Professional Documents
Culture Documents
MAHINDRA &
MAHINDRA
(SWARAJ DIVISION)
A training report submitted in partial fulfillment of the requirement for the degree of
Submitted by:-
JIMMY SARAF
MBA - 2
Roll No. .
1
MAHINDRA & MAHINDRA
LTD.
SWARAJ DIVISON
2
HAMARA SWABHIMAAN
SWARAJ...
CONTENTS
3
CHAPTER -VI REFERENCES
PREFACE
This report is the result of my seven weeks of summer training in M & M LTD
-SWARAJ DIVISION, as a part of M.B.A. The subject of my report is- Financial
Appraisal of M & M LTD -Swaraj Division.
4
ACKNOWLEDGEMENT
(JIMMY SARAF)
5
EXECUTIVE SUMMARY
Study Topic:
Financial statement analysis of M &M Ltd - Swaraj Division
Objectives: -
Time Span:
A period of five year i.e. 2004-2008 has been taken.
Study instrument:
Annual Reports and other official documents of the unit.
Methodology:
To achieve the objectives the technique of ratio analysis is adopted.
Liquidity ratios used to analyzed the short term financial performance. For
financial performance in the long run profitability and solvency ratios are used.
To calculate various ratios, the annual reports of the selected units are
extensively studied. In addition to this, interviews with the financial manager are
made to have information on various aspects of the project.
6
Scheme of Presentation:
First of all I give the overview of Indian Tractors industry. Then the report
presents a general profile of M&M LTD -Swaraj Division where the summer training
has been undertaken.
Chapter-I
INDIAN TRACTOR INDUSTRY
AN OVERVIEW
7
BACKGROUND
Earlier in 1950’s, the India people was engaged in agriculture and for
irrigation mainly depend upon rains except a few isolated pockets being irrigated
through canals and tube wells. Very few people used chemicals and pesticides and
even the major agricultural operations life ploughing, planking, etc. were carried
down by bullocks. As a result, India could not produce enough to feed its people so
heavy expenditure was incurred on import of food grains. It results in scarce foreign
exchange reserves of our country. All this initiated Indian government to give highest
priority to development of agriculture in its five year plan programmed.
Irrigation, being the key operation in agriculture. A stress was laid on the
improvement in agricultural output through use of advanced technology. Extensive
use of effective and improved equipments was made by importing tractors. Our
Government encouraged manufacturing of tractors in India to save its foreign
currency reserves. As a result, a few plants were set up but Indian technology at that
time was not in a position to design and manufacture indigenous tractors. So the
plants were mainly set up for manufacturing tractors with the help of some foreign
collaboration.
8
HISTORY: INDIAN TRACTOR INDUSTRY
THE BEGINNING: Indian Tractor Industry took birth in 1959-60 when the first
tractor manufacturing unit was established. However, this industry found a firm
footing only after the turbulent period of 1968-74, during which the acceleration
which should have emerged from the upsurge in demand generated by the Green
Revolution was navigated by large-scale imports of fully built tractors. By 1973-74
when imports were banned, 22 manufacturers remained. It is in an environment of
intense competition between 22 manufacturers that our tractor industry has grown
during the last 30 years. During this period, it has become not only a major segment
of our engineering industry but with a population of 1, 30,000 tractors in 1990, our
country became the second largest tractor producer in the world.
The development of tractors industry from the very beginning i.e. 1959-60 Till
date can be divided into the following four phases:-
9
government protected the interests of the farmers by making tractors available to
them at reasonable prices. Tractors manufacturing units came up in this decade:
Escher Tractors Ltd. (1959)
Tractors and Farm Equipment Ltd. (1963)
Tractors and Builders Ltd. (1964)
International Tractors Ltd. (1965)
10
The tractor industry saw a rapid growth of 6% from 1982-87.
THE PRESENT
Sales peaked to 2.73 lacs in 1999-2000. In the year 2000-01 and
2001-02 the sales decline to 2.53 and 2.18 lacs because of fall in the rural income
virtually all over country and due to rising competition. It reached 1.69 lacs in 2002-
03. The industry saw an upward trend volume touching 3.51 lacs in 2006-07 and to
3.46 lacs in 2007-08. During the current FY 2007-08, around 3, 02,000 tractors were
sold in India and 44,000 tractors were exported.
The industry has now discovered channel-exports to ensure that the sales of tractors
do not drop. In fact, exports have now become a thrust area.
Five major manufacturers are in the race for tractor market today, account for 78% of
the total market share. They are offering products of different HP’s. They include
below 20HP, 21-30HP, and 41-50HP and above.
11
CRITICAL PARAMENTERS FOR GROWTH OF
TRACTOR INDUSTRY
* AGRICULTURE INDUSTRY
Nearly 90-95% tractors are purchased with the help of bank credit. It plays an
important role in determining the demand for tractors.
* PRICING OF TRACTORS.
The financial inability of the Indian farmers makes the pricing a critical parameter.
Companies that managed to keep their costs low are the ones that managed to survive
during the reversionary period.
