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Trend Analysis - Hero MotoCorp Ltd

Equity and Liability

There was exceptional surge in non current liability in year 2011. The company collected cash
through borrowing for one time payment to Honda for its share during seperation .
The equity for the company is increasing and liabilities (current and non current ) are
decreasing. This trend shows good trend for the company.

Assets

The current asset is increasing, due to the increase in demand. The increase in current asset is
more than the increase in the fixed asset.
It means the spread of fixed asset is increasing, which will result in the scale of economies.
However, it can also be due to the poor management of working capital.

Revenue & Expense

The expense is increasing faster than revenue. It may be because of three reasons;
1. Competition is increasing and hence the expense for selling is increasing at much faster
rate.
2. The raw material cost is increasing
3. Inefficiency in operation is increasing
The actual reason has to be analysed further.

Profit before tax & Profit after tax

The bottom line is i.e. Profit after Tax (PAT) is almost at the same level, in spite of increase in
revenue, it means to maintain the same PAT, and the company needs to keep increasing its revenue.
As the expenses are also on increasing trend due to increase in cost of raw material, selling
expense and low marked up price due to increase in the competition.

Common Financial Statement Hero Motocorp Ltd.

Equity and Liability

We can clearly see that the equity % of the company is on increasing trend. It reflects improvement
in financial health of the company.
The sudden drop in equity % in FY 2011 was due to its separation from Honda company.
However company has not only regained its status but surpassed it (55% equity)

Total Assets

The ratio of current asset is increasing over noncurrent asset. It means the liquidity of company is
increasing. This phenomenon can be due to economies of scale (due to higher spread of fixed
asset).

Profit & Loss

COGS (Cost of goods sold) has increased from FY 2010 to FY 2012, after this it has reducing
trend; it shows that company is improving its efficiency.
The profitability is shrinking mainly due to increase in SGA and depreciation. Increase in SGA in
the company is increasing consistently mainly due to Hero brand establishment after separation
with Honda.
Increase in depreciation is mainly due to increase in fixed assets resulting from companys
expansion.

Cash Flow Analysis

Net cash from operating activity took a dip from FY 2010 to FY 2013, however it increased in FY
2014. The sudden increase can be resulted from sustained cost efficiency and decrease in Honda
royalty.

The consistent increase in investing activity is reflection of companys global expansion.

Financial Ratios
Liquidity and Solvency Ratios

Liquidity
It is the ability of a business to meet its short-term obligations when they fall due.
Current ratio
It is an indicator of a Companys ability to pay its obligation in short-term
Comment:-Lowest in 2011 due to one time payment to M/S Honda during separation from joint
venture. Though it is less than 1 which is unfavorable to pay current liabilities, yet it is in
improving trend
Quick ratio
It relates more liquid current assets (by removing inventory into current assets).

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Comment:- Lowest in 2011 due to one time payment to M/S Honda during separation from joint
venture. Though it is less than 1 which is unfavorable to pay current liabilities, yet it is in
improving trend
Solvency
Companys long- term solvency is affected by the extent of debt used to finance its assets. Debt is
more risky than equity
Debt-to-equity ratio
It indicates the extent of use of financial leverage.
High ratio means aggressive use of leverage
Low ratio indicates small degree of leverage and is too conservative
Comments: Highest in 2011 due to one time payment (through borrowing)to M/S Honda during
separation from joint venture .It is good that Company does not has borrowing/debt at all across
the years
Debt Coverage Ratios

Interest cover
It indicates protection available to the creditors for the payment of interest charges by the
Company

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Comment:- Highest in the year 2010 and from 2011 ,it is at steady state with 200 times and very
good interest paying ability

Management Efficiency ratios:

Inventory Turnover Ratio

It is number of times a Companys inventories are turned into sales.
Investment in inventory represents idle cash
Comment:-Highest in 2011 and now in decreasing trend which indicates good inventory
management along with associated expenses in the Company

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Debtors Turnover Ratio

It measures the efficacy of a firms credit policy and collection mechanism and shows the number
of times each year the receivables are turned into cash
Comment:-Sustained throughout the years and it seems that credit policy is not changed in the last
five years

