INTRODUCTIONHero Motors Ltd. is the worlds largest manufacturer of twowheelers, based in India. The company was a joint venture between Indias HeroGroup and Honda Motor Company, Japan that began in 1984later in 2011 it turn into Hero Motors Limited.In 2001, the company achieved the coveted position ofbeing the largest two-wheeler manufacturing company in Indiaand the “World No.1” two-wheeler company in terms of unitvolume sales in a calendar year by a single company. Herohas retained that coveted position till date. Today, every second motorcycle sold in the country is aHero Honda bike. Every 30 seconds, someone in India buysHero splendor which is India‟s selling motor cycle.
ABOUT HERO MOTORS LTD VISION: The HERO story began with a simple vision- the vision of a mobile and an empowered India, powered by Hero. This vision was driven by Hero‟s commitment to customer, quality and excellence, and while doing so, maintaining the highest standard of ethics and social respnsibilities. Hero believes that the fastest way to turn that dream to reality is by remaining focused on that vision. STRATEGY: Hero key strategy has been driven by innovation in every sphere of activity- building a robost product portfolio across categories, exploring new markets, aggresively expanding the network and continuing to invest inbrand building activities.
ABOUT HERO MOTORS LTDManufacturing:Hero Honda bikes are manufactured across three globally benchmarkedmanufacturing facilities. Two of these are based at Gurgaon andDharuhera which are located in the state of Haryana in northern India.The third and the latest manufacturing plant is based at Haridwar, in thehill state of Uttarakhand.Technology:In the 1980s Hero pioneered the introduction of fuel-efficient,environment friendly four-stroke motorcycles in the country. Today Herocontinues to be technology pioneer. It became the first company tolaunch the Fuel Injection (FI) technology in Indian motorcycles, with thelaunch of the Glamour FI in June2006
ABOUT HERO MOTORS LTDProducts:Hero product range includes variety of motor cycles that have set theindustry standards across all the market segments. The companyalso started manufacturing scooter in2006.Hero offers large no. ofproducts and caters to wide variety of requirements across allthe segments.Distribution:The companys growth in the two wheeler market in India is the result ofan intrinsic ability to increase reach in new geographies and growthmarkets. Hero extensive sales and service network now spans closeto 4500 customer touch points. These comprise a mix of authorizeddealerships, Service& Spare Parts outlets, and dealer-appointed outletsacross the country.
Current TrendHero MotoCorp Ltd (HMCL), the world‟s largest two-wheelermanufacturer, today reported sales of 4,84,217 units of two-wheelers inthe month of July 2012. HMCL had sold 4,91,036 units in the corresponding month last year.Mr. Anil Dua, Senior Vice-President (Marketing & Sales), Hero MotoCorpLtd said, “The two-wheeler industry in the country has been experiencingsluggish growth for past few months. We are strengthening our brand and saliency in midst of a challengingenvironment where a patchy monsoon, rising petrol prices and highinterest rates have been affecting retail sales in both rural and urbanmarkets. Our brand and models are salient on the current bilateral cricket seriesand Olympics. We continue to launch new models, air new campaigns and expand ournetwork as we look forward to the commencement of the festive seasonwith cautious optimism.”.
Current Trend :HMCL recently announced its best-ever turnover (Net Sales & OtherOperating income) of Rs. 6247.28 crores for the first quarter (April-June2012) of FY‟13. The company‟s profit before tax for the period stood at Rs 734.88crore, while profit after tax (PAT) for the period stood at Rs 615.46crores. The Company has recorded an EBIDTA margin of 15 per cent. HeroMotoCorp registered its highest ever quarterly sales of 16,42,292 two-wheelers in the first quarter this fiscal, fuelled by two consecutivemonths of highest-ever monthly sales witnessed by the company in themonths of April (5,51,557) and May (5,56,644).Hero MotoCorp has strengthened its presence in the deluxe segmentwith the launch of its new 125cc motorcycle – Hero “Ignitor”. The sporty looking „Ignitor‟ is loaded with impressive features and isattractively priced at Rs. 55,900/- for the drum-self-cast variant and Rs57,900/- for the disc-self-cast variant.
Why Annual Report is important??One wants to know how well the company is doing , how well it isupcoming changes projected for the next year, and about themanagement staff of the company.One want to find out whether the company is making more money thanit is spending.One want to get an idea of management‟s strategic plan for the comingyear.Shareholders can use the annual report to make important decisions.
What is a Director Report ? Why is it important ?It is obligatory on the part of the directors to make out and attach to everybalance sheet laid before company in general meeting, a report known as“directors report”.The report is intended to report, to all interested stakeholders, thedirectors explanations and interpretations of the profit/loss, the state ofaffairs of the group and any other matters which may be material for thestakeholders attention.
