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India Four Wheeler Industry

The Four-Wheeler Industry in India has not quite matched up to the performance of its
counterparts in other parts of the world. The primary reason for this has been the all-
pervasive regulatory atmosphere prevailing till the opening up of the industry in the
mid-1990s. The
various layers of legislative Acts sheltered the industry from external competition for a
long time. Moreover, the industry was considered low-priority as cars were thought of
as unaffordable luxury". Post Liberalization, the car market in India have been in a
burgeoning stage with all types of cars flooding the market in order to meet the
demands of Indian customers who are increasingly exposed to state of the world
automobiles and want the best when it comes to purchasing a car.

It is expected that by 2030, the Indian car market will be the 3rd largest car market
across the globe. The main encouraging factors for the success story of the car market
in India are the increase in the opportunity for new investments, the rise in the GDP
rate, the growing per capita income, massive population, and high ownership capacity.
The liberalization policies followed by the Indian government had been inviting foreign
players to participate in the car market in India. The recent trend within the new
generation to get work in the software based sector has led to the rise in the income
level and change in the lifestyle significantly, which has further led to the increase in
the demand for luxurious cars among them.

The car Market in India is crowded with all varieties of car models like the small cars,
mid-size cars, luxury cars, super luxury cars, and sports utility vehicles. Initially the
most popular car model dominating the Car Market in India was the Ambassador, which
however today gave way
to numerous new models like Hyundai, Honda, Mercedes-Benz, BMW, Bentley and many
others. Moreover, there are many other models of cars in the pipeline, to be launched in
the car market in India. Some of the leading brands dominating the car market in India
at present are Hindustan Motors, Reva Electric Car Co., Fiat India Private Ltd., Daimler
Chrysler India Private Ltd, Ford India Ltd., Honda Siel Cars India Ltd., General Motors
India, Hyundai Motors India Ltd., Skoda Auto India Private Ltd., and Toyota Kirloskar
Motor Ltd. Since the demand for foreign cars are increasing with time, big brands like
Mercedes Benz, Volkswagen, Aston Martin, Ferrari, and Rolls-Royce have long since
made a foray into the Indian car market.

Facts about Indian Car Market:

Although the Indian automobile industry has come a long way since the deregulation in
1993, India does not rank well among its global peers in many respects, viz., the
contribution of the sector to industrial output, number of cars per person, employment
by the sector as a percentage of industrial employment, number of months' income
required to purchase a car, and penetration of cars.

Figure:-Passenger vehicle stock per 100 people

India is far behind from other countries with just 6.9 cars per 100 persons, while Unites
States has 76.9 cars on per 100 persons. Among developing countries, Russia also
stands ahead than India and China with 16.3 cars per 100 persons.

Two things that stunted growth of the Indian automobile industry in the past have been
low demand and lack of vision on the part of the original equipment manufacturers
(OEMs). However, the demand has picked up after the liberalization of the regulatory
environment, and
global OEMs who enjoy scale economies both in terms of manufacturing and research
and development (R&D) entered the Indian market. This has resulted in a significant
shift in the way business is conducted by suppliers, assemblers and marketers.

MARKET SCENERIO (2008-09)[passenger veichle]


Sales Comparision(in Rs.cr.)[all total]

MARUTI ASHOK
YEAR TATA MOTORS
SUZUKI LEYLAND
2005-2006 23490 14898 6200
2006-2007 31089 17358 8500
2007-2008 33123 21200 9178
2008-2009 28538 23381 6826
2009-2010 38364 31947 8071
Maruti Udyog Limited (MUL) was established in Feb 1981 through an Act of Parliament,
to meet the growing demand of a personal mode of transport caused by the lack of an
efficient public transport system. It was established with the objectives of - modernizing
the Indian automobile industry, producing fuel efficient vehicles to conserve scarce
resources and producing indigenous utility cars for the growing needs of the Indian
population. A license and a Joint Venture agreement were signed with the Suzuki Motor
Company of Japan in Oct 1983, by which Suzuki acquired 26% of the equity and agreed
to provide the latest technology as well as Japanese management practices. Suzuki was
preferred for the joint venture because of its track record in manufacturing and selling
small cars all over the world. There was an option in the agreement to raise Suzuki’s
equity to 40%, which it exercised in 1987. Five years later, in 1992, Suzuki further
increased its equity to 50% turning Maruti into a non-government organization
managed on the lines of Japanese management practices.
Maruti created history by going into production in a record 13 months. Maruti is the
highest volume car manufacturer in Asia, outside Japan and Korea, having produced
over 5 million vehicles by May 2005. Maruti is one of the most successful automobile
joint ventures, and has made profits every year since inception till 2000-01. In 2000-01,
although Maruti generated operating profits on an income of Rs 92.5 billion, high
depreciation on new model launches resulted in a book loss.

