Project Report....... Narender Dagar

LOVELY PROFESSIONAL UNIVERSITY

DEPARTMENT OF MANAGEMENT

Summer Training Report

ON

“ESTIMATION OF FINANCIAL STRENGTH OF ESCORTS”

Submitted to Lovely Professional University

In partial fulfillment of the

Requirements for the award of Degree of

Master of Business Administration

Submitted by:

NARENDER KUMAR

RS1903A23

REG. NO. 10904044

DEPARTMENT OF MANAGEMENT

LOVELY PROFESSIONAL UNIVERSITY

PHAGWARA

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DECLARATION

I, Narender Kumar, Roll No- student of Masters of Business

Administration from Lovely Professional University, Phagwara hereby declare that

I have completed Summer Internship on “ESTIMATION OF FINANCIAL

STRENGTH OF ESCORTS” as part of the course requirement.

I further declare that the information presented in this project is true and original to

the best of my knowledge.

Signature of the Candidate Presentation In charge

(Faculty)

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ACKNOWLEDGEMENT

This report is the result of efforts put in by many people who contributed

to it by offering valuable suggestions, encouraging advices, constructive

criticism and proper guidance. At this level of understanding it is often

difficult to understand the wide spectrum of knowledge without proper

guidance and advice. Their support and surveillance throughout the project

stand out as beacon of inspiration to us.

I take this opportunity to express my heartfelt gratitude to my industry guide,

Taranjeet Singh, for offering v a l u a b l e suggestions, encouraging

advices, constructive criticism and p r o p e r guidance. I would also like to

thank my faculty guide Mrs. Upma Sonik, for her continuance guidance,

her immense interest, valuable guidance, constant inspiration and kind co-

operation throughout the period of work undertaken and furnishing me

with the in-depth theoretical knowledge.

I would also express my sincere gratitude to Mr. Vijay Nehra, Pulak Sinha,

Rajesh Jauhari, Rajender Bhardwaj, S.K. Bali and other members of Escorts

who were always very helpful and encouraging. I also acknowledge my

profound sense of gratitude to my friends and parents for their moral support

to carve out this project

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TABLE OF CONTENTS

Sr. No. Chapter Name

- DECLARATION- ACKNOWLEDGEMENT

Page No.

1 INTRODUCTION -PURPOSE

-COMPANY PROFILE

5-12

2 LITERATURE REVIEW 13-27

3 RESEARCH METHODOLOGY 28-29

4 DATA ANALYSIS AND DATA INTERPRETATION 29-68

5 FINDINGS, CONCLUSION AND RECOMMENDATIONS 69-71

6 REFERENCES

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INTRODUCTION

ABOUT THE PROJECT

The project is based on the analysis of Escorts and its competitors in the market. The basic

purpose of the project is to assess the financial health of the company and then making a

comparison with its competitors through which we can identify the strength of Escorts against

its competitors. One of the best way to establish a relationship with company’s performance

and competitors is by using ”RATIO ANALYSIS”. These relationships establish references to

understand how well company is performing and where it stands if compare with its

competitors. Ratios for coming two years are also being projected which might help the

company to take appropriate measures so that it can withstand and gives a better competition to

its competitors.

Ratio analysis

A ‘ratio’ is defined as the indicated quotient of two mathematical expressions and as the

relationship between two or more things. In Financial analysis, a ratio is used as benchmark for

evaluating the financial position and performance of a firm. Ratios help to summarize large

quantities of financial data and to make qualitative judgment about the firm’s financial

performance.

Ratio analysis involves comparison for a useful interpretation of the financial statements.

Single ratio in itself does not indicate favorable or unfavorable condition. Therefore in this

report it is compared with:

- Past ratios, i.e. ratios calculated from the past financial statements of the same

company.

- Competitor’s ratios, i.e. Ratio of the major competitor at the same point in time.

- Projected ratios, i.e., ratios developed using the projected, Performa, financial

statements of the same firm.Since liquidity ratios and Activity ratios help to

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measure the firm’s ability to meet current obligations and firm’s efficiency in

utilizing its assets respectively, these two have been used.

TYPES OF RAT IO:-

There are mainly five types of ratios.

Objective of the project:-

To evaluate current performance of the company and comparing it with its past

performances.

To make a comparison of Escorts performance with its competitors.

To assess the long-term and short-term financial soundness of the company.

To find out various reasons which are responsible for the differences in the

performance of Escorts and its competitors.

SIGNIFICANCE OF THE STUDY

1. The study has great significance and provides benefits to various parties whom

directly or indirectly interact with the company.

2. It is beneficial to management of the company by providing crystal clear picture

regarding important aspects like liquidity, leverage, activity and profitability.

3. The study is also beneficial to employees and offers motivation by showing how

actively they are contributing for company’s growth.

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RatioAnalysis

Liquidity Ratio

ActivityRatio

ProfitabilityRatio

MarketRatio

Solvency Ratio

4. The investors who are interested in investing in the company’s shares will also get

benefited by going through the study and can easily take a decision whether to invest

or not to invest in the company’s shares.

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COMPANY PROFILE

INTRODUCTION

Escorts ltd. is one of the pioneer manufacturer and exporter of Agri Machineries. The company

manufactures and exports Tractors and Tractor Parts, Diesel Engines, Gears, Shafts, Gear

boxes, Engine blocks, Crankshafts, Cylinder Heads, Connecting rods and Spindles. They also

offer brakes, couplers, shock absorbers, rail fastening systems, composite brake blocks and

vulcanized rubber parts. The company through their subsidiaries operates in the ITES and

financial services sectors.

HISTORY

Escorts ltd. was incorporated in the year 1944 as Escorts Agents ltd. in Lahore. In the

year 1951 Escorts established India‟s first private institute of Farm Mechanization at

Delhi and in year 1953 Escorts (Agents ltd.) and Escorts ( Agriculture and Machines)

ltd. merged to form Escorts Agents Pvt. Ltd. the company was converted into a public

limited company in December 1959 and subsequently the name was changed to Escorts

Ltd. in January 1960.

In year 1961, Escorts Tractors ltd. made a technical and financial joint venture with

the global giant Ford Motor Company, USA for manufacturing Ford Tractors in India.

And in February 1, 1971, the first tractor FORD 3000 rolled out of the factory.

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1n 1977, the company set up their first independent R&D center namely Escorts

Scientific Research Center at Faridabad. Also, they set up their second plant at

Bangalore for manufacturing piston assemblies. In 1979, they made collaboration with

JCB Excavators Ltd., UK for manufacturing of Excavators.

In 1980, the company forayed into healthcare and set up Escorts Hospital and

Research Center in Faridabad. In 1984, company signed an agreement with the

Japanese bike giant Yamaha to manufacture motorcycles with Yamaha technology.

Also, they made collaboration with Jeumont Schneider of France and Dynapac of

Sweden to manufacture EPABX systems and vibratory road compactors respectively.

In 1997, the company made a joint venture agreement with New Holland and launched

Farmtrac Tractor. Also, they made a joint venture with First Pacific Company of Hong

Kong and formed Escotel Mobile Communications. In 1998, the company launched

Powertrac tractors. They signed a MoU with Long Manufacturing Company of USA

for setting up a joint venture in USA.

1n 1999, the company signed a MoU with a Polish Company POL-MOT for

assembling, manufacturing and marketing of Farm Machinery. In September 1999,

they set up a subsidiary namely, Escosoft Technologies Ltd. in the Information

Technology Sector.

During the year 2001-02, the company sold their 26% shareholdings in Yamaha

Motors Escorts Ltd. they entered into an agreement with Claas KgaA, Germany, their

joint venture partner in Escorts Claas Ltd. for sale of their 60% equity in the joint

venture for a consideration of Euro 13.2 million. During the year, Escorts Heart and

Super Speciality Institute Ltd., Escorts Heart Centre Ltd., Automatrix India Pvt Ltd and

Escorts Research and Development Ltd. became the subsidiary companies.

In January 2004, the company entered into an agreement with Idea Cellular Ltd. to

divest their share in Escorts Telecommunication Ltd.

In September 2005, the company entered into an agreement with Fortis Healthcare

Ltd to divest their shares in Escort Heart Institute and Research Centre Ltd for a

consideration of Rs 520 crore.

During the year 2005-06, tha company set up a new manufacturing facility in

Rudrapur, Uttrakhand for manufacturing of new range of railway equipment. The

company sold their stake in in the software companies and all divested 49% stake in

joint venture, Carraro India Ltd. in which the company is getting out of all the

unrelated business and to remain focused on the three core businesses.

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During the year 2006-07, the company embarked on entering into the manufacturing of

shock absorbers for commercial vehicles.

Throughout the evolution of Escorts, technology has always been its greatest ally for growth. In

the over six decades of their inception, Escorts has been much more than just being one of the

India‟s largest engineering companies. It has been a harbinger of new technologies, a prime

mover on the industrial front, at every stage introducing products and technologies that help

take the country forward in key growth areas. Over a million tractors and over 16,000

construction and material handling equipments that have rolled out from the facilities of

Escorts, complemented by a highly satisfied customer base, are testimony to the manufacturing

excellence of Escorts. Following the globally accepted best manufacturing practices with

relentless focus on research and development, Escorts is today in the league of premier

corporate entities in India.

Technological and business collaboration with world leaders all over the years, globally

competitive indigenous engineering capabilities, over 1600 sales and service outlets and

footprints in over 40 countries have been instrumental in making Escorts the Indian

multinational. Today, when the world is looking at India as an outsourcing destination, Escorts

is rightly placed to be the dependable outsourcing partner of world‟s leading engineering

corporations looking at outsourcing manufacture of engines, transmissions, gears, hydraulics,

implements and attachments to tractors and shock absorbers for heavy trailers and armoured

tanks.

In today‟s Global Market Place, Escort is fast on the path of an internal transformation, which

will help it to be a key driver of manufacturing excellence in the global arena.

ESCORTS (AGRI MACHINERY GROUP)

Background

In 1960, Escorts set up the strategic Agri Machinery Group (AMG) to venture into tractors.

In 1965, the company rolled out its first batch of tractors under the brand name of Escort.

In 1969, a separate company Escorts Tractors Ltd., was established with equity participation

of Ford Motor Co., Basildon, UK for the manufacturing of Ford agricultural tractors in India.

In 1996, Escorts Tractors Ltd. formally merged with the parent company Escorts Ltd.

