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HERO HONDA PROJECT. Objectives of the study:

Two wheeler industry being under redefinition; interest has been taken to study more about the two wheeler industry, in particular about a company.

To gain more financial knowledge by studying the reports issued by the company of the different financial years.

To know information about company’s various sources of income, its channelization and its expenditure.

Intention to know about company’s financial soundness by calculating various important ratios and interpreting them.

Study the information how the company is able to maintain its position in the market and estimate the future performance.

Limitations of the study:

The information gathered is constrained only to the sources of company’s website address, reference books and updated information given by news daily.

Due interest has been taken in preparing the report some errors might have crept in, corrective action will be taken in future if so found.

As a part of business confidentiality financial statements can be easily window dressed to present a better picture of its financial and profitability position to outsiders.

Calculation of ratios is not an end in itself it is merely a tool of financial statements; different people interpret the same ratio in different ways.

Change in accounting procedure makes ratio analysis misleading, e.g., a change in valuation methods of inventories, from FIFO to LIFO increases the cost of sales and reduces considerably the value of closing stocks which makes stock turnover ratio to be lucrative and an unfavorable gross profit ratio.

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INDUSTRY PROFILE

Indian Two-Wheeler Industry: A PerspectiveAutomobile is one of the largest industries in global market. Being the leader in product and process technologies in the manufacturing sector, it has been recognized as one of the drivers of economic growth. During the last decade, well directed efforts have been made to provide a new look to the automobile policy for realizing the sector's full potential for the economy. Steps like abolition of licensing, removal of quantitative restrictions and initiatives to bring the policy framework in

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consonance with WTO requirements have set the industry in a progressive track. Removal of the restrictive environment has helped restructuring, and enabled industry to absorb new technologies, aligning itself with the global development and also to realize its potential in the country. The liberalization policies have led to continuous increase in competition which has ultimately resulted in modernization in line with the global standards as well as in substantial cut in prices. Aggressive marketing by the auto finance companies have also played a significant role in boosting automobile demand, especially from the population in the middle income group.

Evolution of Two-wheeler Industry in India

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Two-wheeler segment is one of the most important components of the automobile sector that has undergone significant changes due to shift in policy environment. The two-wheeler industry has been in existence in the country since 1955. It consists of three segments viz. scooters, motorcycles and mopeds. According to the figures published, the share of two-wheelers in automobile sector in terms of units sold was about 80 per cent during 2003-04. This high figure itself is suggestive of the importance of the sector. In the initial years, entry of firms, capacity expansion, choice of products including capacity mix and technology, all critical areas of functioning of an industry, were effectively controlled by the State machinery. The lapses in the system had invited fresh policy options that came into being in late sixties. Amongst these policies, Monopolies and Restrictive Trade Practices (MRTP) and Foreign Exchange Regulation Act (FERA) were aimed at regulating monopoly and foreign investment respectively. This controlling mechanism over the industry resulted in: (a) several firms operating below minimum scale of efficiency; (b) under-utilization of capacity; and (c) usage of outdated technology. Recognition of the damaging effects of licensing and fettering policies led to initiation of reforms, which ultimately took a more prominent shape with the introduction of the New Economic Policy (NEP) in 1985.

A Growth Perspective

The composition of the two-wheeler industry has witnessed sea changes in the post-reform period. In 1991, the share of scooters was about 50 per cent of the total 2-wheeler demand in the Indian market. Motorcycle and moped had been experiencing almost equal level of shares in the total number of two-wheelers. In 2003-04, the share of motorcycles increased to 78 per cent of the total two-wheelers while the shares of scooters and mopeds declined to the level of 16 and 6 per cent respectively. A clear picture of the motorcycle segment's gaining importance during this period is exhibited by the Figures 1, 2 and 3 depicting total sales, share and annual growth during the period 1993-94 through2003-04.

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COMPANY PROFILE:

Desh ki dhadkan!

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During the 80s, Hero Honda became the first company in India to prove that it was possible to drive a vehicle without polluting the roads. The company introduced new generation motorcycles that set industry benchmarks for fuel thrift and low emission. A legendary 'Fill it - Shut it - Forget it' campaign captured the imagination of commuters across India, and Hero Honda sold millions of bikes purely on the commitment of increased mileage

Over 20 million Hero Honda two wheelers tread Indian roads today. These are

almost as many as the number of people in Finland, Ireland and Sweden put

together!

