Backup of FM Final

GUJARAT
NATIONAL LAW UNIVERSITY

SEMESTER - V
FINANCIAL MANAGEMENT – 35 MARKS
RESEARCH ARTICLE TITLED:
THE FINANCIAL PUZZLE OF AN UNSTOPPABLE FORCE

AND AN IMMOVABLE OBJECT
AN ECONOMIC STUDY ON THE IMPACT OF COVID-19 ON THE INDIAN

AUTOMOBILE INDUSTRY
SUBMITTED BY:
SUBMITTED TO:
MEHAR KAUR - 19B103 MR.. SATYA RANJAN
MISHRA
ANIKET PANCHAL - 19B116 ASST. PROF. OF COMMERCE,
GNLU
Financial Management Evaluation Research Article - The Financial Puzzle of an Unstoppable Force and an Immovable
Object
YASH KHANNA - 19B180 DATED:

18.11.2021
2
Mehar Kaur, Aniket Panchal & Yash Khanna Semester -
V
Object
TABLE OF CONTENTS
1. ACKNOWLEDGMENT................................................................................................................................2
2. PART A – PRELIMINARIES.......................................................................................................................3
1. ACADEMIC INTEGRITY FORM.............................................................................................3
2. OBJECTIVES, SCOPE AND LIMITATION OF THE STUDY................................................5
3. BIBLIOGRAPHY.......................................................................................................................7
4. ABSTRACT..............................................................................................................................12
3. PART B – THE ASSESSMENT..................................................................................................................13

5. CHAPTER 1: IMPACT ON LONG TERM INVESTMENTS, RISK PROFILE OF
PROJECTS AND STRATEGIES............................................................................................................13
5.1. Risk Management...........................................................................................................13
5.2. Long Term Investment....................................................................................................18
6. CHAPTER 2: IMPACT OF COST OF CAPITAL AND STRATEGIES TO KEEP COST OF
CAPITAL IN AN ACCEPTABLE RANGE...........................................................................................22
6.1. Introduction....................................................................................................................22
6.2. Analysis Of Cost Of Capital...........................................................................................23
7. CHAPTER 3: IMPACT ON CAPITAL STRUCTURE AND STRATEGIES TO SATISFY
CAPITAL CONTRIBUTORS.................................................................................................................33
8. CHAPTER 4: IMPACT ON DIVIDEND POLICIES AND STOCK PRICES........................39
8.1. Tata Motors Analysis.....................................................................................................39
8.2. Maruti Suzuki Analysis...................................................................................................42
8.3. Mahindra & Mahindra Analysis....................................................................................44
8.4. Hero MotorCorp Analysis..............................................................................................46
9. CHAPTER 5: IMPACT ON LIQUIDITY AND SOLVENCY AND WAYS OF MANAGING
THE SAME..............................................................................................................................................50
9.1. The Importance of Liquidity and Solvency in the Automobile Industry.........................50
9.2. Impact of CoVID-19 on Liquidity and Solvency in the Automobile Industry.................51
9.3. The Impact on Liquidity of our Subject-Companies:.....................................................53
9.4. Conclusion......................................................................................................................58
10. CHAPTER 6: LEGAL IMPACT AND FINANCIAL LIABILITIES DUE TO DIFFICULTIES
IN PERFORMANCE OF CONTRACTS AND FORCE MAJEURE.....................................................59
10.1. The Importance of Contracts in the Automobile Industry............................................59
10.2. Force Majeure and CoVID-19.....................................................................................59
10.3. Analysis of the Subject-Companies..............................................................................60
10.4. Conclusion....................................................................................................................62
1
V
Object
ACKNOWLEDGMENT
We are greatly thankful to our Professor Mr. Satya Ranjan Mishra, Assistant
Professor of Commerce, Gujarat National Law University, for his continuous
encouragement and valuable guidance to complete our project. Our grateful
thanks are due to him for all the suggestions and guidance at every stage of this
project. His approach, vision, hard work and guidance in research enabled us
to learn a lot.
2
V
Object
PART A – PRELIMINARIES
1. ACADEMIC INTEGRITY FORM
Student Name: Mehar Kaur Arora, Aniket Panchal & Yash Khanna
Registration No. and Semester: 19B103, 19B116 & 19B180
Subject: Financial Management
Faculty Member: Mr. Satya Ranjan Mishra
Faculty Member Assistant: Nil
Allocation Date: 14th September, 2021
Title Registration Date: 16th September, 2021
Reason for selection of title: Nil
Synopsis Filing Date: Nil
Final Version Filing Date: 18th November, 2021
Faculty’s pre-submission Nil

progress report, if necessary:
Extension of timeline requested Nil

and approved by faculty:
Viva-Voce/Group Discussion: Nil
Total duration: 2 Months
Faculty Member Signature
Academic Integrity Declaration
I warrant and represent that the attached report/research work/articles does not infringe upon
any copyright or other right(s), and that it does not contain infringing, libelous, obscene or
other unlawful matter and that I have given appropriate credit to the original author or source
3
V
Object
of information and fully adhered to GNLU research guidelines. I am aware that the non-
compliance with the GNLU academic integrity directive may result into non-evaluation of the
academic/research work, attracting failure in the subject or course and any other measures as
decided by the concerned faculty members.
Mehar, Aniket and Yash

Student Signature & Date
18th November, 2021
*PDAIF is an integral part of the GNLU Exam Records and shall be considered and complied
with the GNLU Exam Rules. Student shall be responsible to ensure full compliance with the
above details.
Original: Exam Department

Copy: 1. Student 2. Faculty Member
4
V
Object
2. OBJECTIVES, SCOPE AND LIMITATION OF THE STUDY
OBJECTIVES
The study aims to achieve the following objectives:
 To analyse the financial impact of Covid-19 on the Automobile industry.
 To trace the strategies adopted by the industry in building resilience against the
outcome of Covid-19 Crisis.
 To cull out the learnings from the Covid-19 Crisis.
 To analyse the trend of the automobile industry.
LIMITATIONS
 It is self-reported and is limited by the fact that it is not independently verified.
 Also, due to the exceptional and special circumstances presented in light of the
ongoing pandemic, the data collected through this study was limited in a way that the
researchers did not had seamless access to people, organizations, data, or documents.
SCOPE
The study is being conducted to identify and analyse the impact of uncertainty
resulting due to Covid-19 pandemic and the financial decisions taken by the Indian
industry to combat, salvage and accelerate their operations. For a finer analysis of the
situation, the choice of companies to be studied is restricted to the Indian jurisdiction.
However, their decisions regarding foreign operations have also been analysed. The
industry under observation is the automobile sector with specific analysis of the operations
and decision of companies such as Tata Motors, Maruti Suzuki, Mahindra and Mahindra
group and Hero Moto Corp. while analysing the financial decisions, due regard is paid to
5
V
Object
the long term investment decisions, risk profile and strategic actions taken by the
company, the cost of capital of the company and methods adopted to maintain the
acceptable range, alteration in the capital structure and strategies adopted to satisfy the
capital contributors. Further, the dividend policy and stock prices vis a vis the liquidity of
the company is studies. Lastly, the legal implications and financial liabilities due to
difficulty in meeting the contractual obligations are covered.
6
V
Object
3. BIBLIOGRAPHY
ANNUAL REPORT:
1. Hero Annual Report FY 2021, HERO MOTOR CORP. (Nov. 13, 2021, 8:00PM),
https://www.heromotocorp.com/en-in/uploads/Annual_Reports/pdf/Annual-Report-FY-
2020-21.pdf
2. Investors Report FY 21, MAHINDRA & MAHINDRA LTD. (Oct. 19, 2021, 3:00PM),
https://www.mahindra.com/resources/investor-reports/FY21/Annual-Reports/Mahindra-
Annual-Report-FY-2021.pdf
3. Maruti Suzuki, Q4 FY’21 and Full year FY’21 Financial Results,
https://marutistoragenew.blob.core.windows.net/msilintiwebpdf/Investor_Presentation_Q
4FY21_and_Full_year_FY21.pdf (last visited 13 October, 2021).
4. Tata Motors, 76th Integrated Annual Report 2020-2021, TATA MOTORS (Nov 10, 2021,
6:00 PM), https://www.tatamotors.com/wp-content/uploads/2021/06/28075755/annual-
report-2020-21.pdf
ARTICLES & WORKING PAPER:
1. Abdul R., Mohamed N., Working Capital Management and Profitability-Case of

Pakistani Firms, 3 INTERNATIONAL REVIEW OF BUSINESS RESEARCH PAPERS, 279, 300,
(2007).
2. amesh, B. , Mohan, K. , & Cao, L., Ambidexterity in agile distributed development: An
empirical investigation, 23(2) INFORMATION SYSTEMS RESEARCH, 320, 323–339. (2017)
3. Juhmani, Omar Issa. 2020. Corporate Boards, Ownership Structure and Dividend Payout:
Evidence from Bahrain. Journal of Critical Reviews 7: 37–43
4. O.N. Arunkumar , T. Radharamanan, Working Capital Management and Profitability: An
Empirical Analysis of Indian Manufacturing Firms, 4 INTERNATIONAL JOURNAL OF
MANAGEMENT, 121, 129 (2013).

5. Povilas Domeika, and Dalia Jatkunaite, 2015. The Development of Company Dividend
Policy in Respect of Profit Distribution. Engineering Economics 50: 5.
7
V
Object
6. Quesada, G, Syamil A, & Doll, W., OEM New Product Development Practices: The
Case of the Automotive Industry, 42 JOURNAL OF SUPPLY CHAIN MANAGEMENT, 30, 40
(2006).
7. Ramaratnam, M., R. Jayaraman, and G. Vasanthi. 2012. Impact of Investors’ Ratios on
Dividend Decisions with Special Reference to Select Cement Companies in India: An
Analytical Study. South Asian Journal of Management 19: 68
8. Robert C. Higgins, The Corporate Dividend-Saving Decision, 7 The Journal of Financial
and Quantitative Analysis, 1527.
9. Uludag, O. , Kleehaus, M. , Dreymann, N. , Kabelin, C. , & Matthes, F., Investigating the
adoption and application of large‐scale scrum at a German automobile manufacturer,
2019 ACM/IEEE 14TH INTERNATIONAL CONFERENCE ON GLOBAL SOFTWARE
ENGINEERING, ICGSE 2019, 22, 29 (2019).
10. Wesseling, J. H. , Niesten, E. M. M. I. , Faber, J. , & Hekkert, M. P., Business strategies
of incumbents in the market for electric vehicles: Opportunities and incentives for
sustainable innovation. 24(6) BUSINESS STRATEGY AND THE ENVIRONMENT, 518, 531.
(2015)
BOOKS:
1. Ezra Solomon, The Theory of Financial Management (Columbia University Press, 1965).
2. OZILI, P. K.., ARUN, T., SPILLOVER OF COVID‐19: IMPACT ON THE GLOBAL ECONOMY
(CUP, 2020).
ONLINE RESOURCE:
1. Accenture, https://www.accenture.com/in-en/insights/automotive/turbocharging-indian-
automakers (last visited on 13 Oct, 2021).
2. Aparna Iyer, Mahindra finance’s seek revival post 2nd wave hit, LIVE MINT (Nov. 14,
2021, 5:45 AM), https://www.livemint.com/market/mark-to-market/mahindra-finance-s-
investors-seek-revival-post-2nd-wave-hit-11627491618260.html
8
V
Object
3. Business Standard, https://www.business-standard.com/article/companies/covid-19-