* GOVERNMET POLICIES
To enable a farmer to purchase a tractor against these odds, the government
introduced subsidies in this sector. In the budget of 2004 all the tractors were
exempted from excise duty.
* IMPORTS
The industry reduce its dependence on imports, they have indigenized their
inputs, which were earlier imported and priority is given to Research and
12
Development. All tractor manufacturing units, except the Swaraj Division, were
initially set up with foreign collaboration, tractor industry has been on its own for the
last decade.
Table below provides the industry picture for 2007-08, geographically & segment
wise:
GEOGRAPHICALLY
SEGMENTWISE
HP Range %age of Domestic Sales
Up to 30 HP 18%
31 - 40 HP 37%
Above 40 HP 45%
13
Chapter –II
MAHINDRA & MAHINDRA -SWARAJ
(A COMPANY PROFILE)
14
PRICE QUALITY
MOTTO OF
M&M
SWARAJ
DIVISION
SERVICE
PROMOTION OF SWARAJ
M&M LTD -Swaraj Division (SWARAJ DIVISION)
was joint sector company of the Punjab Government, which went into commercial
promotion in the early seventies. It is promoted by Punjab State Industrial
Development Corporation (PSIDC) in 1974 which was set up by Punjab Government
for setting up new projects.
In 1965 when the entire industrial growth of India relied
upon foreign technology and know-how for setting up industrial ventures in India, the
Central Mechanical Engineering Research Institute (CMERI, Durgapur), a national
Laboratory of the Government of India, took the bold step of taking up the design and
development of totally Indian know how for 26.5 H.P. agricultural tractors.
15
In August 2008, the PUNJAB
TRACTORS LIMITED was taken by MAHINDRA & MAHINDRA LIMITED &
PTL becomes Pvt. Limited Company. So PTL is now a part of M & M Group
The Board of Directors of M&M and PTL today unanimously approved a scheme of
amalgamation of Punjab Tractors Limited (PTL), an M&M subsidiary, with Mahindra
& Mahindra Ltd. M&M Ltd. along with its subsidiary Mahindra Holdings and
Finance Ltd. agreed to acquire the stake from Actis Group. Mahindra owns a majority
stake in Punjab Tractors Limited and had earlier acquired 63.33% stake in PTL in
July 2007. MHFL, a wholly owned subsidiary of M&M, currently holds 1.31% of
PTL, and is also in the process of being merged into M&M.
Under this amalgamation scheme, pursuant to provisions of Sections 391 to 394 and
other relevant provisions of the Companies Act, 1956, PTL will be merged into
M&M and all its assets and liabilities will be transferred to M&M at book values.
The appointed date under this scheme is 1st August 2008. Upon the scheme becoming
effective, M&M will transfer all the equity shares held by it in PTL to a Trust, of
which M&M is the beneficiary. M&M will issue its shares to PTL shareholders as on
record date, based on the swap ratio determined by independent valuers.
However, M&M has said that PTL’s Swaraj brand will continue to exist even after
the company's merger with automotive major Mahindra & Mahindra. ‘Swaraj brand
of Punjab Tractors will continue to exist after the amalgamation of PTL with
16
Mahindra & Mahindra as this brand is an important asset to us and we will like it to
further excel,’ said Anjani Kumar Choudhari, President - Farm Equipment Division,
M&M.
An independent valuation exercise has been conducted jointly by Ernst & Young and
N. M. Raiji & Company. Based on this exercise, the share exchange ratio for the
amalgamation has been arrived at. Equity shares of M&M will be issued to the
shareholders of PTL in the ratio of one equity share of Rupees 10 each of M&M for
every three equity shares of Rupees 10 each held in PTL.
The Scheme as approved by the Board is subject to such consents and approvals, as
may be required including that of the shareholders and the High Courts of Bombay
and Punjab & Haryana.
LOCATION
The plant of M&M LTD -Swaraj Division is located in Mohali Focal Point Estate
near Chandigarh on Chandigarh-Ludhiana Highway (Phase IV, Sahibzada Ajit Singh
Nagar, Mohali (Punjab) on a campus of 17 hectares. The land was allotted by Punjab
Govt. in the developing Mohali to make it a progressive Industrial Centre. The
location of plant is very suitable because it is quite near to the capital of Punjab. This
fact has been advantageous to the company in its initial stage of growth. However the
inadequacy of railway facilities is a serious drawback to the location of the plant.
QUICK FACTS
17
Year of
1970
Establishment
Business Group Swaraj Enterprise
Listings & its NSE: PUNJABTRAC; BSE: 500344;
codes Reuters: PTRA.BO
Registered Office Phase IV, Industrial Area
+ Works S.A.S. Nagar (Mohali), Punjab
Corporate Office S.C.O. 204-205, Sector 34-A
Chandigarh. 160022
Tel.: +(91)-(172)-2647700 to 10
Fax: +(91)-(172)-2615111
Website www.swarajenterprise.com
EMERGING MARKETS
18
East (Bihar, West Bengal, Orissa & Assam) 8.3% 68
SEGMENTWISE
HP Range No. of %age of Swaraj Share
Models Swaraj Sales in Segment
Up to 30 HP 5 17% 9%
31 - 40 HP 1 50% 12%
Above 40 HP 3 33% 7%
“CORE BELIEFS”
1. WE HAVE A LONG – STANDING RELATIONSHIP WITH THE FARM &
FARMING COMMUNITY THE NATIONAL HERTAGE AS WELL AS THE
NATIONAL AGENDA, WHICH PROVIDES US WITH IMMENSE GROWTH
OPPORTUNITES.