Hero Honda has consistently grown at double digits since inception; and today,

every second motorcycle sold in the country is a Hero Honda. Every 30

seconds, someone in India buys Hero Honda's top -selling motorcycle –

Splendor. This festive season, the company sold half a million two wheelers in

a single month—a feat unparalleled in global automotive history.

Hero Honda bikes currently roll out from its three globally benchmarked

manufacturing facilities. Two of these are based at Dharuhera and Gurgaon in

Haryana and the third state of the art manufacturing facility was inaugurated at

Haridwar, Uttrakhand in April this year. These plants together are capable of

producing out 4.4 million units per year. As Brijmohan Lall Munjal, the

Chairman, Hero Honda Motors succinctly points out, "We pioneered India's

motorcycle industry, and it's our responsibility now to take the industry to

the next level. We'll do all it takes to reach there.''

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The joint venture between India’s Hero Group and Honda Motor Company,Japan has not only created the world’s single largest two wheelercompany but also one of the most successful on ventures worldwide. During the 80s, Hero Honda became the first company in India to prove that it was possible to drive a vehicle without polluting the roads. The Company introduced new generation motorcycles that had set the industry benchmarks for fuel economy and low emission. A legendary 'Fill it - Shut it - Forget it' campaign captured the imagination of commuters across India, and Hero Honda sold millions of bikes purely on the commitment of increased mileage. Hero Honda has added many more feathers in its cap since then. Today, Hero Honda bikes not only sell on the promise of better mileage, but also on the basis of attributes such as safety, comfort, ergonomics and durability. Thanks to the trust reposed by consumers across all segments, entry, deluxe and premium, year after year, over 19 million Hero Honda tread Indian roads today. These are as many as the number of people in Finland, Ireland and Sweden put together and all this has achieved in the span of just over two decades. Hero Honda bikes currently roll out from two globally benchmarked manufacturing facilities located at Dharuhera and Gurgaon in Haryana .These plants are capable of churning out 3.9 million bikes per year. A third state of the art manufacturing facility at haridwar in uttrakhand will soon be commissioned to cope with sustained market demand. Hero Honda’s extensive sales and service network comprises of over 3000 customer touch points. These include a mix of dealerships, service and spare points, spare parts stockiest and authorized representatives of dealers located across different geographies. Every year, new dealerships and service centers are rapidly where growth potential is spotted. Hero Honda values its relationship with customers its unique CRM initiative-Hero Honda Passport Program, one of the largest programs of this kind in the world, has over 3 million members. The program has helped Hero Honda understand its customers better and deliver at different price points. Having created an unassailable pole position for itself in the Indian two wheeler market, Hero Honda is now consolidating its position in the market place by innovating along the entire value chain. The company believes that changing demographic profile of India, increasing urbanization and the empowerment of rural India will add millions of new families to the economic mainstream. This would provide the growth ballast that would sustain Hero Honda in the years to come.

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HERO HONDA'S MISSION 

Hero Honda’s mission is to strive for synergy between technology, systems and

human resources, to produce products and services that meet the quality,

performance and price aspirations of its customers. At the same time maintain

the highest standards of ethics and social responsibilities.

This mission is what drives Hero Honda to new heights in excellence and helps

the organization forge a unique and mutually beneficial relationship with all its

stake holders.

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SENIOR MANAGEMENT TEAM 

N

o.

Name Designation

1 Mr. Ravi Sud Sr. Vice President & CFO

2 Mr. Anil Dua Sr. Vice President – Sales,

Marketing & Customer Care

3 Dr. Anadi Pande Vice President - Operations,

Corporate Planning & Strategy

4 Dr. Vikram Kasbekar Plant Head

5 Mr. Vijay Sethi Vice President - Information Systems

 

 Company Secretary & Compliance Officer

N

o.

Name Designation

1 Mr. Ilam C. Kamboj G. M. Legal & Company Secretary

COMPETITORS TO HERO HONDA MOTORS LTD.