pandemic-washes-out-6-years-of-growth-in-auto-sales-%E2%80%88siam-data-
121041300034_1.html (last visited on 13 Oct, 2021)
4. Business Standard, https://www.business-standard.com/topic/semiconductor (last visited
12 November 2021).
5. Chiranjivi Chakraborty, Auto Stocks may soon stage a turnaround, The Economic Times,
https://economictimes.indiatimes.com/markets/stocks/news/auto-stocks-may-soon-stage-
a-turnaround-heres-why/articleshow/87750289.cms?from=mdr (last visited 12
November, 2021).
6. First Post, Tata Motors pays 20 paise dividend investors say ‘even beggars’ don’t take
less than a rupee, https://www.firstpost.com/business/20-30-paise-dividend-tata-motors-
shareholder-says-even-beggars-dont-accept-less-than-a-rupee-2946484.html (last visited
01 November, 2021).
7. Gavin Goy & Jan Willem Van Den, The Impact of the COVID-19 crisis on the
equilibrium interest rate, https://voxeu.org/article/impact-covid-19-crisis-equilibrium-
interest-rate (last visited 10 October, 2021).
8. Geotab, https://www.geotab.com/blog/impact-of-covid-19/ (last visited on 13 Oct, 2021)
9. Guru Focus, https://www.gurufocus.com/term/wacc/HRTQY/WACC-/Hero-MotoCorp-
Ltd#:~:text=As%20of%20today%20(2021%2D11,using%20TTM%20income
%20statement%20data) (last visited 16 November, 2021).
10. Guru Focus,
https://www.gurufocus.com/term/wacc/OTCPK:MAHMF/WACC-/Mahindra--
Mahindra#:~:text=As%20of%20today%20(2021%2D11,cost%20of%20capital%20is
%208.01%25 (last visited 13 October, 2021).
11. Guru Focus, https://www.gurufocus.com/term/wacc/TTM/WACC/Tata%2BMotors
%2BLtd#:~:text=Tata%20Motors%20WACC%20%25&text=As%20of%20today
%20(2021%2D11,using%20TTM%20income%20statement%20data) (last visited 9
October, 2021).
12. Hero MotoCorp Ltd Management discussion, IIFL SECURITIES (Nov. 13, 2021, 3:00
AM), https://www.indiainfoline.com/company/hero-motocorp-ltd/management-
discussions/237 .
13. Hero MotoCorp Ltd, BUSINESS STANDARD (Nov. 16, 5:30 PM), https://www.business-
standard.com/company/hero-motocorp-237/annual-report/director-report .
9
V
Object
14. Hero MotoCorp Ltd, MOTILAL OSWAL (Nov. 14, 2021, 5:24PM),
https://www.motilaloswal.com/markets/equity-market-overview/Hero-MotoCorp-Ltd/
50018/237/nse
15. HeroMotorCorp, https://www.heromotocorp.com/en-in/uploads/media/pressrelease_pdf/
20210506154717-pdf-462.pdf (last visited on 13 Oct, 2021)
16. IIFL Securities, Maruti Suzuki Indian Ltd. Management decision, IIFL SECURITIES (Nov.
10, 2021, 5:00 PM),
https://www.indiainfoline.com/company/maruti-suzuki-india-ltd/management-
discussions/5496
17. Kritesh Abhishek, Tata Motors revenue financing Q2FY21, (Oct. 25, 2021, 8:12 PM),
https://tradebrains.in/tata-motors-stock-study/tata-motors-revenue-financing-q2fy21_1-1-
1/
18. Mahindra and Mahindra Ltd., MONEY CONTROL (Nov. 12, 2021, 4:00 AM),
https://www.moneycontrol.com/company-facts/mahindramahindra/dividends/MM .
19. Money Control,
https://www.moneycontrol.com/company-facts/heromotocorp/listing/HHM (last visited
on 10 Oct, 2021)
20. Money Control,
https://www.moneycontrol.com/company-facts/tatamotors/dividends/TM03 (last visited
12 October, 2021).
21. Money Control,
https://www.moneycontrol.com/india/stockpricequote/auto-lcvshcvs/tatamotors/TM03
(last visited 15 November, 2021).
22. Moody’s investor service, Moody’s changes Tata Motors’ outlook to stable from
negative; affirms B1 ranking, MOODY’S INVESTOR SERVICE (Oct. 29, 2021, 7:50 AM),
https://www.moodys.com/research/Moodys-changes-Tata-Motors-outlook-to-stable-
from-negative-affirms--PR_446390
23. Mridhul Bahrdwaj, What are the basic components of a Supply Chain, IIM Udaipur
Chronicles (last visited on Oct. 12, 2021) https://www.iimu.ac.in/blog/what-are-the-five-
basic-components-of-a-supply-chain-management-system/
24. Nallini Mitra, Revenue Loss for Mahindra&Mahindra Auto, Business Insider, (last visited
on Oct. 13, 2021 9:15 PM)
https://www.moneycontrol.com/financials/mahindraandmahindra/balance-sheetVI/MM.
10
V
Object
25. Nandini Gupta, Pricol invokes Force Majeure, Times of India, (last visited on Oct. 13,
2021) https://timesofindia.indiatimes.com/business/india-business/pricol-invokes-force-
majeure-as-matter-of-precaution/articleshow/75189327.cms
26. Nirbhay Kumar, Lockdown 2.0: How it impacts ailing economy, India Today, (Oct. 15,
2020), https://www. indiatoday.in/mail-today/story/lockdown-2-0-how-it-impacts-ailing-
economy-1667426-2020-04-16
27. Rahul Awasthi, Maruti to Close down Production Plants, Business Standard, (Oct. 10,
2021, 7:45 PM)
https://auto.economictimes.indiatimes.com/news/passenger-vehicle/cars/maruti-suzuki-
india-extends-plant-shutdown-till-16-may/82482643
28. Rajeev Kohli, Firms looking at Time, Cost relief while invoking force majeure, Business
Standard, (Last visited on Oct. 13, 2021)
https://www.business-standard.com/article/companies/firms-looking-at-time-cost-relief-
while-invoking-force-majeure-120040101748_1.html
29. Ratan Talwar, Hero MotorCorp suspends payments, Economic Times, (Oct. 12, 2021 at
7:45 PM) https://economictimes.indiatimes.com/industry/auto/two-wheelers-three-
wheelers/hero-motocorp-suspends-payments-to-suppliers-amid-lockdown/articleshow/
74877047.cms?from=mdr
30. Reeba Zachariah, Shareholders raise queries on TaMo dividend, The Times of India,
https://timesofindia.indiatimes.com/business/india-business/shareholders-raise-queries-
on-tamo-dividend/articleshow/84906722.cms#:~:text=The%20flagship%20of%20India's
%20largest,the%20company%20would%20pay%20dividends (last visited on 02
November, 2021).
31. S.S. Rana & Co. Advocates, India: Force Majeure clauses in Contracts, (Oct. 15, 2021,
10:30 AM), https://
www.mondaq.com/india/government-contracts-procurement-ppp/737524/force-majeure-
clauses-in-contracts.
32. Sean Brown, Tim Koller and Peter Stumpner, In conversation: The impact of COVID-19
on capital markets, https://www.mckinsey.com/business-functions/strategy-and-
corporate-finance/our-insights/in-conversation-the-impact-of-covid-19-on-capital-markets
(last visited 16 October, 2021).
11
V
Object
33. Sitikantha Pattanaik and Satyananda Sahoo, The Effectiveness of Intervention in India:
An Empirical Assessment, https://rbidocs.rbi.org.in/rdocs/Publications/PDFs/38038.pdf
34. Sitikantha Pattanaik and Satyananda Sahoo, The Effectiveness of Intervention in India:
An Empirical Assessment, https://rbidocs.rbi.org.in/rdocs/Publications/PDFs/38038.pdf
35. Tarush Bhalla, M&M to increase stake in Meru to 100%, Pravin shah to take over as new
CEO, LIVE MINT (Nov.3, 2021, 6:37 PM),
https://www.livemint.com/companies/news/mm-to-increase-stake-in-meru-to-100-pravin-
shah-to-take-over-as-new-ceo-11619979780626.html
4. ABSTRACT
A question which has perplexed the mind of economics and finance

specialists is – What happens when an unstoppable force meets an
immovable objective? In the dynamics of the Indian Industrial system, The
Automobile Industry has proved to be unstoppable force in terms of its
growth dynamics and its contribution to the country’s economic prosperity.
Ever since pre-independence times, Indians have taken a liking to
automobiles; Once a maharaja’s toy is now every man’s necessity.
However, with the onset of the CoVID-19 pandemic, an immovable object
came in the path of economic development in the world. This immovable
object tormented and perplexed the mind and bodies of several subjects to
the international community. Interestingly, this gives rise to another
question – How did the immovable pandemic affect the unstoppable
economic growth of the automobile industry?
In the pursuit of answering this puzzle, this paper assesses six questions,
hoping to give us an answer to this financial puzzle. The paper seeks to
assess the financial reaction of CoVID-19 and the Automobile Industry by
12
V
Object
shortlisting four major Indian Giants of the automobile industry –

HeroMotorCorp, Tata Motors, Maruti Suzuki and Mahindra & Mahindra.
By choosing its subject-companies this paper seeks to question the impact of
CoVID-19 on - First, Investments and Risk Profiles; Second, Capital
Strategies and Cost of Capital; Third, Capital Structures and Contributors;
Fourth, dividend policies and stock prices; Fifth, Liquidity and Solvency
and Sixth, Contract Performances.
Having assessed the answers to these questions, the authors have concluded
their opinion of the impact of CoVID-19 on the unstoppable Indian
Automobile Industry and have placed their recommendations and analysis to
the six elements posed, hoping to solve this financial puzzle of an
Unstoppable Force and an Immovable Object.
13
V
Object
PART B – THE ASSESSMENT
5. CHAPTER 1: IMPACT ON LONG TERM INVESTMENTS, RISK

PROFILE OF PROJECTS AND STRATEGIES
A business entity is often faced with sever uncertainties in its road to success. In light of the
same, it is always advisable for companies to prepare a risk management profile of each and
every project that they undertake and device strategic and alternate course of action so as to
ensure that the functioning of the business is not stopped. The year of 2020-2021 has been a
nightmare for many industries which have been severely hit by the shutting down of the
industry on account of Covid-19. The temporary closure of operations has led to an overall
supply side stock creation and uncertainty in the minds of both the suppliers and the
consumers leading to a surge in the demand. It is pertinent to note that the automobile sector
had hit a structural slowdown even before the pandemic had struck the country with a steep
decline in the demand of passenger vehicles in the financial year (FY) 2019-2020 which was
further accelerated on account of the pandemic in 2020-2021.
5.1. Risk Management
MARUTI SUZUKI
As for Maruti Suzuki, the company’s domestic passenger market sales in the FY 2020-2021
witnessed a decline by 8.5% and a decline of 7.8% in the Light Commercial Vehicles (LCVs)
market. The export sales of the company reduced by around 5.9% in the said FY 0f 2020-
2021. In light of the delayed receipt of supplies from the supplier, Maruti Suzuki India
instantly provided cash flow assistance to its suppliers and dealers which aided them to get
back on their feet. This would not have been possible had the company not planned for risk
management in advance and accumulates sufficient cash funds at the correct time.
Not only did the company face a challenge of maintaining safety and health of its employees
and the community but also that of maintaining continuity of operations for which the aid of
Artificial intelligence was taken. This system automatically detected the traces of any virus
penetrating in the plant operations and timely actions were subsequently taken. In the second
half of the FY 2020-2021, the company was able to operate at its full capacity however, the
customers were not in the position of meeting the demand forecasts of the company, hence, it
14
V
Object
also provided for an option of step-up EMI scheme, Balloon EMI scheme etc along with
Smart Finance facility. With the growing operations the company also successfully achieved
its target of having 2 million units sold in export market for FY 2020-2021 the major receiver
of which was Latin America. In Africa, the export operations of the company grew by 8.9%
despite the overall car industry of South Africa facing a surge of 26.7%. Hence, not only did
the company successfully retrieve its operation by accurately assessing the risk and damage
faced on account of the pandemic, but also was successful in returning back to its operation
prior to covid steadily in both domestic and export market.1
TATA MOTORS2
Despite the topple of supply chain disruption and shrivelling condition of manufacturing
operations, as part of mitigating actions, the Company implemented rigorous cost and capital
expenditure control measures for its standalone business, TML achieved cash and cost
savings of 9,300 crore against targets of ` 6,000 crore in FY 21. It is so since the organisation
delved into the assessment of the external market conditions at an early and time stage of
operation so as to device alternate course of action and revise the existing projects which
were incomplete and required completion during the Covid-19 lockdown of the automobile
industry.
Amidst this situation, if the operations of Tata Motors fail to deliver towards the expectations
of the customer in terms of quality of manufactured products and after sales facilities, not
only would the company lose its shareholding in the market but also reliant and loyal
customer which had bestowed their trust in the brand. Credit rating of the company in the
market would subsequently be hit in this account. However, with constant flow of operations
and a maintained brand image, the company has successfully reduced its net auto debts from
both existing and upcoming projects by 7,300 crore in FY 21. This is affirmed by the
observation of Moody’s Investors service which has given Tata Motors a B1 ranking despite
1
IIFL Securities, Maruti Suzuki Indian Ltd. Management decision, IIFL SECURITIES (Nov. 10, 2021, 5:00 PM),
https://www.indiainfoline.com/company/maruti-suzuki-india-ltd/management-discussions/5496 .
2
Tata Motors, 76th Integrated Annual Report 2020-2021, TATA MOTORS (Nov 10, 2021, 6:00 PM),
https://www.tatamotors.com/wp-content/uploads/2021/06/28075755/annual-report-2020-21.pdf
15
V
Object
facing challenges in FY 2021 due to Covid-19. The rating also expects the company to
continue its sustained actions for the next 12 to 18 months.3
Another risk profile that is faced by the company is that of fluctuations in the exchange rate
since the company heavily imports components, capital equipment and raw material along
with manufacturing and selling of certain parts of the finished model overseas. Hence, the
company must device contingency plans for fluctuations in Euro, USD, Singapore Dollars,
Chines Yuan etc. furthermore, on account of the exit of United Kingdom form the European
Union, the company is also subjected to additional tariffs since one of its major subsidiaries,
Jaguar Land Rover is directly associated with that country. This cannot be ignored since
Jaguar Land Rover has accounted to about 78% of the company’s total revenue in the FY
2020-2021. In such instance, heavy reliance can also not be laid on the method of hedging
since there remains a risk of the counterpart failing in its obligations.
Source: Trade Brains4
Further a few direct risks associated with the revenue generation scheme adopted for various
projects of Tata Motors are fluctuation in the exchange rate mechanism adopted in the
international trading market. As stated above, Jaguar Land Rover is one of the major revenue
generating and investment centric project of the company, which could be easily exposed to
3
Moody’s investor service, Moody’s changes Tata Motors’ outlook to stable from negative; affirms B1 ranking,
MOODY’S INVESTOR SERVICE (Oct. 29, 2021, 7:50 AM), https://www.moodys.com/research/Moodys-changes-
Tata-Motors-outlook-to-stable-from-negative-affirms--PR_446390 .
4
Kritesh Abhishek, Tata Motors revenue financing Q2FY21, (Oct. 25, 2021, 8:12 PM),
https://tradebrains.in/tata-motors-stock-study/tata-motors-revenue-financing-q2fy21_1-1-1/ .
16
V
Object
exchange rates, interest rates, equity prices, liquidity and credit risk. As against this, the
Board of Tata Motors have made the following decisions:
a. Create a stable business planning environment by reducing the impact of currency and
interest rate fluctuations on the Company’s business plan.
b. Achieve greater predictability to earnings by determining the financial value of the
expected earnings in advance.
By measuring its exposure to exchange rate risks, the Company assesses the impact of
foreign exchange rate movements. It uses derivative financial instruments to hedge a portion
of these risks in accordance with its risk management rules.
The following table illustrates the foreign currency exposure of the Company as of 31 March
2021:
For the year ended March 31, 2021, a 10% appreciation/depreciation of the respective foreign
currencies in relation to the Company's functional currency would result in a
decrease/increase in the Company's net profit/(loss) before tax of approximately '39.88 crores
and '719.28 crores for financial assets and financial liabilities, respectively. 5
The procurement of certain raw materials, such as aluminium, copper, platinum, and
palladium, exposes the Company to commodity price risk. The use of derivative contracts
and fixed-price contracts with suppliers helps to limit this risk. For the years ended March 31,
2021 and 2020, the (gain)/loss on commodities derivative contracts recognised in the
statement of profit and loss was '(40.39) crores and '20.70 crores, respectively.6
5
6
17
V
Object
Source: Investyadnya.in7
MAHINDRA8
In its operations, the company is often faced with various risks such as credit risk, interest
risk, liquidity risk which if predicted correctly can be mitigated on time. The company faces
direct market risk in the form of fluctuation in the foreign exchange value and rate of interest.
The main way in which the company hedges its foreign currency risk is by way of forward
covers. At the end of FY 2020-2021, company’s current foreign currency exposure was that it
had financials assets worth USD 1,0622.62 crores and liabilities worth USD 285.78. these
could be severely hit by the exchange rate fluctuations. The company relied on interest rate
swaps to meet its interest rate risk on variable rate borrowings. Further, to mitigate the credit
risk associated with the non-performance of contractual obligations by a counterpart are met
by ensuring that the company deal with only creditworthy individuals. Further, enough
collaterals are engaged in the operations to cover a situation of non-performance.
HERO MOTOR9
The Board of Directors of Hero Motor Corp are keenly observant of the changing conditions
in the market as well as the internal functioning of the firm. One of the direct risks that is
identified by the company is that of resurgence of the export markets of HMC due to Covid-
19. The company has witnessed a decline in the demand of its manufacture on account of
lockdown and the work-from home policy due to which commutation is stopped. A strategy
to compensate this loss is to plan for the company’s entry in a new market which has high
7
Tata Motors- Stock Analysis, INVESTYADNYA (Nov. 4, 2021, 5:45 PM), https://blog.investyadnya.in/tata-
motors-stock-analysis-highlights-of-tata-motors-agm/.
8
Investors Report FY 21, MAHINDRA & MAHINDRA LTD. (Oct. 19, 2021, 3:00PM),
https://www.mahindra.com/resources/investor-reports/FY21/Annual-Reports/Mahindra-Annual-Report-FY-
2021.pdf .
9
Hero Annual Report FY 2021, HERO MOTOR CORP. (Nov. 13, 2021, 8:00PM),
https://www.heromotocorp.com/en-in/uploads/Annual_Reports/pdf/Annual-Report-FY-2020-21.pdf .
18
V
Object
potential of acceptance of the technology used by HMC. Secondly, economic uncertainties in

