FINACIAL APPRAISAL OF

MAHINDRA &

MAHINDRA

(SWARAJ DIVISION)

A training report submitted in partial fulfillment of the requirement for the degree of

MASTERS OF BUSINESS ADMINISTRATION

MBA

(2008-2010)

Submitted by:-

JIMMY SARAF

MBA - 2

Roll No. .

1

MAHINDRA & MAHINDRA LTD. SWARAJ DIVISON

2

HAMARA SWABHIMAAN

SWARAJ... CONTENTS

CHAPTER-I INDIAN TRACTOR INDUSTRY -An Overview

CHAPTER –II M&M LTD -SWARAJ DIVISION -A Company Profile

CHAPTER –III OBJECTIVES OF THE STUDY & Executive summary

CHAPTER –IV FINANCIALSTATEMENT

ANALYSIS OF SWARAJ DIVISION

METHODS OF ANALYSIS

PROFITABILITY ANALYSIS

WORKING CAPITAL MANAGEMENT

CAPITAL STRUCTURE ANALYSIS

MARKET PERFORMANCE

INVESTMENT PATTERN

CHAPTER –V CONCLUSIONS AND

RECOMMENDATIONS

CHAPTER -VI REFERENCES

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PREFACE

For management career, it is important to develop managerial skills. In order to

achieve positive and concrete results, along with theoretical concepts, the exposure of

real life situation existing in corporate world is very much needed. To fulfill this need,

this practical training is required.

I took training in fast growing company M & M SWARAJ DIVISION located in

MOHALI. It was my fortune to get training in a very healthy atmosphere. I got ample

opportunity to view the overall working of the company.

This report is the result of my seven weeks of summer training in M & M LTD -

SWARAJ DIVISION, as a part of M.B.A. The subject of my report is- Financial

Appraisal of M & M LTD -Swaraj Division.

In the forthcoming pages, an attempt has been made to present a comprehensive

report covering different aspects of my training.

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ACKNOWLEDGEMENT

To test the student’s academic knowledge in practical conditions of life, six-

eight weeks summer training has been included in the M.B.A course. I express my

gratitude to PROF. R.K. GAUTAM AND Ms. SHIVINDER PHULKA

DEPARTMENT (M.B.A.), PUNJABI UNIVERSITY REGIONAL CENTRE OF

MANAGEMENT & INFORMATION TECHNOLOGY, MOHALI for allowing

me to undergo summer training in Mahindra & Mahindra ltd - Swaraj Division.

I have the honor to express my sincere thanks to the management of Swaraj

Division for providing me the opportunity to pursue my training in their esteemed

organization. I place on record my thanks to Mr. Mahesh Gupta (Manager - Finance)

and Mr. Rajnath Singh (Asst Manager - Finance) for giving me every sort of help

and guidance.

My summer training has added to my practical knowledge and build up

my confidence. I thank once again all the staff members of Swaraj Division with the

active support of whom I was able to complete my project report successfully.

(JIMMY SARAF)

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EXECUTIVE SUMMARY

Study Topic: Financial statement analysis of M &M Ltd - Swaraj Division

Objectives: - 1) To evaluate the financial performance of SWARAJ DIVISION, a private sector

undertaking.

2) To find out the shortcomings because of which Swaraj Division could not become

the market leader.

3) To suggest remedial measures.

Time Span:A period of five year i.e. 2004-2008 has been taken.

Study instrument:Annual Reports and other official documents of the unit.

Methodology:

To achieve the objectives the technique of ratio analysis is adopted.

Liquidity ratios used to analyzed the short term financial performance. For

financial performance in the long run profitability and solvency ratios are used.

To calculate various ratios, the annual reports of the selected units are

extensively studied. In addition to this, interviews with the financial manager are

made to have information on various aspects of the project.

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Scheme of Presentation :

First of all I give the overview of Indian Tractors industry. Then the report

presents a general profile of M&M LTD -Swaraj Division where the summer training

has been undertaken.

Financial performance of SWARAJ DIVISION is covered in the third part in which

covers profitability analysis, working capital management, market performance,

capital structure analysis and investment pattern of SWARAJ DIVISION.

Chapter-I

INDIAN TRACTOR INDUSTRY

AN OVERVIEW

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BACKGROUND

Earlier in 1950’s, the India people was engaged in agriculture and for

irrigation mainly depend upon rains except a few isolated pockets being irrigated

through canals and tube wells. Very few people used chemicals and pesticides and

even the major agricultural operations life ploughing, planking, etc. were carried

down by bullocks. As a result, India could not produce enough to feed its people so

heavy expenditure was incurred on import of food grains. It results in scarce foreign

exchange reserves of our country. All this initiated Indian government to give highest

priority to development of agriculture in its five year plan programmed.

Irrigation, being the key operation in agriculture. A stress was laid on the

improvement in agricultural output through use of advanced technology. Extensive

use of effective and improved equipments was made by importing tractors. Our

Government encouraged manufacturing of tractors in India to save its foreign

currency reserves. As a result, a few plants were set up but Indian technology at that

time was not in a position to design and manufacture indigenous tractors. So the

plants were mainly set up for manufacturing tractors with the help of some foreign

collaboration.

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HISTORY: INDIAN TRACTOR INDUSTRY

THE BEGINNING: Indian Tractor Industry took birth in 1959-60 when the first

tractor manufacturing unit was established. However, this industry found a firm

footing only after the turbulent period of 1968-74, during which the acceleration

which should have emerged from the upsurge in demand generated by the Green

Revolution was navigated by large-scale imports of fully built tractors. By 1973-74

when imports were banned, 22 manufacturers remained. It is in an environment of

intense competition between 22 manufacturers that our tractor industry has grown

during the last 30 years. During this period, it has become not only a major segment

of our engineering industry but with a population of 1, 30,000 tractors in 1990, our

country became the second largest tractor producer in the world.

The development of tractors industry from the very beginning i.e. 1959-60 Till date can be divided into the following four phases:-

1. First phase of development (1959-68) In late sixties demand for tractors

was low. After 1967, demand of tractors started multiplying at an annual rate of

nearly 50% because government policies in respect of the development of tractor

industry to promote mechanization of agriculture encouraging local manufacturer of

tractors along with the import of tractors from Eastern Europe. At the same time,

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government protected the interests of the farmers by making tractors available to them

at reasonable prices. Tractors manufacturing units came up in this decade:

Escher Tractors Ltd. (1959)

Tractors and Farm Equipment Ltd. (1963)

Tractors and Builders Ltd. (1964)

International Tractors Ltd. (1965)

2. Second phase of development: The government’s decision to freely invite

new entrepreneurs to tractor manufacture in 1968 backed by Green Revolution, led to

the establishment of six more units in this industry. They were:

Escorts Tractors Ltd. (1971)

Hindustan Machine Tools Ltd. (1971)

Kirloskar Tractors Ltd. (1974)

Punjab Tractors Ltd. (1974)

Pittie tractors Ltd. (1974)

Harsha Tractors. Ltd. (1975)

The combined output of 11 units has risen to 32,000 by

1975. Government de-licensed the tractor industry in 1968 and then banned import of

fully built tractors in 1974. There was expansion in rural branches of banks and rural

lending increased. The pace of irrigation facilities also increased and government

extended full support to old and new manufacturers to speedily establish them.

3. Third phase of development: Banning of imports and increased competition

due to increase in number of tractor manufacturers led to the growth in local

production. The boom in the tractor industry in the late seventies led to the setting up

of two more units for the manufacture of tractors. These were:

Auto Tractors Ltd. (a U.P. Government enterprise) (1981)

Partap Steel Rolling Mills Ltd. (Tractor Division) (1983)

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The tractor industry saw a rapid growth of 6% from 1982-87.

4. Fourth Phase of development: After 1987 the tractor industry further picked up

Government gave priority to agriculture and exempt the excise duty on tractors below

1800cc in 1986 and repayment period was increased from 7 to 9 years. After this,

average growth of 15% was experienced for 1988-92 which was due to green

revolution. After six years (1987-92) of rapid growth, demand for tractors showed a

decline of 4% in 1992-93 and 3.8% in 1994-95. Sales dropped from 1.51 lacs in 1991-

92 to 1.38 lacs in 1993-94. The decline was due to the following factors:-

Land development bank, an important source of finance, collapsed.

Depression in market due to credit squeeze.

Decrease in production of cash crops.

Political uncertainty.

But after that tractor industry again started growing and tractor sales went to

1.64 lacs in 1995 and further in 1996-97.

THE PRESENT Sales peaked to 2.73 lacs in 1999-2000. In the year 2000-01 and

2001-02 the sales decline to 2.53 and 2.18 lacs because of fall in the rural income

virtually all over country and due to rising competition. It reached 1.69 lacs in 2002-

03. The industry saw an upward trend volume touching 3.51 lacs in 2006-07 and to

3.46 lacs in 2007-08. During the current FY 2007-08, around 3, 02,000 tractors were

sold in India and 44,000 tractors were exported.

