Managerial

Accounting I
Presented by:

Prakhar Srivastava(24) Hardeep Singh(12)

Shikhar Sood(33) Pankaj Jindal(23) Sector: Automobile
Agenda
Introduction……………………3
Auto Sector in India……………4
Market overview………………..5
Industry Landscape……………..6
Company Introduction.………...7
Key Ratios Analysed…...………12
Conclusion…………………….19
Q&A…………………………...20

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Introduction
• The aim of this project is to analyze automobile industry based on the financials and
ratios of the leading companies;

• To establish the key performance measures;

• To discuss the role the industry is playing economically;

• Tools used: Key financial ratios, Z score and Cash flows analysis

• Data referred: Financial ratio’s and data extracted from https://www.capitaline.com,

Money Control and Bloomberg. Also referred respective Company’s annual report and
publications related to automobile sector by SIAM and other research agencies.
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Automobile Sector in India
• Country currently being the world's 4th largest manufacturer of cars and 7th largest
manufacturer of commercial vehicles in 2019.
• Indian automotive industry (including component manufacturing) is expected to reach
Rs 16.16-18.18 trillion (US$ 251.4-282.8 billion) by 2026.
• The passenger vehicle sales in India crossed the 3.37 million units in FY19 and is further
expected increase to 10 million units by FY20. Production of passenger vehicles rose 2.8
per cent.
• Overall automobile exports reached 0.67 million vehicles in FY19, implying a CAGR of
8.11 per cent between FY13-19.
• The Government of India expects automobile sector to attract US$ 8-10 billion in local
and foreign investments by 2023.
• India will be part of Global Automotive Triumvirate - the global Big 3 in coming 20
years and will also exceed the Indian automotive sales from US market by mid 2030s.
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MARKET
OVERVIEW
 Indian government & Suzuki formed Maruti  Automotive Mission Plan 2016-26 launched in 2015
Udyog and commenced production in 1983  Bharat Stage IV emission norms since April
 Component manufacturers entered the 2017
market via JV  30.9 million vehicles produced in 2018-19
 Buyer’s market  More than 40 companies operating in the country in 2019

Before 2015
1983-1992 1992-2007
1982 Onwards

 Sector de-licensed in 1993

 Closed market
 Major Original Equipment Manufacturers (OEMs)
 5 players started assembly operations in India
 Long waiting periods & outdated models  Imports permitted from April 2001
 Seller’s market  Introduction of value- added tax in 2005
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Industry Landscape
May'19 sales

Oatsun Skoda Jeep Nissan Fiat

Renault Volkswagen
1%
Ford 1% 0% 0% 0% 0%
3%
3%
Tata
5%

Top 4 automobile Company in India based on Net Honda

5%
Sales as on May’19:
Toyota
5%
• Maruti Suzuki (51%);
Maruti
Mahindra 51%
• Hyundai (18%); 8%

• Mahindra (8%);

• Toyota (5%) Hyundai

18%

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Company Comparison

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 MARUTI SUZUKI
 Majority owned subsidiary of Japanese conglomerate Suzuki.
 Started in Gurgaon, Haryana as a partnership between the Indian
government and was known as Maruti Udyog Limited..
 Now the undisputed market leader in the passenger vehicles segment in
India with a market share of 50 per cent in FY19.
 Has made the most affordable cars for the Indian middle class for more
than three decades.
 New models are being launched each year to hold the position of the
Chart Title leader in its home market.

86,020.30  Recorded its highest ever sales of 1,862,449 units during 2018-19, a year-
on-year increase of 4.7 per cent.
79,762.70
68,034.80

 Net sales of the company reached Rs.830,385 million in FY19 while the
57,538.10
49,970.60
43,646.30
43,587.90

net profit in the year reached Rs.78,807 million.

