the international journal of analytical and experimental...

PROFITABILITY PERFORMANCE ANALYSIS OF JK TYRE & INDUSTRIES

LIMITED IN INDIA

R.BASKAR

Ph.D. Research Scholar in Commerce,

Annamalai University, Annamalainagar,

Chidambaram, Tamil Nadu-608 002, India.

E-mail:[email protected]

Abstract

The study aims to provide profitability performance analysis of JK tyre & industries

Limited in India. The data has been collected from secondary sources and the period was

covered for ten years from 2008-2009 to 2017-2018 to follow the respected company

published annual reports. The researcher used tools for analysis Profitability ratios, Mean and

Compound Annual Growth Rate (CAGR). Hence, the result of the profitability performance

of JK tyre & Industries limited was show the net profit-earning capacity of the company was

not satisfactory during the study period. At the time operating profit ratio of the company

was more than net profit ratio. So, a company should not be properly managed its non-

operating incomes and non-operating expenses. The profitability of the company was found

to be good in terms of return on assets, return on capital employed and return on equity. The

rate of profitability was more than a normal rate of return. The study also found that packing

and forwarding expenses of the company increased at the rate more than the rate of increase

in sales of the company.

Key words: Ratio analysis, Gross Profit Ratio, Operating Profit Ratio, Net Profit Ratio.

Introduction

The Indian tyre industry has been seeing amazing development for the past presiding

years for the development of auto sectors, particularly in traveller vehicles and motorcycles

sections. Truth is told, accessibility of raw material demand in natural rubber and

ultramodern generation offices to create a demand for the world's most aggressive tyre

markets.

The International journal of analytical and experimental modal analysis

Volume XI, Issue X, October/2019

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It is driven by the solid interest in car OEM area and substitution platform. India's

market for radial tyres in commercial vehicles area is still in its outset. The traveller vehicle

fragment changed to radial tyres in a brief timeframe, with outspread tyre entrance level for

the classification achieving 100 per cent. In any case, the infiltration level of the radial tyre

has likewise begun to increment quickly in the light business vehicles, truck and passenger

segments. This portion will be the biggest development region throughout the following

combine of years.

Tyre manufacturing companies are searching for abroad manor of rubbers to make

their raw materials our needs to satisfy demand and supply, which it is encourages the

organizations to secure raw material at less expensive costs Indian markets. Simultaneously,

tubeless tyres are making strides in Indian markets as practically all the car producers are

propelling their vehicles with tubeless tyres. This demonstrates tubeless tyre market has

colossal development opportunity in the coming years. In this time more success tyre

companies in India like MRF tyres, Apollo tyres, JK tyres, CEAT Year it has a solid hold in

the market, anyway they face a tremendous challenge from worldwide tyre companies such

as Bridgestone, Goodyear and so on to sell their items in the Indian markets. The Indian

MNCs to have set up units in different abroad nations and some like Apollo Tyres are

notwithstanding getting business there.

Growth of Indian Tyre Industry

The Indian tyre industry achieving expected growth of 7-8 per cent an Indian

economy during the financial year of 2018. According to Independent and Professional

Investment Information and Credit Rating Agency of India (ICRA), the tyre demand is

estimated to increase to 7 per cent during the financial year 2018; it is supported by growth in

trucks and buses replacement demand after having two years of slumped growth. To a way of

the future demand for the financial year 2019 increase the expected growth at 6.5-7 per cent

and 8-8.5 per cent respectively.

Subrata Ray, Sr. Vice President, Corporate Sector Ratings, ICRA, said that the tyre

volumes across the commercial segments de-grew during the H1 financial year 2018 due to

GST Implementation, which had its impact on the financial year 2018 demand due to de-

Stocking by dealers. But barring this short-term Slump, the domestic market has remained

favourable and is likely to recover during the second half of the financial year 2018.



