This document analyzes and compares the financial ratios of Maruti Suzuki and Hindustan Motors over several years. Maruti Suzuki demonstrates healthy ratios across current ratio, quick ratio, debt-to-equity, and others, indicating strong liquidity and financial position. In contrast, Hindustan Motors exhibits weakening ratios such as low current and quick ratios, negative gross profit margins and return on equity, reflecting a deteriorating financial condition. The document recommends that Hindustan Motors revive its iconic brand through marketing and design upgrades, improve production efficiency, and potentially restructure debt to turnaround its performance.

1. Automobile industry
Maruti Suzuki India
Liquidity Ratios
Current Ratio
Quick Ratio
Activity Ratios
Inventory turnover
Total assets turnover
Debtors turnover ratio
Profitability Ratios
Gross Profit Margin (%)
Return on equity (%)
Return on assets
Leverage Ratios
Debt to Equity
Interest coverage
Long term Debt to Equity
March 2013
1.04
0.90
March 2012
1.02
0.89
March 2011
1.47
1.14
March 2010
0.91
0.68
March 2009
1.51
1.26
26.67
2.23
36.92
22.80
2.22
38.84
33.33
2.59
42.93
30.47
2.32
33.92
30.46
2.06
26.33
5.43
12.87
615.03
4.85
10.76
525.68
6.37
16.50
479.99
9.93
21.10
409.65
5.77
13.04
323.45
0.07
16.76
0.03
0.07
39.85
--
0.02
126.04
0.02
0.07
105.39
0.04
0.07
34.21
0.07
15
10
5
0
2013
2012
2011
2010
2009
Quick Ratio
Current Ratio
Inventory turnover
Gross Profit Margin (%)
Debt to Equity
 Source: http://www.moneycontrol.com/financials/marutisuzukiindia/ratios/MS24#MS24
Hindustan Motors Limited
Liquidity Ratios
Current Ratio
Quick Ratio
Activity Ratios
Inventory turnover
Total assets turnover
Debtor’s turnover ratio
Profitability Ratios
Gross Profit Margin (%)
Return on equity (%)
Return on assets
Leverage Ratios
Debt to Equity
Interest coverage
Long term Debt to Equity
March 2012
0.45
0.40
March 2011
0.58
0.34
March 2010
0.65
0.37
March 2009
0.66
0.42
March 2008
0.88
0.59
9.57
3.34
23.98
9.11
4.24
40.62
10.64
4.81
42.37
10.60
2.96
20.33
10.81
2.84
16.72
-24.39
-119.09
1.45
-11.33
2.27
2.53
-12.16
-158.01
2.49
-12.26
-55.18
4.92
-6.36
27.27
7.63
5.60
-5.60
1.17
4.04
-2.73
1.82
2.96
-7.58
2.41
1.55
-6.58
1.04
1.03
-2.20
0.87
 Source: http://www.moneycontrol.com/financials/hindustanmotors/ratios/HM#HM
20
10
0
-10
2012
2011
2010
2009
2008
-20
-30
Current Ratio
Quick Ratio
Inventory turnover
Gross Profit Margin (%)
Debt to Equity

2. Analysis and Interpretation


Maruti Suzuki and Hindustan Motors both are starkly contrasting companies in terms of their financials. Share price of Maruti Suzuki quotes
around 1370 Rs. while of Hindustan motors bears around 8 Rs.
Maruti Suzuki has a market share of 37% while Hindustan motors have a negligent share of 0.9%, the purpose of taking these two
companies, who are at the extremities of financial position, was efficient ratio analysis.
Maruti Suzuki
Hindustan Motors
Current Ratio
Although the ideal current ratio is 2:1 but Maruti Suzuki has been remaining
profitable by maintaining its ratio around the range of 1 to 1.5. It can be
said that company is sufficiently solvent
Consistently low current ratio for HML, company should aim at bouncing
back in the market either by selling a fixed asset or acquiring a long term
loan
Quick Ratio
Quick ratio between 0.5 and 1 is satisfactory and Maruti has been
maintaining the level, it shows company is liquid and can meet obligation
with short term assets
HML has the quick ratio almost same as current ratio which indicates that
company is maintaining low inventory which in turn indicates low
production output, In simple words co. is not making enough cars
Debt to Equity
This ratio gives a close look of company’s leverage, and risk involved for the
investors. In Maruti Suzuki this ratio is in excellent terms, it’s very low for
around 5 years indicating company rarely looks for debts
Debt to equity ratio for HML has deteriorated from 2008 and worsening,
auto sector where debt to equity maximizes at 2, HML has the ratio of 5.60
indicating company is in a lot of debt over the period of years
Debtor’s turnover
A high debtor’s turnover ratio is essential for lenders because it indicates
how quickly the debts are being collected. In case of Maruti debt collection
period is well maintained and consistent
Debtor’s turnover ratio has significantly boosted from 16.72 in 2008 to
40.62 in 2011, company should have had a look into its credit policy during
the period however it was followed by a sharp decrease to 20.68 in ‘12

