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Financial Analysis

Of
Hero MotorCorp Ltd.

Submitted to:By:Dr. Shikha Bhatia.

Submitted
Sudhanshu Jain.
PGMF- 1449.
PGDM- Marketing.

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Jaipuria Institute Of
Management, Noida.

Certificate

This is to certify that the project report on the topic Financial Analysis Of
Hero MotorCorp Ltd. submitted by Sudhanshu Jain in fulfillment of the
requirements of the academics structure for PGDM-Marketing degree is a
bonafide record of the work done by all of us under the guidance of Dr.
Shikha Bhatia.

Submitted To:-

Seal Of The Institution:-

Dr. Shikha Bhatia.

Signature:-

Date:- 14th October, 2014.

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Acknowledgement

With our sincere regards, we wish to acknowledge our indebtness and


gratitude to the contributions of people who helped us at every stage of the
project.
We are very much like to express our gratitude and profoundest
thanks to our project guide Dr. Shikha Bhatia (Faculty, Jaipuria Institute Of
Management, Noida) for their sustained guidance, invaluable suggestions and
constant encouragement without which it would not have been possible for us
to complete this project.

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Table Of Contents

S.No.
1.
2.

3.
4.
5.
6.
7.

Contents
Automobile Industry Overview
Companys
Competitive
Position

Page No.
5
And

Its

Comparative Market Share

Brief Analysis of The Company


Financial Analysis of The Company
Future, Scope And Challenges of The Company
Conclusion
Bibliography

9
11
15
17
18

Automobile Industry Overview

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Market Share of Indian Automobile Industry By Volume.


Two wheelers dominate production volumes; in FY13, the segment
accounted for 77% of the total automotive production in India.

Introduction:The Indian automobile sector is one of its most vibrant industries. The
industry accounts for 22 per cent of the country's manufacturing gross
domestic product (GDP). It comprises passenger cars, two-wheelers, threewheelers and commercial vehicles and is currently the seventh-largest in the
world with an average annual production of 17.5 million vehicles, of which
2.3 million are exported. The Indian auto market has the potential to dominate
the global auto industry, provided a conducive environment is created for
potential innovators to come up with new pilot projects.
The next few years are projected to show solid but cautious growth due to
improved affordability, rising incomes and untapped markets. All these open
up an opportunity for automobile manufactures in India.
In addition, with the government's backing and a special focus on exports of
small cars, multi-utility vehicles (MUVs), two and three-wheelers and auto
components, the automotive sector's contribution to the GDP is expected to
double, reaching a turnover of US$ 145 billion in 2016, according to the
Automotive Mission Plan (AMP) 2006-2016.

Market Size:-

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The automobile industry produced a total of 1,861,849 vehicles including


passenger vehicles, commercial vehicles, three-wheelers and two-wheelers in
April 2014 as against 1,687,243 in April 2013, registering a growth of 10.35
percent over the corresponding month of 2013.

The growth is mostly attributed to the rise in two-wheeler production.

Two-wheeler sales registered growth of 11.67 percent in April 2014 over April
2013. Within this segment, scooters, motorcycles and mopeds grew by 26.08
percent, 8.06 percent and 0.23 percent respectively.

In April 2014, passenger car sales stood at 1,786,899 units while utility
vehicles sales stood at 525,942 units, as per data from Society of Indian
Mobile Manufacturers (SIAM).

Export of utility vehicles showed an improvement of 298 percent with 41,550


units.

Factors determining the growth of the industry:

Fuel economy and demand for greater fuel efficiency is a major factor
that affects consumer purchase decision that will bring leading companies
across two-wheeler and four-wheeler segment to focus on delivering
performance-oriented products.
Sturdy legal and banking infrastructure.
Increased affordability, heightened demand in the small car segment
and the surging income of the Indian population.
India is the third largest investor base in the world.

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The Government technology modernization fund is concentrating on


establishing India as an auto-manufacturing hub.