Why is Auditor appointed ? What is an Auditor’s report ?Auditors are appointed to certify whether the financialstatements reflects a true and fair view of an entity or not.Auditors provide an independent opinion.The auditor‟s report is a means by which the auditorcommunicates the findings of his examination to the readersof financial statements viz.. Shareholders, creditors, financialinstitutions and all others who have a stake in the company orwish to acquire a stake with the company
ACCOUNTING POLICY:The financial statements of the Company have been prepared in accordance withthe Generally Accepted Accounting Principles in IndiaThe financial statements have been prepared on accrual basis under thehistorical cost convention.Fixed assets are stated at cost less accumulated depreciation. Cost of acquisitionis inclusive of freight,duties, taxes and other incidental expenses.Depreciation is charged on a pro-rata basis at the straight line method rates.Intangible assets, comprising of expenditure on model fee etc, incurred areamortised on a straight line method over a period of five years.Leasehold land has been amortised over the period of LeaseCurrent investments are stated at lower of cost and fair value computed categorywise.Long term investments are stated at cost less provision for permanent diminution,if any.Stores and spares and loose tools are stated at cost or under.Raw materials andcomponents, finished goods and work in progress are valued at cost.
INTERPRETATION:Reserves and surpluses increased by Rs. 1333.77 cr. means the profitability of thecompany has increased by 45.74% as compared to previous year i.e. 2011.There is no change in the share capital of the company as because it has not issuedany share.Secured and unsecured loans have decreased more than the decrease in fixedassets shows that the company has used a part of current asset i.e. investment. That iswhy investment has decreased by Rs.1164.49cr i.e. 22.71% decrease as compared tothe previous year 2011.There is an increase in liquid assets i.e. cash and debtors over the last year by108.52% and 7.41% respectively. This shows that the company has improved itsliquidity position.The company had working capital of Rs. 539.39cr in 2011 and Rs. 1468.30 cr in2012. It means the working capital has increased by 72.23% and this is an extremelygood improvement in the current financial position of the business.There is an increase in inventory worth Rs. 150.64cr which can be on account ofaccumulation of stock for want of customers, decrease in demand or inadequate salespromotion efforts.
INTERPRETATION:There is no change in share capital as because the company had notissued any share There is 14.86% decrease in reserves and surpluses in 2011 ascompared to the base year 2010 and an increase of 24.08% inreserves and surpluses of the company. Liquid assets and loans and advances showing an increasing trend.The former increased by 24.23% and 155.26% in 2011 and 2012respectively. The later increased by 78.69% and 111.42% in 2011 and2012 respectively.Current assets showing a decreasing trend. It has decreased by8.18% and 21.78% in 2011 and 2012 respectively as compared to thebase year 2010.Current liabilities increased by 34.06% in 2011 and decreased by11.22% in 2012 as compared to base year 2010.