BAJAJ AUTO LIMITED TVS MOTORS LIMITEDHONDA KINETICYAMAHASUZUKI

SALES REPORT

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HERO HONDA REPORTS HIGHEST-EVER SALES IN A MONTH,

SELLS 3,65,022 TWO-WHEELERS IN OCTOBER’07

New Delhi, Monday, March 31, 2008:

Crosses landmark Two Crore bikes on October 12th; celebrates the landmark achievement with “Hero Honda BIKE-A-THON”- a nationwide marathon of Hero Honda bikes under the “Hero Honda Country” campaign Launches two new models Hunk (150cc) & refreshed Splendor+ along with a Special Edition during the month, thus taking its new launches to six during the financial year so far.

Hero Honda Motors Ltd (HHML), the world’s largest two-wheeler

manufacturer, today reported its highest-ever sales in a month, with 3,65,022

units of two-wheelers in the month of October. This is an impressive

performance in view of the prevailing slowdown in the two-wheeler industry.

HHML had sold 3,63,480 units during the month of October 2006. In September

2007, HHML had sold 314,567 units of two-wheelers.

This is in line with the company’s strategy for aggressive top line growth and

increased market share. The company’s strategy has been to refresh the

complete product range, and back them with aggressive marketing and

communication campaigns. HHML had already introduced four new products,

including refreshes, in this financial year. These were Splendor NXG, refreshed

Pleasure, New Super Splendor and New Passion Plus. It added two more this

month, Hunk (150cc) and refreshed Splendor+, along with a Special Edition.

The all-muscle and macho Hunk (150cc), which was launched during the month

of October, has received a very encouraging initial response from customers,

thus further strengthening the steadily growing market share of Hero Honda in

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the premium segment. The company has more than doubled its volumes and

share in this segment between January – September 2007.Splendor+ has been

refreshed with exciting new graphics, five spoke silver cast alloy wheels option,

and new meter dial color.

The Special Edition Splendor+ was launched to commemorate the company’s

landmark achievement of Two Crore bikes, and was unveiled at the culmination

of the “Hero Honda BIKE-A-THON” at the historic India Gate in Delhi on

October 30th. The Special edition has a Black Body Color with New Silver

Monotone Stripes. To add to its exclusivity, the commemorative bike has black

five spoke alloy wheels, a black engine and matching chain cover and an

attractive “Special Edition” doming sticker on both the right and left side

covers.

Carrying forward their long-standing association, HHML and the Indian Air

Force (IAF) joined hands to celebrate together their milestones - the 20 million

bikes achievement and the Platinum Jubilee of the IAF. As a part of this, four

IAF teams of 20 officers riding on Hero Honda bikes joined the HERO

HONDA BIKE-A-THON in the last week of its journey. The teams represented

three commands, namely Western Command, New Delhi, Central Air

Command, Allahabad, and Southern Air Command, Gandhinagar.

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SALES PERFORMANCE

 HERO HONDA SALES IN SEPTEMBER ONCE AGAIN CROSS THE MAGIC THREE LAKH

NUMBER

 SEPTEMBER ‘07 SALES AT 314,567; 4.31% M-O-M GROWTH

  Aug'06 Aug'07 FY 06-07 FY 07-08

Total Sales 2,15,076 2,40,875 12,82,860 12,63,254

Exports (incl in above)

 

 New Delhi, October 1, 2007: Hero Honda Motors Ltd., the world's largest two-wheeler

manufacturer, continues to buck the industry trend with an outstanding sales performance in

the month of September.

HERO HONDA SELLS 2,55,200 UNITS IN JUNE 2007

Records over 50% market share in April-June quarter

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New Delhi, Tuesday, July 03, 2007: New Delhi, July 2, 2007: Hero Honda Motors Ltd.

(HHML), the world’s largest two-wheeler manufacturer, has sold 2,55,200 units in the month

of June 2007. HHML sold 2, 78,660 units in the corresponding month last fiscal. For the

quarter ending June 2007, the company achieved cumulative sales of 8, 03,615 units. Despite

the slowdown in the two wheeler industry, Hero Honda has strengthened its position in the

quarter and recorded over 50% market share in the motorcycle category for the quarter.

During the month of June, Hero Honda launched a refreshed model of its scooter Pleasure.

