Heromotorsfinal Fra

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INTRODUCTION

Hero Motors Ltd. is the world's largest manufacturer of two

wheelers, based in India.

The company was a joint venture between India's Hero

Group and Honda Motor Company, Japan that began in 1984

later in 2011 it turn into Hero Motors Limited.

In 2001, the company achieved the coveted position of

being the largest two-wheeler manufacturing company in India

and the “World No.1” two-wheeler company in terms of unit

volume sales in a calendar year by a single company. Herohas retained that coveted position till date.

Today, every second motorcycle sold in the country is a

Hero Honda bike. Every 30 seconds, someone in India buys

Hero splendor which is India‟s selling motor cycle.



ABOUT HERO MOTORS LTD

VISION:

The HERO story began with a simple vision- the vision of a mobile and

an empowered India, powered by Hero. This vision was driven by

Hero‟s commitment to customer, quality and excellence, and while doing

so, maintaining the highest standard of ethics and social respnsibilities.

Hero believes that the fastest way to turn that dream to reality is by

remaining focused on that vision.

STRATEGY:

Hero key strategy has been driven by innovation in every sphere of

activity- building a robost product portfolio across categories, exploringnew markets, aggresively expanding the network and continuing to

invest inbrand building activities.




Manufacturing:

Hero Honda bikes are manufactured across three globally benchmarked

manufacturing facilities. Two of these are based at Gurgaon and

Dharuhera which are located in the state of Haryana in northern India.

The third and the latest manufacturing plant is based at Haridwar, in thehill state of Uttarakhand.

Technology:

In the 1980s Hero pioneered the introduction of fuel-efficient,

environment friendly four-stroke motorcycles in the country. Today Hero

continues to be technology pioneer. It became the first company tolaunch the Fuel Injection (FI) technology in Indian motorcycles, with the

launch of the Glamour FI in June2006




Products:

Hero product range includes variety of motor cycles that have set the

industry standards across all the market segments. The company

also started manufacturing scooter in2006.Hero offers large no. of

products and caters to wide variety of requirements across allthe segments.

Distribution:

The company's growth in the two wheeler market in India is the result of

an intrinsic ability to increase reach in new geographies and growth

markets. Hero extensive sales and service network now spans closeto 4500 customer touch points. These comprise a mix of authorized

dealerships, Service& Spare Parts outlets, and dealer-appointed outlets

across the country.



Current TrendHero MotoCorp Ltd (HMCL), the world‟s largest two-wheeler

manufacturer, today reported sales of 4,84,217 units of two-wheelers in

the month of July 2012. HMCL had sold 4,91,036 units in the corresponding month last year.

Mr. Anil Dua, Senior Vice-President (Marketing & Sales), Hero MotoCorp

Ltd said, “The two-wheeler industry in the country has been experiencing

sluggish growth for past few months.

We are strengthening our brand and saliency in midst of a challengingenvironment where a patchy monsoon, rising petrol prices and high

interest rates have been affecting retail sales in both rural and urban

markets.

Our brand and models are salient on the current bilateral cricket series

and Olympics. We continue to launch new models, air new campaigns and expand our

network as we look forward to the commencement of the festive season

with cautious optimism.” .



Current Trend :

HMCL recently announced its best-ever turnover (Net Sales & OtherOperating income) of Rs. 6247.28 crores for the first quarter (April-June

2012) of FY‟13.

The company‟s profit before tax for the period stood at Rs 734.88

crore, while profit after tax (PAT) for the period stood at Rs 615.46

crores.

The Company has recorded an EBIDTA margin of 15 per cent. Hero

MotoCorp registered its highest ever quarterly sales of 16,42,292 two-

wheelers in the first quarter this fiscal, fuelled by two consecutive

months of highest-ever monthly sales witnessed by the company in the

months of April (5,51,557) and May (5,56,644).

Hero MotoCorp has strengthened its presence in the deluxe segment

with the launch of its new 125cc motorcycle – Hero “Ignitor ”.

