CHAPTER – VI

FINDINGS, SUGGESTIONS AND CONCLUSION

This chapter deals with the purpose of consolidating the key findings of the
present study. Based on the findings of the present study a few suggestions have been
outlined. Accordingly, this study has been focused on understanding the financial
performance of Indian automobile industry.

6.1 Summary of findings

The study has come out with the key findings that have been arrived at from the
analysis. The findings are presented in the order of the objectives of the study.

 Analysis on growth of the Indian Automobile Industry

a. Total Assets of selected automobile companies

The mean of total assets of the industry is Rs. 2068.97 cr during the study period.
Ashok Leyland Limited, Hero Moto Corp, Maharashtra Scooters Limited, Maruti Suzuki
India Limited, and SML Isuzu have the highest mean total asset than the industry mean.
Hindustan motors, Scooters India and Tata Motors have to concentrate on its investment
in total asset compared to all other companies. Eicher Motors, TVS Motors and Hyundai
Motors have growth in their total assets. Atul auto limited, Mahindra & Mahindra,
Hindustan Motors Limited has less growth in their total assets during the study period.
These companies have to take necessary steps to increase their growth in total assets.

b. Net Sales of selected automobile companies

The net sales of the selected automobile companies are above the industry average
for a period of five years from 2006 to 2010. TVS Motors, SML Isuzu, Maharashtra
Scooters Limited and Maruti Suzuki India Limited have outperformed the industry
average since the growth of co-efficient of these companies is more than that of industry
average. Hindustan Motors, Mahindra & Mahindra, Scooters India have negative growth
in net sales compared to selected automobile companies. These companies have to
concentrate on their turnover.

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 c. Total Current Assets of selected automobile companies

Ashok Leyland Limited, Hyundai Motors India Limited, Mahindra &Mahindra,

Maruti Suzuki India Limited and Tata Motors Limited have highest mean of total current
assets when compared with its industry average. Eicher Motors and Tata motors have no
significant difference between the growth of all the selected companies during the period
of study. Maharashtra Scooters and TVS motors showed good performance because the
growth performance of these companies is higher than that of the industry average.
Mahindra & Mahindra, Hindustan Motors, Force motors showed the lowest growth in
total current assets.

d. Current Liabilities of selected automobile companies

The mean current liability of selected automobile company is Rs. 1025.40 crores
which shows that there is a continuous increase in current liabilities from 2001 to 2010.
Hindustan Motors, Mahindra & Mahindra and Scooters India showed the negative growth in
current liabilities when compared to other companies. Since their current assets are contributed
more to pay its current obligations. Tata Motors, Maharashtra Scooters and Ashok Leyland
have more current liability since their average is more than the industry average.

e. Total Income of selected automobile companies

TVS Motors, SML Isuzu, Maharashtra Scooters and Maruti Suzuki India have
showed the excellent performance in total income. The industry mean of total income is
Rs.44343.59 crores during the study period. The average total income of the selected
years shows that there is a significant increase in total income. Hindustan Motors,
Mahindra & Mahindra, Scooters India have negative growth in total income during the
period under study. Atul auto limited and Maharashtra Scooters Limited had very less
total income of Rs. 83.56 crores and Rs. 57.93 crores when compared with its industry
average during period under study.

f. Total Expenses of selected automobile companies

TVS Motors (Rs. 17159.10 crores), SML Isuzu (Rs. 12087.11 crores), Maharashtra
Scooters (Rs. 7530.18 crores) have huge total expenses when compared with industry
average. Mahindra & Mahindra, Tata Motors, Hindustan Motors have less growth in total

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 expenses. Most of the companies have negative growth in total expenses which denotes
cost concentration of the industry.

g. Operating Profit of selected automobile companies

Tata Motors, SML Isuzu, Maruti Suzuki India have outperformed when compared
with the growth of the industry since their average of operating profit is much higher than
its industry average. Most of the companies have growth in their operating profit except
Force Motors, Hindustan Motors, Mahindra & Mahindra, Tata Motors and Majestic auto
because these companies have negative growth.