The industry has now discovered channel-exports to ensure that the sales of tractors

do not drop. In fact, exports have now become a thrust area.

Five major manufacturers are in the race for tractor market today, account for 78% of

the total market share. They are offering products of different HP’s. They include

below 20HP, 21-30HP, and 41-50HP and above.

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CRITICAL PARAMENTERS FOR GROWTH OF

TRACTOR INDUSTRY

* AGRICULTURE INDUSTRYNearly 90-95% tractors are purchased with the help of bank credit. It plays an

important role in determining the demand for tractors.

* PRICING OF TRACTORS . The financial inability of the Indian farmers makes the pricing a critical parameter.

Companies that managed to keep their costs low are the ones that managed to survive

during the reversionary period.

* MONSOONS AND CROP PRICES.The farmers have to pay 15% of the total price of the tractor, in cash, at the

booking stage; consequently, if the farmer is faced with bad monsoons and low crop

prices, he will not be able to make the initial down payments.

* GOVERNMET POLICIESTo enable a farmer to purchase a tractor against these odds, the government

introduced subsidies in this sector. In the budget of 2004 all the tractors were

exempted from excise duty.

* IMPORTS The industry reduce its dependence on imports, they have indigenized their

inputs, which were earlier imported and priority is given to Research and

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Development. All tractor manufacturing units, except the Swaraj Division, were

initially set up with foreign collaboration, tractor industry has been on its own for the

last decade.

* WIDENING RANGE FOR CUSTOMER CHOICE Competition in tractor industry led to increase in the variety of models for

farmers to choose from. Industry today offers more than 43 models, and special

variants to suit regional needs and special usage are often available in many models.

TRACTOR MARKET – A CYCLICAL

TREND

Table below provides the industry picture for 2007-08, geographically & segment

wise:

GEOGRAPHICALLY

Territory %age of Domestic Sales

North (Punjab, Haryana & Uttar Pradesh)

Central (Madhya Pradesh & Rajasthan)

East (Bihar, West Bengal, Orissa & Assam)

West (Gujarat & Maharashtra)

South (Andhra Pradesh, Tamil Nadu, Karnataka & Kerala)

29%

18%

9%

18%

26%

SEGMENTWISE

HP Range %age of Domestic Sales

Up to 30 HP

31 - 40 HP

Above 40 HP

18%

37%

45%

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Chapter –II MAHINDRA & MAHINDRA -SWARAJ (A COMPANY PROFILE)

14

PROMOTION OF SWARAJ

M&M LTD -Swaraj Division (SWARAJ DIVISION)

was joint sector company of the Punjab Government, which went into commercial

promotion in the early seventies. It is promoted by Punjab State Industrial

Development Corporation (PSIDC) in 1974 which was set up by Punjab Government

for setting up new projects.

In 1965 when the entire industrial growth of India relied

upon foreign technology and know-how for setting up industrial ventures in India, the

Central Mechanical Engineering Research Institute (CMERI, Durgapur), a national

Laboratory of the Government of India, took the bold step of taking up the design and

development of totally Indian know how for 26.5 H.P. agricultural tractors.

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PRICEPRICE QUALITYQUALITY

SERVICESERVICE

MOTTO OF M & M SWARAJ DIVISION

In August 2008, the PUNJAB

TRACTORS LIMITED was taken by MAHINDRA & MAHINDRA LIMITED &

PTL becomes Pvt. Limited Company. So PTL is now a part of M & M Group

PUNJAB TRACTORS LTD -SWARAJ IS NOWM&M LTD - SWARAJ DIVISION.

Punjab Tractors Ltd. to merge with Mahindra & Mahindra Ltd., PTL’s Swaraj brand will continue to exist   The Board of Directors of M&M and PTL today unanimously approved a scheme of

amalgamation of Punjab Tractors Limited (PTL), an M&M subsidiary, with Mahindra

& Mahindra Ltd. M&M Ltd. along with its subsidiary Mahindra Holdings and

Finance Ltd. agreed to acquire the stake from Actis Group. Mahindra owns a majority

stake in Punjab Tractors Limited and had earlier acquired 63.33% stake in PTL in

July 2007. MHFL, a wholly owned subsidiary of M&M, currently holds 1.31% of

PTL, and is also in the process of being merged into M&M.

Under this amalgamation scheme, pursuant to provisions of Sections 391 to 394 and

other relevant provisions of the Companies Act, 1956, PTL will be merged into

M&M and all its assets and liabilities will be transferred to M&M at book values. The

appointed date under this scheme is 1st August 2008. Upon the scheme becoming

effective, M&M will transfer all the equity shares held by it in PTL to a Trust, of

which M&M is the beneficiary. M&M will issue its shares to PTL shareholders as on

record date, based on the swap ratio determined by independent valuers.

Anand Mahindra, Vice-Chairman and Managing Director, Mahindra Group, said,

‘PTL is a strategic fit for M&M and its amalgamation with M&M will significantly

add to shareholder value. Bringing these two businesses under a single entity will also

result in a common management focus, help achieve greater integration benefits and

reduce overall administrative costs.’

However, M&M has said that PTL’s Swaraj brand will continue to exist even after the

company's merger with automotive major Mahindra & Mahindra. ‘Swaraj brand of

Punjab Tractors will continue to exist after the amalgamation of PTL with Mahindra

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& Mahindra as this brand is an important asset to us and we will like it to further

excel,’ said Anjani Kumar Choudhari, President - Farm Equipment Division, M&M.

An independent valuation exercise has been conducted jointly by Ernst & Young and

N. M. Raiji & Company. Based on this exercise, the share exchange ratio for the

amalgamation has been arrived at. Equity shares of M&M will be issued to the

shareholders of PTL in the ratio of one equity share of Rupees 10 each of M&M for

every three equity shares of Rupees 10 each held in PTL.

The Scheme as approved by the Board is subject to such consents and approvals, as

may be required including that of the shareholders and the High Courts of Bombay

and Punjab & Haryana.

LOCATION

The plant of M&M LTD -Swaraj Division is located in Mohali Focal Point Estate

near Chandigarh on Chandigarh-Ludhiana Highway (Phase IV, Sahibzada Ajit Singh

Nagar, Mohali (Punjab) on a campus of 17 hectares. The land was allotted by Punjab

Govt. in the developing Mohali to make it a progressive Industrial Centre. The

location of plant is very suitable because it is quite near to the capital of Punjab. This

fact has been advantageous to the company in its initial stage of growth. However the

inadequacy of railway facilities is a serious drawback to the location of the plant.

QUICK FACTS

Year of Establishment

1970

Business Group Swaraj Enterprise

Listings & its codes

NSE: PUNJABTRAC; BSE: 500344; Reuters: PTRA.BO

Registered Office + Works

Phase IV, Industrial Area S.A.S. Nagar (Mohali), Punjab

Corporate Office S.C.O. 204-205, Sector 34-A Chandigarh. 160022 Tel.: +(91)-(172)-2647700 to 10 Fax: +(91)-(172)-2615111

Website www.swarajenterprise.com

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EMERGING MARKETS

Swaraj Domestic territorial market share for 2007-08 dealer networks at the year – end emerges as:DOMESTIC TERRITORIAL MARKET SHARE AND DEALER NETWORK (YEAREND)

Territory Swaraj Market Share

No. of Dealers as on

31-03-08

North (Punjab, Haryana & Uttar Pradesh)

Central (Madhya Pradesh & Rajasthan)

East (Bihar, West Bengal, Orissa & Assam)

West (Gujarat & Maharashtra)

South (Andhra Pradesh, Tamil Nadu, Karnataka & Kerala)

10.1%

4.9%

8.3%

11.7%

9.3%

203

114

68

88

93

Total 9.1% 566

SEGMENTWISE

HP Range No. ofModels

%age of Swaraj Sales

Swaraj Share in Segment

Up to 30 HP

31 - 40 HP

Above 40 HP

5

1

3

17%

50%

33%

9%

12%

7%

“CORE BELIEFS”

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1. WE HAVE A LONG – STANDING RELATIONSHIP WITH THE FARM &

FARMING COMMUNITY THE NATIONAL HERTAGE AS WELL AS THE

NATIONAL AGENDA, WHICH PROVIDES US WITH IMMENSE GROWTH

OPPORTUNITES.

2. OUR STRENGTH IS THE INVOLVEMENT OF OUR PEOPLE, TEAM

SPIRIT, AND THEIR INTEGRITY ABIDING LOYALITY & LIFE TIME

COMMITMENT TO THE SWARAJ ENTERPRISE.

3. WE SEEK COPRPORATE EXCELLENCE AND PROFITS THROUGH

ETHICS PASSION AND PERSERVERANCE.

