Financial

Analysis of Automobile Industry in

India









Submitted to
Prof. Prakash Singh

Submitted By:

Astha Singhal (PGP32352)
Jasleen Kaur (PGP32353)
Rahbare Islam Nayyer (PGP32369)
Prayag Sinha (PGP32371)
Farhan Akram (PGP32372)
Kshitij Jaiswal (PGP32394)

rd
Date: 23 September, 2016

1
Table of Contents
Choice of industry ........................................................................................................................ 2
Major Players ......................................................................................................................................... 2
Choice of Players .................................................................................................................................... 3

Macro economic factors ............................................................................................................... 3

Cost Structure .............................................................................................................................. 4
Porters Five Force Analysis .......................................................................................................... 4
Significant accounting policies ...................................................................................................... 5
Revenue Recognition .............................................................................................................................. 5
Deviation ................................................................................................................................................ 6

Notable trends in Indian Automotive sectors ............................................................................... 8

Latest News: ................................................................................................................................. 9
Liquidity Ratios ............................................................................................................................. 9
Current Ratio .......................................................................................................................................... 9
Quick Ratio ........................................................................................................................................... 10
Debt Equity Ratio ................................................................................................................................. 11

Efficiency Ratios ......................................................................................................................... 12

Inventory Turnover Ratio ...................................................................................................................... 12
Fixed Assets Turnover Ratio .................................................................................................................. 13

Profitability Ratios ...................................................................................................................... 14

Gross Profit Margin (%) ......................................................................................................................... 14
Net Profit Margin (%) ............................................................................................................................ 15
Return on Total Assets: ......................................................................................................................... 16
Return on Capital Employed: ................................................................................................................ 18
Return on Equity ................................................................................................................................... 19
Earnings per share ................................................................................................................................ 20
Du Pont Analysis: .................................................................................................................................. 21

1
Choice of industry

The automobile industry forms the backbone of Indias manufacturing sector. It makes up 7.1% of our Gross
Domestic Product (GDP) and employs 25 million people. Following an overall growth of 8.6 percent last year,
India currently has the largest 3-wheeler market, the second largest 2-wheeler market, and the tenth largest
passenger car market in the world. It has not only witnessed soaring domestic demand, but exports have
also grown by 15% in the last fiscal year.

Over the last decade, the car market in India has been flooded with all types of cars to meet the increasing
demand of the Indian customers who are getting exposed to state-of-art automobiles. Along with that, it has
been successful in attracting huge amount of Foreign Direct Investment(FDI). With the launch of the Make
in India initiative and the Automotive Mission Plan (AMP, 2016-2026), the automobile industry is expected
to break the $300 billion revenue mark and generate 65 million additional jobs over the next decade. The
passenger car market is going to be major driver for growth of automobile industry. This tremendous
potential for growth coupled with its historical significance, make the 4-wheeler automobile industry, an
ideal choice for study.

Major Players

1. Maruti Suzuki India Ltd - Maruti Suzuki holds a staggering 47% market share in the Indian car
market. Known for its affordable range of cars, Maruti sold more than 1 million units in FY 2015-16
(up by 10%). It has an installed capacity of 1.5 million units and over 1600 dealers across India. With
6 models lined up for launch in 2017, the company has planned a capital expenditure of $44 billion
for the coming year.

2. Hyundai Motors India Ltd - Hyundai is the 2nd largest domestic player with a market share of
17.5%. Presently, HMIL has 450+ dealers in India that cater to its 700,000+ units of output capacity.
Despite the fact that the company has been the largest auto-exporter for the last decade, its exports
slumped by 25% in the past year owing to loss in demand in international markets.

3. Mahindra & Mahindra Ltd - With an annual turnover of more than $40 billion, M&M is the largest
Utility Vehicles (UV) manufacturer in India with a market share of 30.5%. Its product list majorly
consists of trucks, tempos, pickups and tractors. However, the company only has 2 models in the
passenger car market.

4. Tata Motors Ltd - Tata is Asias largest automobile manufacturer and the 17th largest worldwide.
Established before independence in 1945, it is often seen as the industry benchmark-setter in all
vehicle segments. Off late, its sales have been declining due to increasing competition within the
automobile sector. However, Tata still remains the most trusted brand for a majority of consumers.

2
 5. Honda Cars India Ltd - Honda is the third highest market share holder in Passenger Vehicles with 9%
share and 300+ dealers across 150 cities. At 1.6%, its growth for the past fiscal was disappointing in
comparison to the industry average. The company is expected to launch 4 models in 2016-17, and
hopes to regain its lost domestic and export sales.

