an analysis of cost structure of indain automobile companies
TRANSCRIPT
A cost analysis of automobile sector
Automobile industry is one of the most building blocks of the world’s most influential economies such as US and Japan.
Today , the industry is among the most vibrant , modern,and growing markets in the world.
In 2009 India emerged as Asia’s 4th largest exporter of automobiles.
Indian automobile industry is ranked 10th globally.(2nd in two-wheelers,4th in four wheelers).
The auto industry accounts for about 5.2% of India's GDP
AUTOMOBILE INDUSTRY IN INDIA
TATA MOTORS Ltd.
COST ELEMENTS
2007 2008 2009
raw materials 19,879.56 20,891.33 18,801.37
employee cost 1,367.83 10,554.57 1,551.39
Prime cost 21,247.39 31,445.90 20,352.76
power and fuel 327.41 325.19 304.94
manufacturing 872.95 904.95 866.65
factory cost 22,447.75 32,676.04 21,524.35
selling and adminstration 1505.23 2197.49 1652.31
miscellaneous expense 1051.49 964.78 1438.89
Total expense 25,004.47 35,838.31 24,615.55
PERCENTAGE CHANGE IN COST ELEMENTS
2007-08 2008-09
raw materials 5.08 -10.0
employee cost 671.6 -85.3
Prime cost 47.93 -35.2
power and fuel -0.67 -6.22
manufacturing 3.6 -4.23
factory cost 45.5 -34.1
selling and administration 45.9 -24.8
miscellaneous expense -8.246 49.14
Total expense 43.3 -31.315
Vertical analysis of cost elements with respect to Total cost(%)
2007 2008 2009
Prime cost 84.9743666 87.744 82.683
factory cost 89.7749482 91.176 87.442
selling and administration 6.01984365 6.1317 6.7125
miscellaneous expense 4.20520811 2.692 5.8455
Prim
e co
st
fact
ory
cost
selli
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nd a
dmin
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misc
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0
10
20
30
40
50
60
70
80
90
100
200720082009
CONTRIBUTION OF COST ELEMENTS ON TOTAL COST
Net sales is highest in 2008 ,which amounts to 28768 Cr.
The cost incurred in 2008 is found to be highest compared to other years, which amounts to 35838.8cr and Total income is 29214Cr.
ANALYSIS
In year 2007-08 Tata motors were marked with two events.
unveiling of Tata Nano. acquisition of Jaguar and Land Rover. The Company recorded its highest ever sale
of 5,85,649 vehicles and grew its turnover to Rs. 33,094 Crs. to remain as India’s largest automobile company by revenue.
INTERPRETATION
RISE IN EMPLOYEE COST IN 2007-08 Due to companies expansion and growth
plans, employee recruitment and training was carried out extensively .
During the year, the Company entered into a three year wage settlement with its unions at Jamshedpur and Pune, Passenger Car Business.
Maruti-Suzuki Ind .ltd
Particulars 2007 2008 2009
Raw Materials 10,863.00 13,958.30 15,983.20
Materials consumed 10,863.00 13,958.30 15,983.20
Power & Fuel Cost 97.4 147.3 193.6
Employee Cost 288.4 356.2 471.1Other Manufacturing Expenses 392.4 523.3 716.1
Factory cost 11,641.20 14,985.10 17,364.00 Administrative Expenses 274.5 170.6 150.2Miscellaneous Expenses 239.44 287.62 303.44
Cost of production 12,155.14 15,443.32 17,817.64Selling& Distribution Expenses 194.46 331.08 578.56
Cost of sales 12,349.74 15,774.40 18,396.20
Sales 14806.4 18066.8 20729.4
PROFIT 2165.66 2287.28 2564.16
Cost Sheet of Maruti Suzuki of Ind Ltd
Materials consumed
Factory cost Cost of pro-duction
Cost of sales
2007 10863 11641.2 12155.14 12349.6
2008 13958.3 14985.1 15443.32 15774.4
2009 15983.2 17364 17817.64 18396.2
1,000.00
5,000.00
9,000.00
13,000.00
17,000.00
Comparison of items on cost sheet
Expenditure 2007%of Cost of sales 2008
%of Cost of sales 2009
Raw Materials 10,863.00 87.96 13,958.30 88.49 15,983.20
Power & Fuel Cost 97.4 0.79 147.3 0.93 193.6
Employee Cost 288.4 2.34 356.2 2.26 471.1Other Manufacturing Expenses 392.4 3.18 523.3 3.32 716.1Selling and Admin Expenses 483.26 3.91 521.48 3.31 751.06
Miscellaneous Expenses 239.44 1.94 287.62 1.82 303.44
Total Expenses 12,349.60 100.00 15,774.40 100.00 18,396.20
Expenditure as a percentage of total expenses
Material consumed formed a major part of cost of sales(87%)
Manufacturing expenses formed 4.83% of cost of sales
Selling and administrartive expenses fomed 3.92 % and 2.07% of the cost of sales.
