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COM

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HERO HONDA PROJECT.

Objectives of the study:

Two wheeler industry being under redefinition; interest has been taken to study more about the two wheeler industry, in particular about a company. To gain more financial knowledge by studying the reports issued by the company of the different financial years. To know information about companys various sources of income, its channelization and its expenditure. Intention to know about companys financial soundness by calculating various important ratios and interpreting them. Study the information how the company is able to maintain its position in the market and estimate the future performance.

Limitations of the study:

The information gathered is constrained only to the sources of companys website address, reference books and updated information given by news daily. Due interest has been taken in preparing the report some errors might have crept in, corrective action will be taken in future if so found. As a part of business confidentiality financial statements can be easily window dressed to present a better picture of its financial and profitability position to outsiders. Calculation of ratios is not an end in itself it is merely a tool of financial statements; different people interpret the same ratio in different ways. Change in accounting procedure makes ratio analysis misleading, e.g., a change in valuation methods of inventories, from FIFO to LIFO increases the cost of sales and reduces considerably the value of closing stocks which makes stock turnover ratio to be lucrative and an unfavorable gross profit ratio.

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INDUSTRY PROFILE

Indian Two-Wheeler Industry: A Perspective

Automobile is one of the largest industries in global market. Being the leader in product and process technologies in the manufacturing sector, it has been recognized as one of the drivers of economic growth. During the last decade, well directed efforts have been made to provide a new look to the automobile policy for realizing the sector's full potential for the economy. Steps like abolition of

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

Evolution of Two-wheeler Industry in India

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

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

COMPANY PROFILE:

Desh ki dhadkan!

During the 80s, Hero Honda became the first company in India to prove that it was possible to drive a vehicle without polluting the roads. The company introduced new generation motorcycles that set industry benchmarks for fuel thrift and low emission. A legendary 'Fill it - Shut it - Forget it' campaign captured the imagination of commuters across India, and Hero Honda sold millions of bikes purely on the commitment of increased mileage Over 20 million Hero Honda two wheelers tread Indian roads today. These are almost as many as the number of people in Finland, Ireland and Sweden put together! Hero Honda has consistently grown at double digits since inception; and today, every second motorcycle sold in the country is a Hero Honda. Every 30 seconds, someone in India buys Hero Honda's top -selling motorcycle Splendor. This festive season, the company sold half a million two wheelers in a single montha feat unparalleled in global automotive history. Hero Honda bikes currently roll out from its three globally benchmarked manufacturing facilities. Two of these are based at Dharuhera and Gurgaon in Haryana and the third state of the art manufacturing facility was inaugurated at Haridwar, Uttrakhand in April this year. These plants together are capable of producing out 4.4 million units per year. As Brijmohan Lall Munjal, the Chairman, Hero Honda Motors succinctly points out, "We pioneered India's motorcycle industry, and it's our responsibility now to take the industry to the next level. We'll do all it takes to reach there.''

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

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HERO HONDA'S MISSION Hero Hondas mission is to strive for synergy between technology, systems and human resources, to produce products and services that meet the quality, performance and price aspirations of its customers. At the same time maintain the highest standards of ethics and social responsibilities. This mission is what drives Hero Honda to new heights in excellence and helps the organization forge a unique and mutually beneficial relationship with all its stake holders.

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SENIOR MANAGEMENT TEAM

N o. 1 2 3 4 5 Mr. Ravi Sud Mr. Anil Dua Dr. Anadi Pande Dr. Vikram Kasbekar Mr. Vijay Sethi Sr. Vice President & CFO Sr. Vice President Sales, Marketing & Customer Care Vice President - Operations, Corporate Planning & Strategy Plant Head Vice President - Information Systems Name Designation

N o. 1

Company Secretary & Compliance Officer Name Designation Mr. Ilam C. Kamboj G. M. Legal & Company Secretary