4. WE CONSIDER OUTSELVES CUSTODIANS AND TRUSTERS OF ALL

OUR CONSTITUENCIES – OUR CUSTOMERS, EMPLOYEES, BUSINESS

ASSOCIATES, SHAREHOLERDRS AND SOCITY AND PURSUE THE

RESPONSIBILITY ROR CREATION OF WEALTH FOR THEM WITH

MISSIONARY ZEAL.

MAHINDRA &MAHINDRA LIMITED SWARAJ DIVISION

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BOARD OF DIRECTORS

P.D. NARANG (Chairman)

S.K. TUTEJA

DONALD PECK

STEVEN ENDERBY

N. MOHANRAJ

M. RAGHAVENDRA

HARDEEP SINGH

DALJIT MIRCHANDANI

P. SIVARAM (Chief Operating Officer)

A.M. SAWHNEY (Director – Marketing)

MEMBERS OF THE EXECUTIVE BOARD

P.L. SHARMA

R.K. MANRAO

P.K. NANDA

VICE PRESIDENT –

FINANCE & COMPANY SECRETARY

M.N.KAUSHAL.

AUDITORS

M/S. S. TANDON & ASSOCIATES, (CHARTERED ACCOUNTANT)

BANKERS INDIAN OVERSEAS BANK

CANARA BANK

STATE BANK OF INDIA

BACKGROUND

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M&M LTD -Swaraj Division plant is situated at S.A.S. Nagar (Mohali) where

production commenced in the year 1974. Initially, PSIDC contributed 42% equity

capital against the total paid up capital of Rs.140.00 lacs. The facility was initially

created to manufacture 5000 nos., tractors and the capital cost at that time was Rs.321

lacs.

The production capacity of tractors has increased to 60000 nos., from the level of

5000 nos. The company, over the years, has also promoted two companies, namely,

Swaraj Mazda Limited (manufacture of Light Commercial Vehicles) & Swaraj

Engines Ltd. (manufacture of Diesel Engines in collaboration with Kirloskar Ltd and

it has also promoted Swaraj Automotives. The present stake of SWARAJ DIVISION

in these is 14% in Swaraj Mazda, 33% in Swaraj Engines and 24% in Swaraj

Automotives.

MISSION, VISION & OBJECTIVES

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OBJECTIVES OF SWARAJ

1) QUALITY a. Continually improves satisfaction level of our customers.

b. Continually improve performance & reliability of our

products & services

c. Provide to you delivery of products & services to meet

customers requirements.

d. To reduce the break down of equipment.

2) ENVIRONMENT, HEALTH AND SAFETY .a. Control and reduce emission & discharge in the company

b. Optimum Utilization of natural resources

c. Control & Reduce accidents and provide Safety to the

employees working in the organization.

3) PEOPLE’S EXCELLENCE .a. Continually improve Education and Training to employees

and their overall development.

SWARAJ DIVISION: BRAND NAME ‘SWARAJ’

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The word SWARAJ in Indian language means ‘freedom from bondage’. Since

SWARAJ DIVISION was the first large scale project in India based totally on Indian

know how and technology, Swaraj was appropriately chosen as its brand name. With

more than 5 Lac tractors and harvest combines operating in Indian farms, now Swaraj

is also an internationally recognized name in the developing world Viz. East Africa,

West Africa, Middle East and South East Asia, etc.

SWARAJ - STAGES OF GROWTH

PERIOD (1970-74)

This project for manufacture of 5000 tractors per year was set up at an outlay

of Rs. 3.70 crores during November 1972- March 1974. The engineers for Swaraj

tractors were procured from M/s Kirloskar Oil Engines Ltd., a pioneer in Indian

Engineering Industry. SWARAJ DIVISION went into commercial production with

the introduction of its first Model Swaraj 724 in April 1974.

PERIOD (1974-78)

In 1974 competitive market conditions prevailing where well known

international brands such as Ford, Massey, Ferguson, etc were available, it was

difficult to establish a new tractor. Thus to establish Swaraj against this severe

competition, the following strategy was adopted.

Intensive and close marketing.

District - wise distribution.

Limited introduction and slow extension of distribution network.

SWARAJ DIVISION’s own serving group.

Strict uniformity of product performance and quality.

SWARAJ DIVISION’s first launch SWARAJ 724 received quite favorable response

and encouraged by this response and also by taking into account the preference of

large segments of farmers for higher HP tractor, development work on a 35 HP tractor

was started in January 1975. SWARAJ DIVISION introduced its second model

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SWARAJ 735 in November 1975 which is now the most popular tractor. Then a low

cost tractor SWARAJ 720 was introduced in 1978 for small farmers.

1. THE EXPANSIONS (1978-82)

SWARAJ DIVISION started growing and increased its production capacity to 12,000

tractors at a capital outlay of Rs. 9.2 crores. During this time SWARAJ DIVISION

became multi-divisional by installing Swaraj Foundry Division for manufacturing

castings. This division started supplying casting to SWARAJ DIVISION in 1980. In

1983, SWARAJ DIVISION introduced SWARAJ 855 and became the first

manufacturing organization to have the widest product range.

2. BREAK PERIOD (1982-86)

With encouraging past records PTL decided to increase its production to 24000 per

annum. But the RBI’s credit squeeze policy affected the tractor industry, as more than

95% of the tractor sales are through banks. SWARAJ DIVISION’s sale dipped from

10000 tractors to around 5500 tractors in 1982-83. During 1982-86, SWARAJ

DIVISION’s efforts were directed towards training its work force, reducing wastage,

cutting down scrap, inventory control, up gradation of quality, expanding dealer

network in new areas and widening product variants. Thus SWARAJ DIVISION

worked on ‘man’ rather than ‘machines’

STAGE OF GROWTH SINCE 1987.

There is goodwill create in the mind of the people regarding brand SWARAJ, market

since 1987 has been showing growth trend. The demand for Swaraj has increased

tremendously. Now consumers are ready to wait and pay the entire amount in advance

to buy a Swaraj tractor rather than buying any other tractor. Production capacity had

increased presently to 33000 tractors per year and will further increase to 36000

tractors per year by 2000.

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THE DECADE OF NINETIES

The decade of 90’s has been a rewarding one for all the constituents of Swaraj

enterprise - through generation of wealth for its customers, its business associates, its

employees, its shareholders and the society.

Nomination by the Economic Times - ‘best company of the year

1998’.

Listed by FII in ‘the jewels of Asia’ category 1999.

Nomination of UTI institute of Capital Markets for excellence in

corporate governance.

Listed by Hong Kong based ‘Asia Money’ among top 5 best

managed companies in India 1999.

Listed by “Business Today’ among top 3 Economics value

generators in India.

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Evolving Journey of SWARAJ DIVISION

1965 Govt. of India's research institute (CMERI) at Durgapur initiates design and development of SWARAJ tractor based on indigenous know-how.

1970 Punjab Govt. through PSIDC acquires SWARAJ tractor's design from CMERI and establishes Punjab Tractors Ltd. (SWARAJ DIVISION) for its commercialization.

1971-73

SWARAJ DIVISION sets up SWARAJ Project for 5,000 tractors per annum at a capital outlay of Rs. 37.0 million with an equity base of Rs 11.0 million.

1974 Swaraj 724 (26.5 HP) tractor commercially introduced.1975 2nd tractor model SWARAJ 735(39 HP) developed by own R&D,

commercially introduced. 1978 3rd Tractor model SWARAJ 720 (19.5 HP) developed by own R&D,

commercially introduced.

Maiden equity divided declared. 1980 Guided by social concerns and responsibility, SWARAJ DIVISION takes

over PSIDC's sick scooters unit - Punjab Scooters Ltd. (subsequently renamed as SWARAJ Automotives Ltd.)

India's first Self propelled Harvester Combine - SWARAJ 8100 developed by own R&D, commercially introduced.

SWARAJ Foundry Division set up in Backward area. 1981 Issue of maiden Bonus Shares (2:5), paid-up equity moves to Rs 15.4

million. 1983 4th Tractor Model - SWARAJ 855 (55 HP) developed by own R&D,

commercially introduced.

Expansion of annual capacity to 12,000 tractors per annum at Plant 1.1984 SWARAJ MAZDA Ltd. promoted in technical and financial collaboration

with Mazda Motor Corpn. & Sumitomo Corpn. Japan for manufacture of Light Commercial Vehicles. SWARAJ DIVISION's equity participation is Rs. 30.4 million (29%) and that of Mazda and Sumitomo's Rs. 27.0 million (26%).

1985 SWARAJ Industrial Forklift Trucks developed by own R&D, commercially introduced.

1986 SWARAJ ENGINES Ltd. promoted in technical and financial collaboration with Kirloskar Oil Engines Ltd.(KOEL) for manufacture of diesel engines. SWARAJ DIVISION's equity participation is Rs. 6.9 million (33%) and that of KOEL's Rs 3.6 million (17%).