19
4. WE CONSIDER OUTSELVES CUSTODIANS AND TRUSTERS OF ALL
OUR CONSTITUENCIES – OUR CUSTOMERS, EMPLOYEES, BUSINESS
ASSOCIATES, SHAREHOLERDRS AND SOCITY AND PURSUE THE
RESPONSIBILITY ROR CREATION OF WEALTH FOR THEM WITH
MISSIONARY ZEAL.
BOARD OF DIRECTORS
20
P. SIVARAM (Chief Operating Officer)
A.M. SAWHNEY (Director – Marketing)
P.L. SHARMA
R.K. MANRAO
P.K. NANDA
VICE PRESIDENT –
M.N.KAUSHAL.
AUDITORS
BANKERS
INDIAN OVERSEAS BANK
CANARA BANK
BACKGROUND
M&M LTD -Swaraj Division plant is situated at S.A.S. Nagar (Mohali) where
production commenced in the year 1974. Initially, PSIDC contributed 42% equity
capital against the total paid up capital of Rs.140.00 lacs. The facility was initially
created to manufacture 5000 nos., tractors and the capital cost at that time was Rs.321
lacs.
21
The production capacity of tractors has increased to 60000 nos., from the level of
5000 nos. The company, over the years, has also promoted two companies, namely,
Swaraj Mazda Limited (manufacture of Light Commercial Vehicles) & Swaraj
Engines Ltd. (manufacture of Diesel Engines in collaboration with Kirloskar Ltd and
it has also promoted Swaraj Automotives. The present stake of SWARAJ DIVISION
in these is 14% in Swaraj Mazda, 33% in Swaraj Engines and 24% in Swaraj
Automotives.
22
OBJECTIVES OF SWARAJ
1) QUALITY
a. Continually improves satisfaction level of our
customers.
3) PEOPLE’S EXCELLENCE.
23
a. Continually improve Education and Training to
employees and their overall development.
The word SWARAJ in Indian language means ‘freedom from bondage’. Since
SWARAJ DIVISION was the first large scale project in India based totally on Indian
know how and technology, Swaraj was appropriately chosen as its brand name. With
more than 5 Lac tractors and harvest combines operating in Indian farms, now Swaraj
is also an internationally recognized name in the developing world Viz. East Africa,
West Africa, Middle East and South East Asia, etc.
PERIOD (1970-74)
This project for manufacture of 5000 tractors per year was set up at an outlay
of Rs. 3.70 crores during November 1972- March 1974. The engineers for Swaraj
tractors were procured from M/s Kirloskar Oil Engines Ltd., a pioneer in Indian
Engineering Industry. SWARAJ DIVISION went into commercial production with
the introduction of its first Model Swaraj 724 in April 1974.
PERIOD (1974-78)
In 1974 competitive market conditions prevailing where well known
international brands such as Ford, Massey, Ferguson, etc were available, it was
difficult to establish a new tractor. Thus to establish Swaraj against this severe
competition, the following strategy was adopted.
Intensive and close marketing.
District - wise distribution.
Limited introduction and slow extension of distribution network.
SWARAJ DIVISION’s own serving group.
Strict uniformity of product performance and quality.
24
SWARAJ DIVISION’s first launch SWARAJ 724 received quite favorable response
and encouraged by this response and also by taking into account the preference of
large segments of farmers for higher HP tractor, development work on a 35 HP
tractor was started in January 1975. SWARAJ DIVISION introduced its second
model SWARAJ 735 in November 1975 which is now the most popular tractor. Then
a low cost tractor SWARAJ 720 was introduced in 1978 for small farmers.
With encouraging past records PTL decided to increase its production to 24000 per
annum. But the RBI’s credit squeeze policy affected the tractor industry, as more than
95% of the tractor sales are through banks. SWARAJ DIVISION’s sale dipped from
10000 tractors to around 5500 tractors in 1982-83. During 1982-86, SWARAJ
DIVISION’s efforts were directed towards training its work force, reducing wastage,
cutting down scrap, inventory control, up gradation of quality, expanding dealer
network in new areas and widening product variants. Thus SWARAJ DIVISION
worked on ‘man’ rather than ‘machines’
There is goodwill create in the mind of the people regarding brand SWARAJ, market
since 1987 has been showing growth trend. The demand for Swaraj has increased
tremendously. Now consumers are ready to wait and pay the entire amount in
25
advance to buy a Swaraj tractor rather than buying any other tractor. Production
capacity had increased presently to 33000 tractors per year and will further increase
to 36000 tractors per year by 2000.
The decade of 90’s has been a rewarding one for all the constituents of Swaraj
enterprise - through generation of wealth for its customers, its business associates, its
employees, its shareholders and the society.
