capital structure analysis of indian automobile industry
TRANSCRIPT
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Acknowledgement
A successful project is a combined effort of the teacher for guidance and inspiration and the project team.
We wish to extend our sincere gratitude to Dr. Hamendra Kumar Porwal, for imparting in depth knowledge of Finance and providing us an opportunity to do a project work on ‘Capital Structure of the Indian Automobile Industry’. The support thus, helped us to develop a meaningful report.
Also, we would like to convey our thanks to all the people who have been an integral part during the entire course of project completion and have extended a helping
hand for the same.
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ContentsSl. No
Topic
1 Overview of the Indian Automobile Industry
2 Scope of the Study
3 What is meant by Capital Structure?
4 Factors affecting Capital Structure?
Analysis
5 Maruti Suzuki
6 Tata Motors
7 Mahindra & Mahindra
8 Hero Honda
9 Bajaj Auto
10 Conclusion
11 Bibliography
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“Domestic car sales up 24.4% in MarchPTI April 8, 2011
Mahindra sales up 22% in JanPTI February 1, 2011
Maruti sells 1mn cars in 10 monthsPTI January 27, 2011
Bajaj Auto net up 40% to Rs 667 crPTI January 19, 2011
Tata Motors net jumps 102-fold ”Mail Today Bureau November 10, 2010
The Indian automobile industry is riding high, like never before. They say that history has an eerie habit of repeating itself. As far as the automobile industry is concerned, the monumental returns and the off-the-charts growth rates reported in India recently bear testimony to this adage. The events that unfolded in Detroit years ago seem to be repeating themselves today, in India. For the automobile industry, future in India seems like an evergreen pasture!
Overview of the Indian Automobile Industry
Starting its journey from the day when the first car rolled on the streets of Mumbai in 1898, the Indian automobile industry has demonstrated a phenomenal growth to this day. Today, the Indian automobile industry presents a galaxy of varieties and models meeting all possible expectations and globally established industry standards. Some of the leading names echoing in the Indian automobile industry include Maruti Suzuki, Tata Motors, Mahindra and Mahindra, Hyundai Motors, Hero Honda and Hindustan Motors in addition to a number of others.
During the early stages of its development, Indian automobile industry heavily depended on foreign technologies. However, over the years, the manufacturers in India have started using their own technology evolved in the native soil. The thriving market place in the country has attracted a number of automobile manufacturers including some of the reputed global leaders to set their foot in the soil looking forward to enhance their profile and prospects to new heights. Following a
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temporary setback on account of the global economic recession, the Indian automobile market has once again picked up a remarkable momentum witnessing a buoyant sale for the first time in its history in the month of September 2009.
After the economic downturn and difficult market conditions in the automotive sector globally in 2008-09, during the year, economies across the world (with a few exceptions) showed signs of recovery and growth. The Indian economy bounced back quickly and strongly growing at 7.2% in 2009-10. The automotive sector in India started the year steadily, gathered momentum in different segments in the second half of the year and ended the year with a record growth and performance.
The automobile sector of India is the seventh largest in the world. In a year, the country manufactures about 2.6 million cars making up an identifiable chunk in the world’s annual production of about 73 million cars in a year. The country is the largest manufacturer of motorcycles and the fifth largest producer of commercial vehicles. Industry experts have visualized an unbelievably huge increase in these figures over the immediate future. The figures published by the Asia Economic Institute indicate that the Indian automobile sector is set to emerge as the global leader by 2012. In the year 2009, India rose to be the fourth largest exporter of automobiles following Japan, South Korea and Thailand. Experts state that in the year 2050, India will top the car volumes of all the nations of the world with about 611 million cars running on its roads.
Scope of this studyThrough this project we are attempting to study the capital structure of 5 of the highly profitable Indian automotive companies. They are:
Maruti Suzuki India Limited Tata Motors Limited Mahindra & Mahindra Limited Hero Honda Limited Bajaj Auto Limited
We have analysed data including the long term and short term debts, debt-equity ratio, earnings per share, profit before tax etc. We have also graphically represented the data. For the study data for the last 5 years have been used (2006 – 2010). Data was gathered from the balance sheets, annual reports, chairman’s report, profit & loss account etc. of the respective companies.
The scope of the study is limited to automobiles falling under the category of Two-wheelers (Bajaj Auto, Hero Honda), Three-wheelers (Bajaj Auto, M&M), Cars (Tata Motors, Maruti Suzuki, and M&M) and Commercial Vehicles (excluding Tractors) (Tata Motors, M&M).