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The Indian Tyres are Exports various countries in strong demand the world-level

market segment the Second straight year to Product Segments due to the 27.5 per cent growth

in the financial year 2017, The volume of exports has increased by 14.1 per cent during the

first half of the financial year 2018. Tyre exports are estimated to grow by 10 per cent during

the financial year 2018 and it is 8-10 per cent over the next three years lead the Increasing the

stable demand over the global level tyre market. At the same time, the world market available

the Chinese tyres are the low price it is one of the major challenges for the Indian tyre

makers.

Profile of JK tyre and Industries Ltd.

JK tyre is an automotive tyre, tubes and flaps manufacturing company based in Delhi,

India. The name JK is derived from the initials of Kamlapatji (1884–1937) and his father Seth

Juggilal (1857–1922). It was founded that West Bangal the license gets February 1974; the

company was converted in public sector in 1st April 1974. JK Tyre is based in over 80

countries across all 6 continents. It is a part of the JK Organization, is among India’s leading

tyre manufacturers and the top 25 tyre manufacturers in the world. The company offers a

wide range of products catering to diverse business segments in the automobile industry. The

company operates 12 plants, including nine in India and three in Mexico. Currently, the total

capacity of all its plants together is around 32 million tyres per annum. It is listed on major

stock exchanges in India and provides direct and indirect employment to nearly 300,000

people. JK Tyre is the only Indian tyre manufacturer to be included in the list of Superbrands

India in 2017 for the sixth consecutive year.

Review of literature

Puneet Saliya and Parmil Kumar (2012) studied the liquidity and profitability trade

off – a study on Bharti Airtel Limited, the study was taken as last five year data and we will

try to evaluate the relationship between profitability and liquidity. The researcher has to be

tested with a null hypothesis and alternative hypothesis there is a negative relationship

between profitability and liquidity. So every firm needs to maintain equilibrium between

profitability and liquidity

Nisha Rapheal (2013) these study to present an overview of the financial

performance of Indian tyre industry-comparison among leading tyre companies.



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The study based on secondary data period from 2003 – 2004 to 2011 – 2012. The

sample was selected as four companies, to cover major important financial performance

indicators like current ratio, quick ratio; net profit ratios have been analysis. The tyre industry

has been passing through turbulent phases characterized by enhanced debt burden, low

utilization of assets and above all, huge liquidity crunch. The key to success in the industry is

to improve labour productivity, flexibility and capital efficiency.

Sunil. M and Kantesha Sanningammanavara (2014) reported that a study on

financial performance; a comparative analysis of JK tyre and industries ltd and selected tyre

companies in India, it provides a financial statement likely assets, liabilities on specified data,

revenues and expenses and a net result of operation during the study period. This study based

on secondary data, to make useful information to communicate its users. The researcher has

to be made in a descriptive method, statistical tools, tools of ratio analysis and ANOVA test

has been conducted to test the mean returns and it has been covered analysis of the

comparative financial performance of JK tyre and industries ltd and selected tyre companies.

Dharmaraj Arumugam et al, (2016) the study on Automobile sector has emerged as

a sunrise sector. The Indian automobile industry is growing at an average rate of 17 per cent

for the past few years. The financial data and information required for the study were drawn

from the secondary data. The other relevant data were collected from journals, magazines and

websites. The period of the study covered by 15 years from 2000 to 2014 and the essential

data for this period have been collected. It is compelled to restrict the number of sample

companies to 16. The study is based on purposive sampling method, making a study of

sixteen companies in India. The overcapacity problem is hunting many of the players as

demand may not go up significantly. As per the Automotive mission plan 2016 – 26 prepared

jointly by the society of Indian automobile manufacturers (SIAM) and government.

Statement of the problem

Profit is one of the main objectives of any business organization. All the processes in

an organization are planned to achieve a high profit of the organization. Profit is important

tool measuring the performance of a company. It will reveal the overall performance of the

company. Hence studying profitability is very important for a manufacturing company. The

tyre industry is one of the key industries in India. Tyre industry provides goods to the

automobile industry. This industry brings a considerable portion of foreign currency to the

country through the export of tyre products to other countries. During the year 2014-15

86.80 lakh tyres were exported to various countries.



