motor industry analysis

8/10/2019 Motor industry analysis

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ADVANCED FINANCIAL

STATEMENT ANALYSISAn Indian Auto industry perspective
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Demand Growth Drivers

Personal Income

Demand increases as the income increases, only to be substituted later by thfor four wheelers. Income has been steadily growing in India and is projecteat a growth rate of 9-12 percent range by 2012

Demography and Inspiration

The bigger the young and working population, the greater is its need for coThe IT and BPO revolution has influenced this movement. This is a favorableIndias workforce is young.

Penetration Level

The lower the penetration levels in the market, the better the scope for futuAs the penetration of the rural market is significantly low, it is going to be a long term growth driver.

Other Factors

Improvement in infrastructure increases competition, while simultaneously ipublic transport. The average time period taken to replace an existing bike wmodel has decreased from 7 years to 5 years, resulting in replacement dema


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Bajaj Auto

The total net worth has been increasing continuously for the past 3-4 years because of increase in Reserves and Surplus.

The company has not raised any fresh funds through equity.

The total debt of the company has also gone down considerably over time sthe company is clearing its long term debts and it has sufficient funds from operations.

The liabilities have increased over time mainly because of the increase in Re

The company has increased its assets over time thereby suggesting that it hland, plant & machinery.


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Bajaj Auto

The company has steadily increased its sales and the operating expenses haconstant more or less.

This means that the gross profit has increased.

There have been no extraordinary expenses lately.

The company has posted very EPS figures in the last 5 years.

The company distributes approximately 45% of the profits as dividends to sh

and retains the remaining amount. The remaining amount goes into the Reserves and surplus and is used by th

to invest in new projects.


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TVS Motors

The total net worth has been increasing continuously for the past 3-4 years because of increase in Reserves and Surplus.

The company has not raised any fresh funds through equity.

The total debt of the company has also gone down considerably over time sthe company is clearing its long term debts and it has sufficient funds from operations.

The liabilities have decreased over time.

Like liabilities, total assets have also decreased over time.


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TVS Motors

This is mainly because the company has invested in scaling up operations aninvested heavily on plant & machinery.

The income and expenses from sales have all gone up but the proportion insales is more than increase in expenses. This has led to an increase in operat

The EPS has increased in all years except 2013 where the completely investeplant.

The company pays out approximately 20% profits as dividends and retains t

amount to be deployed later.


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HERO MOTORS

Hero Motorcorp is a zero debt company.

The assets of Hero have been continuously increasing over the years thanks investment in plant & machinery, capital work in progress.

It has also seen an increase in the loans and advances it has given. Also the assets like cash and cash receivables have steadily increased over the years.

The sales have constantly increased at around 4-5% per annum except for thwhen the whole auto industry was facing a downturn.

The operating expenses have also increased i.e. the cost of raw materials hav


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HERO MOTOCORP

However, the increase in expenses is less than the increase in sales. This culman increase in gross profits.

This also shows that Hero has somewhat optimized its production process thleading to higher efficiency.

The reported net profit for the year 2014 has declined compared to 2013 beincrease in tax payout. The increase in tax payout was maybe to honor a defliability.

The company has a healthy EPS of Rs 106 per share of which it distributes Rsshare as dividend. This shows that the company does not have any major inplans for the next year.


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ExpendituresTVS Motor 2011-12 2012-13 2013-14

Capital Expenditure 27.75 30.28 18.48Revenue Expenditure 92.65 96.87 113.27

All the Expenditures incurred by TVS Motor are on R&D only

Hero 2011-12 2012-13 2013-14

Capital Expenditure on Land etc 565.05 607.64 941.47

Revenue Expenditure on R&D 47.3 59.76 89.16

Bajaj 2011-12 2012-13 2013-14

Capital Expenditure on Land etc 109.53 508.18 220.05

R&D 29.88 40.38 41.25


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Capital Structure Financing Pattern

Hero

Debt free as of date, has redeemed all the loan of Rs. 1458 crore from 2011 to 2014

Did not raise fresh equity in last three years

Debt Equity ratio fell from 23% in 2012 to 0% in 2014Investment activities financed through reserves and retained earnings

It operates at negative working capital, financing its short term requirements through curre

TVS

Levered capital structure but the company has been reducing its debts significantly

Debt Equity ratio has come down from 61.18% in 2012 to 33.62% in 2014

It retains and reinvests 50% to 75% of its earnings

Cash profit of the company has grown sufficiently to help it pay off its debts and also finan