key global markets which could result in a decline in the sales and further on EBIT margins
of the company. To solve this problem, the company is certain in taking deep localisation
efforts so as to become a part of the new value chain rather than being stagnated in the
existing ones. The change in the taste and preferences of the customers which is evident on
account of the growing preference of Electric vehicles over Internal Combust Engine makes
it mandatory for the company to expand its operations and enter the new sector so as to avoid
technological obsolesce.10
Source: Motilal Oswal Financial Services Ltd.11
5.2. Long Term Investment
MARUTI SUZUKI
The company’s investment in property plant and equipment for the FY 2019-2020 was
147,618 million which got reduced to Rs. 141,511 in FY 2020-2021. Further, the intangible
assets of the company have also been cut down from Rs. 3,358 tin FY 2019-2020 to Rs.
2,242 in FY 2020-2021. This could be on account of the shutting down of operations due to
Covid-19 on account of which the premise lays vacant. The investments of the company in
10
11
Hero MotoCorp Ltd, MOTILAL OSWAL (Nov. 14, 2021, 5:24PM),
https://www.motilaloswal.com/markets/equity-market-overview/Hero-MotoCorp-Ltd/50018/237/nse .
19
V
Object
FY 2019-2020 were Rs. 352,488 and those in FY 2020-2021 Rs. 333,710. Hence, they have
also decreased. Since the whole world is facing financial cringe, it is necessary for every
company to make smart investments.
TATA MOTORS:12
A company’s strategic operation often includes its plans to expand its operations and invest in
new projects. Similarly, Tata Motors is keen on investing in new models of cars, modular
architecture and associated autonomous and electric mobility services. With the relaunch of
the Reimagine strategy in Feb 2021, the operations of Jaguar Land Rover seek to invest
highly in significant resources such as electric battery technology in vehicles with an aim to
reduce the carbon emission in its supply chain, operations and products by the end of 2039.
The total annual investment spending done by Jaguar Range Rover was Great Britain Pound
(hereinafter GBP) 2.3 billion in the FY 2020-2021. The same is expected to increase to GBP
2.5 billion in FY 2021-2022. The same is justified since the company plans to launch a new
edition of Range Rover and Range Rover sports with new modular longitudinal structural
changes.
The total product and investment spending of Tata Motors Limited was Rs. 2,586 crores for
the FY od 2020-2021 which is expected to increase up to Rs. 3,500 crores in FY 2021-2022.
The company has opined that rationalisation of Capital expenditure, dynamic management of
capital expenditure and implementation of further cash improvement measures is the key to
drive its operation out of the losses that they have incurred on account of shutting down of
the operations due to Covid-19. On a consolidated basis, the company plans to invest over Rs.
28,900 crores in plant and machinery, property, equipment’s, and product development
procedures. It further aims to fund the total product and other investment of the company by
generation of cash flow from operating activities along with the support of debt capital
avenues and banking funds.
MAHINDRA & MAHINDRA13
12
https://www.tatamotors.com/wp-content/uploads/2021/06/28075755/annual-report-2020-21.pdf .
20
V
Object
despite being severely hit by the pandemic, the company has succeeded in increasing its
investment potential and engagements. In the FY 2019-2020, the company had invested Rs.
17,748.48 crores and has managed to increase the same in the FY of 2020-2021 to 19,576.60.
this signifies that there has been an increase of 10.3% from the previous year which is
commendable on account of the effect of Covid-19 on the industry as a whole and the
company particularly. The company has constituted a strategic investment assessment
committee which advice on the mates pertaining to both domestic and long-term investments
of the company.
Apart from investing in the internal operations of the company such as investment in plant
and machinery, the company has also associated in strategic investments in other allied
companies such as Carnot Technologies Private Limited in which the company increased its
shareholding from 22.9& to 48.05% for enhanced business research and development and
information technology solutions. The company also reduced its investment in Ssangyong
Motor Company which is based in South Korea on account of the inability of the South
Korean company to pay its dues and its decreasing credit worthiness. The company also had
an existing equity share capital in Meru Travel Solutions Private Limited in December 2019
of 36.63% which was increased to 43.20% in January 2021 by way of primary investment of
Rs. 15 crores.14
13
Investors Report FY 21, MAHINDRA & MAHINDRA LTD. (Oct. 19, 2021, 3:00PM),
https://www.mahindra.com/resources/investor-reports/FY21/Annual-Reports/Mahindra-Annual-Report-FY-
2021.pdf .
14
Tarush Bhalla, M&M to increase stake in Meru to 100%, Pravin shah to take over as new CEO, LIVE MINT
(Nov.3, 2021, 6:37 PM), https://www.livemint.com/companies/news/mm-to-increase-stake-in-meru-to-100-
pravin-shah-to-take-over-as-new-ceo-11619979780626.html.
21
V
Object
Source: Live Mint15
HERO MOTOR CORP16

Hero Motor Corp has made significant changes in its structure of long-term investment in the
span of a year as compared to the previous financial year. Through the balance sheet, it is
evident that the investment of the company in property, plant, and equipment for the year of
FY 2019-2020 was at Rs. 5,562.42 crores and that at the end of FY 2020-2021 was 5,293.40
crores. This signified a reduction of Rs. 269.02 crores. This amount is inclusive of the
associated expenses of construction maintenance etc of a plant and equipment. The same is
also justified since the FY of 2020-2021 was heavily dominated by work-from home policy
meaning that long term fixed assets such as property, plant etc remain unutilised and vacant.
So, it is a wise decision to reduce heavy investment in this sector. To offset the same, the
company has increased its investment other intangible assets which stood at 181.02 crores
during the FY of 2019-2020 and increased to Rs. 290.26 crores for FY 2020-2021. In
particular, as a head, the long-term investments have risen from Rs. 3,528.17 in FY 2019-
2020 to Rs. 4308.18 in FY 2020-2021.
15
Aparna Iyer, Mahindra finance’s seek revival post 2nd wave hit, LIVE MINT (Nov. 14, 2021, 5:45 AM),
https://www.livemint.com/market/mark-to-market/mahindra-finance-s-investors-seek-revival-post-2nd-wave-
hit-11627491618260.html .
16
22
V
Object
23
V
Object
6. CHAPTER 2: IMPACT OF COST OF CAPITAL AND

STRATEGIES TO KEEP COST OF CAPITAL IN AN
ACCEPTABLE RANGE
6.1. Introduction
The required rate of return that a company must earn in order to cover the cost of generating
funds in the marketplace is known as the cost of capital. Borrowing words from Solomon
Ezra, “Cost of capital is the minimum required rate of earnings or the cut-off rate of capital
expenditure.”17 It is used to evaluate company's new projects since it is the minimal return
that investors demand in exchange for contributing capital to the company, thereby
establishing a benchmark that a new project must satisfy. In this backdrop, it becomes
imperative to assess the impact of Covid-19 pandemic on cost of capital.
During the toll of any pandemic, there has been a general pattern of declining real interest
rates. The following factors may contribute to the decline in real interest rates: first, changes
in household financial behaviour, with consumers tending to increase their precautionary
savings. Households will place a greater emphasis on saving in order to ensure that wealth is
rebuilt after the pandemic is over. 18 If they believe the nature of the income shock is
permanent, they will focus more on saving, but if they believe it is temporary, they will
borrow more money to get by for the time being.
Second, because to the demand shock caused by the pandemic, there may be a reduction in
the volume of business investments. The rate at which enterprises are invested in will be
determined by the country's economic recovery. 19 Finally, the RBI's interventionist role
would focus on decreasing government deficits through money creation. 20 If lower interest
rates do not result in a sufficient increase in bank loans to private enterprises, this policy will
have major consequences.
17
Ezra Solomon, The Theory of Financial Management (Columbia University Press, 1965).
18
Gavin Goy & Jan Willem Van Den, The Impact of the COVID-19 crisis on the equilibrium interest rate,
https://voxeu.org/article/impact-covid-19-crisis-equilibrium-interest-rate (last visited 10 October, 2021).
19
Ibid.
20
Sitikantha Pattanaik and Satyananda Sahoo, The Effectiveness of Intervention in India: An Empirical
Assessment, https://rbidocs.rbi.org.in/rdocs/Publications/PDFs/38038.pdf (last visited 14 October, 2021).
24
V
Object
However, this prediction of a drop in real interest rates must be viewed with caution, 21 as
there is a chance that no significant change in macroeconomic behaviour will be observed as
a result of the rapid recovery following the pandemic, causing the economy to return to Pre-
Covid era. To top it off, inflation caused by supply chain disruption and protectionism will
result in higher nominal interest rates.
With these trends in mind, the authors will use the Weight Average Cost of Capital
(hereinafter, “WACC”) approach to examine the cost of capital of various enterprises in
automobile sector (namely Tata Motors, Maruti Suzuki, Mahindra & Mahindra and Hero
MotoCorp) and estimate the impact of the Covid-19 pandemic on their capital. Furthermore,
the authors will examine the techniques used by these enterprises to deal with financial
uncertainty and keep their cost of capital within an acceptable level during this crisis of
unprecedented sorts.
6.2. Analysis Of Cost Of Capital