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What does Capital Structure mean?
A mix of a company's long-term debt, specific short-term debt, common equity and preferred equity. The capital structure is how a firm finances its overall operations and growth by using different sources of funds.
For example, a firm that sells Rs. 20 billion in equity and Rs. 80 billion in debt is said to be 20% equity-financed and 80% debt-financed.
Debt comes in the form of bond issues or long-term notes payable, while equity is classified as common stock, preferred stock or retained earnings. Short-term debt such as working capital requirements is also considered to be part of the capital structure.
Factors Determining Capital Structure
Trading on Equity- The word “equity” denotes the ownership of the company. Trading on equity means taking advantage of equity share capital to borrowed funds on reasonable basis. It refers to additional profits that equity shareholders earn because of issuance of debentures and preference shares. It is based on the thought that if the rate of dividend on preference capital and the rate of interest on borrowed capital is lower than the general rate of company’s earnings, equity shareholders are at advantage which means a company should go for a judicious blend of preference shares, equity shares as well as debentures. Trading on equity becomes more important when expectations of shareholders are high.
Degree of control- In a company, it is the directors who are so called elected representatives of equity shareholders. These members have got maximum voting rights in a concern as compared to the preference shareholders and debenture holders. Preference shareholders have reasonably less voting rights while debenture holders have no voting rights. If the company’s management policies are such that they want to retain their voting rights in their hands, the capital structure consists of debenture holders and loans rather than equity shares.
Flexibility of financial plan- In an enterprise, the capital structure should be such that there is both contractions as well as relaxation in plans. Debentures and loans can be refunded back as the time requires. While equity capital cannot be refunded at any point which provides rigidity to plans. Therefore, in order to make the capital structure possible, the company should go for issue of debentures and other loans.
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Choice of investors- The company’s policy generally is to have different categories of investors for securities. Therefore, a capital structure should give enough choice to all kind of investors to invest. Bold and adventurous investors generally go for equity shares and loans and debentures are generally raised keeping into mind conscious investors.
Capital market condition- In the lifetime of the company, the market price of the shares has got an important influence. During the depression period, the company’s capital structure generally consists of debentures and loans. While in period of boons and inflation, the company’s capital should consist of share capital generally equity shares.
Period of financing- When company wants to raise finance for short period, it goes for loans from banks and other institutions; while for long period it goes for issue of shares and debentures.
Cost of financing- In a capital structure, the company has to look to the factor of cost when securities are raised. It is seen that debentures at the time of profit earning of company prove to be a cheaper source of finance as compared to equity shares where equity shareholders demand an extra share in profits.
Stability of sales- An established business which has a growing market and high sales turnover, the company is in position to meet fixed commitments. Interest on debentures has to be paid regardless of profit. Therefore, when sales are high, thereby the profits are high and company is in better position to meet such fixed commitments like interest on debentures and dividends on preference shares. If company is having unstable sales, then the company is not in position to meet fixed obligations. So, equity capital proves to be safe in such cases.
Sizes of a company- Small size business firms capital structure generally consists of loans from banks and retained profits. While on the other hand, big companies having goodwill, stability and an established profit can easily go for issuance of shares and debentures as well as loans and borrowings from financial institutions. The bigger the size, the wider is total capitalization.
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Maruti Suzuki India LimitedMarket Capitalisation: 36402.67 crores
Maruti Suzuki India Limited is a passenger car company. The company is engaged in the business of manufacturing, purchase and sale of motor vehicles and spare parts. The other activities of the company include facilitation of pre-owned car sales, fleet management and car financing. The company is a subsidiary of Suzuki Motor Corporation, Japan. The company has a portfolio of 13 brands and over 150 variants.
2006 2007 2008 2009 20100
20
40
60
80
100
120
90.62
61.01
40.9334.21
105.39
Interest Coverage Ratio
2006 2007 2008 2009 20100
10
20
30
40
50
60
70
80
90
100
41.16
54.0759.91
42.18
86.45
Earnings Per Share
2006 2007 2008 2009 20100
0.02
0.04
0.06
0.08
0.1
0.12
0.01
0.09
0.11
0.07 0.07
Debt Equity Ratio
2006 2007 2008 2009 20100
2
4
6
8
10
12
14
7
12.74
10.7
5.62
9.73
Profit Before Intrest and Tax Margin
2006 2007 2008 2009 20100
100
200
300
400
500
600
700
800
900
1000
71.7
630.8
900.2
698.9821.4
Maruti Suzuki - Total Debts
9
Analysis
The gross revenue of the Company for the year (2010 – 2011) was Rs. 301,198 million as against Rs. 214,538 million in the previous year showing growth of 40%. Sales of vehicles in the domestic market increased to 870,790 as compared to 722,144 in the previous year showing a growth of 21%. Exports of vehicles grew at an impressive rate of 111% from 70,023 to 147,575 in the current year. The overall growth was 29%.
