2013, read together with paragraph 7 of the Companies (Accounts)
Rules, 2014. The accounting policies adopted in the preparation of financial statements are consistent
with those of previous year. Starting from April 01, 2016, IND-AS Accounting Standards as prescribed
by Ministry of Corporate Affairs have become applicable to the Company and the Accounting Policies
would undergo necessary changes.
*As per the annual reports of 2015 -16 and 2016-17, there are no significant changes to the accounting
policies.
Amara Raja Batteries Limited-The Financial statements have been prepared in accordance with
Indian Accounting Standards (Ind ASs) notified under Section 133 of the Companies Act, 2013, read
together with the Companies (Indian Accounting Standards) Rules, 2015 and Companies (Indian
Accounting Standards) Amendment Rules, 2016 as applicable. Upto the year ended March 31, 2016, the
Company prepared its Finanancial statements in accordance with the requirements of previous GAAP,
which includes Standards notified under Section 133 of the Companies Act, 2013 read together with
Rule 7 of the Companies (Accounts) Rules 2014 ("Previous GAAP"). These are the Company’s First Ind
AS Financial statements. The date of transition to Ind AS is April 1, 2015. Reconciliations and
description of the effect of the transition to IndAS from previous GAAP.
3. Financial Analysis
Horizontal Analysis- Property, Plant and Equipment (Fixed Assets) has been increased from 2015 to
2016 by 16% and increased from 2016 to 2017 by 21%. Capital Work in Progress has increased from
2015 to 2016 by 68%. After that there is a significant reduction in Capital Work in Progress in 2017
which is by 23%. The Reinsurance Asset cost is increased due to increase fixed Assets. Financial Assets
have been increased through Investments of Life Insurance Business by 6% and 16% respectively in
2016 and 2017. No significant change in Trade Receivables. Loans and Deposits have been slightly
increased. However, there is significant increase in other financial Assets. Inventory has reduced from
2015 to 2016 due to better inventory management. However, there is a significant increase in
Inventory in 2017. No significant change in short term investments. From 2015 to 2016 there is a
marginal increase in Revenue and significant reduction in cost of sales and the gross profit has
significantly gone up. In fact, significant cash is paid for the excise duty and this resulted in less profit.
From the year 2016 to 2017 there is a significant increase in revenue, cost of sales and accordingly the
gross margin as well. There is a significant increase in finance cost from 2015 to 16 which resulted in
less net profit for the year 2016. Similarly, for 2016 to 17 as well the net profit has come down.

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Financial Accounting – Financial Statement Analysis

 Common Size Analysis


Cost of sales has come down from 54% to 52% from 2015 to 2016. It means company might have
initiated certain cost saving measures which results increase in gross profit by 13%.

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Financial Accounting – Financial Statement Analysis

PPE has gone by 6% from 2015 to 2016 and due to this non-current asset has been increased by 6%.
However, there is slight drop in non-current assets from 2016 to 17. Trade receivable started coming
down year on year which shows company could recover the receivables better. Inventory was increasing
year over year and requires good inventory management practices.
 Ratio Analysis
Profitability ratios
Profit represents the excess of revenue over expenses for a period. Profit is a number but is that number
a good number or an ideal number for the business considering the scale and size of business.
Exide Industries Limited Amara Raja Batteries Ltd

Type of Ratio Definition 2017 2016 2015 2017 2016 2015

Gross Profit Gross Profit


Margin Ratio 12.05% 11.91% 10% 11.74% 13.94% 13.15%
Rev from Operations

Net Profit Net Profit


Margin Ratio 6.59% 6.72% 5.97% 8.00% 9.48% 8.86%
Rev from Operations

Return of PBIT
Funds/Capital 29.11% 28.17% 25.77% 27.08% 34.15% 34.18%
Employed FA+CA-CL

Return on Total PBIT


Assets (ROTA) 21.83% 19.91% 19.97% 19.59% 24.49% 25.53%
(or) ROI (FA+ Investments+ CA)

Return of Profit before Taxes


Equity (ROE) 21.73% 22.53% 21.81% 27.08% 34.15% 34.18%
Shareholders’ fund

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Financial Accounting – Financial Statement Analysis

