financial analysis of ashok leyland

Financial Analysis On Ashok Leyland

A

PROJECT REPORT

ON

“FINANCIAL ANALYSIS”

Training undertaken at ASHOK LEYLAND PVT. LTD.

Submitted in the partial fulfillment of the award of the degree of Bachelor of Business Administration

LORDS INTERNATIONAL COLLEGE(SESSION 2012-2013)

Submitted To: - Submitted By:-

Dr. Meenakshi Bindal Ashar Hashmi(HOD) BBA BBA PART 3RD

Enroll. No. Roll No.

1


PREFACE

This project report has been prepared as per the requirement of the syllabus of BBA course structure under which the students are the required to undertake industrial internship. I undertook my training at Ashok Leyland Pvt. Ltd. at its manufacture unit at Alwar.

My job during the training was to get an overview of the TRAINING KNOWLEDGE in FINANCIAL ANALYSIS of ASHOK LEYLAND PVT. LTD. . . . It was a firsthand experience for me as it was the first time that I was exposed to the professional set-up and was learning the FINANCE, which was really a great experience.

In addition technological changes were witnessing power shift from old hectic and weird ways of doing business. These technological developments have brought revolutionary changes in the market and also in the mindset of the people which might be positive and encouraging for a section of society and adverse for the others.

2


ACKNOWLEDGEMENT

No work can be accomplished alone in this world. My project was no exception. It has been possible only through the guidance & help from many people around me. I have been fortunate to get constant guidance & encouragement from many, which helped me a lot to be successful in my efforts. This formal acknowledgement will hardly be sufficient to express my sincere thanks to all those for their help and guidance.

I am highly obliged to the Management of ASHOK LEYLAND LTD. for allowing me to undergo training in an esteemed organization like this.

I would like to express my gratitude & heartiest thanks to Mr. Mahendra K Harit (Finance Manager) for providing me the golden opportunity to undertake the project in this organization.

I also take the opportunity to acknowledge the consent support and encouragement of Dr. Meenakshi Bindal (HOD BBA DEPTT.). Their pinpoint guidance, help & active co-operation has sub stained the efforts that has lead to the successful completion of this on job training.

Finally I would like to thank my parents and friends for their moral support without which it would have been difficult to pursue my course & successfully complete my project work

3


Executive summary

R J Shahaney, Chairman

Board of Directors

R J Shahaney, Chairman D G Hinduja, Vice Chairman (Alternate:Y M Kale) D J Balaji Rao A K Das (Alternate: P Banerjee) P N Ghatalia S R Krishnaswamy S Raha F Sahami S Shroff A Spare R Seshasayee, Managing Director

Chief Operating Officer

V K Dasari

Chief Financial Officer

K Sridharan

Executive Directors

J N Amrolia S Balasubramanian

N Basavanahalli A Bhat A R Chandrasekharan A K Jain

R Malhan N Mohanakrishnan

S Nagarajan M Natraj B M Udayashankar

Executive Director and Company Secretary

N Sundararajan

AuditorsM S Krishanaswami & Rajan Haskins &Sells

4

Financial Analysis On Ashok LeylandCover Page

Certificate

Preface

Acknowledgement

Executive Summary

Table Of Content

Serial No.

Topic Page No.

1

2

3

Company Profile

a) History of company

b) Executive Summary

c) Dimensions of growth

d) Technology Development

e) Ashok Leyland at Alwar

f) Awards and Certificates

Company Profile

a) Policies of the company

b) Mission Gemba

c) 5-S Housing project

d) Products of company

e) Corporate Philosophy, Governance, social responsibility

Financial Analysis

a) Meaning of financial analysis

b) Aspect to be assessed in financial analysis

c) Methods Of Financial Analysis

d) Theoretical challenges faced by Financial ratios

5


4

5

6

7

8

10

Objective of the project report

Research methodology

a) Research area

b) Research design

c) Data collection

d) Sampling

S.W.O.T Analysisa) Strength b) Weakness c) Opportunity d) Threat

Project analysis

a) Ratio analysis

b) Cost analysis

c) Variance cost analysis

d) Inventory analysis

e) Production and sales analysis

f) Environmental safety analysis

Facts and Findings

a) Findings

b) Limitations

c) Conclusions

d) Suggestions

Bibliography

6


Chapter -1 The Company Profile

1 .1 Company History: The origin of Ashok Leyland can be traced to the urge for self-

reliance, felt by independent India. Pandit Jawaharlal Nehru, India's

first Prime Minister persuaded Mr. Raghunandan Saran, an

industrialist, to enter automotive manufacture. In 1948, Ashok Motors

was set up in what was then Madras, for the assembly of Austin Cars.

The Company's destiny and name changed soon with equity

participation by British Leyland and Ashok Leyland commenced

manufacture of commercial vehicles in 1955.

Equity participation by British Leyland and Ashok

Leyland commenced manufacture of commercial vehicles in 1955.

Early products included the Leyland Comet bus chassis, which sold in

large numbers to many operators, including Hyderabad Road

Transport, Ahmedabad Municipality, Travancore State Transport,

Bombay State Transport and Delhi Road Transport Authority. By

1963 the Comet was operated by every State Transport undertaking

in India, and over 8,000 were in service. The Comet was soon joined

in production by a version of the Leyland Tiger.

In 1968 production of the Leyland Titan ceased in Britain, but was

restarted by Ashok Leyland in India. The Titan PD3 chassis was

modified, and a five speed heavy duty constant-mesh gearbox

7

http://en.wikipedia.org/wiki/Leyland_Titan

http://en.wikipedia.org/w/index.php?title=Leyland_Tiger_(front-engined)&action=edit&redlink=1

http://en.wikipedia.org/wiki/British_Leyland

Financial Analysis On Ashok Leylandutilized, together with the Ashok Leyland version of the O.680 engine.

The Ashok Leyland Titan was very successful, and continued in

production for many years.

Ashok Leyland vehicles have built a reputation for reliability and

ruggedness. The 500,000 vehicles being put on the roads have

considerably eased the additional pressure placed on road

transportation in independent India.

In the populous Indian metros, four out of the five State Transport

Undertaking (STU) buses come from Ashok Leyland. Some of them

like the double-decker and vestibule buses are unique models from

Ashok Leyland, tailor-made for high-density routes.

In 1987, the overseas holding by Land Rover Leyland International

Holdings Limited (LRLIH) was taken over by a joint venture between

the Hinduja Group, the Non-Resident Indian transnational group and

IVECO Fiat SpA, part of the Fiat Group and Europe's leading truck

manufacturer.

In the journey towards global standards of quality, Ashok Leyland

reached a major milestone in 1993 when it became the first in India's

automobile history to win the ISO 9002 certification. The more

comprehensive ISO 9001 certification came in 1994, QS 9000 in

1998 and ISO 14001 certification for all vehicle manufacturing units in

2002. In 2006. Ashok Leyland became the first auto company in India

to receive the TS16949 Corporate Certification.

Ashok Leyland is a technology leader in the commercial vehicles

sector of India. Its annual turnover exceeds USD 1 billion. Selling

8

http://en.wikipedia.org/wiki/USD

http://en.wikipedia.org/wiki/India

http://en.wikipedia.org/wiki/Fiat

http://en.wikipedia.org/wiki/IVECO

Financial Analysis On Ashok Leylandclose to around 83,000 medium and heavy vehicles each year, Ashok

Leyland is India's largest exporter of medium and heavy duty trucks

out of India.

It is also one of the largest Private Sector Employers in India - with

about 12,000 employees working in 6 factories and offices spread

over the length and breadth of India.

The company recently acquired Czech-based Avia's Truck Business

Unit, since renamed Avia Ashok Leyland Motors s.r.o. This gives

Ashok Leyland a foothold in the highly competitive European Truck

market.

The Hinduja Group also recently bought out IVECO's indirect stake in

Ashok Leyland for an undisclosed amount. Thus Ashok Leyland is

now purely a Hinduja Group Company.

Ashok Leyland is currently headed by Mr R. Seshasayee. Under his

leadership, the company has expanded from a purely India-centric

company to a company with global focus.

Mr. Seshasayee was also the President of CII (Confederation of

Indian Industry), the apex body representing Indian Industry for

Since then Ashok Leyland has been a major presence in India's

commercial vehicle industry with a tradition of technological

leadership, achieved through tie-ups with international technology

leaders and through vigorous in-house R&D.

9

http://en.wikipedia.org/wiki/CII

http://en.wikipedia.org/w/index.php?title=R._Seshasayee&action=edit&redlink=1

Financial Analysis On Ashok LeylandAccess to international technology enabled the Company to set a

tradition to be first with technology. Be it full air brakes, power

steering or rear engine busses, Ashok Leyland pioneered all these

concepts. Responding to the operating conditions and practices in the

country, the Company made its vehicles strong, over-engineering

them with extra metallic muscles. "Designing durable products that

make economic sense to the consumer, using appropriate

technology", became the design philosophy of the Company, which in

turn has moulded consumer attitudes and the brand personality.

