PROJECT REPORT

FINANCIAL STATEMENT ANALYSIS

AT
HERO MOTOCORP, HYDERABAD
MASTER OF BUSINESS ADMINISTRATION

Submitted by

(Student Name)

HT NO: 21WJ1E****

Under the Guidance of

Mr. **********************

ASSISTANT PROFESSOR

School of Management studies

GURUNANAK INSTITUTIONS TECHNICAL CAMPUS

(Autonomous)
Abstract:

The process of identification of financial strengths and weaknesses of the company by

establishing the relationship between the items of balance sheet and profit and loss account is
referred to as financial performance analysis. Analyzing financial performance has its
importance in internal and external aspects. In this study we have analyzed the financial
performance of Hero MotoCorp. Limited (formerly known as Hero Honda) which is an Indian
multinational scooter and motorcycle manufacturer by applying trend analysis and profitability
ratios. The analysis was performed for a period of five years based on the secondary data
obtained from the annual report of the company. It was found that the sales trends, working
capital trend and cash flow ratios are fluctuating and suggested the company to improve the
ratios by maintaining stability of cash flow and regulate cash flow evenly throughout and try to
improve sales to achieve maximum profitability at a minimum cost.

Key words: Financial performance, ratio analysis, cash flow analysis, coverage ratios trend
analysis, working capital analysis.
 CHAPTER – I

INTRODUCTION

Financial statement analysis can be referred as a process of understanding the risk and
profitability of a company by analysing reported financial info, especially annual and quarterly
reports. Putting another way, financial statement analysis is a study about accounting ratios
among various items included in the balance sheet. These ratios include asset utilization ratios,
profitability ratios, leverage ratios, liquidity ratios, and valuation ratios. Moreover, financial
statement analysis is a quantifying method for determining the past, current, and prospective
performance of a company.

ADVANTAGES OF FINANCIAL STATEMENT ANALYSIS

The different advantages of financial statement analysis are listed below:

 The most important benefit if financial statement analysis is that it provides an idea to the
investors about deciding on investing their funds in a particular company.
 Another advantage of financial statement analysis is that regulatory authorities like IASB can
ensure the company following the required accounting standards.
 Financial statement analysis is helpful to the government agencies in analyzing the taxation
owed to the company.
 Above all, the company is able to analyze its own performance over a specific time period.

Financial statements are prepared primarily for decision making. They play a dominant role in
setting the framework of managerial decisions. But the information provided in the financial
statements is not an end in itself as no meaningful conclusions can be drawn from these
statements alone. However, the information provided in the financial statements is of immense
use in making decisions through analysis and interpretation of financial statements. Financial
analysis is the process of identifying the financial strengths and weaknesses of the company by
properly establishing relationship between the items of the balance sheet and the profit and loss
account. There are various methods or techniques used in analyzing financial statements.
Financial statements are an important source of information for evaluating the performance and
prospects of the company, if properly analyzed and interpreted these statements can provide
valuable insights into companies performance. Analysis of financial statements is if interest to
lenders, investors, security analyst, manager and others.

Financial statements analysis may be done for a variety of purposes, which may range
from simple analysis of short term liquidity position of the form to a comprehensive
assessment of the strengths and weakness of the firm in various areas, it is helpful in
assessing corporate excellence , judging credit worthiness forecasting bond rating, evaluating
intrinsic value of equity shares predicting bankruptcy and assessing market risk.
Financial Statement Analysis

Introduction:

The term ‘financial analysis also known as analysis and interpretation of financial
statements’ , refers to the process of determining financial strength and weaknesses of the firm
by establishing strategic relationship between the items of the balance sheet , profit and loss
account and other operative data.

“Analyzing financial statements” by Metcalf and Titard

“Financial analysis is a process of evaluating the relationship between component

parts of a financial statement to obtain a better understanding of a firms position and
performance” by Myers

The purpose of financial analysis is to diagnose the information contained in financial

statements so as to Jude the profitability and financial soundness of the firm. Just like a doctor
examines his patient by recording his body temperature, blood pressure, etc. Before making his
conclusion regarding the illness and before giving his treatment, a financial analyst analysis the
financial statements with various tools of analysis before commenting upon the financial health
or weaknesses of an enterprise.

The analysis and interpretation of financial statements is essential to bring out the mystery
behind the figures in financial statements. Financial statements analysis is an attempt to
determine the significance and meaning of the financial statement data so that forecast may be
made of the future earnings, ability to pay interest and debt maturities (both current and long
term) and profitability of a sound divided policy.

OBJECTIVES OF FINANCIAL STATEMENT

 Broadly the objective of the Analysis of Financial statement is to understand the
information contained in the financial statement with a view to the weakness and strengths of the

firm and to make forecast about the future prospects of the firm and their by enabling the
financial analyst to take different decision regarding the operation of the firm. The objectives of
the analysis can be identified as:

 To assess the present profitability and operating efficiency of the firm as a whole as well
as for its different departments.

 To find out the relative importance of different components of the financial position of
the firm.

 To identify the reasons for change in the profitability\financial position of the firm.

 To assess the short-term as well as the long-term liquidity position of the firm.

 To examine the solvency of the firm.

 To find out the ability of the firm to meet its current obligations.

Significance of financial analysis

Analysis of financial statement is carried out to measure the enterprise’s liquidity, profitability,
solvency and other indicators to assess its operating efficiency, financial position and
performance. Financial Analysis serves the following purpose.

 To know the operational efficiency of the business : The financial analysis enables the
management to find out the overall efficiency of the firm. Department-wise efficiency
can also be judged from the available data. This will enable the management to locate
weak spots of the business and take necessary remedial action.

 Helpful in measuring the solvency of the firm : The firm must know its financial
soundness. It should satisfy itself that its current resources are sufficient to meet its
 current liabilities. This is possible through the calculations of liquid ratios. On the other
hand, the long term financial position can be measured by calculated debt equity,
proprietary and fixed assets ratios. Thus, the financial analysis helps the decision makers
in taking appropriate decisions for strengthening the short-term as well as long-term
solvency of the firm.

 Comparison of past and present results: Financial statement of the previous years can be
compared and the trend regarding various expenses, purchases, sales gross profit can be
ascertained. The cost of goods sold, values of assets and liabilities can be compared and
the future prospects of the business can be indicated.

 Help in measuring the profitability : Financial statements show the gross profit, net profit,
and other expenses. The relationship of these items can be established with sales by
calculating operating ratios. This type of analysis helps the managers in taking certain
decisions for improving the profitability or reducing the losses of the firm.

 Inter-firm comparison: The financial analysis makes easy to inter-firm comparison.

Various financial characteristics like profitability, liquidity, solvency of different firms
can be compared. This comparison can also be made for various time periods.

 Helps in judging the solvency of the undertaking : creditors are always interested in
knowing the solvency i.e, the capacity of the business to repay their loans. Through

Financial statement it is possible to known:

 Whether current assets are sufficient to meet current liabilities.

 Proportion of liquid assets to current assets.

 Futures prospects of the business.

 Whether debentures and other loans are secured or not.

 Managerial efficiency of the company.

  Bankruptcy and failure: Financial statement analysis is a significant tool in predicting the
bankruptcy and failure of the business enterprises. Financial statement analysis
accomplishes this through the evaluation of solvency position.

 Helps in forecasting: The financial analysis will help in assessing future development by
making forecasts and preparing budgets. Capital budgets are prepared after taking into
account the profitability of various alternative proposals. The trend shown by financial
analysis will pave way for the future.

Types of financial analysis:-

Financial analysis into different categories depending upon

 The material used and

 The method of operation followed in the analysis or the modus operandi of analysis
 Types of financial analysis

On the basis of material used on the basis of modus operandi

External Internal Horizontal Vertical

Analysis Analysis Analysis Analysis

 On the basis of material used:

According to material used, financial analysis can be of two types

 External analysis

 Internal analysis

 External analysis:-

This analysis is done by outsiders who do not have access to the detailed internal
outsiders include investors, potential investors , Creditors, Potential Creditors, Government
Agencies , Credit agencies and General Public for financial analysis, these external parties to
the firm depend almost entirely on the published financial statements.

 Internal analysis:-

The analysis conducted by persons who have access to the internal accounting
records of a business firm is known as internal analysis.

 On the basis of modus operandi:

According to the modus operandi financial analysis can also be of two types

 Horizontal analysis

 Vertical analysis
 Horizontal analysis:-

Horizontal analysis refers to the comparison of financial data of a company

for several years. The figures for this type of analysis are presented horizontally over a
number of columns. The figures of the various years are compared with standard or base year
a base year is year chosen as beginning point. This type of analysis is also called ‘dynamic
analysis’ as it is based on the data from year to year rather than on data of any one year. The
horizontal analysis makes it possible to focus attention on items that have changed
significantly during the period under view

 Vertical analysis:-

Vertical analysis refers to the study of relationship of the various items in the financial
statements of one accounting period in this types of analysis the figures from financial statement
of a year are compared with a base selected from the same years statement.