Choice of Players

1. Maruti Suzuki India Ltd
2. Mahindra & Mahindra Ltd
3. Tata Motors Ltd

Macro economic factors

Taxation Policies: The automobile sector has witnessed tumultuous tax regime in the last 2-3
years. Recent introduction of luxury tax of 1% in budget-2016 to check pollution is one such
example. However, the introduction of Goods & Service Taxes is expected to cut down the logistics
cost and improve efficiency through simplified taxation system.
Tariff: The increased focus on pollution control has led to increase in duties imposed. The general
excise duty ranges between 12.5% for small cars less than 4m in length to up to 30% for vehicle
above 1500cc and ground clearance of 170 mm.
Growth potential: The Indian automobile industry has been witnessing a rapid growth and expects
to be worlds third largest by 2016. Automobile exports have also grown at a CAGR of 14.65 per cent
during 2010-15. Robust growth in middle class income levels and easier credit availability have
sustained demand growth for passenger cars [1]
Competition: Intense competition has led to decrease in profit margins for carmakers. Due to this,
they are unable to pass on the increased raw material cost to the customers
Government Initiative: GoI plans to make this sector as key driver of Make Of India initiative. It
has allowed 100 percent FDI under the automatic route to drive growth [2]
Investments: As per data provided by DIPP, the automobile sector attracted FDI worth USD 14.32
billion during the period April-2000 to December-2015. Major players such as Ford, Nissan, General
Motors, etc. have committed investments up to USD 1 billion to enhance their presence in Indian
market
Environment Regulations: Government has mandated that BS-IV norms be implemented by April
2017. This will require major changes in the vehicle design and fuel quality and poses significant
challenges for the auto industry.
Fuel Cost: The fuel cost has an indirect impact on the sale of automobiles. Decrease in fuel cost
makes owning automobile appealing while increased fuel cost shifts customer's interest into small
and hybrid cars. [3]

3
Cost Structure

There are 4 major cost drivers involved in automobile industry:
Raw material - ~50%
Labor - ~20%
Advertising- ~7%
Research & Development ~6%
Other cost drivers are administration, logistics and depreciation. Raw material cost is primarily composed of
steel. Therefore, any fluctuation in steel price directly impacts auto industry.
Besides auto making, auto part manufacturing is another lucrative sector of the market. Major areas of auto
part manufacturing are:
Original Equipment Manufacturers: The OEMs are involved in manufacture of a number of small
parts. They are involved in producing door handles to seats.
Replacement part production and distribution: Those products which require continuous
replacement till end of life fall under this category. E.g. air filter, replacement lights etc.
Rubber fabricators: Industries involved in tyres, hoses, belts etc.


Porters Five Force Analysis

Threat of
new
entrants

Bargaining Competi Bargaining

power of tion/ power of
suppliers Rivalry buyers

Threat of
Substitutes

Threat of Substitutes:
Threat of substitutes to the Indian Automotive industry is medium to moderate
The switching cost may be high in terms of convenience, personal time and cost

4

Bargaining Power of Suppliers:
Bargaining Power of Suppliers in this industry is medium to moderate
The industry comprises of powerful customers who are generally able to dictate their terms to the
suppliers
Limited amount of suppliers in the luxury car segment, provides exclusive material of high quality

Threat of new Entrants:
Barriers to Entry in this industry are very low
Established brands with big pockets
Competition leading to falling margins

Bargaining Power of Buyers:
The Bargaining power of customers in this industry is high due to low switching cost associated with
selecting from among competing brands
Also because buyers have easy access to information
As buyers usually have high brand loyalty, they have high bargaining power

Competition/Rivalry:
Rivalry among the competitors in this industry is very high
There is lack of differentiation among the products produced by the competitors, hence the
competition
The competition is high also because of the entry of foreign companies in the automotive industry

Significant accounting policies

Revenue Recognition

Maruti Suzuki
Domestic and export sales on transfer of significant risks and rewards to the customer which takes
place on dispatch of goods from the factory and port respectively
Income from services on completion of rendering of services

Mahindra & Mahindra
Sale of products and services including export benefits thereon are recognized when the products
are shipped or services rendered
Excise duty recovered on sales is included in Revenue from Operations
Dividend from investments are recognized in the Statement of Profit and Loss when the right to
receive payment is established