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JK tyres limited are one of the market leaders in the tyre market in the country. This

company stood third in manufacturing tyre products in India. As a major tyre manufacturer,

it is necessary to study the profitability of the company. Hence the project work has been

undertaken to analyse the profitability of JK Tyres Limited.

Objectives of the study

The following objectives are set to study the profitability of the company.

1. To study the growth and development of Indian tyre industry.

2. To study profitability performance of JK Tyre and industries limited in India.

Sources of data

The Profitability analysis calculated based on secondary data. The sources were

collected from profit and loss account and balance sheet of JK tyre and Industry Limited,

which were extracted from the annual report of the company.

Period of Study

The present study has been undertaken for a period of five years from 2008 – 2009 to

2017 – 2018.

Tools used

The study used ratio analysis as financial tools and it also used percentage,

Trend analyses, mean and compounded annual growth rate (CAGR) as statistical tools.

Scope of the study

The study has covered to analyse the profitability of Jk Tyre and Industries Limited.

For this purpose, it considered Net Profit, Operating Profit, Return on Investment, Return on

Equity and selected expenses ratios and another aspect of profitability analysis were

considered out of scope.

Limitation of the study

The study experienced the following limitation while making the project work.

The study is purely based on secondary data and limitation of study using secondary

data will apply to this study also. The period limited in ten years from 2008-09 to 2017-18.

Analysis and Interpretations

This study analyzes the profitability position of JK tyres limited for the period of ten

years from 2008 – 2009 to 2017 – 2018. It primarily used ratio analysis as a financial tool

and it also used a few statistical tools.



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Net Profit

Net profit is an important parameter to analyze the profitability of a manufacturing

company JK Tyre and Industries Limited. The following aspect Table 1 presents the results

of the net profit of the company and its trend during the study period.

Table 1Net Profit of Jk Tyre and Industries Limited

(₹ in crore)

Year Net Profit

₹

Change

₹ % Change

2008-2009 19.05 - -

2009-2010 163.47 144.42 113.19

2010-2011 61.32 -101.68 60.31

2011-2012 11.00 -50.32 21.86

2012-2013 105.54 94.54 111.64

2013-2014 134.68 29.14 462.18

2014-2015 253.30 118.62 213.54

2015-2016 400.96 147.66 272.76

2016-2017 332.13 -68.83 482.53

2017-2018 43.09 -289.04 14.91

Mean (Rs.) 152.45 - -

CAGR (%) 32.81 - -

Source: Computed Annual reports

Table 1 shows that net profit of the JK tyre & industries Ltd. was decrease

during the study period. The profit range was ₹. 19.05 crore and ₹. 43.09 crore, the net profit

was increasing trend during 2011-2012 to 2015-2016 its rage ₹. 11.00 crore to ₹. 400.96

crore. Its mean value of net profit is ₹. 152.45 crore and CAGR report shows 32.81 per cent

rrespectively. It is indicating the moderate level of deviation from the mean value. The

following figure shows that net profit of the JK Tyre & Industries Ltd.



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Figure 1Trend of Net Profit of the JK Tyre & Industries Ltd

Net Profit Ratio

The term net profit ratio is called net profit divided net sales multiplication hundred.

The profit margin is indicative of management’s ability to operate the business with sufficient

success not only to recover from revenues of the period, the cost of merchandise or services,

the expenses of operating the business and the cost of borrowed funds, but also to leave a

margin of reasonable compensation to the owners for providing their capital at risk. Higher

the ratio of net operating profit to sales better is the operational efficiency of the concern. The

net Profit Ratio calculated as,

Net Profit Ratio =Net Profit

Net sales× 100

0

50

100

150

200

250

300

350

400

450

Net Profit



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Table 2Net Profit Ratio of JK Tyre and Industries Limited

(₹. in crore)

Year Net Profit

₹

Sales

₹

Net profit ratio

(%)