Availability of inexpensive skilled workers.

Industry is perusing to elevate sales by knocking on doors of women,


youth, rural and luxury segments.

Market segmentation and product innovation.

Companys Competitive Position And Its


Comparative Market Share
Competition:-

Name

Last Price

Market Cap.
(Rs. cr.)

Sales Turnover

Net Profit

Total Assets

Bajaj Auto

2,348.80

67,966.53

20,149.51

3,243.32

9,665.76

Hero Motocorp

2,874.85

57,407.16

25,275.47

2,109.08

5,599.87

TVS Motor

222.95

10,592.07

7,961.85

261.63

1,891.16

Mah Scooters

917.40

1,048.46

4.18

47.60

238.75

Atul Auto

353.25

800.11

430.14

29.80

94.48

LML

9.05

74.20

262.35

-72.83

-497.92

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Source : Dion Global Solutions Limited.


Hero MotoCorp seems to have all the three Ps in place: product, price and
positioning. Soon after it split with Honda, many analysts expected it to lose
market share to its erstwhile partner Honda. But, the numbers so far suggest
Hondas eating into Bajaj Autos market share, not into Heros.
The Streets perception towards Hero is turning favourable. The company has
put in place a strategy to improve margins over the long term by cutting costs.
And, what the market likes best is the manner Hero has held to its leadership
position in the domestic motorcycle market.

Between April 2013 and February 2014, Heros share in the domestic
motorcycle market declined marginally to 52 per cent, from 53.3 per cent in
the year-ago.
Bajaj Autos share (in the domestic market) is down to 20.2 per cent from
24.5 in the previous year. Honda has increased its market share from 11.6 per
cent last year to 15.4 per cent.
Clearly, Hondas growth has done more damage to Bajaj than to Hero.
Between FY11 and FY14, Hero has lost 2.6 per cent market share, while
Bajaj Auto has lost 6.5 per cent.
Surjit Arora of Prabhudas Lilladher believes Heros volumes will grow nine
per cent in FY15, given the strong distribution reach and wider product
portfolio, thereby maintaining its turf in the motorcycle segment, with a
market share of 52.5 per cent.
Given the flat growth this year, a nine per cent growth target might seem big,
but Hero has a number of new product launches ready for this year.
In April, the company is slated to launch Hero Xtreme, based on the CBZ
Xtreme, but with different styling. By the end of the year, it will launch Hero
Leap, a hybrid scooter, and Hero Dash, a 111cc scooter.
According to IIFL, customers of Hero will have a wide variety to choose from
in the years to come and this will help the company cater to the demand of
niche segments as well.

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While research and development costs might increase, the growth in volumes
will give it leverage.
The companys also doing a lot to improve efficiency. Hero is working on
consolidating the vendor base and importing components from China to cut
costs. It is also controlling the spending on advertisement.
However, this is a long-term vision, believe analysts, and will take a year or
so to play out.
The Street expects Heros earnings growth to average 30 per cent annually
between FY14 and FY16. Factoring this in its FY16 price-to-earnings ratio of
11.2 is for the long-term investor.
The stock has moved up nearly 10 per cent in the past month; therefore, the
near-term return would be capped.

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Brief Analysis Of The Company


HERO MOTOCORP LTD:Background:Hero MotoCorp Limited is the World's single largest two- wheeler motor
cycle company. The company is engaged in the manufacturing of two
wheelers motorcycles and its parts. The company has three manufacturing
facilities namely at Haryana, Hardwar and at Uttarkhand. The company is
based in New Delhi, India.
The company offers a range of bikes namely:

CD Dawn.

CD Deluxe.

Splendor Plus.

Splenor NXG.

Passion.

Hunk.

Karizma.

Xtreme.

Impulse.

Super Splendor.

Passion Plus.