The sporty looking „Ignitor ‟ is loaded with impressive features and is

attractively priced at Rs. 55,900/- for the drum-self-cast variant and Rs

57,900/- for the disc-self-cast variant.



Why Annual Report is important??

One wants to know how well the company is doing , how well it is

upcoming changes projected for the next year, and about the

management staff of the company.

One want to find out whether the company is making more money than

it is spending.

One want to get an idea of management‟s strategic plan for the coming

year.

Shareholders can use the annual report to make important decisions.



What is a Director Report ? Why is it important ?

It is obligatory on the part of the directors to make out and attach to everybalance sheet laid before company in general meeting, a report known as

“directors report”.

The report is intended to report, to all interested stakeholders, the

directors' explanations and interpretations of the profit/loss, the state ofaffairs of the group and any other matters which may be material for the

stakeholders' attention.



Why is Auditor appointed ? What is an Auditor’s report ?

Auditors are appointed to certify whether the financialstatements reflects a true and fair view of an entity or not.

Auditors provide an independent opinion.

The auditor‟s report is a means by which the auditor

communicates the findings of his examination to the readers

of financial statements viz.. Shareholders, creditors, financial

institutions and all others who have a stake in the company or

wish to acquire a stake with the company



ACCOUNTING POLICY:The financial statements of the Company have been prepared in accordance with

the Generally Accepted Accounting Principles in India

The financial statements have been prepared on accrual basis under thehistorical cost convention.

Fixed assets are stated at cost less accumulated depreciation. Cost of acquisition

is inclusive of freight,duties, taxes and other incidental expenses.

Depreciation is charged on a pro-rata basis at the straight line method rates.

Intangible assets, comprising of expenditure on model fee etc, incurred are

amortised on a straight line method over a period of five years.Leasehold land has been amortised over the period of Lease

Current investments are stated at lower of cost and fair value computed category

wise.

Long term investments are stated at cost less provision for permanent diminution,

if any.

Stores and spares and loose tools are stated at cost or under.Raw materials andcomponents, finished goods and work in progress are valued at cost.



ASSETS 2011(in cr.) 2012(in cr.) ABSOLUTE CHANGE(in cr.) % CHANGE

GROSS BLOCK 5,538.46 6,308.26 769.80 13.90LESS: ACC. DEPRECIAT 1,458.18 2,522.75 1064.57 73.01

NET BLOCK 4,080.28 3,785.51 (294.77) (7.22)

CAPITAL WORK-IN-P 125.14 193.95 68.81 54.99

INVESTMENTS 5,128.75 3,964.26 (1164.49) (22.71)

INVENTORIES 524.93 675.57 150.64 28.70

SUNDRY DEBTOR 130.59 272.31 141.72 108.52CASH AT BANK 71.52 76.82 5.30 7.41

LOANS AND ADVANC 783.48 926.99 143.51 18.32

TOAL ASSETS 10,844.69 9,895.41 (949.28) (8.75)

LIABILITIES

SHARE CAPITAL 39.94 39.94 0.00 0.00

RESERVES & SURPLUS 2,916.12 4,249.89 1333.77 45.74

SECURED LOANS 1,458.45 994.85 (463.60) (31.79)

UNSECURED LOANS 32.71 0.00 (32.71) (100.00)

CURRENT LIABILITIES 5,316.40 3,520.66 (1795.74) (33.78)

PROVISIONS 1,081.07 1,090.07 9.00 0.83

TOTAL LIABILI 10,844.69 9,895.41 (949.28) (8.75)

COMPARATIVE BALANCE SHEET ANALYSIS OF HERO MOTOCORP

AS ON 31-MARCH 2011 AND 2012



INTERPRETATION:

Reserves and surpluses increased by Rs. 1333.77 cr. means the profitability of the

company has increased by 45.74% as compared to previous year i.e. 2011.

There is no change in the share capital of the company as because it has not issued

any share.