As mentioned earlier, the weighted average cost of capital is the rate that all security holders
of the company would be expected to receive on their finances to their company. WACC is
commonly known as the company’s cost of capital and by taking a weighted average, it can
be seen how much interest the company has to pay for every rupee that it finances. Let us go
through the data required for calculating WACC of the company Tata Motors.
TATA MOTORS
The following data regarding the cost of capital has been taken on the date of 9 th October,
2021 for the purpose of analysis.
Formula for calculating WACC is as follows:
WACC = E / (E + D) * Cost of Equity + D / (E + D) * Cost of Debt * (1 - Tax Rate)
Where E represents market value of equity and D denotes book value of debt.
On the date of calculation, the market value of equity (E) stands at Rs. 19,32,666.48 million
and total book value of Debt (D) stands at Rs. 13,42,442.66 million.22
21
Sean Brown, Tim Koller and Peter Stumpner, In conversation: The impact of COVID-19 on capital markets,
https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/in-conversation-the-
impact-of-covid-19-on-capital-markets (last visited 16 October, 2021).
25
V
Object
a. weight of equity = E / (E + D) = 19,32,666.48 / (19,32,666.48 + 13,42,442.66) =

0.5901
b. weight of debt = D / (E + D) = 13,42,442.66 / (19,32,666.48 + 13,42,442.66) = 0.4099
For the purpose of cost of equity, Capital Asset Pricing Model has been used to ascertain the
required rate of return.
Cost of equity: Risk-Free Rate of Return + Beta of Asset * (Expected Return of the Market -
Risk-Free Rate of Return) = 6.2100% + 2.15 * 6% = 19.11%23
Similarly, the cost of debt is calculated to be at interest expense/total book value of debt.
Cost of Debt: 82,215.58/13,42,469.85 = 6.1242%24
The calculated average tax rate is limited between 0% and 100%. Since it is less than 0% for
the latest two-year, it is set to 0 %. 25
WACC:
E / (E + D) * Cost of Equity + D / (E + D) * Cost of Debt * (1 - Tax Rate)

=
= 0.5901 * 19.11% + 0.4099 * 6.1242% * (1 - 0%)
= 13.79%
The return on invested capital (hereinafter, “ROIC”) percent indicates how successfully a
company generates cash flow in relation to the capital it has invested in its operations. It's
also known as the ROC percent. For the quarter ending in March 2021, Tata Motors'
annualised return on invested capital (ROIC percent) was -3.70 percent.
Tata Motors' WACC percent is 12.28 percent as of November 16, 2021. The ROIC of Tata
Motors is -3.66 percent which has been calculated using company’s income statement data. It
22
Guru Focus, https://www.gurufocus.com/term/wacc/TTM/WACC/Tata%2BMotors%2BLtd#:~:text=Tata
%20Motors%20WACC%20%25&text=As%20of%20today%20(2021%2D11,using%20TTM%20income
%20statement%20data) (last visited 9 October, 2021).
23
Ibid.
24
Ibid.
25
Ibid.
26
V
Object
has to be noticed that it is in negative. Further, an ROIC that is higher than the cost of capital
indicates that the company is healthy and growing, whereas a ROIC that is lower than the
cost of capital indicates that the business model is unsustainable. Tata Motors earns returns
that aren't proportional to its capital costs. Therefore, it can be said that as it expands, it will
depreciate in value.
Comparison with data of last financial years
FINANCIAL YEAR ENDING TATA MOTORS ANNUAL DATA (WACC

%)
31 March 2017 13.48
31 March 2018 11.60
31 March 2019 8.42
31 March 2020 7.95
31 March 2021 11.58
The above data indicates that the cost of capital of TATA Motors was significantly low for
the last two financial years preceding this year. In fact, the lowest cost of capital in five-year
history can be located in the middle of a pandemic i.e. 2020 when the company recorded 7.95
% WACC. However, the high rate of cost of capital (11.58%) observed in the FY ending
March 2021 showcases how the economy was heading towards the recession after the advent
of second-wave of COVID 19 pandemic.
Comparison with other players in the same industry

The above mentioned companies are competitive companies which are those that are in the
same industry, have headquarters in the same country, and have the same market
capitalization.
COMPANY WACC % AS ON 9 OCTOBER 2021
Maruti Suzuki India Ltd 13.19
Mahindra & Mahindra 10.90
Bajaj Auto Ltd 11.85
Eicher Motors Ltd 12.25
27
V
Object
Hero MotoCorp Ltd 12.10

TVS Motor Co Ltd 9.70
It's interesting to note that companies in automobile industry have high costs, which raise
their finances, because practically every company's WACC percent is between 10 and 12
percent. This demonstrates that the COVID-19 pandemic's consequences are still being felt in
this industry.
MARUTI SUZUKI INDIA LTD.
Cost of Capital

On the date of calculation, the market value of equity (E) stands at Rs. 0.000 million and total
book value of Debt (D) stands at Rs. 3,679.14 million.26
a. weight of equity = E / (E + D) = 0.000 / (0.000 + 3,679.14) = 0

b. weight of debt = D / (E + D) = 3,679.14 / (0.000 + 3,679.14) = 1
26
Guru Focus, https://www.gurufocus.com/term/wacc/MRZUY/WACC-/Maruti-Suzuki-India#:~:text=As%20of
%20today%20(2021%2D11,cost%20of%20capital%20is%2022.94%25 (last visited 13 October, 2021).
28
V
Object
Risk-Free Rate of Return) = 6.2100% + 1 * 6% = 12.21%27
Similarly, the cost of debt is calculated to be at interest expense/total book value of debt
Cost of Debt: 1,039.32 / 3,679.14 = 28.2491%28
Tax Rate: The latest Two-year Average Tax Rate is 18.79%.29
WACC:

=
=0 * 12.21% +1 * 28.2491 * (1 – 18.79%)
= 22.94%
Maruti Suzuki India’s ROIC is 4.14%, which has been ascertained using company’s income
statement data. The company has to earn higher ROIC to ensure its earning are in excess of
its cost of capital. In absence of any positive excess, any firm earning less ROIC compared
with its WACC, would destroy its value with its growth, thereby clearly indicating that these
are not the good signs for this company.
FINANCIAL YEAR ENDING MARUTI SUZUKI INDIA LTD. ANNUAL

DATA (WACC%)
31 March 2017 15.59
31 March 2018 14.97
31 March 2019 13.83
31 March 2020 14.19
31 March 2021 13.83
27
Ibid.
28
Ibid.
29
Ibid.
29
V
Object
Almost every financial year is having same cost of capital ranging between 13 % and 15%,
which demonstrates that company was facing high costs for raising its finances even during
the Pre-Covid era. This is evidenced by the fact that even before the pandemic, the highest
cost of capital was recorded i.e. in 2017 when it was 15.59 percent. However, WACC has
been reduced to 13.83% in the present times which could be attributable to the lifting of
lockdown and other restrictions by the government.
COMPANY WACC % AS ON 13th OCTOBER 2021

Tata Motors Ltd 12.29
Mahindra & Mahindra 10.90
Hero MotoCorp Ltd 12.10
As mentioned earlier, the companies have been operating with high cost of capital in the
automobile sector with their cost of capital lying between 10% and 12%. The reasons behind
it could be the lack of enthusiasm shown among the investors and lending institutions, and
less profits generated and returns earned by these companies because of the pandemic.
MAHINDRA AND MAHINDRA
Cost of Capital

30
V
Object
On the date of calculation, the market value of equity (E) stands at Rs. 11,86,736.52 million
and total book value of Debt (D) stands at Rs. 8,23,278.42 million. 30
a. weight of equity = E / (E + D) = 11,86,736.52 / (11,86,736.52 + 8,23,278.42) =

0.5904
b. weight of debt = D / (E + D) = 8,23,278.42 / (11,86,736.52 + 8,23,278.42) = 0.4096
Risk-Free Rate of Return) = 6.2100% + 0.68 * 6% = 10.29%31
Cost of Debt: 61,158.34 / 8,23,278.42 = 7.4286% 32

Tax Rate: The latest Two-year Average Tax Rate is 36.46%.33
WACC:

=
= 0.5904 * 10.29% + 0.4096 * 7.4286% * (1 – 36.46%)
= 8.01%
As of today, the WACC% for the Mahindra & Mahindra has been calculated to be at 8.01%,
while its Return on Invested Capital (RIOC) is estimated at 5.67% (ascertained using its
income statement data). Following the industrial wide trend of Tata Motors and Maruti
Suzuki, Mahindra & Mahindra is also not earning adequate return on invested capital so as to
compensate its cost of capital.
30
Guru Focus, https://www.gurufocus.com/term/wacc/OTCPK:MAHMF/WACC-/Mahindra--
Mahindra#:~:text=As%20of%20today%20(2021%2D11,cost%20of%20capital%20is%208.01%25 (last visited
13 October, 2021).
31
Ibid.
32
Ibid.
33
Ibid.
31
V
Object
While it may not be as poor as the above-mentioned companies, it is still considerable

inadequate when compared to its WACC. As mentioned earlier, in absence of any positive
excess, any firm earning less ROIC compared with its WACC, would destroy its value with
its growth, thereby clearly indicating that these are not the good signs for Mahindra &
Mahindra as a company. The similar trends in all these three companies mentioned above
bears hard evidence to the fact that the pandemic has brought havoc to the automobile
industry.
FINANCIAL YEAR ENDING MAHINDRA AND MAHINDRA ANNUAL

DATA (WACC%)
31 March 2017 9.36
31 March 2018 8.99
31 March 2019 10.75
31 March 2020 8.15
31 March 2021 10.79
From the above table, it can be seen that the Mahindra & Mahindra had an acceptable cost of
capital of around 8% before the pandemic. Despite a good number last year, it shot up to
10.79 percent after the pandemic which is equivalent to its previous fiscal year’s WACC.
This itself shows that the pandemic has affected an impressive comeback of the company.
COMPANY WACC % AS ON 13 OCTOBER 2021

Tata Motors 12.29
Hero MotoCorp 12.10
Maruti Suzuki India Ltd 13.19
32
V
Object
HERO MOTOCORP
Cost of Capital
The following data regarding the cost of capital has been taken on the date of 16 th November,

WACC = E/ (E + D) * Cost of Equity + D/ (E + D) * Cost of Debt * (1 - Tax Rate)
On the date of calculation, the market value of equity (E) stands at Rs. 0.000 million and total
book value of Debt (D) stands at Rs. 5,243.12 million.34
a. weight of equity = E / (E + D) = 0.000 / (0.000 + 5243.12) = 0

b. weight of debt = D / (E + D) = 5243.12 / (0.000 + 5243.12) = 1
Risk-Free Rate of Return) = 6.2100% + 1 * 6% = 12.21%35
Cost of Debt: 473.98 / 5243.12 = 9.0401% 36
Tax Rate: The latest Two-year Average Tax Rate is 22.185%. 37
WACC:

=
34
Guru Focus, https://www.gurufocus.com/term/wacc/HRTQY/WACC-/Hero-MotoCorp-Ltd#:~:text=As%20of
%20today%20(2021%2D11,using%20TTM%20income%20statement%20data) (last visited 16 November,
2021).
35
Ibid.
36
Ibid.
37
Ibid.
33
V
Object
=0 * 12.21% +1 * 9.0401% * (1 – 22.185%)
= 7.03%
Hero MotoCorp's weighted average cost of capital is 7.03 percent as of November 16, 2021.
The ROIC of Hero MotoCorp is 21.90 percent which is calculated using company’s income
statement data. Hero MotoCorp earns a better rate of return on investment than it costs the
company to raise the necessary cash. It's making a lot of money. Observing this, it can be
stated that the company is creating value by investing in profitable projects. A company's
worth will rise as growth increases if it expects to generate positive excess returns on
additional investments in the future. It also bears special mention that out of four companies
that we’ve analysed, Hero MotoCorp is the only company which has desirable ROIC when
compared to its WACC even in the times of a global pandemic.
Comparison with data of last financial years (based on Annual Data)
FINANCIAL YEAR ENDING HERO MOTOCORP ANNUAL DATA

(WACC%)
31 March 2017 13.78
31 March 2018 13.51
31 March 2019 10.58
31 March 2020 10.94
31 March 2021 12.42
The above figures show that Hero MotoCorp had a cost of capital of around 10 percent just
before the pandemic (i.e. as on 31 March 2020). This was achieved after two successive years
of having high WACC (i.e. in 2017 and 2018). However, it can be noticed that the pandemic
has affected the cost of capital since it has now rose up to almost 12.5 %. This shows that,
owing to the pandemic, Hero MotoCorp couldn’t hold itself on to the decent WACC for its
finances which currently poses a matter of concern for the company and its management.
Comparison with other players in the industry
34
V
Object
COMPANY WACC % AS ON 16 NOVEMBER 2021

Force Motors Ltd 11.92
Wardwizard Innovation 9.03
SML Isuzu Ltd 14.18
From the above table, it can be seen that almost every company in the automobile sector has
been operating with around 12-15% cost of capital, which itself highlights how much
confidence investors and lending institutions have in this sector during these times.
35
V
Object
7. CHAPTER 3: IMPACT ON CAPITAL STRUCTURE AND