Parties interested in financial analysis:

 Financial Executives:-

The first party interested in the financial analysis in the financial department of the business
concern who have a deep insight into the financial condition of the enterprise and view of the
past performance, which help in future decisions making.

 Management:-

The management of the concern is also interested in the analysis of the statements because it
helps them in reaching conclusion regarding the overall operation of the business. The
management is interested in every aspects of the financial analysis it is there overall
responsibility to see that the resources of the firm are used effectively and efficiently and the
firm’s financial position is sound. As such, return on analysis is very important for them.

 Creditors:-

Creditors also evaluate the financial statements and on the basis of these financial statements
they come about the credit worthiness of the business enterprise and chosen to extend, maintain
of restrict credit. Creditors will be interested to give credit for those business enterprises having
sound financial position and having capable of being repayments of their credit. Some of the
aspects of enterprise operations that are of interested of the creditors are liquidity of funds,
soundness of the financial structure, profitability of the operations, effectiveness of working
capital management etc. The bankers and trade creditors of a business enterprise are interested in
its cash generation and credit worthiness. They want to assess whether the enterprise will be as
interested payments due as per agreed schedules. The get all this information from the analysis of
balance sheet and income statement of the company.

 Investors:-

Investors present as well as prospective, are interested in the business in the measurements of
earning capital of securities. Every investor has the tendency to get fair return on his or her
investment. Investors have been increased concerned with the cash generation capability of an
enterprise primarily in terms of the flexibility availability to such enterprises to acquire other
business and new assets on an advantageous basis. For this purpose each cash flow analysis and
funds flow analysis are very useful.

 Government:-

The financial statements are used to assess the tax liability of the business enterprise. The
government studies economic situation of the country from these statements enable the
government to find out whether business is following various rules and regulations or not.

 Bankers:-

The banker is interested to see that the loan amount is secure and the customer is also able to
take the interest regularly. The bankers will analysis the balance sheet to determine financial
strength of the concern and profit and loss account will also be studied to find out earning
position.

The information provided by the analysis and interpretation of various financial statements is
important and useful to those groups also that are interested in working of the business due to
one or other motive.

Procedures for financial analysis:

The following is the procedure to be followed by the interested parties in analyzing the financial
statements.

 Determination of nature and extent of analysis: First of all, the depth, object and extent of
analysis is to be determined by the financial analyst. The nature of analysis will differ
depending on the purpose of the analysis. For example, trade creditors and bankers are
interested in knowing whether the firm can pay back their debt in short period. Their analyses
will, therefore, confidence to the evaluation of the firm’s liquidity position. The suppliers of
interested in knowing its ability to generate cash to be able to pay interest and return their
claims. Similarly, investors, who have invested their money in long-term debt, on the other
hand, are interested in the firms profitability over time. They are the firm’s shares, are most
concerned about the firms earnings. As such, they concentrate on the analysis of the firms
financial position to the extent it influences the firms earnings ability. Finally, management
of the firm would be interest red in every aspect of the financial analysis.

 Vertical of the financial statements: Before analyzing and preparing any statement or
composing financial ratios, it is necessary for the analyst to go through the various financial
statements of the firm.

 Collection of necessary statements: The analyst should collect other useful information
from the management useful for analysis. This includes any other information not being
revealed from the published financial statements.

 Rearrangement of financial data: Before making actual analysis and interpretation, the
analyst must rearrange the data provided by these statements in useful manner. The
approximation of figures, re-classification of consolidation of items etc., is done in this step.
 Methods of analysis: Now the financial analyst may use one or multiple methods of
financial analysis. The methods of financial analysis are: comparative statements, common
size statements, trend analysis, ratio analysis, funds flow statements, cash flow statements
and cost volume profit analysis (CVP analysis).

 Interpretation and presentation: After analyzing the statements the interpretation is to be

made. The interference drawn from the analysis are presented in the scope of reports to the
management.

Limitations of financial analysis :

 Historical data: Analysis of the financial statements indicates about the performance of
the business in the processing period or periods. It does not indicate the present position
of the business. Financial statements are prepared on historical facts and do not throw
light on the current and present position of the business.

 Lack of standard terminology: Accounting is not an exact science. It does not

universally accepted terminology. Different meanings are given to a particular term.
There are different methods of providing depreciation. Interest may be charged on
different rates. In this way, there is sufficient possibility of manipulation and the financial
statements have to suffer. As a consequence financial analysis also proves to be
defective. However, in the recent past the international accounting board is taking interest
and taking measures for standardizing the accounting terminology as well as bringing
standards for being uniformity in accounting system.

 Affects of prices level changes: The results shown by financial statements may be
misleading, if price level changes have not been accounted for. The ratio may improve
with the increase in price, where as actual efficiency may not improve. Ratios of the two
years will not be meaningful for comparison, if the prices of commodities are different.
Change in price affects cost of production, sales and value of assets and as a consequent
comparability of ratios also suffers.

 Non-consideration qualitative aspect: financial analysis does not measure the

qualitative aspects of the business it does not show the skill, technical know how and the
 efficiency of its employees and managers. It is the quantitative measurement of the
performance. It means that analysis of financial statements measures only one sided
performance of the business. It completely ignores human resources.

 Misleading results: Results shown by financial analysis may be misleading in the

absence of absolute date. For example, the analysis of one firm reveals that the increase
in profits from Rs.20,000 to Rs.80,000 shows that the profit has increased by four times.
In case of another firm the analysis reveals that the profit of this firm als increased from
Rs.100 crores toRs.400 crores, showing four fold increases. But this analysis ignored the
size of the firms. As such, the results may mislead.

Methods of financial analysis:-

The following methods of analysis are generally used:-

 Comparative Statements.

 Trend Analysis.

 Common-Size Statements.

 Funds flow Analysis.

 Cash Analysis

 Ratio Analysis

 Cost-volume-Profit Analysis

COMPARATIVE STATEMENTS:-

The comparative financial statements are statements of the financial position at different
periods of time .the elements of financial position are show in a comparative Statement provides
an idea of financial position at two or more periods. Generally two financial statements (balance
sheet and income statement) are prepared in comparative form for financial analysis.

THE COMPARATIVE STATEMENT MAY SHOW:-

 Absolute figures (rupee amounts)

 Changes in absolute figures i.e. increase or decrease in absolute figures.

 Absolute data in terms of percentages.

 Increase or decrease in terms of percentages.

THE TWO COMPARATIVE STATEMENTS ARE:-

 Comparative balance sheet, and

 Income statement.
 NEED AND IMPORTANCE OF THE STUDY
 Need of financial statement analysis study to diagnose the information contain in financial
statement. So as to judge the profitability and financial position of the company Hero
MotoCorp Ltd. (Formerly Hero Honda Motors Ltd.).
 Financial analyst analyses the financial statements with various tools of analysis before
commanding upon the financial health of the company.
 Essential to bring out the history of Hero MotoCorp Ltd. (Formerly Hero Honda Motors Ltd.).
 Significance and meaning of the financial statements.
 SCOPE OF THE STUDY
Analysis of financial statement can be undertaken by different persons and for different
purposes, therefore, the scope of the AFS may be varying from one situation to
another.

However, the following are some the techniques of the AFS:

a) Comparative financial statements.

b) Common-size financial statements.
c) Trend percentage analysis.
d) Statement of changes in financial position.
e) Cost-volume-profit relations, and
f) Ratio analysis and others.

The last technique i.e. the ratio analysis is the most common, comprehensive and
powerful tool of the AFS. The importance of ratio analysis lies in the fact that it presents facts
on a comparative basis. As such, this study focuses only on this (ratio) analysis.
 OBJECTIVES OF THE STUDY

 To determine the financial statements and weakness of the company.

 To determine the short –term solvency of the company.
 To diagnose the information contained to financial statements so as to judge the profitability and
fondness of the company
 To establish relationship between various figures or the income statement and balance sheet.
 To assess the short-term as well as the long-term liquidity position of the company.
 RESEARCH & METHODOLOGY

RESEARCH DESIGN

This is a systematic way to solve the research problem and it is important component for
the study without which researches may not be able to obtain the format. A research design is the
arrangement of conditions for collection and analysis of data in a manager that aims to combine
for collection and analysis of data relevance to the research purpose with economy in procedure.

MEANING OF RESEARCH DESIGN

The formidable problem that follows the task of defining the research problem is the
preparation of design of the research project, popularly known as the research design, decision
regarding what, where, when, how much, by what means concerning an inquiry of a research
study constitute a research design. A research design is the arrangement of conditions for
collection and analysis of data in a manager that aims to combine for collection and analysis of
data relevance to the research purpose with economy in procedure.

SOURCES OF DATA
Data we collected based on two sources.

 Primary data.
 Secondary data.

PRIMARY DATA

The Primary data are those information’s, which are collected afresh and for the first
time, and thus happen to be original in character.