1989 1st Right Issue (1:1) at a premium of Rs 50/- per share (plus reservation of 200 Shares per employee) paid up equity moves to Rs 31.6 million.

1990 2nd Right Issues (1:2) at a premium of Rs 60/- per share (plus reservation of 200 Shares per employee) paid-up equity moves to Rs 50.6 million.

1992 2nd issue of Bonus Shares (1:1) paid up capital moves to Rs. 101.2 million.1993 Annual tractor capacity expanded to 24,000 per annum at Plant 1.

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1995 Setup of tractor Plant II at Village Chappercheri with annual capacity of 12,000 per annum.

1996 3rd issue of Bonus Shares (1:1), paid up equity moves to Rs. 202.5 million. 1998 Commencement of expansion to 60,000 tractors (30,000 at each plant).

Capital outlay of Rs 1000 million, funded mainly through internal accruals. 1999 5th and 6th tractor models - SWARAJ 733 (34 HP) & SWARAJ 744 (48

HP) developed by own R&D, commercially introduced.

FY 1999's divided @ 250% was corporate India's highest. 2000 Expansion of annual tractor capacity to 60,000 completed.

4th issue of Bonus Shares (2:1) paid up equity moves to Rs 607.6 million.2001 SWARAJ DIVISION won National Championship trophy in competition

organized by All India Management Association (AIMA) for young managers.

Economic times and Boston Consulting Group selects SWARAJ DIVISION as one of the India's finest 10 companies out of Economic times top 500 Companies.

2002 Cumulative tractor sales crosses 5, 00,000. 2003 PSIDC's disinvestment of its entire Equity holding (23.49%) in SWARAJ

DIVISION in favor of CDC Financial Services (Mauritius) Ltd. With this, total holding of CDC & its associates in SWARAJ DIVISION stands at 28.48%.

2004 7th & 8th tractor models - Swaraj 939 (41 HP) & Swarj 834 (34 HP) developed by own R&D, commercially introduced.

2005 SWARAJ DIVISION disinvested 15,73,000 equity shares of Rs. 10/- each of Swaraj Mazda Ltd. (constituting approx. 15% of SML's paid up capital) in favor of Sumitomo Corporation, Japan, a joint venture partner in Swaraj Mazda Ltd. at a total consideration of Rs. 629.2 million

2007 CDC/Actis Group and Burman Family's disinvestment of their Equity holding in SWARAJ DIVISION (43.3%) in favor of Mahindra Group (M&M). M&M made open offer to shareholders for another 20% equity of the Company.Mahindra Group's equity holding in the Company stands at 64.6%Cumulative Tractor Sales cross 600,000.Swaraj Track Type Combine designed and developed by in-house R&D, commercially launched

27

ASSOCIATE UNITS OF SWARAJ DIVISION

1. SWARAJ FOUNDARY DIVISION:

It was established in 1980 at a capital outlay of Rs. 1.80 crores to provide grey iron

castings to SWARAJ DIVISION. Initial production was 5000 MT/year. It is situated

in village Majari in Ropar district. In FY 2007-08, production of castings was 9,600

Metric Tonnes, representing a value of nearly Rs. 50.5 crores.

2. SWARAJ COMBINE DIVISION:

Punjab government requested SWARAJ DIVISION for the development and

manufacture of self propelled Harvester combines to curtail the harvesting season and

save the crops from natural calamities. As a result Swaraj Combine Division was set

up in 1980 at Chappercheri to produce 250 combines per annum at an initial

investment of Rs. 2.65 crores. In 1981, first SWARAJ 8100 rolled out. In 1985,

production of diesel fork lift also started in collaboration with KOMATSU Fork- Lift

Company of Japan. Over last 28 years, the company has sold nearly 3,150 combines

including 65 in 2007-08.

SWARAJ DIVISION

PLANT- 1PLANT – 2

PLANT -3

28

EQUITY SHAREHOLDING PATTERN

AS ON 31st March, 2008

Share holding Pattern as on 31 st March, 2008. SWARAJ

Mahindra group 64.64%

Financial institutions 0.09%

Mutual funds 2.37%

F.I.I 0.44%

Insurance Companies 22.65%

Public & others 9.81%

Investment Pattern (Utilization of Idle Funds)

29

Generally idle cash is invested in the shares and the debentures of subsidiaries

to achieve twin objective of profit & control. By investing money in the shares of

their subsidiary companies, manufacturers become able to exercise control on these

units. These investments are held for a period of time greater than one year and are

shown in the balance sheet at their original costs. Various investments made by

SWARAJ DIVISION are produced in the following lines

5 Yearly Investment Pattern of SWARAJ DIVISION. (Rs. In Lacs)

Year Investment in Group Companies

Outside Investment(IDBI + Mutual Funds)

2004 378.98 228.44 + 477.50

2005 378.98 228.44 + 477.50

2006 221.68 228.44 + 477.50

2007 221.68 221.36 + 0

2008 221.68 228.44 + 14998.21

KEY PERFORMANCE INDICATORS

30

FOR LAST EIGTH YEARS (Rs. Crores)

 2000-01

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

Market Share 18.1% 18.4% 14.1% 13.5% 12.3% 10.8% 8.6% 8.1%

Rank 2 2 3 2 4 4 5 5

Net Product Revenue 964.5 888.2 546.8 597.3 855.1 959.5 958.9 969.6

Operating Profit 186.0 169.4 89.3 75.6 113.9 126.1 110.6 97.0

Margin 19.3% 19.1% 16.3% 12.7% 13.3% 13.1% 11.5% 10.0%

Net Interest (0.1) 11.9 14.3 9.8 5.8 6.4 0.9 (14.6)

Cash Profit 186.1 157.5 75.0 65.8 108.1 119.7 109.7 111.6

Margin 19.3% 17.7% 13.7% 11.0% 12.6% 12.5% 11.4% 11.5%

Depreciation                     

– Fixed Assets 17.0 17.7 17.1 16.4 15.9 15.2 15.5 16.9

– Trade Invest 3.1 0.2  —   —  —  —

PBT – Mainline 166.0 139.6 57.9 49.4 92.2 104.5 94.2 94.7

Margin 17.2 15.7% 10.6% 8.3% 10.8% 10.9% 9.8% 9.8%

Other Income 2.0 3.9 4.3 6.0 5.0 4.6 4.3 2.4

PBT – Corporate 168.0 143.5 62.2 55.4 97.2 109.1 98.5 97.1

Margin 17.4 16.1% 11.3% 9.2% 11.3% 11.3% 10.2% 10.0%

PBT – Total 168.0 143.5 62.2 55.4 97.2 170.4 109.5 97.1

PAT 112.5 100.0 43.1 42.0 62.9 129.3 78.0 65.2

Dividend                                          

– Rate 75%*  70% 30% 45% 55% 105%# Nil 50%

–Outflow 45.6 42.5 18.2 27.3 33.4 63.8 Nil 30.4

– Payout Ratio 40.5% 42.5% 42.3% 65.0% 53.1% 49.3% Nil 46.6%

Retained Earnings 62.3 57.5 22.6 11.2 24.7 56.6 78.0 29.6

EPS (Rs.) 18.52* 16.46 7.10 6.92 10.35 21.29 12.84 10.73

Book Value (Rs.) 71.49* 74.72 78.43 80.27 84.34 93.66 106.49 109.43

Return on Avg Net worth (ROANW)

27.9% 22.5% 9.3% 8.7% 12.6% 23.9% 12.8% 9.9%

UNAUDITED FINANCIAL RESULTS (PROVISIONAL)

FOR THE FIRST QUARTERENDED 30TH JUNE, 2008

31

In Crores Un-audited Audited

  Quarter Ended Year Ended

  30.06.2008 30.06.2007 31.03.2008       Net Sales / Income form Operations 314.10 173.90 969.59

Other Income 2.60 - 2.39

Total Income 316.70 173.90 971.98       

Expenditure      a) (Increase) / Decrease in Stock in Trade and W.I.P. (2.20) 9.40 (2.82)b) Consumption of Raw Materials  228.20 111.90 675.64

c) Purchase of Traded Goods 1.40 2.10 7.82

d) Employees Cost 33.20 25.10 107.99

e) Depreciation 4.40 4.10 16.92

f) Other Expenditure 25.00 18.90 83.90

Total Expenditure 290.00 171.50 889.45       

Profit Before Interest & Tax 26.70 2.40 82.53       

Net Interest (5.30) (2.00) (14.58)       

Profit Before Tax  32.00 4.40 97.11       

Tax Expenses  - Current 10.50 1.60 36.03

                         - Fringe Benefit 0.26 0.23 1.18

                         - Deferred (1.20) (0.73) (5.27)

                         - Total 9.56 1.10 31.94       

Profit After Tax 22.44 3.30 65.17

              Paid-up Equity Share Capital (Face Value Rs.10/-) 60.76 60.76 60.76Reserves (excluding Revaluation Reserves) -- -- 604.08              Basic / Diluted Earning Per Share (not annualized) Rs. 3.69 Rs. 0.54 Rs. 10.73       

32

Public Shareholding      

  -  Number of Shares 2,14,85,535 6,07,55,700 2,14,85,535

  -  Percentage of Shareholding 35.4% 100.0% 35.4%

Key Financials of SWARAJ DIVISION (Rs. In Lacs)

Particulars 2004 2005 2006 2007 2008Share capital

6076

6076

6076

6076

6076

Reserve & Surplus

42695 45167 50827 58624

60408

Sales 59735 85510 95855 95885 96959

Net Profit 4202 6290 12935 7798 6517

EPS 6.92 10.35 21.29 12.84 10.73

Dividend 45% 55% 105% Nil 50%

R & D expenditure (%) of sales

1.46 0.73 0.79 0.89 0.96

33

SWOT ANALYSIS

STRENGTHS: The company has an excellent distribution network.