26
Evolving Journey of SWARAJ DIVISION
27
1998 Commencement of expansion to 60,000 tractors (30,000 at each plant). Capital
outlay of Rs 1000 million, funded mainly through internal accruals.
1999 5th and 6th tractor models - SWARAJ 733 (34 HP) & SWARAJ 744 (48
HP) developed by own R&D, commercially introduced.
4th issue of Bonus Shares (2:1) paid up equity moves to Rs 607.6 million.
2001 SWARAJ DIVISION won National Championship trophy in competition
organized by All India Management Association (AIMA) for young
managers.
28
ASSOCIATE UNITS OF SWARAJ DIVISION
SWARAJ
DIVISION
PLANT –
PLANT- PLANT
2
1 -3
29
EQUITY SHAREHOLDING PATTERN
AS ON 31st March, 2008
F.I.I 0.44%
30
Investment Pattern (Utilization of Idle Funds)
Generally idle cash is invested in the shares and the debentures of subsidiaries
to achieve twin objective of profit & control. By investing money in the shares of
their subsidiary companies, manufacturers become able to exercise control on these
units. These investments are held for a period of time greater than one year and are
shown in the balance sheet at their original costs. Various investments made by
SWARAJ DIVISION are produced in the following lines
31
KEY PERFORMANCE INDICATORS
FOR LAST EIGTH YEARS
(Rs. Crores)
2000-
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
01
Market Share 18.1% 18.4% 14.1% 13.5% 12.3% 10.8% 8.6% 8.1%
Rank 2 2 3 2 4 4 5 5
Net Product Revenue 964.5 888.2 546.8 597.3 855.1 959.5 958.9 969.6
Operating Profit 186.0 169.4 89.3 75.6 113.9 126.1 110.6 97.0
Margin 19.3% 19.1% 16.3% 12.7% 13.3% 13.1% 11.5% 10.0%
Net Interest (0.1) 11.9 14.3 9.8 5.8 6.4 0.9 (14.6)
Cash Profit 186.1 157.5 75.0 65.8 108.1 119.7 109.7 111.6
Margin 19.3% 17.7% 13.7% 11.0% 12.6% 12.5% 11.4% 11.5%
Depreciation
– Fixed Assets 17.0 17.7 17.1 16.4 15.9 15.2 15.5 16.9
– Trade Invest 3.1 0.2 — — — —
PBT – Mainline 166.0 139.6 57.9 49.4 92.2 104.5 94.2 94.7
Margin 17.2 15.7% 10.6% 8.3% 10.8% 10.9% 9.8% 9.8%
Other Income 2.0 3.9 4.3 6.0 5.0 4.6 4.3 2.4
PBT – Corporate 168.0 143.5 62.2 55.4 97.2 109.1 98.5 97.1
Margin 17.4 16.1% 11.3% 9.2% 11.3% 11.3% 10.2% 10.0%
PBT – Total 168.0 143.5 62.2 55.4 97.2 170.4 109.5 97.1
PAT 112.5 100.0 43.1 42.0 62.9 129.3 78.0 65.2
Dividend
– Rate 75%* 70% 30% 45% 55% 105%# Nil 50%
–Outflow 45.6 42.5 18.2 27.3 33.4 63.8 Nil 30.4
– Payout Ratio 40.5% 42.5% 42.3% 65.0% 53.1% 49.3% Nil 46.6%
Retained Earnings 62.3 57.5 22.6 11.2 24.7 56.6 78.0 29.6
EPS (Rs.) 18.52* 16.46 7.10 6.92 10.35 21.29 12.84 10.73
Book Value (Rs.) 71.49* 74.72 78.43 80.27 84.34 93.66 106.49 109.43
Return on Avg Net
27.9% 22.5% 9.3% 8.7% 12.6% 23.9% 12.8% 9.9%
worth (ROANW)
32
FOR THE FIRST QUARTERENDED 30TH JUNE, 2008
In Crores
Un-audited Audited
Quarter Ended Year Ended
30.06.2008 30.06.2007 31.03.2008
Expenditure
a) (Increase) / Decrease in
Stock in Trade and W.I.P. (2.20) 9.40 (2.82)
b) Consumption of Raw
Materials 228.20 111.90 675.64
c) Purchase of Traded Goods 1.40 2.10 7.82
d) Employees Cost 33.20 25.10 107.99
e) Depreciation 4.40 4.10 16.92
f) Other Expenditure 25.00 18.90 83.90
Total Expenditure 290.00 171.50 889.45
Basic / Diluted Earning Per Rs. 3.69 Rs. 0.54 Rs. 10.73
33
Share (not annualized)
Public Shareholding
- Number of Shares 2,14,85,535 6,07,55,700 2,14,85,535
- Percentage of Shareholding 35.4% 100.0% 35.4%
R & D
expenditure 1.46 0.73 0.79 0.89 0.96
(%) of sales
34
SWOT ANALYSIS
STRENGTHS:
The company has an excellent distribution network.
Due to strong consumer preference and the potential for expansion, the industry in
bound to record growth.