Ashok Leyland vehicles have built a reputation for reliability and

ruggedness. The 5,00,000 vehicles they have put on the roads have

considerably eased the additional pressure placed on road

transportation in independent India.

In the populous Indian metros, four out of the five State Transport

Undertaking (STU) buses come from Ashok Leyland.. Some of them

like the double-decker and vestibule buses are unique models from

Ashok Leyland, tailor-made for high-density routes.

In 1987, the overseas holding by Land Rover Leyland International

Holdings Limited (LRLIH) was taken over by a joint venture between

the Hinduja Group, the Non-Resident Indian transnational group and

IVECO. (Since July 2006, the Hinduja Group is 100% holder of

LRLIH).

The blueprint prepared for the future reflected the global ambitions of

the company, captured in four words: Global Standards, Global

Markets. This was at a time when liberalisation and globalisation

10

Financial Analysis On Ashok Leylandwere not yet in the air. Ashok Leyland embarked on a major product

and process upgradation to match world-class standards of

technology.

1.2 Three Dimensions Of Growth

CAPACITY EXPANSION :-

From under 30,000 vehicles in 2001-02, to over 83,000 vehicles in

2006-07, Ashok Leyland's operations have gained in size, supported

by phased capacity expansion. One significant feature of this

expansion phase has been that capacities have been added with

incremental investments coupled with de-bottle necking and

improved productivity and efficiencies.

Looking beyond the current slowdown and confident of growing with

the industry , the company is on course to enhance production capacity from

the present 84,000 vehicles : 50,000 vehicle \ capacity will be created in

existing units this fiscal , with another 50,000 by

11

1. CAPACITY EXPANSION 2. GLOBALIZATION

3. DIVERSIFICATION

Financial Analysis On Ashok Leyland2010 at the green field Uttarakhand facility.

This expansion programme has been drawn up in line with the

company's vision to consolidate presence in the domestic market.

It also reflects the vision of the Hinduja Group for the Company – and

the Group's total, unstinted support to actualize it.

GLOBALIZATION :-

Globalization breaks the traditional barriers of national boundaries and

allows the most competitive value addition , thus rewarding and

enhancing efficiencies . The first major step in that direction was the

acquisition of the Truck Business Unit of AVIA , since renamed AVIA

Ashok Leyland Motors (AALM). At the Ras Ai Khaimah bus assembly

Unit , activities are scheduled to commence by the current financial

year.

The strengths of the Company in terms of its close and longstanding

business relationship with India's auto component sector have been

channelized into the Component Business Group, for sourcing out of

India, to Europe, the Middle East and the North American after market

sector.

Even as we pursue global markets , the Company has been

Benefiting through global sourcing . To gain from the significant cost

Benefits in sourcing components and materials from China, an office

has been set up in Shanghai.

DIVERSIFICATION :-

12


Ashok Leyland and its associate companies and businesses, collectively,

Are seeking to broaden the scope of operations in their traditional

Domains , increasingly occupying adjacent domains. The high potential

of the automotive sector and opportunities from globalization converge

to offer tremendous opportunities as never before.

1.3 Technology development

Nissan Ashok Leyland Technologies Pvt. Ltd., the technology development :

The company has recently announced a joint venture with Japanese auto giant Nissan (Renault Nissan Group) which will share a common manufacturing facility in Chennai, India. The shareholding structures of the three joint ventures are as under:

Ashok Leyland Nissan Vehicles Pvt. Ltd., the vehicle manufacturing company will be owned 51% by Ashok Leyland and 49% by Nissan

Nissan Ashok Leyland Powertrain Pvt. Ltd., the powertrain manufacturing company will be owned 51% by Nissan and 49% by Ashok Leyland

Nissan Ashok Leyland Technologies Pvt. Ltd., the technology development company will be owned 50:50 by the two partners.

R&D

World-class Technology

To offer world-class technology that is relevant and affordable to the

Indian customer is the philosophy that drives R&D at Ashok Leyland.

Over the years, this philosophy has been translated time and again

into products that seamlessly integrate international technology with

13

http://en.wikipedia.org/wiki/Renault_Nissan_Group

Financial Analysis On Ashok Leylandlocal needs. "The role of R&D is central in fulfilling the company-wide

commitment to total customer satisfaction" states Mr. R. Seshasayee,

Managing Director, and adds that the increased infrastructural and

financial support expresses the company's determination to become

self-reliant in R&D.

Value to the Customer

The immediate R&D priorities are to pro-actively address safety and

environmental issues, harness and adopt technologies that provide

value to the customer in an atmosphere enabling creativity and

innovation. Powering those who "engineer tomorrows" with an

enabling infrastructure has been top priority for the company.

Test Tracks

But their R&D is not confined within walls. It extends to the test tracks

as well. Rigorous tests are carried out under stringent simulated

conditions that replicate the most treacherous landscapes.

Vehicle ruggedness and longevity are a prime customer concern, as

they directly impact earnings. Ever conscious of this, Ashok Leyland

makes extensive use of a modern CAD set-up, a comprehensive test

track facility (where cobble-stones are calibrated and reset

periodically), accelerated fatigue testing rigs and rigorous durability

testing facilities. Together they ensure that there is a constant

improvement in the life and on-road performance of every make of

Ashok Leyland vehicle to hit the roads. Safety, durability, through

their R&D efforts.

14


InnovationsAshok Leyland product development successes have come from a keen sense of

anticipation and attentiveness. The company initiated research into alternative

fuels well before legislative debate had even begun in the country. The result

was the implementation of CNG technology ahead of the rest promising a breath

of fresh air for polluted cities

1.4 ASHOK LEYLAND ALWAR

Alwar is a strategic town in Rajasthan midway between Delhi and

Jaipur is located with national capital region. As a part of expansion

programme alwar unit was added to the family of ASHOK LEYLAND

& started its operation in 1982 & has completed its 25 years

successfully. It is basically an assembly plant where the chassis is

assembled.

Ashok Leyland, Alwar is world’s largest CNG Vehicle producing

plant; CNG is used as an alternate fuel to diesel and is very less

polluting. The pollution of CNG vehicle is less than ever Euro-4

vehicle which is known for its lesser pollution vehicle.

The total covered area of Alwar plant is 352 acres and the fencing

is done in around 161 acres of area. The plant comprises of 8 shops

called shop-1, shop-2 & shop-5. the plant has three gates one is main

gate, one for entering the goods carrier, third for the products going

out of the plant for sale.

There is an administrative office one P & A department block, a

medical centre, a canteen, a newspaper reading room library, a

15

Financial Analysis On Ashok Leylandtraining centre & system department, regional sale office yard &

construction is going on for new stores.

1.5 Certification and Awards obtained

ISO 9002: 1987 1993 Ennore & Hosur unit -1

ISO 9001: 1994 1994 Ennore, Hosur unit- 1 & 2, Bhandara, Alwar & Corporate function

QS 9000: 1998 1998 Ennore, Hosur unit- 1& 2/CPPS, Bhandara, Alwar & Corporate function

ISO 9001: 2000 2003 Ennore, Hosur unit- 1& 2, Bhandara, Alwar & Corporate function

ISO 14001: 1996 2001 Ennore

ISO 14001: 1996 2002 Ennore , Hosur unit-1 & 2 & CPPS

ISO 14001: 1996 2003 Ennore , Hosur unit -1 & 2 & CPPS , Alwar & Bhandara

16

Financial Analysis On Ashok LeylandBS 7799-2: 2002 2005 Information security

management system for Ennore data center

ISO/ TS- 16949-2002 2006 Ennore, Hosur unit-1 & 2/ CPPS, Bhandara, Alwar & Corporate function

Chapter-2 Company Profile (contain)

2.1 Policies Of The Company

Quality policy

Ashok Leyland is committed to achieve customer satisfaction by

anticipating and delivering superior value to the customer in relation

to their own business through the products and services offered by

the company and to comply with statutory requirement. Towards this

the quality policy of Ashok Leyland is to make continuous

improvements in the processes that constitute the quality

management system to make them more robust ant to enhance their

effectiveness and efficiency in achieving stated objective leading to:-

Superior products manufactured by the company as also

services offered by the company.

Maximum use of employee’s potential to contribute to quality

and environment, by progressive up gradation of their

knowledge and skills as appropriate to their functions.

17

Financial Analysis On Ashok Leyland Seamless involvement from vendors and dealers in the

mission of the company to address customer changing

needs and protection of the environment.

It is mandatory on the part of every employee of Ashok

Leyland to understand, implement and maintain the quality

policy of the company and to implement the procedures

incorporated in this manual and other associated quality

system documents issued by the manufacturing units and

corporate functional divisions on the basis of guidelines in

this manual.