Fixed Asset Turnover Ratio

Its measures Firms efficiency in utilizing its fixed assets

Asset Turnover Ratio

Its measures Firms efficiency in utilizing its assets.
It indicates how many times the asset were turned over in a period in order to generate sales

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Profitability Ratio:

Profitability ratios measure a companys ability to generate earnings relative to sales, assets and
equity. These ratios assess the ability of a company to generate earnings, profits and cash flows
relative to relative to some metric, often the amount of money invested. They highlight how
effectively the profitability of a company is being managed

Common examples of profitability ratios include Operating Profit Margin ,PAT, return on equity,
return on capital employed (ROCE).
Hero Motocorp Ltd PAT decreases from 13.5% to 8% due to increases in depreciation cost and
increases in CGA over the years .It is mainly because of establishment of Brand HERO and
increase in investment for Gloabal Expansion.

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Comparative study (Hero vs. Bajaj vs. TVS)

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2014
HERO

BAJAJ

TVS

I Revenue from operations

(a) Gross sales of products
(b) Other operating revenue
Net revenue from operations
Net revenue from operations
Other income

100.0
2.1
97.2
97.2
3.4

100.0
0.6
93.6
93.6
1.7

100.0

III Total Revenue (I + II)

100.6

2013
HERO

BAJAJ

TVS

100.0
0.7
93.3
93.3
1.6

100.0

92.0
0.3

100.0
2.5
97.0
97.0
3.9

95.2

92.4

100.8

94.9

91.6

67.0

67.5

62.6

69.8

68.2

62.4

3.5
0.0

3.4
0.0

3.1
0.0

3.2
0.0

0.9
6.9

4.1
9.5

1.5
15.5

0.8
6.4

4.4
8.9

1.7
14.7

Total Expenses

71.3

84.6

88.3

73.8

84.9

88.4

V Profit before tax (III

- IV)

29.3

10.6

4.1

27.1

9.9

2.1

VII Profit for the year

(V-VI)

22.6

7.8

3.0

21.1

8.3

1.5

IV Expenses:
(a) Cost of materials
consumed
(c) Employee benefits
expenses
(d) Finance costs
e) Depreciation and
amortization expenses
(f) Other expenses

Liquidity and Solvency Ratios:

Comparative Graph of Three Companies are shown from 2014 to 2010

91.3
0.3

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Current ratio
Comment:-It is lowest in case of Hero MotoCorp as compared to others.
Bajaj and TVS are having similar trend

Quick ratio/Acid Test Ratio

Comment:-It is highest in case of Bajaj .Hero MotoCorp and the TVS have comparable ratio in
2014.

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Debt-to-equity ratio
Comment:There is no debt in recent years for Hero MotoCorp and Bajaj(good capital management)
TVS has more debt which is unfavorable condition for the Company.TVS might be using
borrowings in making investment

Debt Coverage Ratios

Interest Cover

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Comment:-Good interest coverage position in each company with highest in Bajaj

Interest Coverage ratio very high for Bajaj And Hero ie greater than 1000 compare to TVS 5. TVS
has very low interest coverage ratio.Because Hero and Bajaj has almost zero debt over Years.

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Bajaj and Hero Has Debt in 2010 but now they become almost Debt free.
TVS has very high Debt to owner fund however TVS reduces Debt from 3 to 1 in recent years .

Management Efficiency ratios:

Mangement Effiecieny ratio are presented of three company from year 2014 to 2010
From Below graph it is clearly seen that HERO outperform other two company
Inventory Turnover Ratio
Comment:-It is highest in case of Hero MotoCorp

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Debtors Turnover Ratio

Comment:-Similar trends in each company

Fixed Assets Turnover Ratio

Comment:- Similar trends in each company

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Asset Turnover Ratio

Comment:-Good maintenance of assets in each compnay. Well efficient asset management by
TVS

Profitability Ratio:

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Hero MotoCorp Ltd.

