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R. Saroja Devi
Ph.D Research Scholar, Department of Commerce,
Alagappa University, Karaikudi, Tamilnadu, India
ABSTRACT
The Indian auto industry became the fourth largest in the world with sales
increasing 9.5 per cent year-on-year to 4.02 million units (excluding two wheelers) in
2017. It was the 7th largest manufacturer of commercial vehicles in 2017. The Two
Wheelers segment dominates the market in terms of volume owing to a growing
middle class and a young population. Moreover, the growing interest of the companies
in exploring the rural markets further aided the growth of the sector. India is also a
prominent auto exporter and has strong export growth expectations for the near
future. Overall automobile exports from India grew at 6.86 per cent CAGR between
FY13-18. The present paper measures the financial performance of major selected
automobile companies for the period of 5 years from 2013-2017 by using ratio
analysis. The purpose of the study is to evaluate and compare the financial
performance of selected three companies to rate their financial performances. The aim
of the study is to analyze by comparing the risk of different companies, on their
strengths and weaknesses.
Key words: Financial performance, Automobile Industry, Ratios.
Cite this Article: Dr. G. Kanagavalli and R. Saroja Devi, Financial Performance of
Selected Automobile Companies. International Journal of Management, 9 (4), 2018,
pp. 14–23. http://www.iaeme.com/IJM/issues.asp?JType=IJM&VType=9&IType=4
1. INTRODUCTION
The automobile sector today is one of the key sectors of the country contributing majorly to
the economy of India. It directly and indirectly provides employment to over 1.5 million
people in the country. A stable government framework, increased purchasing power, large
domestic market, and an ever increasing development in infrastructure have made India a
favorable destination for investment[1]. It is one of the largest sectors in the world, both in
terms of sales volume and production. The Indian automobile industry has a well established
name globally being the second largest two wheeler market in the world, fourth largest
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Financial Performance of Selected Automobile Companies
commercial vehicle market in the world, and eleventh largest passenger car market in the
world and expected to become the third largest automobile market in the world only behind
USA and China.
The automobile sector facilitates the improvement in various infrastructures like power,
rail and road transport. Due to its deep forward and backward linkages with several key
segments of the economy, the automobile industry is having a strong multiplier effect on the
growth of a country and hence is capable of being the driver of economic growth. It plays a
major catalytic role in developing transport sector in one hand and help industrial sector on
the other to grow faster and thereby generate a significant employment opportunities. In India,
automobile is one of the largest industries showing impressive growth over the years and has
been significantly making increasing contribution to overall industrial development in the
country. The norms for foreign investment and import of technology have also been
liberalized over the years for manufacture of vehicles. At present, 100% foreign direct
investment is permissible under the automatic route in this sector, including passenger car
segment.
The Indian automobile industry proved to be in good shape in the last year even after the
economic downturn. This was majorly due to the fact of renewed interest shown by global
automobile players like Nissan Motors which consider India to be a potential market. The
industry accounts for 7.1 per cent of the country's Gross Domestic Product. The Two
Wheelers segment with 80 per cent market share is the leader of the Indian Automobile
market owing to a growing middle class and a young population. Moreover, the growing
interest of the companies in exploring the rural markets further aided the growth of the sector.
The overall Passenger Vehicle (PV) segment has 14 per cent market share.
2. REVIEW OF LITERATURE
Sheela Christina (2017)[2] carried out the study on Financial Performance of Wheels India
Limited-Chennai. The study deals with Analytical type of research design with the help of
secondary data collection method. For this purpose the researcher took past five years‟ data
and also checked out for the validity and reliability before conducting the study. The
researcher used the following financial tool namely ratio analysis, comparative balance sheet
and DuPont analysis and also statistical tools such as trend analysis and correlation.
Profitability ratios indicate there is a decrease in the profit level, utilization of fixed assets and
working capital in the last financial year. Thus the company can take necessary steps to
improve sales and profit. Finally, the study reveals that the financial performance is
satisfactory.
Neha Mittal (2018)[3] studies the determination of capital structure choice of the selected
Indian industries. The main objective is to investigate whether and to what extent the main
structure theories can explain the capital structure choice of Indian firms. It has applied
multiple regression models on the selected industries by taking data for the period 2009-2017.