Bollywood star Priyanka Chopra was also roped in as the new brand ambassador for

Pleasure. The new Pleasure offers customers a contemporary style with attractive aesthetics

and the initial response for this model has been very encouraging. In the motorcycle category

as well, all recent new launches of Hero Honda, namely the new CD Deluxe in the entry

segment, Glamour with alloy wheels in the deluxe segment and CBZ X-treme in the

premium segment, continue to do well contributing to the share gain in the quarter. Three

Hero Honda bestsellers, Splendor, Passion and Glamour have been featured in the top 10

ratings for the auto sector in the recently announced Brand Equity 100 most Trusted Brand

Survey 2007. Splendor has been ranked as the top brand in the auto sector ratings. Brand

Equity 100 most Trusted Brand Survey 2007 is a prestigious annual brand survey organized

by the Bennett & Coleman group.

ANNUAL REPORTS OF THE COMPANY The following are the annual reports of the company for the successive financial years

2006-2007 2005-2006 2004-2005 2003-2004.

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INTERPRETATION OF FINANCIAL STATEMENTS THROUGH

RATIO ANALYSIS

Meaning of ratio

A ratio is a simple arithmetical expression of the relationship of one number to another. It may be defined as the indicated quotient of two mathematical expressions.

According to Accountant’s Handbook by wixon,kell and bedford, a ratio “is an expression of the quantitative relationship between two numbers”.

Use and significance of ratio analysis The ratio analysis is one of the powerful tools of financial analysis. It is used as a device to analyze and interpret the financial health of enterprise. The use of ratios is not confined to financial managers only. There are different parties interested in the ratio analysis for knowing the financial position of a firm for different purposes. The supplier of goods on credit, banks, financial institutions, investors, shareholders and management all make use of ratio analysis as a tool in evaluating the financial position and performance of a firm for granting credit, providing loans or making investments in the firm. With the use of ratio analysis one can measure the financial condition of a firm and can point out whether the performance of the firm is improving or deteriorating. Thus, ratios have wide applications and are of immense use today.

(a) Managerial uses of Ratio analysis Helps in decision making. Helps in financial forecasting and planning. Helps in communicating. Helps in co-ordination. Helps in business control.

(b) Utility to shareholders/Investors (c) Utility to creditors (d) Utility to employees (e) Utility to government (f) Tax audit requirements.

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Various accounting ratios can be classified as follows:

1. Balance sheet ratios 1.Liquidity ratios 1. Primary ratios. Or 2.Leverage ratios. 2. Secondary ratios.

Position statement ratios. 3. Activity ratios 4. Profitability ratios.

2. P&L A/c statements Or

Revenue/income statement ratios

3. composite/mixed ratios Or Inter statement ratios

Ratios devoid of absolute figures may prove distort as ratio analysis is primarily a quantitative analysis and not a qualitative analysis.

Ratios

Traditional classification Or statement ratios

Functional classification

Ratios according to importance

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CALCUCLATION OF RATIOS AND INTERPRETATION

1. PROFITABILITY RATIO The primary objective of a business undertaking is to earn profits. Profit earning is considered essential for the survival of the business. A business needs profits not only for its existence but also for expansion and diversification. A business enterprise can discharge its obligations to various segments of the society only through earning profits. Generally, profitability ratios are calculated either in relation to sales or in relation to investment.

Net profit after tax NET PROFIT RATIO = *100 Net sales (Rs. In crores)

Year ended 2006-07 2005-06 2004-05 2003-04Net profit after tax 857.89 971.34 810.47 728.32

net sales 9,899.96 8,713.98 7,421.65 5,832.43

ratio 8.66 % 11.14 % 10.92 % 12.48 %

This ratio also indicates the firm’s capacity to face adverse economic conditions such as price competition, low demand etc. obviously higher the ratio, better is the profitability. But while interpreting the ratio, it should be kept in mind that the performance of profits must also be seen in relation to investments or capital of the firm and not only in relation to sales.

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Interpretation: Here we can see that the profitability of the firm is fluctuating for the successive financial years though it is not in increasing rate still it has the capacity to face adverse economic conditions, low demand etc. Hence, we can say that profitability ratio is indicating satisfactory.

