Context: We have considered the following 7 companies pertaining to “Tyres: Large

industry” for our analysis. These are: MRF Ltd, JK Tyre & Industries Ltd, TVS Srichakra Ltd,
CEAT Ltd, Apollo Tyres Ltd, Goodyear India Ltd and Bridgestone India Ltd.

Summary:
 CVP index is highest for CEAT in the industry and Apollo’s CVP is close to CEAT. CVP
for other firms is much lower and unhealthy; CVP for JK is 0 due to CM% being 0.
 Variable cost for all firms is on higher side (greater than 75%) which indicates Fixed
cost is on lower side across firms in industry. This indicates Operating Leverage to be
low for all these firms.
 Raw material is the major contributor in Variable cost across all firms and is above
60% except for CEAT (49%) and TVS tyres (55%).
 Selling & Administration cost is highest for TVS and accounts to 16% variable cost.
For CEAT and JK, it makes up 11% and 10% respectively. For other firms its much
lower.
 Most of the firms are not labour intensive in economic terms as Employee cost
variable cost% is usually lower than 10% for most firms.
 Excepting Apollo and MRF, none of the other firms are not keeping significant
Finished goods inventory indicated by low “Closing FG Inventory cost” in 2019.
 MOS is healthy for most firms except JK Tyres where its negative due to CM% being
below 0. This can be due to forecasted sales being much higher than actual sales
leading to negative Margin of Safety.

Metrics MRF JK TVS CEAT Apollo Goodyear Bridgestone

Net Sales (2019 in Crores) 15,837 7,613 2,382 6,831 12,354 1,912 3,055
Variable cost 89% 100% 91% 77% 89% 93% 76%
Raw Materials 63% 68% 55% 49% 61% 65% 73%
Power & Fuel Cos 4% 3% 4% 2% 3% 4% 7%
Employee Cost 8% 10% 13% 8% 7% 11% 15%
Selling & Administration
8% 10% 16% 11% 4% 0% 5%
Expenses
Other Manufacturing
5% 1% 4% 2% 9% 11% 14%
Expenses
Miscellaneous Expenses 1% 9% 0% 5% 5% 2% 0%
Total Fixed cost (in Rs. Crores) 1,188 867 109 847 475 91 261
Contribution Margin 11% 0% 9% 23% 11% 7% 24%
MOS as % of BEP sales 50% -103% 87% 82% 184% 40% 178%
CVP Index 0.169 - 0.160 0.410 0.311 0.020 0.150
Return measure
1.50 -0.03 1.87 1.82 2.84 1.40 2.78
(Current sales/BEP sales)
COGM (2019 in Rs. Crores) 14,901 10,707 2,089 5,744 10,877 1,839 6,620
COGS (2019 in Rs. Crores) 14,354 10,546 2,040 5,553 10,650 1,843 6,545
Closing WIP Inventory cost
271 66 33 33 142 7 48
(2019 in Rs. Crores)
Closing FG Inventory cost
1,260 593 143 335 1,010 98 360
(2019 in Rs. Crores)
Gross Profit (2019 in Rs. Crores)
1,483 -2,933 342 1,278 1,704 69 -3,490
(Net Sales - COGS)

Note:
  COGM = Opening WIP Inventory + Manufacturing cost + PPE Depreciation - Closing
WIP Inventory
 COGS = Opening FG Inventory + COGM - Closing FG Inventory

Industry trends across time period:

 Industry saw a growth from INR 10.3K Crores to INR 49.9K Crores which is a CAGR of
15.38% while Total costs increased at CAGR of 16.05% (from INR 8.8K Crores to INR
45.5K Crores).
 There was an increase in both Net sales and Total cost in the year 2016. The increase
is mainly driven by “Selling & Administration expense” and “Employee cost” increase
in that year, other costs didn’t increase significantly.
 Raw material is the major contributor of total costs and is completely variable in
nature. Since 2017, Raw material cost has increased leading to increase in Total
costs; Net sales has also increased in same period.
Costs: Power, Oil & Fuel, Emp cost, Manu exp, S&A esp, Misc exp

Yearly trend of Tyre-Large industry of 7 firms

60,000 4,500

Net sales, Total costs, Raw Material cost

4,000
50,000
3,500

40,000 3,000

2,500
30,000
2,000

20,000 1,500

1,000
10,000
500

- -
2009 2010 2011 2012 2013 2014 2016 2017 2018 2019

Power, Oil & Fuel Employee cost  Other Manufacturing Expenses Selling & Distribution
 Miscellaneous Expenses    Net Sales Total cost  Raw Materials