COMMON-SIZE BALANCE SHEET ANALYSIS OF HERO MOTOCORP AS ON 31-MARCH 2011 AND 2012 (in cr.) (in cr.)GROSS B OCK L 5 ,5 3 8 .4 6 5 1 .0 7 6 ,3 0 8 .2 6 6 3 .7 5L SS: A E CC. DE E PR CIATION 1 ,4 5 8 .1 8 1 3 .4 5 2 ,5 2 2 .7 5 2 5 .4 9NE B OCK T L 4 ,0 8 0 .2 8 3 7 .6 2 3 ,7 8 5 .5 1 3 8 .2 6CAPITA WOR - IN- PR L K OGESS 1 2 5 .1 4 1 .1 5 1 9 3 .9 5 1 .9 6INVESTMENTS 5 ,1 2 8 .7 5 4 7 .2 9 3 ,9 6 4 .2 6 4 0 .0 6INVENTOR S IE 5 2 4 .9 3 4 .8 4 6 7 5 .5 7 6 .8 3SUNDR DE TOR Y B 1 3 0 .5 9 1 .2 0 2 7 2 .3 1 2 .7 5CASH A B NK T A 7 1 .5 2 0 .6 6 7 6 .8 2 0 .7 8LOANS AND ADVANCES 7 8 3 .4 8 7 .2 2 9 2 6 .9 9 9 .3 7SHA E CA R PITAL 3 9 .9 4 0 .3 7 3 9 .9 4 0 .4 0R SE VE & SUR US E R S PL 2 ,9 1 6 .1 2 2 6 .8 9 4 ,2 4 9 .8 9 4 2 .9 5SECUR D L E OANS 1 ,4 5 8 .4 5 1 3 .4 5 9 9 4 .8 5 1 0 .0 5UNSECUR D L E OANS 3 2 .7 1 0 .3 0 0 .0 0 0 .0 0CUR E R NT L B ITIE IA IL S 5 ,3 1 6 .4 0 4 9 .0 2 3 ,5 2 0 .6 6 3 5 .5 8PROVISIONS 1 ,0 8 1 .0 7 9 .9 7 1 ,0 9 0 .0 7 1 1 .0 2
INTERPRETATION: The company‟s working capital has improved immensely. In 2011 current assets were more than current liability by 4.97% and this year it is 14.84%. This shows how efficient the company is in managing its working capitalRATIO ANALYSIS AND ITS COMPARISION WITH BAJAJ AUTOLIQUIDITY RATIO1.CURRENT RATIOCURRENT ASSETS = WORK IN PROGRESS + INVENTORIES + SUNDRY DEBTORS +CASH AT BANKCURRENT RATIO, 2010 = (48.14+436.40+108.39+1,907.21)/ 3,965.69 = 0.63CURRENT RATIO, 2011 = (125.14+524.93+130.59+71.52)/ 5,316.40 = 0.16CURRENT RATIO, 2012 = (193.95+675.57+272.31+76.82)/ 3,520.66 = 0.34 Current ratio of all the 3 years are below the bench mark i.e. 2 whichindicates that the liquidity position of the company is not good and the firm shall not be able topay its current liabilities in time without facing difficulties. Bajaj Auto has a current ratio of 0.88 in 2012 as against Hero Motocorp’s 0.34. It meansthe liquidity of Bajaj Auto is more as compared to Hero Motocrop.
LIQUID RATIO = LIQUID ASSETS/LIQUID LIABILITIESLIQUIDITY RATIO:LIQUID ASSETS = CURRENT ASSETS – INVENTORIESLIQUID RATIO, 2010 =( 2500.14-436.40)/ 3965.69 = 0.52LIQUID RATIO, 2011 = (852.18 - 524.93)/ 5,316.40 = 0.06LIQUID RATIO, 2012 = (1,218.65 - 675.57)/3,520.66 = 0.15INTERPRETATION : - The bench mark for liquid ratio is 1. But thecompany has liquid ratio below 1 which indicates that the company is toomuch relies too much on inventory or other assets to pay its short-termliabilities. Bajaj Auto has a liquid ratio of 0.72 as against Hero Motocrop‟s0.15 in 2012. Though both the company has to depend too much oninventory or other assets to pay its short-term liabilities still Bajaj Auto hasthe upper hand as compared to Hero Motocrop
SOLVENCY RATIO:DEBT EQUITY RATIO = OUTSIDER‟S FUND/SHARE HOLDER‟SFUNDSHARE HOLDER‟S FUND = SHARE CAPITAL + RESERVES ANDSURPLUSESDEBT EQUITY RATIO, 2010 = (0.00+66.03)/( 39.94+3,425.08) = 0.02DEBT EQUITY RATIO, 2011 = (1,458.45+32.71)/( 39.94+2,916.12) = 0.50DEBT EQUITY RATIO, 2012 = (994.85+0)/(39.94+4249.89) = 0.23INTERPRETATION :- The ratio of all the three years are less than 1 whichmeans the company has more share capital with respect to outsider‟s fund. Ahigher ratio demonstrate that the company has aggressively financed its growththrough outsider‟s fund. Ultimately it helps in saving tax. Here, both the company Hero Motocorp and Bajaj Auto has their ratiolower than 1 i.e. 0.23 and 0.02 respectively. The higher the debt equity ratio thebetter it is for the company as it helps in saving tax
FIXED ASSETS TO NET WORTH RATIO =FIXED ASSETS AFTER DEPRECIATION / SHARE HOLDER’S FUND FOR YEAR 2010 = 1,658.78 / 3,465.02 = 0.48 FOR YEAR 2011 = 4,080.28 / 2956.06 = 1.38 FOR YEAR 2012 = 3,785.51 / 4,289.83 = 0.88INTERPRETATION : - Except 2011 in other two year theratio is less than 1. It indicates that that the owner‟s fund isnot sufficient in to finance the fixed assets and the companyhas to depend upon outsiders to finance the fixed assets in2012. Here, Bajaj Auto has a ratio of 0.25 as against HeroMotocorp‟s 0.88 in 2012. It shows owner‟s fund is morethan total fixed assets and a part of working capital isprovided the shareholders.