Hero MotoCorp Limited was incorporated in the year 1984 with the name
Hero Honda Motors Ltd. The company was established as a joint venture
company between Honda Motor Company of Japan and Hero 1983; they
signed a joint collaboration agreement and formed the company.
The joint venture between India's Hero Group and Honda Motor Company,
Japan, has not only created the worlds single largest two wheeler company
but also one of the most successful joint ventures worldwide.

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In the year 1985, the company commenced their commercial production at


Dharuhera plant in Haryana and introduced their first motorcycle, CD 100 in
the market. In the year 1997, the company inaugurated their second
manufacturing facility at Gurgaon in Haryana. In the year 2004, they
introduced new models, Ambition 135 and CBZ in the market.
During the year, they renewed the joint technical agreement with Honda
Motors Company, Japan. In the year 2006, the company plundered into
scooter segment and launched 100cc gearless Scooter, Pleasure in the market.
During the year 2007-08, the company commissioned their third plant at
Haridwar in Uttarakhand with an initial installed capacity of 500,000 units.
This plant had lean manufacturing and practices that ensured efficiency.
During the year 2008-09 & 2009-10, the company increased the installed
capacity of Motorized 2 wheelers up to 350cc engine by 18,00,000 nos. to
54,00,000 nos.
The company launched the new upgraded versions of CBZ Xtreme and
Karizma in 2010-11. Also, they breached the landmark 5 million figure
cumulative sales in a single year. During the year, the Indian Promoter Group
of the company, which comprised of Hero Investments Pvt Ltd (HIPL),
Bahadur Chand Investment Pvt. Ltd (BCIPL) and Hero Cycles Limited (Hero
Cycles) re-aligned the shareholding in the company, following a family
agreement. As a result, Hero Cycles transferred its shareholding in the
company to HIPL on May 28, 2010. As a result of these transactions, the
Indian Promoter Group of the company now comprises of HIPL and BCIPL
owned and controlled entirely by the Munjal Family headed by Brijmohan
Lall Munjal.
Also, during the year, the Indian Promoter Group and Honda Motor Co Ltd,
Japan (Honda) entered into a Share Transfer Agreement (the Agreement) on
January 22, 2011. As per the terms of the Agreement, Honda had agreed to
transfer its entire shareholding of 26% in the Company to the Indian Promoter
Group, bringing an end to the joint venture between the two promoter groups
of the company. The acquisition was completed on March 22, 2011 and the
shares held by Honda were transferred to the Indian joint venture partner. In
addition to the Agreement, the Indian Promoter Group and Honda also entered
into a License Agreement on January 1, 2011.
As per this agreement, Honda has given to the company, the right and license
to manufacture, assemble, sell and distribute certain products and their service
parts under their Intellectual Property Rights. In July 2011, the company
changed their name from Hero Honda Motors Ltd to Hero MotoCorp Ltd.

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In February 2012, the company entered into a strategic partnership with Erik
Buell Racing (EBR) Of USA for contemporary technology and design inputs
to enable the company to launch high end bikes for the domestic and
international markets.

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Financial Analysis of The Company


Key Financial Ratios of Hero MotoCorp:-

Mar '14

Mar '13

Mar '12

Mar '11

Mar

Investment Valuation Ratios:


Face Value

2.00

2.00

2.00

2.00

2.00

Dividend Per Share

65.05

60.00

45.00

105.00

110

Operating Profit Per Share (Rs)

177.28

166.36

182.69

130.06

137

Net Operating Profit Per Share (Rs)

1,265.75

1,190.27

1,181.19

969.86

793

--

--

212.83

146.03

171

59.98

59.98

59.98

59.98

59.9

Operating Profit Margin(%)

14.00

13.97

15.46

13.40

17.3

Profit Before Interest And Tax Margin(%)

9.45

9.02

10.77

11.26

16.0

Gross Profit Margin(%)

9.62

9.17

10.81

11.33

16.1

Cash Profit Margin(%)

12.50

13.64

13.56

11.36

14.0

Adjusted Cash Margin(%)

12.50

13.64

13.56

11.36

14.0

Net Profit Margin(%)