Note:
 The industry trends shown above is by obtained adding individual 7 firms analysed.
 2015 isn’t included in above analysis as data isn’t available for few firms in 2015.
Company: MRF Ltd

Metric Value
Variable cost 89%
Contribution Margin 11%
Fixed cost (Rs in Crs.) 1,188
BEP Sales (Rs in Crs.) 10,540
Current Sales (Rs in Crs.) 15,837
MOS (Rs in Crs.) 5,297
CVP Index 0.17

MRF has low fixed cost (7.5% of current year sales) and significantly high variable cost,
which is very good as it reduces the overall risk of business. This indicates Operating
Leverage is low which will not adversely affect the company during bad times.

The breakdown of 89% variable cost is mostly driven by Raw materials which makes up 63%
of the 89% variable cost. This indicates that Raw material cost determines the Variable cost
and Total cost in the company.

In variable cost:
 Employee cost is driven by “Salaries, Wages & Bonus” which makes up 7% of the 8%
Employee costs
 Selling & Distribution expense cost share is quite evenly distributed across several
components such as “Distribution expense”, “Advertisement”, “Rent & Taxes”,
“Other S&D”

Split of 89% Variable costs by components

9% 9% 1%
6%
4%

71%

 Employee Cost +  Miscellaneous Expenses +

 Other Manufacturing Expenses +  Power & Fuel Cost+
 Raw Materials +  Selling and Administration Expenses +

Margin of Safety is healthy as it is 50% of the BEP sales.

However, CVP index of 0.17 is very low and it is not a good sign. The Return measure is 0.11
(CM% which is 11%) and Risk measure is 1.5. Both are not in a very healthy zone and can be
improved. Return measure can be improved by shifting some of variable costs to Fixed cost
(by means of automation etc.) but it will also increase break-even point and reduce Risk
measure. This is a suggestion.

Manufacturing cost in 2019 (Rs in Crs.)

Raw Materials 10,250.26
Power & Fuel Cost 762.93
Employee Cost 1,144.28
Other Manufacturing Expenses 821.46
Depreciation (Plant & Machinery) 1983.75
Total cost of manufacturing & PPE
14,962.68
Depreciation

Raw materials form a major component of the Total cost of Manufacturing (69% which is
10.2K/14.9K) and eventually COGM. This company is not labour intensive in economic
terms.

COGM schedule in 2019 (Rs in Crs.)

Closing Stock Of WIP 271.48
Total cost of manufacturing &
14,962.68
PPE Depreciation
Opening Stock of WIP 210.14
COGM 14,901.34

The closing working in progress value is insignificant compared to the annual COGM. This is
a good practice. This indicates minimum amount is invested in WIP.

COGS schedule in 2019 (Rs in Crs.)

Opening stock of Finished Goods 712.48
COGM 14,901.34
Closing Stock of Finished goods 1,259.74
COGS. 14,354.08

The opening Finished Goods in 2019 (which is Closing Finished Goods of 2018) is minimal
and indicated good practice of keep low Finished goods inventory. However, the closing
Finished Goods of 2019 is quite higher than last year (in fact is the highest in last 10 years)
and indicates all manufactured units weren’t sold and this will affect inventory storage cost.

Note:
 COGM = Opening WIP Inventory + Manufacturing cost + PPE Depreciation - Closing
WIP Inventory
 COGS = Opening FG Inventory + COGM - Closing FG Inventory
Company: JK Tyre & Industries Ltd

Metric Value
Variable cost 100%
Contribution Margin -0.29%
Fixed cost (Rs in Crs.) 867
BEP Sales (Rs in Crs.) -2,97,449
Current Sales (Rs in Crs.) 7,613
MOS (Rs in Crs.) 3,05,063
CVP Index 0

JK Tyre is running mostly on variable cost and its significantly high, fixed cost is very minimal.
This indicates low Operating Leverage. Variable cost makes up 100% of cost which renders
CM% and BEP sales as negative values.