Due to strong consumer preference and the potential for expansion, the industry in

bound to record growth.

The company mainly has medium horse power tractor in its product portfolio, which

holds a good growth potential thereby leading to an increase in the market share.

Strong Research and development set up.

Being a cash rich company, SWARAJ DIVISION should have no obstacle for further

expansions.

WEAKNESSES: Being agro-based product, company’s fortune depends on the

vagaries of the monsoon.

The company is addressing this problem by going in for capacity expansion and

increasing dealer network.

The company has not leveraged its brand and product varies in the exports market.

Major market share in Punjab & Haryana could stagnate as the market mature.

OPPORTUNITIES: The Company will have the advantage to synergize with M &

M, Farm Equipment Sector in the areas of sourcing, manufacturing, product

development and distribution.

Increased agri-focus of the Indian Government.

Good brand name, product quality and cost advantage to increase exports in low value

markets of Sri Lanka, Bangladesh and African countries.

THREATS: The entry of international and new domestic players would intensify

competition significantly. This could put pressure on the sale growth and the merging

of the company.

Number of technically superior new models likely to be launched in the market in the

next two years.

The evitable increase in petroleum prices including diesel & other inputs, will

naturally bring down the spirit of a prospective tractor purchasers.

34

Chapter-III

OBJECTIVES OF THE STUDY

1) To study the various components of financial statements of SWARAJ

DIVISION for 5 years and analyze them to identify the financial strength of

the company.

2) To analyze the effect of current assets on the company’s return.

3) To study the effect of current assets and current liabilities on the profitability

position of the company.

4) To analyze the working capital position of the company in previous 4 years.

5) To analyze the market performance of the SWARAJ DIVISION.

6) To help the management in financial planning of the organization.

7) To suggest remedial measures for the improvement of the company’s

performance

RESEARCH METHODOLOGY

The basic task of research is to generate accurate information for use in decision

making. Research can be defined as the systematic and objective process of gathering,

recording and analyzing data for aid in making business decisions.

As the project involves analyzing of financial structure, the research is exploratory in

nature, covering financial parameters and come of the important ratios to carry out

research.

There are basically two techniques adopted for obtaining information:

Primary Data.

Secondary Data.

Primary Data is gathered specifically for the project at hand through personal

interviews with the accounts officers.

35

Secondary data is previously collected and assembled for some project other

than the one at hand. It is gathered and recorded by someone else prior to current

needs of the researcher. It is less expensive than the primary date.

Secondary data can be obtained from both external and internal sources.

External data may be collected from books and periodicals, government sources,

media and other commercial sources.

Internal data is that secondary data, which is created, recorded or generated by the

organization.

Secondary data is collected from the reports of the company, books, journals and

internet. Secondary data is gathered from annual reports, official records and standing

orders of the units.

RESEARCH PROCES

36

Step1:Program Planning

Step1:Program Planning

Step 6:

Consultation & review

Step 6:

Consultation & review

Step 2:

Start Survey

Step 2:

Start Survey

Step 3: Survey Development

Step 3: Survey Development

Step 4: Data Analysis

Step 4: Data Analysis

Step 5: Reporting

Step 5: Reporting

ResearchMethodologyResearchMethodology

WORKING OF SWARAJ DIVISION(FINANCE PROCESS)

37

Procurement of raw materialMRR- Material

Total sale = Number of units sold x MRP value

Store requirements- receipt of MRS – Material requisition slip

BOM- Bill Of Material is made by finance department

INSPECTION OF GOODS & FIXATION OF PRICES

Production Process

Total Consumption of R.M = BOM X No. of Tractors

PAYMENTS FROM PARTIES in Definite Period

W In P FINISHED GOODS

Raw Material

Chapter –IVRESEARCH TOPIC - FINANCIAL STATEMENT ANALYSIS OF SWARAJ

FINANCIAL STATEMENTS ANALYSIS

A financial statement is a systematic collection of data according to some logical and

consistent accounting procedures. Its purpose is to convey an idea about some

important financial aspects of a business firm. It may show a position at a moment of

time as in the case of the balance sheet, or may reveal a series of activities over a

given period of time as in the case of income statement.

The information contained in these financial statements is used by various interested

parties like management, creditors, investors, government and others to form

judgment about the operative performance and financial position of the firm. The

users of financial statements can get better insight about financial strengths and

weaknesses of the firm if they properly analyze the information given in these

statements.

The process of identifying the financial strengths and weaknesses of the firm by

properly establishing relationship between the items of balance sheet and profit and

loss account is called financial analysis. Such analysis is the starting point for making

effective plans. Forecasting, which is an important pre-requisite of effective planning,

requires understanding of the past to anticipate the future. Financial data can be used

to analyze a firm’s past performance and assess its present financial strength. The

nature of analysis will differ depending upon the purpose of the analyst. The present

analysis is undertaken to evaluate performance of SWARAJ.

We need some tools to evaluate or analysis the financial statements of the SWARAJ

Tools of Financial Statement Analysis

Following are the major tools which can be used to analyze a firm’s financial

position.

Financial statements.

38

Trend Analysis.

Funds and cash flow analysis.

Ratio analysis.

In the present study a combination of these tools has been used.

Types of Financial Analysis

There are some of the methods which can be adopted by an analyst to comment upon

the performance of a particular unit in comparison with its competitors or over a given

period of time. These are:

Time Series Analysis

The most common way to evaluate the performance of a firm is to compare its current

position with its past position. When financial position over a period of time is

compared, it is known as the tike series (or trend) analysis. It gives an indication of

the direction of the change and reflects whether the firm’s financial performance has

improved, deteriorated or remained constant over a period of time. The analyst should

first determine the change, and then he should try to find out the reasons for the

change. The change, for example, may be affected by mere changes in the accounting

policies, without a material change in the firm’s performance.

1. Profitability analysis.

2. Working capital management.

3. Capital structure analysis.

4. Market performance.

5. Investment pattern.

39

PROFITABILITY ANALYSIS

Profit is the ultimate output of a company and the company will have no future

if it fails to make adequate profits. P.F. Ducker has rightly commented on importance

of profitability of a concern for its survival when he writes,” profits is a condition of

survival. It is the cost of future. It is the cost of staying in the business.” If an

undertaking does not earn profit it cannot expand or diversify, it cannot pay handsome

rewards to various factors of production and it is doomed to fail at last. In fact, profit

is a yardstick by which efficiency of a business unit is measured. The higher the

profit, the more efficient is the business considered. Though changes in total profits

may indicate changes in efficiency, they will not indicate true state of efficiency of a

business or profitability unless profits are related with the size of investment.

Therefore overall efficiency of the business can be measured in terms of profits

related to investments made in the business. The profitability is also evaluated in

terms of return on capital contributed by creditors and owners because if the company

is unable to earn a satisfactory return on investment, its very survival is threatened. To

comment on the overall financial performance of SWARAJ DIVISION, following

two important profitability ratios are calculated.

Profits in relation to sales.

Profits in relation to investments.

Relevant financial information which has been used for conducting profitability

analysis is as follows:

Profitability in relation to sales

A company should be able to produce adequate profit on each rupee of its sales. If

sales do not generate sufficient profits, it would be very difficult for the firm to cover

operating expenses and interest charges. To measure the profitability in relation to

sales, following ratios are calculated.

Gross Profit Ratio

Operating Ratio

40

Operating profit Ratio

Expenses Ratio

Net Profit Ratio

Cash Profit Ratio

Gross Profit Ratio:

This ratio measures the relationship of gross profit to

net sales. It reflects the efficiency with which a firm produces its products. So as

higher the gross profit ratio better the result.