2. Current ratio or Working capital Current ratio may be defined as the relationship between current assets and current liabilities it is also known as working capital ratio, is a measure of general liquidity and is most widely used to make the analysis of short-term financial position or liquidity of the firm. It is calculated by dividing the total of current assets by total of the current liabilities.

Current assets CURRENT RATIO = Current liabilities

Year ended 2006-07 2005-06 2004-05 2003-04

Current assets(in crores) 913.27 821.24 554.53 508.99

Current liabilities(in crores) 1479.16 1562.80 1500.47 1260.05

Ratio 0.62 0.55 0.37 0.40

An increase in the current ratio represents improvement in the liquidity position of the firm while decrease in the current ratio that there has been deterioration in the liquidity position of the firm. As a convention the minimum of ‘two to one ratio’ (2:1) is referred to as a banker’s rule of thumb or arbitrary standard of liquidity of the firm.

The idea of having doubled the current assets as compared to current liabilities is to provide for delays and losses in the realization of current assets. However, the rule of 2:1 should not be followed blindly while making interpretation of ratio, because the firms having less than 2:1 ratio may be having a better liquidity than even the firms having more than 2:1 ratio. This is so because the current ratio measures only the quantity of current assets and not the quality of current

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assets (crude ratio). Current ratio is a general and quick measure of a firm. It represents the ‘margin of safety’ or the ‘cushion’ available to creditors and other current liabilities.

Interpretation: According to the banker’s rule of thumb 2:1 that is current assets double the current liabilities is not found in the above calculated data the short term liquidity position of the firm is not favorable but based up on this it cannot be concluded because current ratio suffers from some limitations:

It is a Crude ratio. It involves Window dressing of accounting information.

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3. Debt equity ratio Debt-equity ratio, also known as External-Internal ratio is calculated to measure the relative claims of outsiders and the owners (i.e., shareholders) against the firm’s assets. This ratio indicates the relationship between the external equities or the outsider’s funds and the internal equities or the share holder’s funds. Outsider’s funds Debt equity ratio = Shareholder’s funds The outsider’s funds include all debts/liabilities to outsiders, whether long-term or short-term or whether in the form of debenture bonds, mortgages or bills. The shareholders funds include equity share capital, capital reserves, revenue reserves and reserves representing accumulated profits and surpluses like reserves for contingencies, sinking funds, etc. The accumulated losses and deferred expenses, if any, should be deducted from the total to find out the shareholders funds. When the accumulated losses and deferred expenses are deducted from the shareholders funds, it is called net worth and the ratio may be termed as debt to net worth ratio.

Year ended 2006-07 2005-06 2004-05 2003-04

Outsiders funds(in crores) 1336.67 1378.76 1319.05 1268.58Shareholders funds(in crores) 2470.06 2009.33 1493.38 1138.81

Ratio 0.54 0.69 0.89 1.11

Some financial experts opine that ‘debt’ should include current liabilities also as it plays a crucial role in ascertaining the risk factor. Preference share capital should be included in external equities as fixed rate of dividend is paid and further they are redeemable in future, however there is still a controversy in case of current liabilities and preference share capital. Therefore, interpretation of this ratio depends primarily upon the financial policy of the firm and upon the firms’ nature of business. A ratio of 1:1 may be usually considered to be satisfactory although there is no ‘rule of thumb’ or standard norm for all types of businesses, In some businesses a high ratio of 2:1 or even more may be even considered satisfactory.

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Interpretation: In the above debt equity calculation we can see that the risk factor of outsider funds is decreased year by year affecting the risk of shareholder funds the ratio of 1:1 is also not found which is usually considered satisfactory the ratio is not impressive the company should use debt financing to some more extent.