Secured and unsecured loans have decreased more than the decrease in fixed

assets shows that the company has used a part of current asset i.e. investment. That is

why investment has decreased by Rs.1164.49cr i.e. 22.71% decrease as compared tothe previous year 2011.

There is an increase in liquid assets i.e. cash and debtors over the last year by

108.52% and 7.41% respectively. This shows that the company has improved its

liquidity position.

The company had working capital of Rs. 539.39cr in 2011 and Rs. 1468.30 cr in

2012. It means the working capital has increased by 72.23% and this is an extremely

good improvement in the current financial position of the business.

There is an increase in inventory worth Rs. 150.64cr which can be on account of

accumulation of stock for want of customers, decrease in demand or inadequate sales

promotion efforts.





INTERPRETATION:

There is no change in share capital as because the company had not

issued any share

There is 14.86% decrease in reserves and surpluses in 2011 as

compared to the base year 2010 and an increase of 24.08% in

reserves and surpluses of the company.

Liquid assets and loans and advances showing an increasing trend.

The former increased by 24.23% and 155.26% in 2011 and 2012

respectively. The later increased by 78.69% and 111.42% in 2011 and

2012 respectively.

Current assets showing a decreasing trend. It has decreased by

8.18% and 21.78% in 2011 and 2012 respectively as compared to the

base year 2010.

Current liabilities increased by 34.06% in 2011 and decreased by

11.22% in 2012 as compared to base year 2010.



ASSETS 2011(in cr.) % TOTAL 2012(in cr.) % TOTAL

GROSS BLOCK 5,538.46 51.07 6,308.26 63.75

LESS: ACC. DEPRECIATI 1,458.18 13.45 2,522.75 25.49

NET BLOCK 4,080.28 37.62 3,785.51 38.26

CAPITAL WORK-IN-PRO 125.14 1.15 193.95 1.96

INVESTMENTS 5,128.75 47.29 3,964.26 40.06

INVENTORIES 524.93 4.84 675.57 6.83

SUNDRY DEBTOR 130.59 1.20 272.31 2.75

CASH AT BANK 71.52 0.66 76.82 0.78

LOANS AND ADVANCES 783.48 7.22 926.99 9.37

TOAL ASSETS 10844.69 100.00 9895.41 100.00

LIABILITIES

SHARE CAPITAL 39.94 0.37 39.94 0.40

RESERVES & SURPLUS 2,916.12 26.89 4,249.89 42.95

SECURED LOANS 1,458.45 13.45 994.85 10.05

UNSECURED LOANS 32.71 0.30 0.00 0.00

CURRENT LIABILITIES 5,316.40 49.02 3,520.66 35.58

PROVISIONS 1,081.07 9.97 1,090.07 11.02

TOTAL LIABILITI 10844.69 100.00 9895.41 100.00

COMMON-SIZE BALANCE SHEET ANALYSIS OF HERO

MOTOCORP

AS ON 31-MARCH 2011 AND 2012



INTERPRETATION:The company‟s working capital has improved immensely. In 2011 current assets

were more than current liability by 4.97% and this year it is 14.84%. This shows

how efficient the company is in managing its working capital

RATIO ANALYSIS AND ITS COMPARISION WITH BAJAJ AUTO

LIQUIDITY RATIO 1.CURRENT RATIO = CURRENT ASSETS /CURRENT LIABILITIESCURRENT ASSETS = WORK IN PROGRESS + INVENTORIES + SUNDRY DEBTORS +

CASH AT BANK

CURRENT RATIO, 2010 = (48.14+436.40+108.39+1,907.21)/ 3,965.69 = 0.63

CURRENT RATIO, 2011 = (125.14+524.93+130.59+71.52)/ 5,316.40 = 0.16

CURRENT RATIO, 2012 = (193.95+675.57+272.31+76.82)/ 3,520.66 = 0.34

INTERPRETATION: - Current ratio of all the 3 years are below the bench mark i.e. 2 which

indicates that the liquidity position of the company is not good and the firm shall not be able to

pay its current liabilities in time without facing difficulties.