The company mainly has medium horse power tractor in its product portfolio, which
holds a good growth potential thereby leading to an increase in the market share.
Strong Research and development set up.
Being a cash rich company, SWARAJ DIVISION should have no obstacle for further
expansions.
WEAKNESSES:
Being agro-based product, company’s fortune depends on the
vagaries of the monsoon.
The company is addressing this problem by going in for capacity expansion and
increasing dealer network.
The company has not leveraged its brand and product varies in the exports market.
Major market share in Punjab & Haryana could stagnate as the market mature.
OPPORTUNITIES:
The Company will have the advantage to synergize with M &
M, Farm Equipment Sector in the areas of sourcing, manufacturing, product
development and distribution.
Increased agri-focus of the Indian Government.
Good brand name, product quality and cost advantage to increase exports in low
value markets of Sri Lanka, Bangladesh and African countries.
THREATS:
The entry of international and new domestic players would intensify
competition significantly. This could put pressure on the sale growth and the merging
of the company.
Number of technically superior new models likely to be launched in the market in the
next two years.
The evitable increase in petroleum prices including diesel & other inputs, will
naturally bring down the spirit of a prospective tractor purchasers.
35
Chapter-III
RESEARCH METHODOLOGY
The basic task of research is to generate accurate information for use in decision
making. Research can be defined as the systematic and objective process of gathering,
recording and analyzing data for aid in making business decisions.
As the project involves analyzing of financial structure, the research is exploratory in
nature, covering financial parameters and come of the important ratios to carry out
research.
There are basically two techniques adopted for obtaining information:
Primary Data.
Secondary Data.
Primary Data is gathered specifically for the project at hand through personal
interviews with the accounts officers.
36
Secondary data is previously collected and assembled for some project other
than the one at hand. It is gathered and recorded by someone else prior to current
needs of the researcher. It is less expensive than the primary date.
Secondary data can be obtained from both external and internal sources.
External data may be collected from books and periodicals, government sources,
media and other commercial sources.
Internal data is that secondary data, which is created, recorded or generated by the
organization.
Secondary data is collected from the reports of the company, books, journals and
internet. Secondary data is gathered from annual reports, official records and standing
orders of the units.
RESEARCH PROCES
Step1:
Program
Planning
Step 6: Step 2:
Consultation & Start
review Survey
Research
Methodology
Step 3:
Step 5:
Survey
Development
Reporting
Step 4:
Data Analysis
37
WORKING OF SWARAJ DIVISION
(FINANCE PROCESS)
Store requirements-
receipt of MRS – Material
requisition slip
Procurement of raw
material
MRR- Material
Production Process
Raw FINISHED
Material W In P GOODS
38
Chapter –IV
RESEARCH TOPIC - FINANCIAL STATEMENT
ANALYSIS OF SWARAJ
39
Trend Analysis.
Funds and cash flow analysis.
Ratio analysis.
In the present study a combination of these tools has been used.
Market performance.
Investment pattern.
40
PROFITABILITY ANALYSIS
Profit is the ultimate output of a company and the company will have no
future if it fails to make adequate profits. P.F. Ducker has rightly commented on
importance of profitability of a concern for its survival when he writes,” profits is a
condition of survival. It is the cost of future. It is the cost of staying in the business.”
If an undertaking does not earn profit it cannot expand or diversify, it cannot pay
handsome rewards to various factors of production and it is doomed to fail at last. In
fact, profit is a yardstick by which efficiency of a business unit is measured. The
higher the profit, the more efficient is the business considered. Though changes in
total profits may indicate changes in efficiency, they will not indicate true state of
efficiency of a business or profitability unless profits are related with the size of
investment. Therefore overall efficiency of the business can be measured in terms of
profits related to investments made in the business. The profitability is also evaluated
in terms of return on capital contributed by creditors and owners because if the
company is unable to earn a satisfactory return on investment, its very survival is
threatened. To comment on the overall financial performance of SWARAJ
DIVISION, following two important profitability ratios are calculated.
Profits in relation to sales.
Profits in relation to investments.
Relevant financial information which has been used for conducting profitability
analysis is as follows:
41
• Operating profit Ratio
• Expenses Ratio
• Net Profit Ratio
• Cash Profit Ratio
G/P Ratio of the company is decreasing from 2004 to 2008 which is due to increasing
input costs. But it is quite good i.e. 10.3% with the increasing inflation.
1200
1000
800
G.P
600
Net Sales
400
200
0
2004 2005 2006 2007 2008
42
16.0%
14.0%
12.0%
10.0%
8.0% G.P. Ratio
6.0%
4.0%
2.0%
0.0%
2004 2005 2006 2007 2008
Operating Ratio:
This ratio establishes the relationship between cost of goods sold and other operating
expenses on the one hand and sales on the other hand. In other words, it measures the
1200
1000
800
Operating Cost
600
Net Sales
400
200
0
2004 2005 2006 2007 2008
43
91
90
89
88 Opearing Cost ratio
87
86
85
2004 2005 2006 2007 2008
Operating ratio
Operating ratio: Operating ratio indicates the percentage of net sales that is
consumed by operating cost. Higher the operating ratio, the less favorable it is,
because, it would have a small margin to cover interest, income tax, dividend and
reserves. There is no rule of thumb for this ratio as it may differ from firm to firm
depending upon the nature of its business and its capital structure. However, 75 to 85
percent may be considered to be good ratio in case of manufacturing undertaking. So
from the analysis of operating ratio of the company SWARAJ DIVISION, in every
FY from 2004 to 2008 the operating ratio is increasing and in the current year it
increases up to 90% shows only 10% margin left for other charges. It should increase
its operating efficiency.