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Tata Motors
The Company recognizes revenues on the sale of products, net of discounts and sales incentives,
when the products are delivered to the dealer / customer or when delivered to the carrier for
export sales, which is when risks and rewards of ownership pass to the dealer / customer
Revenues are recognized when collectability of the resulting receivables is reasonably assured.
Dividend from investments is recognized when the right to receive the payment is established and
when no significant uncertainty as to measurability or collectability exists
Interest income is recognized on the time basis determined by the amount outstanding and the rate
applicable and where no significant uncertainty as to measurability or collectability exists

International Standards: Volkswagen
The Company records revenue in the period when the following requirements have all been met: (i)
there is persuasive evidence of an arrangement, (ii) the sales price is fixed or determinable, (iii) title,
ownership, and risk of loss have been transferred to the customer, and (iv) collectability is
reasonably assured. Revenue is reported net of sales allowances (discounts, rebates, or customer
bonuses
Sales revenue from extended warranties or maintenance agreements is recognized when deliveries
take place or services are rendered.

Deviation
No significant deviations were found in the treatment of revenue recognition among the four companies
under consideration.

1. Depreciation and amortization

Tata Motors
Depreciation is provided on the Straight Line Method (SLM) over the estimated useful lives of the
assets considering the nature, estimated usage, operating conditions, past history of replacement,
anticipated technological changes, manufacturer's warranties and maintenance support. Taking into
account these factors, the Company has decided to retain the useful life hitherto adopted for
various categories of fixed assets, which are different from those prescribed in Schedule II of the
Act. Estimated useful lives of assets are as follows:
Leasehold Land Amortized over the period of the lease
Buildings, Roads, Bridges and culverts 4 to 60 years
Plant, machinery and equipment 8 to 20 years
Computers and other IT assets 4 to 6 years
Vehicles 4 to 10 years
Furniture, fixture and office appliances 5 to 15 years
Technical knowhow 5 to 6 years
Computer software 4 years
Water system and sanitation 20 years

6
 Leasehold land is amortized over the period of the lease
Product development cost are amortized over a period of up to 120 months for New generation
vehicles and powertrains on the basis of higher of the volumes between planned and actuals and on
a straight line method over a period of 36 months for vehicle variants, derivatives and other
regulatory projects
In respect of assets whose useful life has been revised, the unamortized depreciable amount has
been charged over the revised remaining useful life
Depreciation is not recorded on capital work-in-progress until construction and installation are
complete and asset is ready for its intended use
Capital assets, the ownership of which doesnt vest with the Company, other than leased assets, are
depreciated over the estimated period of their utility or five years, whichever is less

Mahindra & Mahindra
Expenditure incurred is amortized over the estimated period of benefit, not exceeding six years
commencing with the year of purchase of the technology
Development Expenditure: The expenditure incurred on technical services and other
project/product related expenses are amortized over the estimated period of benefit, not exceeding
five years
Software Expenditure: The expenditure incurred is amortized over three financial years equally
commencing from the year in which the expenditure is incurred
Others: The expenditure incurred is amortized over the estimated period of benefit, not exceeding
ten years

Maruti Suzuki
Tangible fixed assets except leasehold land are depreciated on the straight line method on a pro-
rata basis from the month in which each asset is put to use. Depreciation has been provided in
accordance with useful lives prescribed in the Companies Act, 2013 except for certain fixed assets
where, based on technical evaluation of the useful lives of the assets, higher depreciation has been
provided on the straight line method over the following useful lives:
Plant and Machinery 8 - 11 Years
Dies and Jigs 4 Years
Electronic Data Processing Equipment 3 Years
For assets with revised useful lives, the unamortized depreciable amount is charged over
the revised remaining useful lives of the assets
Leasehold land is amortized over the period of lease
All assets whether purchased or with written down value of Rs. 5,000 or less, are depreciated at the
rate of 100%
Lump sum royalty is amortized on a straight line basis over its estimated useful life i.e. 4 years from
the start of production of the related model

7
International Standards: Volkswagen
Property, plant and equipment is carried at cost less depreciation and where necessary - write-down
for impairment. Cost is determined on the basis of the direct and indirect costs that are directly
attributable. PPE is depreciated using the straight-line method over its estimated useful life. The
useful lives of items of PPE are reviewed on regular basis and adjusted if required. Depreciation is
based mainly on the following useful lives:
Buildings 20 to 50 years
Site improvements 10 to 20 years
Technical equipment and machinery 6 to 12 years
Other equipment, operating and office equipment, including special tools 3 to 15 years
Vehicles leased out under operating leases are depreciated to their estimated residual value using
the straight-line method over the term of the lease
Purchased intangible assets are recognized at cost and amortized over their useful life using the
straight-line method

Deviation
Companies are following a depreciation policy that is different from the Companys Act for some specific
assets.