STRATEGIES TO SATISFY CAPITAL CONTRIBUTORS
The exact mix of debt and equity used to finance a company's assets and activities is referred
to as capital structure. From a business standpoint, equity is a more expensive, long-term
source of financing with more financial flexibility. Debt, on the other hand, is a less
expensive, finite-to-maturity capital source that legally binds the corporation to predictable
cash outflows and the need to refinance at an unknown cost at some point in the future.
The capital structure of a firm is the consequence of these financing decisions, which may be
influenced by capital structure policies or objectives established by management and the
board of directors. The capital structure of a firm is also influenced by characteristics such as
its size and maturity, which impact the financing alternatives accessible to it. Aside from
stock and debt issuance, merger, and acquisition (M&A) activities, which can be financed
with cash, borrowing, share assumption, and/or debt assumption, as well as profits from
divestitures and asset sales, can have a substantial impact on capital structure. Hence, when
devising the optimal level of debt and equity in a company, due consideration is to be paid on
the post decisional return which would accrue to the company. Such returns are of
considerable bearing since it would determine the returns to the capital contributors.
MARUTI SUZUKI
From the balance sheet of the company, it is evident that Maruti Suzuki has not made an
alteration in the equity capital that it had given for subscription in the FY 2019-2020 and that
of 2020-2021. In both these years, the equity capital of the company remained at Rs. 1,510
million. However, the other equity sources of capital generation have changed from 4,82,860
in FY 2019-2020 to 5,12,158 in FY 2020-2021. Hence, around 6.06% increase is seen in the
equity capital since during the times of the pandemic, every individual has faced financial
crisis meaning that they would withdraw their holding in a company if the returns received
are not satisfactory, but Maruti Suzuki has still managed to retain the equity holders and
gather new shareholders as well. In the FY 2019-2020, the company could not generate
positive dividends for its shareholders. The loss incurred by the equity holders were Rs.
(24,166) million and that in the FY 2020-2021 was Rs. (18,125) million which signified a
36
V
Object
reduction of 6,041 million. This could be one of the reasons why the shareholders continued
their ties with the company since it managed to reduce the negative returns despite the
adverse financial conditions.
The non-current liabilities such as the financial liability, lease liability, provisions and
deferred tax liability of the firm have reduced compared to the previous year from 28,203 in
FY 2019-2020 to 25,939 in FY 2020-2021. A reason for the same could be the significant
reduction in the lease liability of the firm. Since the plant was not operational, the company
was able to get a reduction in the amount of lease that it is supposed to pay for the same.
Along with this, the incentives provided by both the Central Government and State
government to salvage the industrialists would have also aided the company in reduction its
expenses. The short-term borrowings of the company increased from Rs. 1,063 in FY 2019-
2020 to Rs.4,888 in the FY 2020-2021. It is so since the urgent cash and equivalents would
be needed to avoid the operations from reaching a shut down position on account of closure
of factory due to lockdown. Hence, short term borrowings showed a significant increase.
TATA MOTORS:
Tata Motors have witnessed an increase in their Equity shareholding in FY 2020-2021
accounting to Rs. 765.81 crores as compared to Rs. 719.54 crores in FY 20190-2020. It
indicates the faith of the equity holders in the operations of the company. As against this
proceeded to acquire long term borrowings of Rs. 4667.65 crores in FY 2020-2021 which is
Rs. 113.9 crores more than that of FY 2019-2020 which was Rs. 4781.55 crores. This
signifies that the company has reduced its capital generation from external sources the
repayment of which shall be after 12 months. The company has also made fixed deposits in
the FY 2020-2021 amounting to Rs. 0.42 crores which shall in the future, upon reaching the
date of maturity become an additional source of capital for them. To meet the short-term
liquid requirements of cash and cash equivalents, the company relies on short term
borrowings which in FY 2020-2021 amounted to Rs. 4068.21 crores.
In accordance with the provisions of the Companies Act, on account of the losses faced by
the company in FY 2020-2021, no dividend was declared to the shareholders. This decision
follows the dividend distribution policy 38 adopted by the company which is a statutory
mandate under Regulation 43A of SEBI Listing Regulations. The shareholders have incurred
38
Tata Motors Limited, Dividend distribution policy, TATA MOTORS (Nov. 17, 2021, 6:00PM),
https://investors.tatamotors.com/pdf/dividend-distribution-policy.pdf .
37
V
Object
a loss on their subscription of amounting to Rs. (29) crores in FY 2020-2021. However, the
loss has shown a reduction despite the adverse business conditions on account of Covid-19 in
FY 2020-2021 as compared to that of Rs. (57) crores in FY 2019-2020. Hence, it indicates
that the company has managed its operations sufficiently well in adverse condition which
could be one of the factors that motivated the shareholders to retain their investment with the
company.
MAHINDRA:
Mahindra and Mahindra is a federation of company which binds by the collective vision to
rise through its operations. Looking back in time, the company has achieved remarkable
heights in the automobile sector and has always pushed its operations towards the satisfaction
of its shareholders and the country as a whole. A stumbling stone in this vision was that of
the pandemic which distorted its operations significantly. This led to crucial decision such as
change in the capital structure of the company. The company decided to reduce its equity
holding by 5.92% from the previous financial year. Hence, the equity holding in the company
changed from Rs 36,217.30 in FY 2019-2020 to Rs.34,072.87 crores in FY 2020-2021. This
indicated that the company made a shift from reliance on internal financing to external
financing since they decided to generate revenue from Non-Convertible Debentures and Bank
Loans by way of addition to the long-term borrowing amounting to Rs. 5,536.59 crores in FY
2020-2021.
38
V
Object
Hero Motor Corp has always endeavoured to maintain its dividend pay out ration in the range
of 20% to 35% of the annual profit earning after tax deductions. Despite the pandemic, the
company was able to maintain a high level of operational performance over the time period
under consideration. Despite the positive results, the profit after tax was modest due to
extraordinary factors.
In this financial year, the company recommended a dividend of Rs.8.75 (175%) per ordinary
equity share having the face value of Rs.5 out of accumulated retained earnings of the
company as reflected in the balance sheet. For the financial year of 2020-2021, the sum of
Rs.1,087.79 crores was generated for which Rs. 292.15 crore which comprised of dividend of
Rs. 2.35 per ordinary equity share having the face value of Rs. 5 each in the previous year
was kept as dividend.
Source: Money Control39
This was one of the strategies adopted by the company to ensure that the capital contributors
are satisfied despite the low operations of the company. Further, it also made timely
investments in companies such as Meru to ensure that the finance generated from
contributors is positively utilised and yields a high return to the company. It is for this reason
that the company decided to reduce its holding in Ssang Yong Motors.
HERO
Hero MotoCorp was one of the first corporations in the nation to shut down its global
headquarters proactively. When the lockdowns were removed, the ruling allowed the
39
Mahindra and Mahindra Ltd., MONEY CONTROL (Nov. 12, 2021, 4:00 AM),
https://www.moneycontrol.com/company-facts/mahindramahindra/dividends/MM .
39
V
Object
company to restart operations in good standing and expand up production to satisfy the rising
demand for motorbikes and scooters in the country. The Company's nimble and
comprehensive approach to managing supply chains and manufacturing allowed it to
maintain its market leadership while always prioritising the safety of its employees and
stakeholders.40 This led the company to achieve great sales target in the country and abroad
which helped to stabilise its operations. Within six months of resuming operations following
the shutdown, the company had overhauled the whole manufacturing process, increasing
output from 5,000 to 30,000 vehicles per day (vpd). In addition, the Company completed 56
mission important projects in 60 days to reach an 8 lakh unit production target in one month,
setting new monthly production records and demonstrating its resilience in the face of
adversity.41
However, despite these achievements, Hero motor has not seen any change in its equity
shareholding in FY 2020-2021 from the previous FY of 2019-2020 and the amount stands
still at Rs. 1,510. The other equity of the firm amounts to Rs. 482,860 crores in 2019-2020
and that in FY 2020-2021 was Rs. 512,158 crores. This shows that other sources of equity
such as owner’s contribution have had a change and helped in meeting the loss incurred
during the financial year. Further, the company experienced losses in the FY 2019-2020 of
Rs. (24,166) crores and that in the FY of 2020-2021 was Rs. (18,125) crores. Hence, the
company has not paid dividends to the equity holders on account of the losses. Dividend
income from investments is recognised when the shareholders’ right to receive payment has
been established. This is one of the methods which is adopted by Hero to retain it
shareholders.
When discussing the capital structure of the company, the equity share capital of the
company stands unaltered at Rs. 39.96 crore in both FY 2019-2020 and FY 2020-2021.
However, the other equity sources of the company which comprise of issue of equity share by
way of employee stock option plan 42 witnessed a significant increase form Rs. 12,484 crores
in FY 2019-2020 to Rs. 40, 849 crores in FY 2020-2021.
40
Hero MotoCorp Ltd Management discussion, IIFL SECURITIES (Nov. 13, 2021, 3:00 AM),
https://www.indiainfoline.com/company/hero-motocorp-ltd/management-discussions/237 .
41
Ibid.
42
Hero MotoCorp Ltd, BUSINESS STANDARD (Nov. 16, 5:30 PM),
https://www.business-standard.com/company/hero-motocorp-237/annual-report/director-report .
40
V
Object
Source: Annual reports of Hero Motor Corp.

As against this, the company showed an increasing trend in the debt which is represented as
financial liabilities in the balance sheet of the company. Under its financial liabilities, the
borrowing of the company had a slight increase from Rs. 44.02 crore in FY 2019-2020 to Rs.
45.18 crores in FY 2020-2021. Secondly, the lease liability of the company also increased
from Rs. 207.62 crores in FY 2019-2020 to Rs. 212.42 in FY 2020-2021. Apart from the
above additional borrowing in the form of other financial liability were freshly incurred by
the company amounting to Rs. 146.04 crores in FY 2020-2021 which previously did not
exist.
Source: Consolidated balance sheet of Hero Motor Corp.
Hence, it can be safely concluded that although the company started to take timely steps for
its revival, the impact of the pandemic has hit the company severely leading to increase both
its equity and debt in the capital structure to pump in additional source of finance. This led
the capital contributors to increase their investment in the company, direct providers of which
mostly consisted of ESOP subscribers. As against, this the company did managed to reduce
the amount of negative dividend which the shareholders received in the previous financial
year.
41
V
Object
8. CHAPTER 4: IMPACT ON DIVIDEND POLICIES AND STOCK

PRICES
Dividend distribution is an important corporate financial choice that can have a big impact on
a company's growth and value. After making provisions for investment requirements and a
planned capital structure, the dividend is the portion of company earnings delivered to
shareholders.43 While the firms are essentially free to select how much of their profits should
be paid as dividends,44 the dividend is a difficult decision based on a variety of elements and
pragmatic considerations that span regions, sectors, industries, and environmental situations. 45
Furthermore, the company's pay-out flexibility is limited by regulatory restrictions, debt
covenants, available liquidity, the agency relationship, board composition, ownership
structure, potential investment prospects, firm growth rate, and investor expectations. 46
In this present time, the companies are aggressively attempting to conserve cash to tide over
the Covid-19 induced economic slowdown, therefore dividend distribution by automobile
firms in the current financial year is likely to be lower than in past years. This likely scenario
has a loss in free cash flow due to a drop in net profit, higher expenses due to the Covid-19
pandemic, and cash conservation for potential acquisitions as important considerations. This
chapter investigates the factors that influence dividend pay-outs, changing pay-out decisions,
regular payer dividend behaviour, and the prevalence of factors linked to changing pay-outs.
The analysis is done based on the dividend policies of four companies which are Tata Motors,
Maruti Suzuki, Mahindra & Mahindra, and Hero MotoCorp Ltd.
8.1. Tata Motors Analysis
43
Robert C. Higgins, The Corporate Dividend-Saving Decision, 7 The Journal of Financial and Quantitative
Analysis, 1527.
44
Povilas Domeika, and Dalia Jatkunaite, 2015. The Development of Company Dividend Policy in Respect of
Profit Distribution. Engineering Economics 50: 5.
45
Ramaratnam, M., R. Jayaraman, and G. Vasanthi. 2012. Impact of Investors’ Ratios on Dividend Decisions
with Special Reference to Select Cement Companies in India: An Analytical Study. South Asian Journal of
Management 19: 68.
46
Juhmani, Omar Issa. 2020. Corporate Boards, Ownership Structure and Dividend Payout: Evidence from
Bahrain. Journal of Critical Reviews 7: 37–43.
42
V
Object
ANALYSIS OF TATA MOTORS’ DIVIDEND POLICY
Announcement Ex- Dividend Dividend Dividend

Remarks
Date Date Type (%) (Rs)
30-05-2016 18- Final 10 0.20 Rs.0.2000 per

07- share(10%)Dividend
2016
29-05-2014 09- Final 100 2.00 Rs.2.0000 per

2014
29-05-2013 30- Final 100 2.00 Rs.2.0000 per

2013
29-05-2012 18- Final 200 4.00 Recommended a dividend

07- of Rs. 4/- per Ordinary
2012 share (200%) and Rs. 4.10
per 'A' Ordinary share
(205%), both of face value
of Rs. 2/- each (post split)
for FY 2011-12.
26-05-2011 19- Final 200 20.00 Rs.20.00 per