36,618.40

35,587.10
29,098.90

 The company's board has recommended a dividend of Rs.80 per share of

0 1 2 3 4 5 6 7 8 9
face value Rs. 5 for 2018-19.
r-1 r-1 r-1 r-1 r-1 r-1 r-1 r-1 r-1 r-1 9
a a a a a a a a a a
M M M M M M M M M M
9 Source: Company website, Annual Report
HYUNDAI
 Hyundai Motor India Ltd. is a wholly owned subsidiary of
the Hyundai Motor Company headquartered in South Korea.
 It is the second largest automobile manufacturer with 16.2% market
share as of February 2019 and US$5.5 billion turn-over in India.
 For more than a decade till Hyundai arrived, Maruti Suzuki had a
near monopoly over the passenger cars segment.
 HMIL presently markets 10 models.
 As HMC's global export hub for compact cars, HMIL is the first
automotive company in India to achieve the export of 10 lakh cars
in just over a decade.
 It has been India's number one exporter for the last 10 years
consecutively.
 HMIL has two manufacturing plants-
in Irungattukottai and Sriperumbudur in Tamil Nadu.

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Key Ratios Analysed
Following Financial Ratios have been analysed for automobile Industry as well as for Maruti Suzuki
and Hyundai:
• Profitability Ratios
• Gross Profit Margin Ratio (GP Margin ratio)
• Earnings before Depreciation, Interest and Tax Ratio (EBDIT)
• Net Profit Margin Ratio (NP Margin ratio)
• Return on Capital Employed (ROCE)
• Turnover Ratios
• Inventory holding Period
• Debtors collection Period
• Fixed Asset Turnover Ratio
• Solvency/Liquidity Ratios
• Current Ratio
• Debt equity Ratio
• Cash Flow Ratios
• Altman’s Z-score 12
Profitability Ratios (1/2)

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Profitability Ratios (2/2)

Conclusion
• Positive GP margin ratio indicates Revenue exceeds direct costs
(Cost of good sold) for Maruti Suzuki and Hyundai.
• GP Margin ratio, NP Margin ratio, EBIT Margin ratio, ROCE are
positive for both the industries throughout the period considered.
• Industry GP margin ratio, NP margin ratio, EBIT margin ratio went
negative in FY’18 & FY’19 because of slowdown in the
automobile sector.
• ROCE is negative for the industry throughout the period considered
which shows that auto companies were not able to generate profits 14

efficiently from its capital employed.

Source: Bloomberg as at Nov’19
 Turnover Ratios

Conclusion:
• Maruti Suzuki has a higher inventory holding period,
whereas Hyundai has lower than it. Hence Maruti
Suzuki has more money tied up than the other.
• Hyundai has a higher FATR than Maruti Suzuki,
hence it is performing better in terms of conversion
of fixed assets to revenue.
• In terms of Debt collection period, Hyundai is again
well ahead of the major competitor in the recent
15
years, hence has a much lower collection period.
Source: Capitaline as at Nov’19
Liquidity Ratios
Short-term ratio/Current Ratio (CR) Long-term ratio/Debt Equity Ratio

Conclusion* Conclusion*
• Threshold is 2.0 • Hyundai has progressively lower ratio
• Maruti Suzuki has a situation at hand (~0.1x)
(CR=~0.5x) • Maruti Suzuki has steep hike (~0.5x)
• Hyundai is in desirable situation (CR=~2x) • Portray degree of risk
• Maruti Suzuki is staring at ST capital crisis • Complemented by CR 16
• Markets will be more interested in Hyundai
Source: Bloomberg, Moneycontrol as at Nov’19
Cash Flow Ratios

Conclusion
• Cash flow from operations is on a
decreasing trend for automobile industry
• Industry has positive cash flow from
operating activities
• Maruti Suzuki has net cash inflow in
operations
• Investment cash flow is negative for
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automobile industry
Source: Bloomberg as at Nov’19
Altman’s Z-score
Conclusion
• Altman’s Z-score measures the
probability of bankruptcy;
• For Maruti Suzuki, it is always
greater than 6 for the period
considered.
• Hyundai & Industry’s z score is
unknown

Probability of
Z-score
bankruptcy
1.80 or less Very high
1.81 to 2.99 Not sure
3.0 or greater Very low
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Source: Bloomberg as on Nov’19

Conclusions
 The data and trends indicate mixed response for both the companies.

 Currently, trends are discouraging for the industry. Reasons may be many.

 Government and the companies their self need to take corrective steps at
the earliest.

 Economists believe that we are at the cusp of downward trend and

industry trends will recover by 2021.
Q&A 20
Thank You

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