TATA MOTORS COMPANY PROFILE

Tata Motors Ltd is a multinational corporation headquartered in Mumbai,


India. Part of the Tata Group, it was formerly known as TELCO (TATA
Engineering and Locomotive Company). Tata Motors has a consolidated
revenue of USD 16 billion after the acquisition of British automotive
brands Jaguar and Land Rover in 2008.

It is India's largest company in the automobile and commercial vehicle


sector with upwards of 70% cumulative market share in the domestic
commercial vehicle segment, and had a 0.81% share of the world market
in 2007 according to OICA (The Organisation Internationale des
Constructeurs d'Automobiles, commonly abbreviated OICA (English:
International Organization of Motor Vehicle Manufacturers), is a federation
of automobile manufacturers, based in Paris, founded in 1919. It
coordinates communication among manufacturers, as well as a number of
international auto shows.)data. The OICA ranked it as the 19th largest
automaker, based on figures for 2007. and the second largest
manufacturer of commercial vehicles in the world. The company is the
world’s fourth largest truck manufacturer, and the world’s second largest
bus manufacturer. In India Tata ranks as the leader in every commercial
vehicle segment, and is in the top 3 makers of passenger cars. Tata
Motors is also the designer and manufacturer of the iconic Tata Nano,
which at INR 100,000 (ex-factory) or approximately USD 2300, is the
cheapest production car in the world.

Established in 1945, when the company began manufacturing


locomotives, the company manufactured its first commercial vehicle in
1954 in a collaboration with Daimler-Benz AG, which ended in 1969. Tata
Motors is a dual-listed company traded on both the Bombay Stock
Exchange, as well as on the New York Stock Exchange. Tata Motors in
2005, was ranked among the top 10 corporations in India with an annual
revenue exceeding INR 320 billion.

In 2004 Tata Motors bought Daewoo's truck manufacturing unit, now


known as Tata Daewoo Commercial Vehicle, in South Korea. It also
acquired Hispano Carrocera SA, now a fully-owned subsidiary. In March
2008, it acquired the Jaguar Land Rover (JLR) business from the Ford
Motor Company, which also includes the Daimler and Lanchester brands.
and the purchase was completed on 2 June 2008.

Tata Motors has auto manufacturing and assembly plants in Jamshedpur,


Pantnagar, Lucknow, Ahmedabad, Sanand and Pune in India, as well as in
Argentina, South Africa and Thailand.

 MEANING & IMPORTANCE OF RATIO:

The Balance Sheet and the Statement of Income are essential, but they
are only the starting point for successful financial management. Apply
Ratio Analysis to Financial Statements to analyze the success, failure, and
progress of your business.

Ratio Analysis enables the business owner/manager to spot trends in a


business and to compare its performance and condition with the average
performance of similar businesses in the same industry. To do this
compare your ratios with the average of businesses similar to yours and
compare your own ratios for several successive years, watching especially
for any unfavorable trends that may be starting. Ratio analysis may
provide the all-important early warning indications that allow you to solve
your business problems before your business is destroyed by them.
Ratio is a figure showing, logical relationship between any two items
taken from financial statement as prepared and presented annually are of
little use for guidance of prospective investors, creditors and even
management. If relationships between various related items in these
financial statements are established, they can provide useful dues to
garage accurately the financial health and ability of business to make
profit. The relation between in two related items of financial statements is
known ratio.

 UTILITY OF RATIO ANALYSIS:

It is very important to find the ratio of liquidity, profitability etc. Because


the ratio analysis provides useful data to the management, important
uses of it are given as below:

 PROFITABLITY :

Useful information about the trend of profitability is from profitability ratio.


The gross profit ratio, net profit ratio and ratio of return on investment
give a good idea of the profitability of the business. On the basic of this
ratio, investors get an idea about overall efficiency of managers and bank
as well as other creditors draw useful conclusion about repaying capacity
of the borrowers.