COMPETITORS TO HERO HONDA MOTORS LTD. BAJAJ AUTO LIMITED TVS MOTORS LIMITED HONDA KINETIC YAMAHA SUZUKI

SALES REPORT HERO HONDA REPORTS HIGHEST-EVER SALES IN A MONTH, SELLS 3,65,022 TWO-WHEELERS IN OCTOBER07

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New Delhi, Monday, March 31, 2008:

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

Hero Honda Motors Ltd (HHML), the worlds largest two-wheeler manufacturer, today reported its highest-ever sales in a month, with 3,65,022 units of two-wheelers in the month of October. This is an impressive performance in view of the prevailing slowdown in the two-wheeler industry. HHML had sold 3,63,480 units during the month of October 2006. In September 2007, HHML had sold 314,567 units of two-wheelers. This is in line with the companys strategy for aggressive top line growth and increased market share. The companys strategy has been to refresh the complete product range, and back them with aggressive marketing and communication campaigns. HHML had already introduced four new products, including refreshes, in this financial year. These were Splendor NXG, refreshed Pleasure, New Super Splendor and New Passion Plus. It added two more this month, Hunk (150cc) and refreshed Splendor+, along with a Special Edition. The all-muscle and macho Hunk (150cc), which was launched during the month of October, has received a very encouraging initial response from customers, thus further strengthening the steadily growing market share of Hero Honda in the premium segment. The company has more than doubled its volumes and share in this segment between January September 2007.Splendor+ has been

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refreshed with exciting new graphics, five spoke silver cast alloy wheels option, and new meter dial color. The Special Edition Splendor+ was launched to commemorate the companys landmark achievement of Two Crore bikes, and was unveiled at the culmination of the Hero Honda BIKE-A-THON at the historic India Gate in Delhi on October 30th. The Special edition has a Black Body Color with New Silver Monotone Stripes. To add to its exclusivity, the commemorative bike has black five spoke alloy wheels, a black engine and matching chain cover and an attractive Special Edition doming sticker on both the right and left side covers. Carrying forward their long-standing association, HHML and the Indian Air Force (IAF) joined hands to celebrate together their milestones - the 20 million bikes achievement and the Platinum Jubilee of the IAF. As a part of this, four IAF teams of 20 officers riding on Hero Honda bikes joined the HERO HONDA BIKE-A-THON in the last week of its journey. The teams represented three commands, namely Western Command, New Delhi, Central Air Command, Allahabad, and Southern Air Command, Gandhinagar.

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SALES PERFORMANCE
HERO HONDA SALES IN SEPTEMBER ONCE AGAIN CROSS THE MAGIC THREE LAKH NUMBER SEPTEMBER 07 SALES AT 314,567; 4.31% M-O-M GROWTH Aug'06 Aug'07 FY 06-07 FY 07-08

Total Sal es

2,15,076

2,40,875

12,82,860

12,63,254

Exports (in cl in above)

New Delhi, October 1, 2007: Hero Honda Motors Ltd., the world's largest two-wheeler manufacturer, continues to buck the industry trend with an outstanding sales performance in the month of September.

HERO HONDA SELLS 2,55,200 UNITS IN JUNE 2007 Records over 50% market share in April-June quarter New Delhi, Tuesday, July 03, 2007: New Delhi, July 2, 2007: Hero Honda Motors Ltd.

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(HHML), the worlds largest two-wheeler manufacturer, has sold 2,55,200 units in the month of June 2007. HHML sold 2, 78,660 units in the corresponding month last fiscal. For the quarter ending June 2007, the company achieved cumulative sales of 8, 03,615 units. Despite the slowdown in the two wheeler industry, Hero Honda has strengthened its position in the quarter and recorded over 50% market share in the motorcycle category for the quarter. During the month of June, Hero Honda launched a refreshed model of its scooter Pleasure. Bollywood star Priyanka Chopra was also roped in as the new brand ambassador for Pleasure. The new Pleasure offers customers a contemporary style with attractive aesthetics and the initial response for this model has been very encouraging. In the motorcycle category as well, all recent new launches of Hero Honda, namely the new CD Deluxe in the entry segment, Glamour with alloy wheels in the deluxe segment and CBZ X-treme in the premium segment, continue to do well contributing to the share gain in the quarter. Three Hero Honda bestsellers, Splendor, Passion and Glamour have been featured in the top 10 ratings for the auto sector in the recently announced Brand Equity 100 most Trusted Brand Survey 2007. Splendor has been ranked as the top brand in the auto sector ratings. Brand Equity 100 most Trusted Brand Survey 2007 is a prestigious annual brand survey organized by the Bennett & Coleman group. ANNUAL REPORTS OF THE COMPANY The following are the annual reports of the company for the successive financial years 2006-2007 2005-2006 2004-2005 2003-2004.