Earnings before depreciation, interest, tax and amortization (EBDITA) stood at Rs. 44,510 million against Rs. 24,333 million in the previous year.
Profit before tax (PBT) stood at Rs. 35,925 million against Rs. 16,758 million in the previous year and profit after tax (PAT) stood at Rs. 24,976 million against Rs. 12,187 million in the previous year.
The board recommends a dividend of Rs. 6.00 per equity share of Rs. 5.00 each for the year ended 31st March 2010 amountingtoRs.1733 million.
Foreign Pro-moters
56%
Banks and Fin. Institutes15%
FII's21%
Private Coporate Bodies6%
Others0%
General Public3%
Share Holding Pattern
Maruti Suzuki, the leader in the passenger car segment has seen volatility in the mix of debt and equity capital of company over the last 5 years. Sales of the company have increased continuously during the last decade. Its effect can be seen from the rise in Profit Before Interest and Tax Margin (PBT). There is a fall in PBT in the last year because of a rise in operating expense of the company.
Most of the funding requirements of the company were done by the internal accruals which were created through continuous profits.
Maruti Suzuki will maintain its strong business and financial risk profiles on the back of the healthy cash generation and good liquidity. The company is expected to sustain its dominant position in the domestic passenger car segment, given its large product portfolio. Maruti’s financial risk profile is a
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also expected to remain comfortable, with incremental capital expenditure being funded entirely through internal sources.
Though the company has a history of dependence on the internal funds, it has capability of raising debt if required for funding. Seeing to its good debt equity, there is a chance for the company to acquire debt for funds required for investment opportunity. Interest coverage ratio is also to be paid on borrowed amount.
Tata Motors LimitedMarket Capitalisation: 78185.92 crores
Tata Motors Ltd is a multinational automotive corporation headquartered in Mumbai, India. The Company continues to be amongst the top three players in the passenger vehicle market which has over 25 players. Tata Motors has products in the compact, midsize car and utility vehicle segments. The company is the world's fourth largest truck manufacturer, the world's second largest bus manufacturer, and employs 24,000 workers.
2006 2007 2008 2009 20100
1
2
3
4
5
6
7
8
9
7.627.19
6.28
2.432.77
Interest Coverage Ratio
2006 2007 2008 2009 20100
10
20
30
40
50
60
39.94
49.6552.63
19.48
39.26
Earnings Per Share
2006 2007 2008 2009 20100
0.2
0.4
0.6
0.8
1
1.2
0.530.59
0.8
1.061.11
Debt Equity Ratio
2006 2007 2008 2009 20100
1
2
3
4
5
6
7
8
9
10
7.827.25
8.16
3.2
8.82
Profit Before Intrest and Tax Margin
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2006 2007 2008 2009 20100.00
2,000.00
4,000.00
6,000.00
8,000.00
10,000.00
12,000.00
14,000.00
16,000.00
18,000.00
2,936.844,009.14
6,280.52
13,165.56
16,625.91
Total Debt - Tata Motors
Analysis
The Company recorded a sale of 633,862 vehicles in 2009-10, a growth of 34% over previous year (472,885 vehicles) in the domestic market in India, representing a 25.5% share in the industry (improving from 24.4% share in the previous year).
The Tata Motors’ Group turnover was Rs.95,567 crores, a growth of 29% over previous year contributed mainly by market recovery, improved realization and successful launch of new products. Consolidated Profit Before Tax was Rs.3,523 crores (Loss of Rs.2,129 crores in 2008-09) and Consolidated Profit for the year was Rs.2,571 crores (Loss of Rs.2,505 crores in 2008-09).
The Profit Before Tax of Rs.2,830 crores and Profit After Tax of Rs.2,240 crores also grew significantly over the previous year by 179.1% and 123.7% respectively.
The borrowings of the Company as on March 31, 2010 stood at Rs.16,625.91 crores (previous year Rs.13,165.56 crores). The key highlights were:- In 2009-10, the Company raised Rs.4,200 crores from the issue of Secured, Rated, Credit Enhanced, Listed, 2% Coupon Non-Convertible Debentures (NCDs) with premium on redemption and Rs.200 crores from the issue of 9.95% Secured NCDs.