Notable trends in Indian Automotive sectors
New product launches:
With the entry of foreign players, a large number of products across various segments are available
Reduced overall product lifecycle has forced players to employ quick product launches
Improving product development capabilities:
Private sector playing a key role in innovation through increased R&D investments along with
government
Alternative fuels:
It is expected that CNG distribution network in India will increase post allocation of new
geographical areas through 5th and 6th round of CGD bidding by Petroleum and Natural Gas
Regulatory Board(PNGRB). The number of CNG stations have increased from 142 in 2005 to 1010 in
FY15
New financing options:
Customized finance to customer is being provided by companies such as BMW, Audi, Toyota, Skoda,
Volkswagen and Mercedes-Benz
Major MNC and Indian corporate houses are moving towards taking cars on operating lease instead
of buying them

8
 Latest News:
Maruti Suzuki India Limited, leader in passenger vehicles, sold a total of 348,443 units in the quarter
April-June 2016, growing 2.1 % over the same period of last fiscal. This includes 322,340 units in the
domestic market, reflecting a growth of 5.4 % over April-June 2015.
The countrys largest car maker, Maruti Suzuki projected sales of two million cars by 2020, a 40 per
cent jump from the 1.42 million vehicles it sold in 2015-16.
Mahindra & Mahindra, the country's leading auto maker reported a strong profit growth during the
quarter ended June, beating Street estimates with a growth of 12 per cent.
Mahindra & Mahindra, will set up the nation's first auto shredding facility in Gujarat or Maharashtra
along with MSTC, a government owned company. A new company with be set up by Mahindra
Intertrade and MSTC through a 50:50 joint venture.
Tata Motors reported a 20 percent rise in global sales at 88,159 units, including that of Jaguar Land
Rover (JLR) vehicles, in July. In the passenger vehicles category, global sales up by 34 percent.
Japanese car maker Honda will recall 190,578 units of the previous generation of its Accord, CR-V,
Civic, City and Jazz models which will be the companys seventh recall in the Indian market in two
years. This is part of its precautionary global recall concerning Takata front airbag inflators.

Liquidity Ratios

Current Ratio

The current ratio is a liquidity and efficiency ratio that measures a firm's ability to pay off its short-term
liabilities with its current assets. The current ratio is an important measure of liquidity because short-term
liabilities are due within the next year.

Current Ratio = Current Assets / Current Liability

Companies 2015-16 2014-15 2013-14 2012-13 2011-12
Maruti Suzuki 0.63 0.68 0.77 1.04 1.13
Mahindra & Mahindra 1.09 1.13 1.29 1.1 1.08
Tata Motors 0.6 0.42 0.36 0.48 0.62

9
 Current Ratio
1.4
1.2
1
0.8
0.6
0.4
0.2
0
2011-12 2012-13 2013-14 2014-15 2015-16

Maruti Suzuki Mahindra & Mahindra Tata Motors

Analysis:
Maruti Suzuki: Current assets have majorly decreased due to drastic reduction in investments and current
liability has increased over the same period due to increase in payables to the suppliers and hence thereby
decreasing the current ratio for Maruti
Mahindra & Mahindra: Experienced a spike in 2014 due to sudden increase in cash and cash equivalents
(current assets) while liabilities have increased at a consistent rate
Tata Motors: A short dip in 2014 but turned around due to increasing inventory


Quick Ratio
The quick ratio is a financial ratio used to gauge a company's liquidity.
The quick ratio compares the total amount of cash + marketable securities + accounts receivable to the
amount of current liabilities.
The quick ratio differs from the current ratio in that inventory is excluded from the quick ratio. The reason is
that inventory might not turn to cash quickly.
Quick Ratio = (Current Asset Inventory)/ Current Liability

Companies 2015-16 2014-15 2013-14 2012-13 2011-12
Maruti Suzuki 0.37 0.41 0.67 0.9 1.03
Mahindra & Mahindra 0.84 0.86 0.97 0.8 0.76
Tata Motors 0.33 0.19 0.15 0.27 0.41

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 Quick Ratio
1.2

0.8

0.6

0.4

0.2

0
2011-12 2012-13 2013-14 2014-15 2015-16

Maruti Suzuki Mahindra & Mahindra Tata Motors

Analysis:
Maruti Suzuki: Follows the same trend as current ratio as the increase in inventory has been very nominal
Mahindra & Mahindra: Follows the same trend as current ratio as the increase in inventory has been very
nominal
Tata Motors: A short dip in 2014 but turned around due to increasing inventory

Debt Equity Ratio
Debt/Equity Ratio is a debt ratio used to measure a company's financial leverage, calculated by dividing a
companys total liabilities by its stockholders' equity. The D/E ratio indicates how much debt a company is
using to finance its assets relative to the amount of value represented in shareholders equity.