Technologies

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Escorts AMG has three recognized and well accepted tractor brands, which are on distinct and

separate technology platforms.

Farmtrac: World class premium tractors, with single reduction and epicyclic reduction

transmissions from 34 to 75 hp.

Powertrac: Utility and Value-for-money tractors, offering straight axle and hub-reduction

tractors from 34 to 55 hp. India‟s No. 1 economy range-engineered to give spectacular diesel

economy.

Escort: Economy tractors having hub-reduction transmission and twin cylinder engines from

27 to 35 hp. Pioneering brand of tractors introduced by Escorts with unbeatable advantages.

INTERNATIONAL SUBSIDIARIES

Escorts AMG has two international subsidiaries.

Farmtrac North America LLC in USA

Farmtrac Tractors Europe Sp.z.o.o. in Poland.

SWOT ANALYSIS

STRENGTHS

Company is having good image in the market.

Always able to deliver the product in time.

Excellent distributorship network across India.

The use of latest technology.

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Good quality standards of production.

Provide better services all the time.

WEAKNESSES

High prices as compared to the market

OPPORTUNITIES

The growing domestic demand for food grains and agri products promises a very good

future for company‟s core business.

India being a major exporter of grains and other Agri products can increase demand

both for domestic and international market resulting more sale in this sector especially

TRACTORS.

Government upliftment towards the loan waiver scheme can also help the farmers to

attract towards the tractors.

New technologies are invented for the production of the tractors which can help the

company to produce tractors at a much cheaper rate and in less time.

Government launching new schemes for the farmers to buy latest technologies for their

farming techniques. So this sector is having wide scope to enhance its sales which

results in an increase in its market share.

THREATS

The sales of tractors are seasonal according to the requirement of the farmers.

Even now, the farmers are unaware about the schemes and the upliftment made by the

government.

Many of the farmers are illiterates and does not know the various uses of tractors.

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LITERATURE REVIEW

India is mainly an agricultural country. Agriculture in India is unique in its characteristics,

where over 250 crops are cultivated in its varied agro-climatic regions, unlike 25-30 crops

grown in many of the developed nations of the world. Agriculture is one of the most important

sectors of the Indian economy contributing 18.5 percent of national income, approximately 25

percent of India‟s GDP, about 18 percent of total exports, supporting two-thirds of the work

force and employ about 62 percent of the population.

Tractors are part of agricultural machinery industry and forms an integral part of farm

mechanization and plays a very crucial role in increasing productivity. Tractor is used for

multitude of uses, it is used in agriculture for both land reclamation and for carrying out

cultivation of various crops. It is also employed for carrying out various operations related to

raising of crops by attaching suitable implements and to provide the necessary energy for

performing various crop production operation involved in the production of agricultural crops.

Tractors are capital intensive, labour displaying used as a mode of transport, in electricity

generation, in construction industry and for haulage operation.

As a Green Revolution in the sixties, the total food grain production increased from a mere

50.8 million tonnes during 1950-51 to 217 million tonnes in 2009-10 and productivity

increased from 522 kg/ha to more than 1,500 kg/ha. The increase in production of food grains

was possible as a result of adoption of quality seeds, higher dose of fertilizer and plant

protection chemicals. Irrigation played a major role in increasing the productivity. Increased

cropping intensity and higher quantity of inputs can no longer be effectively managed by

animal power alone and, therefore, farmers adopted tractors, irrigation pumps, harvesters and

power threshers extensively.

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HISTORY

At the time of independence the level of mechanization was low so the government started

investing in establishing agricultural research farms and colleges and large scale irrigational

schemes to improve the situation. The five year plans during the 1950‟s and 1960‟s

aggressively promoted rural mechanization through joint ventures and tie-ups between

industrialists and international tractor manufacturers. Tractor came to India through imports

and later on the manufacturing started with the help of foreign collaborators the manufacturing

process started in the year 1961-62. Despite the aggressiveness the production of tractors grew

slowly in the first three decades.

The history of tractors in India can be described in following phases:-

1945 to 1960

War surplus tractors and bulldozers were imported for land reclamation and cultivation in mid

1940‟s. In1947 Central and State Tractor Organizations were set up to develop and promote the

supply and use of tractors in agriculture and till 1960, the demand was met entirely through

imports. There were 8,500 tractors in use in 1951, 20,000 in 1955 and 37,000 by 1960.

1961 to 1970

Home production began in 1961 with five manufacturers producing a total of 880 units per

year. By 1965 this had increased to over 5,000 units per year and the tractors in use had risen to

over 52,000. By 1970 annual production had exceeded 20,000 with over 1,46,000 units

working in the country.

1971 to 1980

Six new manufacturers were established during this period although three companies

(Kirloskar Tractors, Harsha Tractors and Pittie Tractors) did not survive. Escorts Ltd.

began local manufacturing of Ford tractors in 1971 in joint collaboration with Ford, UK

and total production climbed steadily to 33,000 in 1975 reaching 71,000 by 1980.

1981 to 1990

Five new manufacturers began production during this period but only one among them

survived due to increased competition in the market place. By 1985 annual production

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exceeded 75,000 units per year and by 1990 it crossed the mark of 1,40,000 units when

the total in use was about 1.2 million. Then India-which was a net importer till seventies

became the exporter in the 1980s mainly to the African countries.

1991 to 1997

Since 1992, obtaining of the license was not necessary for the tractor manufacturing in

India. Annual production exceeded 255,000 units and the national tractor population

had passed the two million mark. India now emerged a one of the world leaders in the

tractor production.

1997 to 1999

Five new manufacturers have started production since 1997. In 1998 Bajaj Tempo,

already well established in the motor industry, began tractor production in Pune. In

April of the same year New Holland Tractor (India) Ltd launched production of 70

hp tractors with matching equipment. The company made a $US 75 million initial

investment in a state of the art plant at Greater Noida in Uttar Pradesh state with an

initial capacity of 35000 units per year. Larsen and Toubro have established a joint

venture with John Deere, USA for the manufacture of 35-65 hp tractors at a plant in

Pune, Maharashtra and Greeves Ltd will produce Same tractors under similar

arrangements with Same Deutz Fahr of Italy. Looking to South American export

markets Mahindra and Mahindra are also developing a joint venture with Case for

tractors in the 60-200 hp range.

1999 to present

Facing market saturation in the traditional markets of the North West (Punjab, Haryana

and eastern Uttar Pradesh) tractors sales began a slow and slight decline. By 2002 sales

went below 200,000. Manufacturers headed towards the eastern and southern India

markets in an attempt to reverse the decline, and began exploring the potential for

overseas markets. But sales remained in a slump. By 2004, once again there was a slight

increase in sales due to stronger and national and to some extent international markets.

But by 2006 sales once again were down to 216,000 and now in 2007-08 have slid

further to just over 200,000. 1

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Present Scenario

India‟s gross cropped area which is 42 percent of the total geographical area is next only to

Unites States of America and Russia along with fragmented land holdings has helped India to

become the largest tractor market in the world. But because of its very low penetration level in

India as compared to the world standards it drops to the eighth position in terms of total tractor

in use. Also the penetration levels are not uniform throughout the country. While the northern

region is now almost saturated in terms of new tractor sales, the southern region is still under

penetrated. The medium horse power category tractors, 31-40 HP, are the most popular in the

country and fastest growing segment.

Indian tractor industry is comparatively young as compared to the world standards and has

expanded at a spectacular pace during last four decades. Consequently, it now occupies a place

of pride in India‟s automobile industry. U.S.A., U.S.S.R. and only a few Western European

countries exceed the current production of tractors in India but in terms of growth, India‟s

growth are unmatched even with countries of long history of tractor manufacturing. About 20

percent of world‟s tractor production occurs in India only. The spectacular achievement

reflects the maturity and dynamism of tractor manufacturers and also the policies adopted by

the government to enable it to effectively meet the demand. The tractor industry in India has

made a significant progress in terms of production and capacity as well as indigenization of

technology. It is a typical sector where both imported technology and indigenous developed

technology have developed towards meeting the overall national requirements. In India tractor

industry has played a vital role in the development.

HOME MARKET

Tractor market in India is about Rs 6,000 crores. On an average around 4,00,000 tractors are

produced and 2,60,000 are sold.

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SEGMENT WISE ANALYSIS

21-30hp 31-40hp 41-50hp 50 hp and above

India tractor market is characterized by medium horse-power tractors which consists of mostly

31-40hp tractors and the market share gabbed by this segment is 47% of total market share.

This is the most popular and fastest growing segment in India and dominates the market. The

reason of the popularity of this segment tractor is that the major tractor demanding states like

Haryana, Punjab and U.P have plenty of alluvial soil which does not require deep tilling.

Growth of the industry depends on the growth of this category.

The other category with the second largest market share is of 41-50hp. It has the market share

of about 23%. The tractors of 21-30hp and above 50hp category have the market shares of 20%

and 10% respectively.

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BY SALES ANALYSIS

More than 90% of the tractor industry is concentrated in the 12 states namely Haryana, Gujarat,

Andhra Pradesh, Uttar Pradesh, Karnataka, Orissa, Tamil Nadu, Bihar, Rajasthan, Maharashtra,

Punjab and Madhya Pradesh. Uttar Pradesh has the largest tractor market in India, one out of

four tractor is being purchased here.

The northern region remains the largest tractor market in India with sales crossing 167000 units

in 2009-10. There is a growth of 35.7% as compared to last year with major contributors are

Uttar Pradesh, Haryana, Punjab and Rajasthan. This region has benefitted from the non-

availability of labor and non-agricultural use of tractor in construction and infrastructure

purposes.

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The performance of the southern region was modest except Andhra Pradesh who showed a

decline. It the major market in southern region, because of fall in sales total southern market

grew at a modest rate of 11.9% over last year.

Western region has also reported a growth of 35.7% over last year with sale of 92000 units. In

the eastern region sales has gone up by 53.8% over last year however in this region financers

are reluctant to finance tractors. Bihar is the major market in the eastern region which has

grown constantly over last few years.

EXPORTS

Export market for tractors has been grown significantly in India. Exports are increasing

considerably in which USA has absorbed a major share. The industry exported a total of around

37,900 tractors during 2009-10, with the USA, Africa, South America and some Asian

countries being the top destinations. Exports to the South-Asian countries like Malaysia and

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Turkey are growing rapidly as well. African countries are also a major importer of Indian

Tractors as Indian Tractors are increasingly gaining acceptance in the international markets.

