Institute of Management TechnologyDual Country Program

2014-2016

MANAGERIAL ACCOUNTINGProject Report

Submitted toSubmitted by: Group 9Dr. Anupam Mehta Rahul Trehan (140201104)Loukik Huilgolkar (140201070)Omkar Patne(140201089)Ridhima Jain (140201112)Mayank Sitlani (140201077)

COST EFFICIENCY

Efficiency methods are generally adopted to control the short-term costs, both in processes and in products. Cost efficiency is important to get a grip on organisations long term competitiveness and sustainable empowerment.

As we see that there is a similar trend in the cost efficiency of the three companies. But to understand the causes behind these changes we have done a detailed analysis of each company for the eight financial years to understand the sales and costing trends.

INDUSTRY 1:MRF

The company, MRF Ltd., originally started as a small manufacturing unit of balloons, latex cast squeaking toys and industrial gloves. A young entrepreneur, K. M. Mammen Mappillai, opened a small toy balloon manufacturing unit in a shed at Tiruvottiyur, Madras (now Chennai).The company established its first office in 1949 at Chennai. It began the manufacturing of tyres in 1961.In 1961 the Madras Rubber Factory Private Limited was converted into a public company.Additional capital was issued in order to start the manufacture of automobile tyres and tubes in collaboration with the Mansfield Tire & Rubber Co., Mansfield, Ohio, U.S.A. The Company was given permission to export tyres having Mansfield trade mark to all world markets except U.S.A. and Canada. The Company was identified as `Star Exporter, a status that enables the company to get priority treatment in several areas concerned with customs.MRF became the first tyre company in India to cross the INR 10 billion mark in 1993The Company has received the Top Export Award for the year from All India Rubber Industries Association in 1995 and has been receiving the same regularly since then. MRF Tyres has signed an OEM (original equipment manufacturer) alliance with various automobile giants.Funskool, the No. 1 toy company in India, is a joint venture between MRF tyres and the worlds largest toy company Hasbro Inc., USA.

Year Wise Analysis

2012-13

During the year underneath review, Company's total financial gain increased by around 3% to Rs. 13482 crore from Rs. 13094 crore in the previous year.

There was a rise of 4% in total tyre production in most segments.Throughout the year, the raw material costs were stable and this contributed to the margins of the corporate despite depreciation of rupee. This apart,the Company might accomplish improved results, due to improved operational efficiencies and value reduction measures that the Company has undertaken over a period of time.

In Kottayam unit the unions resorted to numerous sorts of work stoppages and strikes that affected the assembly to a large extent and in Arakonam unit on certain problems.

It was a really difficult year for the corporate with the world markets showing terribly clear signs of a holdup leading to over supply and going on happening a downward spiral. In spite of those factors, export revenues denote a nominal growth of 1% over the previous year.

2011-12

During the year under review,Company's turnover accrued by around 23% to Rs. 13054.03 crore from Rs. 10,637.03 crore within the previous year. Across the board, there have been positive increases in all segments with an 8% increase in total tyre production. Fluctuations within the raw material costs, increase in power and fuel value and depreciation of rupee, have wedged the monetary performance of the corporate. Despite the above, your Company have achieved improved results, considering the difficult circumstances, owing to higher operative efficiencies and cost cutting measures that the corporate has undertaken over a span of time.

During the year under review,the Company commenced production at its new plant at Tiruchirappalli in tamil nadu. This new trendy plant along with the existing factories will further consolidate the market leadership.

In Thiruvottiyur and Kottayam units,on certain occasions there have been certain problems of strikes and work stoppage by labourers.despite of this, productivity was maintained at the required satisfactory levels throughout the year.The Company's exports stood at Rs. 1280.55 crore for the year ended 30th September, 2012 as against Rs. 823.30 crore for the previous year.The productivity levels were maintained at the required satisfactory levels throughout the year. The corporate had yet one more booming year within the world market posting a 56% growth in Export revenues. The key factors that contributed to the present were a healthy volume growth of 25% within the significant business heavy and 21% within the light vehicle segment inspite of a depreciating rupee.