Debt Equity Ratio (DER) = (Total Liabilities / Shareholder's Equity)

Companies 2015-16 2014-15 2013-14 2012-13 2011-12
Maruti Suzuki 0.01 0.01 0.09 0.08 0.08
Mahindra & Mahindra 0.08 0.14 0.22 0.22 0.27
Tata Motors 0.63 1.35 0.76 0.75 0.56

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 Debt Equity Ratio
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
2011-12 2012-13 2013-14 2014-15 2015-16

Maruti Suzuki Mahindra & Mahindra Tata Motors

Analysis:
Tata Motors: Sharp increase in the DER in 2015 due to sudden decrease in reserves and surplus

Efficiency Ratios
Inventory Turnover Ratio
This is an efficiency ratio that measures how quickly a company uses up its inventory or supply of goods in a
given time frame. A low ITR indicates that the company has poor sales or excess inventory. It is a seen as a
sign of concern as unsold goods often depreciate in value. On the other hand, a high ITR suggests that the
company has strong sales. However, it must be noted that a high ITR is irrelevant unless the company is
making profits on its sale. The ratio is calculated as follows:
Inventory Turnover Ratio = COGS / Average Inventory
Average Inventory = (Beginning Inventory + Ending Inventory) / 2

Companies 2015-16 2014-15 2013-14 2012-13 2011-12
Maruti Suzuki 20.84 21.08 28.65 26.67 21.98
Tata Motors 8.64 7.56 8.88 10.05 11.84
Mahindra & Mahindra 15.21 15.98 14.45 16.71 13.51

12
 Inventory Turnover Ratio
35
30
25
20
15
10
5
0
2011-12 2012-13 2013-14 2014-15 2015-16

Maruti Suzuki Tata Motors Mahindra & Mahindra

Analysis:
Maruti Suzuki has been the industry leader in the Indian passenger car market for the past decade, hence its
high ITR is no surprise. Its wide portfolio of cars in different price segments gives it an edge above other
players. It has the most dominating presence in the low & mid-end passenger cars within which most of
Indias spending population falls. It has the highest penetration with respect to number of dealers (1600)
and post-purchase service centers. All of these factors have helped build Maruti as a trustworthy brand, and
an ideal choice for Indias growing middle-income population.
Majority of Mahindra & Mahindra (M&M) cars use diesel engines. Deregulation of diesel prices in the 2014
had impacted its sales for the following couple of years but it has come back strongly with 9 launches in the
past fiscal year resulting in a rise of 6% in its sales.
In comparison, Tata Motors has had a relatively uniform ITR over the past 5 fiscals owing to almost uniform
sales and no new launches by the company.

Fixed Assets Turnover Ratio
This ratio is a measure of the operating efficiency of a company, and is mostly useful in comparing players in
manufacturing industries. It shows if the companys fixed asset investments are being effectively utilized. A
high FATR is indicative of a better management of capital expenditure. The ratio is calculated as follows:
Fixed Assets Turnover Ratio = Net sales / [(Plant, Property & Equipment)- Depreciation]

Companies 2015-16 2014-15 2013-14 2012-13 2011-12
Maruti Suzuki 2.02 1.94 1.96 2.25 2.46
Tata Motors 1.65 1.48 1.49 2.03 2.66
Mahindra & Mahindra 3.22 3.55 4.02 4.82 4.39

13
 Fixed Assets Turnover Ratio
6

0
2011-12 2012-13 2013-14 2014-15 2015-16

Maruti Suzuki Tata Motors Mahindra & Mahindra

Analysis:
Maruti has its main investment in its Gurgaon and Manesar plant. With incremental investments in these
two plants equaling the increase in sales, Maruti shows a uniform FATR curve. Mahindra & Mahindra had
invested heavily in its Chakan Plant which manufactures most of its cars and heavy vehicles. Due to recent
decline in sales its FATR curve has dipped in the past two years.