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KEY PLAYERS AND THEIR MARKET SHARES

Many tractor companies are present in Indian market in various segments. At present

Mahindra & Mahindra is the leading player in the Tractor industry with a market share of

around 40%. Major players operating in this industry with their market shares are:-

Company’s name

Market share ( in percentage )

2007-2008 2008-2009 2009-2010

Escorts ltd.

12.3 12.8 13.7

Mahindra &

Mahindra 28.4 28.2 40.5

Swaraj (Punjab

Tractors Ltd.) 9.2 10.7

Eicher 7.3 7.6 21.7

TAFE

Tractor & farm

equipment Ltd.

15.1 14.6

HMT 1.2 1.1 1.2

MGTL

0.6 0.6 0.5

Sonalika

(International

Tractors Ltd.)

8.7 8.4 8.4

Force Motors Ltd.

0.2 0.5 0.2

John Deere 9 8.1 7.2

New Holland India 5.3 5.6 4.9

VST Tillers Tractors 0.8 0.5 0.9

Others 1.9 1.3 0.8

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FUTURE OUTLOOK

The demand in the tractor industry is expected to grow mainly due to the agricultural sector,

with the expected increase in agricultural production. Also, the shift in trend for demand

towards higher horsepower (HP) tractors is expected to continue. This will be further

strengthened by the launch of several new models. In the next 2-3 years, demand for tractors is

expected to increase significantly in the eastern states, where traditionally, tractor usage has

been low.

Exports are expected to increase significantly as several Indian Players are targeting the „hobby

farming‟ segment in the United States, which is considerably large. Also, tractors of most

Indian manufacturers comply with the emission standards accepted in the US. Most exports are

likely to be through overseas partnerships or joint-ventures.

DRIVERS OF TRACTOR GROWTH

Many factors influence tractor demand. Primary demand emanates from agricultural growth

and secondary demand from dual use of tractors, primary haulage. The primary usage

(agriculture) is dependent upon the following drivers:

Expansion and Extension of Agricultural land

From the past 20 years, it is evident that irrigated and arable land has not

increased. There is an immediate need to expand agri-land by conversion of

wasteland.

Availability of water is another important factor in guaranteeing a

predictable agricultural yield, without having to depend on the yearly

variations and unpredictability of monsoons. In the last four decades, very

few additions have occurred with respect to direct-irrigation potential.

Almost all growth has resulted from exploration of groundwater, which has

led to exploitation and depletion.

Government sponsorship of major and monumental projects like the

interlinking of rivers/national policy on water resources and implementation

is a foregone need. Even if the final completion is a generation away, the

incremental progress that will be made during the process of

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implementation will catapult Indian agriculture to more than the targeted 4

percent of the GDP. The short term focus must be on increasing and

maintaining natural water, such as natural water storages, ponds, lakes and

retention dams.

Value additions in farming

Land is limited, therefore. It must be our aim to get the maximum yield from every acre

of farmable land.

We have to look at the world as the source and the consumer. The government must

enable farmers to move away from low-yield to higher value crops in a judicious

manner, in order to increase farming income and to attract a new crop of young

farmers.

Return on Investment (ROI) increases in farming will attract educated youth and

will become another satisfying, future job-opportunity.

Credit and Money availability has always been a big factor in the tractor industry‟s

and mechanization‟s fortunes. The government must initiate a long-term policy of zero

or marginal interest rates to enhance the use of agricultural mechanization.

Insufficient animal power To meet the power demand of farmers the availability of

the animal power is not sufficient. Mechanized operations and the use of tractors ia

preferred to eliminate drudgery and delay and also to avoid the labour shortage during

the harvesting.

Improved irrigational facilities Improvement in the irrigational facilities had reduced

in the reliance on the monsoon and allows for the quick yielding varieties of food

grains. It has reduced the cropping cycle from traditional 5-6 months to 3-4 months.

Reduced cropping cycle requires deep tilling which translates into higher demand for

tractors.

Deep – Tilling Agronomists believe that there is a need for more tilling due to the

depletion of moisture and repeated cultivation of land. This purpose can be very well

fulfilled by the tractor, so the demand of tractor is well maintained during the drought

period also.

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CHALLENGES FOR TRACTOR INDUSTRY

Buying capacity – reduction in average age of tractor buyers from the age group of

above 40 to younger individuals.

Increasing demands

Higher expectations on comfort levels

Better finish (paint finish like cars)

Fuel economy

Likes on new models

Awareness about latest technologies

Longer life - resale value

New product development

Application of electronics – The recent developments in applications of electronics on

agricultural tractors like GPS and Auto Cruise Systems have helped farmers greatly.

Alternate Energy – alternate energy source development and tractor development are

interdependent.

Increased focus on agri-based energy policy in near future.

Production of fuel oil and biomass power

Lucrative alternate markets for farm produce

Reduce the country‟s dependence on imported fuels

Alternate energy development – most important agenda for power train research and

development.

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RISK FACTORS OF TRACTOR INDUSTRY

There are various risk factors that are related to the tractor industry. Some of them are –

Dependency on Monsoon

High product life

Lack of access to financing

Suboptimal irrigation infrastructure

Increasing fragmentation of land

The performance of the tractor industry is closely and directly related to the performance of

agricultural sector. Even now, there is a heavy dependency on monsoon and a large majority of

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RISK FACTORS

Dependency on monsoon

High product life

Lack of access to financing

Suboptimal irrigation

infrastructure

Increasing fragmentation of land

farms are still rain fed. The phase of first monsoon from June to September of 2008-09 was

98% of the Long Period Average, resulting in good crop. However, the second half of the year,

resulted in deficient north-east rainfall in 30 of the 36 meteorological districts. Apart from the

dependency on monsoons the irrigation infrastructure is also suboptimal. Furthermore, there is

a huge pressure on the existing agricultural land. The Net Sown Area across States has either

remained constant or changed slightly and efficient land utilization is approaching the peak

level in all states.

PROFILES OF KEY INDIAN PLAYERS

Mahindra & Mahindra Ltd. (M & M)

Mahindra & Mahindra, headquartered in Mumbai, India, is principally involved in the

manufacture, distribution, sale of farm equipments and utility vehicles. The company‟s

operations are divided into four business segments: automotive, farm equipment,

financial services and IT services. M&M‟s farm equipment sector has market

leadership in the domestic market for last 24 years.

The farm equipment segment has significant presence across six continents and manufactures

agricultural tractors and implements that are used in conjunction with tractors and industrial

engines at its Kandivli and Nagpur plants in Maharashtra. One of the top five tractor brands in

the world, the company has its own state of the art plants in India, USA, China and Australia

and a capacity to produce 1,50,000 tractors per year.

TRACTORS AND FARMS EUIPMENT LIMITED (TAFE)

TAFE is a US $750 million tractor major incorporated in 1960 at Chennai in India, in

collaboration with Massey Ferguson (which is now owned by AGCO Corporation, USA).

TAFE acquired the Eicher Tractors business, its engine plant at Alwar and transmissions plant

at Parwanoo through a wholly owned subsidiary “TAFE Motors and Tractors Limited”. This

company has four plants involved in tractor manufacturing at Mandidheep (Bhopal),

Kallidaipatti (Madurai), Doddabalbur (Bangalore) and in Chennai.

Apart from being among the top five tractor manufacturers in the world, TAFE is also involved

in making diesel engines, gears, panel instruments, engineering plastics, hydraulic pumps,

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plantations and passenger car distribution through other divisions and wholly owned

subsidiaries.

Escorts Agri Machinery Group (AMG)

Escorts Ltd. set up the strategic Agri Machinery Group (AMG) in 1960 to venture into tractors.

The company rolled out its first brand of tractors „Escort‟ in 1965. In 1969 a separate

company “Escorts Tractors Ltd.” was established with equity participation of Ford Motor Co.,

Basildon, UK for the manufacture of Ford agricultural tractors in India. In the year 1996,

Escorts Tractors Ltd. formally merged with the parent company, Escorts Ltd. Since its

inception, the company has manufactured over 1 million tractors.

JOHN DEERE

Deere & Company, founded in 1837, grew from a one-man blacksmith shop into a worldwide

corporation that today does business in more than 160 countries and employs approximately

50,000 people worldwide.

To expand its global presence in the agricultural equipment sector, John Deere established a

green field project in 1999 under a 50:50 joint venture with Larsen & Toubro (L&T) – an

engineering company of repute from India. A state of the art tractor manufacturing plant for

5,000 series John Deere tractor was set up at Sanaswadi, near Pune, in the state of Maharashtra.

These tractors were introduced in India in early 2,000. In 2005, Deere and company acquired

nearly all the remaining shares in this joint venture. The new enterprise, John Deere Equipment

Private Ltd. operates through a network of 15 area offices, 4 zonal offices and 270 authorized

dealers spread across the country. The factory currently produces modern tractors of 35, 40, 42,

47, 50, 55 and 70 HP capacities for domestic markets. Tractors manufactured in Sanaswadi are

also exported to USA, Mexico, Turkey, North and South Africa and South East Asia. The

company has received awards for export excellence in 2005 and 2006 from the Engineering

Export Promotion Council.

27 | P a g e

NEW HOLLAND

New Holland AG‟s entry into India was facilitated by FIAT‟s acquisition of Ford-New

Holland in 1991. By 1998 New Holland AG (India) completed the construction of a new plant

in Noida, near Delhi, with a capacity of 5,000 tractors in the 35-75 HP range. In 1999, New

Holland AG‟s parent company FIAT bought 70 percent of holdings of Case New Holland

Global. In 2000, the capacity of the Noida plant rose to 12,000 tractors per year and in 2007 the

company can manufacture close to 24,000 tractors for the domestic and export markets. New

Holland India exports fully-built tractors to 51 countries in Africa, Australia, South-East Asia,

West Asia, North America and Latin America. It also exports subassemblies and other tractor

parts to the facilities of CNH Global, around the world.

HMT Limited

HMT Limited incorporated in 1953 by the Government of India as a machine tool

manufacturing company, diversified over the years into watches, tractors, printing machinery,

metal forming presses, dye casting and plastic processing machinery, CNC systems and

bearings. Today, HMT comprises of six subsidiaries under the ambit of a holding company,

which also manages the tractor business directly. The tractor plants in Pinjore, Hyderabad and

Mohali with a capacity of 20,000 per annum, produce a wide range of tractors from 25-75

horsepower (HP) to suit various farming requirements. The company also manufactures a

primary and secondary tillage implements, land shaping, planting and harvesting equipment.