Indian Pro-moters
38%
Banks and Fin. Institutes14%
FII's24%
Private Corporate Bodies1%
Govt0%
Others14%
General Public8%
Share Holding Pattern
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In a challenging financial market environment, the Company successfully rolled over in May 2009, the bridge finance it had obtained for acquisition of the Jaguar Land Rover business for a period of 18 months, till December 2010. Subsequently, the Company was able to prepay this loan facility in October 2009 from certain divestments, improved cash generation from operations and also through fund raised, US$ 375 million from the issue of Global Depository Receipts and US$ 375 million from issue of Foreign Currency Convertible Notes.
The Company will further consider suitable steps to de-leverage and hence de-risk the balance sheet from volatility and has also taken and will continue to implement suitable steps for raising long term resources to match the Company’s fund requirement and to optimize its loan maturity profile.
In the Last 5 years the debt equity ratio of Tata Motors is has remained around 0.8 which is near to the industry average of debt to equity. Company has been making huge amount of profits and thus have sufficient surplus and reserves for funding the requirements of the company. Major proportion of the liquidity requirement of the company is met internally with the accumulated reserves and surplus. With a good interest coverage ratio in last 4 years except for the year ended on March 2009, company has been able to raise the debt easily from the market. There has been significant rise in the debt during the year 2008 because of TATA-Jaguar deal.
EPS of the company was around 52 at the end of the year March 2008 when the Debt-to-equity ratio was 0.7. EPS has decreased during the last year because of fall in sales and also the equity capital has increased with the right issue. During last year company has also raised fund through issue of debentures. Company is not in a healthy position to raise debt from the company because currently the interest coverage ratio is less than 2 which means that company has higher proportion of its profit to be distributed as interest.
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Mahindra & Mahindra LimitedMarket Capitalisation: 43195.89 crores
Mahindra & Mahindra Limited is the flagship company of the Mahindra Group, a multinational conglomerate based in Mumbai, India.
Mahindra & Mahindra is a major automobile manufacturer of utility vehicles, passenger cars, pickups, commercial vehicles, and two wheelers. Its tractors are sold on six continents It has acquired plants in China and the United Kingdom, and has three assembly plants in the USA. M&M has partnerships with international companies like Renault SA, France and International Truck and Engine Corporation, USA.
2006 2007 2008 2009 20100
10
20
30
40
50
60
70
80
32.17
67.24
14.649.69
18.9
Interest Coverage Ratio
2006 2007 2008 2009 20100
5
10
15
20
25
30
35
40
45
50
36.72
44.88 46.15
30.69
36.89
Earnings Per Share
2006 2007 2008 2009 20100
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
0.310000000000001
0.46
0.600000000000001
0.770000000000002
0.37
Debt-Equity Ratio
2006 2007 2008 2009 20100
2
4
6
8
10
12
14
16
8.058.97
7.87 7.41
14.04
Profit Before Interest and Tax
14
2006 2007 2008 2009 20100
500
1000
1500
2000
2500
3000
3500
4000
4500
883.39
1,636.00
2,587.06
4,052.76
2,880.15
Total Debt
Analysis
The Automotive Divisions of M&M have clocked one of their best performances reflecting in substantial growth in the net income of the Company by 40.7% to Rs.18,801 crores in the year under review from Rs.13,364 crores in the Financial Year 2009.
The Profit for the year before Depreciation, Interest, Exceptional items and Taxation was Rs.3,154.59 crores as against Rs. 1,362.9 crores in the previous year, an increase of 131.45%. Profit after tax was Rs.2,087.75 crores as against Rs.836.78 crores in the previous year clocking an increase of 149.50%.
The company recommended a dividend of Rs.8.75 per Ordinary (Equity) Share and also a Special Dividend of Rs.0.75 per Ordinary (Equity) Share aggregating Rs.9.50 per Ordinary (Equity) Share of the face value of Rs.5 each.
M&M recorded total sales of 2,36,759 vehicles and 45,360 three-wheelers as compared to 1,61,882 vehicles and 44,806 three-wheelers in the previous year registering a growth of 46.3% and 1.2% in vehicles sales and three-wheeler sales respectively.