Profitability Ratios

Gross Profit Margin (%)
Company's gross profit is calculated by deducting the cost of goods sold from its total revenue (total
sales).In other words, gross profit is the profit a company makes after deducting the costs related with
manufacturing and selling its products, or the costs related with providing its services .Gross profit margin is
the percentage calculated by dividing gross profit by net sales revenues.
Gross Margin (%) = (Gross profit / Net sales revenue)*100

Companies 2015-16 2014-15 2013-14 2012-13 2011-12
Maruti Suzuki 10.65% 8.49% 6.89% 5.43% 3.86%
Mahindra & 8.46% 8.21% 9.52% 9.88% 10.02%
Mahindra
Tata Motors -0.32% -10.58% -8.69% -0.24% 4.73%

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 Gross Profit Margin (%)

15.00%

10.00%

5.00%

0.00%
2011-12 2012-13 2013-14 2014-15 2015-16
-5.00%

-10.00%

-15.00%

Maruti Suzuki Mahindra & Mahindra Tata Motors

Analysis:
Maruti Suzuki: Maruti Suzuki has launched 8 models from 2012 till date in various segments (mini SUV,
hatchback and sedan), which has been a success. This has enabled Maruti to maintain a consistent growing
trend over the years.
Mahindra & Mahindra: The primary offerings of M&M have been farm segment and SUVs. Also there is
slowly gaining traction in sedan segment. There has been slight dip in profits due to decline in its farm
business profits during financial year 2014-15. The growth has also slowed down over the years due to
increased regulations against diesel vehicles.
Tata Motors: During financial year 2014-15, the profit of Tata Motors was hit due to lower contribution from
its luxury brand- Jaguar Land Rover (JLR). The demand for JLR reduced in China and thus its sales unit
dropped 20% to 24,363 units in the three months to March from a year ago. The China regions contribution
to the companys sales shrank to 23.5% in the quarter from 29.6% a year ago. However, it was back on track
during financial year 2015-16 as the sales of JLR started rising which contributed immensely towards
increasing profits.

Net Profit Margin (%)
Net profit of a company is calculated by subtracting its total expenses from total revenue. It can be further
calculated by subtracting interest, taxes and other indirect expenses from the gross profit. Net profit margin
is the percentage calculated by dividing net profit by net sales revenues.
Net Margin (%) = (Net Profit / Net sales revenue)*100
Net Profit = Gross profit - Interest and Taxes- other indirect expenses

15
Companies 2015-16 2014-15 2013-14 2012-13 2011-12
Maruti Suzuki 7.91% 7.42% 6.36% 5.48% 4.59%
Mahindra & 7.74% 8.52% 9.27% 8.29% 9.03%
Mahindra
Tata Motors 0.55% -13.05% 0.97% 0.67% 2.28%

Net Profit Margin (%)

15.00%
10.00%
5.00%
0.00%
-5.00% 2011-12 2012-13 2013-14 2014-15 2015-16

-10.00%
-15.00%

Maruti Suzuki Mahindra & Mahindra Tata Motors

Analysis:
Maruti Suzuki: The net profit has shown same trend as gross profit. Further, Maruti Suzuki Q1, 2016 profits
has been increased by 23%. The profit in this quarter was helped by reduction in material cost, high
turnover, higher non-operating income and lower depreciation.
Tata Motors: Tata Motors' net profit was further reduced during financial year 2014-15 due to higher
depreciation charges than the past financial years and unfavorable currency fluctuations that led to the
revaluation of its foreign currency-denominated debt. While the volumes were as per the expectations,
profits were low due to the foreign- currency fluctuations.

Return on Total Assets:
Return on assets (ROA) is an indicator of how profitable a company is relative to its total assets. ROA gives
an idea as to how efficient management is at using its assets to generate earnings. Calculated by dividing a
company's annual earnings by its total assets, ROA is displayed as a percentage.
ROTA is calculated as: {Net Income + Interest Expenses(1-taxes)}/Total Assets

16

Companies(total in %) 2011-12 2012-13 2013- 2014- 2015-
14 15 16
Maruti 7.33 8.94 9.11 11.06 11.66
Mahindra & Mahindra 12.03 12.21 12.01 10.08 8.69
Tata Motors 2.27 0.57 0.67 -9.48 0.44

ROTA
15

10

0
2011-12 2012-13 2013-14 2014-15 2015-116
-5

-10

-15

Maruti Mahindra and Mahindra Tata Motors

Analysis:
Maruti: Due to increase in profits at a higher rate than increase in assets, the ROTA has been increasing over
the years. This is actually a very positive signal for the investors to invest in the company as the company is
utilizing its assets better now than earlier.
Mahindra and Mahindra: There has been slight dip in profits due to decline in its farm business profits.
However overall profits have been increasing slightly. The growth has also slowed down due to increased
regulations against diesel vehicles. However the company has been investing more in assets. As a result
ROTA has been falling.
Tata Motors: Tata Motors' net profit has been reducing due to higher depreciation charges than the past
financial years and unfavourable currency fluctuations that led to the revaluation of its foreign currency-
denominated debt. Thus the ROTA has been consistently near or below 0, which can deter investors from
investing in the company.