SECONDARY DATA
 The Secondary data are those which have already been collected by some other agency
and which have already been processed. The sources of Secondary data are Annual Reports,
browsing Internet, through magazines.

1. It includes data gathered from the annual reports of Hero MotoCorp Ltd
2. Articles are collected from official website of Hero MotoCorp Ltd.

TECHNIQUES OF FINANCIAL ANALYSIS

For the analysis of the financial statements various techniques of have been
developed. Depending on the objectives of the analysis, a group of analytical
techniques is selected for a result-oriented analysis. The selected tools of analysis
are

1. Comparative Statement or Comparative Financial and Operating Statements.

2. Common Size Statements.

3. Trend Ratios or Trend Analysis.

4. Average Analysis.

5. Statement of Changes in Working Capital.

6. Fund Flow Analysis.

7. Cash Flow Analysis.

8. Ratio Analysis.

9. Cost Volume Profit Analysis

 LIMITATIONS

 It is only a study of interim reports.

 Financial analysis is based upon only monetary information and non monetary factors are
ignored.
 Different people may interpret the same analysis in different ways.
 It does not consider the changes in prices level.
 Changes in accounting procedure by firm may often make financial analysis misleading.
REVIEW OF LITERATURE
The financial statement analysis is one of the major tools to know the company key financial
position to analyse the company balance sheet and profit and loss account .Various financial
statements by using different ratios and techniques .It can express where the company’s financial
performance is good and where the performance is bad for the future investment purpose .But the
analysis is based on the company’s previous data .For the purpose of the study data is collected
through secondary source of data collection method .Major sources of the data of financial
statements are available at HeroMotoCorp.

The HeroMotoCorp is one of the leading truck motor manufacturing company .The company was
incorporated in 1958 .The HeroMotoCorp product development success have come from a keen
sense of anticipation and attentiveness .The company needs to know their own financial
performance in every year .So that this analysis is helpful to the management for expanding the
decisions and the financial viability and present availability of funds.

In the financial statement analysis majorly we use the ratios like profitability and leverage ratio
and half yearly and quarterly variance of the financial elements to interpretative the changes
occurred this project is helpful in knowing the company’s position of funds maintenance and
setting the standards for ratios . This project is done entirely as a whole entity .It will give overall
view of the organization and it is useful in their further expansion decision to be taken by
management.

In the history of FRA it is common that professional journals and academic papers do not
recognize each other. An early paper on financial ratio distributions was published in
Management Accounting by Mecimore (1968) (1). It is interesting to recognize that all ingredients
of modern distribution analysis already appear incumbent in Mecimore's paper. Using descriptive
statistical measures (average and relative deviations from the median) he observes cross-sectional
non-normality and positive skewness for twenty ratios in a sample of randomly selected forty-four
Fortune-500 firms.
 The paper most often referred to in literature as the seminal paper in this field is,
however, the much later published article by Deakin (1976) (2). His chi-square findings reject (with
one exception) the normality of eleven financial ratios in a sample of 1114 Compustat companies
for 1954-72.

Less extreme deviations from normality were observed when square-root and logarithmic
transformations were applied, but normality was still not supported.

Likewise, while not statistically significantly, industry grouping made the distributions less non-
normal. Concomitant results are obtained by Lee (1985) (3) using a stronger test (Kolmogorov-
Smirnov) for a different set of data.

Bird and McHugh (1977) adopt an efficient Shapiro-Wilk small-sample test for the
normality of financial ratios for an Australian sample of five ratios over six years. Like Deakin
they find in their independent study that normality is transient across financial ratios and time.
They also study the adjustment of the financial ratios towards industry means which is a different
area of FRA research. Bougen and Drury (1980)(5) also suggest non-normality based on a cross-
section of 700 UK firms. The results indicating non-normality of financial ratio distributions have
led researchers into looking for methods of restoring normality to warrant standard parametric
statistical analyses.

Frecka and Hopwood (1983) observe that removing outliers and applying transformations
in a large Compustat sample covering 1950-79 restored normality in the same financial ratios as
tackled by Deakin (1976)(7). They point out that if the ratios follow the gamma distribution, the
square root transformation makes the distribution approximately normal. The gamma distribution
is compatible with ratios having a technical lower limit of zero. There is, however, a certain
degree of circularity in their approach, since instead of identifying the underlying causes of the
outliers they employ a mechanistic statistical approach to identify and remove the outliers from
the tails of the financial ratio distributions.

A varying and often a considerable number of outliers has to be removed for different
financial ratios in order to achieve normality. The empirical results are supported by later papers
such as So (1987).
Ezzamel, Mar-Molinero and Beecher and Ezzamel and Mar-Molinero (1990)

Review and replicate the earlier analyses on UK firms with a particular emphasis on small
samples and outliers, respectively. One of the avenues taken is to study new industries. Kolari,
McInish and Saniga (1989)(10) take on the distribution of financial ratios in banking. Buckmaster
and Saniga (1990)(11) report on the shape of the distributions for 41 financial ratios in a Compustat
sample of more than a quarter million observations.

Foster (1978) Points out the outlier problem in FRA. Later, he presented in Foster (1986) (13) a
list of alternatives for handling outliers in FRA. The list includes deleting true outliers, retaining
the outlier, adjusting the underlying financial data, winsorizing that is equating the outliers to less
extreme values, and trimming by dropping the tails.

Foster also puts forward accounting, economic and technical reasons for the emergence of outliers
in FRA. While improving the statistical results trimming and transformations can pose a problem
for the theoretical rigor in FRA research.

McLeay (1986a) proposes using a better fitting distribution with fat tails for making statistical
inferences in FRA. He seeks for a best fitting t-distribution for a cross-section of 1634 UK and
Irish firms. Also his empirical results confirm non-normality. The best-fitting (in the maximum-
likelihood sense) t-distribution varies across financial ratios (the t-distribution can be considered a
family of distributions defined by its degrees of freedom). McLeay (1986b) (15) also tackles the
choice between equally weighted and value weighted aggregated financial ratios in terms of ratio
distributions on a sample of French firms.

Martikainen (1991) Demonstrate that normality can be approached by other procedures than
removing outliers. In a sample of 35 Finnish firms, four ratios and fifteen years about half of the
non-normal distributions became normal if economy-wide effects were first controlled for using
the so-called Accounting-index model. Martikainen (1992) (17) uses a time-series approach to 35
Finnish firms in turn observing that controlling for the economy factor improves normality.

Typically, many later papers tackle the same basic question of ratio distributions using different
samples and expanding on the methodologies. Buijink and Jegers (1986) (18) study the financial
ratio distributions from year to year from 1977 to 1981 for 11 ratios in Belgian firms
corroborating the results of the earlier papers in the field. Refined industry classification brings
less extreme deviation from normality. They also point to the need of studying the temporal
persistence of cross-sectional financial ratio distributions and suggest a symmetry index for
measuring it. Virtanen and Yli-Olli (1989) (19) studying the temporal behavior of financial ratio
distributions observe in Finnish financial data that the business cycles affect the cross-sectional
financial ratio distributions.

The question of the distribution of a ratio format variable (financial ratio) has been
tackled mathematically as well as empirically. Barnes (1982) (20) shows why the ratio of two
normally distributed financial variables does not follow the normal distribution (being actually
skewed) when ratio proportionality does not hold. Tippett (1990) (21) models financial ratios in
terms of stochastic processes. The interpretation in terms of implications to financial ratio
distributions are not, however, immediately evident, but the general inference is that "normality
will be the exception rather than the rule".

Because of these results bringing forward the significance of the distributional properties of
financial ratios many later papers report routinely about the distributions of financial ratios in
connection with some other main theme. Often these themes are related to homogeneity and
industry studies such as Ledford and Sugrue (1983) (22). The distributional properties of the
financial ratios also have a bearing in testing proportionality as can be seen, for instance, in
McDonald and Morris (1984)(23). In a bankruptcy study Karels and Prakash (1987) (24) put forward
that in applying the multivariate methods (like discriminant analysis) the multivariate normality is
more relevant than the (univariate) normality of individual financial ratios. They observe that
deviations from the multivariate normality are not as pronounced as the deviations in the earlier
univariate studies.

Watson (1990) Examines the multivariate distributional properties of four financial ratios
from a sample of approximately 400 Compustat manufacturing firms for cross-sections of 1982,
1983 and 1984. Multivariate normality is rejected for all the four financial ratios. Multivariate
normality is still rejected after applying Box's and Cox's modified power transformations.
However, when multivariate outliers are removed, normality is confirmed.

The Literature review of this study will emphasis on the related studies on comparing and
analyzing financial statements to make an investment. The basis of financial planning analysis
and decision making is the financial information (Statements). Financial statements are needed to
predict, compare and evaluate a firm’s earning ability. It is also required to aid in economic
decision making investment and financing decision making. The financial information of an
enterprise is contained in the financial statements. The use of financial statement analysis in
investment decision has been addressed by a series of authors.