h. Profit before Tax of selected automobile companies

Hero Moto Corp, Maharashtra Scooters, SML Isuzu and TVS Motors have
highest mean of profit before tax than the industry mean. Tata Motors, SML Isuzu,
Maruti Suzuki India have performed well since their growth is above the industry growth.
The growth rate of profit before tax is highest for Maruti Suzuki, Tata Motors, TVS
Motors, Eicher motors. Honda Siel Cars and Majestic auto have negative growth when
compared to all other companies.

i. Net profit of selected automobile companies

TVS Motors, SML Isuzu, Maruti Suzuki India have performed well since their
growth is above the industry growth. Honda Siel Cars, Hyundai Motors and Majestic auto
have negative growth when compared with all other companies. Force Motors, TVS
Motors and Maruti Suzuki India showed the highest growth in net profit during the period
under study.

 Performance of various Ratio

A. Profitability Ratios
i. Material cost composition to sales ratio indicates that the MSL, FML, HMIL have
spent more amount for materials in total cost of production. The growth in
material cost is also high in these companies. The mean of this ratio indicates that
SML has higher material cost to sales ratio when compared to other companies.
Material cost of most of the companies comes around 70% of its sales.

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 ii. Labour cost composition to sales ratio was lowest for VST, HMC, M&M and
HMIL. This shows that these companies have efficient labour force. The mean of
this ratio reveals that MSL (163.68%) has highest labour cost during the study period.
iii. ALL, AAL, HML have highest growth in selling and distribution cost composition to
sales ratio when compared to other companies. SIL, HMC, AAL showed the
lowest selling and distribution cost composition to sales ratio. These companies
have good practice for sales and distribution of their products.
iv. The mean of expenses as composition of total sales was highest of. 248.32 % for
MSL compared to other companies. The growth rate of expenses as composition
to sales ratio is highest for AAL, HML, HMIL, MAL. These companies require
little more concentration on its selling and distribution expenses.
v. MSIL showed the highest growth in operating profit when compared to all other
companies. HMC (15.38%) has the highest mean operating profit whereas it was
lowest for MSL (154.23%). SML, FML, MSL, HML have to concentrate on its
operating expenses because these companies have low operating profit ratio.
vi. HMC, MIL, FML showed the highest gross profit ratio whereas ALL, SML, AAL,
MSL showed the lowest gross profit ratio because these companies have high cost
of production.

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 iii) EML had invested a high amount in absolute liquid assets when compared to the
automobile industry as a whole. It also has the growth in absolute liquid ratio.
AAL, HMC, HML, MSL, MAL and TVS motors showed the minimum absolute
liquid ratio. This shows that these companies have low cash and bank balances in
hand or at bank.
iv) HMC has the lowest debt equity ratio of 0.10% which denotes that the company
employed less amount of debt in its capital structure during the period of study.
The growth rate of debt equity reveals that the MSIL, AAL have highest debt
equity mix.
v) HML has employed more long term debt in its capital structure during the period
of study in the industry as a whole. The growth rate showed that MSIL, AAL,
TVS have highest long term debt content in their capital structure during the
period under study.
vi) MSL has highest interest coverage ratio (Rs. 12231.35crores) during the period of
study in the Indian automobile industry. It also shows the continuous growth in
the interest coverage ratio. TVS has less growth during the study period.
vii) The mean and growth rate of proprietary ratio was highest in VST (35.86%)
which maintains a good record of proprietary ratio. The HMIL, MSL have less
growth in proprietary ratio.
viii) 7 K H P H D Q R I I L [ H e G100% iD
n FVMLV, HHMLW
, W R
HMIL, M&M, MAL, TVS which shows that these companies have enough fund
to invest in fixed asset. On the other hand, the other companies have to depend
outside fund for its fixed asset investment. The growth of this ratio is also highest
in these companies.
ix) HMC,HMIL, EML have the highest growth of current assets to proprietors fund
which shows that more amount of proprietors fund has been invested in the
current asset. HML has the highest mean of this ratio.
x) The proportion of current asset to fixed asset was highest in MSL which shows
that the company has good proportion of current asset and fixed asset. The growth
level of this ratio is highest in HMIL, SML, and MSL which reflects that the
efficient of asset management of these companies.