Gross Profit ratio= Gross Profit * 100 Net Sales

In croresParticular 2004 2005 2006 2007 2008Gross Profit 81.6 118.9 130.7 114.9 99.4Net Sales 597.35 855.10 958.55 958.85 969.59G.P. Ratio 13.7% 13.9% 13.6% 11.9% 10.3%

G/P Ratio of the company is decreasing from 2004 to 2008 which is due to increasing

input costs. But it is quite good i.e. 10.3% with the increasing inflation.

41

Operating Ratio:

This ratio establishes the relationship between cost of goods sold and other operating

expenses on the one hand and sales on the other hand. In other words, it measures the

cost of operations per rupee of sales.

Operating Ratio= Operating cost * 100

Net Sales in crores

Particular 2004 2005 2006 2007 2008Operating Cost 521.5 741.4 833 848.6 872.6Net Sales 597.35 855.10 958.55 958.85 969.59Operating Cost Ratio 87.3% 86.7% 86.9% 88.5% 90.0%

42

Operating ratio

Operating ratio: Operating ratio indicates the percentage of net sales that is

consumed by operating cost. Higher the operating ratio, the less favorable it is,

because, it would have a small margin to cover interest, income tax, dividend and

reserves. There is no rule of thumb for this ratio as it may differ from firm to firm

depending upon the nature of its business and its capital structure. However, 75 to 85

percent may be considered to be good ratio in case of manufacturing undertaking. So

from the analysis of operating ratio of the company SWARAJ DIVISION, in every

FY from 2004 to 2008 the operating ratio is increasing and in the current year it

increases up to 90% shows only 10% margin left for other charges. It should increase

its operating efficiency.

Operating Profit Ratio:

This ratio is calculated by dividing operating profit by sales.

Operating Profit Ratio= Operating profit * 100

Sales

This ratio can also be calculated as:

Operating Profit Ratio= 100 - Operating Ratio

Operating Profit Ratio of SWARAJ DIVISION

Particular 2004 2005 2006 2007 2008

43

Operating Profit Ratio

12.7% 13.3% 13.1% 11.5% 10.0%

Net Profit Ratio:

This ratio establishes a relationship between net profit

and sales and indicates management’s efficiency in manufacturing and selling the

products. It is the overall measure of a firm’s ability to turn each rupee of sales into

net profit. This ratio also indicates the firm’s capacity to withstand in adverse

economic conditions. The following table shows the net profit margin ratio of

SWARAJ DIVISION.

Net Profit Ratio= Net profit after tax * 100 Net Sales

in croresParticulars 2004 2005 2006 2007 2008Net Profit 42.0 62.9 129.3 78.0 65.2

Sales 597.35 855.10 958.55 958.85 969.59N. P. Ratio 7.03% 7.36% 13.49% 8.13% 6.72%

44

Cash Profit Ratio:

This ratio measures the relationship between cash generated from operations and the

net sales.

Cash Profit Ratio= Cash Profit * 100

Net Sales in crores

Particular 2004 2005 2006 2007 2008Cash profit

65.8 108.1 119.7 109.7 111.6

Net Sales 597.35 855.10 958.55 958.85 969.59C. P.Ratio 11.0% 12.6% 12.5% 11.4% 11.5%

45

ANALYSIS OF PROFITABILITY OF SWARAJ DIVISION

SWARAJ DIVISION has been able to maintain a soundly profitable position through

its focus on continuous improvement and capital efficiency. In profit there are little

fluctuations from the FY 2004 to 2008. However unprecedented stretch of poor

monsoons resulted into broad spectrum of depressed market environment of the whole

tractor industry. Clearly profitability of SWARAJ DIVISION’s has shown continuous

and steadiest growth. It is the result of notable improvement in both volume and

model mix in tractors underpinned by its traditional cost efficiencies.

Cost Break Down of SWARAJ DIVISION:

The raw material constitutes the major portion of the total expenditure in SWARAJ

DIVISION. It revolves around 79% of total expenditure as is given from the table

given below:

Cost Breakdown of SWARAJ DIVISION (%age of Total Expenditure)

Particulars 2004 2005 2006 2007 2008Material Consumption 72.64 81.72 82.33 79.54 78.97

Finance Charges 1.80 0.76 0.75 0.11 (1.66)

Depreciation 3.00 2.09 1.78 1.79 1.93Operating & Adm. Exp. 22.56 15.43 15.14 18.56 20.76

46

PROFITABILITY IN RELATION TO INVESTMENTS

The profitability of the firm is also measured in relation to its investment. The

term investment may refer to capital employed in the business or the owner’s equity.

Accordingly, return on capital employed (ROCE) and return on Shareholders equity

(ROSE) are calculated to give a broad idea about the overall return on the funds

invested in the business.

Return on capital employed (ROCE) is the best tool which is used by the owners to

know how well the management has used the funds supplied by them and other

parties. A higher ratio will satisfy the owners that their funds earn a handsome return.

To get a true idea about the operating efficiency of a firm ROCE is calculated for a

number of years and the firm’s ratio should be compared with industry average.

ROCE is calculated by dividing net profit after tax and interest by total capital

employed i.e.

ROCE = Net Profit after Tax and Interest

Capital Employed

(Here capital employed = Fixed Assets + Trade Investments + Current Assets –

Current liabilities)

ROCE of SWARAJ DIVISION (Rs. In Lacs)

Particulars 2004 2005 2006 2007 2008

Net Profit 5536.23 9717.12 17045.40 7798.23 6516.87

Net Capital

Employed

54763.42 58374.06 61061.61 68372.17 68394.68

ROCE 10.11% 16.64% 27.91% 11.41% 9.53%

47

On seeing the return on capital employed of SWARAJ DIVISION, it will be found

that up to the year 2004 it shows a decreasing trend in its ROCE. This is due to severe

demand down- turn arousing from weakening farm fundamentals across major

markets. But the FY 2005-06 recorded the higher ROCE as 27.9% in comparisons of

last four years this is due to increase in net profit of the firm. But in the current and

last year it again decreases.

Return on Equity Analysis:

ROE is the relationship between net profits (after interest

and taxes) and the proprietors’ funds. As the primary objective of business is to

maximize its earnings, this ratio indicates the extent to which this primary objective of

business is being achieved. This ratio is of great importance to the present and

prospective shareholders as well as the management of the company. As this ratio

reveals how well the resources of the firm are being used, higher the ratio, better the

results.

5 Yearly Trends of ROE of SWARAJ DIVISION (Rs. In Lacs)

Particulars 2004 2005 2006 2007 2008

Shareholders

Funds

48761.60 51242.05 56901.65 64699.88 66483.51

Net Profit after

tax

4202.41 6289.68 12933.66 7798.23 6516.87

ROE 8.62% 12.27% 22.72% 12.05% 9.80%

.

48

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

2004 2005 2006 2007 2008

ROE

As the table depicts, SWARAJ DIVISION s’ ROE (Net Worth) in FY 2005-06 is

highest amongst the other financial years which is 22.72% in 2006. Thus SWARAJ

DIVISION is very attractive company for the purpose of investment with lesser risk

of dilution of equity as well as lesser risk due to less debt equity ratio. But it further

decreases in the FY 2007-08 due to input costs inflation.

WORKING CAPITAL MANAGEMENT

Problems that arise in attempting to manage the current assets, the current

liabilities and the interrelationship that exists between them can be managed by

managing the working capital. The basic goal of working capital management is to

manage the current assets and current liabilities of a firm in such a way that a

satisfactory level of working capital is maintained, i.e. it is neither inadequate nor

excessive. This is so because both inadequate as well as excessive working capital

implies idle funds which earns no profit for the business and inadequacy of working

capital may lead the firm to insolvency. Working capital refers to the excess of

current assets over current liabilities. Working capital management policies of a firm

have great effect on its profitability, liquidity and structural health. A sound working

capital management policy is one which ensures lowest cost, adequate liquidity and

sound structural health of the organization.

Nature of Working Capital Requirements

The working capital requirements of a concern can be classified as:

1.) Permanent or fixed or regular working capital requirements.

49

2.) Temporary or variable working capital requirements.

Permanent working capital is that minimum amount which should always be needed

to carry the business operations without interruption and it is financed from the fixed

capital sources. Temporary working capital is that amount which is required for the

seasonal demands and some special exigencies such as rise in prices, strikes,

extensive advertisement to capture more markets, etc. It should be financed from short

term sources of capital.

FINANCING LONG TERM WORKING CAPITAL

1. Shares 2. Debentures 3. Public deposits4. Retained Earnings5. Loans from Financial institutions

Temporary/Variable working capital is financed through:

1. Commercial Banks2. Trade Credit3. Advances4. Commercial Papers

In a nutshell, working capital is the life blood and controlling nerve centre of the

business. No business can be successfully run without an adequate amount of working

capital.