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BALANCE SHEET AS AT MARCH 31,2007

(Rs. In crores) schedule no. year ended year ended march 31,2007 march 31,2006 1 2 3 165.17 166.17 129.58 2,764.81 185.78 185.78 120.1 2,315.21 39.94 2,430.12 2,470.06 39.94 1,969.39 2,009.33

SOURSES OF FUNDS share capital reserves and surplus LOAN FUNDS unsecured defferred tax liabilites TOTAL APPLICATION OF FUNDS FIXED ASSETS gross block less:depreciation capital work in progress net block INVESTMENTS DEFFERRED TAX ASSETS CURRENT ASSETS,LOANS AND ADVANCES inventories sundry debtors cash and bank balances other current assets loans and advances less:CURRENT LIABILITES AND PROVISIONS current liabilites provisions Net current assets TOTAL Notes to accounts

4 1,800.63 635.1 1,165.53 189.92 1,335.45 1,973.87 1.38 275.58 335.25 35.78 3.6 263.06 913.27 7 1,041.92 437.24 1,479.16 -565.89 2,764.81 12 1,072.88 489.92 1,562.80 -741.56 2,315.21 1,471.97 522.6 949.37 44.19 993.56 2061.89 1.32 226.55 158.66 158.72 3.53 273.78 821.24

5 8 6

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P RO FIT AND LO S S ACCO UNT F O R THE YEAR ENDED M ARCH31,2007(Rs. In crore s) s c hedule noear ended y ear ended y m arc h31,2007 arc h31,2006 m INCO M E gros s s ales 11,542.04 10,086.16 Les s :E x c is e duty 1,642.08 13,713.18 net s ales 9,899.96 8,713.98 other inc om e 9 189.85 156.28 10,089.81 8,870.26 EX P ENDITURE M anufac turing and other ex pens es 10 8,726.92 7,349.53 deprec iation 4 139.78 114.62 interes t(net) 11 -22.99 -6.13 8,843.71 7,458.02 profit for the ye a r be fore ta x 1,246.10 1,412.24 P rovis ion for tax ation -c urrent 375.81 415.85 -deferred 9.42 17.88 -fringe benefit 2.98 7.17 P rofit after tax 857.89 971.34 B alanc e of profit brought forward 1,224.05 808.1 2,081.94 1,779.44 AP P RO P RIATIO NS P ropos ed dividend 339.47 339.38 tax on dividend 57.69 56.01 Trans fer to general res erve 90.00 100 B alanc e c arried to balanc e s heet 1,594.78 1,224.05 2,081.94 1,779.44 bas ic and diluted earnings per s hare fac e value Rs .2 eac h 42.96 48.64 Notes to ac c ounts 12