Bajaj Auto has a current ratio of 0.88 in 2012 as against Hero Motocorp’s 0.34. It means

the liquidity of Bajaj Auto is more as compared to Hero Motocrop.



LIQUID RATIO = LIQUID ASSETS/LIQUID LIABILITIES

LIQUIDITY RATIO: LIQUID ASSETS = CURRENT ASSETS – INVENTORIES

LIQUID RATIO, 2010 =( 2500.14-436.40)/ 3965.69 = 0.52

LIQUID RATIO, 2011 = (852.18 - 524.93)/ 5,316.40 = 0.06

LIQUID RATIO, 2012 = (1,218.65 - 675.57)/3,520.66 = 0.15

INTERPRETATION : - The bench mark for liquid ratio is 1. But the

company has liquid ratio below 1 which indicates that the company is too

much relies too much on inventory or other assets to pay its short-term

liabilities.

Bajaj Auto has a liquid ratio of 0.72 as against Hero Motocrop‟s

0.15 in 2012. Though both the company has to depend too much on

inventory or other assets to pay its short-term liabilities still Bajaj Auto has

the upper hand as compared to Hero Motocrop



SOLVENCY RATIO:

DEBT EQUITY RATIO = OUTSIDER‟S FUND/SHARE HOLDER‟SFUND

SHARE HOLDER‟S FUND = SHARE CAPITAL + RESERVES AND

SURPLUSES

DEBT EQUITY RATIO, 2010 = (0.00+66.03)/( 39.94+3,425.08) = 0.02DEBT EQUITY RATIO, 2011 = (1,458.45+32.71)/( 39.94+2,916.12) = 0.50

DEBT EQUITY RATIO, 2012 = (994.85+0)/(39.94+4249.89) = 0.23

INTERPRETATION :- The ratio of all the three years are less than 1 which

means the company has more share capital with respect to outsider‟s fund. A

higher ratio demonstrate that the company has aggressively financed its growththrough outsider‟s fund. Ultimately it helps in saving tax.

Here, both the company Hero Motocorp and Bajaj Auto has their ratio

lower than 1 i.e. 0.23 and 0.02 respectively. The higher the debt equity ratio the

better it is for the company as it helps in saving tax



FIXED ASSETS TO NET WORTH RATIO =FIXED ASSETS AFTER DEPRECIATION / SHARE HOLDER’S FUND

FOR YEAR 2010 = 1,658.78 / 3,465.02 = 0.48FOR YEAR 2011 = 4,080.28 / 2956.06 = 1.38

FOR YEAR 2012 = 3,785.51 / 4,289.83 = 0.88

INTERPRETATION : - Except 2011 in other two year theratio is less than 1. It indicates that that the owner‟s fund is

not sufficient in to finance the fixed assets and the company

has to depend upon outsiders to finance the fixed assets in

2012.

Here, Bajaj Auto has a ratio of 0.25 as against HeroMotocorp‟s 0.88 in 2012. It shows owner‟s fund is more

than total fixed assets and a part of working capital is

provided the shareholders.



EARNING PER SHARE(EPS) = NET PROFIT AFTER TAX /NUMBER OF EQUITY SHARES OUTSTANDING

NUMBER OF EQUITY SHARES OUTSTANDING = EQUITY SHARE CAPITAL /PRICE PER SHARE= 39,94,00,000 / 2 = 19,97,00,000 shares

EPS FOR THE YEAR 2010,2011 AND 2012 = 2,231.83 / 19,97,00,000 =

Rs.111.76

INTERPRETATION: - EPS of Rs. 111.76 shows the amount of profit one share

produces where as EPS of Bajaj Auto is Rs.103.80. It means the profit earned byHero Motocorp is Rs.7.96 more as compared to Bajaj Auto.