3. Maruti Suzuki
Hindustan Motors
Gross profit margin
Gross profit margin ratio measures overall profitability and financial health
of the business, it also measure how much from one rupee company
expends in production and other activities. This ratio is average for the co.
,
Gross profit margin for HML is in a dangerous position, its stooping low year
by year showing company’s financially sick health and low activity, low
productivity and mismanaged cost structure.
Return on Equity
Return on equity measures how much profit is made from the amount
invested by the shareholders, in case of Maruti whose stock is really
valuable, the return on equity is fairly good.
HML is losing faith of its investors, share price is already low and return on
equity ratio is also in negative. It seems very less investors are willing to
invest their money in HML
Inventory turnover
Inventory turnover is almost triple of what HML has, however it has come
down to 26.67 since 2011’s ratio of 33.33. Comparing it to the industry
average of 38.50 in 2011-12(source: CMIE), it’s still low.
Inventory turnover is very low and consistent around 9-10 showing low
sales and purchasing efficiency.
Interest coverage
Ideal value for interest coverage ratio is 1 to 1.5 and Maruti’s interest
coverage percentage is sky high when compared to ideal value indicating
ability of company covering the debt interest quickly. However in case of
Maruti interest cover ratio is low because debt is low itself
Interest coverage ratio below 1 indicates that company is not able to
generate enough revenue to pay its interest and in case of HML it has been
negative for the past 5 years company’s weak financial condition.

4. Recommendation and Conclusion

Hindustan motors has been afloat in the market only because it’s sale in taxi segment and for years it has been considered as the cars
for all the VVIP’s Minister and even car for the president, however this notion will not last forever and company will have to take some
serious action in order to restore efficient working.

The company should realize they have a great classic product in their hand and people of India who are inclined towards maintaining
their heritage will buy the car if it’s popularized through marketing and some design upgrades rather than a total overhaul.

Company should learn from Royal Enfield which was a dying company, they revived themselves and came back in the market becoming
one of the leading choice for heritage-conscious people.

People have lost faith in HML, they should revive their company’s share price.

To improve the current ratio HML can use sweeping accounts which allows company to earn interest on any cash left after operating
costs

It’s time for HML to declare bankruptcy and discharge its accumulated debt and improve debt to equity ratio.

To improve the gross profit margin revenue has to be increased, revenue can only be increased by increasing profitability, to increase
the profitability company has to step up, take a loan, try for the last time with engineering and design team and launch a product that
employs reliability of ambassador but with a new clean look. Company has already been unsuccessful in joint venturing with Mitsubishi
and isuzu.

We can conclude that Maruti Suzuki is a company which attracts investors and lenders and company is financially very healthy, no ratio
is extremely deviated while on the other hand Hindustan motors which once was a market leader in passenger cars until the rise of
Maruti, is now due becoming sick due to inefficiency of management and lack of ability to cope up with change in market demand. HML
tried to replicate Maruti’s success by joint venturing with Mitsubishi but it did not work out.
References: http://forbesindia.com/blog/business-strategy/what-hindustan-motors-could-learn-from-royal-enfield/
http://www.equitymaster.com/research-it/compare/compare_comp.asp?symbol=HNMT-MARUTI&value=HINDUSTAN-MOTORS-MARUTI-SUZUKI