Sonalika (International Tractors Limited)

Established in 1969, Sonalika since the inception has tried to understand customer need to be

facilitating them with its value for money products. The company has a state of art

manufacturing facilities, spread in acres, located in the free shrubs of Punjab and Himachal

Pradesh. Sonalika is one of the top 3 tractor manufacturing company in India, other products

include of Multi Utility Vehicles, engines and various farm equipments. Today, the group

stands tall with an approx. turnover of 5,000 crore INR.

28 | P a g e

RESEARCH METHODOLOGY

The methodology to be adopted for the project is explained as under:

- The initial step of the project was to study about the company and then

evaluating the financial position of the company on the basis of ratio analysis.

- Then in the next step, the financial position of the company is measured with its

competitors through which we would be able o identify the trend and the direction in

which company and industry is moving.

The information is collected through secondary sources during the project. That information

was utilized for calculating performance evaluation and based on that, interpretations were

made.

DATA COLLECTION

The data has been collected in a structured form with the help of staff members of the

organization considering various factors concerned with the secrecy and privacy of the

organization data. The data was taken directly from the finance department. For Escorts Ltd.

secondary data has been collected from annual reports of the company and data of other

companies has been taken from the internet as it was available only within the organization.

29 | P a g e

DATA ANALYSIS AND DATA INTERPRETATION

DATA ANALYSIS

Analysis of the data has been done both qualitatively and quantitatively and well

supported by various graphs, data tables and charts. Various ratios have been used and

calculated for the analysis of the company for previous five years. Not only previous

ratios are used but ratios of coming two years are also calculated by using the „least

square method‟ for the analysis of the company and to determine its financial health.

These ratios are then used for comparison with its own ratios and with the ratios of its

competitors.

RATIO ANALYSIS OF ESCORTS

LIQUIDITY RATIOS

“Liquidity” refers to the ability of the firm to meet its current liabilities. Liquidity ratios

therefore are also known as “short-term solvency ratios. These ratios are used to judge the

ability of the enterprise to pay its short-term obligations or commitments as and when due.

Short-term creditors of the company are primarily interested in the liquidity ratios of the firm as

they want to know how promptly or readily a firm can meet its current liabilities.

A liquidity ratio primarily includes two ratios:

Current ratio

Quick ratio or Acid-test ratio or Liquid ratio

30 | P a g e

0

0.2

0.4

0.6

0.8

1

1.2

1.4

Current ratio 1.04 1.03 1.15 1.27 0.97 1.12 1.13

Quick ratio 0.75 0.83 0.89 0.97 0.7 0.84 0.85

Sep’05 Sep’06 Sep’07 Sep’08 Sep’09 Sep’10 Sep’11

Current Ratio

The ratio which establishes the relationship between current assets and current liabilities of a

business is known as Current ratio. The ratio is calculated by applying the following formula:

Current Assets‟ includes those assets which are either consumed or converted into cash within

a period of one year. „Current Liabilities‟ are the liabilities which are to be paid within a period

of one year.

Significance: Current ratio is a measure of the ability of a firm to meet its short-term

obligations and commitments as and when it is due. It is calculated to assess short-term

financial position and liquidity of the firm. Current ratio helps management to focus their

attention on efficient management of working capital. It indicates margin of safety available to

short-term creditors. A current ratio of 2:1 is considered to be an ideal ratio. The higher the

ratio the better it is, because the company will be able to pay it liabilities.

Projected ratios for year 2010 and 2011 by using method of ‘Least Square’.

Equations for regression line or trend line using time series:

Current ratio : Y = 1.09 + 0.011 X (where X=3, 4 for 2010 & 2011 respectively in all cases)

Quick ratio : Y = 0.83 + 0.004 X

Interpretation- The above graph for current ratio reveals that the ratio is continuously

increasing till 2008 and then there was a minor decrease in 2009. But projected current ratio

31 | P a g e

Current ratio = Current Assets/Current Liabilities

shows that there would be an increase in ratio in the coming years 2010 and 2011. This shows

that the company has a good position and has the ability to meet its current obligations with the

help of current assets in future.

Quick ratio

Quick ratio is also known as acid-test ratio or liquid ratio. It is a measure of relationship

between liquid assets (quick assets) and current liabilities.

„Quick assets‟ are those assets which are quickly convertible into cash without loss of value

and time. While calculating quick assets, stock and prepaid expenses are excluded from current

assets.

Significance- It is a much better test of short-term financial position or liquidity of the firm

because of non-liquid current assets i.e. stock and prepaid expenses are not included in quick

assets. It is used to measure ability of the firm to pay its current liabilities as and when it is due

without depending upon cash generated from sale of stock.

Interpretation- In the case of acid-test or quick ratio, graph reveals that quick ratio is also

continuously increasing for first four years and then decrease to its lowest level in 2009.

Similar like current assets, projected ratio shows that quick ratio will also increase in coming

years. But the major point to note is that the company does not match to an ideal ratio of 1:1 in

its whole period of five years which shows that company does not have very sound position to

meet its short-term liabilities and it needs to be taken care off.

ACTIVITY RATIOS

Activity ratios measure how effectively the firm employs its resources. These ratios are called

turnover ratios which involve comparison between the level of sales and investment in various

accounts, i.e. stock, debtors, fixed assets etc. These ratios are used to measure the speed at

which these various elements can be converted into sales or cash. Some important turnover

ratios are:

32 | P a g e

Quick ratio = Current assets – prepaid expenses – stock/Current liabilities

Debtors turnover ratio

Creditors turnover ratio

Stock turnover ratio

Fixed assets turnover ratio

Total asset turnover ratio

Debtors turnover ratio

This ratio expresses the relationship between „net credit sales‟ and „average accounts

receivables‟. Average accounts receivables includes debtors and bills receivables. While

calculating this ratio, provision for bad and doubtful debts are not deducted from total debtors,

so that it may not give a false impression that debtors are collected quickly.

Significance- This ratio indicates the speed with which the amount is collected from debtors.

The higher the ratio, the better it is, since it means speedier collection and lesser amount being

blocked up in debtors and vice-versa. By comparing the debtor turnover ratio of the current

year with the previous year, it may be assessed whether the sale policy of the management is

efficient or not.

33 | P a g e

Activity Ratio

Debtors Turnnoer

CreditorsTurnover

Stock turnover

Fixed Assets turnover

Total AssetsTurnover

Debtors turnover Ratio=Net Credit Sales/ Avg debtors+Avg B/R

0

2

4

6

8

10

12

14

Creditors turnoverRatio

4.32 4.16 3.85 3.99 3.62 3.54 3.39

Debtors turnoverRatio

5.89 7.46 6.18 4.07 5.09 4.24 3.74


Projected ratios for year 2010 and 2011 by using method of ‘least square’.

Equations for regression line or trend line using time series:

Debtor turnover ratio : Y = 5.74 – 0.5 X

Creditors turnover ratio : Y = 3.99 – 0.15 X

Interpretation-

Debtor turnover ratio reveals about the speed with which the amount is collected from debtors.

This ratio has been fallen for two consecutive years after 2006 and then shows a little

improvement which can be interpret from the increase in the ratio. Fall in this ratio is alarming

for the company as it means debtors are taking more time to pay which might result in increase

in bad and doubtful debts which in turn affects the net profit of the company. A projected ratio

also reveals that the ratio will go down in the coming years instead of moving up. Hence, to

prevent such conditions to occur in the future, there is need to apply strict credit policies which

results in improvement of the ratio and thus improving the collection

34 | P a g e

Creditors turnover ratio

This ratio expresses the relationship between „net credit purchases‟ and average accounts

payable. Accounts payable arises on account of credit purchases of goods.

Significance- This ratio indicates the speed with which amount is paid to the creditors. A high

creditors turnover ratio or a lower credit period ratio signifies that the creditors are being paid

promptly. This situation enhances the worthiness of the company. However, a very favorable

ratio to this effect shows that the business is not taking the full advantage of credit facilities

allowed by the creditors.

Interpretation- Creditors turnover ratio is the one which reveals about the speed with which

the amount is to be returned to the creditors and the number of creditors. And in this case, the

lesser the value the more efficient is the management of credit. This ratio is very sound for the

company as it is continuously decreasing except in 2008 where a marginal increase was

occurred. Projected ratios also give a positive sign which means that the ratio is continuously

improving year by year and thus shows an effective management of credit.

35 | P a g e

Creditors turnover ratio = Net Credit Purchases/ Avg. Creditors + Avg. B/P

Net cr Net credit purchases = total purchases – cash purchases – purchase returns


0

2

4

6

8

10

12

14

Stock turnover ratio 10.37 10.34 10.33 10.56 11.99 12.86 13.3



This ratio indicates the relationship between „cost of goods sold‟ and „average stock‟ kept

during the year.

Significance- This ratio indicates the rate at which stock of finished goods are converted into

sales. It also determines how many times stock is purchased or replaced during a year. The

higher the ratio, the better it is for the business, since it means the stock is being sold quickly.

Concerns having too much stock turnover ratio may be operating with low margin of profit and

low turnover may be due to overinvestment in stock.

Regression equation : Y = 11.52 + 0.446 X

Interpretation- Value of stock turnover ratio shows a zigzag trend, as, if it increases in first

year and it falls in another. In 2009 the ratio is increased in comparison to 2008 which is good

for the company. Projected ratio also shows an increasing trend which means that the company

will stock into sales more quickly than previous years. And we can also say that, the stock will

be efficiently used and yields a good profit for the company which helps in improving its other

profitability ratios also.

36 | P a g e

Stock Stock turnover ratio = Cost of goods sold Avg. Stock

0

1

2

3

4

Fixed asset turnoverRatio

2.53 2.04 2.45 2.26 1.48 1.58 1.39

Total assets turnoverRatio

0.74 0.76 0.9 0.83 0.84 0.9 0.92



This ratio indicates the ability of the firm to utilize its total assets to generate sales or in other

words we can say, how well the assets are used in order to generate revenue. Total assets

comprised of all assets including fixed assets and current assets.