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CASH FLOW STATEMENT FOR THE YEAR ENDED MARCH31,2007 (Rs in crores) year ended year ended march31,2007 march31,2006 A.CASH FLOW FROM OPERATING ACTIVITES net profit before tax 1,246.10 1,412.24 adjustments for: ADD:Depreciation 139.78 114.62 loss on fixed assets sold/discarded 13.8 0.86 exchange differences 1.66 0.07 loss on sale of non-trade current investments 19.62 2.27 provision for diminution in value of investment 2.27 3.55 interest-others and financial charges 1.61 2.92 provision for doubtful debts 0.3 0.86 179.04 125.15 LESS: interest received on long term non-trade investments 10.64 10.56 interest received on loans, deposits etc 24.6 9.05 profit on sale of fixed assets 0.32 0.04 dividend income on current investments-non-trade 6.53 3.62 on long-term investments -trade 5.43 6.79 profit on sale of non-trade investments on current investments 150.02 111.03 197.54 141.09 operating profit before working capital changes 1,227.60 1,396.30 Adjustments for : Add: increase/(decrease) in trade payables -30.83 58.01 increase in security deposits from dealers 2.34 1.8 -28.49 59.81 Less; increase in trade and other receivables 144.83 73.7 increase in inventories 49.03 22.29 193.86 95.99 cash generated from operations 1,005.25 1,360.12 Less:direct taxes paid 380.2 424.04 net cash from operating activites 625.05 936.08 B.CASH FLOW FROM INVESTING ACTIVITES sale of fixed assets 3.87 5.28 sale of investments 13,633.86 11,256.13 intercorporate deposits received back 211.75 195.5 interest received on long term non-trade investments 10.57 10.56 interest received on loans, deposits etc. 24.6 7.98 dividend income on current investments-non-trade 6.53 3.62 on long-term investments trade 5.43 6.79 13,896.61 11,485.86 Less:Purchase of fixed assets 519.03 398.94 intercorporate deposits paid 233 224.25 purchase of investments 13,417.71 11,186.16 14,169.74 11,809.35 Net cash (used) in investing activites -273.13 -323.49

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C.CASH FLOW FROM FINANCING ACTIVITES interest paid-others and financial charges dividend paid Tax on dividend repayment of long term borrowings Net cash (used) in financing activites D.INCREASE/(DECREASE) IN CASH AND CASH EUQIVALENTS(A+B+C) cash and cash equivalents at the beginning of the year cash and cash equivalents at the end of the year cash and bank balances unreleased exchange loss/(gain) notes to the accounts

1.61 396.11 56.01 20.61 -474.34 -122.42 158.72 35.78 0.52 36.3 schedule12

2.92 396.32 56.01 15.98 -471.23 141.36 17.6 158.72 0.24 158.96

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profit and loss account year ended march31,2006 schedule no.year ended march 31,2006 INCOME gross sales less:excise duty net sales other income EXPENDITURE manufacturing and other expenses depreciation interest(net) profit for the year before tax provision for taxation -current -defferred -fringe benefit profit after tax balance of profit brought forward balance available for appropriation APPROPIATIONS proposed dividend tax on dividend transfer to general reserve balance carried to balance sheet basic and diluted earnings per share face value rs. 2/- each notes to the accounts 10,086.16 1,372.18 8,713.98 156.28 8,870.26 7,349.53 114.62 -6.13 7,458.02 1,412.24 415.85 17.88 7.17 971.34 808.1 1,779.44 (rupees in crores) year ended march 31,2005 8,596.81 1,175.16 7,421.65 136.90 7,558.55 6,253.01 89.38 -1.09 6,341.30 1,217.25 395.22 11.56 810.47 538.53 1,349.00

10 4 11

399.38 56.01 100 1,224.05 1,779.44 48.64 12

399.38 56.52 85 808.1 1,349.00 40.59

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PROFIT AND LOSSS ACCOUNT FOR THE YEAR ENDED MARCH 31,2005(Rs. In crores) schedule no. year ended year ended march 31,2005 march31,2004 INCOME Gross sales 8,596.81 6,747.35 Less:excise duty 1,175.16 914.92 net sales 7,421.65 5,832.43 other income 9 141.03 165.04 7,562.68 5,997.47 EXPENDITURE manufacturing and other expenses 10 6,257.14 4,852.33 depreciation 4 89.38 73.33 interest(net) 11 -1.09 -1.35 Miscellaneous expenditure written off . 0.7 6,345.43 4,925.01 profit for the year before tax 1,217.25 1072.46 provision for taxation -current 395.22 331.07 -deferred 11.56 13.07 profit after tax 810.47 728.32 balance of profit brought forward 538.53 335.75 balance available for appropriation 1,349.00 1,064.07 APPROPRIATIONS dividend 199.69 -interium 399.38 199.69 -proposed final 56.52 51.16 tax on dividend 85.00 75 transfer to general reserve 808.10 538.53 balance carried to balance sheet 1,349.00 1,064.07 basic and diluted earnings per share face value rs.2 each 40.59 36.47 notes to the accounts 12