Environmental policy

Any type of activity that is performed or any type of product that is

manufactured had an effect on the surrounding or environment.

At Ashok Leyland are committed to preserving the environmental

through a comprehensive environmental policy and productive

approach in planning and executing our manufacturing and service

activities.

We are concerned about the earth our children will inherit that’s why

we make sure our vehicles consume less fuel and pollute less. This

concern is reflected in the manufacturing systems, the various

processes energy conservation measure and conscious greening

indicate of the company.

A system is employed to control or minimize the adverse impact

on the environment is environmental management system (EMS).

Objective of Ashok Leyland Environmental policy are:-

18

Financial Analysis On Ashok Leyland To adhere to all applicable environment legislation and

regulations

To adopt pollution preventive techniques in design and

manufacturing of our products.

To conserve all such resources such as power, water, oil, gas,

compressed air etc. & optimizes their usage through scientific

methods.

To provide a clean working environment to our employees,

contractors and neighbors.

Commit to comply with all relevant legal and other

requirements.

Continuously strive to minimize waste generation by all possible

ways and to reuse and recycle the same through a time bound

action plan

Things done to protect the environment and achieve the goal of

the policy:-

Conserving natural resources like wood , coal , petroleum

products

Avoiding wastage water at plant area

Switching off the idle engine, motors, pump & lights

Avoiding spilling oil , grease, paints on the floor

Do not through oil into drain

By planting many trees inside the company area

Recently planting plants on 5 June 2008(world environment

day)

Safety and Health Policy

19


Intension & commitment of the top management

Ashok Leyland affirms that all its employees irrespective of the rank

need to be safe guarded against any person injuries or damage to the

properties during working period. That the management recognises

the principle that accident prevention contributes in the long run

progress and development of the organisation.

Ashok Leyland is committed to:- Implementing all practical safety measures like safe working

and environmental condition.

Carrying out a systematic critical appraisal of all potential

hazards involving personal, plant services and operating

methods.

Following strictly safety rules and regulations incorporated in

the factories act and rules.

Maintaining safe and healthy working environment at all

working places conductive to the success of the management

safety programs in the long run.

Implementing safe and health education programmes for

employee with specific emphasis on creating safety and health

awareness.

Welcoming useful and constructive suggestions and ideas in

regard to safety and health.

VISION

20

Financial Analysis On Ashok LeylandThe vision of Ashok Leyland is to be among the top Indian

corporation acknowledged nationally and internationally for:-

Excellence in quality of its product

Excellence in customer focus and service.

MISSION

Be a leader in the business of commercial vehicles excelling in

technology quality value to customer fully supported by customer

service of the highest order & meeting nationally and international

environment and safety standards.

EMPLOYEES

We consider our employees as our most valuable assets and are

committed to provide full encouragement and support to them to

enhance their potential and contribution to the company businesses.

2.2 MISSION GEMBA

ENHANCING EMPLOYEES FOR WORLD CLASS GLOBALISED

PERFORMANCE VISION:-

Achieving leadership in the domestic commercial vehicle markets and

a significant presence in the world markets and a significant presence

in the world market by 2014 through transport solutions by enhancing

the employ for their excellent work to promote them to do their best

for the goal of organization.

21

Financial Analysis On Ashok LeylandIt’s a playful part of the company. It is totally based on the potential of

the employee how can they do more, higher productivity can be

generated and how efficiently their jobs do. If any employee renders

his service for a new invention or a way by which the production,

quality standards or any other standards can grow rapidly. Then the

employee is awarded by senior officers or respective head of mission

gemba.

The main emphasis is on the increase of the potential of the

employee. Motivate them through learning’s; self respect, honesty,

hard work, etc... Have to become the essential part of an employee

working in the organization

It creates a positive psychological effect in the mind of employee. If

he perform just different job, respective with a aspect of development

of the company, he is being awarded and the same employee works

with a difference in the company with more advantageous style.

It gives a friendly and competitive environment which helps employee

and the organization to achieve their ambitions.

GEMBA is a Japanese word which means “SHOP FLOOR’’. It

provides quality assurance, fastest delivery and least cost to

customers by

Offering appropriate products and services.

Adopting lean manufacturing systems & practices through

employee empowerment and participation.

Bench marking products, process and people against best in

the industry

In processing of this plan everyday all permanent workers, engineers,

managers amount up on the GEMBA floor and discuss their problems

and solutions with each other.

22

Financial Analysis On Ashok LeylandEvery day for their improvement suggestion every guy is awarded

marks according to the performance and after a period the highest

scorer is awarded the GEMBA mission award.

2.3 5-S HOUSE KEEPING

• SORT (SEIRI) - Get rid of clutter

• SET IN ORDER (SEITON )- Organize the work area (Arrange

necessary items in good order so that they can be easily picked

for use.)A place for everything & everything in its place.

• SHINE (SEISO )- Clean the work area

• STANDARDIZE (SEIKETSU) - Use standard methods to keep

Sort, Set In Order, and Shine to a condition .(Maintain high

standards of housekeeping and workplace organization at all

times.)

• SUSTAIN (SHITSUKE )- Maintain through empowerment,

commitment, and discipline.(Train people to always follow good

housekeeping disciplines.)

2.4 Products

1. Bus

2. Trucks

3. Engines

4. Defence & special vehicles

23


Bus:

I –bus

Viking BS I -city bus

Viking BS II -city bus

Viking BS III -city bus

Cheetah BS-I

Cheetah BS-II

Panther

12 M

Stag Mini

Stag CNG

222 CNG

Lynx

Double Decker

Vestibule

Airport Tarmac Coach

Olympian

Engines:

1. Engines ranging from 15KVA to 250KVA

2. Engines with power rating from 40PS to 200PS.

3. Engines with power rating from 58PS to 193PS

4. Diesel and Natural Gas gensets trom 15KVA - 250KVA

LUXSMALL_ BUS

24


LIGHT 4*4 HIPTHUMB

Trucks:

1. 4X2 Haulage Model

2. 4X2 & Multi Axle tippers

3. Multi Axle Vehicles

4. Tractors

5. Ecomet.

Defence & Special Vehicles: Largest provider of logistic

vehicles to the Indian army.

Achievements

Eight out of ten metro state transport buses in India are from Ashok Leyland. At60 million passengers a day, Ashok Leyland buses carry more people than the entire Indian rail network.

Ashok Leyland has a near 98.5% market share in the Marine Diesel Engines Markets in India.

In 2002, all the vehicle-manufacturing units of Ashok Leyland were ISO 14001 certified with Environmental Management System.

25

http://en.wikipedia.org/wiki/ISO_14001

http://en.wikipedia.org/wiki/2002

Financial Analysis On Ashok Leyland The company has six manufacturing locations in India:

o Ennore , Chennai o Hosur , Tamilnadu (3 plants) o Alwar , Rajasthan o Bhandara , Maharastra

The total covered space at these six plants exceeds 450,000 sq m and together employs over 11,500 personnel.

Last Financial year (2006-2007) the company sold a record 83,101 vehicles which is an all time high considering the past sales history of Ashok Leyland.

It is one of the leading Brands in India and most easily recognizable one.

The company is setting up a new Plant in the North Indian state of Uttarakhand at Pant Nagar at an investment outlay of Rs. 1200 crores. This plant is expected to go on stream in the year 2008. The Plant will have a capacity to produce around 40,000 commercial vehicles and is expected to cater mainly to the North Indian market taking advantage of the excise duty and other tax concessions.

The company has signed an agreement with Ras Al Khaimah Investment Authority (RAKIA) in UAE for setting up a new manufacturing base in the Middle East.

The company also announced that it may set up a manufacturing base in South Africa.

2.5 Corporate philosophy, governance,

social responsibility

Corporate philosophy

They believe that their impressive strides in the marketplace stem in

equal parts from their proactive approach and their customers'

26

http://en.wikipedia.org/wiki/Maharastra

http://en.wikipedia.org/wiki/Bhandara

http://en.wikipedia.org/wiki/Rajasthan

http://en.wikipedia.org/wiki/Alwar

http://en.wikipedia.org/wiki/Tamilnadu

http://en.wikipedia.org/wiki/Hosur

http://en.wikipedia.org/wiki/Chennai

http://en.wikipedia.org/wiki/Ennore

Financial Analysis On Ashok Leylandunstinting support, earned the only way they know: by giving their

customers the most appropriate transport solutions for each of their

applications, and by backing them up with consultancy, finance,

driver training and a responsive after-market network. They are

conscious of the fact that vehicles are more than just a means of

transporting people and goods; they understand that they have a

deep and far-reaching impact on society, the national economy and

the environment.

They have, therefore, always endeavoured to engineer products and

systems that promote progress on all these fronts. They firmly believe

that this honest approach will make the Ashok Leyland marquee the

symbol of the very best in transportation, today and tomorrow.

