CHAPTER 1

INDUSTRY PROFILE
HISTORY
The automotive industry began in the 1860s with hundreds of manufacturers that
pioneered the horseless carriage. For many decades, the United States led the
world in total automobile production. In 1929, before the Great Depression, the
world had 32,028,500 automobiles in use, and the U.S. automobile industry
produced over 90% of them. At that time, the U.S. had one car per 4.87
persons. After 1945, the U.S. produced about 75 percent of world's auto
production. In 1980, the U.S. was overtaken by Japan and then became world's
leader again in 1994. In 2006, Japan narrowly passed the U.S. in production and
held this rank until 2009, when China took the top spot with 13.8 million units.
With 19.3 million units manufactured in 2012, China almost doubled the U.S.
production of 10.3 million units, while Japan was in third place with 9.9 million
units.[5] From 1970 (140 models) over 1998 (260 models) to 2012 (684 models),
the number of automobile models in the U.S. has grown exponentially.

ECONOMY
In 2007, there were about 806 million cars and light trucks on the road, consuming
over 980 billion litres (980,000,000 m3) of gasoline and diesel fuel yearly. The
automobile is a primary mode of transportation for many developed economies.
The Detroit branch of Boston Consulting Group predicted that, by 2014, one-third
of world demand would be in the four BRIC markets (Brazil, Russia, India and
China). Meanwhile, in the developed countries, the automotive industry has
slowed.[9] It is also expected that this trend will continue, especially as the younger
generations of people (in highly urbanized countries) no longer want to own a car
anymore, and prefer other modes of transport. Other potentially powerful
automotive markets are Iran and Indonesia. Emerging automobile markets already
buy more cars than established markets. According to a J.D. Power study,
emerging markets accounted for 51 percent of the global light-vehicle sales in
2010. The study, performed in 2010 expected this trend to accelerate. However,
more recent reports (2012) confirmed the opposite namely that the automotive
industry was slowing down even in BRIC countries. In the United States, vehicle
sales peaked in 2000, at 17.8 million units.

SAFETY

Safety is a state that implies to be protected from any risk, danger, damage or cause
of injury. In the automotive industry, safety means that users, operators
or manufacturers do not face any risk or danger coming from the motor vehicle or
its spare parts. Safety for the automobiles themselves, implies that there is no risk
of damage.

Safety in the automotive industry is particularly important and therefore highly

regulated. Automobiles and other motor vehicles have to comply with a certain
number of regulations, whether local or international, in order to be accepted on
the market. The standard ISO 26262, is considered as one of the best practice
framework for achieving automotive functional safety.

In case of safety issues, dangesr, product defect or faulty procedure during the

manufacturing of the motor vehicle, the maker can request to return either a batch
or the entire production run. This procedure is called product recall. Product recalls
happen in every industry and can be production-related or stem from the raw
material.
Product and operation tests and inspections at different stages of the value
chain are made to avoid these product recalls by ensuring end-user security and
safety and compliance with the automotive industry requirements. However, the
automotive industry is still particularly concerned about product recalls, which
cause considerable financial consequences.

Fig 1.1
Fig 1.2

Following the deepest fall ever reported in the 2020, Indian motorcycles market is
expected to recover this year. However, the market will remain well below the
2019 and 2020 data.

In the first quarter sales have been 4.16 million units, up 12.9% versus the
correspondent period last year, but down a deep 16.7% compared with the 2019.

The demand is still weak considering the harsh economic environment and the
Covid 19 effects, with record deaths and infections reached in this April.

Looking at the brands performance, the market leader, Hero sold 1.35 million
(+5.0%) and is followed by Honda with 1.14 million (+22.1%) and TVS Motor
with 581.000 (+35.4%).

Notable the Harley-Davidson -84%, after having closed local operations and
agreed to produce and distribute with the partnership with Hero.

Motorcycles industry reported in 2020 the deepest lost ever

While the urban markets are still grappling with a still high number of COVID-19
cases, the comparatively less impacted rural and semi-urban markets have enabled
a sequential improvement in sales, resulting in a general recovery for the entire
industry.

However, two and three wheeler market reported in the 2020 the widest
contraction ever, following the 13.2% sales lost in 2019. The industry fell heavy in 
Q1 (-24.5%) and Q2 (-72.2%), before finding a recovery in the Q3, when sales
slipped down only 3.9%.

Finally in the Q4 the market grew up in double digit, with October +16.9% Y.o.Y.,
November +13.6% and finally December +32.5%.

However annual sales have been 14.8 millions, down an impressive 23.3%.

While in the 2021 the market will score aa report, we the industry will not be back
at the 208 record level before 5 years.

Looking at the competitive arena, it seems that some market  dynamics changed
amidst the COVID-19 pandemic effect, considering Japanese automakers have
ceded their share to Indian counterparts. The changes are probably correlated to the
growth of weight of rural areas, more resilient during the crisis, where Indian
brands dominate.

Hero MotoCorp is the second world’s largest two-wheeler manufacturer thanks to

the huge share performed in India. During the current calendar year they further
strengthened the competitive position increasing market share to 37%, while the
sIndia share at 23.8%.

All others top manufacturers have lost in the year:  Bajaj Auto (-22.4%), TVS

Motor (-20.6%), Royal Enfield (-33.3%), Suzuki (-30.0%) and Yamaha (-18.6%)
witnessing marginal differences in their market share as compared to last year.

Overall the share of the homegrown two-wheeler manufacturers increased to

68.4% in this calendar year so far against 64.5% last year.
Meanwhile, the share of Japanese companies declined to 30.7% from 35% last
year.