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4. Fixed assets to net worth ratio or fixed assets to proprietor’s funds. The ratio establishes the relationship between fixed assets and shareholder’s funds, i.e, share capital plus reserves, surpluses and retained earnings. The ratio can be calculated as follows:

Fixed assets (after depreciation) Fixed assets to net worth ratio = Shareholder’s funds (in crores)

Year ended 2006-07 2005-06 2004-05 2003-04

Fixed assets(after depreciation) 1355 994 715 589

Shareholder’s funds 2470.06 2009.33 1493.38 1138.81

Ratio 55% 50% 48% 52%

The ratio of fixed assets to net worth indicates the extent to which shareholders funds are sunk into the fixed assets. Generally, the purchase of fixed assets should be financed by shareholders’ equity including reserves, surpluses and retained earnings. If the ratio is less than 100%, it implies that owners’ funds are more than total fixed assets and a part of working capital is provided by the share holders. When the ratio is more than 100%, it implies that owners funds are not sufficient to finance the fixed assets and the firm has to depend upon outsiders to finance the fixed assets. There is no ‘rule of thumb’ to interpret this ratio but 60 to 65 percent is considered to be satisfactory ratio in case of industrial undertakings.

Interpretation: Fixed assts to net worth ratio calculated with the above information shows a percentage less than 100 for all the financial years, it means that the shareholders amount is financed for the purchase of fixed assets and the funds are sufficient. The ratio is increasing but not up to the satisfactory level.

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5. Ratio of current assets to proprietor’s funds .

The ratio is calculated by dividing the total of current assets by the amount of shareholders funds.

Current assets Ratio of current assets to proprietor’s funds = * 100 Share holders funds

Year ended 2006-07 2005-06 2004-05 2003-04

Current assets (crores) 1165.53 949.37 674.48 571.12

Shareholders funds(crores) 2470.06 2009.33 1493.38 1138.81

Ratio 47.2% 47.3% 45.2% 50.2%

The ratio indicates the extent to which proprietor’s funds are invested in current assets. There is no ‘rule of thumb’ for this ratio and depending upon the nature of the business there may be different ratios for different firms.

Interpretation: Above if we examine the ratios for different years the amount of proprietor’s funds invested in current assets is in decreasing state and stable for the past two financial years. The contribution is weakening interest should be taken by the firm for better utilization of the owners funds in order to maintain good working capital for short term benefits.

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6. Return on shareholder’ investment or net worth

Return on shareholders investment, popularly known as ROI or return on shareholder/proprietor’s funds is the relationship between net profits (after tax and interest) and the proprietors’ funds. Net profit (after tax and interest) ROI = shareholders funds * 100

(in crores)

Year ended 2006-07 2005-06 2004-05 2003-04

Net profit (after tax & interest) 858 971 810 728

Shareholders funds 2470.06 2009.33 1493.38 1138.81

Ratio 34.7% 65.02% 54.24% 64%

This ratio is one of the most important ratios used for measuring the overall efficiency of a firm. As the primary objective of business is to maximize its earnings, this ratio indicates the extent to which the primary objective is achieved. This ratio is of great importance to the present and prospective shareholders as well as the management of the company. As this ratio reveals how well the resources of the firm are being used, higher the ratio, better are the results. The ROI should be compared with the return of other similar firms in the same industry.

Interpretation: The return on investments of the firm all of a sudden decreased in the last financial year in the above calculated data. Conclusion cannot be made with out comparing the returns of the other similar firms in the same two wheeler industry. In general there are many reasons for decrease in the ROI they may include:

High input costs due to high demand and inadequate supply of raw materials. Change in the trend from two wheeler to four wheeler. Change in the government policies.

Recent global problem of high crude oil prices and weakened sales.

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7. Earning per share Earning per share is the small variation of return on equity capital and is calculated by dividing the net profit after taxes and preference dividend by the total number of equity shares.

Net profit after tax- preference dividend EPS =

No. of equity share

Year ended 2006-07 2005-06 2004-05 2003-04

Earning per share (Rs) 43.0 48.6 40.6 36.5

The earning per share is a good measure of profitability and when compared with E.P.S. of other similar companies, it gives a view of the comparative earnings or earning power of the firm. E.P.S. calculated for a number of years indicates whether or not earning power of the company has increased.

Interpretation: The earnings per share have considerably increased in the previous years but again it dipped down in the last financial year, comparison should be made with other firms of the similar business involved. For decrease in earnings there might be many reasons which include the reasons affecting the ROI also.

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8. Dividend pay-out ratio or pay- out ratio.

Dividend pay-out ratio is calculated to find the extent to which earnings per share have been retained in the business. It is important ratio because ploughing back of profits enables a company to grow and pay more dividends in the future.