2008-2009 19.05 4903.61 0.39

2009-2010 163.47 3677.70 4.44

2010-2011 61.32 4810.92 1.27

2011-2012 11.00 5643.71 0.19

2012-2013 105.54 6002.16 1.76

2013-2014 134.68 6560.29 2.05

2014-2015 253.30 6784.37 3.73

2015-2016 400.96 6564.92 6.11

2016-2017 332.13 6607.51 5.03

2017-2018 43.09 6578.50 0.66

Mean (₹.) 152.45 5813.37 2.56

CAGR (%) 8.50 2.98 5.36

Source: Computed Annual Reports

Table 1 show that the net profit of the JK tyre and industries Ltd. was decreased

during the study period except during 2012-13 to 2015-16. The profit range was ₹. 19.05

crore and ₹. 43.09 crore, the mean value of net profit is ₹. 152.45 crore and CAGR report

show 8.50 per cent respectively. It is indicating the moderate level of deviation from the

mean value. The net sales of a company fluctuated during the study period. The net sales

ranged between ₹. 4903.32 crore and ₹. 6578.58 crore respectively. Mean value is ₹. 5813.37

crore and GAGR report that sales growth was 2.98 per cent. Net profit ratio of the company

was not good during the study period.

Operating profit ratio

The operating profit margin ratio is a key indicator for investors and creditors to see

how businesses are supporting their operations. If companies can make enough money from

their operations to support the business, the company is usually considered more stable. On

the other hand, if a company requires both operating and non-operating income to cover the

operation expenses, it shows that the business' operating activities are not sustainable. The

operating Profit Ratio calculated as,



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Operating Profit Ratio =Operting Profit

Net sales× 100

Table 3 Operating Profit ratio of JK Tyre and Industries Limited

(₹. in crore)

Year Operating Profit

₹.

Sales

₹.

Operating Profit

ratio

(%)

2008-2009 176.44 4903.61 3.60

2009-2010 251.85 3677.70 6.85

2010-2011 155.42 4810.92 3.23

2011-2012 178.14 5643.71 3.16

2012-2013 298.40 6002.16 4.97

2013-2014 368.58 6560.29 5.62

2014-2015 479.79 6784.37 7.07

2015-2016 626.51 6564.92 9.54

2016-2017 591.68 6607.51 8.95

2017-2018 309.57 6578.50 4.71

Mean (₹.) 343.64 5813.37 5.77

CAGR (%) 5.78 2.98 2.72


Table 3 shows that the operating profit of the JK tyre and industries Ltd. Was

fluctuated during the study period except during 2011-12 to 2015-16. It is ranged between ₹.

176.44 crore and ₹. 309.57 crore respectively. Mean value of operating profit was ₹. 343.64

crore the result of CAGR was 5.78 per cent. The net sales ranged between ₹. 4903.32 crore

and ₹. 6578.58 crore respectively. Mean value is ₹. 5813.37 crore and GAGR report that

sales growth was 2.98 per cent. The operating profit ratio fluctuated during the overall study

period, the ratio range between 3.60 per cent and 4.71 per cent respectively. The mean value

of ratio was 5.77 per cent and the result of CAGR was 2.72 per cent.

Total Expenses Ratio

The expense ratio is a measure of what it costs and investment of the company to

operate a mutual fund. An expense ratio is determined through an annual calculation, where a

fund's operating expenses are divided by the average dollar value of its assets under

management. Operating expenses are taken out of a fund's assets and lower the return to a

fund's investors. The Total Expenses Ratio calculated as,



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Total Expenses Ratio =Total Expenses

Sales× 10

Table 4 Total Expenses Ratio of JK tyre and Industries Ltd

(₹. in crore)

Year Total Expenses

(₹.)

Sales

(₹.)