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Contd

. (Rs. In crores) year ended year ended march 31,2005march31,2004

Dividend income on current investments-non-trade on long-term investments-trade Less:purchase of fixed assets inter corporate deposits paid loss on settlement of derivatives purchase of investments net cash(used) in investing activites C.CASH FLOWS FROM FINANCING ACTIVITES repayment of long term borrowings interest paid-others and financial charges dividend paid tax on dividend

2.17 1.49 13,134.54

13,408.48 13,697.37 -562.85 15.55 1.93 202.55 26.09 246.12

13.33 4.67 6,750.29 149.01 150.5 6,827.16 7,126.67 -376.38 9.67 1.73 550.6 71.63 633.63 50 -583.63 12.92 24.33 37.12 0.13 37.25

Less:proceeds from long term borrowings Net cash(used) in financing activites D.INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (A+B+C) cash and cash equivalents at the beginning of the year cash and cash equivalents at the end of the year cash and bank balances Unrealised exchanges loss/(gain) notes to accounts Schedule 12

42.61 -203.51 -19.53 37.12 17.6 -0.01 17.59

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INTERPRETATION OF FINANCIAL STATEMENTS THROUGH RATIO ANALYSIS Meaning of ratio

A ratio is a simple arithmetical expression of the relationship of one number to another. It may be defined as the indicated quotient of two mathematical expressions. According to Accountants Handbook by wixon,kell and bedford, a ratio is an expression of the quantitative relationship between two numbers. Use and significance of ratio analysis The ratio analysis is one of the powerful tools of financial analysis. It is used as a device to analyze and interpret the financial health of enterprise. The use of ratios is not confined to financial managers only. There are different parties interested in the ratio analysis for knowing the financial position of a firm for different purposes. The supplier of goods on credit, banks, financial institutions, investors, shareholders and management all make use of ratio analysis as a tool in evaluating the financial position and performance of a firm for granting credit, providing loans or making investments in the firm. With the use of ratio analysis one can measure the financial condition of a firm and can point out whether the performance of the firm is improving or deteriorating. Thus, ratios have wide applications and are of immense use today. (a) Managerial uses of Ratio analysis Helps in decision making. Helps in financial forecasting and planning. Helps in communicating. Helps in co-ordination. Helps in business control. (b) Utility to shareholders/Investors (c) Utility to creditors (d) Utility to employees (e) Utility to government (f) Tax audit requirements.

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Various accounting ratios can be classified as follows:

Ratios Traditional classification Or statement ratios

Functional classification Ratios according to importance

1. Balance sheet ratios Or Position statement ratios. 2. P&L A/c statements Or Revenue/income statement ratios 3. composite/mixed ratios Or Inter statement ratios

1.Liquidity ratios 2.Leverage ratios. 3. Activity ratios 4. Profitability ratios.

1. Primary ratios. 2. Secondary ratios.

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

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CALCUCLATION OF RATIOS AND INTERPRETATION 1. PROFITABILITY RATIO The primary objective of a business undertaking is to earn profits. Profit earning is considered essential for the survival of the business. A business needs profits not only for its existence but also for expansion and diversification. A business enterprise can discharge its obligations to various segments of the society only through earning profits. Generally, profitability ratios are calculated either in relation to sales or in relation to investment. Net profit after tax NET PROFIT RATIO = Net sales (Rs. In crores) 2003-04 728.32 5,832.43 12.48 % *100