07-
43
V
Object

Remarks
2011 share(200%)Dividend
Dividend Drought is getting longer and bigger

In FY 2020-21, the company did not pay any dividend to its members in view of losses for
the said year.47 In fact, Tata Motors, a flagship of India’s largest conglomerate, the Tata
Group, hasn’t paid dividends to shareholders for the last five fiscals as can be seen from the
above table.48 Even in 2016 which was the last time Tata Motors paid a dividend, it was poor
and not as much promising.49 In its 76th Annual General Meeting, the company stated that it
was in the red for the last three fiscal years and at last year’s shareholder meeting, it had
declared that it would become debt free by fiscal 2024. The Covid-19 induced pandemic only
seems to have worsen the situation by delaying the dividend pay-outs by Tata Motors. That
said, the management seems confident of reducing the debt as it expects improved cash flows
from the business. In this regard, N Chandrasekaran, the chairman of Tata Motors said that
“as the impact of pandemic recedes with more people getting vaccinated, we expect demand
to remain strong with consumer preference shifting towards personal mobility.”50
ANALYSIS OF TATA MOTORS’ STOCK PRICES
47
TATA Motors, 76th Integrated Annual Report 2020-21, Page 70.
48
Money Control, https://www.moneycontrol.com/company-facts/tatamotors/dividends/TM03 (last visited 12
October, 2021).
49
First Post, Tata Motors pays 20 paise dividend investors say ‘even beggars’ don’t take less than a rupee,
https://www.firstpost.com/business/20-30-paise-dividend-tata-motors-shareholder-says-even-beggars-dont-
accept-less-than-a-rupee-2946484.html (last visited 01 November, 2021).
50
Reeba Zachariah, Shareholders raise queries on TaMo dividend, The Times of India,
https://timesofindia.indiatimes.com/business/india-business/shareholders-raise-queries-on-tamo-dividend/
articleshow/84906722.cms#:~:text=The%20flagship%20of%20India's%20largest,the%20company%20would
%20pay%20dividends (last visited on 02 November, 2021).
44
V
Object
Given below is the data of stock prices of the Tata Motors depicting the highest, lowest, and
other important figures of last 52 weeks. 51
High 526.85
Low 506.20
UC Limit 555.95
LC Limit 454.95
52 Week High 530.00
52 Week Low 152.20
After the second wave of Covid-19, Tata Motors’ stock dropped 6.1%. However, October
2021 onwards, the company started outperforming the market. In October 2021, it gained 16
per cent as compared to 2 percent rise in the S&P BSE Sensex and 5.5 percent up in the S&P
BSE Auto sector index. It can be seen that while the second wave of the pandemic impacted
Tata Motor Ltd shares, it has now come out of the woods. In fact, the stock of Tata Motors is
52 week-high at Rs. 530. A few years back, on February 3, 2015, it had touched a record
High of Rs. 606. In the present times, Tata Motors Ltd is the best-performing auto stock,
having gained as much as 59 percent from its pre-crisis highs. It can be said that Tata Motors
is recovering in all three of its divisions. While the India CV business will revive cyclically,
the India PV business will recover structurally.
8.2. Maruti Suzuki Analysis
ANALYSIS OF MARUTI SUZUKI’S DIVIDEND POLICY

Remarks
28-06-2021 05-08- Final 900 45.00 Rs.45.0000 per
51
Money Control, https://www.moneycontrol.com/india/stockpricequote/auto-lcvshcvs/tatamotors/TM03 (last
visited 15 November, 2021).
45
V
Object

Remarks
2021 share(900%)Final Dividend
13-05-2020 13-08- Final 1200 60.00 Rs.60.0000 per

25-04-2019 14-08- Final 1600 80.00 Rs.80.0000 per

27-04-2018 14-08- Final 1600 80.00 Rs.80.0000 per

27-04-2017 24-08- Final 1500 75.00 Rs.75.0000 per

2017 share(1500%) Dividend.
The given data from money control indicates that the company has a strong dividend track
record, having declared dividends on a continuous basis for the past five years. 52 This year, it
has declared an equity dividend of 900.00 percent, or Rs 45 per share, for the fiscal year
ending March 2021.53 This equates to a dividend yield of 0.6 percent at the current share price
of Rs 7479.85.
Despite Covid-19, India’s biggest automobile company i.e. Maruti Suzuki managed to turn a
decent profit. In fact, it translated into net sales of more than Rs 66,000 crores and a net profit
of Rs. 4,229 crores. The company's fourth quarter (January to March 2021) results, 54 which
were also released at the same time, are proof of that. While it can be seen that prior to the
pandemic, the company gave a dividend of around 1600% which has seen a declining trend,
it is still commendable that the company has been able to ensure respectable dividends to its
shareholders even in the times of crisis.
52
Money Control https://www.moneycontrol.com/company-facts/marutisuzukiindia/dividends/MS24 (last
visited 17 October, 2021).
53
Maruti Suzuki, Annual/Integrated Report, Page 87.
54
Maruti Suzuki, Q4 FY’21 and Full year FY’21 Financial Results,
https://marutistoragenew.blob.core.windows.net/msilintiwebpdf/Investor_Presentation_Q4FY21_and_Full_year
_FY21.pdf (last visited 13 October, 2021).
46
V
Object
ANALYSIS OF MARUTI SUZUKI INDIA LTD. STOCK PRICES

Given below is the data of stock prices of the Maruti Suzuki India Limited depicting the
highest, lowest, and other important figures of last 52 weeks. 55
High 8,128.75
Low 7,535.05
UC Limit 8,253.40
LC Limit 6,752.80
52 Week High 8,329.00
52 Week Low 6,400.00
As the second Covid-19 wave interrupted production and sales, the automaker's profit fell 62
percent sequentially in the three months ended June. Maruti Suzuki's stock dropped as much
as 3.2 percent before recovering, compared to the benchmark Nifty 50 index's 0.42 percent
rise. In this regard, the senior executive director of Maruti Suzuki Ltd had remarked that “it’s
getting better and probably November will be better than October”. 56 Analysing the figures
in November 2021, it seems as though this quarter is actually promising for the company.
However, any sort of forward projection at this juncture is a bit dicey given the uncertainty of
dynamics involved. Notwithstanding that, it is commendable that the company went ahead
with the dividends in this situation.
8.3. Mahindra & Mahindra Analysis
ANALYSIS OF MAHINDRA AND MAHINDRA’S DIVIDEND POLICY
55
Money Control, https://www.moneycontrol.com/india/stockpricequote/auto-carsjeeps/marutisuzukiindia/
MS24 (last visited 11 November, 2021).
56
Chiranjivi Chakraborty, Auto Stocks may soon stage a turnaround, The Economic Times,
https://economictimes.indiatimes.com/markets/stocks/news/auto-stocks-may-soon-stage-a-turnaround-heres-
why/articleshow/87750289.cms?from=mdr (last visited 12 November, 2021).
47
V
Object

Remarks
28-05-2021 15-07- Final 175 8.75 Rs.8.7500 per

12-06-2020 16-07- Final 47 2.35 Rs.2.3500 per

29-05-2019 18-07- Final 170 8.50 Rs.8.5000 per

29-05-2018 12-07- Final 150 7.50 Rs.7.5000 per

30-05-2017 13-07- Final 260 13.00 Rs.13.0000 per

2017 share(260%) Dividend.
For the year ending March 2021 Mahindra and Mahindra has declared an equity dividend of
175.00% amounting to Rs 8.75 per share. This translates to a dividend yield of 0.93 percent at
the current share price of Rs 937.80. From the above given table, 57 it is noticeable that the
company has a strong dividend track record, having declared dividends on a continuous basis
for the past five years.
It can be noted that Mahindra & Mahindra’s dividend policy saw a dip in the financial year
ending on March 31, 2020 when the firm declared a dividend of 47% (much lower than the
dividends declared in previous years). This can be primarily attributable to the pandemic
induced lack of demand in the automobile industry. However, the firm doled out a large
dividend this fiscal year which is around 175%. 58 It can be said that the firm doled out a large
dividend so as to prevent its shareholders from dumping their shares amid the economic
uncertainties caused by the pandemic and subsequent lockdowns.
57
Money Control, https://www.moneycontrol.com/company-facts/mahindramahindra/dividends/MM (last
visited 13 October, 2021).
58
Ibid.
48
V
Object
ANALYSIS OF MAHINDRA & MAHINDRA STOCK PRICES

Given below is the data of stock prices of the Mahindra & Mahindra depicting the highest,
lowest, and other important figures of last 52 weeks.59
High 965.95
Low 925.55
UC Limit 1,021.20
LC Limit 835.60
52 Week High 971.15
52 Week Low 633.65
Despite the COVID-19 pandemic, Mahindra & Mahindra Ltd investors had a fantastic year
last fiscal year. M&M has risen about 45 percent since the Pre-COVID (January-February
2020) highs, making it the second-best vehicle stock in terms of returns. It is true that the
M&M investors has to face a rocky road after a good ride during the pandemic. To
contextualize it, in September 2021, its shares slipped over 2 per cent after the company
announced that its cutting back on its production by 25 percent owing to semiconductor
shortage.60 However, it has done a very impressive recovery in the months of October and
November where it’s stocks have rose up to as high as Rs. 971 which was 52 weeks high. It
seems as though the company has come back on its track for ensuring a fantastic ride for its
investors since its stocks are again doing excellent in the market.
8.4. Hero MotorCorp Analysis
ANALYSIS OF HERO MOTOCORP DIVIDEND POLICY
59
Money Control, https://www.moneycontrol.com/india/stockpricequote/auto-carsjeeps/mahindramahindra/MM
60
Business Standard, https://www.business-standard.com/topic/semiconductor (last visited 12 November 2021).
49
V
Object

Remarks
06-05-2021 22- Final 1250 25.00 Rs.25.0000 per

07- share(1250%)Final
2021 Dividend
07-05-2021 22- Special 500 10.00 Rs.10.0000 per

07- share(500%)Special
2021 Dividend
05-02-2021 15- Interim 3250 65.00 Rs.65.0000 per

02- share(3250%)Interim
2021 Dividend
06-02-2021 15- Special 250 5.00 Rs.5.0000 per share

02- (250%) Special Interim
2021 Dividend
09-06-2020 30- Final 1250 25.00 Rs.25.0000 per

2020 Dividend
06-02-2020 17- Interim 3250 65.00 Rs.65.0000 per

2020 Dividend
26-04-2019 16- Final 1600 32.00 Rs.32.0000 per

2019 Dividend
31-01-2019 11- Interim 2750 55.00 Rs.55.0000 per

50
V
Object

Remarks
2019 Dividend
02-05-2018 11- Final 2000 40.00 Rs.40.0000 per

2018 Dividend
06-02-2018 15- Interim 2750 55.00 Rs.55.0000 per

2018 Dividend
11-05-2017 30- Final 1500 30.00 Rs.30.0000 per

2017 Dividend.
07-03-2017 16- Interim 2750 55.00 Rs.55.0000 per

2017 Dividend.
Doles out large dividend amid COVID-19 crisis

The table presented above represents the last five years of dividend given by Hero MotoCorp
including final, interim and special dividends.61 Hero Motocorp has declared an equity
dividend of 5250.00 percent, or Rs 105 per share, for the fiscal year ending March 2021. This
equates to a dividend yield of 3.82 percent at the current share price of Rs 2750.05. 62 The
analysis of the dividend policy of Hero MotoCorp suggests that the company thought it best
to incentivize their public shareholders. Especially in a crisis like this, doling out large
dividends may seem very promising to shareholders since they would be expecting increased
dividends to earn from their equity investments and partly compensate their income losses.
All in all, it can be said that the company has a strong dividend track record, having declared
61
Money Control, https://www.moneycontrol.com/company-facts/heromotocorp/dividends/HHM#:~:text=For
%20the%20year%20ending%20March,for%20the%20last%205%20years (last visited 12 October, 2021).
62
Ibid.
51
V
Object
dividends on a continuous basis for the past five years. When it comes to the dividend policy
of Hero MotoCorp, it seems as though the company has almost remained unfazed by the
ongoing pandemic.
ANALYSIS OF HERO MOTOCORP LTD. STOCK PRICES

Given below is the data of stock prices of the Hero MotoCorp Ltd. depicting the highest,
lowest, and other important figures of last 52 weeks. 63
High 2,769.00
Low 2,701.00
UC Limit 2,962.55
LC Limit 2,423.95
52 Week High 3,629.05
52 Week Low 2,636.00
Analysing the numbers from Q4 of Hero MotoCorp, it is no wonder that the numbers present
nothing to cheer about. In the wake of second wave, the stock has hit potholes after flying to
an all-time high in February 2021, underpinned by a solid comeback in the second half of FY
21. In fact, it's down around 21% from its all-time highs. It is also true that the pressure on
the stock is high till domestic recovery is completely effectuated after the second wave of
COVID-19.
The operating metrics outperformed the Street's estimates as revenue realisations improved.
However, this was not enough to save the stock from falling further. That said, it is believed
that recent partnerships with Harley-Davidson and Gogoro Inc. for electric vehicles (EVs)
will benefit the company in the coming quarters. Further, Hero MotoCorp is best-positioned
to benefit this festive season, with the rural economy showing signs of a robust recovery
following the second wave and urban demand set to rebound. The forthcoming holiday
season is likely to be a major catalyst for the segment's sales revival.
63
Money Control, https://www.moneycontrol.com/india/stockpricequote/auto-23-wheelers/heromotocorp/HHM
52
V
Object
In conclusion, in an industry which has been shambles in recent months due to the economic
slowdown, the pandemic and manufacturing delays, the investors are already expecting the
possibility of a recovery for the sector.
53
V
Object
9. CHAPTER 5: IMPACT ON LIQUIDITY AND SOLVENCY AND