Gautam, U. S. (2005) Accountancy (P#215) Financial Statement is generally explained as

financial information which is the information relating to financial position of any firm in a
capsule form. Financial statement according to J. A Ohison (1999) was defined as a written report
that summarizes the financial status of an organization for a stated period of time. It includes an
income statement and balance sheet or statement of the financial position describing the flow of
resources, profit and loss and the distribution or retention of profit.

Pandey, I.M. (2005 Financial management) profitability is the ability of an entity to

earn income. It can be assessed by computing various relevant measures including the ratio of net
sales to assets, the rate earned on total assets etc. According to Meigns et al. (2001), Financial
Statement simply means a declaration of what is believed to be true and which, communicated in
terms of monetary unit. It describes certain attributes of a company that is considered to fairly
represent its financial activities.

Meigs and Meigs (2003) stated that the rate of return on investment (ROI) is a test of
management’s efficiency in using available resources. This review is organized under the
following sub-heads for ease of comprehension.

Kennedy and Muller (1999) Has explained that “The analysis and interpretation of financial
statements are an attempt to determine the significance and meaning of financial statements dataso
that the forecast may be made of the prospects for future earnings, ability to pay interest and debt
maturines (both current and long term) and profitability and sound dividend policy.”

T.S.Reddy and Y. Hari Prasad Reddy Without subjecting these to data analysis, many
fallaciousconclusions might be drawn concerning the financial condition of the enterprise.
Financialstatement analysis is undertaken by creditors, investors and other financial statement users
inorder to determine the credit worthiness and earning potential of an entity.

Susan Ward (2008) Emphasis that financial analysis using ratios between key values
helpinvestors cope with the massive amount of numbers in company financial statements. For
example, they can compute the percentage of net profit a company is generating on the funds ithas
deployed. All other things remaining the same, a company that earns a higher percentage of profit
compared to other companies is a better investment option.

M Y Khan & P K Jain (2011) Have explained that the Financial statements provide asummarized view of
the financial position and operations of a firm. Therefore, much can belearnt about a firm from a careful
examination of its financial statements as invaluabledocuments / performance reports. The analysis of
financial statements is, thus, an important aidto financial analysis.

B .Chandra Mohan Patnaik Evaluation and performance measurement are among the most debated
and discussed issues in financial management. The relationship between capital structure and
financial performance of the companies is one that received considerable attention in the finance
literature all the time by everyone. The study has been conducted to review literature on financial
structure analysis of Indian companies. Key words: Financial structure, performance, literature
review.

B.Nimalathasan&ValeriuBrabete Have pointed out capital structure and its impact on

profitability by a study of listed manufacturing companies in Sri Lanka. The analysis of listed manufacturing
companies shows that dept-equity ratio is positively and strongly associated to all profitability ratios (Gross
Profit, Operating Profit & Net Profit Ratios). The proportion of the debt-equity in the capital structure is
also fairly responsible to design the financial structure of the firms to a greater extent.

Anand Pandey Tested the efficiency level of the three popular stock Indices of Indian Stock Market using
the Runs Test and the Autocorrelation Function of ACF. It is found from the Autocorrelation and Runs
Test that the time series of stock indices in the Indian Stock Market were biased random time series. It is the
attitude that is well addressed amongst the financial researchers to set a new horizon on the investment
pattern, that redefine the company financial pattern.

Kin-Yip Ho and Albert K C Tsui Probed the applicability of volatility behavior of aggregate indices to the
sectoral indices. The study doubted the leverage effects of equity returns and also it‟s bearing on the
strategy of portfolio diversification among various sectors. This also raised a possible question mark on the
impact of capital structure on the financial framework in the long-run as because the growth factor is always
subject to forecast with uncertainity.

Tasneem Alam and Muhammad Waheed Investigated the monetary transmission mechanism in Pakistan at
the sectoral level. The study assessed whether the reform process achieved notable impact on the
monetary transmission mechanism or not. The study found that there was significant change in the
transmission of monetary stock to real sector of the economy during the post-reform period.

MufeedRawashdeh and Jay Squalli Tested market efficiency across the four sectors, namely, Banking,
Industrial, Insurances and Services in the Amman Stock Exchange (ASE). The study found that the random
walk and weak form efficiency hypotheses were rejected for all sample sectors. Besides, the returns of mean
values were highly volatile and over inflated stock prices and frequent market corrections formed a bubble
effect. It indicates that investment in all sectors of the ASE may be very risky in the short run.

Chin Wen Cheog Investigated the weak form market efficiency by using daily return of nine sectoral indices
in Malaysian Stock Market. These empirical results were in sharp contrast with the traditional unit root test
which ignored the economic crisis and currency control. The study found that the sectoral indices of
Malaysian Stock Markets were inefficient weak-form (except the property index).
 INDUSTRY REPORT

INTRODUCTION

India became the fourth largest auto market in 2019 displacing Germany with about 3.99 million
units sold in the passenger and commercial vehicles categories. India is expected to displace
Japan as the third largest auto market by 2021.

The two wheeler segment dominates the market in terms of volume owing to a growing middle
class and a young population. Moreover, the growing interest of the companies in exploring the
rural markets further aided the growth of the sector.

India is also a prominent auto exporter and has strong export growth expectations for the near
future. In addition, several initiatives by the Government of India and major automobile players in
the Indian market are expected to make India a leader in the two-wheeler and four-wheeler market
in the world by 2020.
MARKET SIZE

Domestic automobiles production increased at 2.36% CAGR between FY16-20 with 26.36
million vehicles being manufactured in the country in FY20. Overall, domestic automobiles sales
increased at 1.29% CAGR between FY16-FY20 with 21.55 million vehicles being sold in FY20.

Two wheelers and passenger vehicles dominate the domestic Indian auto market. Passenger car
sales are dominated by small and mid-sized cars. Two wheelers and passenger cars accounted for
80.8% and 12.9% market share, respectively, accounting for a combined sale of over 20.1 million
vehicles in FY20.

Passenger vehicle (PV) sales stood at 3,10,294 units in October 2020, compared with 2,71,737
units in October 2019, registering a 14.19% growth. As per the Federation of Automobile Dealers
Associations (FADA), PV sales in November 2020 stood at 2,91,001 units, compared with
2,79,365 units in November 2019, registering a 4.17% growth.

Overall, automobile export reached 4.77 million vehicles in FY20, growing at a CAGR of 6.94%
during FY16-FY20. Two wheelers made up 73.9% of the vehicles exported, followed by
passenger vehicles at 14.2%, three wheelers at 10.5% and commercial vehicles at 1.3%.

EV sales, excluding E-rickshaws, in India witnessed a growth of 20% and reached 1.56 lakh units
in FY20 driven by two wheelers. Premium motorbike sales in India recorded seven-fold jump in
domestic sales, reaching 13,982 units during April-September 2019. The sale of luxury cars stood
between 15,000 to 17,000 in the first six months of 2019.
 INVESTMENTS

In order to keep up with the growing demand, several auto makers have started investing heavily
in various segments of the industry during the last few months. The industry has attracted Foreign
Direct Investment (FDI) worth US$ 24.53 billion between April 2000 and June 2020, according
to the data released by Department for Promotion of Industry and Internal Trade (DPIIT).

Some of the recent/planned investments and developments in the automobile sector in India are as
follows:

 In November 2020, Mercedes Benz partnered with the State Bank of India to provide attractive
interest rates, while expanding customer base by reaching out to potential HNI customers of the
bank.

 Hyundai Motor India invested ~Rs. 3,500 crore (US$ 500 million) in FY20, with an eye to gain
the market share. This investment is a part of Rs. 7,000 crore (US$ 993 million) commitment
made by the company to the Tamil Nadu government in 2019.

 In October 2020, Kinetic Green, an electric vehicles manufacturer, announced plan to set up a
manufacturing facility for electric golf carts besides a battery swapping unit in Andhra Pradesh.
The two projects involving setting up a manufacturing facility for electric golf carts and a battery
swapping unit will entail an investment of Rs. 1,750 crore (US$ 236.27 million).
 In October 2020, Japan Bank for International Cooperation (JBIC) agreed to provide US$ 1
billion (Rs. 7,400 crore) to SBI (State Bank of India) for funding the manufacturing and sales
business of suppliers and dealers of Japanese automobile manufacturers and providing auto loans
for the purchase of Japanese automobiles in India.

 In October 2020, MG Motors announced its interest in investing Rs. 1,000 crore (US$ 135.3
million) to launch new models and expand operations in spite of the anti-China sentiments.

 In October 2020, Ultraviolette Automotive, a manufacturer of electric motorcycle in India, raised

a disclosed amount in a series B investment from GoFrugal Technologies, a software company.

 In September 2020, Toyota Kirloskar Motors announced investments of more than Rs 2,000 crore
(US$ 272.81 million) in India directed towards electric components and technology for domestic
customers and exports.