The five AL values are:

International

Speedy

Value creator

Innovative

Ethical

Corporate Governance :

The Board of Directors and the Management of Ashok Leyland are committed to the enhancement of shareholder value.

through sound business decisions, prudent financial management and high standards of ethics throughout the organization

27

Financial Analysis On Ashok Leyland by ensuring transparency and professionalism in all decisions

and transactions and achieving excellence in Corporate Governance by conforming

to, and exceeding wherever possible, the prevalent mandatory guidelines on Corporate Governance and by regularly reviewing the Board processes and the Management systems for further improvement

The company has adopted a Code of Conduct for the members of the Board and senior management, who have all affirmed in writing their adherence to this Code.

Ombudsman

Another significant step has been the appointment of an Ombudsman to deal with any references, complaints or grievances about the Company, its employees or its dealings.

If the suppliers, employees or customers have any suggestions on governance issues or grievances or complaints on Ashok Leyland's practices - inclusive of its executives in various functions - which they feel ought to be raised with the Ombudsman and not with the usual channels of business, they may do so.

It is advised that the regular business dealings should be through the usual business functional channels. The Ombudsman will not deal with them under normal circumstances.

The Ombudsman is Mr.T. AnanthaNarayanan, a former Executive Director of the Company, with an excellent understanding of Ashok Leyland as an organization and its functioning, having been with the company for nearly 30 years.

Corporate social responsibility

Ashok Leyland believes in providing every employee an opportunity

to stretch beyond the call of routine work and to realise the spirit of its

corporate mantra: “They can because they care.” Employees are

given an opportunity to volunteer for any one of its social initiatives.

28

Financial Analysis On Ashok LeylandTheir volunteers believe that amazing things can happen when

people come together for a cause. They drive their outreach

programmes and most of their CSR initiatives. As part of their CSR

efforts, the Company also initiated “payroll contribution to a worthy

cause” to help the marginalised and the vulnerable. Under this

programme an employee contributes an amount of his/her salary to

one of the five social organisations identified by the Company.

Their partners

In all their CSR efforts, they also partner with government agencies,

local communities, NGOs and academic institutions to enhance their

strengths and help us leverage their expertise, reach and resources.

Community outreach

The Company is involved in the construction and renovation of

community halls, government/private schools, drilling public

bore wells, erecting bus shelters and putting up streetlights

around its manufacturing units. These development initiatives

are undertaken by a Community Development Scheme

supported and managed by representatives from the

Management and the Union.

Their manufacturing units have conducted over hundred

medical, blood donation and HIV awareness camps to benefit

people residing in the neighbouring areas.

Career guidance for high school students, skill development for

unemployed youth and vocational training for women of self

29

Financial Analysis On Ashok Leylandhelp groups around their manufacturing units have been

organised with the help of specialists in the respective fields..

Ashok Leyland imparts computer training to economically

deprived students in Hosur at the Company’s Management

Development Centre. The selected students are put through a

carefully designed 4-module session and certified on successful

completion of the course. A batch of 25 students is selected

every month and the programme aims to cover 300 students

every year.

Ashok Leyland operates ‘Fun Bus’ - offering a day’s free outing

for the economically and socially deprived children including

children who are differently-abled, children from orphanages,

corporation primary schools and other underprivileged groups

based in Chennai.

The Company helps the spouses of employees who show

interest in forming self-help groups. It trains them in microcredit

and a carefully selected micro-enterprise that can leverage the

needs of the local markets.

30


Chapter -3

Financial analysis

3.1 Meaning of financial analysis3.2 Aspect to be assessed in

financial analysis3.3 Methods Of Financial Analysis3.4 Theoretical challenges faced by

financial ratios

31


3.1 Meaning of Financial analysis :

It refers to an assessment of the viability, stability and profitability of a

business, sub-business or project. It is performed by professionals

who prepare reports using ratios that make use of information taken

from financial statements and other reports. These reports are usually

presented to top management as one of their bases in making

business decisions. Based on these reports, management may:

Continue or discontinue its main operation or part of its

business;

Make or purchase certain materials in the manufacture of its

product;

Acquire or rent/lease certain machineries and equipments in

the production of its goods;

Issue stocks or negotiate for a bank loan to increase its working

capital.

Make decisions regarding investing or lending capital

other decisions that allow management to make an informed

selection on various alternatives in the conduct of its business.

32

http://en.wikipedia.org/wiki/Working_capital

http://en.wikipedia.org/wiki/Working_capital

http://en.wikipedia.org/wiki/Loan

http://en.wikipedia.org/wiki/Stocks

http://en.wikipedia.org/wiki/Financial_statements

http://en.wikipedia.org/wiki/Project

http://en.wikipedia.org/wiki/Business


3.2 Aspect to be assesed in financial

analysis

1. Profitability-

Its ability to earn income and sustain growth in both short-term and

long-term. A company's degree of profitability is usually based on the

income statement, which reports on the company's results of

operations;

2. Solvency -

Its ability to pay its obligation to creditors and other third parties in

the long-term;

3. Liquidity -

Its ability to maintain positive cash flow, while satisfying immediate

obligations;.

4. Stability -

The firm's ability to remain in business in the long run, without having

to sustain significant losses in the conduct of its business. Assessing

a company's stability requires the use of both the income statement

and the balance sheet, as well as other financial and non-financial

indicators.

33

http://en.wikipedia.org/wiki/Cash_flow

http://en.wikipedia.org/wiki/Income_statement


3.3 Methods Of Financial Analysis

Financial analysts often compare financial ratios (of solvency,

profitability, growth...):

Past Performance : Across historical time periods for the same

firm (the last 5 years for example),

Future Performance : Using historical figures and certain

mathematical and statistical techniques, including present and

future values, This extrapolation method is the main source of

errors in financial analysis as past statistics can be poor

predictors of future prospects.

Comparative Performance : Comparison between similar

firms.

3.4 Theoretical challenges faced by Financial

ratios:

They say little about the firm's prospects in an absolute sense.

Their insights about relative performance require a reference

point from other time periods or similar firms.

One ratio holds little meaning. As indicators, ratios can be

logically interpreted in at least two ways. One can partially

overcome this problem by combining several related ratios to

paint a more comprehensive picture of the firm's performance.

34

http://en.wikipedia.org/wiki/Profitability

http://en.wikipedia.org/wiki/Solvency

http://en.wikipedia.org/wiki/Financial_ratios

Financial Analysis On Ashok Leyland Seasonal factors may prevent year-end values from being

representative. A ratio's values may be distorted as account

balances change from the beginning to the end of an

accounting period. Use average values for such accounts

whenever possible.

Financial ratios are no more objective than the accounting

methods employed. Changes in accounting policies or choices

can yield drastically different ratio values.

They fail to account for exogenous factors like investor behavior

that are not based upon economic fundamentals of the firm or

the general economy (fundamental analysis) [1].

35

http://en.wikipedia.org/wiki/Financial_analysis#cite_note-0%23cite_note-0

http://en.wikipedia.org/wiki/Fundamental_analysis


Chapter -4

Objective of project report

Objectives of my study are:

36


1. To know about Ashok Leyland and its product range.

2. To do the financial analysis of Ashok Leyland.

3. To do the cost analysis of Ashok Leyland

4. To do production and sales analysis of Ashok Leyland.

5. To know about the Corporate Governance and social

responsibility.

6. To know about the practices followed by Ashok Leyland in

respect to environment and safety.

37


Chapter -5

Research Methodology

5.1 Research area5.2 Research design5.3 Type of Research5.4 Data collection5.5 Sampling

Research Methodology

38

Financial Analysis On Ashok LeylandResearch Methodology is a way to systematically solve the research

problem. It may be understood as a science of studying how research

is done scientifically. When we talk of research methodology we not

only talk of research methods but also consider the logic behind the

methods we use in the context of the research study and why we are

not using other methods so that research results are capable of being

evaluated either by the researcher himself or by others.

5.1 Research Area :

Research area of my study is ASHOK LEYLAND LTD. More

specifically my research area is to do financial analysis of this

company. It includes sales, production, cost, profit, liquidity and

solvency analysis of this company. To study its Corporate Social

Responsibility and its concern towards environment and safety also

formed a part of my research area.

5.2 Research Design :

Research design is an arrangement of conditions for collection and

analysis of data in a manner that aims to combine relevance to the

purpose with economy in procedure. In fact, the research design is

the conceptual structure within which research is conducted; it

constitutes the blueprint for the collection, measurement and analysis

of data. Once the research project is identified and defined clearly the

next stage is to design the research. The research design provides a

complete guideline for analysis the data. Decision regarding what,

where, when, how much, by what means concerning an inquiry or a

research study constitute a research design.

39

Financial Analysis On Ashok LeylandReseartch design is needed because the smooth sailing of the

various research operations thereby making research as efficient as

possible yielding maximal information with minimal expenditure of

efforts, time and money.

5.3 Types of research :-

There are several types of researches, but very few are popular .

