apollo tyres final)

8/4/2019 Apollo Tyres Final)

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Introduction

Established in 1976,Appolo Tyres Ltd. is Indias leadingtyres manufacturer with operation in three continents andheadquarter at Gurgaon .

Key people of the firm are Onkar S Kanwar as CMD andNeeraj R S Kanwar as JMD and COO.

Traded in India on the Bombay, National and Kochi StockExchanges, with 61% of shares held by the public,government entities, banks and financial institutions

Manpower: Over 10,000 employees based across India,

Southern Africa and Europe

Product portfolio: The entire range of passenger car,SUV, MUV, light truck, truck-bus, agriculture,industrial

and off-the-road tyres; retreading material, retreaded


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Key markets of operation: India is the largestmarket accounting for nearly 70% of revenues.Exportsreach 70+ countries from the threedomestic markets of India, Europe and South

Africa Turnover: FY09 Rs 49.8 billion / US$ 1.1 billion /

Euro 754 million (March 31, 2009, exchangerates)


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Financial StatementAnalysis

(2004-2009)


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On Proper analysis and interpretation, financialstatements can provide valuable insights into afirms performance.

There are four basic ways of analysing financialstatements

Ratio analysis

Comparative analysis Common size statement analysis

Du Pont analysis.


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1. RATIO ANALYSIS

Broadly financial ratios are categorised into fivecategories

Liquidity ratios Leverage ratios

Turnover ratios

Profitability ratios

Valuation ratios


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1. Liquidity Ratio :Liquidity refers to the ability of afirm to meet current/short-term obligations when

they become due for payment .It is generally based on current assets and current

liabilities.

i) Current Ratio : it is defined as Current Assets.

Current Liabilities

Higher the ratio better is the liquidity position of thefirm.


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0

0.5

1

1.5

2

2.5

2004 2005 2006 2007 2008 2009

Current ratio

Current ratio


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Comment:-

From the graph it is clear that firm is able to meetcurrent obligations and the safety of funds ofshort term creditors is good


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ii) Acid Test Ratio (Quick Ratio) :defined asQuick Assets .

Current Liabilities

Quick assets refer to those which can be convertedto cash immediately or at a short notice without

diminition of value.

Quick Assets are CA excluding inventories,WIP,andpre-paid expenses.


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0

0.2

0.4

0.6

0.8

1

1.2

2004 2005 2006 2007 2008 2009

Quick Ratio

Quick Ratio


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Comment:-

From the graph we can say that firms quick ratio

was beat in 2005 and then it declined to 0.6 in2008 but recovered to 0.7 in 2009.


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2. Leverage Ratios (Capital Structure) :

The first type of leverage ratio is based on therelationship between borrowed funds & owners

capital.

These ratios are computed from balance sheets,Such as

Debt-equity ratio

Debt-asset ratio

Equity-asset ratio


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i) Debt-Equity Ratio : it shows the relative contributions

of creditors and owners. It is defined asD / E ratio = Debt

Equity

It is the ratio of the amount invested by outsiders to

the amount invested by the owners of business.Lower the ratio higher will be the margin of safety for

creditors.

A high debt-equity ratio will lead to inflexibility in the

operation of the firm and frequent interference will be therefrom creditors side.

But shareholders will be benefited with high debt-equity ratio


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0

0.2

0.4

0.6

0.8

1

1.2

1.4

2004 2005 2006 2007 2008 2009

Debt-Equity Ratio

Debt-Equity Ratio


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Comments:-

Since the ratio is around 0.8 the long termlenders are more secure which is good for longterm position of the firm.


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ii) Debt-Asset Ratio :it measures the extent towhich borrowed funds support the firms assets.

It is defined as

. Debt .

Assets


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0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

2004 2005 2006 2007 2008 2009

Debt Asset Ratio

Debt Asset Ratio


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Comment:-

Debt-assset ratio of the firm is around 0.25 whichindicates use of lower debt in financing the assetswhich means a larger safety margin for lender.


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iii) Equity-Asset Ratio :it measures the extent towhich owners funds support the firms assets. It

isdefined as

Equity-Asset Ratio= Equity

Assets

Here equity means equity capital of the firm (i.e.,net worth).


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0

0.050.1

0.15

0.2

0.250.3

0.35

0.4

0.45

2004 2005 2006 2007 2008 2009

Equity-Asset Ratio

Equity-Asset Ratio


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Comment:- The equity-asset ratio is very less so the firm is

more dependent on external sources of financeand it is a dangerous signal for long term leadersas it indicates a lower level of safety available to

them.


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The second category of leverage ratios arecoverage ratios.

These ratios are computed from informationavailable in the profit and loss account.

These are important because, in the ordinarycourse of business,the claims of creditors are not

met out of the sale proceeds of the permanentassets.

The coverage ratio measure the relationshipbetween what is normally available from

operations of the firm and the claims of theoutsiders.