 During early September 2020, Mahindra & Mahindra singed a MoU with Israel-based REE
Automotive to collaborate and develop commercial electric vehicles.

 In April 2020, TVS Motor Company bought UK’s iconic sporting motorcycle brand, Norton, for a
sum of about Rs. 153 crore (US$ 21.89 million), making its entry into the top end (above 850cc)
segment of the superbike market.

 In March 2020, Lithium Urban Technologies partnered with renewable energy solutions provider,
Fourth Partner Energy, to build charging infrastructure across the country.

 In January 2020, Tata AutoComp Systems, the auto-components arm of Tata Group entered a
joint venture with Beijing-based Prestolite Electric to enter the electric vehicle (EV) components
market.

 In December 2019, Force Motors planned to invest Rs. 600 crore (US$ 85.85 million) to develop
two new models over the next two years.

 In December 2019, Morris Garages (MG), a British automobile brand, announced plans to invest
an additional Rs. 3,000 crore (US$ 429.25 million) in India.
 Audi India planned to launch nine all-new models including Sedans and SUVs along with
futuristic E-tron EV by end of 2019.

 MG Motor India planned to launch MG ZS EV electric SUV in early 2020 and have plans to
launch affordable EV in the next 3-4 years.

 BYD-Olectra, Tata Motors and HeroMotoCorp will supply 5,500 electric buses for different state
departments.

GOVERNMENT INITIATIVES

The Government of India encourages foreign investment in the automobile sector and has allowed
100% foreign direct investment (FDI) under the automatic route.

Some of the recent initiatives taken by the Government of India are -

 Under Union Budget 2022-23, the Government announced to provide additional income tax
deduction of Rs. 1.5 lakh (US$ 2,146) on the interest paid on the loans taken to purchase EVs.

 The Government aims to develop India as a global manufacturing centre and a Research and
Development (R&D) hub.

 Under NATRiP, the Government of India is planning to set up R&D centres at a total cost of US$
388.5 million to enable the industry to be on par with global standards.

 The Ministry of Heavy Industries, Government of India has shortlisted 11 cities in the country for
introduction of EVs in their public transport systems under the FAME (Faster Adoption and
Manufacturing of (Hybrid) and Electric Vehicles in India) scheme. The Government will also set
up incubation centre for start-ups working in the EVs space.

 In February 2019, the Government of India approved FAME-II scheme with a fund requirement
of Rs. 10,000 crore (US$ 1.39 billion) for FY20-22.
 ACHIEVEMENTS

Following are the achievements of the Government in the last four years:

 In H12019, automobile manufacturers invested US$ 501 million in India’s auto-tech start-ups
according to Venture intelligence.

 Investment flow into EV start-ups in 2019 (till end of November) increased nearly 170% to reach
US$ 397 million.

 On 29th July 2019, Inter-ministerial panel sanctioned 5,645 electric buses for 65 cities.

 NATRiP’s proposal for “Grant-In-Aid for test facility infrastructure for EV performance
Certification from NATRIP Implementation Society” under the FAME Scheme was approved by
Project Implementation and Sanctioning Committee (PISC) on 3rd January 2019.

 Under NATRiP, following testing and research centres have been established in the country since
2015.

o International Centre for Automotive Technology (ICAT), Manesar.

o National Institute for Automotive Inspection, Maintenance & Training (NIAIMT), Silchar.

o National Automotive Testing Tracks (NATRAX), Indore.

o Automotive Research Association of India (ARAI), Pune.

o Global Automotive Research Centre (GARC), Chennai.

 SAMARTH Udyog - Industry 4.0 centres: ‘Demo cum experience’ centres are being set up in the
country for promoting smart and advanced manufacturing helping SMEs to implement Industry
4.0 (automation and data exchange in manufacturing technology).

ROAD AHEAD
The automobile industry is supported by various factors such as availability of skilled labour at
low cost, robust R&D centres, and low-cost steel production. The industry also provides great
opportunities for investment and direct and indirect employment to skilled and unskilled labour.

Indian automotive industry (including component manufacturing) is expected to reach Rs. 16.16-
18.18 trillion (US$ 251.4-282.8 billion) by 2026.

References:

International Organization of Motor Vehicle Manufacturers, Media Reports, Press

Releases, Department for Promotion of Industry and Internal Trade (DPIIT), Automotive
Component Manufacturers Association of India (ACMA), Society of Indian Automobile
Manufacturers (SIAM), Union Budget 2015-16, Union Budget 2022-23

The automobile industry in India is the world’s fourth largest. India was the world's fourth
largest manufacturer of cars and seventh largest manufacturer of commercial vehicles in 2019.
Indian automotive industry (including component manufacturing) is expected to reach Rs. 16.16-
18.18 trillion (US$ 251.4-282.8 billion) by 2026. The industry attracted Foreign Direct
Investment (FDI) worth US$ 24.5 billion between April 2000 and June 2020 accounting for ~5%
of the total FDI during the period according to the data released by Department for Promotion of
Industry and Internal Trade (DPIIT).

Domestic automobile production increased at 2.36% CAGR between FY16-FY20 with 26.36
million vehicles being manufactured in the country in FY20. Overall, domestic automobiles sales
increased at 1.29% CAGR between FY16-FY20 with 21.55 million vehicles being sold in FY20.

Two wheelers and passenger vehicles dominate the domestic Indian auto market. Passenger car
sales are dominated by small and mid-sized cars. Two wheelers and passenger cars accounted for
80.8% and 12.9% market share, respectively, accounting for a combined sale of over 20.1 million
vehicles in FY20.

Overall, automobile export reached 4.77 million vehicles in FY20, growing at a CAGR of 6.94%
during FY16-FY20. Two wheelers made up 73.9% of the vehicles exported, followed by
passenger vehicles at 14.2%, three wheelers at 10.5% and commercial vehicles at 1.3%.

The electric vehicle (EV) market is estimated to be a Rs. 50,000 crore (US$ 7.09 billion)
opportunity in India by 2025. Several technology and automotive companies have expressed
interest and/or made investments into the India EV space.

Auto companies such as Hyundai, MG Motors, Mercedes, and Tata Motors, have launched EVs
in the market. A recent study conducted by Castrol found out, most of Indian consumers would
consider buying an electric vehicle by the year 2022.
The study also highlighted for an average Indian consumer, price point of Rs. 23 lakh (or US$
31,000), a charge time of 35 minutes and a range of 401 kilometers from a single charge will be
the 'tipping points' to get mainstream EV adoption

The Government aims to develop India as a global manufacturing and research and development
(R&D) hub. It has set up National Automotive Testing and R&D Infrastructure Project (NATRiP)
centres as well as National Automotive Board to act as facilitator between the Government and
the industry. Under (NATRiP), five testing and research centres have been established in the
country since 2015. NATRiP’s proposal for “Grant-In-Aid for test facility infrastructure for
Electric Vehicle (EV) performance Certification from NATRIP Implementation Society” under
FAME (Faster Adoption and Manufacturing of (Hybrid) and Electric Vehicles in India) scheme
was approved by Project Implementation and Sanctioning Committee (PISC) on January 03,
2019.

The Indian Government has also set up an ambitious target of having only EVs being sold in the
country. The Ministry of Heavy Industries, Government of India, has shortlisted 11 cities in the
country for introduction of EVs in their public transport system under the FAME scheme. The
first phase of the scheme was extended to March 2019 while in February 2019, the Government
approved FAME-II scheme with a fund requirement of Rs. 10,000 crore (US$ 1.39 billion) for
FY20-22. Under Union Budget 2022-23, Government announced to provide additional income
tax deduction of Rs. 1.5 lakh (US$ 2146) on the interest paid on the loans taken to purchase EVs.
EV sales, excluding e-rickshaws, in India witnessed a growth of 20% and reached 1.56 lakh units
in FY20 driven by two wheelers.

The Government of India expects automobile sector to attract US$ 8-10 billion in local and
foreign investment by 2023.
COMPANY PROFILE

HERO MOTOCORP GENERAL INFORMATION

Description

Hero MotoCorp Ltd is a motorcycle manufacturing company domiciled in India. The company
manufactures and distributes motorcycles, scooters, and related spare parts. Sales of motorcycles
comprise the largest contribution to consolidated revenue, followed by scooter sales. While Hero
MotoCorp derives the vast majority of revenue from domestic operations, the company also has
operations in Latin America, South Asia, Africa, and the Middle East. Hero MotoCorp principally
manufactures and assembles production domestically.