Regression equations:

Total asset turnover ratio : Y = 0.814 + 0.027 X

Fixed asset turnover ratio : Y = 2.15 – 0.19 X

Interpretation- Total asset turnover ratio, similarly like stock turnover ratio shows an

increasing trend but having a decline in 2008 if compared to its previous year and then again

starts rising. This is not the only thing which is related to this ratio, projected ratio in this case

also shows an increasing trend. After looking at the projected ratios we can say that the image

of the company will definitely improved and it will strongly compete with its competitors. This

depicts that the assets are being utilized efficiently and effectively. Thus to maintain its position

company has to maintain and further improve its assets turnover so as to stand against the

competitors and giving them a strong competition.

37 | P a g e

Total Asset turnover ratio = Net Sales /Total assets

Fixed asset turnover ratio

This ratio shows the relationship between net sales of the firm and its fixed assets. Since

investments are made for the purpose of efficient sales, the ratio is used to measure the

fulfillment of that objective. Investments are excluded from fixed assets as they do not affect

sales.

Significance- This ratio measures efficiency and extent of utilization of fixed assets. Higher

ratio indicates efficient utilization of fixed assets while a low ratio indicates under utilization of

fixed assets.

Interpretation- Apart of showing an increasing trend for total assets and stock turnover, fixed

asset turnover is showing a different kind of pattern. This ratio is showing a more or less zigzag

type of pattern. Projected ratio also shows this type of pattern, this ratio shows an increase in

2010 but decrease in 2011. This means that company in not utilizing its fixed assets properly.

To prevent a decrease in the ratio in the coming years management has to think over the

utilization of fixed assets otherwise this will lead to a problem and will give a chance to

competitors to move up.

38 | P a g e

Fixed asset turnover ratio = Net Sales/ Fixed Assets

SOLVENCY RATIOS

These ratios are calculated to judge the ability of the firm to pay in time its long term

debts. These ratios reveal as to how much amount in a business have been invested by

proprietors and how much amount has been raised from the outside sources. Solvency

ratios disclose the firm’s ability to meet the interest costs regularly and long term

indebtedness at maturity. Some of the important solvency ratios are:

Debt-Equity ratio

Interest Coverage ratio

Debt-Equity ratio

This ratio indicates the relationship between debts (long term liabilities) and equity

(shareholder funds). It establishes proportion between external long-term funds provided by

outsiders and shareholder‟s funds. The ratio shows the degree of the indebtedness of the

company.

Debt means long term liabilities payable after one year, such as debentures, long-term loans

from banks, financial institutions, public deposits, mortgage loans etc.

Equity (Shareholder’s funds) refers to equity share capital, preference share capital, general

reserve, securities premium, capital reserve, credit balance of P/L account etc. However,

39 | P a g e

SOLVENCY RATIOS

Debt-Equityratio Interest Coverage

ratio

Debt-Equity ratio = Debt ( long term liabilities)/ Equity (shareholder‟s funds)

-0.50

0.51

1.52

2.53

3.5

Interest coverageRatio

1.22 0.71 0.83 1.81 3.07 2.97 3.45

Debt-Equity ratio 1.02 0.46 0.38 0.36 0.18 -0.06 -0.24


accumulated losses and fictitious assets like preliminary expenses, discount on issue of shares

and debentures, underwriting commission, share issues expenses etc. should be deducted.

Significance- This ratio is calculated to determine long-term financial soundness of the

business. It reveals the composition of the total long term capital. It helps to judge the ability of

the firm to meet its long term obligations. The lower is the ratio, the better is the long-term

solvency of the business as it reflects more security available to lenders whereas higher the

ratio, more risky it is as it may put the firm into difficulty in meeting its long term obligations

to outsiders.

Regression equations:

Debt-Equity ratio: Y = 0.48 – 0.18 X

Interest coverage ratio: Y = 1.53 + 0.48 X

Interpretation- The debt-equity ratio of a company is showing a declining trend continuously

over a period of five years and even in the projected years 2010 and 2011. The company has

reduced the debts to a large extent because of which ratio is continuously improved from 1.02

to 0.18. In the projected years the ratio comes out to be negative which means that there would

be no chances of nay debts in the future which is a much good sign for the company. The

decrease of debt in the company means reduction of risks and fewer burdens on the company to

pay fixed expenses of interest. So according to this ratio, we can say that the long-term

financial position is sound as company is very less bounded by fixed obligations.

40 | P a g e

Interest Coverage ratio

The ratio is used to determine how easily a company can pay interest on its outstanding debts

or in other words it is measure of the number of times the company can make the payment of

interst on its debt with its earnings before interest and taxes (EBIT).

This ratio is being calculated by using the following formula:

Significance- A high interest coverage ratio is desirable from both the creditors and

management point of view. A high ratio assures the lender of receiving regular interest

payment. The lower ratio indicates that the company is burdened more by its debts. When the

ratio is below 1.5 the ability of the company to pay its debts may be put to question and when

the ratio is below 1, it can be said that the company is not generating enough revenue to pay its

interest payments.

Interpretation- This ratio after showing a decline in 2006 shows an increase continuously in a

period of five years. This means that the company is improving its position significantly. In

2010, it is projected that the company might face a minor decrease in its interest coverage ratio

but after that it will show a continuous increasing trend. But the minor decrease would not

affect the company position as its ratio would be above the standard ratio of 2:1.

Hence, on the basis of these two ratios we can say that long term position of the company is

improving and satisfactory.

41 | P a g e

Interest Coverage ratio = EBIT/ Interest payable

PROFITABILITY RATIOS

Related to sales Related to investment

Net profit margin

Gross profit margin

Operating profit margin

Return on capital employed

Return on net worth

Return on total assets

PROFITABILITY RATIOS

As we know that the main objective of every business is to earn profit and thus profit is the

measurement of the efficiency of that business. Ratios that measure profitability of the

enterprise in relation to sales or funds employed in the business are known as profitability

ratios. Profitability ratios can be divided into two parts:

Related to sales

Related to investment

On the basis sales

Gross profit margin This ratio expresses the relationship between gross profit

and sales and is usually expressed in percentage.

42 | P a g e

Gross profit ratio = Gross Profit * 100/ Net Sales

Gross profit = Net sales – cost of goods sold

Cost of goods sold = opening stock + net purchases + direct expenses – closing stock

Net sales = total sales – sales return

gross profit margin

-25-20-15-10

-505

10152025

Gross profit margin -18.96 1.32 3.3 3.17 7.42 15.63 21.09


Significance- It indicates gross margin on goods sold. No ideal ratio is fixed but normally a

higher ratio is always considered a good sign so as to cover not only the remaining operating

and non-operating expenses etc. but also to allow proper returns to owners. A low ratio may

indicate unfavorable purchase and sales policy. It is clear indicator of efficiency and

competence of management. Knowledge of gross profit margin helps a firm to decide how

much the selling price can be reduced during the time of competition.

Regression equation: Y = 5.46 X – 0.75

Interpretation-

The gross-profit margin of the company is continuously increasing over a period of five years

except a minor decline in 2008. But initially the increase in margin was low which was because

of slowdown in tractor and agriculture industry. In the coming years, gross profit margin will

grow very sharply as depicted by the projected ratios. This increase in gross-profit margin

indicates that the rate in increase in cost of goods sold are less than rate of increase in sales,

hence increased efficiency.

43 | P a g e

net profit margin

-1

0

1

2

3

4

5

Net profit margin 3.08 1.08 -0.31 0.59 4.16 2.23 2.4


Net profit ratio:- Net profit is that part of profit that is left after deducting overheads and

interest payable from gross profit. This ratio shows the relationship between net profit and

net sales.

Significance- It measures the rate of return on sales. Higher the ratio, better it is. A firm with a

high net profit ratio is an advantageous position to survive in case of rising cost of production

and falling selling processes. It also indicates the ability of the firm to face the adverse

economic conditions in future.

Regression equation: Y = 1.72 + 0.17 X

Interpretation- Net-profit margin shows a declining trend during first three years but after that

the margin starts increasing. In 2005, the gross-profit margin was negative but net profit margin

is positive which may be because of high non-operating income. Projected ratios reveals that

the net-profit margin of the company will decrease in coming two years 2010 and 2011, so in

order to avoid this decrease company might have to take appropriate measures which could

prevent this upcoming downward situation.

In the initial periods the gross profit margin was improved but the net profit margin was

declined, it may be because of the increase in operating expenses related to sales.

44 | P a g e

Net profit ratio = net profit * 100/ net sales

Operating ratio

This ratio expresses the relationship between cost of goods sold and operating expenses on one

hand and net sales on the other. Operating expenses are those expenses which have been

incurred in running the business operations such as office, selling and administration,

distribution expenses etc. these expenses do not include the financial expenses such as interest,

tax provision, bank charges etc.

Significance- The operating ratio is the yardstick to measure the operational level of business.

It indicates optimum use of resources i.e. to earn maximum profit by incurring minimum cost.

It is very useful for inter-firm as well as intra-firm comparisons. A lower operating ratio is

considered very healthy sign.

operating ratio

-10

-5

0

5

10

15

20

operating ratio -8.17 5.23 5.79 5.3 9.16 13.87 17.34

sep'05 sep'06 sep'07 sep'08 sep'09 sep'10 sep'11

45 | P a g e

Operating ratio = cost of goods sold + operating expenses *100 /net sales

ROCE

-20

-10

0

10

20

30

ROCE -13.06 4.04 3.68 6.22 9.28 16.1 20.79



Interpretation- The operating profit ratio also shows an increasing trend during its period

except in 2008 where a slight decrease occurred. In the coming years 2010 and 2011, this

margin will increase steeply. Because of its continuous improvement or continuous increase in

operating-profit margin, the company now has a very sound position in the industry.

On the basis of investments

Return on Capital Employed (ROI) It is the ratio which measures the overall efficiency

of the business. As it reveals overall efficiency of the business, it assumes significance

from the point of view of investors. It is ascertained by comparing profit earned and

capital employed o earn that profit and expressed in percentage.

Significance- This ratio measures the overall efficiency of the business and one of the

important test of profitability of a business. It shows how well the management has utilized the

funds employed by owners and others. The higher the ratio, the more efficient the management

is considered to be in using the funds employed.


46 | P a g e

RONE

-2

0

2

4

6

8

RONE 6.32 1.86 -0.58 0.99 6.21 2.63 2.52

sep'05 sep'06 sep'07 sep'08 sep'09 sep'10 sep'11

Interpretation- Return on capital employed (ROCE) has shown a continuous increasing trend

not only during a period of five years but also during 2010 and 2011. This shows that the

company is making sufficient return on the capital employed and hence, we can say that the

company is using its funds more effectively and efficiently.