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Important coverage ratios are

i) Interest Coverage Ratio : it is also known astime interest earned ratio. It is defined as

EBIT (Earning before interest and taxes)

Interest

This ratio measures the debt servicing capacity ofa firm.


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0

1

2

3

4

5

6

7

2004 2005 2006 2007 2008 2009

Interest Coverage Ratio

Interest CoverageRatio


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Comment:- In the year 2008 the ratio is satisfactory which

implies assured payment of interest to them butfor other years ratio is low and it is a dangersignal that firm is using excessive debt


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3. Turnover / Activity / Asset Management Ratio:

It measures how efficiently the assets areemployed by the firm.

These ratios are also called as efficiency ratios.

The efficiency of assets would be reflected in thespeed with which it is converted into sales. Thegreater is the rate of turnover, the efficient is theutilization / management.


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i) Inventory (Stock) Turnover Ratio :itmeasures how fast the inventory is movingthrough the firm and generating sales. It is

defined as

COGS

Average inventory

Cost of goods sold may be obtained by deductinggross profit from net sales.

Average inventory may be calculated as

- average of opening stocks of a year ; or -(opening stock + closing stock) / 2


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0

12

3

4

56

7

8

9

2004 2005 2006 2007 2008 2009

Inventory Turnover Ratio

Inventory TurnoverRatio


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Comment:- Higher the ratio better it is as it indicates that

stock is selling quickly. However this was thecase in the year 2004 only. After that the ratio isdeclining.


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ii) Debtors (Receivables) Turnover Ratio :itshows how many times accounts receivables(debtors) turn over during the year. It is defined

as

. Net Credit Sales .

Average accounts receivables(i.e., Av. debtors + Av. B/R)

The denominators can be calculated as in the

case of inventory turnover ratio.


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0

2

4

6

8

10

12

14

2004 2005 2006 2007 2008 2009

Debtors Turnover Ratio

Debtors TurnoverRatio


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Comment:- From the graph it is clear that the firm has a

higher debtors turnover ratio in the subsequentyears which is good for the firm as it indicates thatamount from debtors is being collected more

quickly.


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iii) Average Collection Period :this is anotherway of measuring the liquidity of a firms debtor. It

represents the number days worth of credit sales

that is locked in debtors (a/c receivables).It is defined as

. Average debtors .Average daily credit sales OR

Months (days) in a year

Debtors turnover

Normally, higher the ratio better is the creditmanagement policy of the firm.


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0

5

10

15

20

2530

35

40

45

2004 2005 2006 2007 2008 2009

Average Collection Period(in days)

Average CollectionPeriod(in days)


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Comment:-

From the graph it is clear that the creditmanagement policy of the firm has been goodover the years.


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4. Profitabilty ratios:

i) Profit margin ratios:

It measures the relationship between profit and sales. Differenttypes of profit margin ratios are:

a) Gross Profit Margin Ratio:gross profit means difference

between net sales and cost ofgoods sold. It is defined as

Gross ProfitNet Sales

This ratio shows the margin left after meeting manufacturingcost . It measures efficiency of production as well as pricing.Higher the ratio, better is the condition.


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0

10

20

30

40

50

60

2004 2005 2006 2007 2008 2009

Gross Profit Ratio(in %)

Gross Profit Ratio


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Comment:-

Gross profit margin ratio of the firm is around 40%which indicates good management, low cost ofproduction and higher sales.


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b) Net Profit Margin Ratio :it measures the relationship between

net profit and sales of the firm. It can

be measured in two ways

Operating profit ratio = EBITSales

Net profit ratio = EAT

Sales

This ratio shows the earnings left for shareholders (both equity and

preference) as a percentage of net sales.

It measures the overall efficiency of the production, administration,

selling, financing, pricing and tax management.

Higher the ratio, better for owners.


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0

1

2

3

4

56

7

8

910

2004 2005 2006 2007 2008 2009

Operating ProfitRatio

Net Profit Ratio

Net profit margin ratio(in%)


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Comment:-

We can see that the net profit margin ratio is fairlygood it would ensure adequate return to theowners as well as enable a firm to withstandadverse economic conditions when selling price is

declining ,cost of production is rising and demandof product is falling.

ii) Rate of return ratios :


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ii) Rate of return ratios :

It reflects the relationship between profit and investment.The important ratios are

a) Return on total asset (ROTA):also called as return oninvestment (ROI). Defined

as

Net profit after taxes (PAT / EAT)Average total asset

It shows how efficiently the asset of the firm is utilized.

Higher the ratio, better utilization of asset will be.


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0

12

3

4

5

6

7

8

9

10

2004 2005 2006 2007 2008 2009

ROTA( in %)

ROTA( in %)


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Comment:-

As from graph ROTA is high implies the netearnings of owners and intrest for creditors is highwhich indicate strong financial position of thecompany.