Year ended Net profit after tax net sales ratio

2006-07 857.89 9,899.96 8.66 %

2005-06 971.34 8,713.98 11.14 %

2004-05 810.47 7,421.65 10.92 %

This ratio also indicates the firms capacity to face adverse economic conditions such as price competition, low demand etc. obviously higher the ratio, better is the profitability. But while interpreting the ratio, it should be kept in mind that the performance of profits must also be seen in relation to investments or capital of the firm and not only in relation to sales. Interpretation: Here we can see that the profitability of the firm is fluctuating for the successive financial years though it is not in increasing rate still it has the capacity to face adverse economic conditions, low demand etc. Hence, we can say that profitability ratio is indicating satisfactory.

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

Year ended Current assets(in crores) Current liabilities(in crores) Ratio

2006-07 913.27 1479.16 0.62

2005-06 821.24 1562.80 0.55

2004-05 554.53 1500.47 0.37

2003-04 508.99 1260.05 0.40

An increase in the current ratio represents improvement in the liquidity position of the firm while decrease in the current ratio that there has been deterioration in the liquidity position of the firm. As a convention the minimum of two to one ratio (2:1) is referred to as a bankers rule of thumb or arbitrary standard of liquidity of the firm. The idea of having doubled the current assets as compared to current liabilities is to provide for delays and losses in the realization of current assets. However, the rule of 2:1 should not be followed blindly while making interpretation of ratio, because the firms having less than 2:1 ratio may be having a better liquidity than even the firms having more than 2:1 ratio. This is so because the current ratio measures only the quantity of current assets and not the quality of current assets (crude ratio). Current ratio is a general and quick measure of a firm. It represents the margin of safety or the cushion available to creditors and other current liabilities. Interpretation: According to the bankers rule of thumb 2:1 that is current assets double the current liabilities is not found in the above calculated data the short term liquidity position of the firm is not favorable but based up on this it cannot be concluded because current ratio suffers from some limitations: It is a Crude ratio. It involves Window dressing of accounting information.

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3. Debt equity ratio Debt-equity ratio, also known as External-Internal ratio is calculated to measure the relative claims of outsiders and the owners (i.e., shareholders) against the firms assets. This ratio indicates the relationship between the external equities or the outsiders funds and the internal equities or the share holders funds. Outsiders funds Debt equity ratio = Shareholders funds The outsiders funds include all debts/liabilities to outsiders, whether long-term or short-term or whether in the form of debenture bonds, mortgages or bills. The shareholders funds include equity share capital, capital reserves, revenue reserves and reserves representing accumulated profits and surpluses like reserves for contingencies, sinking funds, etc. The accumulated losses and deferred expenses, if any, should be deducted from the total to find out the shareholders funds. When the accumulated losses and deferred expenses are deducted from the shareholders funds, it is called net worth and the ratio may be termed as debt to net worth ratio. Year ended Outsiders funds(in crores) Shareholders funds(in crores) Ratio 2006-07 1336.67 2470.06 0.54 2005-06 1378.76 2009.33 0.69 2004-05 1319.05 1493.38 0.89 2003-04 1268.58 1138.81 1.11

Some financial experts opine that debt should include current liabilities also as it plays a crucial role in ascertaining the risk factor. Preference share capital should be included in external equities as fixed rate of dividend is paid and further they are redeemable in future, however there is still a controversy in case of current liabilities and preference share capital. Therefore, interpretation of this ratio depends primarily upon the financial policy of the firm and upon the firms nature of business. A ratio of 1:1 may be usually considered to be satisfactory although there is no rule of thumb or standard norm for all types of businesses, In some businesses a high ratio of 2:1 or even more may be even considered satisfactory. Interpretation: In the above debt equity calculation we can see that the risk factor of outsider funds is decreased year by year affecting the risk of shareholder funds the ratio of 1:1 is also not found which is usually considered satisfactory the ratio is not impressive the company should use debt financing to some more extent.