The breakdown of 100% variable cost is mostly driven by Raw materials which makes up
68% of the 100% variable cost. This indicates that Raw material cost determines the Variable
cost and Total cost in the company. Selling and Administration Expenses and Employee cost
shares makes up 10% each of total variable cost

In variable cost:
 Employee cost is driven by “Salaries, Wages & Bonus” which makes up 7% of the
10% Employee costs
 “Distribution expense” makes up majority of Selling & Distribution expense and it
makes up 6% of the 10% Selling & Distribution expense
 Miscellaneous Expenses makes up 9% of total variable cost and seems quite high

Split of 100% variable cost into components

10% 10%
9%
1%
3%

68%

 Employee Cost +  Miscellaneous Expenses +

 Other Manufacturing Expenses +  Power & Fuel Cost+
 Raw Materials +  Selling and Administration Expenses +

However, CVP index is 0 and it is not at all a good sign. The Return measure is negative (CM
% which is -0.29%) and Risk measure is also negative. Both are not in a very healthy zone
and can be improved. Return measure can be improved by shifting some of variable costs to
Fixed cost (by means of automation etc.). This will reduce variable cost%-> increase Fixed
costs and CM% (than current negative) -> increase BEP and MOS.

Manufacturing cost & PPE Depreciation in 2019

(Rs in Crs.)
Raw Materials 5,344.54
Power & Fuel Cost 256.49
Employee Cost 565.25
Other Manufacturing Expenses 74.98
Depreciation (Plant & Machinery) 4485.33
Total cost of manufacturing & PPE Depreciation 10,726.59

Raw materials form a major component of the Total cost of Manufacturing (50% which is
5.3K/10.7K) and eventually COGM. This company is not labour intensive in economic terms.

COGM schedule in 2019 (Rs in Crs.)

Closing Stock Of WIP 66.49
Total cost of manufacturing &
10,726.59
PPE Depreciation
Opening Stock of WIP 47.03
COGM 10,707.13

The closing working in progress value is insignificant compared to the annual COGM. This is
a good practice. This indicates minimum amount is invested in WIP.

COGS schedule in 2019 (Rs in Crs.)

Opening stock of Finished Goods 432.63
COGM 10,707.13
Closing Stock of Finished goods 593.41
COGS. 10,546.35

Opening and Closing Finished goods in 2019 is quite high and in similar range. This indicates
JK tyres have the habit of keeping significant amount of Closing Finished goods in both 2018
and 2019 consecutive years. This isn’t a good practice, need to better plan.

Note:
 COGM = Opening WIP Inventory + Manufacturing cost + PPE Depreciation - Closing
WIP Inventory
 COGS = Opening FG Inventory + COGM - Closing FG Inventory
Company: TVS Srichakra Ltd

Metric Value
Variable cost 91%
Contribution Margin 9%
Fixed cost (Rs in Crs.) 109
BEP Sales (Rs in Crs.) 1,275
Current Sales (Rs in Crs.) 2,382
MOS (Rs in Crs.) 1,106
CVP Index 0.16

TVS has low fixed cost (5% of current year sales) and significantly high variable cost, which is
very good as it reduces the overall risk of business. This indicates Operating Leverage is low
which will not adversely affect the company during bad times.

The breakdown of 91% variable cost is mostly driven by Raw materials which makes up 55%
of the 91% variable cost. This indicates that Raw material cost determines the Variable cost
and Total cost in the company. Selling and Administration Expenses (16% of 91%) &
Employee cost shares (13% of 91%) are also quite high for TVS and make up a good part of
variable cost

In variable cost: Employee cost is driven by “Salaries, Wages & Bonus” which makes up 11%
of the 13% Employee costs. Selling & Distribution expense cost share is quite evenly
distributed across several components such as “Distribution expense”, “Advertisement”,
“Rent & Taxes”, “Other S&D”

Split of 91% variale cost into components

17% 14%
0%
4%
4%

60%

 Employee Cost  Miscellaneous Expenses

 Other Manufacturing Expenses  Power & Fuel Cost
 Raw Materials     Selling and Administration Expenses

Margin of Safety is healthy as it is 87% of the BEP sales.

However, CVP index of 0.16 is very low and it is not a good sign. The Return measure is 0.09
(CM% which is 9%) and Risk measure is 1.9. Both are not in a very healthy zone and can be
improved. Return measure can be improved by shifting some of variable costs to Fixed cost
(by means of automation etc.) but it will also increase break-even point and reduce Risk
measure.

