Finacial Statement Analysis of JK Tyre & Industry Ltd and CEAT Ltd.

1. FINANCIAL STATEMENT ANALYSIS 1
Submitted To
Prof. Sudhir Kamath
Submitted By
Ajay Prathap Choppara
Bhavyaruna Chittajallu
Sri Harsha Nori
Naveena Kodali
Sadiq Khan Md
Venkata Sai Akhil Sadhu M N

2. FINANCIAL STATEMENT ANALYSIS 2
AUTOMOBILE INDUSTRY:
Trends in the automobile industry decide the growth trajectory for tyre companies to a large
extent. Today, the global automakers are faced with a number of challenges such as rapidly
changing macroeconomic conditions, shift in consumer behavior, growing environmental
concerns and unprecedented technological advancements among others. Tough there are
many challenges Indian automobile industry has to face, on the other hand it has very good
opportunities like GST, Make in India, huge allocation of money to Rural and Infrastructure
development in the 2017-18 Indian budget.
Performance of Automobile Industry in Recent years
After declining for three consecutive years, production of commercial vehicles picked up in
FY 2015-16, as the April 17 deadline for the implementation of Bharat Stage IV emission
norms neared, Optimistic scenario in the infrastructure segment and sizeable exports also
resulted in better performance of the M&HCV category. However, as per the predictions of
ICRA, the passenger vehicle segment is likely to grow at a healthy pace. Improved economic
outlook and the ‘Make in India’ thrust would provide many growth opportunities to the
Indian automobile industry. Not only Make in India there are other factors which can boost
automobile sector.
INDIAN TYRE INDUSTRY:
No. of Companies 39
No. of Tyre plants 60
Industry Turnover (estimation) Rs. 50000 Crore (USD$ 8.5Bn)
Exports (estimation) Rs. 10500 (USD$ 1.7Bn)

3. FINANCIAL STATEMENT ANALYSIS 3
KEY FEATURES
 While the tyre industry is largely dominated by the organized sector, the unorganized
sector is predominant with respect to bicycle tyres.
 Major players are MRF, JK Tyres, and Apollo Tyres & CEAT which account for 63 per
cent of the organized tyre market.
 As per the Automotive Tyre Manufacturers’ Association (ATMA), the revenues of the
tyre manufacturing firms have grown at a CAGR of 12% between FY 2009-10 and FY
2014-15. The revenues of the industry in FY 2015-16 remained muted with almost
negligible growth, year-on-year.
 Major players have their own distribution channels and they spend huge on the R &
D departments.
 The major factors affecting the demand for tyres include the level of industrial
activity, availability and cost of credit, transportation volumes and network of roads,
execution of vehicle loading rules, radialization, retreading and exports.
INDUSTRY BREAKUP:
The Indian tyre industry caters to OEM, replacement and export markets through four broad
vehicle categories: Commercial Vehicles (CV), Passenger Vehicles (PV), Two-Wheelers (TW),
and others, including tractors.

4. FINANCIAL STATEMENT ANALYSIS 4
MARKET SHARE BREAK UP:
OPPORTUNITIES:
Focus of the Government of India on infrastructure growth
In the Union Budget 2016-17, the Government of India has provided 2.21 lakh crore for
infrastructure development, of which ` 97,000 crore will be spent on roadways. Greater
connectivity would give a fillip to vehicle demand, resulting in greater demand for tyres in
both OEM and replacement markets. Besides, massive road construction and infrastructure
building activities will provide a boost to tyre demand from the construction industry.
Growth in Automobile Sector:
Make in India, GST can boost automobile industry which In turn boosts tyre industry. Strong
growth in demand due to rising income, middle class, and a young population. Growth in
export demand is set to accelerate Domestic sales of passenger vehicles in India is expected
to increase at a CAGR of 12.87 per cent during 2016-26
THREATS
Chinese tyre manufacturers
Tyre imports from China to India may continue to grow at 10-12% over the next few years.
The prevailing trend in the replacement market of low-cost up gradation from TBB (truck-
bus bias) to TBR (truck-bus radial) tyres may continue even in future. Strained exports from
China to the U.S. market due to the imposition of antidumping duties and the devaluation of
the Chinese Yuan could make our Asian neighbor go for more aggressive pricing in the export
markets, giving stiffer competition to Indian tyre manufacturers.
(Source: ICRA Report, March 2016)

5. FINANCIAL STATEMENT ANALYSIS 5
Volatility in raw material prices
As a result of the sharp drop in natural rubber prices, and the resultant cut in production,
the supply gap is likely to get wider in FY 2016-17. Lower inventory levels and the import
restrictions on natural rubber are likely to pose challenges to domestic tyre manufacturers.
Rupee volatility and heavy fluctuations in crude oil prices may exacerbate the situation.
INDUSTRY OUTLOOK
A broad based economic recovery led by a massive push to infra spends, good monsoon,
higher urban discretionary incomes, and a rural income turnaround may provide Indian tyre
makers with exciting opportunities in OEM as well as replacement markets. The tyre demand
is likely to be higher by 3.5-5.5% in FY 2016-17 and may improve further to 8%-10% in FY
2017-18. China may continue to pose a threat to Indian companies in the domestic TBR
market and also in the export markets serviced by Indian tyre manufacturers.
(Source: ICRA Report, March 2016)
ABOUT JK TYRE
The company is a part of the century-old JK Organization, one of India’s leading private sector
conglomerates. JK Tyre is one of the leading tyre companies in India, which presents in all
tyre segments.