Those among the popular are :-

Descriptive research

Experimental research

Exploratory research

My research is to be conducted mainly on exploratory study only. In

exploratory research, the focus is on the discovery of ideas. An

exploratory study is generally based on the secondary data that are

readily available. Exploratory research has the goal of formulating

problems more precisely, clarifying concepts, gathering

explanations,gaining insights and eliminating impractical ideas.

It does not have a formal and rigid design as the researcher may

have to change his focus or direction, depending on the availability of

news ideas and relationships among variables.

5.4 Data Collection :

40

Financial Analysis On Ashok LeylandWhile deciding about the method of data collection to be used for the

study, the researcher should keep in mind two types of data viz.,

Primary and Secondary.

The primary data are those which are collected afresh and for the first

time, and thus happen to be original in character. It can be collected

through Observation, Interview, Questionnaires, consumer panels,

etc.

The secondary data, on the other hand, are those which have already

been collected by someone else and which have already been

passed through the statistical process. In this case, nature of data

collection work is merely that of compilation.

Data used for analysis in this project has been collected from secondary sources like:

Internet: Data has been obtained from Web sites, Search Engines.

Journals, magazines, books and annual report.

Periodic brochures, and reviews of Ashok Leyland ltd.

Organization

5.5 Sampling :

Sampling is selection of source parts of an aggregate on the basis

of which a judgement about the aggregate is made. In other

words,it is the process of obtaining information about an entire

population by examining only a part of it. A Sample design is a

definite plan for obtaining a sample from a given population. It

refers to the technique or the procedure the researcher would

adopt in selecting items for the sample.

41


42


Chapter 6

SWOT ANALYSIS

6.1 Strength 6.2 Weakness 6.3 Opportunity 6.4 Threat

43


STRENGTHS:- Brand Reliability. It is capable of producing 1.6 million

units annually. Quality services and customer care. Ability resources, weakness of the

competition, or the opposing sources. Best technology. Best quality products. Best value for people.

WEAKNESS:- Failures defeats, loses, and inability to

match up with the dynamic situation of growth the change.

Market fluctuation and the continuous changes

Failure of some BIG names in the market

Not having so much of awareness of schemes

OPPORTUNITIES:- Coverage of rural areas. Given good services & good benefit

scheme to the customer. Possibilities of what can be done and

where effectiveness is possible.

44


THREATS:- Changes in business environment

PEST forces: – political, economic, social, technological.

Through cut competition in the market.

Different demands of the customers. Costly product of company.

45


Chapter 7

Project Analysis

7.1 Ratio analysis7.2 Cost analysis7.3 Variance cost analysis7.4 Inventory analysis7.5 Production and sales analysis7.6 Environmental safety analysis

46


7.1 RATIO ANALYSIS

7.1.1 Current ratio

Particular Formula 2007 2008

Current ratio Current Assets/Current Liabilities 1.56 1.26

Meaning :-

The ratio reveals the relationship between current assets and current

liabilities .This ratio also reveals that how efficiently the working

capital of the firm is used.

Interpretation :-

Generally the standard ratio for the concern is 2:1 i.e. current assets

should be twice of the current liabilities .If the ratio is 2 it means that

the concern has the ability to meet its current obligations and the

ratio above 2 shows the managerial deficiency of the concern to

profitably manage the current assets but if the ratio is less than 2 , it

indicates that the concern has difficulty in meeting its current

obligations.

In year 2007, this ratio was 1.56 which is less than the standard and

in 2008, it is 1.26 that is it further reduced by .30 . From the creditor

point of view this ratio is not satisfactory because if sufficient cash is

not there, their amount cannot be paid in time .This ratio is also

unsatisfactory from the point of view of banks and other financial

institutes who has provided the firm with short term loans . The

reason for decrease in this ratio is that, though there has been

increase in the investment in working capital from 2006-07 to 2007-08

47

Financial Analysis On Ashok Leylandbut current assets investment has rise in less than proportion to the

current liabilities.

Net Current Assets (excluding cash / bank balances) as on March 31,

2008 stood at Rs 1,519 mn. compared to the previous year level of

Rs 5,069 mn. mainly due to reduction in trade debtor levels.

Inventories have gone up to Rs 12,239

mn. as on March 31, 2008 compared to Rs 10,703 mn. As at March

31, 2007. The increase is mainly due to increased activity levels and

higher level of finished vehicles and engines. Focussed effort on

collections reduced the sundry debtors level to Rs 3,758 mn. from Rs

5,229 mn.

7.1.2 QUICK RATIO


Quick Ratio Quick Assets/ Current

Liabilities

0.93 0.73

Meaning :-

The ratio reveals the relationship between quick assets (current

assets – inventories ) and current liabilities. This ratio also reveals the

ability of the firm to convert its current assets quickly into cash in

order to meet its current liabilities . Current ratio fail to reveal the any

information regarding the composition of the current assets of the firm

. A rupee of cash is considered equivalent to a rupee of inventory or

receivable. But it is not so . A rupee of cash is more readily available (

i.e. more liquid ) to meet current obligation than a rupee of, say,

48

Financial Analysis On Ashok Leylandinventory. But this drawback of current ratio is overcome through the

use of quick ratio.

Interpretation :-

Generally the standard ratio for the concern is 1:1 i.e. quick assets

should be equal of the current liabilities .If the ratio is 1 it means that

the concern has the ability to meet its very short term obligations. In

year 2007, this ratio was 0.93 which is approximately equal to the

standard and in 2008, it is 0.73, that is it reduced by .20. this shows

that firm will not able to satisfy its short tern obligations quickly which

is not good from creditors, financial institutes and banks point of view

. This ratio has fallen due to decrease in debtor and increase in

current liabilities both . The company debtors are slightly reduced and

stock has increased , this is because of slight decrease in the trend

of demand.

7.1.3 DEBT EQUITY RATIO


Debt Equity Ratio LONG TERM DEBT/

SHAREHOLDER FUNDS

0.35 0.42

Meaning :-

The relation between borrowed funds and owner’s fund is measured

under this ratio. This ratio reflects the relative claim of creditors and

shareholders against the assets of the firm. Or in other words, it

shows the proportion of debt and equity in financing the assets of the

company.

Interpretation :-

49

Financial Analysis On Ashok LeylandA ideal ratio in this industry is 0.50. In 2007 , debt equity ratio of the

firm was .35 and in 2008 , it was.42 i.e. it has slightly increased.

Higher the ratio better it is form the shareholders point of view

because the earning available to the would increase more than

proportionate the increase in the operating profit of the firm. Where as

lower the ratio better it is for the creditors , because for every 42

paise of the creditors , the firm has one rupees of owner’s capital . the

ratio currently is satisfactory from both point of view . Also Fitch has

awarded ratings at “AA (IND) / stable” for the Company’s long term

borrowings. ICRA has assigned the rating LAA (L double A) for long-

term loans and also assigned special rating of A1+ (A one plus) for

short-term loans. CRISIL has given the ratings for long-term

borrowings at “AA / negative”. On Commercial Paper programme

(short term borrowing), CRISIL maintained the earlier rating of P1+.

The Company believes that it has sufficient liquidity to meet its

working capital requirements and other anticipated cash outflows.

As the shareholders are heavily involved financially , they will strain

every nerve to make the enterprise a success and the risk to long

term creditor’s fund is less .

7.1.4 LONG TERM FUNDS TO FIXED ASSETS RATIO

Praticular Formula 2007 2008

Fixed assets

ratio

Long Term Funds /

Fixed assets

1.55 1.23

Meaning :-

50

Financial Analysis On Ashok LeylandThis ratio shows the relationship between long term funds (i.e. both

shareholders funds and long term debts ) and fixed assets .

Interpretations :-

This ratios tells that whether the fixed assets are purchased out of the

long term funds or liability or not . It is always advisable for the firm to

not to purchase the fixed asset out of working capital. The ideal

ratio is more than one . In 2007, this ratio was1.55 and in 2008 it was

1.23 which is satisfactory from point of view of company future. The

ratio has slightly decreased due to increase in the issue of long term

funds is less than proportion to increase in the purchase of fixed

assets. Earlier a significant amount of long term fund was also used

in working capital , but now that fund investment is shifted from

working capital to fixed assets, and in for working capital purpose

short term loan has been arranged that is why there was less

requirement of issue of long term fund than the amount of purchase

of fixed assets .Thus the ratio decreased..

7.1.5 RESERVE TO SHARE CAPITAL RATIO


Reserve to

Share capital

Reserves and surplus /

share capital

13.33 15.15

Meaning :-

This ratio indicates the relationship between reserves and capital . It

show the financial soundness of the firm because reserves will help

the company to meet future losses out of these reserves .

Interpretation:-

51

Financial Analysis On Ashok LeylandHigher the ratio better it is for the future of the firm . In 2007 this

ratio was13.33 that is very good and in 2008 this ratio rise by 1.82

and reached to 15.15 . by looking at these figures we can say that

company has good financial soundness.