WAYS OF MANAGING THE SAME
9.1. The Importance of Liquidity and Solvency in the Automobile Industry
The aspect of liquidity and solvency is of prime importance while dealing in the automobile
industry as these industries are OEMs (Original Equipment Manufacturers).64 The role of
OEMs in the automobile industry requires them to perform several integrated, 65 yet diverse
tasks, which range all the way from sourcing raw material, 66 production of the equipment and
providing this equipment to further sellers on a credit basis 67. While this in simplistic terms
may not carry much weight; it creates a heavy financial burden on the business, which in
essence ‘squeezes’ the capital of the business to a point of saturation.68
64
Abdul R., Mohamed N., Working Capital Management and Profitability-Case of Pakistani Firms, 3
INTERNATIONAL REVIEW OF BUSINESS RESEARCH PAPERS, 279, 300, (2007).
65
O.N. Arunkumar , T. Radharamanan, Working Capital Management and Profitability: An Empirical Analysis
of Indian Manufacturing Firms, 4 INTERNATIONAL JOURNAL OF MANAGEMENT, 121, 129 (2013).
66
Ibid.
67
Ibid.
68
Geotab, https://www.geotab.com/blog/impact-of-covid-19/ (last visited on 13 Oct, 2021)
54
V
Object
Here the business faces challenges, in the form of a weighted balance 69 - to maintain liquidity
in the short-term for running the operational side of the business, and on the other end of the
balance – to maintain solvency for meeting the long-term debt and credit inflow and outflows
of the business.70 In such instances, the financial model which the business has opted for
comes into the strongest consideration as there must be enough of a war chest to fight the
industry needs in the long term, whereas also divide the capital of business in liquid form to
meet the short-term functionalities of the business.71
9.2. Impact of CoVID-19 on Liquidity and Solvency in the Automobile

Industry
In the past, the automobile industry was usually considered as a safe source of investment for
both equity and venture opportunities.72 However, like all sectors being adversely affected by
CoVID-19, the automobile industry took a big hit too. 73 However, what makes the impact on
the automobile industry different is the manner in which its liquidity and solvency was
affected.74 The already debt-ridden business now saw their solvency problems turn into
liquidity threats, because of the one-year hiatus from operations. 75 Moreover and secondly,
these business could not avoid their operational costs of plant maintenance and human
resource management.76 This depleted their liquidity war chests and then strained their
solvency, as there was no incoming revenue from operations.77
69
Ibid.
70
Ibid.
71
OZILI, P. K.., ARUN, T., SPILLOVER OF COVID‐19: IMPACT ON THE GLOBAL ECONOMY (CUP, 2020).
72
Uludag, O. , Kleehaus, M. , Dreymann, N. , Kabelin, C. , & Matthes, F., Investigating the adoption and
application of large‐scale scrum at a German automobile manufacturer , 2019 ACM/IEEE 14TH INTERNATIONAL
CONFERENCE ON GLOBAL SOFTWARE ENGINEERING, ICGSE 2019, 22, 29 (2019).
73
Ibid.
74
Wesseling, J. H. , Niesten, E. M. M. I. , Faber, J. , & Hekkert, M. P., Business strategies of incumbents in the
market for electric vehicles: Opportunities and incentives for sustainable innovation. 24(6) BUSINESS
STRATEGY AND THE ENVIRONMENT, 518, 531. (2015)
75
Ibid.
76
Ramesh, B. , Mohan, K. , & Cao, L., Ambidexterity in agile distributed development: An empirical
investigation, 23(2) INFORMATION SYSTEMS RESEARCH, 320, 323–339. (2017)
77
Ibid.
55
V
Object
Here, we can see that the conditions of the Debt/EBIT for the OEMs have really taken a big
hit and seem to portray a position of adverse risks for some major players such as Maruti
Suzuki, Bajaj Auto, Apollo Tyres amongst others. 78 Here, the risk profiles of the businesses
on the fronts of liquidity and solvency have changed in the dramatic negative.79
The research undertaken by Accenture indicated these four factoring threats to the liquidity
positions of OEM businesses, ranging from the positions of finance, HR, and core concerns. 80
Here, we note that all the way from supply to the sale the OEMs face a big threat in the way
to approach their business.81 Further decline in working liquidity of these OEMs has
increased the risk profiles of these firms vis-à-vis their liquidity and solvency positions.82
78
Business Standard, https://www.business-standard.com/article/companies/covid-19-pandemic-washes-out-6-
years-of-growth-in-auto-sales-%E2%80%88siam-data-121041300034_1.html (last visited on 13 Oct, 2021)
79
Ibid.
80
Accenture, https://www.accenture.com/in-en/insights/automotive/turbocharging-indian-automakers (last
visited on 13 Oct, 2021).
81
Ibid.
82
Ibid.
56
V
Object
9.3. The Impact on Liquidity of our Subject-Companies:
HERO MOTORCORP
The biggest indicator and recognition which can be given to the financial performance of
Hero Motorcorp (Hero) can be evidenced through their CEO – Pawan Munjal’s letter dated
06.05.2021.83 In this letter he recognized that Hero underperformed heavily in the financial
year 2020-21 and noted that its liquidity positions took a major hit. 84 His letter indicated the
following comparative factors to show the shareholders of the company the reasons and
causes for this big hit in the liquidity positions of the company85
On more technical ground, the company’s liquidity ratio saw a tremendous drop to 1.72 in
2021 as opposed to a 2.08 and 1.92 in 2020 and 2019 respectively, this inference does not
help Hero’s position when coupled with the fact that there was a drop in its earnings retention
percentage from 47% in 2020 and 44 % in 2019 all the way to 36% in 2021. Moreover, the
company has seen an increase by over 52% in its current liabilities, and this corresponding
increase has been an aftershock of the pandemic.86 Therefore, the impact on CoVID-19 on
Hero has been substantially large.
83
HeroMotorCorp, https://www.heromotocorp.com/en-in/uploads/media/pressrelease_pdf/20210506154717-
pdf-462.pdf (last visited on 13 Oct, 2021)
84
Ibid.
85
Ibid.
86
Money Control, https://www.moneycontrol.com/company-facts/heromotocorp/listing/HHM (last visited on 10
Oct, 2021) -
57
V
Object
However, in a spirit of initiating more liquidity into the firm – the company has sought to
convert its non-current assets into more current form and has allocated a large part of their
debt to increasing the current assets of the company, which is indicated through the 31%
increase in the current assets of the company from 2020. 87 This position of Hero, while in the
short term will sustain them by maintaining a liquid position, in the long term – there might
be threats to their debt positions and therefore as a caveat, the executives at the company
must create a balance between both the aspects of solvency and liquidity.
TATA MOTORS
Tata Motors seems to be the exception to all other companies in the automobile sector, in the
manner in which they have handled their Liquidity and Solvency problems. 88 The Company
has flown through smoothly during the 2020-21 financial year as is evidenced from several
indicators. For instances, in the matter of liquidity indicators its Current Ratio and Quick
Ratio have been the highest they ever have been in the last five years. Their Current Ratio
was 0.60 as opposed to 0.52 in 2019 and 0.58 in 2018; whereas their Quick Ratio was 0.43 in
2020-21 as opposed to 0.35 and 0.36 in 2019 and 2018 respectively. Therefore, on the
liquidity end of the factor, the company has been doing very well.89
In most instances, the life of liquidity comes from the death of the solvency of the company.
However, presently, this is not the case with Tata Motors. Its debt to equity ratio has
decreased significantly to 0.99 in 2021 as opposed to 1.13 in 2020; however, this still remains
high as opposed to its pre-CoVID-19 benchmark on 0.79 in 2018. It is only understandable
for the company to see an increase in this ratio.90
87
Ibid.
88
Money ControL, https://www.moneycontrol.com/india/stockpricequote/autolcvshcvs/tatamotors/TM03 (last
visited on 12 Oct, 2021)
89
Ibid.
90
Ibid.
58
V
Object
Insofar as the Tata strategy is concerned, the company sought to reduce its dividends over the
past year, and this reduction in dividend was seen to go ahead and contribute towards
reducing their debt. It appears that TATA has reduced its debt in order to maintain a good
balance of liquidity and at the same time tackle the problem of solvency. This approach of
‘killing two birds with one stone’ has seemed to have benefitted the TATA company, as the
general shareholder perception is that there will be no dividend returns in times of CoVID-
19.91 Therefore a smart move by TATA, by giving a short-term loss to their shareholders, has
now resulted in what seems like a long term Trojan Horse strategy to staying afloat in a
competitive market. This policy of cutting down on dividend to reduce debt is a part of
TATA’s long term plan of becoming a debt-free company, as has been explained in the
analysis above.92
MARUTI SUZIKI
An analysis of Maruti Suzuki is of peaking interest as they have established themselves in a
position to be debt free. So much so that in 2020, regardless of the pandemic hitting the
industry hard – they followed their trends of 2018 and 2019 of having a debt to total asset
ratio of 0.00.93 This makes a very interesting ideal in studying the liquidity and solvency
position of Maruti Suzuki. It is pertinent to note that being one of the financially most stable
companies in India, Maruti Suzuki’s finances have not had a comparatively bad impact due to
COVID.94
On the front of its liquidity, we can note that Maruti Suzuki had reported a Current Ratio of
1.15 in 2021, as opposed to a 0.75 and 0.87 in 2020 and 2019 respectively. This is a total
game changer to their liquidity position. The company has in-fact openly boasted about its
91
Ibid.
92
Ibid.
93
Money Control, https://www.moneycontrol.com/india/stockpricequote/auto-carsjeeps/marutisuzukiindia/
MS24 (last visited on 14th Oct, 2021)
94
Ibid.
59
V
Object
liquidity position and said that no debt or default could affect them. 95 This stand was taken by
the company in August, 2020 – when the Pandemic was at its peak, which makes it all the
more impressive for Maruti to take this stand. While the Current Ratio is not always the best
indicator of the liquidity position, we note that here Maruti Suzuki has also maintained a
strong position with regards to its Quick Ratio, making sure that it had a quick ration of 0.96
in 2021 as opposed to a Quick Ratio of 0.46 and 0.64 in 2020 and 2019 respectively. This
indicates that Maruti has been ready to deal with operational costs and other costs, whatever
might come in its way to run its operations and manufacturing.96
While the solvency position of Maruti has always been a constant zero, its solvency position
has remained unaffected by COVID. Therefore, it indicates that Maruti has stuck to its policy
of maintaining a debt free position even though a mighty adversity like CoVID-19 came to its
path.97
The method Maruti chose to maintain its liquidity has not all the way based on its financial
strength. Rather, Maruti has resorted to closing a few of its production plants owing to a drop
in its sales in the last five years. 98 As already indicated, it has shut down its Haryana Plant
and now plans on shutting down its Gujarat Plant.99
95
Ibid.
96
Ibid.
97
Ibid.
98
Rahul Awasthi, Maruti to Close down Production Plants, Business Standard, (Oct. 10, 2021, 7:45 PM)
https://auto.economictimes.indiatimes.com/news/passenger-vehicle/cars/maruti-suzuki-india-extends-plant-
shutdown-till-16-may/82482643
99
Ibid.
60
V
Object
MAHINDRA AND MAHINDRA