 LIQUIDITY :

In fact the use of ratio was made initially to ascertain the Liquidity of
business. The current ratio, acid test ratio will tell whether the firm will be
able to meet its current liabilities and when they nature. Banks and other
leaders will be able to conclude from these ratios whether the firm will be
able to pay regularly the interest and loan installments.
 EFFCIENCY :

The turnover ratios are excellent guide to measure the efficiency of


managers. All such ratio related to sales present a good picture of the
success on the business.
 INTER FIRM COMPARION :

The absolute ratios of a firm are not of much use, unless they are
compared with similar ratios of other firms belonging to the same
industry. This is a inter firm compared to other firms comparison,
which shows the strength and weakness of the firm as compared to
other firms and will indicate corrective measures.

 INDICATE TREND :

The ratio of the last 3 to 5 years will indicate the trend in the respective
fields. A particular ratio of a company, for one year may compare
favorably with industry average, but its trend shows a deteriorating
position, it is not desirable only ratio analysis will provide this information.

 USEFUL FOR BUDGETARY CONTROL :

Regular budgetary reports are prepared in a business where the system of


budgetary control is in use. If various ratios are presented these reports, it
will give a fairly good idea about various aspects of financial position.

 USEFUL FOR DECISION MAKING :

Ratio guide the management in making some of the important decision,


suppose, the liquidity ratios shows an unsatisfactory position, the
management may decide to get additional liquid funds. Even for
capital expenditure decision, the ratio of investment. The efficiency of
each department a thus be deter minded. Thus, the ratio are the most
useful I financial statement.

Classification of ratio
Profitability ratio
Gross Profit Ratio:
Meaning:
 It is expresses relationship between Gross Profit earned to net sales. It is a
significant indicator of the profitability of business.

 It expresses in percent. For example, a ratio shows that for a sale of every Rs.
1000 a margin of 250 rupees is available from which operating expenses of
business are recovered.

 The ratio shows whether the mark up obtained on cost of production is


sufficient or not. There is no calibration against reasonability of gross profit
ratio. However it must be enough to cover its operating expenses. In many
industries, there are more or less recognized gross profit ratios and the
business should strive to maintain this standard.

 If this ratio is low, it indicates that the cost of sales is high or that the
purchasing is inefficient.

 Alternatively, it may also mean that due to depression, the selling price is
reduced but there are may be no corresponding reduction, the selling price is
reduced but there may be no corresponding reduction in cost of sales. In such
a case, the management must investigate the causes and try to bring up this
ratio.

Implementation:

 Gross profit is result of the relation between price, sales volume and costs. A change
in the gross margin can be brought about by changes in any of these factors.

 The gross profit ratio can also be used in determining the extent of loss caused by
theft, spoilage, damage and so on in the case of those firms which follow the policy of
fixed gross profit margin in pricing their product.

 The gross margin represents the limit beyond which fall in sales price are outside the
tolerance limit.

Formula:
Gross profit X 100

Sales
company 2010 2009 2008
MARUTI 8.85 5.77 10.97
TATA MOTORS 8.84 3.30 8.26

INTERPRETATION:

As mentioned above the gross profit ratio indicates the relationship between gross profit and
net sales. Here from the table we can judge the financial position of Maruti Suzuki year wise.

For consecutive four years the gross profit ratio is positive. It indicates better financial
position of the company.

Net Profit Ratio:


Meaning:

Net profit ratio is valuable for the purpose of ascertaining the over-all profitability of
business and shows the efficiency of operating the business.

Implementation:

 The net profit ratio is indicative of management’s ability to operate the business with
sufficient success not only to recover from revenue of the period the cost of
merchandise or services, the expenses of operating the business and the cost of the
borrowed funds, but also to leave a margin of reasonable compensation to the owners
for providing their capital at risk.

 The ratio of net profit ratio to sales essentially expresses the cost price effectiveness
of the operation.

 A high net profit margin would ensure adequate return to the owners as well as enable
a firm to withstand adverse economic conditions when selling price is declaiming,
cost of production raising and a low net profit margin has the opposite implication.

 It indicates the portion of sales revenue is left to the proprietors after all operating
expenses are paid.

 The higher the ratio, the better will be the profitability. In order to have a better idea
of profitability, the gross profit ratio and net profit ratio may be simultaneously
considered. If the gross profitability increases over the five years but net profit is
declining, it indicates that administrative expenses are slowly rising.