87%
1%
3%
4%1% 2% 3%
Chart Title
Raw Materials
Power & Fuel Cost
Employee Cost
Other Manufacturing Expenses
Administrative Expenses
Miscellaneous Expenses
Selling& Distribution Expenses
Cost of Sales for the year 2009
Material consumed formed a major part of cost of sales amounting to 87.8%
Manufacturing expenses contributed 4.32% towards cost of sales.
Selling expenses and administrative expenses contributed 3.6% and 2.10% respectively towards cost of sales.
88%
4%
2%4%
2% 0%
As % of Cost of sales
Material consumed Manufacturing expenses Selling expenses Adminstrative expenses
Expenses as % of cost of sales for the year 2008
2007 2008 2009
Total Income 14943.8 18897.1 20864.5
Total Expenses 12349.6 15774.4 18396.2
2,500.00
7,500.00
12,500.00
17,500.00
22,500.00
Chart showing total income & total expenses
Axis
Tit
le
The operating income of the company showed an increasing trend over the years.
It increased from Rs 11046.30 in 2005 to Rs 20729.40 in the year 2009.
The cost of sales increased from Rs 9476 to Rs 18825.70 from the year 2005 to 2009.
The operating income increased to 21.23% from the year 2005 to 2009.
The net profit increased to 39.3% in the year 2005-06, 22.39% in the year 2006-07, 10.84% in the year 2007-08 but it decreased to 29.59% in the year 2008-09
Interpretation
Ashok Leyland
COST SHEET
Particulars 2007 % change 2008 % change 2009
Raw Materials 5,570.18 6.87 5,952.86 -23.49 4,554.36
Materials consumed 5,570.18 6.87 5,952.86 -23.49 4,554.36
Power & Fuel Cost 45.44 -0.35 45.28 -15.15 38.42
Employee Cost 480.7 28.18 616.17 -8.10 566.26
Other Manufacturing Expenses 41.7 37.84 57.48 -12.49 50.3
Factory cost 6,138.02 8.70 6,671.79 -21.92 5,209.34
Administrative Expenses 413.1 -3.23 399.76 -83.76 64.91
Cost of production 6,551.12 7.94 7,071.55 -25.42 5,274.25
Selling& Distribution Expenses 170.7 14.02 194.63 62.65 316.57
Cost of sales 6,721.82 8.10 7,266.18 -23.06 5,590.82
Sales 7,358.88
8.34 7,972.52 -
24.09 6,051.64
Profit 637.06
10.87 706.34 -
34.76 460.82
EXPENSES AS % OF COST OF SALES
Particulars 2007
As % of cost of sales 2008
As % of cost of sales 2009
As % of cost of sales
Raw Materials 5,570.18 82.87 5,952.86 81.93 4,554.36 81.46
Power & Fuel Cost 45.44 0.68 45.28 0.62 38.42 0.69
Employee Cost 480.7 7.15 616.17 8.48 566.26 10.13
Other Manufacturing Expenses 41.7 0.62 57.48 0.79 50.3 0.90
Administrative Expenses 413.1 6.15 399.76 5.50 64.91 1.16
Selling& Distribution Expenses 170.7 2.54 194.63 2.68 316.57 5.66
Cost of sales 6,721.82 100 7,266.18 100 5,590.82 100
HINDUSTHAN MOTORS
COST SHEETPARTICULERS AMOUNT’07 AMOUNT’08 AMOUNT’09
SALES 666.51 704.66 626.55RAW MATERIALS 504.08 502.93 469.96PRIME COST 504.08 502.93 469.96+ FACTORY O/H POWER & FUEL 16.15 13.65 12.92EMPLOYEE COST 69.14 86.11 75.97MANUFACTURING EXP 2.4 8.17 4.93
TOTAL FACTORY COST 87.69 107.93 93.82
ADMINISTRATIVE & SELLING COST84.48 94.33 84.48
MISCELLANEOUS EXPENSES 21.5 21.72 26.85COST OF SALES 697.75 726.91 675.11