Dividend per equity share Dividend pay-out ratio = Earnings per share

Year ended 2006-07 2005-06 2004-05 2003-04Dividend per equity share (Rs) 17 20 20 20Earning per share (Rs) 43.0 48.6 40.6 36.5Dividend pay-out (%) 40 41.2 49.26 55.9

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9. Market value to book value ratio Market value to book value ratio is the relationship between market value per share of a firm and its book value per share. Thus, Market value per share Market value to book value ratio= Book value per share Where as book value per share is calculated as equity share capital plus reserves and surpluses minus accumulated losses total divide by number of equity shares. Year ended 2006-07 2005-06 2004-05 2003-04

Market value/book value(times) 5.6 8.8 7.3 8.6

Book value per share indicates the net worth per equity share and the ratio of market value to book value may be used to analyze its stock market position.

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10. Profit after tax/total income (%)

Profit after tax Profit after tax/total income (%) = Total net income

Year ended 2006-07 2005-06 2004-05 2003-04

Profit after tax 858 971 810 728

Total net income 10090 8870 7559 5997

Pat/total net income (%) 8.5 11.0 10.7 12.1

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Sales in the month of may 2008 with comparison to the may 2007.

According to News daily (THE HINDU) the sales of the two wheeler companies in the month of May this year when compared to last year same month increased. Keeping aside lack of financing options in rural areas, high interest rates, guidelines issued by R.B.I. in case of collection of finance issued.

Hero Honda sold during this year may 3,12,317 units when compared to last year’s may 2,85,109 units with increase rate in sales of 9.54%. Bajaj reached 1,80,935 units when compared to last year month sales of 1,67,008 units with increase in rate of sales at 6.86%. TVS motors sales during this year also increased at a rate of 4% the sales during may 2007 were 1,08,151units while this year the sales rose to 1,12,770 units.

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SUMMARY

The two-wheeler has always been an intrinsic part of the Indian milieu. It offered and continues to offer the Indian middle class the freedom from the clutches of an often non-existent or unreliable public transport system. It offers mobility at a reasonable cost. For a large portion of the population a scooter or a motorcycle is a necessary accessory for their livelihood.

Of late, the two-wheeler industry has been under an analytical microscope with volumes slowing down and even showing a negative growth. Financiers are being more cautious in their lending, leading to greater pressure on volumes. The industry seems to be caught in a negative downturn at the moment but the key question remains — is this downturn temporary or is it here to stay?

Vivek Vig Country Head, Retail Centurion Bank of Punjab.

The issue, I feel, is three-fold. Firstly, there has been a slowdown in the rate of economic growth. That should not be mixed up with a slowdown in the economy. But we must remember that we are coming off a high growth rate. And any slowdown in the rate of economic growth, indeed even a one per cent decline, tends to get exaggerated many times over.

The second reason for the demand skid in motorcycles is the credit squeeze. With the money supply going up really fast, the Reserve Bank of India (RBI) decided to cut back. As a result of the tightening by the central bank, loans to two-wheelers got severely pinched.

That brings me to the important question: is the two-wheeler slowdown a temporary blip or a long term trend? I don’t believe the demand for two-wheelers will perk up till the money supply eases out and banks start giving out loans once again. Even the launch of new models will not make much of a difference to the demand situation. The new launches may lead to market share changes but overall sales won’t increase very much.

Do I see light at the end of the tunnel any time soon? Not really. I believe there is still a lot of pain to come. Subsidies on petroleum products and fertilizer are rising rapidly on account of the increase in global crude oil prices — the price of Indian basket of crude has gone up from a low of about $63 a barrel in May this year to about $78 a barrel now. This will soon start to bite.

Venu Srinivasan CMD TVS Motor Company

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BIBLOGRAPHY WEBSITES

www. HeroHonda.com

Google search (Information about Indian two wheeler industry and summary)

REFERENCES

Financial Management - Sashi k. Gupta - R.K. Sharma

Management Accounting -R.P. Trivedi -Manoj Trivedi

NEWSPAPERS

The Hindu (Information about sales forecast in may 2008)

Thank you Jai Hind.

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