17
Return on Capital Employed:
Return on capital employed (ROCE) is a financial ratio that measures a company's profitability and the
efficiency with which its capital is employed.
ROCE is calculated as: Net Income / (Total liabilities + Stakeholders equity Current liabilities)




Companies(total 2011-12 2012-13 2013-14 2014-15 2015-16
in %)
Maruti 10.37 11.95 12.39 15.00 16.38
Mahindra and
17.39 17.36 16.68 13.85 12.31
Mahindra
Tata Motor 3.84 0.97 1.08 -16.02 0.67

ROCE
20

15

10

0
2011-12 2012-13 2013-14 2014-15 2015-16
-5

-10

-15

-20

Maruti Mahindra and Mahindra Tata Motors

Analysis:
Mahindra and Mahindra: As the net profits have been increasing over the years, but ROCE is decreasing,
this means that the company has been investing more capital but not getting the same level of increment in
profitability, which is very prominent in the year 2015 and 2016.
Tata Motors: The ROCE has been consistently been near 0 or less than that, and it took a large dip in 2015
because of due to little or no profits because of slow down of its Jaguar Land Rover business in China and
heavy depreciation and amortization expenses. The company has shown signs of recovery in the last year.

18



Return on Equity
Return on owners equity (ROE) reflects how much the firm has earned on the funds invested by the
shareholders (either directly or through retained earnings).
This ratio is a profitability ratio from investors point of view and is of great interest to present or
prospective shareholders. It indicates the return an investment of Rs. 1 will get to an investor. It also
indicates that the company has been able to use the investors money effectively to generate profits and
grow the company.

Return on Equity is given as:
Return on Equity(ROE)=Net Income/Shareholders Equity

Return on Equity
Mar-16 Mar-15 Mar-14 Mar-13 Mar-12

Maruti Suzuki 16.92 15.65 13.26 12.87 10.76
Mahindra & Mahindra 14.59 17.25 22.39 22.88 24.08
Tata Motors 0.67 -16.02 1.08 0.97 3.84

Return on Equity
30
25
20
15
10
5
0
Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
-5
-10
-15
-20

Maruti Suzuki Mahindra & Mahindra Tata Motors

19


Analysis:
Maruti Suzuki: Maruti Suzuki has been showing a consistent increase in ROE for past 5 years. The Companys
equity or shareholder value has increased over time, but that has been more than compensated by net
profit, thus indicating that investment into Company has been profitable for shareholders. The good ROE
can be attributed to innovation, reduction in cost for technology offered in products and leveraging its large
distribution network to focus on rural market, which has also resulted in Maruti Suzuki becoming a market
leader with about 45% of the total market share.
Mahindra & Mahindra:
ROE for Mahindra & Mahindra has decreased over time due to declining profits, owning to
Decline in farm business profits due to erratic monsoon
Decline in sales of diesel vehicles due to decrease in difference of petrol and diesel and increased
regulations over time
Tata Motors:
Tata Motors saw negative ROE in FY15-16 as it incurred losses in FY15-16 due to following reasons:
High depreciation and amortization charges (to the tune of 23%)
Slowing demand for Jaguar Landrover brand in China market
Revaluation of its foreign currency dominated debt due to unfavourable market conditions

Earnings per share
Earnings per share (EPS) is the portion of a company's profit allocated to each outstanding share of
common stock. Earnings per share serves as an indicator of a company's profitability.
It is generally considered to be the most important variable in determining a share's price. It is also a
major component used to calculate the price-to-earnings valuation ratio.
It is given as:
Earnings per share(EPS) = Net Income/Average Outstanding Shares

Earnings per share
Mar-16 Mar-15 Mar-14 Mar-13 Mar-12
Maruti Suzuki 151.33 122.85 92.13 79.19 56.6
Mahindra & Mahindra 53.51 56.23 63.67 56.85 48.97
Tata Motors 0.68 -14.72 1.03 0.93 3.9

20
 Earnings per share
160
140
120
100
80
60
40
20
0
Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
-20
-40

Maruti Suzuki Mahindra & Mahindra Tata Motors

Analysis:
Maruti Suzuki:
The increasing EPS is in line with the increasing profit margins for Maruti Suzuki owing to its consistent
growth.
Mahindra & Mahindra:
There is a slight dip in EPS of M&M in FY15 as compared to FY14 due to decrease in profits. The dip in profit
can be attributed to decline in farm business profits and slow rate of growth in the diesel vehicle sales.
Tata Motors:
The EPS of Tata Motors is hovering around 0-1 with a negative EPS in FY15, due to little or no profits because
of slow down of its Jaguar Land Rover business in China and heavy depreciation and amortization expenses.