In case of Exide, ROTA and ROCE both has marginally increased from 2015 to 2017 where as in case
of Amara Raja batteries it is decreased.
Asset management or Turnover ratios
Asset Turnover Ratio
Exide Industries Limited Amara Raja Batteries Limited

2016-17 2015-16 2014-15 2016-17 2015-16 2014-15

Total revenue (Crores) 12,297.85 10,481.13 9,630.10 6,030.63 5,230.22 4,679.47


Total Asset (Crores) 17,765.26 15,370.43 13,972.92 3,584.57 2,950.76 2,388.95
Asset turnover ratio 0.69 0.68 0.69 1.68 1.77 1.96

Fixed Asset Turnover Ratio


Exide Industries Limited Amara Raja Batteries Limited

2016-17 2015-16 2014-15 2016-17 2015-16 2014-15

Sales & operating income (Cr) 12,195.14 10,418.19 10,321.06 5,981.39 5,184.34 4,637.17
Fixed assets (or) net block (Cr) 2,281.21 1,988.29 1,786.31 1,492.14 1,352.01 944.27
Fixed asset turnover ratio 5.35 5.24 5.78 4.01 3.83 4.91

In case of Exide, the performance in 2016-17 as compared to the previous years in terms of efficiency of
asset management shows a different picture based on the total assets. However, the difference is very
small and hence we can conclude that company is maintaining the efficiency of asset utilization. The
company is showing slight deterioration in both fixed assets and current assets turn over ratios. In other
words, efficiency of asset utilization has slightly deteriorated in 2016-17 compared to the previous
years. The fixed asset turnover ratio is better in case of Exide than Amara Raja batteries.
Current Asset Turnover Ratio
Exide Industries Limited Amara Raja Batteries Limited

2016-17 2015-16 2014-15 2016-17 2015-16 2014-15

Sales and operating income (Cr) 12,195.14 10,418.19 10,321.06 5,981.39 5,184.34 4,637.17
Current assets (Cr) 4,835.29 4,184.00 3,724.26 1,758.62 1,408.14 1,269.63
Current assets turnover ratio 2.52 2.49 2.77 3.40 3.68 3.65

In case of Exide, the investment in current assets has gone up from 3,724.26 (in 2015) crores to 4,835
crores (in 2017), it is expected to generate additional sales. Since the current asset turnover ratio has
dropped down during the year in 2016, it means additional investment in current assets has not
brought additional sales and the efficiency of conversion cycle has not improved. Where as in case of
Amara Raja batteries the additional investment in current assets has brought additional sales and the
efficiency of the conversion cycle has improved.
Inventory Turnover Ratio
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Financial Accounting – Financial Statement Analysis

Exide Industries Limited Amara Raja Batteries Limited

2016-17 2015-16 2014-15 2016-17 2015-16 2014-15

Cost of goods manufactured (Crores) 10,828.49 9,240.27 8,597.84 5,328.42 4,507.58 4,069.60
Inventories (Crores) 1,702.01 1,245.88 1,646.36 816.95 601.64 418.13
Inventory turnover ratio 6.36 7.42 5.22 6.52 7.49 9.73
No. of inventory days (365/Inventory 57 days 49 days 69 days 56 days 49 days 38 days
turnover ratio)

Exide: Inventory turnover ratio has significantly improved from 2015 to 16 and then reduced in 2017.
The inverse of this ratio shows the investments in inventory per rupee of costs of goods manufactured.
For every rupee of cost of goods manufactured, the company requires an investment of 16 paise, 13
paise and 19 paise respectively for the years 2017, 2016 and 2015. The number of days of inventory that
the company was holding was 57 days, 49 days and 69 days respectively for 2017, 2016 and 2015.
There was a significant improvement from 69 to 57 days of holding the inventory.
Amara Raja Batteries: In case of Amara Raja batteries number of inventory days has increased
comparatively not good when compared to 2015.
Receivable Turnover Ratio
Exide Industries Limited Amara Raja Batteries Limited