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b) Return on capital employed (ROCE) :similar to ROTA except

in one respect. Here profits

are related to total capital

employed. Defined as

Net profit after tax (EAT) OR [ EAT + Interest .

Av. total capital employed Av. total capital employed

Capital employed is equal to long term liabilities + ownersequity.

OR it is equal to net working capital + fixed assets.

Higher the ratio, more efficient is the use of capital employed.


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0

24

6

8

1012

14

16

18

20

2004 2005 2006 2007 2008 2009

ROCE( in %)

ROCE( in %)


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Comment:-

Good value of ROCE implies efficient use ofcapital employed.


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c) Earning power ratio:it measures operatingprofitability. It is defined as

Profit before interest and taxes

Average total assets


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0

12

3

4

5

6

7

8

9

10

2004 2005 2006 2007 2008 2009

Earning power ratio

Earning power ratio


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Index Analysis :

In index analysis, the items in comparative financialstatements(balance sheets and income statements)

are expressed as an index relative to the base year.

All items in the base year naturally assume a valueof 100.

INDEX ANALYSIS


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Liabilities 2004 2005 2006 2007 2008 2009

Net worth 100 99.83226 105.2947 153.3075 195.632 224.1501

reserves and surplus 100 99.82085 105.6548 155.5014 200.2714 230.4521

total borrowings 100 129.0453 177.9763 198.1206 154.4078 211.3713

current liabilities and

provisions 100 86.39497 129.6276 226.9617 239.4863 224.4303

deferred tax liability 100 108.8622 116.7694 202.0025 203.2656 221.6266

total liabilities 100 104.084 132.252 189.987 198.2292 220.4519

INDEX ANALYSIS


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Assets 2004 2005 2006 2007 2008 2009

gross fixed

assets 100 117.8724 126.183 186.6214 188.2925 235.2732

net fixed

assets 100 116.6882 121.3308 181.2553 174.5562 225.4332

investments 100 19.32059 3.043171 38.28733 36.73036 33.68719

deferred tax

assets 100 101.8018 381.982 1198.198 1007.658 975.6757

current

assets 100 94.20742 143.9649 198.1923 220.7464 217.4909

total assets 100 104.084 132.252 189.9907 198.2292 220.4519


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Common Size Statement Analysis

In common size analysis, the items in the balancesheet are expressed as percentage of totalassets and the items in the income statement areexpressed as percentage of total sales.


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COMMON SIZE ANALYSIS

Liabilities 2004 2005 2006 2007 2008 2009

Net worth 15.95496 15.40224 13.0892 13.22637 15.7135 16.10502

reserves

and surplus 14.93901 14.41983 12.29765 12.56138 15.06184 15.50349

totalborrowings 11.1667 13.93427 15.48452 11.96288 8.68023 10.62913

current

liabilities

and

provisions 12.80218 10.69521 12.92982 15.7115 15.43483 12.93874

deferredtax liability 2.580416 2.716339 2.347629 2.818562 2.640527 2.575362

total

liabilities 42.55673 42.83211 43.85118 43.71931 42.46908 42.24826

100 100 100 100 100 100


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Assets 2004 2005 2006 2007 2008 2009

gross fixed

assets 25.52693 27.95491 24.63579 25.17913 24.55287 26.77383

net fixed

assets 17.56341 19.04071 16.29848 16.82598 15.66083 17.65087

investments 0.327783 0.058837 0.007629 0.066332 0.061501 0.049226

deferred tax

assets 0.051499 0.048708 0.150455 0.326142 0.265082 0.223997

currentassets 19.2747 16.87019 21.22323 20.19088 21.73461 18.68822

total assets 37.25567 36.02664 37.68441 37.41154 37.7251 36.61386

100 100 100 100 100 100


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SWOT Analysis


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Strengths:-

Continued market leadership in the dominant industry

segment of truck and bus tyres

Global presence with the acquisition of Apollo Tyres

South Africa (Pvt) Ltd. (Formerly known as DunlopTyres International (Pvt) Ltd.)

Extensive distribution network in India and South

Africa

Strongbrand recall in a price sensitive Indian market Responsive to changes in market conditions and

product profiles

Globalquality standards, international process and

system certifications


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High usage of information technology systems tohasten the flow of information and leverageopportunities across 140 locations in India

Dynamic and progressive leadership, willing to

implement change Globalsourcing of raw materials


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Weakness:-

No presence in two and three-wheeler segments

Capital-intensive business :-

A business is capital-intensive if it requires heavycapital investment in buying assets relative to thelevel of sales or profits that those assets cangenerate.


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Opportunities:-

Leadership position in the commercial vehicle

segment will enable the Company to leveragenew and related business opportunities

New product segments like Truck/Bus Radial(TBR), Off The Road tyres (OTR), retreading andallied automotive services

Growth in overseas markets like Europe


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Threats:-

Imports from neighbouring countries atcompetitive prices

Raw material price volatility ( frequent changes in

price of raw materials).


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apollo tyres final)

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