Sales
44
Operating
Profit 12.7% 13.3% 13.1% 11.5% 10.0%
Ratio
14.0%
12.0%
10.0%
8.0%
Operating Profit Ratio
6.0%
4.0%
2.0%
0.0%
2004 2005 2006 2007 2008
16.0%
14.0%
12.0%
10.0%
8.0% N.P.Ratio
6.0%
4.0%
2.0%
0.0%
2004 2005 2006 2007 2008
45
Cash Profit Ratio:
This ratio measures the relationship between cash generated from operations and the
net sales.
C.P. Ratio
13.0%
12.5%
12.0%
11.5% C.P ratio
11.0%
10.5%
10.0%
2004 2005 2006 2007 2008
46
ANALYSIS OF PROFITABILITY OF SWARAJ DIVISION
SWARAJ DIVISION has been able to maintain a soundly profitable position through
its focus on continuous improvement and capital efficiency. In profit there are little
fluctuations from the FY 2004 to 2008. However unprecedented stretch of poor
monsoons resulted into broad spectrum of depressed market environment of the
whole tractor industry. Clearly profitability of SWARAJ DIVISION’s has shown
continuous and steadiest growth. It is the result of notable improvement in both
volume and model mix in tractors underpinned by its traditional cost efficiencies.
The raw material constitutes the major portion of the total expenditure in SWARAJ
DIVISION. It revolves around 79% of total expenditure as is given from the table
given below:
47
PROFITABILITY IN RELATION TO INVESTMENTS
The profitability of the firm is also measured in relation to its investment. The
term investment may refer to capital employed in the business or the owner’s equity.
Accordingly, return on capital employed (ROCE) and return on Shareholders equity
(ROSE) are calculated to give a broad idea about the overall return on the funds
invested in the business.
Return on capital employed (ROCE) is the best tool which is used by the owners to
know how well the management has used the funds supplied by them and other
parties. A higher ratio will satisfy the owners that their funds earn a handsome return.
To get a true idea about the operating efficiency of a firm ROCE is calculated for a
number of years and the firm’s ratio should be compared with industry average.
ROCE is calculated by dividing net profit after tax and interest by total capital
employed i.e.
Capital Employed
48
30.0%
25.0%
20.0%
15.0% ROCE
10.0%
5.0%
0.0%
2004 2005 2006 2007 2008
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25.0%
20.0%
15.0%
ROE
10.0%
5.0%
0.0%
2004 2005 2006 2007 2008
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2.) Temporary or variable working capital requirements.
Permanent working capital is that minimum amount which should always be needed
to carry the business operations without interruption and it is financed from the fixed
capital sources. Temporary working capital is that amount which is required for the
seasonal demands and some special exigencies such as rise in prices, strikes,
extensive advertisement to capture more markets, etc. It should be financed from
short term sources of capital.
1. Commercial Banks
2. Trade Credit
3. Advances
4. Commercial Papers
In a nutshell, working capital is the life blood and controlling nerve centre of the
business. No business can be successfully run without an adequate amount of
working capital.
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Current Ratio:
The current ratio is an indicator of a firm’s short term solvency. A firm, to survive on
a continuing basis, should maintain sufficient liquidity. As a rule of thumb, 2:1 is
considered to be an ideal current ratio. The idea of having double the current assets as
to current liabilities is to provide a cushion against possible losses and to ensure a
smooth day to day functioning of the firm. There is, however, nothing very sacrosanct
about the 2:1 ratio. What is more important is the quality of current assets, how fast
and to what extent can they be converted into cash.
The above table indicates that there are also fluctuations in the current ratio of
SWARAJ DIVISION. In FY 2004 it was 3.39:1 and then increases to 5.20:1 in FY
2007 and in FY 2008 it further decreases to 3.38:1. The reason of increment in the
current ratio because decrease in current liabilities and increase in current assets in the
FY 2007. In all the years it is above than the standard 2:1.
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80000
70000
60000
50000
Current Assets
40000
Current Liabilities
30000
20000
10000
0
2004 2005 2006 2007 2008
Liquidity position of a company depends upon the quality of its debtors to a great
extent, two ratios i.e. Debtors Turnover Ratio and Average Collection Period are
calculated to judge the quality and liquidity of debtors of the company and comment
on efficiency.
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A close analysis of this ratio of five years from 2004 to 2008 as given in chart
shows SWARAJ DIVISION has a very low turnover ratio of about 1.15 times in 2004
but it increasing Y-O-Y and it is highest in the current year i.e. 3.45. The reason is,
during the year, SWARAJ DIVISION has made special efforts to reduce dealer
outstanding by focusing attention on increasing retail sales and reducing dealer stocks
and thereby increase in collection from dealers.