2010-11

Companys turnover this year has for the first time crossed the 10,000 crore mark,to settle at 10,637.03 crore,that is a landmark achievement. This reflects a sales growth of 32%. Across the board,there were positive increases, with a 12% increase in volumes in all segments.Throughout the year, the continued increase in the value of natural rubber and different key raw materials,has wedged the performance of the Company.The value of natural rubber reached its peak in April 2011.Similarly costs of different raw materials like rubber, carbon etc. have accrued considerably from Feb 2011.The rise has adversely wedged the margins throughout the year. Despite the above,Company has manage and maintain its profit levels with higher operating efficiencies and cost cutting measures that the corporate has undertaken over a span of your time. In Thiruvottiyur and Kottayam factories faced some issues for a brief length. Hence there was a slight decrement in the productivity levels which were compensated by other units. The Companys exports stood at 823.30 crore for the year 2011 as against 669.27 crore for the previous year.The Company sailed through another difficult year with success,posting a revenue growth of 23% over the previous year. The year gone by, showed a continued volatility in raw material costs and accumulated input prices that positively affected profits. MRFs sturdy distributor network and overwhelming presence in key markets and segments have contributed to growing volumes by 7% and revenues by 31% within the range industrial vehicle phase.

2009-10

Company this year has crossed a sales turnover of Rs.8000 Crore,which could be a landmark action. This reflects a sales growth of 31%.The growth was primarily driven by an interesting turnaround within the automobile market, lower interest rates and therefore the general recovery of business. Throughout the year, there was an unprecedented increase within the price of natural rubber and different key raw materials, that has wedged the performance of the corporate. Despite the above,Company could win improved results as a result of higher operative efficiencies,value systems and value cutting measures that the corporate has undertaken over a span of your time. The Companys exports stood at Rs.669.27 crore for the year all over 2010 as against Rs.500.56 crore for the previous year. MRF leveraged its efforts of 2007-08 and 2008-09 whereby focus was on a few markets. Initiatives were directed at getting nearer to the patron and offering market specific product solutions that helped in considerably increasing volumes throughout 2009-10. The heavy industrial vehicle section volumes grew by near 40% and light industrial vehicle section grew by over 50%. Overall export sales revenues grew by around 34%. However, one distressing trend throughout the year was the intense increase in costs of key raw materials putting tremendous pressure on input prices and the need to build frequent value corrections.

2008-2009

During the year 2008-2009 there was an increase in sales by 7% as compared to the previous year 2007-2008. This was due to the decreased prices of raw materials such as natural rubber and petroleum derivatives combined with the efficiency increase in operation and overall cost cutting of the company. In spite of the extremely difficult market scenario and production loss due to labor problems, the company still had an increase in sales.As the global recession had recently hit, there was apparent drop in the demand for the first half of the year. Yet the second half of the year showed quick recovery and by the fourth quarter the sales was back on track. Even at the time of recession the company tried to maintain the market share and volume

2007-2008

The company, in spite of the greatly troublesome business situation, maintained its initiative position in the tire business with its sales enlisting a development of 13% over the earlier year. The cost increment in important raw materials in the second half of 2008 was the most noteworthy in the history of tire industry. In spite of the above price increase, your organization in the wake of considering the execution in the first half could accomplish acceptable comes about because of enhanced limit use furthermore general expense effectiveness attempted over a time of time.The crude oil had price hikes hence there were huge fluctuations in the prices of the raw materials. Due to this the prices had to be corrected frequently.

2006-2007

The development in sales was determined by record volume and quality development in practically all product segments. Notwithstanding increment in the price of natural rubber and also crude oil, the organization has accomplished acceptable results a year ago because of enhanced capacity utilization and general expense productivity attempted over a period of time.Dealer network all across the globe has been strengthened withmarketing support and the strategies to achieve a dominant market sharehave been put in place.

2005-2006

Regardless of uncommon increment in cost of raw materials, immense rivalry in the industry with prices and rebates representing a test in passing on the increment in the cost to the customers, the organization has attained tasteful results last year due to cost cutting measures attempted over a time of time.The growth has come about by increasing coverage of existing markets as well as adding new markets to which the entire range of MRF products are exported.