7.1.6 PROPRIETORY RATIO :-


Proprietory ratio Shareholders funds /Total assets

42.22% 38.64%

Meaning :-

This ratio indicates a relationship between networth and total assets .

the main objective is to measure the use of capital invested in a firm.

The creditors come to know about the share of proprietory fund in the

total assets and satisfy how far there loan is secured .

Interpretation :-

Higher the ratio the more satisfy will be the creditors. 50% is

considered as the ideal or the standard ratio from the point of view of

creditors which means at least shareholders funds should be half of

the assets .In 2007 , this ratio was 42.22% which is some what

satisfactory for creditors . but this ratio has fallen to 38.64% in

2008.the reason for such a fall in the ratio is that during 2007-08 firm

raised new unsecured loans for the purchase of new fixed assets.

Thus , in the ratio denominator (total assets ) increased but

numerator (shareholders fund ) remained same , leading to fall in the

ratio .

52

Financial Analysis On Ashok LeylandSince the ratio has fallen , there has been decrease in the margin of

safety for the creditors which is not satisfactory, they are now

exposed to greater risk. On the other hand this decrease in the ratio

is favorable for the shareholders as they can better exploit to make

available to them the benefit of trading on equity .

7.1.7 GEARING RATIO


Gearing ratio Equity share capital / Pref. S Cap

+Debentures + Long Term Loans

2.96 2.42

Meaning :-

This ratio analyse the capital structure of the firm and shows the

relationship between equity share capital (variable cost bearing

capital ) and fixed cost bearing capital ( debentures, preference share

capital and long term loans) .

Interpretation :-

This ratio is useful when the objective is to show the effect of the use

of fixed-interest / dividend source of funds on the earnings available

to the equity shareholder. The firm is said to be more geared if equity

share capital is less than debentures , preference shares and loans.

That means a ratio of less than one is said to be good from equity

shareholders point of view , and a ratio of more than one is said to be

favorable for creditors of the company as they can have a better

margin of safety in case of long term solvency of the firm . In case of

concerned firm the gearing ratio in 2007 was 2.96 which is not

satisfactory from the shareholders point of view, but in 2008 , the

position improved a little , the ratio reduced to 2.42 .As more of

53

Financial Analysis On Ashok Leylandcapital was raised through loan by the firm in 2008.The firm can

become more geared if shareholders consent is there, through use of

more of fixed cost bearing capital and in a better way can trade on

equity . However, given the low gearing at present, the Company

believes it would be able to raise the required funds at competitive

rates. The Company manages liquidity risk

through tie-up of short term facilities from banks which could be used

in case of requirement

7.1.8 Total assets turnover ratio


Total Assets

Turnover Ratio

Net Sales /Total Assets

1.8 1.61

Meaning :-

This ratio indicates that how efficiently and profitably the assets of the

firm are used . We can find out that the assets are properly utilized or

not by having the view on the production and cost . If cost is reduced

and the production has increased that means assets are properly

utilized .

Interpretation :-

Higher the ratio better it is because more the ratio more will be the

production of goods in the business which increases profits. Lower

the ratio is unfavorable for the business. Much higher ratio indicates

over trading of the business. In the concerned case in 2007 the ratio

was 1.8 which further fall to 1.61 in 2008.this shows that the

efficiency of the management of the firm is average and much

54

Financial Analysis On Ashok Leylandsatisfactory in utilizing the assets .The company should try to use

assets more efficiently and effectively for increasing the production

and reducing the cost .

7.1.9 INVENTORY TURNOVER RATIO


Inventory

turnover ratio

Cost of Goods Sold/

Average stock

8.59 7.79

Meaning :-

This ratio indicates that the stock has been utilized efficiently or not .

Also it is used to check up that the required minimum stock has been

invested or not . Only proper inventory turnover enables the business

to earn a reasonable margin of profit.

Interpretation.:-

Higher ratio is good from view point of liquidity. Lower ratio is not

desirable because it signify that the inventory does not sell fast and

stay in the shelf or the warehouse for a long period .Higher ratio tell

that more sales are being produced by a unit investment in stock . In

2007 the firm had a inventory turnover of 8.59 which is satisfactory

but this reduced to 7.79 which should not happen .. Sales of the firm

has not increased much this year as a result of which finished goods

in the warehouse and shelf of the firm increased , resulting in high

average stock and approximately the same sales as of last year .This

has lead to fall in the inventory turnover ratio showing decrease in

the managerial efficiency in the firm . Inventories have gone up to

55

Financial Analysis On Ashok LeylandRs 12,239 mn. as on March 31, 2008 compared to Rs 10,703 mn. As

at March 31, 2007. The increase is mainly due to increased activity

levels and higher level of finished vehicles and engines .

7.1.10 DEBTOR TURNOVER RATIO


Debtor turnover ratio Net Credit Sales /

Average Debtors

18.48 18.90

Meaning :-

Debtor turnover ratio is calculated to measure the collect ability of

accounts receivable and tell about how the credit policy of the

company is enforced.

Interpretation :-

The ratio measures how rapidly receivables are collected . Higher

the ratio better it is because it indicates short time-lag between the

credit sales and cash collection .A low ratio shows that debt are not

being collected rapidly . In 2007 , the ratio was18.48 times and in

2008 , it was 18.90 times , showing the good performance of

management in regard to collection of debt . This ratio tells that there

are less chances of bad debts . Focussed effort on collections

reduced the sundry debtors level to Rs 3,758 mn. from Rs 5,229 mn.

7.1.11 GROSS PROFIT

56

Financial Analysis On Ashok LeylandParticular Formula 2007 2008

GROSS

PROFIT

Ratio

GROSS PROFIT/

NET SALES

28.14% 29.36%

Meaning :-

Gross margin ratio tells the earning capacity or the gross margin on

trading .

Interpretation :-

A high ratio is a sign of good management as it implies that the cost

of production is relatively low and vice-versa .The gross profit ratio of

the company was 28.14% in 2007 and it rise to 29.36% in 2008 .

Though the ratio is increasing which is good , but still the ratio is less

than standard because of high cost of material . Material itself is 60-

65% of the sales , which shows that firm kept a low margin between

it’s cost and price.

Steel, the major input material, witnessed a steep increase during the

year (62% increase on point to point basis compared to March 2007).

The other major input, rubber also witnessed an increase of 10% in

commodity prices. However, the Company mostly neutralized these

increases through continued efforts in value engineering 51

initiatives and better product mix.

7.1.12 NET PROFIT RATIO


NET PROFIT NET PROFIT/ NET SALES 7.48% 7.29%

57


Meaning:-

The net profit margin is indicative of management’s ability to operate

the business with sufficient success not only to recover from

revenues of the period , the cost of merchandise , the expenses of

operating the business , and the cost of borrowed funds , but also to

leave a margin of reasonable compensation to the owner for

providing their capital at risk . The net profit (after interest and tax ) to

sales expresses the cost price effectiveness of the operations .

Interpretation :-

In year 2007 , the ratio was 7.48% , and in 2008 it slightly fall to

7.29%. The reason behind increase in the gross profit ratio and

simultaneously fall in the net profit ratio shows that there has been

increase in the operating cost more than proportionate to the increase

in the sales. Operating cost which has affected this ratio basically

consists of financial expenses ( interest expenses and cost of issue

and others ) and employees’ remuneration and benefits . The

increase is mainly due to full year impact of salary revision made in

the previous year and incremental manpower for ongoing activities at

Uttarakhand and Product Development initiatives . Interest cost has

gone up due to borrowings to meet the capital expenditure and

working capital requirements.

58


7.2 COST ANALYSIS

7.2.1 Manpower cost per chassis analysis of last 3 yr.

MANPOWER COST Rs.(,000)

PARTICULARSYEARS BUDGETED

2008-09 2009-10 2010-11 2011-12

WAGES 7008 8625 7502 10435

WELFARE EXPENSE 2004 2014 2247 2605

TOTAL 9012 10639 9749 13040

Table no. 1

Chart No. 1

59


Ways to reduce Man Power cost:-

Proper planning of engaging temporary workmen at minimal

level at minimum cost via

flexibility in engaging v/s availability

Make available on very short notice through various agencies.

Electricity consumption

Awareness among employees

Centralizing the activities.

Provision of on/off switches on various locations

Avoiding wasteful activities

.

60


7.2.2 Production cost per chassis analysis of last 3 yr.

PRODUCTION RELATED RS. (,000) PER CHASSIS


2008-09 2009-10 2010-11 2011-12

POWER 3522 3117 2925 3700

OVERHEADS 648 1698 570 600

TOTAL 4170 4815 3495 4300

Table No. 2

Chart No. 2

61


Ways to reduce Production cost:-

Use of available tools, to the extent possible, then

refurnishing, overhauling, etc.

