1. Oxford Brookes University
Research Analysis Project (RAP)
Presentation On
Atlas Honda Limited Pakistan (AHL)
Prepared By:
Hammad Ahmed Qureshi
ACCA Registration
Number: 1977764
Mentored By:
Ms. Areena Haider (ACCA)
The Business and Financial Performance of an Organization For The Financial Years 2011-09
2. Objectives of the Presentation
• Business and Financial Performance of AHL Pakistan for the
years 2011-09.
• An overview of Global and Local Motorbike Industry.
• An overview of AHL as a market leader.
• Data gathering sources
• Ratio analysis on Atlas Honda.
• Cash-flow analysis on AHL
• Ethical matter arose during the analysis
• Cross-sectional analysis on AHL
• Business analysis
• The Future
• Conclusion and Recommendations
3. Industry
Global Motorbike Industry:
• Global market for motorcycle showed an increasing
trend except for FY08.
• Market share of approximately 77% relates to Asia.
• Economic crisis and increased accidents have also
affected demand for motorbikes in USA, Japan and
Europe.
Local Motorbike Industry :
• Automobile industry of Pakistan showed an
improvement in current year with a growth rate of
16.5%.
• Motorcycle industry of Pakistan is 47 years old.
• Pakistan is ranked number 7th in world for the
production of Motorcycles.
• Pakistan holds 2% of global demand.
• Market was previously dominated by Japanese
manufacturers.
• After competition from China ,competition in this
industry has Stiffened.
4. 2004 2005 2006 2007 2008 2009 2010
-10000000
0
10000000
20000000
30000000
40000000
50000000
60000000
70000000
80000000
NumberofUnits
2004 2005 2006 2007 2008 2009 2010
Global Production of Motorcycles
% of Increase/(Decrease in
Production
6.3% 3.1% 4.1% 5.8% -3.7% 12.4% 25.6%
Number of Units Produced 6449622 6648243 6922297 7326606 7052049 6179186 7762912
2004 2005 2006 2007 2008 2009 2010
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
119,169 157,550
24.4%
205,169
23.2%
371,007
44.7%
570,706
35.0%
751,379
24.0%
839,850
10.5%
1,054,102
20.3%
917,628
-14.9%
1,380,404
33.5%
1,610,681
14.3%
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
Production of Motorbikes in Pakistan
Number pf Prodution Units % of Increase/(Decrease) in Production
5. • Companies operating in the Pakistani motorcycle industry are:
Company (Atlas Honda Limited Pakistan)
• Organization I have selected is "Atlas Honda Limited Pakistan (AHL)".
• It is the part of one of the leading group “Atlas”.
• Atlas group started assembling motorbikes in 1964.
• AHL is a dynamic, growth oriented, largest motorcycle manufacturer in Pakistan
6. • SAFA Pakistan adjudged AHL's annual report for the year 2009 as the "Merit Winner.
• Company beliefs is that "Share with the society what we earn from the society.
• It has largest in-house manufacturing capacity at Sheikhoopura and Karachi of 750,000
units annually.
• Atlas’s vision is to become a market leader and wants to grow as a tough competitor in international market
• Company success is because of its belief in quality, leadership, customer satisfaction and shareholders satisfaction.
• AHL holds approximately 35% of the market share.
• Participation and effective delegation is a key feature in the current success of company. Programs like "Ala Mayar and Quality
Circle Movement launched in 1985.
8. • Internet
Data Sources
• Annual Reports
• Student Accountant
• Electronic and Print Media
• Study Texts
9. • Critical success factors I have used for my analysis:
Ratio Analysis
1.Profitability
3.Management
Efficiency
5.Gearing
4.Share
Investment
2.Liquidity
Ratio analysis is fundamental examination of the health of a company
by studying relationships of its key financial variables. It involves
conversion of financial data of a company into ratios.
10. Gross Profit Margin
This ratio gives an assessment regarding operating profitability.
It crosses revenue generated with the costs incurred over a
period for the examination of amount of earnings left for indirect
costs and shareholders.
Profitability
Net Profit Margin
NP margin evaluates basic purpose of the business through
examination of its ability of generation of profit, for each $1
generated from sales and judges the growth in business.
11. Liquidity
Current Ratio
This ratio evaluates whether current assets are sufficient to pay
current liabilities. If the ratio falls below one, significant
questions marks arises on the ability of company to operate as
a going concern.
Quick Ratio
This ratio is a strict measure of liquidity position. Quick ratio
tells whether the company will be able to meet it current
debts with most liquid assets. Many companies hold stocks
which are not cash equivalent. So inclusion of those stocks
in current ratio is not a very pure measure of liquidity.
12. Inventory turnover
days: Tells the
production efficiency i.e.
average days taken to
produce and sale the
inventories.
Receivable turnover
days: Tells the
average days in which
cash from receivables
are recovered.
Payable turnover days: Measures days taken to repay the short-term creditors.
Cash operating cycle tells for how many days company has to borrow cash to maintain its short-term liquidity.
It tells operating and management efficiency of the company. In summary, it is the time period between money
goes out of and into your pocket
Cash Operating Cycle
13. Management Efficiency
Return on Capital Employed
ROCE will tell how the sources of finance have been utilized.
The ratio is very informative; it informs the investors how their
investments have been used by management for generating
returns to counter the risks faced by them.
Return on Assets
Return on Assets is used for the evaluation that how many
rupees company generates as a result of Rs.1 invested in its
assets.