Manufacturing cost & PPE Depreciation in 2019

(Rs in Crs.)
Raw Materials 1,514.16
Power & Fuel Cost 99.78
Employee Cost 260.05
Other Manufacturing Expenses 91.71
Depreciation (Plant & Machinery) 140.48
Total cost of manufacturing & PPE Depreciation 2,106.18

Raw materials form a major component of the Total cost of Manufacturing (72% which is
1.5K/2.1K) and eventually COGM. This company is not labour intensive in economic terms.

COGM schedule in 2019 (Rs in Crs.)

Closing Stock Of WIP 32.69
Total cost of manufacturing &
2,106.18
PPE Depreciation
Opening Stock of WIP 15.53
COGM 2,089.02

The closing working in progress value is insignificant compared to the annual COGM. This is
a good practice. This indicates minimum amount is invested in WIP.

COGS schedule in 2019 (Rs in Crs.)

Opening stock of Finished Goods 93.38
COGM 2,089.02
Closing Stock of Finished goods 142.56
COGS. 2,039.84

The opening Finished Goods in 2019 (which is Closing Finished Goods of 2018) is minimal
and indicated good practice of keep low Finished goods inventory. However, the closing
Finished Goods of 2019 is quite higher than last year (in fact is the highest in last 10 years)
and indicates all manufactured units weren’t sold and this will affect inventory storage cost.

Note:
 COGM = Opening WIP Inventory + Manufacturing cost + PPE Depreciation - Closing
WIP Inventory
 COGS = Opening FG Inventory + COGM - Closing FG Inventory
Company : CEAT Ltd

Metric Value
Variable cost 77%
Contribution
23%
Margin
Fixed cost 847
BEP Sales 3,762
Current Sales 6,831
MOS 3,069
CVP Index 0.41

MRF is has low fixed cost (12.4% of current year sales) and high variable cost, which is very
good as it reduces the overall risk of business.

Margin of Safety is very good , it is 81.6% higher than BEP sales.

CVP index of 0.41 is low and it is not a good sign.

Manufacturing cost .
 Raw Materials + 4,334.56
 Power & Fuel Cost+ 212.86
 Employee Cost + 503.9
 Other Manufacturing Expenses + 521.68
 Depreciation+ 174.3
total cost of manufacturing 5,747.30

Raw materials forms a major component of the COGM (4334.56 / 5743.9 = 75.41%)
This company is not labour intensive in economic terms.

COGM computation .
Closing Stock Of WIP 32.73
total cost of manufacturing 5,747.30
Opening Stock of WIP 29.33
COGM 5,743.90

The closing working in progress value is insignificant compared to the annual COGM. This is
a good practice. This indicates minimum amount is invested in WIP.

COGS Computation .
Opening stock of Finished Goods 525.8
COGM 5743.9
Closing Stock of Finished goods 334.95
 COGS. 5553.05

The company is maintaining minimal inventory, compared to their annual sales.

This is a very good symptom, where inventory storage costs are minimal.
There is not much significant difference between COGS and COGM.

Note:
 COGM = Opening WIP Inventory + Manufacturing cost + PPE Depreciation - Closing
WIP Inventory
 COGS = Opening FG Inventory + COGM - Closing FG Inventory

Company: Apollo Tyres

Metric Value
Variable cost 89%
Contribution Margin 11%
Fixed cost ( Crore) 475
BEP Sales ( Crore) 4,347
Current Sales (crore) 12,354
MOS (Crore) 8,007
CVP Index 0.31

Apollo has low fixed cost (3.84% of current year sales) and high variable cost, which is very
good as it reduces the overall risk of business.

Margin of Safety is very good , it is 184.2% higher than BEP sales.

CVP index of 0.31 is low and it is not a good sign.

Manufacturing cost ( Crore)

 Raw Materials 8,319.37
 Power & Fuel Cost 404.14
 Employee Cost 737.24
 Other Manufacturing Expenses 406.04
 Depreciation 1,044.63
10,911.42
total cost of manufacturing

Raw materials forms a major component of the COGM (8319.37 / 10876.83 = 76.49%)
This company is not labour intensive in economic terms.

COGM computation ( Crore) .

Closing Stock Of WIP 141.51
10,911.42
total cost of manufacturing
Opening Stock of WIP 106.92
10,876.83
COGM
The closing working in progress value is insignificant compared to the annual COGM. This is
a good practice. This indicates minimum amount is invested in WIP.

COGS Computation ( Crore) .

Opening stock of Finished Goods 783.26
10,876.83
COGM
Closing Stock of Finished goods 1010.13
10,649.96
COGS.