Hero MotoCorp Limited, formerly Hero Honda, is an Indian multinational motorcycle and scooter
manufacturer based in New Delhi, India. The company is the largest two-wheeler manufacturer in
the world, and also in India, where it has a market share of about 46% in the two-wheeler
category.] As of 31 December 2020, the market capitalisation of the company was 68,474 crore
(US$9.6 billion).
HISTORY

Hero Honda started its operations in 1984 as a joint venture between Hero Cycles (sometimes
called Hero Group, not to be confused with the Hero Group food company of Switzerland) of
India and Honda of Japan.[6][7] In June 2012, Hero MotoCorp approved a proposal to merge the
investment arm of its parent Hero Investment Pvt. Ltd. with the automaker. This decision came 18
months after its split from Hero Honda.[8]

"Hero" is the brand name used by the Munjal brothers for their flagship company, Hero Cycles
Ltd. A joint venture between the Hero Group and Honda Motor Company was established in 1984
as the Hero Honda Motors Limited at Dharuhera, India. Munjal family and Honda group both
owned 26% stake in the Company.

During the 1980s, the company introduced motorcycles that were popular in India for their fuel
economy and low cost. A popular advertising campaign based on the slogan 'Fill it – Shut it –
Forget it' that emphasised the motorcycle's fuel efficiency helped the company grow at a double-
digit pace since inception. In 2001, the company became the second largest two-wheeler
manufacturing company in India and globally.[3] It maintains global industry leadership to date.
[3] The technology in the bikes of Hero Motocorp (earlier Hero Honda) for almost 26 years
(1984–2010) has come from the Japanese counterpart Honda.[9]
TERMINATION OF HONDA JOINT VENTURE AND THE
RENAMING HERO HONDA PASSION

HERO KARIZMA R

By December 2010, the board of directors of the Hero Honda Group had decided to terminate the
joint venture between Hero Group of India and Honda of Japan in a phased manner. The Hero
Group would buy out the 26% stake of the Honda in JV Hero Honda.[10] Under the joint venture
Hero Group could not export to international markets (except Nepal, Bangladesh and Sri Lanka)
and the termination would mean that Hero Group could now export. From the beginning, the Hero
Group relied on their Japanese partner Honda for the technology in their bikes.

The Japanese automaker exited the joint venture through a series of off-market transactions by
giving the Munjal family—which held a 26% stake in the company—an additional 26%. Honda,
wanting to focus only on its independent fully owned two-wheeler subsidiary—Honda
Motorcycle and Scooter India (HMSI)—, exited Hero Honda at a discount and get over ₹6,400
crore (equivalent to ₹120 billion or US$1.6 billion in 2019) for its stake. The discount was
between 30% and 50% to the current value of Honda's stake as per the price of the stock after the
market closed on 16 December 2010.

The rising differences between the two partners gradually emerged as an irritant. Differences had
been brewing for a few years before the split over a variety of issues, ranging from Honda's
reluctance to fully and freely share technology with Hero (despite a 10-year technology tie-up that
expired in 2014) as well as Indian partner's uneasiness over high royalty payouts to the Japanese
company. Another major irritant for Honda was the refusal of Hero Honda (mainly managed by
the Munjal family) to merge the company's spare parts business with Honda's new fully owned
subsidiary, HMSI.

As per the arrangement, it was a two-leg deal. In the first part, the Munjal family, led by
Brijmohan Lal Munjal group, formed an overseas-incorporated special purpose vehicle (SPV) to
buy out Honda's entire stake, which was backed by bridge loans. This SPV was eventually
thrown open for private equity participation, and those in the fray included Warburg Pincus,
Kohlberg Kravis Roberts (KKR), TPG, Bain Capital, and Carlyle Group.

FORMATION OF THE NEW COMPANY

The name of the company was changed from Hero Honda Motors Limited to Hero MotoCorp
Limited on 29 July 2011. The new brand identity and logo of Hero MotoCorp were developed by
the British firm Wolff Olins. The logo was revealed on 9 August 2011 in London, to coincide
with the third test match between England and India.

Hero MotoCorp can now export to Latin America, Africa and West Asia. Hero is free to use any
vendor for its components instead of just Honda-approved vendors.

On 21 April 2014, Hero MotoCorp announced its plan on a 254 crore (equivalent to 327 crore or
US$46 million in 2019) joint venture with Bangladesh's Nitol-Niloy Group in the next five years
to set up a manufacturing plant in Bangladesh. The plant started production in 2017 under the
name "HMCL Niloy Bangladesh Limited". Hero MotoCorp owns the 55% of the manufacturing
company and rest 45% is owned by Niloy Motors (A subsidiary of Nitol-NiloyGroup Hero also
updated its 100cc engine range in 2014 for 110cc bikes except Hero Dawn.

VISION
The story began with a simple vision – the vision of a mobile and an empowered India, powered
by its bikes. Hero MotoCorp Ltd., company’s new identity, reflects its commitment towards
providing world class mobility solutions with renewed focus on expanding company’s footprint in
the global arena.

MISSION

Hero MotoCorp's mission is to become a global enterprise fulfilling its customers' needs and
aspirations for mobility, setting benchmarks in technology, styling and quality so that it converts
its customers into its brand advocates. The company will provide an engaging environment for its
people to perform to their true potential. It will continue its focus on value creation and enduring
relationships with its partners.

STRATEGY

Hero MotoCorp's key strategies are to build a robust product portfolio across categories, explore
growth opportunities globally, continuously improve its operational efficiency, aggressively
expand its reach to customers, continue to invest in brand building activities and ensure customer
and shareholder delight.

MANUFACTURING

Hero MotoCorp two wheelers are manufactured across three globally benchmarked
manufacturing facilities. Two of these are based at Gurgaon and Dehradun which are located in
the state of Haryana in northern India. The third and the latest manufacturing plant are based at
Haridwar, in the hill state of Uttrakhand

TECHNOLOGY

In the 1980's the Company pioneered the introduction of fuel-efficient, environment friendly four-
stroke motorcycles in the country. It became the first company to launch the Fuel Injection (FI)
technology in Indian motorcycles, with the launch of the Glamour FI in June 2006.
 Its plants use world class equipment and processes and have become a benchmark in leanness and
productivity.

Hero MotoCorp, in its endeavor to remain a pioneer in technology, will continue to innovate and
develop cutting edge products and processes

DISTRIBUTION

The Company's growth in the two wheeler market in India is the result of an intrinsic ability to
increase reach in new geographies and growth markets. Hero MotoCorp's extensive sales and
service network now spans over to 5000 customer touch points. These comprise a mix of
authorized dealerships, service & spare parts outlets and dealer-appointed outlets across the
country.

SUPPLY CHAIN MANAGEMENT

As the Company prepares to produce a wider range of products, efforts are being taken to align
the supply chain and prime up its supplier base. During the year, the Company kick-started the
process of migrating its existing brands to the new brand. The exercise is expected to be
completed during 2020-21.

During the year, the Company also commenced the process of working with its vendors to
develop new parts. The Company’s Supply Chain Management function is built on three planks:

 Cost
 Quality
 Sustainability

Tracking inventory cost effectively and efficiently is known to be a key source of competitive
advantage in the automobile industry. Hence, it comes as no surprise that cost leadership is the
Company’s prime focus area. Continual pressure on margins forced the Company and its supply
chain partners to find innovative and alternate ways to combat inflation. Considerable attention
was given to managing component inventory in the system, with double-digit growth in inventory
turnover. To align HR processes with the supply chain, top two HR consulting firms in India are
working with supply chain partners. The exercise is aimed at improving robustness of people
processes and resulting in a direct impact on quality, cost, productivity, delivery and reliability.
The move will enable supply chain partners move to the next orbit of operational excellence.

BRAND

The new Hero is rising and is poised to shine on the global arena. Company's new identity "Hero
MotoCorp Ltd." is truly reflective of its vision to strengthen focus on mobility and technology and
creating global footprint. Building and promoting new brand identity will be central to all its
initiatives, utilizing every opportunity and leveraging its strong presence across sports,
entertainment and ground- level activation.

TERMINATION OF HERO HONDA JOINT VENTURE

In December 2010, the board of directors of the Hero Honda Group has decided to terminate the
joint venture between Hero Group of India and Honda of Japan in a phased manner. The Hero
Group would buy out the 26% stake of the Honda in JV Hero Honda. Under the joint venture
Hero Group could not export to international markets (except Sri Lanka) and the termination
would mean that Hero Group can now export. Since the beginning, the Hero Group relied on their
Japanese partner Honda for the technology in their bikes. So there are concerns that the Hero
Group might not be able to sustain the performance of the Joint Venture alone.

The Japanese auto major will exit the joint venture through a series of
off market transactions by giving the Munjal family—that held a 26% stake in the company—an
additional 26%. Honda, which also has an independent fully owned two wheeler subsidiary—
Honda Motorcycle and Scooter India (HMSI)—will exit Hero Honda at a discount and get over
$1 billion for its stake. The discount will be between 30% and 50% to the current value of
Honda's stake as per the price of the stock after the market closed on Wednesday.

The rising differences between the two partners gradually emerged as an

irritant. Differences had been brewing for a few years before the split over a variety of issues,
ranging from Honda's reluctance to fully and freely share technology with Hero (despite a 10-year
technology tie-up that expires in 2014) as well as Indian partner's uneasiness over high royalty
payouts to the Japanese company.