Formula:
Net Profit X 100

Sales

2010 2009 2008


MARUTI SUZUKI 8.29 5.72 9.34
TATA MOTORS 6.28 3.77 6.96

Interpretation :

 Higher the net profit ratio shows better financial position of the company.
 Net profit is the profit that is available to the proprietors of the firm after clearing all
outstanding and expenses. Thus, higher the ratio yields higher profit.

Expenses Ratio:
Meaning:

 This ratio shows relationship between expanses to sales.

 This operating expense may be due to growth in the organization or it may


reflect inefficacy of administrative control on expenses.
 Here negative sign shows decrease in operating expenses.
Implementation:

 Some accountants calculate expenses ratio in respected of raw – material consumed,


direct wages and factory expenses.

 It is closely related to the profit margin, gross as well as net.

Formula:
Expenses X 100

Sales
OPERATING RATIO:
Meaning:

Operating Ratio is computed by dividing expenses by sales.

 The term ‘operating ratio’ includes (1) COGS (2) administrative expenses (3) selling
expenses and (4) financial expenses but excludes taxes, dividends and extraordinary
losses due to theft of goods, good destroyed by fire and so on.

Implementation:

 Some accountants calculate expenses ratio in respected of raw – material consumed,


direct wages and factory expenses.

 It is closely related to the profit margin, gross as well as net.

Formula:

C O G S + Operating expenses X 100

Net sales

2010 2009 2008


MARUTI 11.68 9.18 14.12
TATA
MOTORS 11.74 6.71 10.53

Return on investment / Capital employed:


Meaning:

 The profitability ratio can be computed by relating the profits of a firm to its
investment.
Implementation:

 Return on investment indicates the profitability of business and is very much in use
among financial analysis.
 The ratio is an indicator of the measure of the success of a business from the owners’
point of view. The ultimate interest of any business is the rate of return on invested
capital. It may be measured by the ratio of income to equality capital.

 It determines whether a certain goal has been achieved or whether an alternative use
of capital is justified.

 It is an index of profitability of business and is obtained by comparing net profit with


capital employed. Capital includes share capital, reserves and long term loans such as
debentures.

Formula:
EBIT X 100

Capital employed

2010 2009 2008


MARUTI 28.41 17.48 27.35
TATA
MOTORS 9.66 8.89 22.85

INTERPRETATION:

 This ratio shows relationship between E B I T to CAPITAL EMPLOYED.

 Higher the ratio, it is better for the company.


Earning per share:
Meaning:

 EPS measures the profit available to the equity shareholders on a per share basis, that
is, the amount that they can get on every share head.
 This ratio shows the profitability of the firm from the owner’s point of view. By
comparing EPS of the current year with past years the path of the trend of profitability
can be ascertained.
 It is essential that EPS of the company should be compared with the other companies
and also average of the company before giving final opinion.
 The limitation of EPS is that it does not show how much dividend is actually paid to
shareholders and how much profit is retained in business.
Implementation:
 Earning per share is a widely used ratio. EPS s a measure of profitability

Formula:

Profit after tax – preference dividend X 100

No. of equity shareholders fund

2010 2009 2008


MARUTI 85.42 42.81 55.94
TATA
MOTORS 23.82 17.93 42.91

Dividend per share:


Meaning:

 DPS is the dividend paid to shareholders on a per share basis.

 In the other words, DPS is the Net distributed profit belonging to the
shareholders divided by the No. of ordinary shares outstanding.
Implementation:

 The DPS would be a better indicator than EPS as the former shows what exactly is
received by the owners.

 Like the EPS, the DPS is also should not be taken at its face value as the
increase DPS may not be a reliable measure of profitability as the equality base may
have increase due to increase relation without any change in the number of
outstanding shares.

Formula:
Total dividend declared

No. of equity shares

2010 2009 2008


MARUTI 6.00 3.50 5.00
TATA
MOTORS 15.00 6.00 15.00
Price earning ratio:
Meaning:

 It is closely related to the earning yield leanings price ratio. It is actually the
reciprocal of the latter. Thus ratio is computed by dividing the market price of the
shares by the EPS.
Implementation:

 The price earning ratio reflects the price currently being paid by the market for each
Rupee of currently reported EPS. In other words, the PIE ratio measures investors’
expectations and the market appraisal of the earnings. Therefore, only normally
Market
sustainable earning value perwith
associated share
the assets are taken into account.

Formula: Earning per share

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