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14

13.97

15.46

13.4

17.32

Gross Profit Margin(%)

9.62

9.17

10.81

11.33

16.11

Cash Profit Margin(%)

12.5

13.64

13.56

11.36

14

Net Profit Margin(%)

8.19

8.76

10.04

9.89

14

37.66

42.31

55.43

65.21

64.41

Operating Profit Margin(%)

Return On Net Worth(%)

BAJAJ AUTO LTD

Operating Profit
Margin(%)

20.61

18.19

18.93

19.22

20.8

Gross Profit
Margin(%)

19.71

17.36

18.18

18.47

19.64

Cash Profit
Margin(%)

16.39

15.41

16.2

16.04

15.99

Net Profit Margin(%)

16.22

15.03

15.08

20.45

13.27

Return On Net
Worth(%)

33.24

38.84

50.07

71.86

58.69

TVS MOTORS LTD

Operating Profit Margin(%)

5.81

5.91

6.18

4.13

3.3

Gross Profit Margin(%)

4.03

3.54

4.05

2.05

0.29

Cash Profit Margin(%)

3.72

3.6

3.9

4.12

3.45

Net Profit Margin(%)

2.21

2.66

1.78

1.94

0.72

Return On Net Worth(%)

16.04

22.08

18.24

18.76

5.59

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Operating Profit is worse for TVS Motors Ltd and Best for Bajaj Auto ltd.
.It is very Low for TVS Motors Company Due To High SGA.Due to this TVS motors has very
Low PAT. Return of Net Worth is increasing due to improvement in PAT but it is not comparable to
other two automotive.
It is medium range for Hero Motocorp Ltd due to increase in SGA and Fixed asset depreciation
cost. Depreciation is increasing due to increase in Fixed Asset and continued investments. SGA for
Hero Motocorp Ltd increases due to separation with joint venture with Honda Motors Ltd and
establishment for brand of HERO. Its Return on Net Worth is decreased due to decrease in PAT
and greater competition in Automotive Sector.
Bajaj Auto Ltd has very PAT ie around 16 compare to HEROs 8 and TVS s 3.
Profitability of Bajaj is also high due to greater share in Export Market .
It is because of very low SGA and Depreciation cost compare to HERO .Hero Depreciation cost is
around 4 and BAJAJ has 0.8.Also SGA cost is very low for Bajaj Auto Ltd. It means Bajaj is not
investing too much .On other hand Hero has high depreciation cost due to High investment and
going Global.
On above three Bajaj Auto Ltd outperform Hero and TVS in terms of Profitability ratio.
HERO profitability is likely to increase as the export demand will increase with increasing Global
Expansion.

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Summary of Performance(1 to 3, 1 being best)

HERO

BAJAJ

TVS

Total Assets

Sales
EBITDA

1
2

2
1

3
3

Net Income

Profitability
(ROE%)
Margins
(EBDIT/Sales)
Liquidity
(current
ratio)
Asset
Management
(sales/assets)
Growth Rates

Final Comments

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Hero Is market Leader In Two-Wheeler and Scooter Market which is aspire to

become Global Company .Due to this it is investing heavily on New Plants, R & D ,
Global Parts Center etc.and establish HERO brand its PAT has been decreases in
recent years
That will improve its profitability in near future .Its Asset Management ratio is far
excellent than other two company.
Currently its market share is 41.5 % and very large volume of ie 6.1 million twowheelers in previous year and 2.2 million in first quarter.
Bajaj Auto has been excellent in Profitability .Its is far ahead of other rivals. Its is
mainly because of Global presence and low depreciation and SGA cost.
Major concern for Bajaj Auto is to maintain its market share and sales volume which
is in decline trend .In current quarter it position is at 4 behind Hero ,Honda and TVS.
Bajaj Auto makes mobikes and three-wheelers, which are a completely different
market. In effect, Bajaj Auto makes only one product in two-wheelers - with power
as its brand value.
and it has no product in Scooter Segment which is currently fast growing market.
TVS Motors are full-line producers, making both motorbikes and scooters.TVS
market share is 12.7 % and sold 1.75 million two wheeler in 2013-14.
Its major concern area is Profitability which is quite low ie at 3 % compare to other
two rivals.
This is due to Low Asset Turnover Ratio and very High SGA cost .Its debt to equity
ratio is also poor compare to rivals however it has been improved in recent years.
Its Its sale has been improving .So TVS to work on increasing Profitability ratio.