2016-17 2015-16 2014-15 2016-17 2015-16 2014-15

Total revenue (Crores) 12,195.14 10,418.19 10,321.06 5,981.39 5,184.34 4,637.17


Average trade receivables (Crores) 738.57 718.73 688.71 570.49 592.15 554.10
Receivable Turnover Ratio 16.51 14.50 14.99 10.48 8.76 8.37

Receivable turnover ratio has increased in accordance with total revenue generated in both in case of
Exide and Amaron.
Liquidity ratios - Current Ratio
Exide Industries Limited Amara Raja Batteries Limited

2016-17 2015-16 2014-15 2016-17 2015-16 2014-15

Current assets 4,835.29 4,184.00 3,724.26 1,758.62 1,408.14 1,269.63


Current liabilities and provisions 2,607.53 2,325.95 2,165.56 759.62 637.80 457.43
Current ratio 1.85 1.80 1.72 2.32 2.21 2.78

An increase in current ratio normally means increase in liquidity position. Normally, current ratio of 2 is
considered good since it means current assets are twice that of current liabilities. Since current ratios
are close to 2 means firm will comfortably honor the payments on due dates with a small delay even
if one out of two consumers pay their dues. In case of Amaron it is very good as current ratio is more
than two for all the years.

Quick Ratio or Acid-test Ratio

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Financial Accounting – Financial Statement Analysis

Exide Industries Limited Amara Raja Batteries Limited

2016-17 2015-16 2014-15 2016-17 2015-16 2014-15

Current assets – Inventory (Crores) 3,133.28 2,938.12 2,077.90 941.67 806.50 851.50
Current liabilities (Crores) 2,607.53 2,325.95 2,165.56 759.62 637.80 457.43
Quick ratio 1.20 1.26 0.96 1.24 1.26 1.86

Quick ratio has improved from 0.96 to 1.20. Normally, a quick ratio of 1:1 is acceptable. In both the
cases, it is higher than 1 which means the most liquid assets of a firm are equal to current liabilities, then
the firm would be able to meet such liabilities on time. Quick ratio is very good in case of Amara Raja
batteries.
Cash Ratio
Exide Industries Limited Amara Raja Batteries Limited

2016-17 2015-16 2014-15 2016-17 2015-16 2014-15

Cash and cash equivalents (Crores) 314.98 286.65 201.15 100.74 78.42 74.60
Current liabilities (Crores) 2,607.53 2,325.95 2,165.56 759.62 637.80 457.43
Cash ratio 0.12 0.12 0.09 0.13 0.12 0.16

A cash ratio of 1.00 and above means that the business will be able to pay all its current liabilities in
immediate short term. Therefore, creditors usually prefer high cash ratio. But businesses usually do not
plan to keep their cash and cash equivalent at level with their current liabilities because they can use a
portion of idle cash to generate profits. This means that a normal value of cash ratio is somewhere below
1.00. In both Exide and Amaron case the cash ratio is too low.
Leverage Management- The debt-to-capital ratio and debt-to-equity of both the companies are
significantly low. Hence, we can say that both the companies are zero-debt companies.
Exide Industries Limited Amara Raja Batteries Ltd

Type of Ratio Definition 2017 2016 2015 2017 2016 2015

Debt-to-Capital Long-term debt


0.01% 0.02% 0.03% 1.93% 2.46% 3.10%
Ratio Total capital

Debt-to-equity Long-term debt


0.02% 0.06% 0.08% 2.66% 3.43% 4.15%
Ratio Shareholders’ fund

4. Additional Analysis- Amara Raja batteries is doing good in terms of gross profit, net profit,
ROCE and ROTA. The return of equity is higher compared with Exide. The fixed asset ratio is better in
case of Exide than Amara Raja batteries. Current Asset ratio is better in case of Amara raja than Exide.
Exide is doing better in case of Inventory management. Receivable turnover ratio has increased in
accordance with total revenue generated in both in case of Exide and Amara Raja. Amara Raja batteries
is maintaining very good short term liquidity ratio (both current ratio and quick ratio) when compared
with Exide industries. We would invest in Amara Raja batteries due to higher operation efficiency,
gross/net margin (EBIT) which they are maintaining when compared with Exide.

EGMP 45- Group 2B Page 14