Expenses Ratio

(%)

2008-2009 4574.44 4903.61 93.29

2009-2010 3199.46 3677.70 87.00

2010-2011 4702.56 4810.92 97.75

2011-2012 5364.24 5643.71 95.05

2012-2013 4943.47 6002.16 82.36

2013-2014 5295.68 6560.29 80.72

2014-2015 5373.50 6784.37 79.20

2015-2016 4889.66 6564.92 74.48

2016-2017 6312.71 6607.51 95.54

2017-2018 6540.41 6578.50 99.42

Mean (₹.) 5119.61 5813.37 88.48

CAGR (%) 3.64 2.98 0.64


Table 4 shows that the operating profit of the JK tyre and industries Ltd. Was

fluctuated during the study period except during 2011-12 to 2015-16. It is ranged between ₹.

176.44 crore and ₹. 309.57 crore respectively. Mean value of operating profit was ₹. 343.64

crore the result of CAGR was 5.78 per cent. The net sales ranged between ₹. 4903.32 crore

and ₹. 6578.58 crore respectively. Mean value is ₹. 5813.37 crore and GAGR report that

sales growth was 2.98 per cent. The operating profit ratio fluctuated during the overall study

period, the ratio range between 3.60 per cent and 4.71 per cent respectively. The mean value

of ratio was 5.77 per cent and the result of CAGR was 2.72 per cent.

Policy Suggestion and Recommendation

1. Net profit of the JK tyre & industries Ltd. Was not satisfactory during the study

period, but during 2012-13 to 2015-16 their net profit was good but after the 2016-

2017 to 2017-2018 the company net profit was slightly down.



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2. Net profit ratio of the company was not satisfied during the study period. The

performance of sales revenue is satisfied comparatively net profit of the company.

3. Operating profit ratio of the company was not satisfied, but during 2010-11 to 2015-

16 operating profit performance is good.

4. Total expenses of the company was high during the study period, the company reduce

expenses.

5. The company try to use natural rubbers and to improve marketing strategies.

Conclusion

Profitability analysis study reveals the performance of a company in all aspects

because efficient management of other aspects will result in profit. JK tyre & industries

Limited is one of the market leaders Indian tyre market. It is also one of the oldest automobile

companies in India. The results of the profitability analysis of the company show that net

profit-earning capacity of the company was not good. But operating profit ratio was more

than net profit ratio; hence the company managed its non-operating expenses and non-

operating incomes poorly. The profitability of the company was found to be good in terms of

return on assets, return on capital employed and return on equity. The rate of profitability

was more than a normal rate of return. The study also found that packing and forwarding

expenses of the company increased at the rate more than the rate of increase in sales of the

company.

Reference

Shashi K Gupta. Sharma R.K. Management Accounting Kalyani Publishers, New

Delhi – 110 002.

Pandey I. M (2011). “Financial Management” Vikash Publishing House Pvt.

Shashi K. Gupta ‘Management Accounting’ Kalyani Publishers, Third Revised

Edition 2014, reprinted 2016.

Journals

Puneet Saluja and Parmil Kumar (2012), “Liquidity and Profitability Trade off ( A

Study Bharti Airtel Ltd),” International Journal of Advanced Research in

Management and Social Sciences, Vol. 1, No. 4, Pp. 74 – 84.

Nisha Rapheal (2013), “An Overview of the Financial Performance of Indian Tyre

Industry- Comparison Among Leading Tyre Companies, Innovative Journal of

Business and Management, Vol. 2, No. 2277 – 4947, Pp. 128 – 130.



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Sunil M and Kantesha Sanningammanavara (2014), “A Study on Financial

Performance: A comparative Analysis of JK Tyre & Industries Ltd and Selected Tyre

Companies in India,” ZENITH International Journal of Business Economics and

Management Research, Vol. 4, No. 8, Pp. 21 – 30

Dharmaraj Arumugam, Ashok kumar.M and Preeth.R (2016), “Factors Determining

Profitability in Indian Automobile Industry, Indian Journal of Commerce and

Management Studies, Vol. VII, No. 2, Pp. 64 – 69

Websites

https://www.icra.in/

http://atmaindia.org/

https://www.jktyre.com/

www.moneycontrol.com

www.tyremarket.com



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