Bajaj

Very low reliance on external capital. 1.6% Debt Equity ratio in 2012 which fell to 0.6% of to

Owners equity is the primary source of capital

It retains 50% to 55% of its earnings to invest in Capex

It sources its short term requirements through current liabilities as it maintains negative ca


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Management Discussion of TVS Moto

For 2011-12,

Interim dividend of 60% (0.60Rs/share) and a second interim dividend of 70% totaling 130% for the year

Overall sales growth in 2 wheeler segment was lower mainly due to its absence in the executive segmen

New products launched TVS Star City, Wego, Streak

Planning to launch Apache next year to help company grow in the premium segment

For 2012-13,


The Company's total revenue including other income marginally fell from Rs.7,163.23 Cr in the previous ythe current year

New Products Launched TVS Sport, TVS Phoenix 125, TVS Apache, TVS Scooty

TVS Phoenix was launched to address the Executive segment

Tie up with BMW Motorrad, Germany to produce high-end motorcycles

For 2013-14,

The Company's total revenue including other income increased to Rs.7,992.06 Cr in the current year fromin the previous year


New Products launched multi colored models of existing products, TVS Jupiter


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Management Discussion of Hero

For 2011-12,

New Products Launched Impulse, gearless Maestro 100cc, Ignitor 125 cc bike

Impulse was the first hero branded bike after separating from Honda, Japan

Debt free company 2250% dividend with payout ratio 43.9%

Operating on negative working capital

For 2012-13,

Net revenue from operations of the Company grew by 0.80%, from Rs 23,579crores in 2011-12to Rs 23,768crores in 2012-13

New Products lauched PassionXPro and new model of Ignitor

High dividend 3000% (Rs 60 per share)

For 2013-14,

Dividend 3250%

Total sales increased by 6.5% to Rs 25,125crores as compared to previous year


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Management Discussion of Bajaj

For 2011-12,

To dominate the high end it launched KTM Duke 200 and the Kawasaki Ninja 650R

In the mid-commuter deluxe segment, Bajaj Discover dominated the market

Commuter standard segment Bajaj Platina

Exports to 35 countries and enjoys leadership position in 12 countries

For 2012-13,

Total revenue grew by 3.3% to Rs 20,793crores

Bajaj Auto sold over 3.76 million motorcycles in India and abroad

Lunched the next generation Pulsar 200NS

For 2013-14,

Bajaj Auto sold over 3.42 million motorcycles in India and abroad

New products launched - KTM Duke 390 with ABS


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Liquidity And Solvency Ratios 2014 2013 2012

Current Ratio 0.87 0.85 0.71Quick Ratio 0.57 0.51 0.44

Debt Equity Ratio 0.34 0.45 0.61

Long Term Debt Equity Ratio 0.31 0.4 0.41

Current assets and current liabilities both are increasing Debt is decreasing

Liquidity And Solvency Ratios 2014

Current Ratio 0.8 Quick Ratio 0.67

Debt Equity Ratio 0.01

Long Term Debt Equity Ratio 0.01

Debt is decreasing

Liquidity And Solvency Ratios 2014 2013 2012

Current Ratio 0.65 0.67 0.42

Quick Ratio 0.47 0.52 0.28

Debt Equity Ratio -- 0.06 0.23

Long Term Debt Equity Ratio -- 0.06 0.23

Became debt free in 2014

Hero Motorcorp

TVS Bajaj

Financial Ratios


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Du Pont AnalysisHERO Motocorp 2014 2013

Profit Margin 8.34% 8.91% 1

Asset Turnover 4.51 times 4.47 times 4.4

Leverage 1 1.06

ROE 37.6% 42.3% 5

TVS Motor 2014 2013

Profit Margin 3.28% 1.65%


Leverage 1.34 1.45

ROE 18.48% 9.47% 2

BAJAJ 2014 2013

Profit Margin 16.09% 15.21% 1


Leverage 1 1

ROE 33.7% 38.51% 4


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Altman Z Score Analysis

Hero Motorcorp

2011-12: 8.08 2012:13: 7.9 2013-14: 9.96

Bajaj Auto

2011-12: 9.25 2012:13: 10.45 2013-14: 10.22

TVS Motors

2011-12: 4.47 2012:13: 3.53 2013-14: 3.80


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TVS

2012 -Mr Sudarshan Venu is appointed as vice-president of the Company on a remuneration not exceeding Rs. 2.50effective 1st December 2011, being a relative of CMD and a director of SCL would amount to holding an "Office or Phence would require approval of the shareholders of the Company

2012Reaffirmation of the NE-IDs compensation from 1 April 2013 to next 5 years as deadline of 5 years from 2008

setting of compensation at 1% of the net profits of the Company.