6. FINANCIAL STATEMENT ANALYSIS 6
 Ranked No. 1 in Customer Satisfaction by JD Power Asia Pacific Study 2015
 Awarded brand of the year 2015 by world branding forum London.
 JK Tyre -TATA Motors Best Supplier of the Year - at TATA Motors vendor’s conference
2015 in Pune
 National Award for Excellence in Talent Management 2015
JK tyre is very aggressive in product launches, in 2016 itself they have launched 121 new
products. Off lately they are trying to penetrate into two/thee wheeler segments.
12 Plants across
India
141 Jk Tyre
selling points
4000 Dealers
23 Tyre Truck
Wheels
150+ JK Tyre
Steel Wheels
The company’s manufacturing operations comprise 12 modern plants
strategically located across the country – Mysuru, Banmore, Kankroli,
Chennai and Haridwar.
The company has 141 JK Tyre selling points pan-India which service the
growing needs of more than 4000 dealers. Besides, the company markets
products through 23 ‘JK Tyre Truck Wheels’ (fully equipped tyre service
Centre- addressing HCV’s) and 150+ ‘JK Tyre Steel Wheels’ (exclusive
passenger car tyre retail). The company focused on tyre management
solutions as opposed to product sale.
The Company enjoys the highest market share in truck / bus radials in
India- first mover advantage; it is amongst the largest players in India’s
truck bias and passenger car segments as well.
JK Tyre is a preferred supplier to all leading automotive Original
Equipment Manufacturers like Maruti Suzuki, Tata Motors, Honda,
Hyundai, Ashok Leyland, Mahindra & Mahindra, Volvo, Eicher, General
Motors, Volkswagen, Fiat, Nissan, TAFE, BEML and Caterpillar India,
Chrysler, Volkswagen, Nissan (car/light truckradial) and John Deere
(Farm).
JK tyre’s last year turnover is RS. 5963 Crores.

7. FINANCIAL STATEMENT ANALYSIS 7
SWOT ANALYSIS
FINANCIAL STATEMENTS:
BALANCE SHEET

8. FINANCIAL STATEMENT ANALYSIS 8
 It seems that JK TYRES and CEAT are slowly converging on their credit policies
resulting in nearly similar account receivable levels.
 On comparing the inventories figures of both the companies, we find that CEAT
maintains it at about 16% of its total assets unlike JK Tyres being at about 12%
approximately.
 We can identify that accounts payable of JK is consistent and CEAT’s accounts
payables is decreased from 20% to 16% during 2013-2016 period. It indicates that
CEAT’s management has been taking action to keep its accounts payable low.
 Both JK TYRES and CEAT are raising equity by maintaining a stable long term debt.
 Both the company’s fixed assets has shown an inclining trend over the period.
INCOME STATEMENT:
 Better operating efficiencies, all-round
cost reduction, deeper rural penetration,
launch of several new products across
categories and stable input costs by JK
TYRES and reduction in the Finance cost
& cost of materials consumed by CEAT
helped the companies achieve this
significant improvement in performance.
 We can also identify that there has been
a decrease in the COGS and total
expenses made by both the companies,
which resulted in the inclining trend of
net profits.

9. FINANCIAL STATEMENT ANALYSIS 9
CASH FLOWS:
ANALYSIS POINTS JK TYRES CEAT
MAJOR SOURCES OF CASH Cash from operations - 902
Borrowings - 301
Cash from operations-687
Borrowings - 499
Short term buyer credit –
142
MAJOR USES OF CASH
DURING THE PERIOD.
Purchase of Fixed Assets –
559
Repayments – 432
Finance Costs – 250
Purchase of Fixed Assets –
706
Repayments – 629
CASH FLOWS FROM
OPERATIONS COMPARED
TO NET PROFIT FIGURES OF
THE FIRM.
CF0 – 902 > Net Profit – 453 CF0 – 687 > Net Profit – 445.
IS CASH FROM OPERATIONS
GREATER THAN CAPEX?
YES,
CFO – 902 >
CAPEX – 559
No.
CAPEX – 706 > CFO – 687
CASH FROM OPERATIONS >
CAPEX+INT PAID+ DIV PAID?
 IF YES, WHERE WAS
THE EXCESS CASH
INVESTED?
 IF NO, WHAT ARE
THE SOURCES OF
CASH FOR PAYMENT
OF DIV, INT AND
CAPEX?
CFO – 902
CAPEX+INT PAID+ DIV PAID
– 850.
NA
YES.
Net borrowings, CFO.
CFO – 687
CAPEX+INT PAID+ DIV PAID
– 890
NA
YES.
Net Borrowings, CFO.