EARNING PER SHARE(EPS) = NET PROFIT AFTER TAX /NUMBER OF EQUITY SHARES OUTSTANDINGNUMBER OF EQUITY SHARES OUTSTANDING = EQUITY SHARE CAPITAL /PRICE PER SHARE= 39,94,00,000 / 2 = 19,97,00,000 sharesEPS FOR THE YEAR 2010,2011 AND 2012 = 2,231.83 / 19,97,00,000 =Rs.111.76INTERPRETATION: - EPS of Rs. 111.76 shows the amount of profit one shareproduces where as EPS of Bajaj Auto is Rs.103.80. It means the profit earned byHero Motocorp is Rs.7.96 more as compared to Bajaj Auto.PRICE EARNING RATIO = MARKET PRICE PER SHARE /EARNING PER SHAREPRICE EARNING RATIO, 2010 = 173.52 / 111.76 = 1.55 timesPRICE EARNING RATIO, 2011 = 148.03 / 111.76 = 1.32 timesPRICE EARNING RATIO, 2012 = 214.83 / 111.76 = 1.92 timesINTERPRETATION: - Price earning ratio has increased from 2010 to from 2012which will encourage the investor to buy the shares of the company as it is thesign of higher earnings growth in future. Where as the price earning ratio of BajajAuto is 2.01 which is slightly higher than Hero Motocorp.
INVENTORY TURNOVER RATIO = COST OFGOODS SOLD / AVERAGE INVENTORYCOST OF GOODS SOLD = SALES – GROSS PROFITAVERAGE INVENTORY =( OPENING INVENTORY + CLOSING )/2FOR 2010 ITO RATIO = (16856.43 – 2743.65)/436.40 = 32.33FOR 2011 ITO RATIO = (20787.27 – 2597.07)/480.665 = 37.84FOR 2012 ITO RATIO = (25252.98 – 3648.032)/ 600.25 = 35.99INTERPRETION: - Inventory turnover ratio in 2012 is on thehigher end as compared to 2010 which indicates efficient management ofinventory because more frequently the stocks are sold the lesser moneyis required to finance the inventory. Bajaj Auto has 27.11 as inventory turnover ratio which is 8.88 lessthan Hero Motocorp.
DEBTORS TURNOVER RATIO = NET CREDITANNUAL SALES/ AVERAGE DEBTORAVG. DEBTOR = (OPENING DEBTOR + CLOSINGDEBTOR)/2FOR 2010 = 16856.43/108.39 = 155.5FOR 2011 = 20787.27/119.49 = 173.9FOR 2012 = 25252.98/201.45 = 125.3INTERPRETATION: - Debtor turnover ratio is on the higherend. After considering the reputation a higher ratio indicates efficientmanagement of debtor or sales and liquidity of debtors. Bajaj Auto‟s debtor turnover ratio is 52.10. Though it‟s a goodratio still it is way below Hero Motocorp‟s 125.3.
GROSS PROFIT RATIO = (GROSS PROFIT/NET SALES)*100FOR 2010 = (2743.65/16856.43)*100 = 16.27%FOR 2011= (2597.07/20787.27)*100 = 12.49%2012 = (3648.02/25252.98)*100 = 14.44%INTERPRETATION : - Though the gross profit hasdecreased by 1.83% in 2012 as compared to 2010, it is still in thehigher side indicates that the company can make reasonable profit aslong as it keeps the overhead cost in control. It also indicates theproduction efficiency of the company and how efficient the company isin controlling production cost. Gross profit ratio of Bajaj Auto is 18.25% which is 3.81% morethan that of Hero Motocrop. It shows that Bajaj Auto has much bettercontrol over production cost.
NET PROFIT RATIO = (NET PROFIT AFTERTAX/NET SALES)*1002010 = (2213.83/16856.43)*100 = 13.13%2011 = (1927.90/20787.27)*100 = 9.27%2012= (2378.13/25252.98)*100 = 9.41%INTERPRETATION: - There is decrease in netprofit by 3.72% in 2012 as compared to 2010. A higherrate of net profit indicates that how efficient the companyis and how well it controls its overhead cost. The net profit ratio of Bajaj Auto is 14.67% asagainst Hero Motocrop‟s 9.41% showing a difference of5.26%. It means Bajaj Auto is more efficient in controllingits overhead cost as compared to Hero Motocorp.
LEARNING FROM FINANCIAL STATEMENTANALYSIS:One of the handiest skills that we learned is how to read acorporate financial statement and why it is important tolearn to read a financial statement. This skill is very handy ifyou are interested in investing in stocks. In fact, reading afinancial statement is extremely important if you want toinvest in stocks. And understanding the numerous ratios,which can be used to interpret the financial health of acompany is very important as each ratio has a specificpurpose.