To comment upon the working capital management in

SWARAJ, the technique of ratio analysis is adopted.

The following ratios have been calculated for the said purpose.

1) Current ratio.

2) Comparative debtors’ analysis.

3) Working capital turnover ratio.

4) Inventory Turnover analysis.

5) Creditor’s turnover.

50

Current Ratio:

The current ratio is an indicator of a firm’s short term solvency. A firm, to survive on

a continuing basis, should maintain sufficient liquidity. As a rule of thumb, 2:1 is

considered to be an ideal current ratio. The idea of having double the current assets as

to current liabilities is to provide a cushion against possible losses and to ensure a

smooth day to day functioning of the firm. There is, however, nothing very sacrosanct

about the 2:1 ratio. What is more important is the quality of current assets, how fast

and to what extent can they be converted into cash.

5 Yearly Trend of Current Ratio of SWARAJ DIVISION

Years Current Assets Current

Liabilities

Ratio

2004 63484.12 18953.99 3.35:1times

2005 67392.42 21431.92 3.14:1times

2006 66579.18 16565.46 4.02:1times

2007 72458.42 13940.70 5.19:1times

2008 62323.63 18433.35 3.38:1times

The above table indicates that there are also fluctuations in the current ratio of

SWARAJ DIVISION. In FY 2004 it was 3.39:1 and then increases to 5.20:1 in FY

2007 and in FY 2008 it further decreases to 3.38:1. The reason of increment in the

current ratio because decrease in current liabilities and increase in current assets in the

FY 2007. In all the years it is above than the standard 2:1.

51

Debtors/Receivables Turnover Ratio:

Debtor’s turnover ratio indicates the velocity of debt collection of firm. In simple

words, it indicates the number of times the average debtors are turned over during a

year.

Debtors Turnover Ratio = Total sales

Debtors

Avg. collection period = No. of Months

D.T.R

5 Yearly Trend of Debtor Turnover Ratio of SWARAJ DIVISION

Years Sales Debtors D.T.R Collection

Period (months)

2004 59734 52126 1.15 10.43

2005 85510 53815 1.59 7.55

2006 95855 52776 1.82 6.61

2007 95885 50364 1.90 6.32

2008 96959 28135 3.45 3.48

Liquidity position of a company depends upon the quality of its debtors to a great

extent, two ratios i.e. Debtors Turnover Ratio and Average Collection Period are

52

calculated to judge the quality and liquidity of debtors of the company and comment

on efficiency.

A close analysis of this ratio of five years from 2004 to 2008 as given in chart

shows SWARAJ DIVISION has a very low turnover ratio of about 1.15 times in 2004

but it increasing Y-O-Y and it is highest in the current year i.e. 3.45. The reason is,

during the year, SWARAJ DIVISION has made special efforts to reduce dealer

outstanding by focusing attention on increasing retail sales and reducing dealer stocks

and thereby increase in collection from dealers.

Current Assets & Current Liabilities of SWARAJ DIVISION in

Period 2007-08

Current Assets Total %age

Inventories 11379.38 18.26

Sundry Debtors 28135.08 45.14

Cash & Bank 19883.14 31.90

Loans & Advances 2581.83 4.14

Other C. A. 344.20 0.56

TOTAL 62323.63 100

Current Liabilities Total %age

Sundry Creditors 8342.12 72.36

Acceptances 1331.06 11.55

Dividend Payable & other

109.91 0.95

Interest Accrued 54.04 0.47

Other Liabilities 1690.89 14.67

53

TOTAL 11528.02 100

Net Working Capital (C.A. - C.L.)

50795.61

Working Capital Turnover Analysis:

The amount of working capital is

sometimes used as a measure of a firm’s liquidity. It is considered that between the

two firms, the one having the larger amount of working capital has the greater ability

to meet its current obligations. Working capital turnover analysis is, therefore, used to

measure the efficiency with which the firms are using their working capital. For this

purpose, working capital turnover ratio, which indicates the velocity of the utilization

of net working capital, is worked out.

Net Working Capital of SWARAJ DIVISION (Rs. In Lacs)

Year Current Assets Current Liabilities Net Working Capital

2004 63484.12 15116.14 48367.98

2005 67392.42 16401.24 50991.18

2006 66579.18 11054.69 55524.49

2007 72458.42 13940.70 58517.72

2008 62323.63 18433.35 43890.28

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Working Capital Turnover Ratio of SWARAJ DIVISION

Years Sales Net W. C. W.C. Turnover Ratio

2004 59735 48367.98 1.24:1

2005 85510 50991.18 1.68:1

2006 95855 55524.49 1.73:1

2007 95885 58517.72 1.64:1

2008 96958 43890.28 2.21:1

An analysis of this table shows there is slight variation of the ratio from 2004 to 2007.

But it is quite high in 2008 in respect to other years. This no doubt indicates the

maximum use of working capital or quick turnover of current assets due to handsome

sales of its main products (tractors). To ensure maximum profitability, working

capital has to be managed skillfully to avoid situation of both, under and over trading.

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Inventory Turnover Analysis:

Every firm has to maintain a certain level of inventory of finished products so as to be

able to meet the requirements of the business and ensure an uninterrupted production.

Inventory turnover ratio which is calculated by dividing sales by average inventory

indicates the number of times the stock has been turned over during the year. It also

evaluates the efficiency with which a firm is able to manage its inventory. A lower

inventory turnover is an indicator of higher efficiency in managing the inventory.

Inventory Turnover of SWARAJ DIVISION in 5

Years

Particulars 2004 2005 2006 2007 2008

Sales 59735 85510 95855 95885 96958

Inventory 8784.60 11194.10 8816.04 13426.61 11379.38

I. Turnover Ratio

6.80 7.64 10.87 7.14 8.52

The above table shows SWARAJ DIVISION has the moderate inventory ratio during

this period. This indicates that the company has a good inventory management. In FY

2004 there is lowest inventory turnover. This is due to excessive inventory level than

required by its production and sales activities. The inventory turnover ratio should be

moderate because we can’t blindly accept very high inventory turnover ratio as

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indicative of efficient inventory management as it may be due to very low levels of

inventory which generally results into frequent stock outs. And frequent stock outs

may hamper production activities and may ultimately affect profits.

Creditors Turnover Analysis:

The analysis of creditor’s turnover is basically the same as of debtor’s

turnover ratio except that in place of trade debtors, the trades creditors are taken as

one of the components of the ratio and in place of average daily sales, average daily

purchases are taken as the other component of the ratio. It can be calculated as:

Creditors Turnover Ratio = Net Credit Annual Purchases Average Trade Creditors

Average Payment Period Ratio = Average Trade Creditors

Average Daily Purchases

Creditors Turnover Analysis of SWARAJ DIVISION in 5

Years

Year Purchases Sundry Creditors

Creditors Turnover

Payment Period (months)

2004 42079 13796 3.05 3.93

2005 64065 14615 4.38 2.74

2006 67384 9443 7.14 1.68

2007 72573 10272 7.06 1.70

2008 66368 8342 7.95 1.51

The average payment period ratio represents the avg. number of days taken

by the firm to pay its creditors. Generally lower the ratio better is the liquidity

position of the firm and higher the ratio less liquid is the position of the firm. From

the analysis, the payment period has been reduced from 3.93 in FY 2004 to 1.51 in

FY 2008 hence we can say SWARAJ DIVISION has better liquidity position.

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CAPITAL STRUCTURE ANALYSIS

Capital structure of a company, is also known as its financial plan, refers to

the composition of long term sources of funds in its total capital. A properly planned

capital structure is most important to maximize the use of various funds and to be able

to adapt more easily to the changing conditions. The analysis of capital structure

shows the debt or equity raising capacity of various companies and the amount of risk

they bear.

Debt equity position of SWARAJ DIVISION:

This ratio indicates the relationship between the external equities or the outsider’s

funds and the internal equities or the shareholders funds. Thus,

Debt Equity Ratio = Outsiders funds

Shareholders funds

The ratio indicates the proportionate claims of owners and the outsiders against the

firm’s assets. As a general rule, there should be an approximate mix of owners’ funds

and outsiders’ funds in financing the firm’s assets. A low debt equity ratio is

considered as favorable from the long term creditors’ point of view because a high

proportion of owner’s funds provide a larger margin of safety to them. A high debt

equity ratio which indicates that the claims of outsiders are greater than those of

owners, may not be considered by creditors because it gives a lesser margin of safety

for them at the time of liquidation of the firm.

Debt Equity Position of SWARAJ DIVISION (Rs. In Lacs)

Year Net Worth Loans Debt Equity Ratio

2004 48770 5990 0.12:1

2005 51242 3938 0.07:1

2006 56902 1298 0.02:1

2007 64700 1074 0.02:1

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2008 66483 404 0.006:1

Here net worth includes share capital and reserve and surplus. Loans include both

secured and unsecured.