The company is maintaining minimal inventory, compared to their annual sales.

This is a very good symptom, where inventory storage costs are minimal.
There is not much significant difference between COGS and COGM.

Note:
 COGM = Opening WIP Inventory + Manufacturing cost + PPE Depreciation - Closing
WIP Inventory
 COGS = Opening FG Inventory + COGM - Closing FG Inventory

Company: Goodyear India Ltd.

Metric Value Manufacturing cost Rs in Crs.

Variable cost 93% Raw Materials 1,319.47
Contribution Margin 7% Power & Fuel Cost 65.99
Fixed cost (Rs in Crs.) 91 Employee Cost 126.66
BEP Sales (Rs in Crs.) 1,370.28 Other Manufacturing Expenses 17.5
Current Sales (Rs in Crs.) 1,912 Depreciation (Plant &
MOS (Rs in Crs.) 542 Machinery) 310.42
CVP Index 0.02 Total cost of manufacturing 1,840.04

 Goodyear’s fixed cost (Rs. 91 Cr) is 4.76% of current year’s sales. It is low and indication
of performance company’s good performance.
 At 93% of current year’s sales Goodyear’s variable cost is very high, which is very good
as high variable cost reduces the overall risk of business.
 Margin of safety of Goodyear is 40% of the BEP sales, which is quiet low.
 At 0.02, Goodyear’s CVP index is very low, which is not a good sign.
 For Goodyear, raw material forms a major component of the COGM (1319.47 / 1840.04=
71%).
 Goodyear is not labour intensive in economic terms.

COGM computation (Rs in Crs.) COGS Computation (Rs in Crs.)

Closing Stock Of WIP 7.13 Opening stock of Finished
Total cost of manufacturing 1,840.04 Goods 102.6
 Opening Stock of WIP 5.77 1,838.6
COGM 1,838.68 COGM 8
Closing Stock of Finished goods 98.21
1,843.0
COGS. 7
 Goodyear’s closing value for working in progress is insignificant compared to the annual
COGM. This is good practice followed by Goodyear as it indicates that minimum working
capital of Goodyear is tied up in WIP.
 Goodyear company has been maintaining minimal inventory compared to its annual
sales. This is a very good practice, as costs incurred for inventory storage are minimal.
 There is not significant difference between Goodyear’s COGS and COGM

Note:
 COGM = Opening WIP Inventory + Manufacturing cost + PPE Depreciation - Closing
WIP Inventory
 COGS = Opening FG Inventory + COGM - Closing FG Inventory

Company: Bridgestone India Ltd

Metric Value
Variable cost 76%
Contribution Margin 24%
Fixed cost (Rs in Crs.) 261
BEP Sales (Rs in Crs.) 1,098.99
Current Sales (Rs in Crs.) 3,055
MOS (Rs in Crs.) 1,956
CVP Index 0.15

Bridgestone has low fixed cost (8.54% of current year sales) and very high variable cost,
which is very good as it reduces the overall risk of business.

Margin of Safety is extremely good , it is 178% of the BEP sales.

CVP index of 0.15 is very low and it is not a good sign.

Manufacturing cost (Rs in Crs.)

Raw Materials 1,606.76
Power & Fuel Cost 123.09
Employee Cost 309.87
Other Manufacturing Expenses 90.16
Depreciation (Plant & Machinery) 4485.21
Total cost of manufacturing 6,615.21

Depreciation (Plant & Machinery) forms a major component of the COGM (4485.21 /
6615.21= 67.8%).
This company is not labour intensive in economic terms.
 COGM computation (Rs in Crs.)
Closing Stock Of WIP 47.72
Total cost of manufacturing 6,615.21
Opening Stock of WIP 52.29
COGM 6,619.78

The closing working in progress value is insignificant compared to the annual COGM. This is
a good practice. This indicates minimum amount is invested in WIP.

COGS Computation (Rs in Crs.)

Opening stock of Finished Goods 285.42
COGM 6,719.79
Closing Stock of Finished goods 359.73
COGS. 6,545.47

The company is maintaining minimal inventory, compared to their annual sales. This is a
very good symptom, where inventory storage costs are minimal. There is not much
significant difference between COGS and COGM.

Note:
 COGM = Opening WIP Inventory + Manufacturing cost + PPE Depreciation - Closing
WIP Inventory
 COGS = Opening FG Inventory + COGM - Closing FG Inventory