10. FINANCIAL STATEMENT ANALYSIS 10
 Though the average inventory on hand is 60 days a year for the both companies
comparatively CEAT turns 5 times a year, where JK inventory turns over 4 times a
year, which shows that CEAT is playing a volume game.
 Comparatively CEAT has higher receivables turnover ratio than JK which means that
it is collecting more receivables throughout the year.
 Comparatively CEAT has higher payables turnover ratio than JK which means that it
is paying more frequently and regularly.
 JK has better working capital turnover ratio than CEAT as it has high turnover ratio,
which means JK is efficiently using firm’s short term assets and liabilities. CEAT which
has comparatively low ratio indicates that it is investing in too many accounts
receivables and inventory assets to support its sale.
-30
-20
-10
0
10
20
30
40
2016 2015 2014 2016 2015 2014
JK CEAT
ACTIVITY RATIOS
Inventory Turnover Ratio Receivables Turnover Ratio
Payables Turnover Ratio Working Capital Turnover Ratio

11. FINANCIAL STATEMENT ANALYSIS 11
 The ideal current ratio is 2. If we identify, both the companies have less current ratio
but comparatively CEAT has a better current ratio. The reason for JK’s current ratio
being less than 1 is there has been an increase in the short term borrowings of the
company.
 The average quick ratio of JK and CEAT is almost 0.5, which means that the company
can cover it’s 50% of current liabilities through its quick assets. CEAT is mainly
dependent on inventory to cover its liabilities.
 Both the companies do not have sufficient cash and cash equivalents to cover its
current liabilities.
CEAT has better cash conversion cycle i.e. on an average CEAT is taking 30 days in
converting its sales into cash, whereas JK is taking 50 days on an average to convert its
sales into cash.
0
0.2
0.4
0.6
0.8
1
1.2
1.4
2016 2015 2014 2016 2015 2014
JK CEAT
LIQUIDITY RATIO
Current Ratio Quick Ratio Cash Ratio

12. FINANCIAL STATEMENT ANALYSIS 12
 Both the companies have good Debt Asset Ratio, which is less than 1. It shows that
the companies have more assets than liabilities and could pay off its obligations by
selling its assets if it needed to and both companies are not exposed to risk.
 JK is exposed to more risk than CEAT, because JK has more debt to equity ratio.
 JK has a stable interest coverage whereas CEAT has an increase in the interest
coverage ratio because of increase in its EBIT and decrease in interest expense.
0.76 0.8 0.82 0.5 0.55 0.7
3.2
3.93
4.51
0.97 1.23
2.41
3.77
3.09
2.58
8.8
5.17
3.91
0
2
4
6
8
10
2016 2015 2014 2016 2015 2014
SOLVENCY RATIO
Debt-Asset Ratio Debt-Equity Ratio Interest Coverage Ratio

13. FINANCIAL STATEMENT ANALYSIS 13
 The gross profit of JK is higher than that of CEAT, because JK has been efficient in
reducing their COGS which resulted in higher gross profits. Though JK has good gross
profit its net profit is lower because of its increasing depreciation expenses and other
expenses. Both the companies have stable operating gross profit.
 Both the companies have good ROCE and ROE, but comparatively JK has edge over
CEAT.
 Both companies are generating major portion of revenues through capital employed
and a little from assets.
 Both the companies have a very little ROI but comparatively CEAT has better ROI.
0
5
10
15
20
25
2016 2015 2014 2016 2015 2014
JK CEAT
PROFITABILITY RATIO
ROCE ROE
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
2016 2015 2014 2016 2015 2014
JK CEAT
PROFITABILITY RATIOS
Gross Profit Margin Net Profit Margin Operating Gross Profit ROI ROA

14. FINANCIAL STATEMENT ANALYSIS 14
Although both the companies have a return on equity of nearly 11% their underlying
strengths and weaknesses are quite opposite. JK is better than CEAT in using its assets to
generate revenues. CEAT seems less risky since its financial leverage is very low.
7% 2.3
4.52
10.22
8% 1.435 2.1
11
0%
200%
400%
600%
800%
1000%
1200%
Net profit margins Total assets
turnover ratio
Financial Leverage
Ratio
ROE
DUPONT ANALYSIS
DuPont Analysis JK DuPont Analysis CEAT

15. FINANCIAL STATEMENT ANALYSIS 15
WHERE TO INVEST:
• Though JK has 24% of share in the automobile sector, ratio analysis suggests that
CEAT with 5% market share has strong financials.
• CEAT has better investment options as it can be understood by looking at its debt-
equity ratio which is low when compared to JK.
• CEAT has better net profit margin when compared to JK.
• CEAT has better ROI than JK.
SO, on the whole CEAT has better investment options.