Apollo TyreIntroduction

Apollo Tyres, founded in 1972 and headquartered at Gurgaon, Haryana is one of the leading tyre manufacturers in India. Its product portfolio is spread across several sectors with tubeless and tube tyres for passenger cars, buses, light trucks, bicycle tyres and retreaded tyres. Apollo is the worlds 17th biggest tyre manufacturer. Its first plant was commissioned in Perambra, Kerala. It has a network of over 4000 dealerships.At the end of financial year on March 31, 2013 Apollo had clocked a turnover of US$ 2.34 billion. Apollo has a global workforce of 16000 employees. The company has manufacturing presence in Asia, Europe and Africa. It is headed by OnkarKarwar, Chairman and Managing Director. Apollo Tyres Ltd is traded in India on the Bombay, National and Kochi Stock Exchanges, with 56.5% of shares held by the public, government entities, banks and financial institutions as on September 30, 2013. The company has 2 key brands- Apollo and Vredestein. Apollo started out as a single brand enterprise in 1972. Today it owns 5 brands- Apollo, Kaizen, Maloya, Regal and Vredestein. While brands Apollo and Vredestein comprise of tyres across categories frompassengerandcommercial vehiclestooff highway tyres, the remaining 3 brands are more product category specific. Regal and Kaizen focus on the truck-bus tyre segment while Maloya continues to operate within the passenger vehicle tyre category. Each brand from the company is equipped with its own distinctive visual language and targeted at a specific customer need. This approach has enabled Apollo Tyres to provide a wide range of products for various applications, across geographies ending with a delighted customer.

YEAR WISE ANALYSIS

2005-06The truck and bus segment witnessed a healthy growth of 8%. Passenger car tyre segment grew by 13%. Tyre exports are growing consistently and industry growth was 9%.But steep rise in raw material prices has led to reduced profit margins. Consistent rise in prices of key raw materials has eroded profits.Apollo Tyres Analysis

2006-07Apollo tyres recorded the sales of Rs.37743.43million against Rs.30021.19 million in the previous year, having the growth of 25.72%. Company has accomplished striking development in its operations upheld by a persuaded administration group, forceful marketing activities, better working and financial efficiencies. A sharp focus on gainfulness and fiscal discipline in payment terms has brought about huge budgetary increases. Cost administration and better generation efficiencies have helped in keeping up a beneficial track record, notwithstanding a sharp increment in info costs, which we had the capacity go to some degree to the client. The company also acquired Dunlop tyres in the financial year 2006-07.

2007-08There was an increment in the total income of the company from its previous financial year 2006-07 to 2007-08 from 329529.9 million to 37031.5 mainly because of the acquirement of Dunlop tyres in the previous financial year. The total expenses of the company increased from 29830.06 million to 32298.52 million subject to the sharp increase in the prices of the raw material at the end of the year. This financial year the company exceeded the overall company growth meeting its targets in all the product categories. Crude oil prices increased approximately 25% during the year under review and impact of the same was felt in prices of other petro based raw materials but the depreciation of US dollar partially offset the increase.

2008-09

During the financial year ended in March 2009, sales from operations amounted to Rs. 40,704.41 million as against Rs. 36,939.27 million during the previous year having a growth of 10.19%. The growth in the revenue was impacted by the slowdown in the industry particularly in the Original Equipment Manufacturers demand. The total income increased from 37031.5 million to 40816.88 million and the total expense of the company went up from 32298.52 million to 37456.732 million. This is because during this year there was steep increase in all the raw material prices, specially the price of the rubber and crude oil both hitting their new peak.

2009-10

During the financial year ended in March 2010, the net sales of India operations increased from Rs.40704 million to Rs. 50366 million showing the increment of 23.7%. Natural rubber continued its upward trend during the year as prices moved from a level of Rs. 100/kg in June, 2009 to Rs. 140/kg in December 2009. It recorded a new peak of around Rs. 150/kg in March 2010. The demand and supply gap in India industry widened to 1,00,000 metric tonne due to production shortfall and increased demand on the back of economic recovery. Crude oil remained steady in the band of $70-80 per barrel but crude oil based raw materials like synthetic rubber carbon black remained firm due to adverse demand supply gap caused by high cost countries and revival of demand from emerging economies.