It examines the relevance of capital structure in selected Indian industries based on a
regression analysis and data study. It concludes that the main variables determining capital
structure of industries in India are agency cost, assets structure, non-debt tax shield and size.
The coefficients of these variables are significant at one per cent and five per cent levels.
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Dr. G. Kanagavalli and R. Saroja Devi
The purpose of Performance Evaluation is to examine the past and current financial data
so that a company‟s performance and financial position can be measured and evaluated and
future risks and potential can be estimated.
6. HYPOTHESIS
The hypothesis of the research has been formulated as under:
H1: There is no significant difference between the values of current ratio among the selected
automobile companies.
H2: There is no significant difference between the values of Quick ratio among the selected
automobile companies.
H3: There is no significant difference between the values of Interest Coverage Ratio among
the selected automobile companies.
H4: There is no significant relationship between Net profit, Operating Profit, Fixed Assets and
Net Sales of selected automobile companies.
7. RESEARCH METHODOLOGY
The proposed study is entirely based on secondary data. The data has been compiled from
Annual Reports of the respective companies, Text Books, Reference Books, Journals,
Articles, Magazines and from the Internet. The necessary data has been collected from money
control.com, equity master and Society of Indian Automobile Manufactures (SIAM).
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Financial Performance of Selected Automobile Companies
Sample Design
The Companies are selected on the basis of top two wheelers and three wheelers
Manufacturers. The researcher has selected three Automobile companies on the basis of
availability of data for the post five years. This sample has been selected for the proposed
research. The following companies have been selected for the study. a) Hero Motocorp
Limited, b).Bajaj Auto Limited, c).TVS Motor Company Limited. The period of study that
has been taken for the research five years i.e. from the financial year 2012-2013 to 2016-
2017.
Ratio Computed
S.No Ratio Computed Formula
In the above table current ratio of Hero Motocorp in 2013 was 1.2 , in 2014 was 1.3 and in
2017 was 1.8 follow the Bajaj Auto in 2013 was 1.5 in 2014 was 1.2 and 2017 was 2.9 and
TVS Motor in 2013 was 0.9 in 2014 was 0.9 and 2017 was 0.8. It can be interpreted that
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Dr. G. Kanagavalli and R. Saroja Devi
current ratio of Hero Motocorp motors, Bajaj Auto is continuously rising and TVS Motor is
continuously declining.
In the above table quick ratio of Hero Motocorp in 2013 was 1.06, in 2014 was 1.10 and
in 2017 was 1.64 follow the Bajaj Auto in 2013 was 1.32 in 2014 was 1.05 and 2017 was
2.72. and TVS Motor in 2013 was 0.48 in 2014 was 0.52 and 2017 was 0.39. It can be
interpreted that quick ratio of Hero Motocorp motors, Bajaj Auto and TVS Motor is
continuously declining.
Table -2 gives the F-value (0.671) is less than the F-critical value (3.478) and P-value is
0.626. It is greater than the alpha level 0.05. Therefore, the null hypothesis is accepted. So
there is no significant difference between the values of Current Ratio among the selected
automobile companies.
Table -3 reveal that the F-value (0.477) is less than the F-critical value (3.478) and P-
value is 0.751. It is greater than the alpha level 0.05. Therefore, the null hypothesis is
accepted. So there is no significant difference between the values of Quick Ratio among the
selected automobile companies.
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Financial Performance of Selected Automobile Companies
In the above table Interest Coverage Ratio of Hero Motocorp in 2013 was 2.13 , in 2014
was 2.43 and in 2017 was 1.68 follow the Bajaj Auto in 2013was 3.59 in 2014 was 5.67 and
2017 was 3.99 and TVS Motor in 2013 was 0.51 in 2014 was 0.55 and 2017 was 12. It can be
interpreted that Interest Coverage Ratio of TVS Motor Hero continuously rising and
Motocorp motors, Bajaj Auto is continuously declining.
In the above table Proprietary Ratio of Hero Motocorp in 2013 was 0.51, in 2014 was 0.55
and in 2017 was 0.67 follow the Bajaj Auto in 2013 was 0.63 in 2014 was 0.66 and 2017 was
0.82. and TVS Motor in 2013 was 0.25 in 2014 was 0.03 and 2017 was 0.35. It can be
interpreted that Proprietary Ratio of Hero Motocorp motors, Bajaj Auto continuously rising
and TVS Motor is continuously declining.