Indian Promoters25%
Foreign Promoters3%
Banks and Fin Institues21%
FII's24%
Provate Corporate Bodies8%
Govt.0%
Others10%
General Public9%
Share Holding Pattern
15
Even while financing its ongoing modernisation and growth initiatives, it was ensured that the Company had abundant liquidity. It did not need to tap the capital market and in fact used its strong liquidity at its disposal to repay foreign currency loans aggregating USD 94.5 million without the need for refinancing.
As was reported in the previous year's Director's Report, the Company had, in July, 2008, issued 9.25% p.a. Unsecured Fully and Compulsorily Convertible Debentures (FCD), each FCD having a face value of Rs. 745 and convertible into one Equity Share of Rs. 10 each in the Company at a price of Rs. 745 per Share. In January, 2010, in accordance with the terms of the issue, the FCDs were converted into Equity Shares of the Company and your Company allotted 93,95,974 Ordinary (Equity) Shares of Rs.10 each, adding Rs. 700 crores to its Net Worth.
During the year under review, your Company allotted: 1) 10,00,000 Ordinary (Equity) Shares of Rs.10 each to the Trustees of Mahindra & Mahindra Employees' Stock : Option Trust; and 2) 93,95,974 Ordinary (Equity) Shares of Rs.10 each to Golboot Holdings Limited upon compulsory conversion of 93,95,974 Fully and Compulsorily Convertible ; Debentures.
M&M follows a prudent financial policy and aims to maintain optimum financial gearing at all times. The Company's total Debt to Equity Ratio was 0.37 as at 31st March, 2010.
During the year, CRISIL reaffirmed its rating of AA and revised its rating outlook to AA/ Stable from AA/Negative for M&M's Long Term Facilities under Basel II. During the year, ICRA also reaffirmed its rating of LAA+ for the Company and also revised its rating outlook from LAA+/Negative to LAA+/Stable and CARE has maintained a Long Term Rating of CARE AA+.
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Hero Honda Motors LimitedMarket Capitalisation: 35488.46 crores
Hero Honda Motors Limited is a two wheeler manufacturer based in India. Hero Honda is a joint venture between the Hero Group of India and Honda of Japan. The company is the largest two wheeler manufacturer in India.
2006 2007 2008 2009 20100
2
4
6
8
10
12
14
16
18
14.44
10.6311.57
12.64
16.01
Profit Before Interest and Tax Margin
2006 2007 2008 2009 20100
200
400
600
800
1000
1200
1400
453.39
711.75648.15 664.4
1262.36
Interest Coverage Ratio
2006 2007 2008 2009 20100
20
40
60
80
100
120
48.6442.96
48.47
64.19
111.77
Earnings Per Share
2006 2007 2008 2009 20100
0.01
0.02
0.03
0.04
0.05
0.06
0.07
0.08
0.09
0.1
0.09
0.07
0.04
0.02 0.02
Debt-Equity Ratio
2006 2007 2008 2009 20100
20
40
60
80
100
120
140
160
180
200
185.78165.17
132
78.4966.03
Total Debt
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Analysis
During the year under review, the Company, the world’s largest two-wheeler manufacturer for the past nine years in a row recorded its highest-ever annual revenue, operating income and earnings per share. The Company reported a consolidated turnover (Net sales and other income) of Rs. 16,098.79 crores, a whopping growth of 28.12 percent over the consolidated turnover recorded in the previous financial year, i.e. Rs. 12,565.21 crores. For the year under review, the Company has recorded an EBIDTA margin of 17.45 per cent as compared to 14.13 per cent in the financial year 2008-09.
Indian Pro-moters
26%
Foreign Promoters
26%
Banks and Financial Institutes5%
FII's32%
Private Corporate Bodies2%
Others1%
General Public8%
Share Holding Pattern
Celebrating the strength of its operations and the resulting strong financial position, declared and paid an Interim Silver Jubilee Special Dividend of 4,000% i.e. Rs. 80 per Equity Share of the face value of Rs. 2 each, aggregating to Rs. 1,597.5 crores (exclusive of Tax on Dividend). The dividend, in percentage terms, is the highest pay out by an Indian company till date.
Reaffirming the financial strength of the Company, a sum of Rs. 225 crores has been transferred to the General Reserve of the Company for the financial year 2009-10.
Hero Honda being the leader in two wheeler segment has been doing well as far as the returns to shareholder are considered. Company by far has remained a low debt company. Majority of the funding of the company is done from accumulated reserves and surplus out of the past profits. From the figure in the balance sheet it can be seen that the reserves has increased by more than 10 times in last 10 years.