2010-11

Demand in the Indian tyre industry is dependent on the economic growth and also on infrastructure development. There was a tremendous increase in the total income from 2010-11 to 2011-12. This can be attributed to the economic growth in India. Apollo made constructive and practical process changes at its facilities without dilution of internal controls. Key raw material prices have increased to a great extent. Crude oil prices crossed the US$100/barrel level. Crude based items also saw an increase in prices. This shows an overall increase in the operating expenses from 54675 million in 2010-11 to 74916 million in 2011-12.Despite challenges in the raw material and rising prices, company is focusing on working capital management, new vendor development. Exports of passenger car radials grew marginally.

2011-12

The operating expenses have been fluctuating slightly around the 90% mark. They have been the highest at 91.63% in 2011-12. The high raw material prices are the major proportion of the operating expenses. Natural rubber is an agricultural commodity and is subject to price volatility. Other raw materials are crude linked and are affected by change in crude prices. Little can be done to control the raw material price movement internally. Company revenues grew 37% over the previous year. A reduction in rubber prices was nullified by the higher cost of oil-based raw materials. India operations exports in the light truck cross ply segment grew by 29%. In truck-bus cross ply and passenger car radials, the growth was 17% and 19% in exports. Company is working on various proposals to augment production capacities to meet rising market demand.

2012-13

In FY13, the India automotive industry was overcome with weak demand from customers and high interest rates. The market for passenger car sales went down by 1%. Tyre industry was affected by this weakened demand, lower replacement market consumption and less exports. Raw material prices remained at a high in the first half of the fiscal. In FY13, crude stabilised and demand for inputs declined during latter part of the year. Natural rubber prices decreased slightly over this period. Indian tyre industry grew by 8% during FY13. Reducing prices of rubber, with crude stabilisation and increased sales led to growing sales revenues and reduction in expenses.

CEATINTRODUCTION:

CEAT Tyres was established in 1958.It is Oldest company of the RPG group.CEAT is the second largest tyre manufacturer in the country.It has an Annual turnover of Rs. 1,952 crores(US $434 million). It ispresently focusing on catering to the fast growing passenger car and two-wheeler industry. CEAT produces over 6 million tyres a year.CEAT earns around 65% of its revenue from the T&B segment.It has a robust national network consisting of 33 regional offices and over 3,500 dealers. CEAT is the first tyre company in India to get the ISO/TS 16949 certification, which is a combination of ISO 9000 and QS 9000.It ensures: The PDCA cycle of process approach Trim supply chain by preventing defects and reducing waste No multiple certification audits Customer satisfactionIt also has products for various segments Commercial Segment i.e. Trucks, Buses, LCV Passenger Car Segment i.e. Cars, MUVs, Jeep Specialty segment i.e. Earthmovers & Forklifts Farm Segment i.e. Tractor & trailers Motorcycles, Auto rickshaws etc.

YEAR-WISE ANALYSIS:

2005-06

The year 2005-06 was a very challenging year for the tyre industry as the cost of the raw material was raising continuously especially natural rubber and petroleum products. It affected the tyre industry worldwide leading to a significant cost-push. Increased raw material prices also led to increased exports of these raw materials resulted in decreased availability of natural rubber with domestic users. This lead to a shift from natural rubber to synthetic rubber in order to obtain optimum cost benefits. The demand supply position was favourable due to continued demand growth and decreased imports of Chinese tyres. Although the raw material costs was increasing but due to continued demand the sales were quite decent which saved the company from going into losses.

2006-07

As Indian economy has improved since 2002 (9% in 2005 and 2006) , the automobile industry has grown at a CAGR(Compound Annual Growth Rate) of 15.8% in last 5 years which led to an increased demand of tyre industry also both in Original Equipment Manufacturing (OEM) segment and Replacement Market. The industry was facing rise in price of raw material but the demand supply situation was in favour of the company which resulted in increased volume and hence better profitability for the company. The motor cycle segment had shown robust growth whereas there was a slowdown in the scooter segment. The car segment had same production capacity throughout the year but CEAT planned to increase its market share in the car segment in the next year as it was planning on to come with some new products, patterns and sizes. CEAT is exporting in more than 110 countries and is continuously coming up with new product mix. This business model had a positive impact on the bottom line of the company. CEAT performs tight budgetary control on all key operational activities and reviews working capital for continuous improvement in performance and profitability.