If there is one company which can be made an example of for bad financial strategy leading
upto to CoVID-19, then Mahindra and Mahindra makes a strong case to take that spot. The
company saw its revenues decreasing at high rates of close to 35% in 2021.100 Moreover, the
company has faced several turnover issues and has also seen an exponential decrease in the
profit value of the company, more than what the industrial standard is.101
In so far as its liquidity position is concerned there has not much too much of a change, the
Current Ratio for the business.102 The business has stayed more than just afloat in the context
of its liquidity. The Current Ratio of the company for 2021 was 1.34, whereas it was 1.38 in
2020, it was further 1.26 in 2019.103 Along similar lines are the quick ratios of the company
which in 2019 was 0.99, in 2020 was 1.07 and in 2021 was 1.08. Therefore, on the aspect of
liquidity the company has been performing well.104
100
Nallini Mitra, Revenue Loss for Mahindra&Mahindra Auto, Business Insider, (last visited on Oct. 13, 2021
9:15 PM) https://www.moneycontrol.com/financials/mahindraandmahindra/balance-sheetVI/MM.
101
Ibid.
102
Money Control https://www.moneycontrol.com/financials/mahindraandmahindra/balance-sheetVI/MM (last
visited on Oct. 14, 2021)
103
Ibid.
104
Ibid.
61
V
Object
On assessing the corresponding solvency position of the business, things get interesting. The
company maintained a phenomenal debt/asset ratio of 0.07 and 0.09 in 2019 and 2020.
However, when it came 2021, the debt to asset ratio of the company skyrocketed to 0.21,
which is unprecedented in the history of the company which maintains an almost zero debt
policy like its competitor Maruti and TATA.105 A company with just Rs. 2000 Cr. In Long
Term liabilities in 2020, now finds itself with almost 7100 Cr. In 2021, which is more than a
three-fold increase in the increase in the debt position of the company.106 Therefore, we can
see that in retaining its liquidity the company has compromised its solvency position, which
is reflective of the fact that its solvency ratio has increased by almost three times in amount.
9.4. Conclusion
While drawing our conclusion for this question, there are certain pertinent observations
which are to be made. In times of a crisis with long term implication, which are to be dealt
with in the short term, companies may choose to either uphold their position of liquidity by
compromising their position of solvency. This is extremely problematic. We see that this is a
classical case with a company like Mahindra, which despite all its effort to compromise its
solvency position has not been able to push up its sale. In Fact, despite, compromising its
long term solvency positions, Mahindra has been unable to create a steady stream of revenue
for itself. The company now faces a threat of a 20% loss in the financial year 2021-22.
Therefore, there are too many problems in trying to compromise liquidity and solvency at the
cost of one another.
On the other hand, companies such as those of Tata and Maruti have managed to stay strong
in the business, as they follow an almost no debt policy. Therefore, with their solvency never
in question, their liquidity problems were easy to tackle. In fact, these companies were able to
105
Ibid.
106
Ibid.
62
V
Object
match their revenues of 2018 despite the pandemic’s havoc. Hence, their model of liquidity
and solvency seems to hold the most utility.
63
V
Object
10. CHAPTER 6: LEGAL IMPACT AND FINANCIAL LIABILITIES

DUE TO DIFFICULTIES IN PERFORMANCE OF CONTRACTS
AND FORCE MAJEURE
10.1. The Importance of Contracts in the Automobile Industry
Like any industry, contracts are the central and the focus point of automobile OEMs. 107 The
role of contracts in this set up is multi-facetted. On one hand there is a supply chain system of
contracts which are of a secondary and primary nature. 108 On the other hand, there is the
aspect of Hedging of contracts which is of risk-averse utility function. 109 In most instances,
since the operations of the companies are so large and wide, there are also aspects of
contracts which involve bank guarantees.110 The utility of contracts is far and wide in this
industry.
10.2. Force Majeure and CoVID-19

Force Majeure or an act of God is an aspect of law which expects a party of a contract from
performing his/her obligations under the contract due to the presence of situation not beyond
their control or any other reasonably apprehensible phenomenon. 111 In such instances, there is
a multitude of factors which must be considered to assess a situation as an Act of God. 112 The
court and law for a throughout the country assess two factors to hold and adjudge something
as an act of God these are the aspects. These elements are that of Foreseeability and out of
human control, destroying the fundamental of contract. 113 While there has been no concrete
adjudication that CoVID-19 was an act of God, most of the contracts with a heavy weight of
107
Mridhul Bahrdwaj, What are the basic components of a Supply Chain, IIM Udaipur Chronicles (last visited
on Oct. 12, 2021) https://www.iimu.ac.in/blog/what-are-the-five-basic-components-of-a-supply-chain-
management-system/
108
Quesada, G, Syamil A, & Doll, W., OEM New Product Development Practices: The Case of the Automotive
Industry, 42 JOURNAL OF SUPPLY CHAIN MANAGEMENT, 30, 40 (2006).
109
Ibid.
110
Ibid.
111
S.S. Rana & Co. Advocates, India: Force Majeure clauses in Contracts, (Oct. 15, 2021, 10:30 AM), https://
www.mondaq.com/india/government-contracts-procurement-ppp/737524/force-majeure-clauses-in-contracts.
112
Ibid.
113
Nirbhay Kumar, Lockdown 2.0: How it impacts ailing economy, India Today, (Oct. 15, 2020), https://www.
indiatoday.in/mail-today/story/lockdown-2-0-how-it-impacts-ailing-economy-1667426-2020-04-16
64
V
Object
obligations found their foundations in a weak system. 114 Similar were the contracts in the
automobile industry where the supply and distribution contracts run in the Thousands of
crores every year. However, while several companies in the automobile industry did have the
option to invoke the Force Majeure clauses in their contracts, many of them did not choose to
invoke it. Several Companies invoked and did not invoke the force majeure clauses for
several reasons, however, we shall constrict our study to the subject companies in question.
10.3. Analysis of the Subject-Companies
HERO MOTORCORP
The two-wheeler giant, Hero, constrained by the hard times of COVID-19 did invoke the
force majeure clauses in their contract in March, 2020. 115 The position which Hero took was
rather abruptly and no one could anticipate it. Hero laid down a two fold policy indicating
that they will not meet any bills which were above Rs. 2.5 Crore in value and they would not
engage in discounting vendor bills.116 This action of Hero MotorCorp. Hero felt the need to
invoke the clauses primarily for the reason that it had invested too much time and money in
bringing out the BS-IV stock into the market which was the new standard in emission let
outs in India.117 This position of Hero has seen to impact them hard and wide and has in fact,
severed their relations with several suppliers and other distributers. Hence, this move of
invocation of the force majeure clause was a bad effect in terms of stakeholder relations for
Hero Motor Corp.
TATA MOTORS
While there are no specific guidelines laid down by Tata Motors in respect to the invocation
of the force majeure clause for contracts, what is evident though through the TATA Motors
Annual report is the policy which the company undertook for the invocation of the force
majeure clause. However, based on page 129 of the Annual Report of 2020-2021, 118 it is
114
Ibid.
115
Ratan Talwar, Hero MotorCorp suspends payments, Economic Times, (Oct. 12, 2021 at 7:45 PM)
https://economictimes.indiatimes.com/industry/auto/two-wheelers-three-wheelers/hero-motocorp-suspends-
payments-to-suppliers-amid-lockdown/articleshow/74877047.cms?from=mdr
116
Hero Motor Corp, Annual Report
https://www.bseindia.com/bseplus/AnnualReport/500182/68852500182.pdf (last visited on Oct. 12, 2021)
117
Ibid.
118
76th Annual Integrated Report, Tata Motors
https://www.tatamotors.com/wp-content/uploads/2021/06/28075755/annual-report-2020-21.pdf (last visited on
65
V
Object
evident that Tata Motors based its invocation of force majeure as a last resort medium.
Moreover, the firm took the view that they will not invoke the Force majeure clauses against
its trade partners who will face the risk of insolvency or dire financial conditions. 119 While the
contracts and transaction are not in the public domain, owing to proprietary information and
confidentiality of contracts, there are broad guidelines issued, on the basis of which Tata
Motors has invoked its Force Majeure provisions on a case-by-case basis.120
MARUTI SUZUKI
While the automobile industry has been on a spectrum, with one end absolutely invoking the
force majeure provisions, while some taking a conditional approach. Maruti Suzuki stands on
one of the spectrum, which advocate for the non-invocation of the force majeure provision. 121
While Maruti Suzuki did have the option to invoke the force majeure clauses, their CEO – R.
C. Bhargava, chairman of Maruti Suzuki, said, “With Maruti not producing anything during
the lockdown and so being the case with vendors, there is any case no billing. So there is no
issue for us.”122 This stand of Maruti Suzuki was also endorsed by their legal counsel.
Moreover, this collaborative approach which Maruti Suzuki has undertaken seems to have
attracted the loyalty of their supply chain partners which is why they have now entered into a
massive expansion with their partners, probably indicating the reason why they are the best
performing automobile company in India, right out of the gate of CoVID-19.123
MAHINDRA & MAHINDRA

Mahindra and Mahindra has taken a stand that it will only conditionally invoke the force
majeure clause on a case-by-case basis.124 While there is no information on the aspects of
Force Majeure they have invoked and the types of contracts involved in question, there is
Oct. 12, 2021)

119
Ibid.
120
Ibid.
121
Rajeev Kohli, Firms looking at Time, Cost relief while invoking force majeure, Business Standard, (Last
visited on Oct. 13, 2021) https://www.business-standard.com/article/companies/firms-looking-at-time-cost-
relief-while-invoking-force-majeure-120040101748_1.html
122
Ibid.
123
Ibid.
124
Nandini Gupta, Pricol invokes Force Majeure, Times of India, (last visited on Oct. 13, 2021)
https://timesofindia.indiatimes.com/business/india-business/pricol-invokes-force-majeure-as-matter-of-
precaution/articleshow/75189327.cms
66
V
Object
information that one of the biggest automobile suppliers in the world – Pricol – who supplies
to BMW, Mercedes and Mahindra, did invoke the force majeure clause against supply to
Mahindra and Mahindra.125 However, based on proceedings of contractual and insolvency
disputes, and a white paper note of the Mahindra and Mahindra parent group, we do see that
there were debates going on regarding the invocation of the force majeure clause, however –
the outcome of which was never seen to take fruition into practice.
10.4. Conclusion
The aspect of invocation of force majeure is an important commercial decision which must be
taken with commercial prudence. Herein we can see that several companies have adopted
several strategies towards their approach to invoking the force majeure clause. Most
companies who were unable to deal with their financial crisis did resort to the invocation of
the clause, whereas other companies who could afford to take the risk of non-invocation
resorted to take the hit and financial burden such as Maruti and Tata. Regardless, of the
position surrounding contractual obligations ad force majeure a common trend which could
be seen in the industry was the understanding between parties that they would not litigate
over the non-fulfilment of the contractual obligations during the covid period.
125
Ibid.
67
V

Backup of FM Final

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Backup of FM Final

Uploaded by

Copyright:

Available Formats

GUJARAT

NATIONAL LAW UNIVERSITY

RESEARCH ARTICLE TITLED:

THE FINANCIAL PUZZLE OF AN UNSTOPPABLE FORCE

AN ECONOMIC STUDY ON THE IMPACT OF COVID-19 ON THE INDIAN

YASH KHANNA - 19B180 DATED:

3. PART B – THE ASSESSMENT..................................................................................................................13

1. ACADEMIC INTEGRITY FORM

Registration No. and Semester: 19B103, 19B116 & 19B180

Subject: Financial Management

Faculty Member: Mr. Satya Ranjan Mishra

Faculty Member Assistant: Nil

Allocation Date: 14th September, 2021

Title Registration Date: 16th September, 2021

Reason for selection of title: Nil

Synopsis Filing Date: Nil

Final Version Filing Date: 18th November, 2021

Faculty’s pre-submission Nil

Extension of timeline requested Nil

Viva-Voce/Group Discussion: Nil

Total duration: 2 Months

Faculty Member Signature

Academic Integrity Declaration

Mehar, Aniket and Yash

18th November, 2021

Original: Exam Department

2. OBJECTIVES, SCOPE AND LIMITATION OF THE STUDY

ARTICLES & WORKING PAPER:

1. Abdul R., Mohamed N., Working Capital Management and Profitability-Case of

MANAGEMENT, 121, 129 (2013).

3. Business Standard, https://www.business-standard.com/article/companies/covid-19-

A question which has perplexed the mind of economics and finance

shortlisting four major Indian Giants of the automobile industry –

PART B – THE ASSESSMENT

5. CHAPTER 1: IMPACT ON LONG TERM INVESTMENTS, RISK

Source: Trade Brains4

potential of acceptance of the technology used by HMC. Secondly, economic uncertainties in

Source: Motilal Oswal Financial Services Ltd.11

5.2. Long Term Investment

MAHINDRA & MAHINDRA13

Source: Live Mint15

HERO MOTOR CORP16

6. CHAPTER 2: IMPACT OF COST OF CAPITAL AND

6.2. Analysis Of Cost Of Capital

a. weight of equity = E / (E + D) = 19,32,666.48 / (19,32,666.48 + 13,42,442.66) =

E / (E + D) * Cost of Equity + D / (E + D) * Cost of Debt * (1 - Tax Rate)

= 0.5901 * 19.11% + 0.4099 * 6.1242% * (1 - 0%)

Comparison with data of last financial years

FINANCIAL YEAR ENDING TATA MOTORS ANNUAL DATA (WACC

Comparison with other players in the same industry

Hero MotoCorp Ltd 12.10

MARUTI SUZUKI INDIA LTD.

Formula for calculating WACC is as follows:

a. weight of equity = E / (E + D) = 0.000 / (0.000 + 3,679.14) = 0

E / (E + D) * Cost of Equity + D / (E + D) * Cost of Debt * (1 - Tax Rate)

=0 * 12.21% +1 * 28.2491 * (1 – 18.79%)

Comparison with data of last financial years

FINANCIAL YEAR ENDING MARUTI SUZUKI INDIA LTD. ANNUAL

Comparison with other players in the same industry

COMPANY WACC % AS ON 13th OCTOBER 2021

MAHINDRA AND MAHINDRA

Formula for calculating WACC is as follows:

a. weight of equity = E / (E + D) = 11,86,736.52 / (11,86,736.52 + 8,23,278.42) =

Cost of Debt: 61,158.34 / 8,23,278.42 = 7.4286% 32