Because of its increasing sales continuously company has remained least dependent on theexternal financing in past. It has also not raised any equity capital from the market by issue of shares.
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With a current position of low debt and equity company has backed itself with good credibility. It has maintained a strong liquidity position with high interest coverage ratio which in the last year was moving in the range of 700+. This shows that company has good image of itself to raise any debt if required from the market.
Bajaj AutoMarket Capitalisation: 41910.47 crores
Bajaj Auto is a major Indian automobile manufacturer based in Pune, Maharashtra. Over the last decade, the company has successfully changed its image from a scooter manufacturer to a two wheeler manufacturer. Its product range encompasses scooterettes, scooters and motorcycles. Its real growth in numbers has come in the last four years after successful introduction of a few models in the motorcycle segment.
2006 2007 2008 2009 20100.00
500.00
1,000.00
1,500.00
2,000.00
2,500.00
3,000.00
3,500.00
4,000.00
4,500.004280.03
280.28 224.9153.71
421.06
Interest Coverage Ratio
2006 2007 2008 2009 20100
5
10
15
20
25
13.7
11.6510.03
10.88
19.78
Profit Before Interest And Tax Margin
2006 2007 2008 2009 20100
20
40
60
80
100
120
140
108.87
122.35
52.2545.37
117.69
Earnings Per Share
2006 2007 2008 2009 20100
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
0.310000000000001 0.29
0.840000000000001
0.840000000000001
0.46
Debt Equity Ratio
19
2006 2007 2008 2009 20100.00
200.00
400.00
600.00
800.00
1,000.00
1,200.00
1,400.00
1,600.00
1,800.00
1,467.151,625.43
1,334.341,570.00
1,338.58
Total Debt
Analysis
The company focuses on motorcycles in the two-wheeler segment. It operates in segments, such as automotive and investment. Its product portfolio comprise; Scooters, Autorickshaws, Motorcycles and Mopeds. Its subsidiaries include Bajaj Auto international Holdings BV and Pt Bajaj Auto Indonesia. It has sales and service network covering major cities of jawa, Sumatara, Bali and Sulawesi islands.
Bajaj Auto has maintained healthy internal accrual for funding he requirement of the company. With the increase in the profits of the company there has been steady rise in the reserves and surplus of the company.
Indian Pro-moters
51%
Banks and Fin. Institutes3%
FII's19%
Private Corporate Bodies9%
Others1%
General Public17%
Share Holding Pattern
Though profits of the company have been rising, it has also raised debt from the market regularly. Company has raised debt but has maintained a healthy position as far as the debt – equity of the company is considered. During 2007 debt to equity was around 0.29.
With the rise in sales and also rise in the profits it has been able to deliver good returns to its shareholder. EPS has steadily risen to 115 in the year 2007. Company’s profit has raised as compared
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to its other competitors in the two wheeler segment because of the sale of high profit margin three wheeler.
Total foreign exchange earned by the company during the year under review was Rs.32,690 million, compared to Rs. 26,819 million during the previous year.
With its strong financial base company has very good credit rating. In the last year thoughcompany’s sales has reduced but it is still the second largest player in the two wheelersegment.
CRISIL has given a stable rating to the company as far as long term and short term debt are considered. This makes company enable to raise any further debt from the market. Another indicator of this is the high interest coverage ratio of the company.
Current debt of Baja Auto comprises of loans from bank against the hypothecation of assets,raw materials, finished goods and cash credit.
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Conclusion
Comparing the overall performance of the 5 companies selected, it is Hero Honda which had displayed a steady and constant performance over the past 5 yeras. The EPS for Hero Honda shares stood at Rs. 111.77 at year end 2010. The EPS has been on a gradual rise till year end 2009 and has seen a swift rise in 2010. No drastic or sudden falls have been clocked.
Profit of the company is rising along with EPS. Reduction in debt over the run has also helped the company to maintain its goo debt to equity ratio.
Hero Honda’s interest coverage ratio has been at an impressive 1262.36 at year end 2010 with Bajaj auto being the next closest at 421.06 followed by Maruti Suzuki at 105.39 in the third place. However s far as the PBT are concerned Hero Honda is only second to Bajaj Auto which has a 19.78 cr. compared to its 16.01 cr.
The companies in the sector which we have compared are in different segment. Within the two wheeler segment Hero Honda has the best capital structure. In the commercial vehicle segment TATA Motors has adequate ratio of debt to equity giving maximum returns to its shareholders. Seeing to its current capital structure it also has capacity to raise further capital if required for funding.
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