2007-08

With the expected growth of 8.5% in GDP and increased per capita income, there is an increase in overall spending including the automobile industry. So, the demand of tyres was increasing. The global tyre industry had almost tripled in the last 20 years (with annual growth rate of 3-5%). The Indian tyre industry has witnessed a CAGR of 11% in the last five years. The increased saes can be explained by the consistent increase in demand for the tyres due to various demand drivers such as continuous growing automobile industry; development in road infrastructure, Indias fast paced growth, radicalisation and increasing exports. There was a 9.14% increase in net sales, 88.48% increase in EBITDA and the cost efficiency was almost the same as compared to previous year (95.46 to 93.49).

2008-09

The growth in sales decreased from 9.14% in 2007-08 to 8.99% in 2008-09. This can be due to the worldwide recession of 2008-09 commonly known as great recession as the tyre consumption directly relates with the GDP growth and infrastructure spending. Even in India the effect of the slowdown was felt but due to the various economic measures taken by the government, there were visible signs of recovery in the Indian economy during the last quarter of the year particularly in the cement, steel and automobile industry. Also, the demand of the tyre was increasing due to various demand drivers such as the increase in Automobile industry, improved roads infrastructure, sustained economic growth, radicalisation and exports. Although there was net loss after tax of Rs. 16 crore due to economic slowdown but the company was able to maintain its cost efficiency.

2009-10

The economy was still running slow due to the great recession of 2008-09. But the economy was expected to grow by 7.9 %. Both, the global tyre industry and the Indian tyre industry were booming. Operating margins improved by 900-1000 base points in the first nine months due to 10% reduction in cost of raw material. The replacement segment was most sought after in the automobile industry as it had better margins as compared to OEMs segment. The EBITDA margin showed an increase of 455.05%, 11.9% increase in sales but the cost efficiency was reduced by .09%. The business is substantially affected by prevailing economic conditions in India and the rise and fall in the prices of raw material.

2010-11The economic scenario in India is showing good signs and is growing robustly at 8 percent. The growth has impacted all sectors and automotive industry has shown remarkable growth. In light of increasing raw material costs, successful efforts were made in development of cheaper substitutes to costly raw materials without compromising on quality. This has helped company to reduce costs and optimise material consumption. The company increased its exports to Rs.624 crores, up from Rs.479 crores last year.

2011-12

In the year 2011-2012 the expected rise is the demand of tyres is about 4.7 percent which is expected to touch about 3.3 billion tyre units by 2015. The Asia-pacific region is, by far, the largest market for tyre. In 2011-12, the industry turnover from the exports market increased phenomenally, capturing 11 per cent of the total tyre sales. The recurring hikes in interest rates, petrol prices and high inflation have impacted the growth of the Indian automobile industry. Against the backdrop of a 30 per cent growth witnessed in 2010-11, the industry grew at a single-digit level of approximately 2 per cent in 2011-12.Raw material cost accounts for approximately 70 per cent of the industrys turnover with Natural rubber being the key raw material.To provide enhanced quality and customer experience, the Company continuously enriches its range of products and services. In the previous fiscal, the commencement of production at the Halol plant was an important milestone in CEATs history, which made the Company a significantplayer in the market.

2012-13

The company registered a growth of 9% increase in sales revenue from the previous year. Manufacturing operations at the radial plant at Hatol, in Gujarat ramped up to 80% capacity utilisation by Q3, thereby increasing financial performance of the company. The global auto industry witnessed a slump in demand which impacted tyre industry also. As compared to previous year, % increase in sales was 9% whereas last year it was 29%. Decline in input costs helped improve margins. Prices of key materials like rubber and synthetic rubber fell by 8 to 10 percent and helped increase profits for the company.