In the above table Sales to Total Assets Ratio of Hero Motocorp in 2013 was 2.5, in 2014
was 2.5 and in 2017 was 1.9 follow the Bajaj Auto in 2013 was 1.6 in 2014 was 1.3 and 2017
was 1 and TVS Motor in 2013 was 2.2 in 2014 was 2.3 and 2017 was 2. It can be interpreted
that Sales to Total Assets Ratio of Hero Motocorp motors, Bajaj Auto and TVS Motor is
continuously declining.
Table -5 gives that the F-value (0.550) is less than the F-critical value (3.478) and P-value
is 0.702. It is greater than the alpha level 0.05. Therefore, the null hypothesis is accepted. So
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Dr. G. Kanagavalli and R. Saroja Devi
there is no significant difference between the values of Interest Coverage Ratio among the
selected automobile companies.
Adjusted
Multiple R
Df SS MS F S R
R Square
Square
Regression 3 15281986 5093995
1.16287 0.577845
Residual 1 4380538 4380538 0.881597 0.777214 0.108855
Total 4 19662524
Constant variable: Net Sales
The multiple regression analysis indicated in Table No -6 performed based on the enter
method shows that Net Sales have significant impact on Profit and Assets. The overall
method was explained by Net Profit, Operating Profit, and Fixed Assets emerged as
significant variables in explaining the variance in Net Sales. Fixed Assets had a strongest
effect on Net Sales with a Coefficient of 5.85. Furthermore, Net Profit no longer significant
for the Net Sales. Since the significant value is 0.835146 (Coefficient= -7.98). The overall
method was explained by 88% of variance which was statically significant F (3, 1) = 1.1628,
Significant F=0.5778 it‟s greater than 0.05 to predict the Net Sales. Result of regression
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Financial Performance of Selected Automobile Companies
analysis indicates adjusted R square of 0.1088 and the Significant F=0.5778 (P>0.005).
Hence, the Null hypothesis is accepted at 5% level. So there is no significant relationship
between Net profit, Operating Profit, Fixed Assets and Net Sales.
The multiple regression analysis indicated in Table No 6.1.8 performed based on the enter
method shows that Net Sales have significant impact on Profit and Assets. The overall
method was explained by Net Profit, Operating Profit, and Fixed Assets emerged as
significant variables in explaining the variance in Net Sales. Operating Profit had a strongest
effect on Net Sales with a Coefficient of 3.64. Since the significant value is 0.418285
(Coefficient= -19.031). The overall method was explained by 95% of variance which was
statically significant F (3, 1) = 3.690339, Significant F=0.361345 it‟s greater than 0.05 to
predict the Net Sales. Result of regression analysis indicates adjusted R square of 0.66862 and
the Significant F=0.5778 (P>0.005). Hence, the Null hypothesis is accepted at 5% level. So
there is no significant relationship between Net profit, Operating Profit, Fixed Assets and Net
Sales.
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Dr. G. Kanagavalli and R. Saroja Devi
9. CONCLUSION
Ratio analysis helps to compare the financial statements of the firms and comparison of
financial performance also investigated over a period of time. Firms have made use of more
borrowed funds. The study found that there is the positive strong relationship of liquidity
ratio. It evolves the effective inventory management and conversion period leads to higher
liquidity power to the companies. Therefore, the study proves that there are some significant
changes to meet their liabilities. The Solvency Ratios of selected automobile companies have
some fluctuation. This means they face a little risk to meet their long term obligations. The
Efficiency or Turnover Ratios of Hero Motocorp is high rank among other Automobile
companies. This shows that Hero Motocorp effectively manages its resources and assets. The
Profitability Ratios of Hero Motocorp is higher than other automobile companies. It shows
Hero Motocorp earned high profit and it is good for the company. After analyzing all the
aspects, concern with this research, we can say that Bajaj Auto and TVS Motors are
satisfactory but Hero Motocorp sustains a good position in the market. Hence share holders
can invest their share daringly. They can get wholesome return and their shares will be safe
and secured.
KEY NOTES
1. www.ibef.com
2. Sheela Christina (2017) the study on Financial Performance of Wheels India Limited-
Chennai.
3. Neha Mittal (2018), “Determinants of capital structure of Indian industries”, Journal of
Accounting and Finance, Volume 25, No: 1, PP.32-40.
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Financial Performance of Selected Automobile Companies
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