Return on Net Worth (RONW)

This ratio measures the profitability of the funds belonging to equity shareholders. Since, the

profit available for the equity shareholders is the profit left after payment of interest, taxes and

dividend. It is calculated by using the following formula:

Significance- This ratio measures how efficiently the funds of equity shareholders are being

utilized in the business. It is a true indicator of the management efficiency since it shows the

earning capacity of the equity shareholders fund. The higher the ratio the better it is since,

equity shareholders will get higher dividend in this case.

Regression equation: Y = 2.96 – 0.11 X

47 | P a g e

RONW = Profit after tax – preference dividend * 100/ Shareholders Equity

ROTA

0

5

10

15

ROTA 10.03 2.62 2.47 4.22 6.18 3.27 2.66


Interpretation- This ratio has shown a decreasing trend in the first three years but in 2008 and

2009 it has shown a sign of improvement. The downward trend in the initial stages was because

of falling net profit because of which return to shareholders decline as there was no profit to

distribute among them. But in last two years apart from the projected one, the ratio is improved

because of increase in net-profit. On the other side, projected ratio reveals a negative impact of

ratio as ratio is decreasing because of decrease in net profits. Hence, company should take

appropriate measures which leads to improvement in net-profit which further leads to an

improvement in RONW.

Return on Total assets (ROTA)

This ratio measures the company‟s earning before interest and taxes against its total assets.

Significance- This ratio indicates how well a company uses its total assets. It also measures the

profitability of the investment which reflects the managerial efficiency. The higher the ratio,

the better is the profit earning capacity of the firm. However, it does not reveal the profitability

of different sources of funds used in purchasing the total assets and also the interest paid to

creditors is not deducted from the net-profit.


48 | P a g e

RRet Return on Total assets=Profit before interest and tax * 100/ Total asset assets

Interpretation- This ratio is showing a declining trend over a period of three years, and then

shows an increasing trend. But in this case also, projected ratio is showing a negative impact as

in 2010 and 2011 the ratio starts decreasing again. Hence we can say that, managerial

efficiency in investment is not there.

Thus, in this case also management has to take appropriate actions or measures and think more

than once to invest their money which will result in an improvement in this ratio.

STOCK MARKET RATIOS

Market ratios measure investor response to owning a company‟s stock and also the cost of

issuing stock.

Types of market ratios are:

Earning per share (EPS)

Price-Earning ratio (P/E)

Earning retention ratio

Earning per share

This ratio measures the relationship between net profit and number of equity shares. It

measures the net profit earned per share. The ratio is calculated by using the following formula:

49 | P a g e

Stock Turnover Ratio

Earning per share (EPS) Price-Earning ratio (P/E) Earning retention ratio

EPS

-5

0

5

10

15

EPS 5 3 -0.87 1.38 9.89 6.14 6.96


Significance- The EPS is one of the important measures of company’s economic performance

and prospects of the company. The prospective investors invest their money into a company

after evaluating its EPS. A higher EPS means better capital productivity and it affects the

market price of shares. When EPS is calculated for number of years it gives us indication

whether the earning power of the company has increased or not.


Interpretation- Earning per share of the company in initial stages shows a declining phase for

three consecutive years, this might be because of losses that company had to suffer which leads

to put pressure on the reserves of the company. But after 2007, the company‟s EPS starts

increasing which was because of earning of profits which leads to its improvement in

performance. But, according to the projected ratios for two years company might face a

decrease in its EPS in year 2010 as compare to 2009, but afterwards it will continuously grow

which will be indicator of its better performance.

50 | P a g e

EPS=Net profit after interest, tax and preference dividend /No. of Equity shares

P/E ratio

-150

-100

-500

50

100

P/E ratio 17 37.33 -107.9 51.47 15.26 5.84 6.91


Price Earnings Ratio (P/E ratio)

This ratio explains the relationship between current market price of share and earning per

share.

Significance- This ratio gives the idea of the payback period of the investment. This ratio

reflects the market assessment of the future earnings potential of the company. A high P/E ratio

reflects high earnings potential and low P/E ratio reflects low earnings potential. The P/E ratio

reflects the confidence in the company’s equity.


Interpretation- In the initial stages P/E ratio is showing a zigzag trend, as, if it moves up in

one year it would falls down in another year. In Sept‟07 the company had a very large negative

value which was because of huge losses that company had to face during that period. But now

the condition is better as after 2007 which was the worst time for the company, company‟s P/E

ratio shoots up to 51.47 which again falls in 2009. Projected ratio reveals that company has to

face some decline in 2010 initially after that the growth will be continually increasing. As per

the present scenario, investors may have problem in deciding whether to invest amount in

buying company’s share or not because of fluctuating P/E ratio.

51 | P a g e

Price Earnings Ratio = Current market price of a share/ Earnings per share

Earning Retention Ratio

80

90

100

110

Earning RetentionRatio

100 100 100 100 89.89 91.92 89.9

sep ‘05 Sep’06 Sep’07 Sep’08 Sep’09 Sep’10 Sep’11

Earning Retention ratio

The percentage of earning credited to retained earnings is known as retention ratio. In other words,

the proportion of net income that is not paid out as dividends. The earning ratio is the opposite of the

dividend payout ratio and thus can also be calculated as:

Significance- This ratio is the indicator of the amount of earnings that has been distributed as

dividend to shareholders as well as amount of earnings retained for further business operations.

A higher ratio means a stronger financial position of the company.


Interpretation- This ratio tells about the amount that is retained by the company to reinvests in the

business after paying dividend to shareholders.

But it is seen from the above graphs that in the initial four years company did not pay any dividend

to its shareholders and retained all its capital for further business operations which may be because of

losses that company had faced in its bad time. But in 2009, because of good profitscompany declared

dividends for its shareholders which is a sign of improvement. Projected ratios also depicts that in

the coming years company will pay dividend to shareholders and thus shows indirectly that company

will earn better profits. Bu in 2010, company might pay dividend to its shareholders which might be

less than as in 2009, afterwards growth will be much better.

52 | P a g e

Earning Retention ratio = Net income – Dividends/ Net income == 1- Dividend payout ratio

0

1

2

3

4

5

6

Escorts ltd. 1.04 1.03 1.15 1.27 0.97

Mahindra & Mahindr 1.51 1.48 1.48 1.23 1.02

HMT 5.29 4.77 5.1 3.59 3.65

VST Tillers 1.83 1.5 1.54 1.56 1.71

Sep’05 Sept’06 Sept’07 Sept’08 Sept’09

After looking at the projected ratios we can say that the image of the company will definitely

improve in future and it will strongly compete with its competitors

COMPARATIVE ANALYSIS OF ESCORTS WITH ITS COMPETITORS

Liquidity Ratios –

Current ratio

Interpretation- Current ratio is mainly used to give an idea of the company‟s ability to pay back its

short-term liabilities (debt and payables) with its short-term assets (cash, inventory and receivables).

The higher the current ratio, the more capable the company is of paying its obligations. A ratio under

1 suggests that the company would be unable to pay off its obligations when they arise.

After analyzing the ratios of four competitors we can say HMT is the one whose ratio is above

the ideal ratio of 2:1 and is improving as compared to sept‟08. But if we talk about Escorts the

ratio is not at all satisfactory as compared to ideal ratio and is continuously improving but it

again falls down last year. Current ratio of Mahindra & Mahindra is continuously falling down

since last 5 years while the ratio of VST Tillers is continuously improving except a fall in

sept‟06. If we consider the current ratio HMT has the strongest position but short term

solvency cannot be decided on the basis of this ratio only because a company might be having a

huge investment in the stock and prepaid expenses which are difficult to realize in very short

term.

53 | P a g e

0

2

4

6

Quick Ratio

Escorts ltd. 0.75 0.83 0.89 0.97 0.7

Mahindra & Mahindra 0.93 0.92 1.04 0.78 0.73

HMT 5.07 4.53 4.89 3.28 3.45

VST Tillers 1.12 0.88 1.09 1.04 0.96

Sep’05

Sep'06

Sep'07

Sep'08

Sep'09

And lower current ratio can also show the efficient working capital management if the company is

not facing any liquidity crisis. So, for this purpose we calculate the quick ratio.

Quick ratio

Interpretation- Quick ratio is a rigorous measure of a firm‟s ability to service short-term liabilities.

This ratio is calculated after deducting those assets from current assets which cannot be converted

into cash immediately like inventory and pre-paid expenses. Generally, an acid-test ratio (quick

ratio) of 1:1 is considered satisfactory.

According to this ratio only VST Tillers is the one which is close to the ideal ratio, however it is not

stable and moving up and down but still manages to be around the standard. But ratio of HMT is

much higher than the standard ratio and hence, it has the ability to meet its short term liabilities with

its quick assets. Ratio of Escorts is also continuously improving except a shortfall in last year

sept‟09 while ratio of Mahindra & Mahindra is continuously moving up and down. The reason

behind such high current and quick ratio of HMT might be that the company invests too much in the

inventory and prepaid expenses and also maintains a huge cash and bank balance followed by large

number of debtors.

On the basis of liquidity ratios we can say that HMT has the strongest short term position

followed by VST Tillers, Mahindra & Mahindra and Escorts

54 | P a g e

0

5

10

15

Debtors Turnover ratio

Escorts ltd. 5.89 7.46 6.18 4.07 5.09

Mahindra & Mahindra 14.32 13.9 14.35 12.67 12.35

HMT 1.98 2.22 1.76 1.44 1.82

VST Tillers 5.77 6.42 7.6 6.96 8.29

Sep’05

Sep'06

Sep'07

Sep'08

Sep'09

Activity Ratios –

Debtor turnover ratio

Interpretation- This ratio measures how rapidly receivables are collected from debtors. A high ratio

is indicative of shorter time-lag between credit sales and cash collection. A low ratio shows that

debts are not being collected rapidly.

In this case, Mahindra & Mahindra has the highest ratio among all four competitors which shows

that it is able to collect receivables from debtors very quickly as compared to others. There is a

continuous short-fall in the ratio except in sept‟07 when there was a increase but still it manages its

ratio to be higher than others. Ratio of VST Tillers is also continuously improving except a decline in

sept‟08. An escort also has a satisfactory debtor turnover ratio as it is improving if we compare it

with last year. HMT has the lowest debtor ratio and is moving up and down continuously which

means that HMT is unable to collect its receivables rapidly and this might be the reason which result

in higher current and quick ratio.