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

Fixed assets (after depreciation) Fixed assets to net worth ratio = Shareholders funds Year ended Fixed assets(after depreciation) Shareholders funds Ratio 2006-07 1355 2470.06 55% 2005-06 994 2009.33 50% 2004-05 715 1493.38 48% (in crores) 2003-04 589 1138.81 52%

The ratio of fixed assets to net worth indicates the extent to which shareholders funds are sunk into the fixed assets. Generally, the purchase of fixed assets should be financed by shareholders equity including reserves, surpluses and retained earnings. If the ratio is less than 100%, it implies that owners funds are more than total fixed assets and a part of working capital is provided by the share holders. When the ratio is more than 100%, it implies that owners funds are not sufficient to finance the fixed assets and the firm has to depend upon outsiders to finance the fixed assets. There is no rule of thumb to interpret this ratio but 60 to 65 percent is considered to be satisfactory ratio in case of industrial undertakings. Interpretation: Fixed assts to net worth ratio calculated with the above information shows a percentage less than 100 for all the financial years, it means that the shareholders amount is financed for the purchase of fixed assets and the funds are sufficient. The ratio is increasing but not up to the satisfactory level.

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5. Ratio of current assets to proprietors funds. The ratio is calculated by dividing the total of current assets by the amount of shareholders funds. Current assets Ratio of current assets to proprietors funds = Share holders funds Year ended Current assets (crores) Shareholders funds(crores) Ratio 2006-07 1165.53 2470.06 47.2% 2005-06 949.37 2009.33 47.3% 2004-05 674.48 1493.38 45.2% 2003-04 571.12 1138.81 50.2% * 100

The ratio indicates the extent to which proprietors funds are invested in current assets. There is no rule of thumb for this ratio and depending upon the nature of the business there may be different ratios for different firms. Interpretation: Above if we examine the ratios for different years the amount of proprietors funds invested in current assets is in decreasing state and stable for the past two financial years. The contribution is weakening interest should be taken by the firm for better utilization of the owners funds in order to maintain good working capital for short term benefits. 6. Return on shareholder investment or net worth Return on shareholders investment, popularly known as ROI or return on shareholder/proprietors funds is the relationship between net profits (after tax and interest) and the proprietors funds. ROI = Net profit (after tax and interest) shareholders funds * 100

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Year ended Net profit (after tax & interest) Shareholders funds Ratio

2006-07 858 2470.06 34.7%

2005-06 971 2009.33 65.02%

2004-05 810 1493.38 54.24%

(in crores) 2003-04 728 1138.81 64%

This ratio is one of the most important ratios used for measuring the overall efficiency of a firm. As the primary objective of business is to maximize its earnings, this ratio indicates the extent to which the primary objective is achieved. This ratio is of great importance to the present and prospective shareholders as well as the management of the company. As this ratio reveals how well the resources of the firm are being used, higher the ratio, better are the results. The ROI should be compared with the return of other similar firms in the same industry. Interpretation: The return on investments of the firm all of a sudden decreased in the last financial year in the above calculated data. Conclusion cannot be made with out comparing the returns of the other similar firms in the same two wheeler industry. In general there are many reasons for decrease in the ROI they may include: High input costs due to high demand and inadequate supply of raw materials. Change in the trend from two wheeler to four wheeler. Change in the government policies. Recent global problem of high crude oil prices and weakened sales.

7. Earning per share Earning per share is the small variation of return on equity capital and is calculated by dividing the net profit after taxes and preference dividend by the total number of equity shares. Net profit after tax- preference dividend EPS = No. of equity shares

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Year ended Earning per share (Rs)

2006-07 43.0

2005-06 48.6

2004-05 40.6

2003-04 36.5

The earning per share is a good measure of profitability and when compared with E.P.S. of other similar companies, it gives a view of the comparative earnings or earning power of the firm. E.P.S. calculated for a number of years indicates whether or not earning power of the company has increased. Interpretation: The earnings per share have considerably increased in the previous years but again it dipped down in the last financial year, comparison should be made with other firms of the similar business involved. For decrease in earnings there might be many reasons which include the reasons affecting the ROI also.