8.19

8.76

10.04

9.89

14.0

Adjusted Net Profit Margin(%)

8.19

8.76

10.04

9.89

14.0

Return On Capital Employed(%)

51.41

48.57

49.83

52.13

75.0

Return On Net Worth(%)

37.66

42.31

55.43

65.21

64.4

Adjusted Return on Net Worth(%)

37.66

43.05

49.27

61.34

58.8

Return on Assets Excluding Revaluations

280.43

250.70

214.83

148.03

173

Return on Assets Including Revaluations

280.43

250.70

214.83

148.03

173

Return on Long Term Funds(%)

51.41

48.57

49.83

52.13

75.0

Free Reserves Per Share (Rs)


Bonus in Equity Capital
Profitability Ratios:

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Liquidity And Solvency Ratios:


Current Ratio

0.65

0.67

0.42

0.24

0.58

Quick Ratio

0.47

0.52

0.28

0.15

0.49

Debt Equity Ratio

--

0.06

0.23

0.50

0.02

Long Term Debt Equity Ratio

--

0.06

0.23

0.50

0.02

123.65

146.73

1,26

0.23

0.50

0.02

Debt Coverage Ratios:


Interest Cover
Total Debt to Owners Fund

243.58
--

216.51
0.06

Financial Charges Coverage Ratio

337.26

312.37

111.61

96.48

255

Financial Charges Coverage Ratio Post Tax

273.12

274.71

104.96

83.63

218

Inventory Turnover Ratio

37.75

37.33

40.84

43.88

42.8

Debtors Turnover Ratio

31.88

50.72

117.09

162.08

122

Investments Turnover Ratio

37.75

37.33

40.84

43.88

42.8

Fixed Assets Turnover Ratio

7.40

7.32

4.05

3.70

6.29

Total Assets Turnover Ratio

4.81

5.76

4.91

4.68

4.80

Asset Turnover Ratio

4.63

4.49

4.85

4.85

4.28

Management Efficiency Ratios:

Average Raw Material Holding

--

--

8.81

9.53

10.7

Average Finished Goods Held

--

--

2.84

1.52

1.22

Number of Days In Working Capital

-25.44

-21.24

-40.58

-90.84

-47

Material Cost Composition

72.48

73.50

74.13

73.50

68.3

Imported Composition of Raw Materials Consumed

55.76

5.79

3.92

4.22

1.66

--

--

4.08

4.47

4.80

1.85

2.62

2.54

2.29

2.13

Profit & Loss Account Ratios:

Selling Distribution Cost Composition


Expenses as Composition of Total Sales

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Cash Flow Indicator Ratios:


Dividend Payout Ratio Net Profit

61.59

56.56

37.78

108.75

98.4

Dividend Payout Ratio Cash Profit

40.39

36.75

25.85

89.97

90.6

Earning Retention Ratio

38.41

44.42

57.49

-15.62

-7.6

Cash Earning Retention Ratio

59.61

63.67

72.02

5.37

1.57

--

0.09

0.31

0.67

0.03

Mar '12

Mar '11

Mar

AdjustedCash Flow Times

Mar '14

Mar13

Earnings Per Share

105.62

106.07

119.09

96.55

111

Book Value

280.43

250.70

214.83

148.03

173

Source : Dion Global Solutions Limited.


Analysis:-

The total current assets of the company is increasing year by year after demerger with the
Honda also the company is holding a very good current assets with that current liabilities als
decreasing from year to year during 2011 it was very high but during 2012 onwards its keep
on reducing its current liabilities.

Competitor analysis - BAJAJ AUTO LIMITED:-

We have analyzed the companys financial position with respect to its competitors taking int
consideration the important parameters as per industrial practices.
The main objective of a business is to maximize the owners economy welfare. This objectiv
can be achieved by:

Profit/EPS maximization.

Wealth maximization.