On the basis of this ratio Mahindra & Mahindra is on the top followed by VST Tillers,

Escorts and HMT. HMT is at the lowest position according to this ratio.

55 | P a g e

0

5

10

15

20

Escorts ltd. 10.37 10.34 13.33 11.56 11.99Mahindra &Mahindra

8.92 9.01 11.75 12.49 14.6

HMT 6.86 6.55 9.73 3.95 5.3VST Tillers 5.56 6.05 6.17 6.03 6.37



Interpretation- Stock Turnover ratio shows that whether the stock has been efficiently utilized or

not, or the speed at which the inventory can be converted into sales.

According to this ratio, among four competitors VST and Escorts shows a similar trend. Ratios

of both companies were increased till sept‟07 and after that decrease and then again show an

improvement. Both of them are very strong competitors according to this ratio and sell their

inventory efficiently. Mahindra & Mahindra also shows a continuous improvement over a

period of five years which is not shown by any of its competitors. But if we consider HMT we

can say that ratio is not at all static and is continuously moving up and down year after year but

has shown an improvement as compare to its previous year.

56 | P a g e

0%

20%

40%

60%

80%

100%

VST Tillers 2.17 2.75 2.74 2.17 8.29

HMT 0.19 0.24 0.13 0.13 0.12

Mahindra &Mahindra

1.32 1.33 1.22 1.06 0.9

Escorts ltd. 0.74 0.76 0.9 0.83 84



Interpretation- This ratio indicates how efficiently a firm has utilized its total assets to generate

sales. Among the four competitors, VST Tillers is the one which is most efficient in the industry and

which utilized its total assets better as compared to its competitors in generating sales. Moreover, the

company is showing an increasing trend in 5 years except a shortfall in sept’08 where it decreased by

a low margin. Mahindra & Mahindra is the one whose efficiency decreases continuously since 5

years and had not shown any improvement even in a single year. If we consider Escorts we can say

that the company is utilizing its total assets better as compared to previous years as the ratio is

improving continuously till sep’07 and after having a shortfall in sep’08 it again rises and thus shows

an overall improvement. Whereas, HMT is at the bottom in utilizing its total assets for generating

sales and shows a continuous decline except a marginal increase in Sep’06.

In order to improve its position, Escorts needs to utilize its assets more efficiently as compared to

VST Tillers.

57 | P a g e

0

2

4

6

8

Escorts ltd. 2.5 2 2.5 2.3 1.5

Mahindra &Mahindra

4.8 5.8 6 6 4.9

HMT 5.7 7.2 6.4 1.4 1.2

VST Tillers 4.4 4.8 6 3.4 4

Sep'05

Sep'06

Sep'07

Sep'08

Sep'09

Fixed asset turnover ratio

Interpretation- This ratio measures the ability of the company to generate net sales from their fixed

assets. After analyzing these graphs and ratios we can said that VST Tillers and HMT have highest

ratio as compared to the other two which means that both company were utilizing their fixed assets

more efficiently than any of its competitors but the efficiency of both VST and HMT decreased

drastically from 6 to 3 and 1 respectively in year 2008. Ratio of VST Tillers improved a little in 2009

but in case of HMT the ratio still falls down. In case of Mahindra & Mahindra and Escorts, the

ratio was continuously decreasing since 2 years. Mahindra & Mahindra has a better position if we

compared it with Escorts according to this ratio

Thus we can say that, in order to compete with the competitors Escorts should utilize its fixed

assets more efficiently and effectively in generating sales.

58 | P a g e

0

5

10

15

Escorts ltd. 1.02 0.46 0.38 0.36 0.18

Mahindra &Mahindra

0.51 0.29 0.46 0.57 0.75

HMT 14.06 10.21 4.81 1.38 1.87

VST Tillers 0.24 0.02 0.05 0.04 0.01


Solvency Ratios –

Debt-Equity ratio

Interpretation- This ratio helps us in ascertaining the debt proportion as compared to the

shareholders funds and is a measure of long-term financial solvency of a firm. The D/E ratio

indicates the margin of safety to the creditors. The ideal ratio is 2:1. A high ratio indicates that

company has higher debts as compared to owner‟s capital and increase of debt in the company is

risky as company has to pay the interest to creditors even if it faces losses in any particular year.

According to this ratio, all the companies have a very sound position except HMT. Escorts is

the one whose ratio is continuous decreasing or we can say there is a continuous improvement

which is a good sign for the company. None of the company (Mahindra & Mahindra and VST)

has such a continuous improvement if compared to Escorts. But if we consider HMT there is

drastic change, its ratio is moved to1 from 14 which is a much good sign for the company but

still it needs further improvement because if its previous ratios are considered then company

might have to encounter serious difficulties in raising funds in future.

59 | P a g e

-200

20406080

100

Escorts ltd. 1.22 0.71 0.83 1.81 3.07

Mahindra &Mahindra

23.85 32.17 67.24 14.64 23.8

HMT 0.77 0.97 0.86 0.31 -0.14

VST Tillers 8.07 11.84 45.08 42.35 83.44

sep'05 sept'06 sept'07 sept'08 sept'09

Interest-coverage ratio

Interpretation- This ratio is used to determine how easily a company can pay interest on its

outstanding debts. On the basis of this ratio, VST Tillers is the one which has the highest interest

coverage ratio in Sep ‟09 which is almost 3.5 times better than other competitors. Its ratio is almost

double if compared to Sep‟08. Whereas Mahindra & Mahindra is the one which was on top till 2007

but after 2007 its net profit started declining and the proportion of debt in its capital structure is also

increased because of which interest payment increased and the ratio falls. This ratio is continuously

improving in case of Escorts but its position is not satisfactory as compared to its competitors. HMT

has the worst position in the market and now unable to pay off the interest from its net profit, this

might be because of huge loss in the industry or might be having a less profit. On the basis of this

ratio, VST Tillers has the safest long term position and Escorts has to improve its profit in order to

improve this ratio as this ratio is fully dependent on the profit before interest.

60 | P a g e

-50%

0%

50%

100%

VST Tillers 10.21 11.17 13.74 11.54 15.34

HMT -4.73 0.56 -2.32 -29.21 -38.3

mahindrra &mahindra

12.8 12.48 14.73 8.12 6.1

escorts ltd. -18.96 1.32 3.3 3.17 7.42


Profitability Ratios –

On the basis of sales –

Gross – Profit ratio

Interpretation- This ratio is a measure of profits in relation to sales. The above data shows that

VST has the highest gross-profit margin among its competitors which indicates its strongest

position in the market. Moreover, the ratio is continuously improving except a shortfall in the

year 2008. Position of Escorts is also continuously improving which can be seen from the

above graph except a minor shortfall in 2008. While position of Mahindra & Mahindra has

shown a declining trend overall, there had been a rise in year 2007 then it again falls for two

consecutive years which made its position unsatisfactory as compared to its competitors. HMT

is the only one which is facing huge-huge losses and its losses are increasing every year which

makes it to stand at the bottom position among its competitors. 71

61 | P a g e

-60

-40

-20

0

20

Escorts ltd. 3.08 1.08 -0.31 0.59 4.16Mahindra &Mahindra

7.85 10.73 11.12 10.21 6.62

HMT 1.88 3.67 16.09 -18.41 -40.84VST Tillers 4.42 5.72 7.65 7.55 10.41

Sep’05 Sept’06 Sept’07 Sept’08 Sept'09

Net profit ratio

Interpretation- This ratio measures the relationship between net-profits and sales of a firm. In some

cases we have seen that net-profit is positive irrespective of positive gross-profit margin, this is

because company has earned huge profit from its investing and non-operating activities which made

its net profit margin positive irrespective of negative gross-profit margin.

VST Tillers is showing the highest net-profit margin among its competitors and also shows a

continuous improvement since last 5 years except a minor decline in 2008. Net profit margin of

Escorts is also continuously improving except a decline in 2007. If we look at Mahindra &

Mahindra we can say that initially its net-profit margin increases for 3 consecutive years till

2007 but then it starts decreasing. HMT shows an increasing trend for three years which means

that its net-profit margin increases for three years but after 2007 company is facing huge losses

which results in negative net-profit margin ratio. The net-profit margin for Escorts was

declined for 2 consecutive years till 2007 but from last 2 years company starts to recover from

its losses and now starts earning a profit which result in positive net profit margin ratio from

negative one. It might be possible that company would be the one which faces highest net-

profit margin ratio within 2 years as the increase in margin is too satisfactory.

62 | P a g e

-40

-20

0

20

Escorts ltd. 13.62 3.44 2.74 5.09 7.34

Mahindra & Mahindra 10.65 10.91 13 11.64 8.47

HMT -19.48 -7.04 -11.5 -27.46 -36.21

VST Tillers 10.97 11.75 13.75 13.06 16.36

Sep’05 Sep’06 Sep’07 Sep’08 Sep’09

Operating profit ratio

Interpretation- Operating profit ratio indicates the earning capacity of the business from its core

operations and it does not include non-operating items. This ratio helps to assess whether the

company would be able to stand in the market or not.

These ratios indicate that VST is the one whose profit margin is continuously improving, not only

operating profit margin but net profit and gross profit margin also. This shows that VST is the

company which has a strongest financial position among its competitors. Escorts also shows a

continuous improvement trend except having a shortfall in 2005. Ratio of Mahindra & Mahindra is

satisfactory as compared to the competitors other than VST Tillers but its ratio is decreasing

continuously from last 2 years. Now considering HMT, it is nowhere in the competitor list as it

makes huge-huge losses every year and never gives a positive margin in last 5 years.

Escorts is in better position among its competitors and if it makes little more efforts then surely

Escorts would be the top most company in this sector.

63 | P a g e

-50

0

50

Escorts ltd. -13.1 4.04 3.68 6.22 9.28

Mahindra & Mahindra 21.6 22.2 24 18.3 11.6

HMT 6.29 8.2 4.42 1.49 -0.61

VST Tillers 18.7 27.4 34 32.3 48

Sep'05

Sep'06

Sep'07

Sep'08

Sep'09

On the basis of investments –

Return on Capital Employed ( ROCE )

Interpretation- This ratio indicates how efficiently a firm is utilizing the funds of investors and

creditors in order to earn the adequate return.