Another major irritant for Honda was the refusal of Hero Honda (mainly managed by the Munjal
family) to merge the company's spare parts business with Honda's new fully owned
subsidiary Honda Motorcycle and Scooter India (HMSI).

As per the arrangement, it will be a two-leg deal. In the first part,

the Munjal family, led by BrijmohanLalMunjal group, will form an overseas-incorporated special
purpose vehicle (SPV) to buy out Honda's entire stake, which will be backed by bridge loans.
This SPV would eventually be thrown open for private equity participation and those in the fray
include Warburg Pincus, Kohlberg Kravis Roberts (KKR), TPG, Bain Capital, and Carlyle Group.

Honda will continue to provide technology to Hero Honda motorbikes until 2014 for existing as
well as future models.
Hero No. 1 and going strong

When Hero parted ways with Honda three years ago, there were a whole lot of people who
thought it was all over for the Munjals-promoted group.
If the numbers of 2021-22 are anything to go by, these naysayers would probably have to eat their
words.
Hero MotoCorp wrapped up with sales of 6.25 million bikes and scooters, considerably ahead of
its former Japanese partner’s tally of 3.72 million units. Bajaj Auto followed with 3.42 million
with TVS Motor just short of the two million-unit mark (1.99 million).

Industry sources say Hero will sit pretty so long as its killer duo, the Splendor and Passion,
continue to catch the eye of the market. “Sure, they have been around for years but buyers don’t
seem to mind,” an executive from a rival two-wheeler company said. These two brands account
for nearly 60 per cent of Hero MotoCorp’s sales and are going as strong as ever.

EXPANSION
Yet, there is no denying the fact that Honda is already proving to be a serious adversary. At the
time of its split with Hero, it only had one plant in Haryana which was churning out 1.6 million
bikes/scooters annually. Since then, the company has added Rajasthan, Karnataka and Gujarat to
its expansion plans. In the following weeks, its capacity will reach 4.6 million units and,
following the commissioning of the Gujarat facility, this will be close to six million units.
This remarkable buildup will happen in the next 18 months which means Honda will quickly
bridge the gap with Hero unless the latter manages to replicate this kind of a feverish pace. By the
end of 2020-21, Honda is targeting 40 per cent of the market and is likely to take the top slot very
soon thereafter.

ORGANISATIONAL CHART OF HERO MOTO CORP

DIRECTORS

Founder Director and Chairman : Dr. BrijmohanLall Munjal

Managing Director and CEO : Mr. Pawan Munjal .

Board of Directors

Name of the person Nature of the Office

Mr. Sunil Kant Munjal Non-Executive Director
Mr. Suman Kant Munjal Director
Mr. Paul Edgerley Non-Executive Director
Mr. Pradeep Dinodia Director
Gen. (Retd.) V. P. Malik Director
Mr. Analjit Singh Director
Dr. Pritam Singh Director
Mr. M. Damodaran Director
Mr. Ravinath Director
Dr. Anand C.Burman Director

BrijmohanLall Munjal

Mr. Munjal is the founder Director and Chairman of the Company and the $3.2 billion Hero
Group. He is the Past President of Confederation of Indian Industry (CII), Society of Indian
Automobile Manufacturers (SIAM) and was a Member of the Board of the Country's Central
Bank (Reserve Bank of India). In recognition of his contribution to industry, Mr. Munjal was
conferred the Padma Bhushan Award by the Union Government.
 DATA ANALYSIS AND INTERPRETATION
RATIO ANALYSIS

1) Current Ratio –

Current assets

Current Ratio = ___________________

Current liabilities

Table 1 (figures in lakhs )

Years 2019-20 2020-21 2021-22 2022-23 2023-24
Current Assets 4587.28 4172.75 4746.58 5617.86 6561.79
Current Liabilities 3768.20 4035.82 7035.03 8075.6 8220.59
Ratios 1.21 1.02 0.67 0.69 0.79

Chart 1

Chart Title
Series1 Series2 Series3 Series4

8075.6 8220.59

7035.03
6561.79
5617.86

4587.28 4746.58
4172.75
4035.82
3768.2

0.67000000000000 0.69000000000000
0 0 0 1.21 1.02 1 1 0.79

Interpretation –
 Generally accepted ratio is 2:1. it was very excellent in year 2022-23 to 2023-24. But in year
2020-21 to 2021-22 it was not satisfactory. It is below 1 which signifies danger in future. The
ratio lies between 0.67 to 1.21.

2) Quick Ratio -

Current assets - inventory

Quick Ratio = ________________________

Current Liabilities

Table 2 (figures in lakhs)

Years 2019-20 2020-21 2021-22 2022-23 2023-24

Quick Assets 2787.28 2119.61 3210.26 2491.29 3864.09

Current Liabilities 3768.20 4035.82 7035.03 8075.6 8220.59

Ratios 0.73 0.53 0.44 0.3 0.47

Chart 2

9000
8075.6 8220.59
8000
7035.03
7000

6000

5000
4035.82 3864.09
4000 3768.2
3210.26
3000 2787.28
2491.29
2119.61
2000

1000
0.730000000000001 0.53 0.44 0.3 0.47
0

Quick Assets Current Liabilities Ratios

 Interpretation –

From the above table & graph it is interpreted that quick ratios are 0.73, 0.53, 0.44, 0.30 & 0.47
respectively. Generally accepted ratio is 1:1.But here in case of Hero Motocorp it seems to be not
satisfactory and trend of ratio is not constant. It shows inadequacy of working capital.

3) Debt to Equity Ratio -

Outsiders Fund
Debt to Equity Ratio = _______________________
Shareholders Fund

Table 3 (Figures in lakhs)

Years 2019-20 2020-21 2021-22 2022-23 2023-24

Outsiders Fund 8393.32 7719.45 8171.56 7891.41 11804
Shareholders Fund 1935.01 1981.53 2177.89 1983.18 2567.66
Ratios 5.85 5.21 4.87 3.98 4.59

Chart 3
14000

12000 11804

10000

8393.32 8171.56
7719.45 7891.41
8000

6000

4000
2567.66
1935.01 1981.53 2177.89 1983.18
2000

5.85 5.21 4.87 3.98 4.59

0

Outsiders Fund Shareholders Fund Ratios

Interpretation –
 Generally low debt-Equity ratio is favorable to for the creditors of the company. The standard
ratio is 1:1, but in case of Hero Motocorp company debt-equity ratios are as 5.85, 5.21, 4.87,
3.98 and 4.59 respectively. Which are more than the specified standard & dangerous for
company in future.

4) Fixed Asset Turnover Ratio -

Sales
Fixed Asset Turnover Ratio = _________________
Net Fixed Asset

Table 4 (figures in lakhs)

Years 2019-20 2020-21 2021-22 2022-23 2023-24

Sales 17867 18394.7 18205.7 18519.5 19429
Net Fixed Asset 3170.33 3382.17 3432.17 3436.17 3754
Ratios 5.74 5.44 5.29 5.39 5.17
Chart 4
25000

20000 19429
18394.7 18205.7 18519.5
17867

15000

10000

5000 3754
3170.33 3382.17 3432.17 3436.17

5.74 5.44 5.29 5.39 5.17

0

Sales Net Fixed Asset Ratios

Interpretation –

This ratio indicate the efficiency with which company utilizes its fixed assets. Here ratios are as
5.74, 5.44, 5.29, 5.39 and 5.17 respectively. High ratio is beneficial for company, which shows
how effectively company utilizes its investments. It is relationship between sales and net assets.
The ratios are constant in each year. Sales and Net assets increases proportional to each other.

5) Earning Per Share -

Net Profit
EarningsPer Share = __________________
Number of Shares

Table 5 (figures in lakhs)

Years 2019-20 2020-21 2021-22 2022-23 2023-24
Net Profit 3.01 3.71 2.55 1.72 3.72
No. Of Shares 600 600 600 600 600
Ratios 0.005 0.006 0.004 0.002 0.006

Chart 5
700
600 600 600 600 600
600

500

400

300

200

100
0.0050000000000 0.0060000000000 0.0040000000000 0.0060000000000
3.01 0001 3.71 0001 2.55 0001 1.72 0.002 3.72 0001
0

Net Profit No. Of Shares Ratios

Interpretation –

EPS is small variant of return on equity capital. It gives a view of comparative earnings of
company. High ratio is favorable to the shareholders of company. In case of hero motocorp it is
very poor.

EPS in Hero Motocorp is not favorable to the shareholders.