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Net Working Capital (C.A. - 50795.61
C.L.)
55
70000
60000
50000
40000
Net Working Capital
30000
20000
10000
0
2004 2005 2006 2007 2008
An analysis of this table shows there is slight variation of the ratio from 2004 to 2007.
But it is quite high in 2008 in respect to other years. This no doubt indicates the
maximum use of working capital or quick turnover of current assets due to handsome
sales of its main products (tractors). To ensure maximum profitability, working
capital has to be managed skillfully to avoid situation of both, under and over trading.
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2.5
1.5
W.C. Turnover Ratio
1
0.5
0
2004 2005 2006 2007 2008
The above table shows SWARAJ DIVISION has the moderate inventory ratio during
this period. This indicates that the company has a good inventory management. In FY
2004 there is lowest inventory turnover. This is due to excessive inventory level than
required by its production and sales activities. The inventory turnover ratio should be
moderate because we can’t blindly accept very high inventory turnover ratio as
indicative of efficient inventory management as it may be due to very low levels of
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inventory which generally results into frequent stock outs. And frequent stock outs
may hamper production activities and may ultimately affect profits.
The average payment period ratio represents the avg. number of days taken
by the firm to pay its creditors. Generally lower the ratio better is the liquidity
position of the firm and higher the ratio less liquid is the position of the firm. From
the analysis, the payment period has been reduced from 3.93 in FY 2004 to 1.51 in
FY 2008 hence we can say SWARAJ DIVISION has better liquidity position.
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CAPITAL STRUCTURE ANALYSIS
59
Here net worth includes share capital and reserve and surplus. Loans include both
secured and unsecured.
SWARAJ DIVISION is the very low debt company with a debt equity ratio 0.006:1
in the FY 2008 on account of repayment of loan and reducing interest costs. The
reserve and surplus also increased from Rs. 58624 lacs in FY 2007 to Rs. 60408 lacs
in FY 2008. In fact, bolstered by the notable improvement in both volume and model
mix of tractors underpinned by SWARAJ DIVISION’s traditional Cost efficiencies
and operations have generated this sizably enhanced surplus.
The lowest debt equity ratio as recorded by SWARAJ DIVISION maintains the
fact that company does not rely on the outside sources for its routine operations rather
it depends on its internal sources. This fact helps the company to win confidence of
its creditors, who, in turn can/will extend liberal credit.
SWARAJ DIVISION is a cash rich company and strong internal cash
generation is expected over the next few years and this will completely cover planned
capital expenditure, and thus reducing the fear of dilution.
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Market Performance
A constant increase in the installed capacity of major players in the tractor
industry is due to the tough competition given by the new entrants in the industry. A
host of new players such as Greaves, Bajaj Tempo, Larsen & Turbo etc., are leaping
in either alone or in collaboration with leading international tractor makers. Thus as
competition hoots up, the existing players are adding capacities, moving into new
segments and new markets and tapping the overseas markets.
TREND ANALYSIS
DIVISION
1999 2,62,000 48336 18.4%
2000 2,73,000 50705 18.6%
2001 2,53,000 45712 18.5%
2002 2,18,000 40100 18.4%
2003 1,61,000 24200 15.1%
2004 1,89,000 25600 13.5%
2005 2,46,000 30330 12.3%
2006 2,91,000 31396 10.8%
2007 3,15,000 30045 8.6%
2008 3,46,000 28045 8.1%
20.0%
15.0%
10.0%
Marke t Share
5.0%
0.0%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Market share:
In the table and graph analysis of last 10 years the market share of SWARAJ
DIVISION up to 2001-02 show an increasing trend. But after this period, its Market
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share shows decreasing pattern. In this period SWARAJ DIVISION also reduces the
number of tractors and the total no. of tractors produced by industry also goes down
due to many reasons like reduction in farm’s income, RBI’s credit policy etc.
Financial year 2006-07 sales of tractors showing improvement for company’s models
in the +30 HP range continuous to display strength. After seeing the trend of growth
in various segments, it can be concluded that highest growth recorded by SWARAJ
DIVISION was in 35 HP which accounted for 90% of Swaraj sales in 2003-04.
SWARAJ DIVISION’s share in its range will improve in the near future because of
its Rs. 100 crores expansion plan which has increased its capacity from 36000 to
60000 tractors per annum. On its strength of wide distribution network and proven
competitiveness, SWARAJ DIVISION is the only tractor company with a waiting
period for its product. For SWARAJ DIVISION, marketing was never a problem
rather its capacity constraints to increase its volumes were a problem. As a result of
capacity expansion and strategic move into higher HP tractors, SWARAJ DIVISION
can be expected to maintain higher than industry growth levels. Strong consumer
preference for SWARAJ DIVISION’s tractors is evident from company’s ability to
collect advances. This fact insulates SWARAJ DIVISION from any slow down in the
industry.