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

Year ended Dividend per equity share (Rs) Earning per share (Rs) Dividend pay-out (%)

2006-07 17 43.0 40

2005-06 20 48.6 41.2

2004-05 20 40.6 49.26

2003-04 20 36.5 55.9

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9. Market value to book value ratio Market value to book value ratio is the relationship between market value per share of a firm and its book value per share. Thus, Market value per share Market value to book value ratio= Book value per share Where as book value per share is calculated as equity share capital plus reserves and surpluses minus accumulated losses total divide by number of equity shares. Year ended Market value/book value(times) 2006-07 5.6 2005-06 8.8 2004-05 7.3 2003-04 8.6

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

10. Profit after tax/total income (%) Profit after tax Profit after tax/total income (%) = Total net income Year ended Profit after tax Total net income Pat/total net income (%) 2006-07 858 10090 8.5 2005-06 971 8870 11.0 2004-05 810 7559 10.7 2003-04 728 5997 12.1

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

350000 300000 250000 200000 150000 100000 50000 0 units units in in may may 2008 2007 According to News daily (THE HINDU) the sales of the two wheeler companies in the month of May this year when compared to last year same month increased. Keeping aside lack of financing options in rural areas, high interest rates, guidelines issued by R.B.I. in case of collection of finance issued. Hero Honda sold during this year may 3,12,317 units when compared to last years may 2,85,109 units with increase rate in sales of 9.54%. Bajaj reached 1,80,935 units when compared to last year month sales of 1,67,008 units with increase in rate of sales at 6.86%. TVS motors sales during this year also increased at a rate of 4% the sales during may 2007 were 1,08,151units while this year the sales rose to 1,12,770 units.
Hero honda Bajaj TVS

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SUMMARY
The two-wheeler has always been an intrinsic part of the Indian milieu. It offered and continues to offer the Indian middle class the freedom from the clutches of an often non-existent or unreliable public transport system. It offers mobility at a reasonable cost. For a large portion of the population a scooter or a motorcycle is a necessary accessory for their livelihood. Of late, the two-wheeler industry has been under an analytical microscope with volumes slowing down and even showing a negative growth. Financiers are being more cautious in their lending, leading to greater pressure on volumes. The industry seems to be caught in a negative downturn at the moment but the key question remains is this downturn temporary or is it here to stay? Vivek Vig Country Head, Retail Centurion Bank of Punjab. The issue, I feel, is three-fold. Firstly, there has been a slowdown in the rate of economic growth. That should not be mixed up with a slowdown in the economy. But we must remember that we are coming off a high growth rate. And any slowdown in the rate of economic growth, indeed even a one per cent decline, tends to get exaggerated many times over. The second reason for the demand skid in motorcycles is the credit squeeze. With the money supply going up really fast, the Reserve Bank of India (RBI) decided to cut back. As a result of the tightening by the central bank, loans to two-wheelers got severely pinched. That brings me to the important question: is the two-wheeler slowdown a temporary blip or a long term trend? I dont believe the demand for two-wheelers will perk up till the money supply eases out and banks start giving out loans once again. Even the launch of new models will not make much of a difference to the demand situation. The new launches may lead to market share changes but overall sales wont increase very much. Do I see light at the end of the tunnel any time soon? Not really. I believe there is still a lot of pain to come. Subsidies on petroleum products and fertilizer are rising rapidly on account of the increase in global crude oil prices the price of Indian basket of crude has gone up from a low of about $63 a barrel in May this year to about $78 a barrel now. This will soon start to bite. Venu Srinivasan CMD TVS Motor Company

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BIBLOGRAPHY
WEBSITES www. HeroHonda.com Google search (Information about Indian two wheeler industry and summary)

REFERENCES Financial Management - Sashi k. Gupta - R.K. Sharma Management Accounting -R.P. Trivedi -Manoj Trivedi

NEWSPAPERS The Hindu (Information about sales forecast in may 2008)

Thank you Jai Hind.

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