2013-Venu relinquished his office as Vice President of the Company consequent upon his appointment as a directorank of whole-time director of the Company by special resolution

2014- Mr A N Raman, practising cost accountant hired for a fixed sum of Rs. 5 Lakhs as remuneration payable to himyear 2014-15.

2014- Appointment of 4 non executive independent directors and 1 non-executive non independent director

Some Foreign investments in highlight

TVS Indonesia boasts of negative reserves ofRs 4.2 bn which is equal to the paid up capital of 4.3 billion. In othworth is fully eroded.It rang up revenues of Rs 1 bnand generated a post-tax loss of Rs 245 m

Singapore offshoot with a paid up capital of Rs 2 bnand negative reserves of Rs 52 m, no results for what happinvestment

Amsterdam offshoot where the parent has provided for part depreciation for its investment in it. It has a paid upbnand negative reserves ofRs 811 m. This company too has very little to show for it at the end of the day

Sundaram Auto Components handed out a Rs 29 mto the parent while drawing a majority of business Rs 9 bill

Managerial Renumeration - TVS

5 out of 9 directors having interests in the company operations and 1 non independent


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Managerial Renumeration - BAJAJ

7 out of 16 directors having interests in the company operations


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Managerial Renumeration - HERO

3 out of 11 directors having interest in the company operations


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Hero- Net cash from operating activities 2963.5 crores, investing -1,619.32 on account of investments across three plants for 936.80 crores, financing activities -1,414.93 on accodividend pay-out 1,199.29 crores. Cash in hand at end of year is 66 crores.

Bajaj- Net cash from operating activities 3545.71 crores, investing -2,141.49 on account oinvestments of Rs 2,116.56 crores, financing activities -1,468.22 on account of huge divid1,301.52 crores. Cash in hand at end of year is 486.28 crores

TVS- In 2014 while others were fairing well TVS had to increase its liabilities to maincreased profit to cover the 280 crore investment into plant and machinery for engine maHimachal. Net cash from operating activities 523.79 crores, investing -259.84, financi(-198.38) on account of dividend pay of -69.00 crores and debt repay of 88 crores. Cash in

of year is 65.57 crores

Cash flow analysis

HERO Opening Cash & Cash Equivalents 137.25 33.73 39.32

Closing Cash & Cash Equivalents 66.41 134.95 33.73

BAJAJ Opening Cash & Cash Equivalents 550.28 1172.75 228.74

Closing Cash & Cash Equivalents 486.28 550.28 1178.83

TVS Opening Cash & Cash Equivalents 14.89

Closing Cash & Cash Equivalents 80.46


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Insight Both TVS and Bajaj are losing significant amounts abroad Bajaj with its revenues and finance potential seems b

has to convert into a export hub. Lack of foresight

With Bajaj tie-up with KTM for R&d, Hero with Eric Buell racing and TVS with BMW Motorrad the race to b

innovation in India seems a three sided race with hero seemingly the investors favourite warhorse as Post MotoCorp is free to explore global markets; it is targeting exports of 1m units over by FY17 (of total 10m units).

TVS has a better position in the growing scooter segment with Jupiter, while Bajaj has the 3W segment costrongest player in the sub 125 cc segment. With all 3 companies making inroads into others sectors

With Honda seemingly can do nothing wrong in the scooter segment and Yamaha onslaught of sub 30,000 Rs 1heroscore market. There seems to be tough times for both TVS and hero.

Bajajsdominance of performance bikes at higher prices seems to be at an advantage as the near government rstandard mandatory feature leading to higher costing for 100cc bikes from hero.

Favourable fuel and material cost has lead to industry experts revising earnings call on auto manufacturers as salpick up

Miscellaneous

Expenses2,339.09 2,025.33 389.52 340.42 280.64

HERO P&L

Miscellaneous

Expenses1,208.76 1,012.41 881.6 32

TVS P&L

TotalExpenses

7,474.10 6,623.27 6,671.7 6Total

Expenses21,727.05 20,446.16 20,032.81 16,796.90 13,084.39

Miscellaneous Expenses 940.73 815.36 263.37 168.53 221.94

Total Expenses 16,062.67 16,338.00 15,874.89 13,277.15 9,340.64

BAJAJ P&L


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THANK YOUHonesty is as deep as subsidiaries in Auto industries

Abhishek Bansal

Denis Jose

Pintu Mitruka

Shaswat
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