In the tractor industry, many new foreign companies are coming with the new liberal
policy of the government. With most of new companies in the tractor market in over
drive, existing players are compelled to quickly move to protect their turf. There is
need for enhancement of production capacities on the part of tractor players to
progressively increase their market share and move into new segments. Almost all the
players have increased their production capacity over the years.
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With a host of new companies driving in, market leader M & M has also increased its
production capacity from 57,500 to 85,000 tractors by the end of 1999. Competitors
are meeting competition by stepping into the higher HP segment where as SWARAJ
DIVISION has expand its capacity in all segments. At present its annual installed
capacity is 60,000 tractors.
Big giant SWARAJ DIVISION that will get major benefit because of its pricing
strategy in the light of serving competition from foreign companies. It has planned to
produce 60,000 tractors per annum at the lowest capital cost per tractor (Rs. 34000).
Swaraj has also been focusing on development of overseas markets and is currently
making supplies to African/SAARC countries. A beginning has been made on export
of auto components.
Chapter-V
CONCLUSIONS & RECOMMENDATIONS
RECOMMENDATIONS
1.) SWARAJ DIVISION should increase its capacity utilization. It should work at
full capacity to minimize its cost of production. With this increase in capacity
utilization, the total cost will spread over more units thereby decreasing per unit cost.
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2.) SWARAJ DIVISION must move into higher HP segment to capture more market.
SWARAJ DIVISION’s highest share is in the 35 HP segment (Approximately 19%)
Its contribution to higher HP segment is almost negligible because of which it can not
export its tractors to Africa and Middle East, where there is demand for 70 HP
tractors. It is therefore, suggested that in order to be competitive in the international
market also, SWARAJ DIVISION should reset to manufacturing after cutting out
many of the frills in its lower HP tractors.
3.) SWARAJ should increase the credit facilities provided to its consumers. Earlier,
it was selling its main product i.e. tractor either against advance payments or cash
payments
4.) SWARAJ DIVISION should undertake such activities that can add value to
Society. SWARAJ DIVISION, as a good corporate citizen, should sponsor
programmes related to environment protection, rural uplift-meant and welfare of
general public. It should spend a crunch of its profits on the social activities which
will further improve its image in the society.
5.) SWARAJ should take advantage of India’s second position in low and medium
HP tractor segment, in which SWARAJ DIVISION is a leader, by exporting its
product to Asian, African and to some extend Latin American Markets.
CONCLUSIONS
On the basis of financial performance of M&M LTD -Swaraj Division made in the
previous chapters, following conclusions are drawn:
General Profile: The plant of SWARAJ DIVISION is ideally located in the Mohali
Focal Point Estate near Chandigarh, the capital of Punjab, on a campus of 17
hectares. The working environment of the company is very healthy.
Indigenous Technology: SWARAJ DIVISION is the only tractor manufacturing
company based on purely indigenous technology. Swaraj was appropriately chosen as
the brand name as self reliance and building up of Indian Engineering capabilities
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Financial structure: SWARAJ DIVISION is a low debt company signifying its
dependence mainly on its internal accruals for its financial requirements. SWARAJ
DIVISION continues to strengthen its financial position by channelising these
internal accruals to fund its expansion programmes.
Working results: SWARAJ DIVISION has registered a handsome and constant
growth in its profits because of a brisk demand for Swaraj Tractors. None of the other
players has shown such a steady growth.
Marketing Performance: SWARAJ DIVISION is ranked at number five so far as
its marketing performance is concerned. While its competitors are meeting
competition by stepping into the higher HP segment, SWARAJ DIVISION has
decided to expand capacities in all segments.
Social Performance: SWARAJ DIVISION’s contribution towards industry and
research and technology has received national recognition. However, it has not
sponsored any programmed or established any educational or medical institution for
the general public or its employees. No housing facility is provided to the employees.
Though SWARAJ DIVISION has not done much for the welfare of the general
public, but still the farmers have a craze for Swaraj tractors mainly due to its
promising quality and reasonable price.
Excellent financial performance exhibited by SWARAJ DIVISION is the result
of an efficient and responsible management which establishes the fact that
performance of a company depends on the caliber of its managers and not on the
nature of sector to which it belongs.
BIBLIOGRAPHY
# Books
PANDEY I.M. “Financial Management”
GUPTA SHASHI K.GUPTA
SHARMA R.K., “Management Accounting and Business Finance
# JournalsC
Annual Reports of PUNJAB TRACTORS LTD. (From 2003-2008)
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# INTERNET WEB SITES
www.swarajenterprise.com
www.investorwords.com
Web Pages
http://www.swarajenterprise.com/
http://www.swarajenterprise.com/Swaraj Division_index.htm
http://www.swarajenterprise.com/Swaraj Divisionannualreport.asp
http://www.swarajenterprise.com/Swaraj Division_shareholding.htm
http://www.swarajenterprise.com/Swaraj Division_enterprise.htm
http://www.swarajenterprise.com/Swaraj
Divisionprofitandloss.asp#pl
http://www.swarajenterprise.com/Results/SWARAJ DIVISION-
RESFirstQuarterReport2008.htm
www.indiaautomotive.net
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