In this case also, ratio of VST is continuously increasing except in 2008 where there was a minor fall

as compared to its previous year. However, both HMT and Escorts shows an opposite trends. In

case of Escorts the ratio is continuously increasing since 2007 whereas in case of HMT the ratio is

continuously decreasing since 2007. HMT also shows a negative return in the last year performance.

Mahindra & Mahindra follows the VST but it is far behind it, its ROCE is almost one-fourth of VST

and the ratio has also been declining in the last few years. It is positive bur has reached to all time

low in these five years.

64 | P a g e

-40-20

02040

Escorts ltd. 6.32 1.86 -0.6 0.99 6.21

Mahindra & Mahindra 18.8 19.5 20.9 18 10.6

HMT 8.44 11.1 6.27 -12 -23

VST Tillers 14.2 15.9 22.2 21.5 31.7

Sep'05

Sep'06

Sep'07

Sep'08

Sep'09

Efficiency of utilizing the money of creditors and investors has been improved in the Escorts and

VST but the difference is very huge whereas this efficiency has reduced in Mahindra & Mahindra

and HMT Ltd.

Return on Net Worth

Interpretation- This ratio measures how efficiently the funds of equity shareholders are being

utilized in the business. The higher the ratio the better it is because the equity shareholders will get

higher dividend in this case.

After comparing all the four companies, we said that the company which is facing a negative

performance or decreasing trend is HMT and is even unable to pay the dividend to its shareholders.

But two companies VST and Escorts are very close to one another as compared with their trends

because both of them shows a continuous increasing trend except in year 2006 where Escorts shows

a negative trend. Till now, we can say that ratio of Escorts is continuously improving. Mahindra &

Mahindra shows a continuous increasing trend for three consecutive years but after that it shows a

decrease in its performance.

65 | P a g e

-5

0

5

10

15

20

Escorts ltd. 10 2.62 2.47 4.22 6.18

Mahindra &Mahindra

14 14.6 15.9 12.4 7.6

HMT 7.35 9.19 12.5 12 18.2

VST Tillers 0.46 1.03 2.79 -2.9

Sep'05

Sep'06

Sep'07

Sep'08

Sep'09

On the basis of this ratio we can say that VST is at the top followed by Escorts, Mahindra &

Mahindra and then HMT at the last position.

Return on Total Assets

Interpretation- This ratio measures the profitability of the investment which reflects the managerial

efficiency. The higher the ratio, the better is the profit earning capacity of the firm.

VST Tillers has the highest ROTA as compared to other competitors and the profit earning capacity

of the firm is continuously increasing except in year 2008 where the company faces a decline as

compared to 2007. Similarly, ratio of Mahindra & Mahindra shows an increasing trend for initial

three years but after that it decreases. This might be the result of increase in total assets of the

company with a slight increase in the return which results in such decrease. But if we compare

Escorts with Mahindra & Mahindra, Escorts is the better one as it shows a positive increase in trend

66 | P a g e

-100

102030405060

Escorts ltd. 5 3 -0.87 1.38 9.89

Mahindra &Mahindra

44.19 38.07 45.15 46.24 31.83

HMT 0.13 0.27 1.05 -0.59 -0.93

VST Tillers 10.17 12.88 21.79 25.01 50.2


in last year which is opposite in case of Mahindra & Mahindra. HMT is again at the lowest position

because of gradual fall down.

Overall we can say that VST has the strongest profitability position. And position of Escorts is

continuously improving and gives a very strong competition to Mahindra & Mahindra but is far

behind VST. HMT does not stand anywhere in between these competitors as its ratios gives a

negative response.

Market Ratios –

Earning per Share

Interpretation- EPS is a good indicator of profitability of a company and it tells about the earning

power of the company.

VST has the highest EPS and is continuously increasing over a period of five years and in the last

year i.e. 2009 the ratio is almost become double as compared to year 2008. For Mahindra &

Mahindra the earning per share (EPS) is moving up and down continuously, in year 2007 and 2008 it

shows an increasing trend while in 2009 it decreases. If we talk about Escorts the ratio is improving

drastically as there is a huge increase in the earning power of the company from negative to positive.

Whereas HMT is now facing a negative phase which keep it out of the competition. Escorts shows a

67 | P a g e

-100%

-50%

0%

50%

100%

VST Tillers 7.04 6.29 4.51 4.69 3.16

HMT 11.46 6.96 3.29 -8.42 -4.34

Mahindra &Mahindra

10.86 15.76 16.61 15.14 12.57

Escorts ltd. 17 37.33 -107.93 51.47 15.26


continuous improvement but the improvement is not enough as its EPS is much far behind the EPS

of other competitors company and thus company has to take measures to improve the net profit of

the company which will ultimately enhance the EPS and then image of the company.

Price Earning ratio

Interpretation- This ratio helps the investors to decide whether they have to buy the shares of a

company at a particular market price or not.

In this case Mahindra & Mahindra and Escorts both have a very tough competition with each other.

Ratios of both companies are almost matching with each other. But if we compare amongst the two,

Mahindra & Mahindra is the better one because decrease in ratio of Mahindra & Mahindra is much

less as compared to decrease in ratio of Escorts in last year. P/E ratio of VST has shown a decreasing

trend except in 2008 where it shows a minor increase otherwise it decreases over a period of five

years. If we talk about HMT, it is the only company which decreases in all five years not evens a

68 | P a g e

020

4060

80100

120

Escorts ltd. 100 100 100 100 89.89

Mahindra &Mahindra

70.58 73.73 74.53 75.13 68.59

HMT 100 100 100

VST Tillers 66.76 73.73 78.52 75.92 82.06


minute increase in any of the single year. Furthermore, the company is showing a negative P/E ratio

in 2008 and 2009.

Thus, according to ratio, both Mahindra & Mahindra and Escorts almostly stands together followed

by VST Tillers and the HMT.

Earning Retention ratio

Interpretation-

This ratio indicates the percentage of company’s earnings that are not paid out in dividends but

credited to retained earnings for further operations.

69 | P a g e

If we consider Escorts and HMT, we can say that both did not pay any dividend to shareholders and

thus retain the whole amount as retained earnings. But in 2009 Escorts had paid some dividend to its

shareholders. The highest amount of dividend is paid by Mahindra & Mahindra in 2009. The amount

of dividend paid by Mahindra & Mahindra is continuously decreasing but last year the amount is

increased. While if we consider VST, the amount given to shareholders as dividend is also

continuously decreasing for the first three years then there is a little rise in 2008 which is again

followed by decreasing amount for shareholders.

The amount which is saved as retained earnings will be used to expand the operations further which

results in further increase in net profits and thus helps in improving all other ratios.

FINDINGS OF THE STUDY

1. The current ratio has shown in a fluctuating trend as 1.04, 1.03, 1.15, 1.27, and 0.97

during the period 2005 to 2009 which indicates a continuous increase up to the year

2008 but after that the status of current assets is low as compare to current liabilities.

2. The quick ratio is also in a fluctuating trend throughout the period 2005 – 09 resulting

as 0.75, 0.83, 0.89, 0.97, and 0.7. The company’s present liquidity position is

satisfactory.

3. The fixed assets turnover ratio is also in a fluctuating trend from the year 2005 – 09

(2.53, 2.04, 2.45, 2.26, and 1.48). It indicates that the company is efficiently utilizing

the fixed assets.

4. The net profit ratio is in fluctuation manner. It increased in the year 2009 as compared

with the previous year from 0.59 to 4.16.

5. The net profit is increased in the current year. So the return on total assets ratio is

increased from 4.22 to 6.18.

6. The earnings per share was high in the year 2005 i.e., 5. That is decreased in the

following years because number of equity shares are increased and the net profit is

decreased. In the current year the net profit is increased due to the increase in

operating and maintenance fee. So the earning per share is increased up to 9.89.

70 | P a g e

7. Price Earnings ratio is reduced as compared to the last year. It is reduced from 51.47

to 15.26, because the earning per share is increased.

8. The return on investment is increased from 6.22 to 9.28 compared with the previous

year. Both the profit and shareholders’ funds increase cause an increase in the ratio.

CONCLUSION

After analyzing the ratios of Escorts and its competitors, the main thing to be

noted is that the company has improved its performance very well as compared

to its previous year’s ratios.

But on the other side, the analysis shows that with the continuous improvement

in performance of Escorts, Escorts is still in backward position if compared it

with Mahindra & Mahindra and VST Tillers.

But we can also say that because of its continuous improvement Escorts is also

giving them a tougher competition and will definitely acquire a better position in

the future.

71 | P a g e

RECOMMENDATIONS

Market share: The Company’s main motive should be to increase their market share. Many

investors before investing see the market share in the market. So if the company wants to increase

the value they have to increase the market share. This can be achieved by creating a competitive edge

over its competitors. The company has to increase its sales by various means like maintaining good

relationships with the customers, allowing good credit facility and also by reducing cost so as to

provide a competitive price in the market. Proper marketing strategies can also help the company in

having good sales.

Investments: The Company has invested in various fields which is good as it has diverse its risk but

there are some loop holes in the investment too. The company should also invest in the risk-free

return also. The company didn’t invest in either of the risk free return. The company should invest in

the government securities and debentures so that the company should be risk free up to some

percentage.

Payment policies: Payment policies followed by Escorts should be reviewed time to time and steps

should be taken for prompt payments so that the good vendor database can be maintained.

72 | P a g e

Collection period: Escorts has a low debtor turnover ratio and a very high collection period of 90

days which implies excessive blockage of funds as debt which might result in stagnation of the

business. Attempts to reduce down the debtor’s turnover ratio to 30 days should be made which

would ensure better availability of funds for business operations.

Proper training: The personnel must be given training for proper use of equipments and materials

so as to avoid damages which will result in saving the repair and maintenance cost.

BIBLIOGRAPHY

Publications:

Rao S.B –Financial Management (2003), Vikas Publication Pvt. Ltd(VPPL).

Srivastave R.M –Essentials of Business Finance(2001), Himalaya Publishing

House.

Erich A. Helfert –Techniques of Financial Analysis (2005), Jaico Publishing

House.

Brealey & Myres –Principles of Corporate Finance (1993), Tata McGraw Hill

Publishing Co. Ltd.

Articles and Journals:

Miller, Merton H. and Daniel Orr, (1966) “A Model of Demand for Money by

Firms, “Quarterly Journal of Economics, P-80

Nix, Paul E. and Melvin Mc Fetridge, (1986) “The Financing of Current

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