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 xi) HML, HMIL has less reserves during the study period. On the other hand, MSL
and SIL have highest growth in reserve to capital ratio which indicates the good
performance of the company.
C. Activity Ratio
i) HMC has the highest mean inventory turnover ratio of 34.38 times. SML, MSIL,
MSL have highest growth in their inventory. SIL, FML have to concentrate on
their inventories to maintain the flow of production.
ii) The P H D Q R I GHEW oRf 68U.58Vtim
¶es forW
HMXC. U L, R Y H U
EMQ
HSCL have higher debtors turnover which indicates that more efficient in
management of debtors. VST, FML, HSCL have lowest debtors turnover. There
is a high chance for occurrence of bad debts in these companies.
iii) The mean of investment turnover was highest for HMIL; this shows the efficient
use of the invested capital of the company. MSL, EML and HSCL have the
highest growth in inventory turnover ratio which reflects that these companies
have efficient utilization of funds.
iv) HMC has lowest the mean of fixed asset turnover ratio whereas SML has the
highest mean. VST, MSL have to concentrate on its investment in fixed assets
because these companies have less growth in fixed asset turnover ratio.
v) The mean of total asset turnover ratio was highest of 5.28 times for SML which
shows firm's efficiency at using its assets in generating sales or revenue. But it
does not continue its efficiency for the entire period of study.
 Performance Assessment Index
Based on the results of performance assessment index model, the selected
automobile companies are classified into three categories viz., High performing
companies, Moderate performing companies and low performing companies. Out of the
companies selected (17) for analysis, 29 % of the companies fall in the Low and High
performance groups and 40 % of the companies fall in the moderate performance groups.
High Performing Companies are Hero Moto Corp., SML Isuzu, VST Tillers Tractors Ltd,
Eicher Motors and Maruti Suzuki India Ltd.

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 The Moderate Performing Companies are Hyundai Motors, Tata Motors, TVS
Motors, Ashok Leyland, Mahindra & Mahindra, Majestic Auto, and Maharashtra
Scooters. The low performing companies are Atul Auto, Force Motors, Honda Siel Cars
India Ltd, Scooters India, and Hindustan Motors.

 Analysis on relationship among profitability, liquidity, solvency

and activity ratios
 Analysis for Low Performing Companies

Correlations between profitability and liquidity & solvency ratios show moderate
level with selling and distribution cost composition and ratio of fixed asset to proprietor's
fund (0.521) and with ratio of fixed asset to current asset (0.474). The correlations are
positive and significant at 1% level.

The correlation between profitability and activity ratio results that most of the
profitability ratios are found to have significant correlations with activity ratios with low
to moderate degree of relationship.

 Analysis for Moderate Performing Companies

Moderate level of correlations was found between material cost composition with
debt equity ratio (.373) and with ratio of current asset to proprietors fund (.326) for
moderate performing companies. The Selling and Distribution cost composition is
moderately correlated with reserve to capital (.357). Correlations are positive and
significant at 1% level. Similarly Earnings per share is positively correlated with quick
ratio (.325) and negatively correlated with reserve to capital ratio (-0.347). Return on
V K D U H K R O G H U V ¶ I X Q G U D W L R K D V Q
asset and with the ratio of reserve to capital (-.352).

Correlation between profitability and activity ratios shows that return on equity
ratio and return on long term funds have negatively correlated with G H tE
urnoWverRratiU
o V ¶
and investment turnover ratio respectively. Gross profit margin is positively correlated with
total asset turnover ratio and selling and distribution cost composition to sales ratio have
positive correlation with investment turnover ratio at 5% level of significance.

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  Analysis for High Performing Companies
Correlation between profitability and liquidity and solvency ratio shows that the
return on equity ratio has high negative correlation with interest cover ratio and positively
correlated with current ratio during the period of study. Return on equity and return on
V K D U H K R O G H U V ¶ I X Q G K D Y H PRGH U
fund at 5% level of significance.