PRICE EARNING RATIO = MARKET PRICE PER SHARE /EARNING PER SHARE

PRICE EARNING RATIO, 2010 = 173.52 / 111.76 = 1.55 timesPRICE EARNING RATIO, 2011 = 148.03 / 111.76 = 1.32 times

PRICE EARNING RATIO, 2012 = 214.83 / 111.76 = 1.92 times

INTERPRETATION: - Price earning ratio has increased from 2010 to from 2012

which will encourage the investor to buy the shares of the company as it is the

sign of higher earnings growth in future. Where as the price earning ratio of Bajaj Auto is 2.01 which is slightly higher than Hero Motocorp.



INVENTORY TURNOVER RATIO = COST OFGOODS SOLD / AVERAGE INVENTORY

COST OF GOODS SOLD = SALES – GROSS PROFIT

AVERAGE INVENTORY =( OPENING INVENTORY + CLOSING )/2

FOR 2010 ITO RATIO = (16856.43 – 2743.65)/436.40 = 32.33

FOR 2011 ITO RATIO = (20787.27 – 2597.07)/480.665 = 37.84FOR 2012 ITO RATIO = (25252.98 – 3648.032)/ 600.25 = 35.99

INTERPRETION: - Inventory turnover ratio in 2012 is on the

higher end as compared to 2010 which indicates efficient management of

inventory because more frequently the stocks are sold the lesser moneyis required to finance the inventory.

Bajaj Auto has 27.11 as inventory turnover ratio which is 8.88 less

than Hero Motocorp.



DEBTORS TURNOVER RATIO = NET CREDITANNUAL SALES/ AVERAGE DEBTOR

AVG. DEBTOR = (OPENING DEBTOR + CLOSING

DEBTOR)/2

FOR 2010 = 16856.43/108.39 = 155.5FOR 2011 = 20787.27/119.49 = 173.9

FOR 2012 = 25252.98/201.45 = 125.3

INTERPRETATION: - Debtor turnover ratio is on the higher

end. After considering the reputation a higher ratio indicates efficient

management of debtor or sales and liquidity of debtors.

Bajaj Auto‟s debtor turnover ratio is 52.10. Though it‟s a good

ratio still it is way below Hero Motocorp‟s 125.3.



GROSS PROFIT RATIO = (GROSS PROFIT/NET SALES)*100

FOR 2010 = (2743.65/16856.43)*100 = 16.27%

FOR 2011= (2597.07/20787.27)*100 = 12.49%

2012 = (3648.02/25252.98)*100 = 14.44%

INTERPRETATION : - Though the gross profit has

decreased by 1.83% in 2012 as compared to 2010, it is still in the

higher side indicates that the company can make reasonable profit as

long as it keeps the overhead cost in control. It also indicates the

production efficiency of the company and how efficient the company isin controlling production cost.

Gross profit ratio of Bajaj Auto is 18.25% which is 3.81% more

than that of Hero Motocrop. It shows that Bajaj Auto has much better

control over production cost.



NET PROFIT RATIO = (NET PROFIT AFTERTAX/NET SALES)*100

2010 = (2213.83/16856.43)*100 = 13.13%

2011 = (1927.90/20787.27)*100 = 9.27%

2012= (2378.13/25252.98)*100 = 9.41%

INTERPRETATION: - There is decrease in net

profit by 3.72% in 2012 as compared to 2010. A higher

rate of net profit indicates that how efficient the company

is and how well it controls its overhead cost.

The net profit ratio of Bajaj Auto is 14.67% asagainst Hero Motocrop‟s 9.41% showing a difference of

5.26%. It means Bajaj Auto is more efficient in controlling

its overhead cost as compared to Hero Motocorp.



LEARNING FROM FINANCIAL STATEMENTANALYSIS:

One of the handiest skills that we learned is how to read a

corporate financial statement and why it is important to

learn to read a financial statement. This skill is very handy if

you are interested in investing in stocks. In fact, reading a

financial statement is extremely important if you want toinvest in stocks. And understanding the numerous ratios,

which can be used to interpret the financial health of a

company is very important as each ratio has a specific

purpose.

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