Proper handling of available tools & to keep in

proper place.

Proper accounting of consumption of tool and

history of its usage

Training for use to all employees

Providing fixture etc. for proper upkeeping.

Repairs

Gardening , housekeeping , maintenance

expenses

Increasing the output through providing necessary

equipments, which will help in reducing manpower

e.g. providing pipes, springler, grass cutting m/c ,

tractor for cutting grass to horticulture contractor.

62


7.2.3 Administration cost per chassis analysis of last 3 yr. ( in 000 )

ADMIINISTRATION EXPENSES RS. (,000)


2008-09 2009-10 2010-11 2011-12REPAIRS 2760 2924 1706 2000INSURANCE 467 876 984 800LEASE RENT 2682 2483 2497 2700TRAVEL 842 950 1231 825TELEPHONE EXPENSE 543 623 425 250PRINTING & STATIONARY 368 442 354 350TRANSPORTATION 312 355 198 100SECURITY 1113 1211 1201 1200OTHERS 897 924 834 693TOTAL 4170 4815 3495 4300

63


Ways to reduce Administration cost:-

Centralizing at one place and ensuring that only one

courier is send at one location.

FAX:- night transmission

Encouraging using more e-mails.

Very minimum budget is given to the depts.

Awareness among employees to use more of e-mail for

communication

Monthly budgets will be given and the consumption

report will be given on fortnightly basis.

64


To lodge the claims, wherever possible, for the

breakdown of machinery, losses due to storm , etc.

An analysis for premium is being done for 5 years in

case of breakdown insurance for plant & machinery and

discontinues the insurance coverage, if possible.

Ensure no additional guards are deployed in factory.

A CFT is working, for the proper procurement to

ultimate required gas to marketing.

Avoiding re-painting

Cotton clothes, hand gloves, soap solutions, etc.

Proper accounting and issue as per requirement and

production.

7.3 VARIANCE ANALYSIS OF OPERATING COST PER CHASSIS OF

LAST THREE YEARS (IN RS ‘000)

OPERATING COST ANALYSIS ACTUAL v/s BUDGETED

PARTICULARS

YEARS YEARS YEARS

2009-10 2009-10 2010-11 2010-11 2011-12 2011-12

ACTUAL BUDGETED ACTUAL BUDGETED ACTUAL BUDGETED

65


MANPOWER COST 9012 9059 10639 9994 9749 11185

PRODUCTION 4170 5400 4815 4880 3495 4540

ADMINISTRATION 9984 11862 10788 12636 9430 10840

TOTAL 23166 26321 26242 27510 22674 26565

• It has been observed that company’s operating cost per chassis

is declining due to increase in production volume.

• Operating cost mainly fixed nature, details given further. If

production will high, our OP cost per chassis will be low.

7.4 Inventory Analysis

Inventories in Ashok Leyland are valued at lower of cost and net

realizable value, cost being ascertained on the following basis:

Stores, spares, consumable tools, raw materials and

components: on monthly moving weighted average basis. In

respect of works-made components, cost includes applicable

production overheads.

Work-in-progress, finished/trading goods: under absorption

costing method.

Cost includes taxes and duties and is net of credits under

Cenvat / Vat Scheme.

Cost of patterns and dies is amortized equally over five years .

Surplus / obsolete / slow moving inventories are adequately

provided for.

Major value items in inventory

66

Financial Analysis On Ashok Leyland1) Engine

2) Gear Box

3) Rear Axel

4) Front Axel

5) Battery

6) Catelic Converter

7) Stearing Assembly

8) Front Structure

9) Tyres

10) Frame

7.5 Production and Sales analysis

PRODUCTION AND SALES OF LAST DECADE

YEARS 2007-08 2008-09 2009-10 2010-11 2011-12

Production 49148 54519 65085 83558 84006

Sales Domestic 44872 47928 56776 77069 76022

67


Sales Exports 3782 6812 4879 6025 7285

Indian medium and heavy commercial vehicle industry

shrunk marginally during 2007-08 compared to 2006-07.The

Company sold 76,045 vehicles in the Indian market during the fiscal

2007-08. The Company registered significant market share

improvement in the bus segment but lost market share in the truck

segment mainly due to production constraints arising out of supply

chain bottlenecks. These have been addressed satisfactorily and the

Company is on course to recover lost ground. The “New Gen” cabin,

expected to be bulk produced in 2008-09, will further aid this

exercise.

Oversea market

The Company sold 7,285 vehicles in the overseas markets during

2007-08 – representing an increase of approximately 21% over the

previous year. The Company’s foreign exchange exposure has

68

Financial Analysis On Ashok Leylandincreased manifold, through contracting External

CommercialBorrowings of US$

315 mn. over the years.

The Company fully utilized its production capacity of 84,000 vehicles

across the five existing manufacturing units. The development

activities for the new facility at Uttarakhand have been progressing as

scheduled. This unit, designed for an annual capacity of 50,000

vehicles, is expected to be functional before June 2010.

7.6 Environment and SafetyBeyond the socio-economic impact of their products, they are

conscious of the environmental impact of their operations. As a

responsible corporate citizen, they act on the belief that environment

protection and enrichment are not just preferred responses but their

basic responsibility and the right way to do business. Ashok Leyland’s

commitment is reflected in various initiatives at all stages, right from

technology selection, design requirements and location identification

leading up to the end use of their products. This objective has been

continuously achieved through progressive benchmarking, prudent

target setting and ongoing review. Environmental performance is

measured across the six manufacturing units on a number of

parameters:

• SO2 levels , NOx levels , SPM levels , TSS levels

69

Financial Analysis On Ashok Leyland• BOD values , COD values

• Water conservation , Energy conservation ,Wood conservation

• Hazardous & non-hazardous waste disposal

SLUDGE DISPOSAL : A natural by-product of the painting process,

sludge disposal has always been a problem faced by the auto

industry. At Ashok Leyland, various actions have been initiated over

the years towards ‘safe storage’ of sludge, ultimately leading to the

construction of ‘secured landfills’ within the campus. Not resting with

landfill as the alternative, Ashok Leyland engineers pursued other

means of disposal too. Since paint had a high calorific value, its use

as a fuel was explored. The effort yielded positive results. The

Cement Division of Grasim Industries tried this as a supplement to

coal for their cement kiln. Over a period of 18 months, with clearance

from TNPCB, 193 tonnes of sludge was disposed.

Chapter -8

Fact And Finding

70


a) Findingsb) Limitations c) Conclusionsd) Suggestions

8.1 FINDINGS

The Company has set itself the task of consolidating and enhancing

its position in Indian commercial vehicle market,both in terms of

volumes as well as customer satisfaction, in the medium term. The

71

Financial Analysis On Ashok Leylandcompany is executing various initiatives in terms of process and

product improvement to achieve this goal.

Results of operation :

The Company generated profit from operations after tax of Rs 6,956

mn. After meeting working capital requirements and extraordinary

item of payments for Voluntary Retirement Scheme of Rs 48 mn., the

Company earned net cash inflow of Rs 10,657 mn. from its

operations. Cash flow from financing activities significantly improved

mainly due to payment of dividend for 2006-07 in March-07 itself.

This enabled the Company utilise internal generation for meeting

capital expenditure (including capital advance) requirements and

minimise the borrowings during 2007-08. Profit before tax and extra-

ordinary items improved by 4.5% to Rs 6,508 mn. During the year,

the Company charged Rs 127 mn. towards amortisation of VRS

expenses. After providing for taxes at Rs 1,688 mn. (including

deferred tax and fringe benefit tax), profit after tax for the current year

improved by 6.3 % to Rs.4,693 mn.

Revenues:

The Company was able to earn revenue through the following

streams of business activities:

i) Vehicles : Income from vehicles was Rs 68,819 mn. 4.1% over the

previous year level of Rs 66,092 mn.

ii) Engines: Income from Engines increased to Rs 1,921 mn., 59%

growth over the previous year level of Rs 1,210 mn. During the year

72

Financial Analysis On Ashok Leylandthe Company offered factory built genset engines, which accounted

for 17% of total engine volume .

iii) Spare Parts and others: Income from Spare parts including sale

of kits to Vehicle Factory, Jabalpur increased to Rs 6,551 mn., a jump

of 50% over the previous year level of Rs 4,380 mn.

Other income registered an increase by Rs. 32 mn. Mainly due to

better realization on sale of investments during the current year.

Liquidity

As at March 31, 2008, net debt (net of cash & bank balances) to

equity ratio was 0.2. During the year the Company had tied up

External Commercial Borrowings (ECB) for USD 270 mn. Against

these facilities, the Company drew USD 90 mn. to fund imported

capital expenditure/ investments. The balance of USD 180 mn. would

be drawn during the ensuing year. FCCNs issued during April 2004

has been converted except for USD 1 mn., representing 1% of the

total issue size of USD 100 mn. Assuming conversion of this balance

portion, the equity of the Company will increase to Rs 1331.8 mn.