Correlation between the profitability and activity ratio reveals that return on
capital employed is found to have very high correlation with all the activity ratios during
the study period. Return on net worth, return on long term funds are also show the
highest correlation among all the activity ratios during the period of study. Return on
equity has high negative correlation with all the activity ratios All these correlations are
found to be significant at 1% level.

 Analysis on factors determining profitability

 Analysis for low performing companies
Regressions between profitability and liquidity & solvency ratios have been done.
The profitability ratios such as GPR, NPR, ROCE, and RONW have significant
difference among the RFATPF, RFATCA, RCR, DER, and QR. It is seen from the
R square value, the return on networth ratio has better explained the relationship of all the
liquidity and solvency ratio. This means that the return on networth ratio has good impact
with all the liquidity and solvency ratio for the low performing companies.

The profitability ratios have significant difference on activity ratios like ITR,
DTR and FATR. The results of R square show that the return on capital employed is
better explained the relationship with activity ratios for the low performing companies for
the period under study.

 Analysis for Moderate Performing Companies

GPR, NPR and ROCE have significant difference among the liquidity & solvency
ratios like quick ratio, proprietary ratio, interest coverage ratio, ratio of fixed asset to
proprietors fund, ratio of current asset to fixed asset. It is found from the R square value,

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 the net profit ratio has better explained the relationship with liquidity and solvency ratios
during the study period.

The correlation between the profitability and activity ratios shows that the return
on capital employed has better impact with the activity ratios. Profitability ratios have
significant differences with the investment turnover ratio and total asset turnover ratio.

 Analysis for High Performing Companies

The profitability ratios have significant effect on the interest coverage ratio,
absolute liquid ratio and debt equity ratio. Based on the R square value, the return on
capital employed ratio has good impact on the liquidity and solvency ratios for the high
performing companies.

The regression analysis was made between the profitability ratios and activity ratios.
Profitability ratios have significant effect on the most of the activity ratios. It is observed
from the R square value, the return on networth has high impact on the activity ratios.

 Comparison of profitability ratios and other ratios of the selected

automobile companies

Financial ratios were compared across the years, across the company groups (Low,
Moderate and High) and across the years and company groups. Significant differences
among low, moderate and high performing companies were identified. The profitability
ratios such as selling and distribution cost composition to sales ratio, net profit ratio, return
on networth, return on long term funds, earnings per share, return on equity, payout ratio
have significant difference between the company groups. The return on capital employed
ratio has significant difference across the years and across the company group.

All the liquidity ratios have no significant difference between company groups,
the years and company groups and years. The debt equity ratio has significant difference
between company groups. The proprietary ratio has significant difference across the
years, across the company groups and across years and company groups. Reserve to
capital ratio shows the significant difference between the company groups and between
the years. Activity ratios like inventory turnover ratio and G H tE
urnW io hVave¶
overRratU
significant difference between the company groups.

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 6.2 SUGGESTIONS
The ultimate objective of every firm is to preserve liquidity and maximize the
profit to get better return to its stakeholders and increase the value of firm. Financial
performance has thus, become a basic and broad aspect of adjudicating the performance
of a corporate entity. The utilization of capital and the profitability of the selected
automobile companies in India during the period under study are satisfactory. There are a
few suggestions that could be implemented by the firm to attain their objectives. The areas of
improvement that can be concentrated upon by the firms are

 Most of the companies have less growth in debt equity mix; they may go for
modernization and innovations in their products which require more funds in the
future. The judicious mix of debt and equity in the capital structure will improve
the profitability of the firms under the study.
 Some companies have negative growth in net sales during the study period.
This is due to lack of innovative marketing techniques and modern advertising.
The companies need to improve these qualities to increase the growth of sales and
to maintain expected return by the shareholders.
 The companies under study have been suggested to pay more attention on
expenses as well as on policy of investment pattern on fixed assets, inventory and
receivables. If they tighten their control on these items, naturally, the profit and
profitability of the firm will be improved further.
 The inventory of slow moving items should be reduced to the maximum possible
extent. Suitable format presenting the level of different components of inventory
at fixed time interval be introduced to exercise effective control on the overall
inventories maintained by the selected automobile companies.
 Since material cost is the major component of cost of production and its share has
been increasing in recent years, policy measures to reduce the indirect taxes on all
inputs to the auto industry could be a welcome step to enhance profit.
 There is a significant and increase in the use of contract workers in the industry,
labour reforms aimed at more flexibility are widely considered among the