14. Market Performance
Earnings Per Share
EPS tells the earnings that are earned by each outstanding
share of the company. Its Importance can be extracted that
a separate IAS-33 is issued for its calculation and
presentation.
Price / Earnings Ratio
P/E ratio represents risk and growth of a company.
Increasing P/E indicates that share holders are
expecting higher returns from company. In summary, it
tells that how many Rupees an investor would expect
to pay for Rs.1 earning.
16. GearingDebt to Equity Ratio
This ratio determines the extent to which
company is financed by equity and debt. It will
illustrate AHL’s inherent risk and risk of default
beard by shareholders of AHL.
Interest Cover Ratio
Interest cover ratio evaluates interest payment
capacity of a company, assuming that earning
and interest remain same.
Debt Service Coverage Ratio
DSCR is a measurement tool for evaluating
the ability of a company in generating enough
cash for repayment of principal, interest and
lease payments.
18. Ethical Matters
During analysis, an ethical matter arose. Cash-flow from operations for nine months ended period in FY09 was
Rs.215,340,000, a quarter for comparison purpose added and figure for twelve months became Rs.(165,929,000). This raises
an issue that the management of AHL might have deliberately changed its year end for making its operating cash flows
positive because the share price was already depressed and profitability in FY09 was also very low.
19. Cross-sectional Analysis
Cross-sectional analysis is referred to analysis on an organization in relation to its peers or industry to discover where the subjected organization
stands as compared to its competitors and industry standards
• Company i have selected for cross-sectional analysis is,“Dhoom Yamaha Limited Motorcycles (DYL)”.
• DYL started operation in 1976 in collaboration with Yamaha Motor Company Japan. DYL is a leader in 100cc engines throughout
Pakistan.
• Market share of both companies:
• Missions statements:
ATLH
35.4% DYL
7.1%
Mission of ATLH[4]
A dynamic growth oriented
company and market leader in
the motorcycle industry,
emerging as a global
competitive centre of
production and exports.
Mission of DYL[45]
To be a leading motorcycle
manufacturer providing the
highest customer satisfaction.
21. Financial Performance:
DYL For The
Year 2011
ATLH For The
Year 2011
10.6%7.5%Percentage (%)Gross Profit Margin (GP Margin)
0.7%4.3%Percentage (%)Net Profit Margin (NP Margin)
0.91.5RatioCurrent Ratio
0.60.9RatioAcid-test Ratio (Quick Ratio)
6.6%26.8%Percentage (%)Return On Capital Employed (ROCE)
1.7%10.4%Percentage (%)Return On Assets (ROA)
11.8916.03RatioEarning Per Share (EPS)
163.06135.50Currency PKRShare Price (Average)
12.5%0%Percentage (%)Debt To Equity Ratio
0.716.1RatioInterest Cover Ratio
Selected Ratios Basis of Measurement
Measured in Selected Basis
22. Business analysis is a mechanism of identification of business problems and needs, then developing a range of solution to solve those problems.
SWOT analysis is used for corporate appraisal. SWOT model appraises the Strengths, Limitations/Weaknesses, Opportunities and Threats of a
company and will give an understanding of SWOT of AHL.
There are some limitations of the model which need to be considered.
Business Analysis
23. Strengths
•Highest market share
•Synergy of Honda & Atlas
•Highest production capacity
•Continuos improvement culture (BPR & KC)
•Environment favorable initiatives
•A listed company
•AHL is a part of Atlas group
•CD-70cc Market
•ISO Certification
•AHL Culture
Opportunities
•Divesify market and make products for other
countries
•Pakistani motorbike industry is expanding
•Energy efficient bikes
•Diversify product range and develop new
priducts
•Acquire small competitors
Threats
•Heavy imports from China
•Increasing small chinese competitors ,
operating in a niche
•Merger of small competitors
•Increase in fuel prices
•Increase in inflation
Weaknesses
•Lack of products under BCG matrix
•International competition cannot be based on
one product
•Most expensive products in Pakistan
•Decreasing share price
•AHL haven’t manufactured any heavy or sports
bike for elite class
•No strategy for joint products or ventures with
successful and emerging chinese competitors
S W
TO
24. The Future
• Economy of world is expected to decline in FY12.
• Growth rate of world and south Asia is expected to decline from 3.7% to 3.4% and 6.6% to 5.8% respectively.
• Global demand for motorcycles is estimated to be growing at a rate of 7% annually through FY15.
• Demand in national market is also estimated to grow from 1.6million units in FY11 to 1.7million units in FY12.
• Technology in motorcycle industry is expected to boom as more green-products are demanded such as future retro hover bike
• Based on analysis, in my opinion local industry and AHL future seems to be improving and growing plus new technology and products
are also expected to be launched.
25. Conclusion
• Overall, my objectives, stated at the beginning have been achieved satisfactorily.
• During analysis, some difficulties came across. Such as changed year and DYL accounts availability.
• Overall financial performance is good but ratios are unstable and following an unpredictable pattern through
which it’s future and market performance will be affected.
• Cash-flow and performance compared to DYL is satisfactory.
• Factors identified through business analysis are significant and need to be considered.
26. • Reduce increasing payables.
• Implement JIT and Value chain due to increasing distribution cost.
• For continues improvement, apply BPR.
• Consider significance of declining P/E plus share price and increasing EPS.
• Significance of Chinese competition and merger of small competitor.
• Improve product base, analyzed under BCG matrix.
• Introduce energy efficient bikes.
• Worsening cash operating cycle and its significance on liquidity, apply supply chain management.
• Review its sources of finance for an optimal WACC.
Recommendations