Profit /EPS maximization: Profit /EPS earning is the main aim of every economic activity. A

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being an economic institution must earn profit to cover its costs and provide funds
for growth.

Comparisons:Current ratio:- This ration measure the companys ability to satisfy its current liability
with its current assets .We can see from the graph Bajaj Auto able to maintain current ratio
to 1.32 which is much higher than Hero MotoCorp. So Bajaj can easily generate cash for to
meet its need and can go for aggressive investment comfortably.

Earnings per Share:-

EPS of both the companies is approximately the same but salient point is for year 2011-12,
EPS has increased by almost by 18% after demerger. Hero has proven in the market that eve
without Honda it has very good growth potential.

Findings: Hero MotoCorp is the market leader which is having highest sales when compared to
its competitors.
The Hero MotoCorp is not so successful in premium segment bikes.
There is a high growth opportunity in the two wheeler segment.
A good and established brand name can be used to get the new customers.
Reduced current liabilities from 2011.
Increasing current assets from year to year even after the demerger.
No. 1 in the market most of the people prefer the brand first.

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Future, Scope And Challenges of The


Company
Vision:The story of Hero Honda began with a simple vision - the vision of a mobile
and an empowered India, powered by its two wheelers.
Hero MotoCorp Ltd., company's new identity, reflects its commitment
towards providing world class mobility solutions with renewed focus on
expanding company's footprint in the global arena.

Mission:Hero MotoCorps mission is to become a global enterprise fulfilling its


customers' needs and aspirations for mobility, setting benchmarks in
technology, styling and quality so that it converts Its customers into its brand
advocates.
The company will provide an engaging environment for its people to perform
to their true potential. It will continue its focus on value creation and enduring
relationship with its partners.

Strategy:Hero MotoCorps key strategies are to build a robust product portfolio across
categories, explore growth opportunities globally, continuously improve its
operational efficiency, aggressively expand its reach to customers, continue to
invest in brand building activities and ensure customer and shareholder
delight.

Brand:The new Hero is rising and is poised to shine on the global arena. Company's
new identity "Hero MotoCorp Ltd." is truly reflective of its vision to
strengthen focus on mobility and technology and creating global footprint.
Building and promoting new brand identity will be central to all its initiatives,
utilizing every opportunity and leveraging its strong presence across sports,
entertainment, and ground-level activation.

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Manufacturing:Hero MotoCorp two wheelers are manufactured across 3 globally


benchmarked manufacturing facilities.
Two of these are based at Gurgaon and Dharuhera which are located in the
state of Haryana in northern India.
The third and the latest manufacturing plant is based at Haridwar, in the hill
state of Uttrakhand.

Distribution:The Company's growth in the two wheeler market in India is the result of an
intrinsic ability to increase reach in new geographies and growth markets.
Hero MotoCorps extensive sales and service network now spans over to 6000
customer touch points.
These comprise a mix of authorized dealerships, service & spare parts outlets,
and dealer-appointed outlets across the country.

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Conclusion
1. Financially and operationally, Bajaj Auto Ltd has revived its
competitive advantage.
2. Hero MotoCorp, an already established company, nonetheless, is
facing stiff competition from Bajaj and other such companies like
Honda and TVS.
3. To maintain its position as the leader, it should Leverage on its brand
equity and customer loyalty.
4. After de-merging from Honda, it should build upon its R&D facility
and innovate products to sustain in the competitive environment.

5. To increase the revenue, it should concentrate on premium bike


segment with competitive pricing.

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Bibliography
The sources from where the relevant data is been collected is mentioned as
under: http://www.ibef.org/industry/india-automobiles.aspx
http://info.shine.com/industry/automobiles-auto-ancillaries/3.html
http://www.moneycontrol.com/competition/heromotocorp/comparis
on/HHM
http://www.business-standard.com/article/opinion/hero-motocorpholds-on-to-market-share-in-fy14-114032000510_1.html
http://profit.ndtv.com/stock/hero-motocorpltd_heromotoco/financials-ratio

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