Deep penetration in rural markets and a large portfolio of entry-level offerings

have helped Indian companies to gain market share at the expense of the Japanese
firms. It remains to be seen if this is just a Corona virus-induced phenomenon or
going to continue in the long run. We believe that since 2021, the ability to
economically approach the required development of electric two wheeler will
make the difference.

In the 2020 the more resilient segment was the “entry level” both between
motorcycles (led by Hero) and scooter (led by Honda) with high displacement
sales dropped heavily and all premium brands (Harley-
Davidson, Ducati, Triumph, BMW) reporting with lost well above the market.
Only KTM was resilient, thanks to the partnership with Bajaj and to the
introduction of the brand Husqvarna, able to deliver around 700 units per month.

The entry-level motorcycle space is dominated by Hero MotoCorp and this is an

high risk for the market leader, as the transition to electrified models will bring
higher production cost and higher price, with potential lost of sales.
 CHAPTER-2

FINANCIAL ANALISYS

Profit loss account

(Rs crore)

Mar ' 20 Mar ' 19 Mar ' 18

Income

Operating income 16,423.34 18,209.92 15,129.66

Expenses

Material consumed 12,187.43 13,913.30 11,204.47

Manufacturing expenses 90.30 110.08 107.17

Personnel expenses 938.41 922.63 868.01

Selling expenses 420.54 391.84 301.49

Adminstrative expenses 1,440.80 1,438.82 1,519.31

Expenses capitalised - - -

Cost of sales 15,077.48 16,776.67 14,000.45

Operating profit 1,345.86 1,433.25 1,129.21

Other recurring income 32.10 7.54 144.78

Adjusted PBDIT 1,377.96 1,440.79 1,273.99

Financial expenses 102.19 80.56 56.62

Depreciation 489.03 399.27 338.73

Other write offs - - -

Adjusted PBT 786.74 960.96 878.64

Tax charges 162.16 290.82 216.05

 Mar ' 20 Mar ' 19 Mar ' 18

Adjusted PAT 624.58 670.14 662.59

Non recurring items -66.24 5.55 -4.47

Other non cash adjustments - - -

Reported net profit 558.34 675.69 658.12

Earnigs before appropriation 2,908.79 2,550.43 2,062.37

Equity dividend 132.53 132.58 125.93

Preference dividend - - -

Dividend tax 33.75 33.70 30.85

Retained earnings 2,742.51 2,384.15 1,905.59

Balance sheet
(Rs crore)

Mar ' 20 Mar ' 19 Mar ' 18

Sources of funds

Owner's fund

Equity share capital 47.51 47.51 47.51

Share application money - - -

Preference share capital - - -

Reserves & surplus 3,570.58 3,299.81 2,832.91

Loan funds

Secured loans 1,974.63 1,377.94 183.40

Unsecured loans - - 853.57

Total 5,592.72 4,725.26 3,917.39

Uses of funds

Fixed assets

Gross block 5,599.51 4,922.33 4,441.01

Less : revaluation reserve - - -

Less : accumulated depreciation 2,699.57 2,343.02 2,069.14

Net block 2,899.94 2,579.31 2,371.87

Capital work-in-progress 285.43 257.23 131.13

Investments 2,605.88 2,300.67 2,035.38

Net current assets

Current assets, loans & advances 3,569.91 3,232.15 2,641.09

Less : current liabilities & provisions 3,768.44 3,644.10 3,262.08

Total net current assets -198.53 -411.95 -620.99

 Mar ' 20 Mar ' 19 Mar ' 18

Miscellaneous expenses not written - - -

Total 5,592.72 4,725.26 3,917.39

Notes:

Book value of unquoted investments 2,572.65 2,228.40 1,952.87

Market value of quoted investments 33.23 72.27 82.51

Contingent liabilities 375.27 568.44 500.84

Number of equity sharesoutstanding (Lacs) 4750.87 4750.87 4750.87

 Comparative income statement

2019-2020

2020 2019 Changes Percent

Income
Operating expenses 18209 16423 -1787 -9.81
Expenses
Material consumed 12187.43 13913.30 1725.87 14.16
Manufacturing expenses 90.3 110.08 19.78 21.90
Personnel expense 938.41 922.63 -15.78 1.68
Selling expenses 420.54 391.84 2.87 0.6
Adminstrative expenses 1,440.80 1438.82 -1.80 0.12
 Comparative balance sheet

2019-2020

2019 2020 Change Percent

Sources of funds
Equity share capital 47.51 47.51 0 0
Share application - - - -
money
Preference share - - - -
capital
Reserves and surplus 3750.58 3299.81 -450.19 -12
Loan funds
Secured lone 1974.63 1377.94 596.69 -30
Unsecured lone - - - -
Total 592.72 4725.26 4132.54

2020 2019 Change Percent

Fixed asset
Gross block 5599.51 4922.33 677.18 12.0
Less accumulated depreciation 2699.57 2343.31 356.26 13.19
Net block 2899.94 2579.31 320.63 11.05
Capital work in progress 285.43 257.23 28.2 9.87
Investments 2605.88 2300.67 305 11.7
Net current asset
Current asset loans and 3569.91 3232.15 337.76 9.46
advances
Less: current liabilities and 3768.44 3644.10 124.34 3.29
provisions
Total net current assets -198.53 -411.95 -610.48
Miscellaneous - - - -
Total 5592.72 4725.26 4132.54
 Table no: Ratio analysis
Ratios March 2020 March 2019 March 2018
Net profit ratio 3.60 3.68 4.37
(%)
Current ratio 0.60 0.56 0.51
EPS 22.76 22.51 21.08
Dividend payout 28.07 24.81 23.66
ratio
Dividend per share 3.50 3.50 3.30