The Company manages its liquidity through rigorous weekly

monitoring of cash flows and surplus funds are invested, mainly in

units of mutual funds and in bank deposits.

The Company’s principal sources of liquidity are:

a) Existing cash and cash equivalents

b) Cash generated by operations

c) Unutilised limits with banks

d) Unutilised limits out of term funding limits tied up with financial

institutions and Banks.

73

Financial Analysis On Ashok LeylandFitch has awarded ratings at “AA (IND) / stable” for the Company’s

long term borrowings. ICRA has assigned the rating LAA (L double A)

for long-term loans and also assigned special rating of A1+ (A one

plus) for short-term loans. CRISIL has given the ratings for long-term

borrowings at “AA / negative”. On Commercial Paper programme

(short term borrowing), CRISIL maintained the earlier rating of P1+.

The Company believes that it has sufficient liquidity to meet its

working capital requirements and other anticipated cash outflows.

Capital expenditure and Investments

During the year, the Company incurred Rs 6,959 mn. Towards capital

expenditure. This expenditure covers investments related to capacity

expansion in the existing plants and in the new plant at Uttarakhand

and R & D programmes. The Company also started making

investments in Ashley Alteams India Private Limited (Joint Venture

Company with Alteams O.Y. Finland) and Automotive Infotronics

Private Limited (Joint Venture with Continental AG). These two

companies will focus on supplies to meet specific component

requirements for fitment in Commercial Vehicles. In addition the

Company made investments in a vehicle manufacturing / assembly

plant at Ras Al Khaimah, Design Engineering services business viz.,

Defiance Testing and Engineering Services Inc. USA and Albonair

GmbH, Germany which is engaged in the development of fuel

emission treatment / control systems.

Capital employed

Total capital employed by the Company increased by 21% from Rs

27,075 mn. to Rs 32,680 mn., mainly due to investments in facility

74

Financial Analysis On Ashok Leylandcreation. Total Shareholders’ funds as at March 31, 2008 aggregated

Rs 21,267 mn. of which equity capital was Rs 1,330 mn. comprising

of 1,330 mn. shares of Re 1 each. Out of the above, 6,468,000

shares were issued during the year by way of conversion of Foreign

Currency Convertible Notes Financial expenses Interest cost has

gone up due to borrowings to meet the capital expenditure and

working capital requirements. The Company is regulating its

borrowing in line with capital expenditure requirements. Centralised

Treasury Department is active in the money market to manage day-

to-day investment of surplus funds and raise short-term funds as

required and bring down cost by such borrowings.

Staff costs:

The increase is mainly due to full year impact of salary revision made

in the previous year and incremental manpower for ongoing activities

at Uttarakhand and Product Development initiatives.

Material Cost:

Steel, the major input material, witnessed a steep increase during

the year (62% increase on point to point basis compared to March

2007). The other major input, rubber also witnessed an increase of

10% in commodity prices. However, the Company mostly neutralized

these increases through continued efforts in value engineering 51

initiatives and better product mix. The Company also managed to

secure from global sources (including from

China where it has recently set up an office) components at lower

costs to offset the commodity price induced input cost increases. The

Company was also able to get the full year benefit of VAT, introduced

75

Financial Analysis On Ashok Leylandby Tamil Nadu Government in January 2007. Average pricing action

of about 4.5% effected

by the Company in a phased manner helped to protect the margins.

8.2 Limitations

This project is limited to one plant of Ashok Leyland alwar, which

is based in Alwar (Rajasthan).

76

Financial Analysis On Ashok Leyland Some data was confidential and not disclosed as per the

company’s policy.

Time limitation was the major factor for the study.

There was less interaction during the training period with the higher

staff or executives due to their work load

8.3 Conclusion

The Company’s initiative to nurture future leaders is showing

promising results. A number of initiatives put forward by the cross

functional team of Young Executives (YEs) as part of their annual

business plan are on their way to implementation.

After robust growth over the past few years, Indian economy

witnessed a slowdown during 2007-08. GDP growth for 2007-08

as projected by the Government at 8.7% shows a deceleration from

the high growth of 9.4%

and 9.6% , respectively , in the previous two years . With the

economy modernizing , globalizing and growing rapidly , some

degree of cyclical fluctuation is to be expected.

Since then Ashok Leyland has been a major presence in India's

commercial vehicle industry with a tradition of technological

leadership, achieved through tie-ups with international technology

leaders and through vigorous in-house R&D.

77

Financial Analysis On Ashok LeylandIn all their CSR efforts, they also partner with government agencies,

local communities, NGOs and academic institutions to enhance their

strengths and help us leverage their expertise, reach and resources.

Ashok Leyland’s Corporate Social Responsibility (CSR) initiatives

revolve around the welfare of their employees and their families, the

driver community and those residing around their manufacturing units

in Ennore (Tamil Nadu), Hosur (Tamil Nadu), Bhandara

(Maharashtra) and Alwar (Rajasthan).

8.4 Suggestions

In order to compensate for the cyclical nature of the domestic

commercial vehicle industry,the company should focus on

increasing in allied businesses like non-autoengine,

Defence,Exports,and Parts so as to achieve a significant

portion of its revenues from non cyclical businesses.

One way to reduce man power cost is to complete one job in

one stretch, e.g.- piping , welding , painting , to complete in one

step , etc.

Travelling expenses can be reduced as:-:-

Local transportation: combining the activities of different

deptt. at one place.

78

Financial Analysis On Ashok Leyland Outside travel :- proper justification

Employee, who are going on travelling , will intimate to all

employees for collecting the work on same station via. Notice

board

Chapter 9 Annexure

79


9.1 CENVAT

Deal with organizing, directing and controlling the activities related to

the excise functionality of Ashok Leyland.

The main objective of this module is to generate invoices. Post

Challans, Cenvat Credit Availment Details, Debit Entry Details & Daily

Stock A/C. Generate statutory reports for items covered under the

purview of Excise Act.

TAX:-

Tax is nothing but money that people have to pay the Govt., which is

used to provide public services.

OBJECTIVES OF TAX COLLECTIONS :-

Though the collection of tax is to augment as much revenue as

possible to the Govt. to provide public services, over the years it has

been used as an instrument of fiscal policy to stimulate economic

growth. Thus it is one of the Socio-Economic objectives.

TYPES OF TAXES :-

There are some taxes are direct and others are indirect. Under our

constitution, while the Central Govt. is vested with the powers of levy

and collection of certain taxes, the State Govt. are empowered to levy

and collect certain other type of taxes.

DIRECT TAXES:-

If the tax payers bears its incidence & is not able to pass on the

burden such tax is Direct Tax. Example:- Income Tax, Wealth Tax,

Gift Tax etc.

INDIRECT TAXES:-

80

Financial Analysis On Ashok LeylandIf the tax payers is just a conduit & every stage the tax-incidence is

passed on till it finally reaches the consumers who really bear the

burnt of it, such tax is Indirect Tax. Example:- Excise Duty, Custom

Duty, Sales Tax etc.

EXCISE DUTY:-

Excise Duty is an indirect tax levied & collected on the goods

manufactured in India.

Generally , manufacturer of goods is responsible to pay duty to the

government . this indirect taxation is administered through an

enactment of the central government viz , the the Central Excise

Act,1944 and connected rules which provide for levy , collection and

connected procedures. The rates at which the excise duty is to be

collected are stipulated in the central Excise Tariff Act ,1985 .

Mandatory to pay duty on all goods manufactured unless

exempted :

It is mandatory to pay duty on all goods manufactured unless

exempted . For example , duty is not payable on the goods exported

out of India . similarly exemption from payment of duty is available ,

based on conditions such as kind of raw-materials used . value of

turnover (clearance) in a financial year , type of process employed

etc.

Chapter 10

81


Bibliography

I got all the information regarding the study of Financial Analysis of

Ashok Leyland with written proofs from the following references.

Manuals:

Annual Reports 2007-08 ,2006-07…

Ashley News

Gemba Times

Ashok Patrika

Websites:

www.ashokleyland.com

www . ashley.com

www.iris.com

google search engines

Books:

KHAN & JAIN, FINANCIAL MANAGEMENT

PRASSAN CHANDRA , FINANCIAL MANAGEMENT

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McGraw Hill, New Delhi.

B.Lev Financial Statement Analysis: A New Approach,

Prentice Hall Inc., 1982.

E.F.Fama and M.H Miller, The theory of finance, Holt,

Rinehart and Winston, 1972

82

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http://www.ashley.com/

http://www.ashokleyland.com/

Financial Analysis On Ashok Leyland Bailey, Kenneth D., “Methods of Social Research,”New

York, 1978.

Baker,R.P., and Howell, A.C., The Preparation of

Reports, New York: Ronald Press,1938

Gatner,Elliot S.M.,and Cordasco, Francesco, Research

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83

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