SWARAJ DIVISION is the very low debt company with a debt equity ratio 0.006:1 in

the FY 2008 on account of repayment of loan and reducing interest costs. The reserve

and surplus also increased from Rs. 58624 lacs in FY 2007 to Rs. 60408 lacs in FY

2008. In fact, bolstered by the notable improvement in both volume and model mix of

tractors underpinned by SWARAJ DIVISION’s traditional Cost efficiencies and

operations have generated this sizably enhanced surplus.

The lowest debt equity ratio as recorded by SWARAJ DIVISION maintains the

fact that company does not rely on the outside sources for its routine operations rather

it depends on its internal sources. This fact helps the company to win confidence of its

creditors, who, in turn can/will extend liberal credit.

SWARAJ DIVISION is a cash rich company and strong internal cash

generation is expected over the next few years and this will completely cover planned

capital expenditure, and thus reducing the fear of dilution.

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Market Performance

A constant increase in the installed capacity of major players in the tractor

industry is due to the tough competition given by the new entrants in the industry. A

host of new players such as Greaves, Bajaj Tempo, Larsen & Turbo etc., are leaping

in either alone or in collaboration with leading international tractor makers. Thus as

competition hoots up, the existing players are adding capacities, moving into new

segments and new markets and tapping the overseas markets.

TREND ANALYSIS

10 Yearly Sales Trend of SWARAJ DIVISION vs. Industry (1999-

2008) (No. of Tractors)Year No. of Tractors

sold by the Ind.

No. of Tractors

sold by SWARAJ

DIVISION

%age of Sales

1999 2,62,000 48336 18.4%

2000 2,73,000 50705 18.6%

2001 2,53,000 45712 18.5%

2002 2,18,000 40100 18.4%

2003 1,61,000 24200 15.1%

2004 1,89,000 25600 13.5%

2005 2,46,000 30330 12.3%

2006 2,91,000 31396 10.8%

2007 3,15,000 30045 8.6%

2008 3,46,000 28045 8.1%

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Market share:

In the table and graph analysis of last 10 years the market share of SWARAJ

DIVISION up to 2001-02 show an increasing trend. But after this period, its Market

share shows decreasing pattern. In this period SWARAJ DIVISION also reduces the

number of tractors and the total no. of tractors produced by industry also goes down

due to many reasons like reduction in farm’s income, RBI’s credit policy etc.

Financial year 2006-07 sales of tractors showing improvement for company’s models

in the +30 HP range continuous to display strength. After seeing the trend of growth

in various segments, it can be concluded that highest growth recorded by SWARAJ

DIVISION was in 35 HP which accounted for 90% of Swaraj sales in 2003-04.

SWARAJ DIVISION’s share in its range will improve in the near future because of

its Rs. 100 crores expansion plan which has increased its capacity from 36000 to

60000 tractors per annum. On its strength of wide distribution network and proven

competitiveness, SWARAJ DIVISION is the only tractor company with a waiting

period for its product. For SWARAJ DIVISION, marketing was never a problem

rather its capacity constraints to increase its volumes were a problem. As a result of

capacity expansion and strategic move into higher HP tractors, SWARAJ DIVISION

can be expected to maintain higher than industry growth levels. Strong consumer

preference for SWARAJ DIVISION’s tractors is evident from company’s ability to

collect advances. This fact insulates SWARAJ DIVISION from any slow down in the

industry.

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Capacity Utilization and Expansion Activities to Enhance Market Share

In the tractor industry, many new foreign companies are coming with the new liberal

policy of the government. With most of new companies in the tractor market in over

drive, existing players are compelled to quickly move to protect their turf. There is

need for enhancement of production capacities on the part of tractor players to

progressively increase their market share and move into new segments. Almost all the

players have increased their production capacity over the years.

With a host of new companies driving in, market leader M & M has also increased its

production capacity from 57,500 to 85,000 tractors by the end of 1999. Competitors

are meeting competition by stepping into the higher HP segment where as SWARAJ

DIVISION has expand its capacity in all segments. At present its annual installed

capacity is 60,000 tractors.

Big giant SWARAJ DIVISION that will get major benefit because of its pricing

strategy in the light of serving competition from foreign companies. It has planned to

produce 60,000 tractors per annum at the lowest capital cost per tractor (Rs. 34000).

Swaraj has also been focusing on development of overseas markets and is currently

making supplies to African/SAARC countries. A beginning has been made on export

of auto components.

Thus after analyzing the sales as well as production capacities of SWARAJ

DIVISION, it is clear that SWARAJ DIVISION is well established in the market.

Given its strong brand value, SWARAJ DIVISION is expected to increase market

share further in the coming financial years by making inroads into growing markets of

South and West India.

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Chapter-V

CONCLUSIONS & RECOMMENDATIONS

RECOMMENDATIONS

1.) SWARAJ DIVISION should increase its capacity utilization. It should work at

full capacity to minimize its cost of production. With this increase in capacity

utilization, the total cost will spread over more units thereby decreasing per unit cost.

2.) SWARAJ DIVISION must move into higher HP segment to capture more market.

SWARAJ DIVISION’s highest share is in the 35 HP segment (Approximately 19%)

Its contribution to higher HP segment is almost negligible because of which it can not

export its tractors to Africa and Middle East, where there is demand for 70 HP

tractors. It is therefore, suggested that in order to be competitive in the international

market also, SWARAJ DIVISION should reset to manufacturing after cutting out

many of the frills in its lower HP tractors.

3.) SWARAJ should increase the credit facilities provided to its consumers. Earlier, it

was selling its main product i.e. tractor either against advance payments or cash

payments

4.) SWARAJ DIVISION should undertake such activities that can add value to

Society. SWARAJ DIVISION, as a good corporate citizen, should sponsor

programmes related to environment protection, rural uplift-meant and welfare of

general public. It should spend a crunch of its profits on the social activities which

will further improve its image in the society.

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5.) SWARAJ should take advantage of India’s second position in low and medium

HP tractor segment, in which SWARAJ DIVISION is a leader, by exporting its

product to Asian, African and to some extend Latin American Markets.

CONCLUSIONS

On the basis of financial performance of M&M LTD -Swaraj Division made in the

previous chapters, following conclusions are drawn:

General Profile: The plant of SWARAJ DIVISION is ideally located in the Mohali

Focal Point Estate near Chandigarh, the capital of Punjab, on a campus of 17 hectares.

The working environment of the company is very healthy.

Indigenous Technology: SWARAJ DIVISION is the only tractor manufacturing

company based on purely indigenous technology. Swaraj was appropriately chosen as

the brand name as self reliance and building up of Indian Engineering capabilities

Financial structure: SWARAJ DIVISION is a low debt company signifying its

dependence mainly on its internal accruals for its financial requirements. SWARAJ

DIVISION continues to strengthen its financial position by channelising these internal

accruals to fund its expansion programmes.

Working results: SWARAJ DIVISION has registered a handsome and constant

growth in its profits because of a brisk demand for Swaraj Tractors. None of the other

players has shown such a steady growth.

Marketing Performance: SWARAJ DIVISION is ranked at number five so far as its

marketing performance is concerned. While its competitors are meeting competition

by stepping into the higher HP segment, SWARAJ DIVISION has decided to expand

capacities in all segments.

Social Performance: SWARAJ DIVISION’s contribution towards industry and

research and technology has received national recognition. However, it has not

sponsored any programmed or established any educational or medical institution for

the general public or its employees. No housing facility is provided to the employees.

Though SWARAJ DIVISION has not done much for the welfare of the general

public, but still the farmers have a craze for Swaraj tractors mainly due to its

promising quality and reasonable price.

Excellent financial performance exhibited by SWARAJ DIVISION is the result

of an efficient and responsible management which establishes the fact that

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performance of a company depends on the caliber of its managers and not on the

nature of sector to which it belongs.

BIBLIOGRAPHY

# BooksPANDEY I.M. “Financial Management”GUPTA SHASHI K.GUPTASHARMA R.K., “Management Accounting and Business Finance

# Journals C Annual Reports of PUNJAB TRACTORS LTD. (From 2003-2008)

# INTERNET WEB SITES www.swarajenterprise.com www.investorwords.com

Web Pages

http://www.swarajenterprise.com/http://www.swarajenterprise.com/Swaraj Division_index.htmhttp://www.swarajenterprise.com/Swaraj Divisionannualreport.asphttp://www.swarajenterprise.com/Swaraj Division_shareholding.htmhttp://www.swarajenterprise.com/Swaraj Division_enterprise.htmhttp://www.swarajenterprise.com/Swaraj Divisionprofitandloss.asp#plhttp://www.swarajenterprise.com/Results/SWARAJ DIVISION-RESFirstQuarterReport2008.htmwww. indiaautomotive.net

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