6) Return on Shareholders Fund -
Net Profit
Return on Shareholders’ Investment = ____________________ X 100
Shareholders Fund

Years 2019-20 2020-21 2021-22 2022-23 2023-24

Net Profit 3.01 3.71 2.55 1.72 3.72

Shareholders Fund 1935.01 1981.53 2177.89 1983.18 2567.66

Ratios 0.20% 0.25% 0.20% 0.08% 0.19%

Table 6 (figures in lakhs)

Chart 6

3000

2567.66
2500
2177.89
1935.01 1981.53 1983.18
2000

1500

1000

500

3.01 0.20% 3.71 0.25% 2.55 0.20% 1.72 0.08% 3.72 0.19%
0

Net Profit Shareholders Fund Ratios

Interpretation –

In Hero Motocorp return on Shareholders’ Investment is not constant. There is more fluctuation
in this ratio because of increase and decrease in Net profit of the firm. The ratio lies between
(0.08) to (0.25). It also predicts the returns on investment.
 In year 2021-22 net profit of company is very poor (0.08) and it affects the returns of
the shareholders. But in year 2022-23 it again increases.

7) Return on Equity Capital -

Net Profit
Return on Equity Capital = ________________
Paid up Capital

Table 7 (figures in lakhs)

Years 2019-20 2020-21 2021-22 2022-23 2023-24

Net Profit 3.01 3.71 2.55 1.72 3.72

Paid up Capital 230.36 231.45 232 235.77 258.41

Ratios 0.018 0.021 0.011 0.007 0.019

Chart 7
300
258.41
250 230.36 231.45 232 235.77

200

150

100

50
0.007000000000
3.01 0.018 3.71 0.021 2.55 0.011 1.72 00001 3.72 0.019
0

Net Profit Paid up Capital Ratios

Interpretation –

Return on Equity Capital which relationship between profits of company and equity capital. It is
more constant in all the years but in year 2022-23 (0.007) it decrease suddenly, because of the
decrease in net profit of the company. Again in year 2023-24(0.019) it is in increasing phase
which is good for company and its shareholders.
 It is not favorable condition for the company and its shareholders. The returns are
very poor.

8) Gross Profit Ratio -

Gross Profit

Gross Profit Ratio = ________________ X 100

Net Sales

Table 8 (figures in lakhs)

Years 2019-20 2020-21 2021-22 2022-23 2023-24

Gross Profit 208.5 190.83 218.39 820.53 619

Net sales 19638 20558.2 22641.6 27920 30236.6

Ratios 1.05% 0.68% 0.94% 2.92% 2.03%

Chart 8
35000
30236.6
30000 27920

25000 22641.6
19638 20558.2
20000

15000

10000

5000
208.5 1.05% 190.83 0.68% 218.39 0.94% 820.53 2.92% 619 2.03%
0

Gross Profit Net sales Ratios

Interpretation –
 The above analysis shows that the gross profit is 1.05%, 0.68%, 0.94%, 2.92%, and 2.03%
respectively. Higher the ratio better for the company and good sign. But in Hero Motocorp it is
not constant and not good enough.

9) Net Profit Ratio -

Net profit
Net profit Ratio = ____________ X 100
Net Sales

Table 9 ( figures in lakhs )

Years 2019-20 2020-21 2021-22 2022-23 2023-24

Net Profit 3.01 3.71 2.55 1.72 3.72

Net sales 19638 20558.2 22641.6 27920 30236.6

Ratios 0.02% 0.02% 0.01% 0.01% 0.01%

Chart 9
35000
30236.6
30000 27920

25000 22641.6
19638 20558.2
20000

15000

10000

5000
3.01 0.02% 3.71 0.02% 2.55 0.01% 1.72 0.01% 3.72 0.01%
0

Net Profit Net sales Ratios

Interpretation –
 The above analysis shows that the Net profit is as 0.02%, 0.02%, 0.01%, 0.01%and 0.01%
respectively. This is below the standard and also not satisfactory to the company.. Higher the
ratio better for the company.

It decreases continuously in each year, which may create problem for the company in
future. The financial position of the company is poor.

10) Operating Ratio -

Operating Cost
Operating Ratio = ________________ X 100
Net Sales
Table 10 ( Figures in lakhs )

Years 2015-17 2016-18 2021-22 2022-23 2023-24

Operating Profit 1872.74 1965.05 1994.05 2024.23 1993

Net sales 19638 20558.2 22641.6 27920 30236.6

Ratios 6.99% 7.17% 6.60% 5.45% 6.59%

Chart 10

35000

30236.6
30000 27920

25000
22641.6
20558.2
19638
20000

15000

10000

5000
1872.74 1965.05 1994.05 2024.23 1993
6.99% 7.17% 6.60% 5.45% 6.59%
0

Operating Profit Net sales Ratios

 Interpretation-

Generally operating ratio represented as percentage. The above table shows that the operating
ratio is as 6.99, 7.17, 6.60, 5.45 and 6.59 respectively. In above case we can see the fluctuations
in the operating ratio.

Generally very high ratio is not satisfactory to the company. It is not good sign for the company.
Operating cost is increases very frequently in each year.

11) Cost of Goods Sold -

Cost of Goods Sold
Cost of Goods Sold = _____________________X 100
Net Sales
Table 11 (Figures in lakhs)

Years 2019-20 2020-21 2021-22 2022-23 2023-24

Cost Of Sales 17867.2 18394.7 18205.7 18519.5 19429

Net sales 19638 20558.2 22641.6 27920 30236.6

Ratios 90.99% 89.47% 80.18% 66.31% 64.25%

Chart 11

35000

30236.6
30000 27920

25000
22641.6
20558.2
19638 19429
20000 18394.7 18205.7 18519.5
17867.2

15000

10000

5000

90.99% 89.47% 80.18% 66.31% 64.25%

0

Cost Of Sales Net sales Ratios

Interpretation –

The above table shows the cost of goods sold ratio is as 90.99, 89.47, 80.18, 66.31 and 64.25
respectively. This decreases continuously year after year. It is good sign for the company. It also
shows profitability of the company. Lower is the ratio greater is the profitability of the company.
In above case the net sale of the company increases very steadily year after year.

12) Proprietary Ratio –

Shareholders Fund

Proprietary Ratio = _______________________ X 100

Total Asset

Table 12 (Figures in lakhs)

Years 2019-20 2020-21 2021-22 2022-23 2023-24

Shareholders
Fund 1935.01 1981.53 2177.89 1983.18 2567.66

Total Asset 9828.28 9195.98 9849.46 9874.55 9886.3

Ratios 19.60% 21.11% 17.04% 20.08% 25.97%

Chart 12
 12000

9828.28 9849.45999999996 9874.54999999998 9886.29999999998

10000
9195.98

8000

6000

4000
2567.66
1935.01 1981.53 2177.89 1983.18
2000

19.60% 21.11% 17.04% 20.08% 25.97%

0

Shareholders Fund Total Asset Ratios

Interpretation –

Higher the proprietary ratio better for the company. In case of Hero Motocorp proprietary ratio is
favorable to the company. It shows the solvency position of the firm. Here the ratio is in
increasing trend. It is as 19.60, 21.11, 17.09, 20.08 and 25.97 respectively. It shows good
working conditions.

Findings
1) The Hero Motocorp has its current ratio as 1.21, 1.02, 0.67, 0.69& 0.79 respectively. Here all
the ratios are below the rule of thumb (2:1).The Firm may not able to pay its liabilities as they
falls due.

2) The acid test ratio of Hero Motocorp is as 0.73, 0.53, 0.44, 0.30 and 0.47 respectively. Which is
below the rule 1:1.It shows The company is not able to meet its current liabilities.

3) In company Debt-Equity ratio is satisfactory and favorable. Generally Debt-Equity ratio 1:1 is
satisfactory. But here all the ratios are above the rule.

4) Fixed Asset Turnover ratios indicate the efficiency at which Firm utilizes its fixed Asset. Here
the ratios are as 5.74, 5.44, 5.29, 5.39 and 5.17 respectively. Its ratios are higher and favorable to
the company.

5) In case of operating ratio each year operating cost increases. It is not satisfactory to the company.
6) The gross profit ratio is favorable in Hero Motocorp . It is in increasing trend since 2023-24.
7) The net profit ratio, each year net profit ratio is decreases as 0.020, 0.018, 0.011, 0.006 and 0.017
respectively.
8) The solvency condition of the Hero Motocorp is good, while considering the proprietary ratio.
9) Overall efficiency of the company is good by considering return on Investment Ratio.

Suggestions -
1) The current ratio of the Hero Motocorp is below the rule of thumb 2:1. So it is suggested that to
maintain the standard.
2) The Debt-Equity Ratio of the Hero Motocorp is also dangerous. So they should try to reduce it.
3) The Net Profit of the company is in decreasing trend. So it is advised to the company that they
should increase their sales and reduce operating expenses.
4) The Quick Ratio of the Hero Motocorp is also below the rule of thumb 1:1. So it is advised to
maintain it properly.
5) Hero Motocorp must appoint special staff for collection of the sundry debtors.
CONCLUSION

It clearly observed that the company’s profit has declined. But, it earns profit at marginal rate.
The recommendation and suggestion may help the company to improve its earning Capacity
through the company can achieve optimum profitability and its goodwill also. Company should
try to control its expenses. By controlling expenses the company can earn maximum profit.