% CHANGES IN COSTPARTICULERS 2007 % CHANGE 2008 %CHANGE 2009
POWER & FUEL 16.15 -15.47 13.65 -5.34 12.92
EMPLOYEE COST 69.14 24.54 86.11 -11.77 75.97
MANUFACTURING EXP 2.4 240.41 8.17 -39.65 4.93
TOTAL FACTORY COST 87.69 23.08 107.93 -13.07 93.82
ADMINISTRATIVE & SELLING COST 84.48 11.65 94.33 -10.44 84.48
MISCELLANEOUS EXPENSES 21.5 1.02 21.72 23.61 26.85
POWER & FUEL
EMPLOYEE COST
MANUFACTURING EXP
TOTAL FACTORY COST
ADMINISTRATIVE & SELLING COST
MISCELLANEOUS EXPENSES
0 20 40 60 80 100 12016.15
69.14
2.4
87.69
84.48
21.5
13.65
86.11
8.17
107.93
94.33
21.72
12.92
75.97
4.93
93.82
84.48
26.85
2009 2008 2007
Mahindra & Mahindra
Cost Sheet 2007-2009 Mar '07 Mar '08 Mar '09
Raw Materials 6,937.16 7,963.82 9,208.71
Prime Cost 6,937.16 7,963.82 9,208.71
Power & Fuel Cost 65.19 91.33 98.69
Employee Cost 666.15 853.65 1,024.61Other Manufacturing Expenses 68.8 73.35 75.36
Work Cost 7,737.30 8,982.15 10,407.37
Adminstrative expenses 466.22 561.66 575.34Cost Of Production 8,203.52 9,543.81 10,982.71
Selling expenses 635.1 804.51 937.56Cost of sales 8,838.62 10,348.32 11,920.27
Operating Profit 1,136.23 1,157.65 1,092.25
Operating income 10,458.92 12,035.44 13,339.54
Comparison of Various Costs and Incomes
% Cng. Frm. 2007
% Cng. Frm. 2008
% Cng. Frm. Base year 2007
Raw Materials 14.80 15.63 32.74Prime Cost 14.80 15.63 32.74
Power & Fuel Cost 40.10 8.06 51.39Employee Cost 28.15 20.03 53.81Other Manufacturing Expenses 6.61 2.74 9.53
Work Cost 16.09 15.87 34.51
Administrative expenses 20.47 2.44 23.41Cost of Production 16.34 15.08 33.88
Selling expenses 26.67 16.54 47.62Cost of sales 17.08 15.19 34.87
Operating Profit 1.89 -5.65 -3.87Operating income 15.07 10.84 27.54
Contribution of Expenses to Cost of Sales
Expenses 2007 2008 2009
Raw Materials 78.49 76.96 77.25
Power & Fuel Cost 0.74 0.88 0.83
Employee Cost 7.54 8.25 8.60
Other Manufacturing Expenses 0.78 0.71 0.63
Adminstrative expenses 5.27 5.43 4.83
Selling expenses 7.19 7.77 7.87Cost of sales
100.00 100.00 100.00
Mar '07 Mar '08 Mar '09
Total Income 10458.92 12035.44 13339.54
Cost of sales 8838.61999999997
10348.32 11920.27
Operating Profit
1136.23 1157.65 1092.25
1,000.00
5,000.00
9,000.00
13,000.00
Comparison of Total income, Cost of sales and Operating Profit
Rs.
in
Cro
re
ConclusionThe net profit of Tata motors was highest in the year 2008 i.e. 2028.92 crore , but in the year 2009 it’s profit decreased to 1016.55 crore .
The profit of the company decreased by 49 % in the year 2009.
The net profit of Maruti Suzuki in the year 2008 was 1730.80 crore which was lower than that of Tata motors
In the year 2009 the net profit of the company decreased by 29.58% but on comparing the profit with Tata motors the net profit of Maruti Suzuki was 11.9% higher .
Hindustan Motors is the worst performing company showing a negative growth in the year 2008 and a minimal profit 0f 30.84 in the year 2009.
On the basis of pas records Tata Motors is the best performing company in India.