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 industrialists as an essential step. This will encourage firms to employ and retain
more permanent workers and improve learning and raise productivity levels.
 Indian auto industry does not possess good design facilities. The government
needs to significantly strengthen non-proprietary R & D and design capacity that
can be undertaken with research institutes like IITs. R&D investment is needed for
innovations which is the life line for achieving and retaining the competitiveness in
the industry. This competitiveness in turn depends on the capacity and the speed
of the industry to innovate and upgrade. No nation on its own can make its industries
competitive but it is the companies which make the industry competitive. This could
be used by all the players in the industry to develop new models, reduce material
cost and become more competitive.
 The sample companies must maintain a reasonable level of liquidity position in
order to meet short term commitments and emergency requirements. This will
also help the company to maintain the flow of production.
 The competitiveness in the sector will largely depend on the capacity of the
industries to innovate and upgrade. The industry will also benefit if they have
strong domestic competition, home based suppliers and demanding local customers.
It would also involve core products and process technology creation apart from
maintaining productive human resource and reward for advanced skills.
 With the help of composite performance assessment index model, a company can
categories its position in terms of profitability in the industry. The company
profitability ratios are integrated into a single measure in order to find out which
are the more profitable companies and less profitable companies. The less profitable
companies may concentrate on their cost of production, investment in fixed asset
and their sales turnover to make their company more profitable.
 The financial performance of selected automobile companies are classified such
as high, low and moderate performing companies during the study period.
Appropriate measures may be taken to improve their financial performance ie.,
the companies shown in the low performing, will be taken to moderate
performing companies and then to high performing. To this process, the company
should have adequate plan of profitability. The companies must have achievable

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 sales target and all possible steps are to be taken to achieve the sales target.
The company should take necessary steps to fully utilize the available capacity
and the fixed assets are to be purchased only when the company is able to utilize
its full capacity. The capital structure is to be changed without affecting the
borrowing power, profitability and also cumulative retained earnings. This could
be done based on the nature of the company.

6.3 CONCLUSION
An attempt has been made in the present study to investigate the financial
performance of selected automobile companies in India during the year 2001 to 2010.

The analysis of financial performance includes growth analysis on selected terms

such as net sales, total assets, current liabilities, current assets etc, performance of
profitability, liquidity, solvency and activity ratios, relationship among ratios, and
comparison between them. The study reveals that the financial performance of the Indian
automobile sector is fairly satisfactory during the study period.

Similarly, the analysis of profitability of the selected automobile companies

shows that their performance during the study period is satisfactory. The study of all the
three company groups (commercial vehicles, passenger car & multi utility vehicle and
two & three wheelers) shows that the performance of these companies are fairly good.
The financial performance plays a significant role in the successful functioning of a firm.
Therefore, the financial stability and operational performance of all the three sectors
shows that all are at the satisfactory level.

From the present study, it is observed that there is no significant difference

between the growth of the companies and the industry except profit before tax and net
profit. The profitability performance of the selected automobile companies has significant
influence by other related factors such as return on capital employed, return on networth
for all the groups (Low, Moderate and high). The comparison of profitability and other
ratios do not have significant influence. However, further improvement in profitability
by cost concentration, innovative marketing techniques and modern advertising will lead
to at the satisfactory level.

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 6.4 SCOPE FOR FURTHER STUDIES
The current study only concentrates on the financial performance of selected
Indian automobile companies. It has tremendous information provided for furthering the
scope of research by the research scholars, academicians, industrialists, financial agencies
including banking companies, economists, sociologists, members of stock exchanges, the
interesting public- both indigenous and foreign institutional and individual investors and
the government.

A study may be carried out in similar areas with regard to private automobile
companies in India. Another interesting area to explore is comparison of financial
performance of a manufacturing industry in India and China. Further study may be
carried out with regard to pre and post Foreign Direct Investment (FDI) performance of
automobile manufacturing industry in India.

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