Du Pont Analysis:
The Dupont analysis also called the Dupont model is a financial ratio based on the return on equity
ratio that is used to analyze a company's ability to increase its return on equity. In other words, this
model breaks down the return on equity ratio to explain how companies can increase their return
for investors.
The Dupont analysis looks at three main components of the ROE ratio.

Profit Margin
Total Asset Turnover
Financial Leverage

It is given as:

21

Return on Equity = Net Profit Margin* Asset Turnover*Financial Levarage
Each of the components is a ratio by itself, hence the formula can be written as given below:

Return on Equity = (Net Profit/Net Sales)*(Net Sales/Average Total Assets)*(Total Assets/Total Equity)

This can be used by management to identify the reasons why company is seeing current ROE. Once
identified, management can take appropriate decision to correct ROE.

Maruti Suzuki
2015-16 2014-15 2013-14 2012-13 2011-12

Net Profit Margin(in %) 7.91 7.42 6.36 5.48 4.59
Asset Turnover(in %) 147.32 148.93 143.11 163.04 159.56
Financial Levarage(in %) 145.13 141.54 141.54 145.56 143.90
ROE(in %) 16.91 15.64 12.88 13.01 10.54

Mahindra & Mahindra
2015-16 2014-15 2013-14 2012-13 2011-12

Net Profit Margin(in %) 7.74 8.52 9.27 8.29 9.03
Asset Turnover(in %) 112.28 118.21 129.46 147.3 133.21
Financial Levarage(in %) 167.74 171.10 186.34 187.28 196.47
ROE(in %) 14.58 17.23 22.36 22.87 23.63

Tata Motors
2015-16 2014-15 2013-14 2012-13 2011-12

Net Profit Margin(in %) 0.55 -13.05 0.97 0.67 2.28
Asset Turnover(in %) 80.81 72.67 68.94 85.78 99.6
Financial Levarage(in %) 234.38 336.03 336.03 259.35 272.72
ROE(in %) 1.04 NA 2.25 1.49 6.19

Maruti Suzuki has performing really well with consistently increasing net profits and high asset turnover
ratio. On the other hand, Mahindra & Mahindra has seen a consistent decline in profits resulting in
reduction in ROE over period of 5 years. Tata has been seeing very low or negative profit margins which has
resulted in negligible ROE despite having high financial leverage.

22
Reference:
1. [http://www.thomaswhite.com/global-perspectives/automobiles-sector-in-india-fast-growth/]

2. [http://www.ibef.org/industry/india-automobiles.aspx]

3. [http://www.investopedia.com/financial-edge/0511/4-ways-rising-fuel-costs-influence-the-auto-

industry.aspx]

4. [https://www.sanasecurities.com/maruti-suzuki-equity-research/]

5. [https://www.emis.com/sites/default/files/EMIS%20Insight%20-

%20India%20Automotive%20Sector%20Report.pdf]

6.

Annual reports:

[http://www.bseindia.com/stock-share-

price/stockreach_annualreports.aspx?scripcode=532500&expandable=0]

[http://www.bseindia.com/stock-share-

price/stockreach_annualreports.aspx?scripcode=500520&expandable=0]

[http://www.bseindia.com/stock-share-

price/stockreach_annualreports.aspx?scripcode=500570&expandable=0]

News:

[http://www.marutisuzuki.com/press-release-1-july-2016.aspx]

[http://www.business-standard.com/article/companies/maruti-chalks-out-road-map-for-growth-engine-

116081200034_1.html]

[http://www.business-standard.com/search?type=news&q=Mahindra]

http://www.business-standard.com/article/companies/mahindra-s-net-profit-grows-12-in-june-quarter-

116081000929_1.html

[http://www.moneycontrol.com/news/business/tata-motors-global-sales-jumps-20-to-88159-

unitsjuly_7227221.html?utm_source=ref_article]

[http://www.business-standard.com/article/companies/honda-announces-2nd-largest-recall-in-india-

116071400719_1.html